January 1, 2009

When The Housing Market Will Bottom Out, And Why?

Readers suggested a topic on the future housing markets. “What are HBB predictions for when the housing market will bottom out, and why?”

One was bearish. “I think it will be so bad in 2009 that no statistics are even made. Like the lost years. The dark ages of the housing market in California lasts until 2012. I’m off to burn a witch.”

Another had this. “The NAR has stopped reporting statistics for Metro Detroit. A local group published a median of $62,800 for the whole metro area, and another $18,578 in the City of Detroit. For the metro, with 10% down and the 4.5% interest rate the Federal Reserve is targeting, that implies a monthly mortgage payment of just $285 per month for 30 years.”

A reply. “Look at the BBC Report on Detroit. I feel for the area… but why didn’t they reform the Automakers when there was a chance? Ugh… You cannot fix what doesn’t want to be fixed. Its going to get ugly… I admit I was too much of an optimist.”

One sees this. “It was a rolling bust, so it will be a rolling recovery.”

“I will maintain to the end, however, that the longest suffering will be endured by Larry’s ‘flyover’ country. As some of you point out, the bubble masked the Rust Belt’s death throes. Stories of fleeing manufacturing were already there eight years ago - for those that cared to put their 401k statements down long enough to look. I remember small mfg. closures being well documented in the Midwest press circa 2000.”

“Given a choice, I’d still cast my lot with the Sun Belt states - over the longer term.”

Another predicts. “Think ‘infrastructure.’ Long pipelines from the Great Lakes to the Everglades!
Refill the Florida swamplands with clean, cool water from Lake Superior. Plenty of water. Plenty of Sunshine. Florida Restored, and ready for the next wave of carpet-baggers from Cincinnati.”

One looks at migration. “I think the immigrants will have a positive affect on the real estate markets of such cities as Frisco and NY. I’m from NY, and I can tell you that these immigrants from Korea and South America (Savers) are just keeping otherwise slums from being turned into such. It’s all a tug of war, as it were, but in the last downturn, circa 1991, Jamaica, Queens all but folded up. Not now. There are all these immigrant businesses to fill the gap with restaurants, cheap stores, like 99 cent stores, etc. Not upscale, but it does seem to have its own economy.”

Another sees a political angle. “‘When and why’. I will still go with 2012. Reserving the right to amend that estimate as time goes forward!”

“Why not sooner: Prices are still very high by the measure of rents and incomes, and the downward movement of prices, though now accelerated in many areas, would still take a few years to bring prices in line with rents (if rents don’t fall a whole lot). We have often noted that the resets in the Zellman chart and other people’s updates of that chart have a second peak in 2011. I’m not sure if that matters while prices are sinking — foreclosures will feed on themselves without requiring the additional impetus of ARM resets. However, if prices had any other reason to stabilize, the ARM resets would tend to prevent it.”

“Why not later: Let’s just say, Obama, C. Dodd, B. Frank, and Columbia dean Glenn Hubbard, not to mention Sheila Bair (if she’s rehired) will all be trying very hard to arrest the decline. The worst of it is, they may succeed in making the decline go slower and last much longer. But O will be up for re-election in 2012, so it would be good for him if there had (then) been several months in a row of flat-to-upward house-price statistics.”

One last time prediction. “When I finally get off my lazy ascii and send Ben a Christmas card, for crying out loud.”




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272 Comments »

Comment by Chip
2008-12-24 11:24:37

I think that a big part of the continued downward pressure on house prices will be the sobering reality that mortgage balances as a percentage of gross income will decline markedly. In the “old” days, the acceptable ratio in most areas was 2.5 - 3.0X gross income. I think 2.5 will become the upper limit for safe borrowing that allows also some saving or a new car regularly, but not both. I think that a target of 2.0 will be the new goal among those wise enough to see the damage wrought by the bubble. If energy prices remained permanently low because of oil remaining permanently low - which I think there is almost no change of - then I’d go back to 2.5 as the ideal. Saving is in, finally. Modest living might become trendy.

Comment by Professor Bear
2008-12-24 11:34:58

“I think 2.5 will become the upper limit for safe borrowing that allows also some saving or a new car regularly, but not both.”

One thing is for sure, Chip: If your prediction comes to pass, no amount of funny money printing or interest rate buydowns by the Fed will save the housing market from the ongoing, precipitous crash that is already underway.

Comment by Rancher
2008-12-24 13:13:48

Our entire economy has for thirty years been
totally supported by credit. Since the credit
bubble has burst, there is no chance for it ever
recovering to it’s past heights. Look for a sharp
and rapid shift to savings and frugality, not
voluntarily, but forced.

We’re in the first stage of another depression,
and this one will prove to be much worse than
the Great one.

Comment by cobaltblue
2008-12-24 14:03:02

“We’re in the first stage of another depression, and this one will prove to be much worse than the Great one.”

For those who have not mused, pondered, or even heard of it, there is an interesting economic theory out there: http://www.kwaves.com/kond_overview.htm

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Comment by Faster Pussycat, Sell Sell
2008-12-25 15:17:01

The problem with K-wave stuff is that it was formulated in terms of “time” rather than the more natural “excess buildup of credit”.

Of course, in a gold-backed world, these had a tendency to run in roughly the same time.

In a fiat world, they found a way to push back the wave a very long time. But Minsky has beckoned.

 
Comment by Professor Bear
2008-12-26 08:53:46

New Year’s Resolution: Read something by Minsky. Any suggestions, FPSS?

 
Comment by Professor Bear
2008-12-26 09:01:47

Opinions on these?

“The Financial Instability Hypothesis” by Hyman P. Minsky, May 1992

“The Plankton Theory Meets Minsky” by Paul McCulley, March 2007

“Capitalism’s Beast of Burden” by Paul McCulley, January 2001

They are listed in a sidebar to this article:

Wall Street Journal

* PAGE ONE
* AUGUST 18, 2007

In Time of Tumult, Obscure Economist Gains Currency
Mr. Minsky Long Argued Markets Were Crisis Prone; His ‘Moment’ Has Arrived

How long does a ‘moment’ last, anyway? At sixteen months and still going strong, this one has some legs.

 
Comment by Professor Bear
2008-12-26 09:14:13

When did the acute phase of the financial crisis currently underway really begin? Many historians will be prone to dating it to August 2007, when the high profile global financial eruptions hit the financial pages of MSM outlets around the globe.

But I think a more logical starting point would be back in December 2006, when some posters here (including me) took note of this alarming article in The Economist magazine, which showed the plummeting value of subprime MBS. The U.S. subprime mortgage lending industry basically went up in smoke in the ensuing months during the first half of 2007. By this dating, the crisis is already two years old, with no sign of ending any time soon.

 
Comment by Professor Bear
2008-12-26 09:46:21

Having read enough of Minsky to be dangerous now, I am wondering if the so-called hedge fund industry would not be more aptly named the Ponzi fund industry?

Apparently, Alan Greenspan and his disciples have succeeded wildly in converting a large percentage of American households into Ponzi finance units. Heckuva job, Fed!

Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified. Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit. Speculative finance units are units that can meet their payment commitments on ‘income account’ on their liabilities, even as they cannot repay the principal out of income cash flows. Such units need to ‘roll over’ their liabilities – issue new debt to meet commitments on maturing debt. For Ponzi units, the cash flows from operations are not sufficient to fill either the repayment of principal or the interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stocks lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes.

 
Comment by Professor Bear
2008-12-26 09:51:20

Question for the Fed governors to ponder: Is your institution a hedge, speculative or Ponzi finance unit?

 
Comment by Professor Bear
2008-12-26 09:56:06

Big questions for inquiring minds to ponder for the New Year:

1) Does one Ponzi-financed rotten apple in the global central banking system spoil the whole barrel?

2) Is it possible to envision a stable global central banking network devoid of Ponzi-financed rotten apples?

 
Comment by ella
2009-01-01 12:01:01

“When did the acute phase of the financial crisis currently underway really begin? Many historians will be prone to dating it to August 2007, when the high profile global financial eruptions hit the financial pages of MSM outlets around the globe.”

I prefer to date it from last night, when my family told me I must not buy in 2009, but should consider buying gold. tee hee.

 
Comment by milkcrate
2009-01-01 18:09:02

SOMEWHERE IN THE HIGH SIERRA, Calif. - Chuckling sounds mixed with the clink of gold bars being rubbed together interrupted quiet New Year’s silence today.
Investigators, inquiring of the sounds, said they found nothing but bear tracks in the snow.
(By self-named proxy, the following note: Precious has been rising again.)

Happy New Year to one and all.

 
 
 
Comment by SUGuy
2009-01-01 11:18:10

Saving is in, finally. Modest living might become trendy.

If savings become trendy couldn’t I argue that inflated Mc Mansions are toast? The Government along with NAR can not change trends. Once burnt twice shy. This trend is going to be forced upon millions like it or not. Now only if we can convince my high wage earning fiancé not to buy hundreds of shoes, coats, clothes etc and to follow this trend.

Comment by measton
2009-01-01 16:29:58

I like 2005, the banking CEO’s saw what was on the horizon and so passed the bankruptcy reform bill. Mozillo started off loading his stock shortly after as I recall.

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Comment by octal77
2008-12-24 12:56:24


…Modest living might become trendy…

A very key idea.

Make spending too much money socially unacceptable!

If it becomes “cool” to live within your means, the
REIC, banks and government can huff and puff
and blow interest rates to zero and drop hundred
dollars bills from helicopters until they are blue in
the face and it won’t matter.

It takes only one link to break in the chain.

I actually believe there is a good chance that could happen.

 
Comment by octal77
2008-12-24 13:10:52


…Modest living might become trendy…

A key idea.

What if spending above your means becomes socially unacceptable?

So even if the REIC, banks and the government huff and
puff with zero percent loans and hundred dollar
bills dropped from helicopters, it won’t matter.

Maybe unless they create “creditors prisons”.

It takes only one broken link in a chain to render it useless.

Comment by polly
2008-12-24 16:44:09

“It takes only one broken link in a chain to render it useless.”

Unless you can find something else interesting to do with two shorter chains - which is traditionally what US citizens end up doing.

We can figure out how to live on less - less credit, less eating out, smaller houses or more people in the houses, older cars, you name it. But the process of getting to the smaller economy that this level of consumption will demand is going to hurt like anything.

Comment by CA renter
2008-12-25 01:12:13

Very true, polly.

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Comment by calex
2008-12-24 17:38:55

“What if spending above your means becomes socially unacceptable?”

HAHAAHAHAHHAHAHAH

The entitlement generation will never give in to something so unreasonable. How dare you suggest such a thing.

 
Comment by Bill in Los Angeles
2008-12-24 17:43:58

I don’t think being frugal will be stylish. I read something recently that the men who spend more money generously tend to have more satisfying relationships with women. It’s the age old deal. Men who bring home the winnings and shower their women with the spoils also bring women more security.

Comment by SUGuy
2009-01-01 11:36:37

Women spend way too much. Just look at any mall in the country. 95 percent of the stores cater to women. How do you make women not spend become trendy. They have a nest making gland with a strong desire to buy anything beautiful and comfy. It is mission impossible imho

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Comment by Awaiting Bubble Rubble
2009-01-01 13:46:11

‘I read something recently that the men who spend more money generously tend to have more satisfying relationships with women.’

I gave up on dating American women in part because I was constantly criticized for living below my means. There is some huge amount of conditioning to refer to financially responsible spenders as some version of a cheapskate, wuss, or tightwad. They didn’t care that I am semi-retired in my early 40s and have a second home in Paris.

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Comment by not a gator
2009-01-01 15:03:20

Don’t date golddiggers looking for a wife.

 
Comment by Awaiting Bubble Rubble
2009-01-01 17:14:55

‘Don’t date golddiggers looking for a wife.’

I was dating women who professed to love hiking, camping, traveling, and my kids. I specifically avoided what I call the “shiny car crowd” and focused on the down to earth types with my “hippie values.” I was openly laughed at when I used coupons at the grocery store, cut my own hair, pay rent instead of paying an extra $300K for a house, or waited for something minor to go on sale before buying it. They didn’t understand how someone who makes over $100/hour could quibble about throwing away $20 in exchange for a minor amount of convenience. Defying their need for instant gratification seemed to invoke part of the same conditioning that supplies the current generation of college educated US women with unrealistic and unworkable ideas about gender roles. It is as if American women are trained to ridicule men wanting to save money and forego instant gratification just to avoid sitting in a corporate cubicle until age 65. For this and other reasons, I eventually gave up on American women. I think they have been ill served by some silly ideas that reached the mainstream in academia during the 1970s and 80s. Like a rapidly increasing number of western men, I’m quite happy with my Asian wife now. And she is happy to hike with me, go to Paris, Tahoe or Maui, . . . or clip coupons to save $2 on ground turkey. It’s all just common sense.

 
 
 
 
Comment by aNYCdj
2008-12-25 16:30:16

Where do you find modest new houses anymore? They wont build them for 5 years .. I’ve learned not everyone can appreciate the character of a 70 year old house with plaster walls, and real wood molding! Some of these new fangled youngsters get all hot and bothered over the granite and foo-foo upgrades.

———————————————-
Modest living might become trendy

 
Comment by jay
2009-01-02 12:37:46

i have thought housing will bottom in a couple years, my only doubt is all the government intervention. by driving interest rates low they could spur some buying by those who have secure jobs. i bet they do something under obama to help people stay in “their” homes or should i say government homes owned by fannie and freddie. so, if the price is right i’ll be buying in 2009! I may be early, but it will be a cash deal and cheaper than rent at this point. although, i do feel i have a year or more to find the exact deal i want!

 
 
Comment by KR
2008-12-24 11:41:18

The sooner these fools realize that the prices need to drop, the sooner the recovery. No other way about it. You have to go through hell before you get to heaven.

The media and the government can talk and promise all they want. I’m sure they know the truth, but the truth isn’t very popular.

Comment by az_lender
2008-12-25 12:29:48

Thornberg was on CNBC two days ago saying the same thing (quicker price drops = earlier recovery).

Comment by gal
2008-12-25 13:08:15

Dear Az_lender, before Thornberg it was Newton with his Physics laws … what “artificially” goes up should come down. Our new President should know that Government should not “touch” economy, free market should work it’s way out off governments hand, they have to close down Federal Bank. If all this Crises was a conspiracy to bring down OIL and oil reach countries around the world, then we should applaud for “genius” of Bush, but I have my doubts…

Comment by sm_landlord
2008-12-25 21:00:41

Well. Intentionally or unintentionally, speculators have certainly gotten a whack upside the head, as has the oil cartel. Hopefully this dose of reality will go a long way.

It couldn’t have happened to nicer or more deserving bunch of people. :-)

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Comment by scdave
2009-01-01 11:41:38

Let the ba$turd$ drink it !!

 
 
Comment by measton
2009-01-01 16:32:14

If all this Crises was a conspiracy to bring down OIL and oil reach countries around the world, then we should applaud for “genius” of Bush????

Cutting off your nose to spite your face, I don’t see it.

We could have done the same thing and made our country stronger with a big gas tax and cuts in payroll tax to offset the increase.

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Comment by Professor Bear
2008-12-24 11:43:12

SD Union Tribune
Downtown feels sting of housing downturn
Buyers flock to resales amid glut of new condos
By Lori Weisberg, staff writer
2:00 a.m. December 24, 2008

The ubiquitous construction cranes that not long ago pierced the downtown San Diego skyline have largely disappeared, leaving in their wake hundreds of unsold condos that were planned years before the current real estate slump.

Developers who once snapped up downtown land with almost giddy abandon have retreated amid falling prices and low demand. Of the 22 condo buildings in which developers are offering units for sale, all but three have completed construction, and 1,549 condos remain unsold.

It would take more than five years to sell that many condos if the sluggish pace of sales during the past year were to continue, according to MarketPointe Realty Advisors, which tracks the new-home market.

Meanwhile, nearly two dozen additional apartment and condo projects with more than 3,400 housing units have been approved. But none are slated to begin construction anytime soon, according to downtown redevelopment officials.

Those projects won’t be developed mostly forever,” real estate analyst Gary London predicted. “This market is in lockdown, as well it should be. It needs time to resuscitate. Except for the few cranes in the air, that’s the last you’ll see of them for at least six years.”

Comment by scdave
2008-12-24 12:10:44

I tried to warn my neighbor not to buy a condo in downtown SD for his daughter about a year and a half ago citing lots of data that you have provided Pbear…He did not listen…They purchased something in a high rise that overlooks the baseball park…Paid 550k for a two bedroom…

Comment by Big V
2008-12-24 12:18:39

I’m sure their daughter will be delighted to listen in on whatever event is happening at the ball park for the rest of her time in residency there. Why do people live in places that were never designed for living?

Comment by scdave
2008-12-24 12:29:53

Why do people live in places that were never designed for living?

She’s 27…Nuff said…

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Comment by Molly
2008-12-24 12:40:37

“She’s 27…Nuff said…”

Age 27 isn’t old enough to know better? Not that older folks don’t do stupid things too, but 27 ain’t exactly a kid.

Oh, wait, I forgot that people don’t move out of their parents’ home until age 35 anymore. But, shhhh, don’t tell any new parents that or you’ll get that horrified, creeped-out look from them. :)

 
Comment by Big V
2008-12-24 12:52:57

But Molly, it was her parents (the old people) who did a stupid thing and bought the condo. The (not-so-young) 27-year-old is just living in it. When I was 27 and living in San Diego, you could not have convinced me to move downtown. Young people are just as annoyed by constant noise as anyone else. Methinks her parents were really buying the condo for themselves, as an investment. I guess it serves them right. I’m so mean, aren’t I?

 
Comment by scdave
2008-12-24 13:15:59

but 27 ain’t exactly a kid ??

Gotta have it mentality…

parents were really buying the condo for themselves ??

Nope…Gotta give it mentality….

 
Comment by In Montana
2008-12-24 13:18:40

Yes!!! that’s why we like you.

 
Comment by In Montana
2008-12-24 13:19:41

er…that was for Big V…

 
Comment by SanFranciscoBayAreaGal
2008-12-24 14:00:24

Big V,

Where is that Christmas spirit gal?

 
Comment by Molly
2008-12-24 15:15:20

“Methinks her parents were really buying the condo for themselves, as an investment. I guess it serves them right. I’m so mean, aren’t I?”

That’s not mean, Big V. Finding these people so you can point and laugh at them while dancing a jig of glee, well, THAT may be a little mean. But you’d never do that, I’m certain. Uh, moving on…

Anyway, you’re right, it was the parents who made the foolish move. What would REALLY serve them right is if their (smarter) 27-yo daughter up and moved out of the condo (too noisy). Let the ‘rents deal with trying to get a new tenant.

If the daughter doesn’t even pay rent now (an assumption), she’s not too likely to move somewhere else now and start paying it. For free rent, she could just wear earplugs to sleep.

 
Comment by desertdweller
2008-12-24 16:22:25

For free rent, she could just wear earplugs to sleep.

And eyemasks, if she is living that close o the ballpark lights.

 
Comment by Itsabouttime
2008-12-24 17:31:58

But, after living next to a ballpark, its quite a comedown to live elsewhere. I mean, all that cheering during one’s bedroom activities. . . . or so I hear.

IAT

PS–Oh, I forgot. It’s the San Diego ballpark. Lots of booing, little cheering. Ha ha.

IAT

 
Comment by Brandon Farley in SD
2009-01-01 13:44:09

Well, I live and work downtown. My gym is probably right across the street from where this 27 yo lives… and I can tell you… it’s not noisy there at all. In fact, it’s probably one of the quieter areas of downtown.

Keep in mind, there are fewer than 77 night home baseball games a year. And after that, really no special events. And, there is virtually no traffic in the area outside of the 40 minutes before and after a game.

With that said, I wouldn’t want to live in the area… a bit too quiet and anti-spetic. Also, too close to my work site. I should think it would change for the better after the newness wears off in the next couple years.

 
 
Comment by oxide
2008-12-25 17:13:20

Although I despise condos, they are a good idea in downtown big cities. There are people who like the city lifestyle and they need that stepping stone between renting and apartment and owning a SFH (primarily when they start a family).

The bad condos are the ones on the edge of town, or in downtown Podunk, or those “ranch” condo things.

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Comment by VaBeyatch in Virginia Beach
2008-12-24 17:38:16

But new sales were supposed to undercut the resales….

 
 
Comment by Professor Bear
2008-12-24 11:45:05

November home sales plummet
Prices fall at fastest rate in 40 years – signs housing crisis will continue
By Jack Healy, New York Times News Service
2:00 a.m. December 24, 2008

Home sales plunged in November, and housing prices fell at their fastest rate in 40 years, the latest indication that America’s battered housing market will continue to struggle in a rapidly deteriorating economy.

Sales of previously owned homes, which make up most of the market, declined 8.6 percent in November, to a seasonally adjusted rate of 4.49 million, according to the National Association of Realtors, a trade group. The median price of a home fell 13 percent in November, to $181,300 from $208,800 a year ago, its lowest point since February 2004.

“It’s probably the largest price drop since the Great Depression,” said Lawrence Yun, the association’s chief economist.

The troubles plaguing the housing market, which are at the heart of America’s financial crisis, are only multiplying as the recession deepens and a spiral of rising unemployment, lower wages and economic uncertainty gathers force.

“Housing dragged down the markets this summer,” said Nariman Behravesh, chief economist at IHS Global Insight. “Now it’s the economy and financial markets that are dragging down housing.”

Comment by wmbz
2008-12-24 12:34:29

“It’s probably the largest price drop since the Great Depression,” said Lawrence Yun, the association’s chief economist.

Well damn it Larry , do something. Can’t you talk it back up? Also you know better than to use the words Great Depression. How about tell all realtwhores to get back to baking cookies, remember all real estate is local.

 
Comment by CA renter
2008-12-25 01:18:09

Prices fall at fastest rate in 40 years – signs housing crisis will continue
———————————-

I wish they would stop calling it a housing or foreclosure “crisis”.

The “crisis” happened when the regulators, politicians, Wall Street thugs, etc. forced or allowed prices to escalate like they did.

It’s only a bad market for sellers. For buyers — the other half of the equation — the market is quite good and getting better by the day. As a future buyer, I see no crisis…only sunny skies ahead! :)

Comment by Michael Fink
2008-12-25 05:45:44

Problem is, except for the members of this board, there are VERY few buyers who are not ALSO sellers. Remember, just about everyone who could possibly (or even not) afford a home bought one during the last 5 years. There’s little/no sideline money to pull out and actually absorb inventory.

Sure, affordability is great (in some areas). Problem is, everyone owns a home in those areas already. So affordability doesn’t help, there are no buyers.

This situation is repeated throughout the entire country currently, the rate of homeownership is simply too high. That does not bode well for the inventory/prices medium term, except for the few 100 of us on this blog, there are very, very few people who can actually REDUCE inventory. Plenty of people that can “shift” it by moving from one place to another. But not many that can actually take it off the market (make the move from renting to owning, divorce (making 2 households), or people moving out with their parents (not likely to have a savings account, let alone a 5-6 digit sum in it).

Comment by scdave
2009-01-01 11:50:38

the rate of homeownership is simply too high ?

Look at the historical percentage…I think its around 62%…I think the number got goosed to
68% or so….That was only achievable with smoke and mirrors…

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Comment by SDGreg
2009-01-01 21:58:20

When one factors in stagnant/declining wages, less stable employment, etc., the rate of home ownership should have been going down, not up. Unless those wage and employment trends are reversed, more people should probably rent than own unless it becomes consistently cheaper to own than to rent.

 
 
Comment by Michael Emmel
2009-01-01 15:06:56

Excellent point but its worse then your picturing.

1.) A lot of homes where bought by speculators i.e they are empty.

2.) In and economic downturn people tend to live at home, rent cheaper or double up etc. We simply use less housing as we become poorer.

So the net overhang is both larger then your estimating and in general its increasing. For many waiting on the sidelines right now we could easily find ourselves without jobs and using our hard earned down payment money for survival. Thus in general the number of people actually on the sidelines is decreasing.

Finally we are going to see more and more retirement from baby boomers a lot who have substantial equity looking to downsize finally. This will generally force more SFH on the market in exchange for much cheaper condos. For the bigger spenders forced into early retirement this would include ditching various vacation homes.

In shot for all intents and purposes we basically have a permanent oversupply esp of SFH.

This implies the bottom price is zero i.e we need to eventually discount a lot of structures to zero and tear them down.

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Comment by SDGreg
2009-01-01 22:10:34

We have both a surplus of housing overall and also of for sale versus rental housing.

If there’s little no new building, how long will it take to reduce this oversupply in the least overbuilt areas through attrition (tearing down older units)? My guess is maybe 5 to 10 years in the least economically damaged, least overbuilt areas. Effectively never in some other areas (i.e., eventual abandonment or destruction of newer units).

A big unanswered question is the suitability of much of the existing housing in the future. Will it prove preferable to abandon certain types of housing in certain locations in favor of newer, more suitable housing in other locations? The eventual price for this tremendous misallocation of resources (recent housing boom) is likely to be enormous.

 
 
 
 
 
Comment by bink
2008-12-24 11:52:17

Is it smelly finger time already?

Calling tops and bottoms always seemed like such a useless endeavor to me.

Comment by Big V
2008-12-24 12:21:15

Not to me. In my experience, I can control at least 1/2 of the people around me just using tops and bottoms. If you know how to use it, then it will work for you.

Comment by combotechie
2008-12-24 12:42:36

Yep, that is true up until the age where the males’ hormone activity declines enough to keep the blood in the brain where rational decisions are made.

After this age a certain amount of immunity is bestowed on males which produces reactions of amusement to the artful useage of tops and bottoms rather than actions of lust.

Comment by Big V
2008-12-24 12:55:00

Oh yeah, I knew there must have been a reason for getting married. Darn.

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Comment by combotechie
2008-12-24 13:01:39

The Game men play is money. The Game women play is men.

 
Comment by Big V
2008-12-24 14:00:34

So true.

 
Comment by SanFranciscoBayAreaGal
2008-12-24 14:01:30

Combo,

and the both deserve each other.

 
Comment by SanFranciscoBayAreaGal
2008-12-24 14:10:43

the=they

Need some more of the eggnog with rum

 
Comment by Bill in Carolina
2008-12-24 16:51:56

Women have known since the dawn of the human race that men only have enough blood to supply one organ at a time. And they take full advantage of that knowledge.

 
Comment by SanFranciscoBayAreaGal
2008-12-24 18:28:08

Ahhh Bill,

It only happens if you let it happen.

 
 
Comment by Blano
2008-12-24 17:33:27

“After this age a certain amount of immunity is bestowed on males which produces reactions of amusement to the artful useage of tops and bottoms rather than actions of lust.”

Whatever that age is, I know it isn’t 48.

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Comment by combotechie
2008-12-24 18:52:47

Patience. Relief is just a few years away.

“Midlife is the old age of youth and the youth of old age.”

 
 
 
 
 
Comment by Big V
2008-12-24 12:00:46

In all seriousness, I still think it will be 2010-2012. The Ivy Zelman reset chart was shifted backward about a year due to limits on principal accumulation, so now the resets are peaking in 2010 (I think it was 2010).

Regardless of the time frame, you will know it’s time when the following occur:

-Median houses are easily affordable to people earning median local salaries (although those people may not be able to buy for lack of a down payment or good credit score).

-Your family, coworkers, and neighbors come calling to tell you all about the housing bubble and warn you not to buy (because you know they all have more intelligence than you do, and you should learn from their experience).

-You feel like it. It will seem fun to you.

My advice is to keep your powder dry and buy something when you can see that you are one of the few people willing and available to do so.

Comment by SDGreg
2009-01-01 22:22:35

I suspect the looming economic problems will prove so substantial that anything beyond securing basic housing at the lowest price may be a substantial luxury for the next generation or two.

I expect to be around for at least a few more decades, but I doubt I’ll live long enough to ever see housing viewed the same way it was viewed much of the past few decades.

 
 
Comment by Blue Skye
2008-12-24 12:05:16

I can’t predict the future any more than the next guy, but my guess is that this is a generational cycle, more than it is a next year, two years, or three years until it’s all good.

My father lost 50% on a house in 1960, in a micro economic event (Rt 190 in Buffalo planned through our block). He absolutely rejected the idea of buying a house for the next 30 years or so.

My niece has lost 50% on TWO houses in Santa Rosa, one a step up and the other “would sell quickly”. She and her husband will remember this pain for the rest of their lives I’d expect. The whole model we have lived with for decades is broken.

Three times income is a stretch for anyone raising a family. That is over half your takehome pay. Plus utilities and maintenance and you and are living like a slave and your kids like paupers. I have done that for decades and will not do it again. Will anyone do that with a mindset that a house is the worst investment ever? Add to it that those average incomes are going down and taxes are going up (half my friends are already in a bind with reduced income). With an economy that needs to be reinvented and a government hell bent on large scale forced malinvestment, we will be in pain for more than a couple of years.

My 82 year old mother says “people will learn to live like we did.”

The bottom is a long way down, but it won’t be a killer for those of us who are not in debt.

I am glad to have a roof over my head and a job, no matter how transitory. Food in the cupbaord, savings, friends and freedom.

Merry Christmas to all of you, may you recognize your blessings and enjoy living!

Comment by Andrew
2008-12-24 18:34:32

Bingo, Blue Skye, and well said. Especially with the the “mindset” thing you mentioned having a huge impact on once burned homeowners getting up the gumption again (not to mention the means) to jump back into the market.
A long, staggered way off.

 
Comment by SDGreg
2009-01-01 22:26:41

“With an economy that needs to be reinvented and a government hell bent on large scale forced malinvestment, we will be in pain for more than a couple of years.”

We’ll be fortunate if it’s a decade or two of moderate pain if we make a lot of the right decisions.

Comment by rms
2009-01-01 23:30:46

“With an economy that needs to be reinvented and a government hell bent on large scale forced malinvestment, we will be in pain for more than a couple of years.”

The next “big deal” is predicted to be in the Life Sciences. Unfortunately, we are still debating if it is appropriate to teach evolution in our public schools.

Comment by SDGreg
2009-01-02 07:51:14

“The next “big deal” is predicted to be in the Life Sciences.”

I think this could have been correct and the knowledge for this to happen will be there. Unfortunately, we may end up more in survival mode as we try to find ways to shrink the population rather than increase its longevity and provide a better quality of life, healthwise. One can only wonder what might have occurred under different circumstances.

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Comment by Professor Bear
2008-12-24 12:08:20

The Housing Bubble Continues to Burst
Robert Reich | Dec 24, 2008

The National Association of Realtors said today that home prices have now dropped to the point where they’ve wiped out all the gains in housing prices since 2004. 2004, not incidentally, was when interest rates last hit bottom, and the Feds looked the other way while mortgage bankers began shoving money out the door to anyone who could stand up straight and many who could not. In other words, 2004 marked the start of the housing bubble.

Should we take comfort from this? A bit, except for the fact that housing still has a way to fall because boomers will be cashing in their homes over the next few years — buying smaller condos or, if necessary, rentals, for their retirement years. (Even though fewer and fewer boomers will be able to retire, they’ll need all the cash they can get). That means still more homes on the market, including all those bigger ones that were built when the boomers were having families. And more homes on the market means still lower prices.

In truth, home prices first began to rise more rapidly than rental prices in the 1980s, when boomers hit the housing market big time. So, demographically speaking, there may be even a longer way to go before the housing market hits bottom.

Comment by matthew
2008-12-24 21:54:00

2004 the start of the bubble? yea… righto..

This thing won’t end until the economy recovers AND (AND) all the talk of credit markets (debt markets), interest rates, subprime mortgages, alt-a mortgages, excess inventory and foreclosures is a distant memory… these are all symptoms of the actual “housing crisis” which was and remains a crisis of prices… when the discussion turns to real wages vs housing prices and historic housing prices/wages versus current housing prices/wages coming into par, then we’ll be approaching the bottom… the bottom won’t be a “V” either.. more like an “L” until all the stench is cleared out.. the only thing that matters is the price of housing vs wages.. everything else is noise to deflect attention from that simple relationship and fact.. given what I’m hearing on the MSM, we’re still a loooong way off from the bottom and a long way off from the historic relatoinship of house prices to wages… 2009 will be a bloodbath, especially in the Bay Area and places like Marin..

Comment by Professor Bear
2008-12-24 22:40:33

Reich was careful to date the start of the bubble long after Bubba “Bubbles” Clinton (his former boss) was long gone from office.

 
Comment by CA renter
2008-12-25 01:26:10

Correct Mathew.

BTW, here in San Diego, our housing market began cooling off in mid-2004. We had our lowest level of inventory around April 2004, and things came to a halt in Q3 2004 (slowed down much more than usual, based on seasonal trends). By Q3 2005, the bubble had officially peaked here.

Our house had increased from under $120K in Q1 1998 to $400K by Q2 2004 (when we sold) and continued to about $475K in Q3 2005. No freakin’ way the bubble just started in 2004. It just migrated to other parts of the country because we (first bubble areas) reached the affordability ceiling (even with toxic loans) in 2004/2005.

Comment by Professor Bear
2008-12-25 16:24:38

Radar Logic PPSF data shows the most rapid period of increase in SD PPSF occurred between 11/03 through 5/04 or so, with an annualized rate of increase on the order of 48 pct over the period, from $256.36 to $314.92. PPSF eventually peaked around 5/16/06 at $354.31, but it increased at a far slower pace of only 6.2 pct per year over the period from 5/27/04 through 5/16/06. Since then PPSF has dropped to $212.94 through 10/13/08. One might guess the price is crashing faster than ever now due to the collapse of Wall Street.

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Comment by Professor Bear
2008-12-25 16:38:13

P.S. The drop off peak in San Diego price per square foot thus far is

(210.94/354.31-1)*100 = 40.5 percent.

This occurred at an annualized rate of 19.2 pct since the peak (5/16/2006) to the most recent datum (10/20/08), but the rate of decline really kicked into overdrive after 3/20/07, since when it has dropped at 26.5 pct per annum.

I am expecting an even faster rate of decline for the period after 10/20/08, thanks to the ueber-meltdown of the Wall Street financial sector.

 
Comment by Professor Bear
2009-01-01 10:38:02

Since I posted the above illustration, the 28-day moving average San Diego PPSF has declined from $210.94 (based on transactions through 20-Oct-08) to $206.53 (transactions through 29-Oct-08). Moreover, as I noted in a post yesterday, the daily PPSF figure, which provides an indication of where the more reliable 28-day moving average is trending, recently dropped as low as $192.09 (28-Oct-08), which is a level which was last visited on 29-Apr-02.

This sucker’s going down, and fast.

 
 
Comment by SDGreg
2009-01-01 22:39:33

“No freakin’ way the bubble just started in 2004.”

The condo I bought at the peak of the housing bubble in July 2005 increased in price by 600 percent from 1999 to 2005. (I’ve since learned a lot that I didn’t know then, but wish I did). The general increase in prices and underlying debt goes back two to three decades (with typical economic cycles superimposed on top), but the most substantial increase in prices and debt was post 2000.

We should have had a substantial and severe recession in the early part of this decade following the bursting of the tech bubble. This would have brought down housing prices and reduced debt. We now know what happened instead. So instead of having a severe recession we’ll now have a depression. Thanks Uncle Alan.

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Comment by CA renter
2009-01-02 03:32:18

We should have had a substantial and severe recession in the early part of this decade following the bursting of the tech bubble. This would have brought down housing prices and reduced debt. We now know what happened instead. So instead of having a severe recession we’ll now have a depression. Thanks Uncle Alan.

Absolutely correct, Greg!!!!

 
 
 
Comment by beosguy
2008-12-27 06:32:55

The start of the bubble in the bay area and to some extent in Boston goes back to the rich IPOs of the late 1999. We saw companies go public at 20-30 per share then leap to unstainable prices (300 or 400 per share for example in matter of weeks). The cashed out shares were used to buy what ever for what ever price the seller wanted. We saw prices double from 1998 to 2000. Many of these same shares dropped by 75% by late 2000 and never reach these prices. We called it hitting the lotto back then… Given that all what has happened including a dead IPO market and no rich valuations there just isnt any lotto money which will sustain todays prices which has a layer of bubbles back from the late 90s.

Since 1998 we have gone up 300% in the SF bay area and we still have a long way to go…

Comment by Professor Bear
2009-01-01 10:41:32

I saw this in the Bay Area in the late 1990s. Bid wars were the norm, and many of us assumed we were seeing IPO cashola serving as a war chest for competing in bid wars.

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Comment by rms
2009-01-01 23:44:11

“The start of the bubble in the bay area and to some extent in Boston goes back to the rich IPOs of the late 1999.”

Exactly. We left CA in early 1998 because housing prices were accelerating faster than incomes. We had one child and another one planned, and mom wanted to leave her work to be at home raising a family. We thought it was going to be a five year thing, and here we are eleven years later - still shoveling snow.

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Comment by az_lender
2008-12-25 12:38:45

Shiller index shows divergence of house prices from general inflation way sooner than 2004.

Now that we are having oil deflation and wage deflation, I wonder if house deflation will even keep up?!

Comment by Professor Bear
2008-12-25 16:42:09

We are also having a negative household wealth effect, coupled with a reversion to historic mortgage loan underwriting standards. Do you think the Fed’s efforts to circumvent market forces and keep residential real estate prices propped up on a permanently high plateau are likely to succeed against such a dismal fundamental backdrop?

Comment by SDGreg
2009-01-01 22:47:51

“Do you think the Fed’s efforts to circumvent market forces and keep residential real estate prices propped up on a permanently high plateau are likely to succeed against such a dismal fundamental backdrop?”

No. It simply doesn’t seem possible with the current economic circumstances. I suppose it might be possible to do things to keep housing prices propped up to some degree until real wages could catch up. However, with the old economy in tatters and no new sustainable economy in sight, wages are more likely to fall than to rise. With this backdrop, there doesn’t seem to be any way to prop up housing prices long enough for wages to catch up.

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Comment by wmbz
2008-12-24 12:13:43

No one should doubt that central planing will really be pouring on the coals this up coming year to try and ’stabilize’ the housing market. They have said they will, with no budget limit. However it can not work on many levels. To have a housing reflation would require going back to the lending practices that got us in to this present situation, and that can not be done, period. The strawberry picker is NOT going to be ‘buying’ another $600,000.00 house. Millions of people lied and cheated their way into the market, and it will take a long, long time to shake that out of the market.

Stopping foreclosures, or slowing them down does nothing to re-inflate either. To great a number of people of been living off of their houses, a point never brought up by the powers that be. Politicians are be nature dishonest, so why anyone with just plain common sense would in their wildest dreams believe ‘they’ can fix anything is lunacy. This is about control nothing more, nothing less.

The good news for the pols is that Americans in general have been dumbed down a sufficient amount that they are not capable of reason to the degree necessary to grasp what is happening.

The bottom line is that we are in for a long slow grind to the bottom over all IMO.

P.S. There is money to be made in chaos.

Comment by Big V
2008-12-24 12:26:25

I don’t think the American people are any dumber today than they’ve ever been. This country was founded by people who knew how to read (the Bible) and farm. That’s all we have ever needed to get by because we have freedom. Free people always find the best possible solution to face what they’re faced with.

Comment by Bill in Los Angeles
2008-12-24 17:49:28

If I was around in the late 1700, I’d be reading “Common Sense” and other writings of the irreverent Thomas Paine. I would not read the Bible.

Comment by dude
2008-12-24 21:58:50

No kidding Bill, after all, the bible has little or no common sense in it. Love thy neighbor and all that tripe…

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Comment by Otis Wildflower
2008-12-26 11:38:13

Love thy neighbor but not thy neighbor’s wife… All these rules to keep straight! I’m confusified!

 
 
Comment by what-me-worry?
2008-12-26 07:34:22

I’ll bet Thomas Paine wore a Che Guevara T-shirt.

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Comment by dude
2008-12-24 21:56:57

“central planing”

I’m pretty sure that’s a mistake and you meant planning, but when I read that I imagined the 18 wheeler of our economy approaching a hairpin turn in a downpour, and the front tires just started skimming on a paper thin sheet of H2O.

 
Comment by Professor Bear
2009-01-01 10:44:21

“This is about control nothing more, nothing less.”

I expect whatever ‘fixes’ are implemented will contain unmentioned rewards for political constituents which will serve to fund future campaign contributions. What goes around, comes around again.

 
 
Comment by scdave
2008-12-24 12:18:29

may you recognize your blessings and enjoy living! ??

Not sure where I picked this up;

A watch is a prison
You wear it and it shines
But if living life is your mission
Then your enemy is time

Merry Christmas everyone…

Comment by Leighsong
2008-12-24 14:41:34

Thanks for the smile and Christmas cheer SC!

Took my watch off Nov 16, 2000, with Wright-Patterson AFB in my rear view mirror.

Haven’t seen the watch or the base since!

Leigh ;)

Comment by desertdweller
2008-12-24 16:30:40

watches are mandatory for my job, so when folks ask me what time is it,
reply is “battery died”.

We will get there when we get there.

Sort of just like with kids.
Now shut up and sit down, stop fighting, and play a game.

 
 
 
Comment by adopt-a-landlord
2008-12-24 12:30:38

Bottoms will vary by location just as peaks did. Here in the CA central valley, it will be interesting to see what happens. The lower end has gone from 300-400k to 100-200k but, interestingly, the higher end has not suffered quite as much damage (yet). The median price has dropped dramatically due to “investors” buying the low end junk for rentals, while the higher end homes languish on the market.

With forecasts like Fortune predicting 24.7% price drop for Stockton in 2009, I have no idea what would prompt anyone to run out and buy a house there. This begs a couple of questions:
1. What will really happen to prices when everyone is too scared to buy?
2. What will sane mortgage companies require for down payments, income, employment history, and credit scores in the face of such forecasts?
3. How will city, county, and state governments respond as revenue from property taxes continues to decline?

Comment by scdave
2008-12-24 12:42:51

How will city, county, and state governments respond as revenue from property taxes continues to decline ??

Sell bonds and raise fees & taxes just like they always do….

Comment by combotechie
2008-12-24 12:53:55

Sell to whom?

Comment by combotechie
2008-12-24 12:58:47

I’m guessing there will be more assets for sale - financial and otherwise - than there will be money to buy them.

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Comment by scdave
2008-12-24 13:20:27

Too much of everything for sale…

As far as sell to whom ?? Not sure just suggesting thats their M.O….They flat line but never really contract…Gotta raise the revenue someway…

 
 
 
 
Comment by Mike in Miami
2008-12-24 12:52:59

1. There’re always knife catchers out there. Some will get their hands chopped off.
2. Mortgage markets will remain frozen for some time. Outright cash or huge downpayments (30+%) will be required.
3. Come crying for a bailout from the fedral government. What else are a bunch of spoiled loser about to do?

 
Comment by oxide
2008-12-24 15:30:01

High end homes are those Alt-A and Primes who haven’t adjusted yet. They are the seond hump in the famous Credit Suisse graphs, the ones that will adjust and foreclose in 2010-2011. These people probably have a few more bux on the Amex. Maybe they are still in the “not giving it away” stage.

Comment by desertdweller
2008-12-24 16:33:44

Oxide & others,
didn’t someone post/report that the AltAs weren’t going to be as bad as we thought?
or that the Alt As were going to have their rates lowered?
I thought I saw that somewhere just recently.

Would love to see some of the nicer homes come onto the market. But that is mean, isn’t it?

Comment by Professor Bear
2009-01-01 10:47:16

“Alt As were going to have their rates lowered?”

That will not do much for Alt-A buyers who stretched to get into a home they could not really afford on the basis of the ‘real estate always goes up’ theory. The fact that real estate is not going up any more means that some occupants of expensive homes are stuck with underwater mortgages which are too large for them to ever repay, no matter how low the rates go.

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Comment by HARM
2009-01-05 15:13:23

Lowered rates will do nothing about the negative amortization RECASTS. Remember, an ARM rate RESET is *not* the same thing as a neg-am/option-ARM RECAST. Rates could be zero%, and the monthly payment could still double or triple, once the loan recasts to a fully amortizing one at 115 or 125% of the original principal.

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Comment by CA renter
2008-12-25 01:32:42

High end homes are those Alt-A and Primes who haven’t adjusted yet.
————————–

These people are also the ones who came in with large down payments from the sales of previous homes (starters and first-tier move-ups). They have an equity buffer, and many can sell for more than their mortgages are worth…though they will lose all or a portion of their down payments.

We need to let the lack of down payments (from sales of starter homes, because those have already dropped 40-60%) filter up. The higher end will be affected by this and layoffs, IMHO. It will take time, but it will happen eventually.

Patience…

Comment by Ann
2009-01-02 06:51:55

You are right. And these people moving up from the starter homes went to the very top of what the Mortgage Broker told them they could afford. These people are going to start the tumble down.

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Comment by Ernst Blofeld
2008-12-25 21:53:14

The earliest possible date for a “recovery” of sorts, or at least a flattening, is determined by the Credit Suisse charts. The peak is around early 2010, and it will take six months to a year for that to work its way through the pipeline to sale. So the earliest possible date would be about 2011.

 
 
 
Comment by buckwheat
2008-12-24 12:36:22

My forecast:

Economy worstens through 09, depression in 2010 through 2012. US figures out we cant have a sustainable service based economy, gen x and y are furious that there is no more X-Box, Starbucks, and American Idol. At that point WWIII breaks out amid global unrest. No one cares about housing at this point as food is the only priority. Haliburton and Wallmart merge to form the “Umbrella Corporation” and create a virus to wipe out the masses of useless people. Things go horribly wrong and we spend the rest of our short lives fighting off the living dead.

Eventually in 2020 things settle and humanity has to rebuild itself from the ground up. At that point we will be at the bottom. Start saving for 2020.

Comment by Big V
2008-12-24 12:57:25

Will dollars still work in 2020? Maybe I should save … HUMMANNNNNS.

Comment by Big V
2008-12-24 13:57:34

My husband and I were discussing this scenario over Wendy’s, and he has become convinced that we should all be stocking up on Health Kits, since that’s where the next bubble will be.

Comment by buckwheat
2008-12-24 16:14:20

Yeah, I’m thinking about getting my Medpack brokers license. Theres a limited supply, better get em while you can!

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Comment by Bill in Carolina
2008-12-24 16:57:19

They stopped making Heathkits a long time ago. I guess you can find them on places like Ebay, but they’re already assembled, and building the kit was always the most fun part.

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Comment by Bill in Carolina
2008-12-24 16:58:33

Oops, now I KNOW I gotta get an appointment with the eye doctor. :-)

 
Comment by In Montana
2008-12-25 03:18:14

well what’s a “healthkit” anyway?

 
Comment by TCM_guy
2009-01-01 23:02:45

The unassembled heath kits can still be found from time to time on ebay at a significant premium, as they are very rare gems from estate sales.

 
 
 
 
Comment by Hrundi V. Bakshi
2008-12-24 13:00:40

I find your optimism refreshing.

 
Comment by Brett
2008-12-24 13:13:35

It might sound funny to you, but it’s actually a bit depressing that a person thinks that way. You are pretty cynical.

Comment by Itsabouttime
2008-12-24 14:05:12

Brett writes:

It might sound funny to you, but it’s actually a bit depressing that a person thinks that way. You are pretty cynical.

Since when is telling the truth cynical? Is that more of that new economy model that is collapsing all around us even as we write?

Frankly, I think we are in BBBIIIIIGGGGGG trouble. Apparently, so do others. And, I will observe — when it comes to predictions, people on this blog are batting a thousand while the MSM and the PTB are batting zero. Cynical? No, the truth.

IAT

Comment by dude
2008-12-24 22:10:08

Wallymart and Halliburton? I’m gonna have to take a pass on that prediction.

V for vendetta fascism, that’s much more likely.

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Comment by buckwheat
2008-12-24 16:20:23

Just trying to spread some Christmas cheer. Tis the season…

Comment by desertdweller
2008-12-24 16:35:24

I like your take, big smile here.
Funny and great cheering post!
hahaha

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Comment by SanFranciscoBayAreaGal
2008-12-24 14:06:23

You really need to step away from those sci-fi end of the world books. :)

 
Comment by warlock
2008-12-24 16:16:15

If i have to spend the rest of my short life fighting off the living dead, i am soooo not caring about my FICO score …

Comment by buckwheat
2008-12-24 16:26:50

The zombies will only be able to finance a FICO of 666 or better.

 
 
Comment by aNYCdj
2009-01-01 11:05:24

OMG you mean people will start to play real instruments again, and sing without auto-tune?

That being smart, well read, and have critical thinking skills are top priority in getting a job?

And having a HBB bookmark and participating in this forum will be a sign of excellence.

Bring it on!

—————————————–
US figures out we cant have a sustainable service based economy, gen x and y are furious that there is no more X-Box, Starbucks, and American Idol.

 
Comment by JackRussell
2009-01-01 13:33:20

If food becomes a problem we will have to eat Soylent Green..

 
Comment by SDGreg
2009-01-01 23:06:28

“Economy worsens through 09, depression in 2010 through 2012. US figures out we cant have a sustainable service based economy”

I’m in general agreement up to this point. What happens next, I’m not sure. At that point, human nature may begin to overwhelm economic factors.

Even if one had correctly forecast the events leading up to the Great Depression, I think one would have had a very difficult time getting correct even a tiny fraction of the significant worldwide events that occurred in the 30’s.

As we move through the next decade, the best we may be able to do is to maintain a plausible range of scenarios (mostly non-mainstream at this point) and then carefully chart a course through this minefield as the decade unfolds. Within this range of plausible scenarios I give a very low probability to a continuation of the general economic conditions we have experienced for most of our lives.

Comment by CA renter
2009-01-02 03:38:10

Agree, Greg. This is why this blog is going to retain its importance as we move through this part of the macro-cycle, IMHO.

The easy part was guessing that housing prices would fall, we’d have a “credit contraction” and the stock market would follow…then the unemployment, etc.

What comes next is going to be much more difficult to forecast.

 
 
Comment by Brian in New Orleans
2009-01-01 23:21:32

You forgot the part about Skynet and surviving the robot holocaust that follows under the leadership of John Connor.

Is it possible that Paulson is actually the Terminator travelling back in time to kill Connor in the present with more debt?

 
 
Comment by exeter
2008-12-24 12:48:29

The PTB will find another mania to ignite and I’m confident they are working on it right now. Meanwhile, housing will continue to die a slow painful death no different than NASDAQ. Where’s NASDAQ floundering these days…. say 75% below it’s high? NINE YEARS LATER— not inflation adjusted.

So much for “housing reaching a plateau” (with the weirdo hand movements).

 
Comment by Curt
2008-12-24 12:54:14

When the housing market will bottom out…

According to the NAR, every month! They always seem to be able to cite some obscure factoid that supports their contention that this month is the month.

Comment by Professor Bear
2008-12-24 13:05:53

According to a large pool of real estate ‘experts’ frequently cited by the MSM, the bottom is always approximately one year out from the present.

Comment by SV_Renter
2008-12-24 13:23:41

Well, I’m no expert, but I keep saying “maybe I’ll buy in a year or so.” Every year I say that but prices are still way too high to make it worthwhile.

Comment by Neil
2008-12-24 22:59:41

For three years I said “I’ll buy in two years.” :)

Now it looks like 2010!

Got Popcorn?
Neil

ps
I know it won’t be a bottom yet… But I think 2009 is going to be ‘brutal enough.’

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Comment by az_lender
2008-12-25 12:47:32

Neil, I feel mostly the same (kept putting purchase date 2 years out, now thinking some shorter period, thinking 2009 will bring prices down “enough”) …mainly, though, I am just BORED with the wait!

 
Comment by Otis Wildflower
2008-12-26 11:42:58

“I know it won’t be a bottom yet… But I think 2009 is going to be ‘brutal enough.’”

2009: Nathan Explosion gets his Realtor(TM)’s license, when real estate becomes more brutal than death metal.

 
Comment by Professor Bear
2009-01-01 10:51:36

As long as prospective buyers collectively keep their targets set on buying two years out into the future, the stopped clock prediction for a bottom one year out will never come to pass.

 
 
Comment by cashedin05
2008-12-25 16:39:10

Wife and I were thinking of finally buying when our lease is up this FEB. We have now decided to sign another year lease. Prices still too high in our part of Phoenix.

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Comment by Brian in Chicago
2008-12-24 13:42:26

Yes, certainly. For the past few years (well, since I started reading this blog and decided to rent), I’ve always looked at the rent vs. buy for my target location and level of “luxury” (Ha!). It’s always been so far skewed in favor of renting that I’m beginning to think that it’s a great thing to keep a bunch of people dreaming about a turnaround next year. If there’s just enough hope out there, renting is going to continue being such a great alternative.

I’ve started doing my comparisons again and this is what I’ve found. We’ve got a baby on the way and are going to need a home office for a year or so we’re looking at a 2BR + Den or a 3BR place. In a few years, we’ll no longer need the home office and can downsize to a 2BR. Within a 15-minute walk to the Sears Tower, I can rent a nice place for $2200 a month, or buy it and have the total monthly cost be around $3600 (30 year fixed). I can rent a really nice place for about $3000 a month, or buy the same unit on a different floor of the building for $5500 a month. I can rent a ridiculously nice place for $3500, or buy the same unit on a different floor for $6000 a month.

I don’t even care about the bottom any more. Things are still so far out of whack that I could miss the bottom by 2 or 3 years and still be so far ahead of the homeowner crowd.

Comment by J.
2008-12-24 19:57:00

I too love this site. I sold our home in South. O.C. Ca. in Nov. of 05, just lucky. Not skill, but reading this blog helped my take the offer presented, never listed the home.

My problem in the O.C. is that now the agents, (They call themselves, Professionals, some are.) are pushing rental rates up. My (pro) just decided to ask for a 20% raise.

I am looking to move, but am amazed that the so called experts have moved rental rates at the beach up.

Hmm? conspiracy. How about an investigation of the Real Estate Companies in California.

I smell a felony.

“Bear in the House”

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Comment by cashedin05
2008-12-25 17:03:06

A lot of so called Desirable Areas are chock full of REIC folks who got caught owning a handful or more investment properties. They have been and will continue to try every trick in the book to not only boost sales but to create the appearance of a renewed frenzy of buying activity and multiple offers. A few knife catchers my take the bait but the pickings are getting slim.

They (REIC bag holders) are actually working against their own industry’s long term best interest by doing so. They have become their own worst enemy.

 
Comment by Professor Bear
2009-01-01 12:51:46

See my posts at the bottom of this thread regarding the crash in home prices in The O.C.

 
Comment by rms
2009-01-02 00:00:58

“I sold our home in South. O.C. Ca. in Nov. of 05…”

You pinned the tail on that donkey!

 
 
Comment by Professor Bear
2009-01-01 10:54:51

“If there’s just enough hope out there, renting is going to continue being such a great alternative.”

I am thinking that if the plans afoot to stimulate the housing market going forward are carried out, the extant glut of vacant homes may grow still larger going forward, creating further downward pressure on both home prices and rents. Housing market stimulus could prove to be the gift that keeps on giving to long-term renters for years to come going forward!

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Comment by Professor Bear
2008-12-24 12:58:01

Wall Street Journal
* AHEAD OF THE TAPE
* DECEMBER 23, 2008

Seeking Signs of a Recovery for Housing
By MARK GONGLOFF

Just when it seemed nearer, the housing recovery has darted away again.

On Tuesday the National Association of Realtors reports November home resales and the Commerce Department reports November new-home sales. Economists expect both measures fell during a month when economic activity generally came to a screeching halt.

Home resales, the bulk of the market, had seemed to stabilize this fall. But that was largely because of brisk foreclosure sales in stressed markets. And this thin silver lining has dimmed: Pending home sales, a leading resale indicator, have fallen for two months in a row after rising to their 2008 peak this summer.

A nagging oversupply of houses and record-low home-builder confidence suggest new-home sales won’t perk up soon, either.

With credit still tight, unemployment rising and household balance sheets still debt-heavy, lower rates have so far mainly produced more refinancings, not sales. Slashing rates to 4.5% for new borrowers, as the government aims to do, won’t be a panacea, either. Ivy Zelman, chief executive of housing-research firm Zelman & Associates, estimates that, even with such a low rate, only about 67% of U.S. households can afford a house. Homeownership was nearly 68% in the third quarter, according to the Census Bureau, implying there is virtually no untapped demand for homes.

Comment by CA renter
2008-12-25 01:39:45

…implying there is virtually no untapped demand for homes.
——————————–

Yep. Where will all this “demand” come from when they’ve already tapped the no-doc, neg-am loser crowd? They’ve already sucked in the bottom of the barrel.

I see very little future demand from qualified buyers at these prices. Prices need to drop at least 40% more in the higher-end areas before we can call this a “normal” market.

Comment by Professor Bear
2008-12-25 16:03:27

What’s worse, the demand for the type of homes they have built in recent years (supersized McMansions suitable for large, wealthy families) will wane in the next thirty years with the empty nesting of the baby boomers.

 
 
 
Comment by stanleyjohnson
2008-12-24 13:12:01

my prediction is
1- home prices in 90274 will continue to go up,
2- local malls will be packed with shoppers just as they are today Del Amo Mall in Torrance, CA.
3-Larry Kuntlow will come up with some new phrase to explain how great this economy could be if everyone followed his mentor Ronald Reagan.
4- Both Melissa’s on CNBC will still be asking guests if now is time to invest in foreign markets.
5- Mara Bartiromo will have her lisp fixed.
6- George Clooney will play B. Madoff in a new movie called Scammed.
7- Tom Cruise new movie Valkyrie will bomb.
8- This economy will get worse except for 90274.
9- There will be new efforts by Al Gore to warn that all this freezing blizzard type weather happening all over US except 90274 is an anomaly and a prelude to coming Global Warming.
10. Our soon to be new Presidents efforts to fix economy will fail though he will get an A+ for trying.

and Happy Holidays from 90274 located between LongBeach and LAX along Pacific Coast that mountain.

Comment by Big V
2008-12-24 14:06:59

Dear Member:

I don’t know why I’m even bother to argue with you. Consider this my Yuletide act of intellectual manganimity.

1. According to Zillow, your precious zip is already down about $166k from peak.

2. Of course the malls are packed on Christmas day, you dolt. They always have been and always will be. The point is that corporate PROFITS will be down. Many a retailer has been operating at a loss this year.

-Big Mean V

Comment by Cramer
2008-12-24 14:32:03

I thought he was being sarcastic re: 90274 but I may be wrong.

Comment by Big V
2008-12-24 14:40:32

I don’t think he is. He comes on here all the time and talks about how immune that place is, often trying to pretend like he’s bummed out about it. If he’s joking, then I hope he tells us because he really gets on my last nerve with all that.

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Comment by stanleyjohnson
2008-12-24 15:56:00

Mail in 90274 is served by Palos Verdes Peninsula PO on Deep Valley Drive which also delivers mail to 90275.
there are 5 separate cities in 90274 and 90275
rancho palos verdes
palos verdes estates
rolling hills estates
palos verdes
and Rolling Hills.
Last one has no condos, town homes, lots under an acre, apartments for rent and it is protected from outsiders with a live gate guarded entrance.
When I have been saying 90274 my thoughts are with RH and home prices on some streets in RH are going up and not down.
And yes I am bummed out about prices because I’d like to buy in RH and can’t until prices drop a few hundred thousand.
And back to my prediction on Valkyrie. It should be a hit in Germany if it is dubbed into German as English version has hero speaking without a German accent.

 
Comment by Neil
2008-12-24 22:56:52

Nitpick:
4 cities. “Palos Verdes” is what you write when you’re not certain of the exact sub-city. The post office there is slow… but reliable. :)

It also has a history of holding out and then TANKING. But usually *not* at the high end (currently over $4.5M is ‘high end’ Palos Verdes). Everything less is crumbling. High end might or might not hold out.

FYI, I plan to buy in 90275. :)

AS to Valkyrie, is it really going to be a hit? I have trouble with a waif German hero…

Got Popcorn?
Neil

 
Comment by Joelawyer
2008-12-25 00:11:11

Do a Google map view of the area.

No matter how you slice it, you are trapped between hard core poverty north, south and east.

When the shtf, how does Coastal CA survive?

This new crowd of importrd poor are aching for a Rodney King excuse to loot and rape amongst the homes and yards they clean and tend.

Now would be a great time to bail out if you want to live another 2 years.

 
 
 
Comment by oxide
2008-12-24 15:33:22

You gotta give him credit for #7. Those trailers have “bomb” written all over them. Unless good ol Tom surprises us.

Comment by desertdweller
2008-12-24 16:39:37

Unless he has a nude scene, some sort of Cabaret-ish type of scene, then all those trailers are like the one that stanleykubrik did, horrible.

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Comment by cereal
2008-12-24 15:18:49

“and Happy Holidays from 90274 located between LongBeach and LAX along Pacific Coast that mountain.”

And back acha from 90501!

 
Comment by Curt
2008-12-24 16:05:35

I only know the housing prices in area code 555 will NEVER go down!

 
 
Comment by In Montana
2008-12-24 13:15:43

When I moved back to Missoula in 1982 from Dallas, a realtor friend tried to get to buy a house (commission-free) even though I didn’t really have a job and only about 3,000 in savings. The recession hit hard here and mills were closing..I remember a place for 33k and when i went back to look seriously in 1990, it was 26k and going begging. Others I had seen were rentals.

I think it will be like that.

Comment by exeter
2008-12-24 14:26:56

What kind of mills?

And the 33k joint going for 26k after 8 years is quite a haircut.

Comment by In Montana
2008-12-25 03:32:14

Lumber mills. Plywood & window sash. Another plywood mill just closed, and we’re holding our breath over a huge Smufitt-Stone pulp mill-cardboard plant. There’s also a medium-density fiberboard mill here still. I can’t believe both places aren’t hurting.

 
 
 
Comment by jetson_boy
2008-12-24 13:25:41

My take is that the bottom depends on the overall economy and job market. The Big three are likely going to fail anyway. When that occurs, that’s going to have an enormous impact nationally even though many who think they’re totally removed from that industry think otherwise. Tech is getting hammered, as is retail, energy, and just about every other industry.

The bottom line is that there is no foreseeable economic grist or catalyst for speculatory investors, which is ultimately what stock investors go after, to sink their money into. With no catalyst, there’s no foreseeable growth vehicles for the stock market, thus expect a recession to be a long-term event, which doesn’t translate to a healthy housing market.

But if I were to be optimistic, I’d say that eventually, all of the foreclosures in states liken CA will get soaked up. Last I read, these things are getting eaten up rapidly. This will either cause prices to stall out at a certain level, thus forcing the next lowest price wrung to fall to salable levels, or prices will stabilize. I’m in agreement with economists who say 2012 will be the turning point. But as such, I seriously doubt we’ll see anything exciting for years afterwards. Probably 2-3% annual appreciation for the next decade at least. In other words- a stabilization.

I know many out here in Cali who are still drunk on last year’s Kool aide are hungrily hoping for a return to “happy days.” But they will be sadly disappointed.

Comment by Big V
2008-12-24 14:09:12

Hey Jetson Boy:

Send me an e-mail. My e-dress is on the forum. I would post it, but it will take forever to show up. I’ll try responding with it.

 
Comment by oxide
2008-12-24 15:35:06

I’m not sure….With no get-rich-quick scheme (oil/madoff) to throw their money at, investors may have to look at fundamentals again. Slower gains, but healthier ones.

Comment by Bill in Carolina
2008-12-24 17:04:02

Now that the government has stepped in once, they will continue to do so. The Detroit Three will NEVER fail.

Shareholder equity will go to zero, and the board and top management will be replaced by political hacks, but GM, Ford and Chrysler will continue to spew out stuff that, for the most part, no one wants.

Comment by CA renter
2008-12-25 02:13:29

but GM, Ford and Chrysler will continue to spew out stuff that, for the most part, no one wants.
—————————

I disagree with the notion that “no one” wants a vehicle built by the “Big Three.” The had some of the best selling vehicles in SUVs and trucks.

I think their demise is more closely related to the credit bubble. Bit-ticket items that are bought primarily with credit (mortgages and auto loans being two of the biggest) had their sales pulled forward because everyone had access to easy credit. Much like housing, supply capacity grew at a rapid clip that matched the demand created by loose credit.

Look at Toyota, Honda, Mercedes, etc… It’s ALL auto manufacturers who are suffering slowing sales. Toyota and Honda benefitted during the past few years when “hybrid” and high-mileage cars became fashionable due to the high oil/gas prices, but they are very quickly following the path of the U.S. automakers.

Everybody was over-producing for the same reason: excessive demand created by easy credit. All of that will be contracting in the near future, IMHO, and the transition will be very painful for all. The Big Three are the poster children for today, but tomorrow, it may be your industry. Be careful what you wish for…

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Comment by Kirisdad
2008-12-25 07:26:50

That line about cars no one wanted comes from the greenies. It was all about credit. Cars became too expensive to buy the old fashioned way, so when funny credit dried up no one could afford any make of car.
The question is; will the dems put european taxes on gasoline, after they force GM to produce small cars, that most Americans (not me) don’t want. If they don’t, I really have no idea how the big three will survive.

 
Comment by KenWPA
2008-12-25 15:16:03

Yep, easy credit helped people buy more car than they could really afford. Banks were willing to finance 120% of a new cars value, so people could continue trading in underwater cars and driving away with a new one.

Go back to normal lending terms, and the idiots that are easily duped into buying whatever they can on payments are squeezed out of the market.

I think most people accept that they will always have a car payment, so they want to have a new car every two to three years no matter how much money they are wasting.

 
Comment by Otis Wildflower
2008-12-26 11:53:40

I think most people accept that they will always have a car payment, so they want to have a new car every two to three years no matter how much money they are wasting.

Or perhaps they’ll let some other sucker take the depreciation hit and buy used cars with cash? Frankly, at this point, 15+ year old Lexus creampuffs are probably much nicer than brand-new Chevys, Hondas, Toyotas, etc. at 3x the price..

Actually, at this point, I’d rather just get a pickup truck that any corner indie greasemonkey can fix. Domestic cars & trucks are actually better as far as “open-source” ECUs and electronics are concerned, not so many expensive, proprietary gadgets as the Germans (excepting of course VW/Audi VAG-COM).. Maybe after the Benz cracks 500k miles…

 
Comment by not a gator
2009-01-01 15:19:33

I’d bet the metal parts are better quality. Not feeling too good about any car made in the last three years b/c of horrid run-up in metals prices.

 
Comment by SDGreg
2009-01-01 23:23:53

“Look at Toyota, Honda, Mercedes, etc… It’s ALL auto manufacturers who are suffering slowing sales. Toyota and Honda benefitted during the past few years when “hybrid” and high-mileage cars became fashionable due to the high oil/gas prices, but they are very quickly following the path of the U.S. automakers.”

One important distinction is that Toyota and Honda were maintaining sales without incentives until some time in 2008. With the Shrinking 3, they were relying on sales incentives for 2 to 3 years prior to the decline in sales for all automakers. This was during the period when credit was cheap and easily available. This also precedes the period when much higher gas prices began to push the mix of buyer purchases toward more fuel-efficient vehicles. Ford appears to be farthest along the road toward making the necessary changes in product mix and reducing output to a sustainable level.

 
 
 
 
 
Comment by BottomFisher
2008-12-24 13:32:47

When 2 or more of the following happen:
When Santa really comes down the chimney with free gifts……sorry kids.
When CA has a surplus and the lowest taxes in the country.
When all the Madoff investors get all their money back.
When Ben buys 2 houses…or maybe 3.
When OJ admits he was guilty.
When I win 15 million in the lottery.

I didn’t include when pigs fly, or wear lipstick, cause I saw one fly once, and we have all seen many with lipstick recently. Please let one be the lottery.

Comment by SanFranciscoBayAreaGal
2008-12-24 14:08:48

You forgot to add “When Hell freezes over”

Comment by Lionel
Comment by SanFranciscoBayAreaGal
2008-12-24 18:30:43

:)

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Comment by Otis Wildflower
2008-12-26 12:13:41

Global Warming ftw!

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Comment by jimbo
2008-12-24 13:54:34

I can’t predict bottom. However, I believe that, within Obama’s first 100 days, Bankruptcy Code will be amended to enable judges to reduce balances on mortgage loans to current value of property. I know this idea has popped up from time to time; also know the arguments made pro and con. The complete silence currently surrounding the idea leads me to believe work is feverishly being done behind the scenes on it right now; it will be resurrected as a “bold” initiative by the new administration soon after inauguration. Opposition to the law will be steamrolled by loud, incessant arguments to the effect, “HELLO! This is what bankruptcy judges do for debtors everyday!” How this will affect duration, depth of housing crash, I don’t know; I doubt that the legislative majorities and incoming administration know either. I do believe it is coming, though. Merry Christmas, all.

Comment by octal77
2008-12-24 14:22:09


…Bankruptcy Code will be amended to enable judges to
reduce balances on mortgage loans to current value of property…

In other words, lets unwind 200 years of contract law? Not likely.

Further, what sane lender would *ever* make a new loan, knowing
that the terms and conditions of the mortgage contract could
be modified on a whim… Not going to happen.

Comment by desertdweller
2008-12-24 16:44:24

200 yrs of contract law..unwrite?
well, heck

ALERT political comment coming

isn’t that what cheney etal just did this past few yrs, rewrite constitutional law?

Oops. sorry, couldn’t help myself.
Need more eggnot.

Comment by Bill in Carolina
2008-12-24 17:06:43

All home lending will be done by those 100% government entities Freddie, Fannie and FHA. VA may get involved during/after each war as well.

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Comment by SteelCurtain67
2008-12-25 14:06:33

If I recall correctly cramdowns were allowed for mortages until fairly recently. Also, almost all other loans can be ‘crammed’ down by a judge and lenders still make those loans. If lenders were willing to loan a half million to strawberry pickers I don’t think cramdowns will deter them. In practice judges won’t reduce principal below current market value anyway.

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Comment by GH
2008-12-24 17:29:35

Of course, the same lenders who loaned hundreds of thousands of dollars against homes which just a couple of years before had been valued at 1/2 the current asking prices. What made these idiots think the homes had suddenly doubled in value?

 
Comment by JR
2008-12-25 22:59:52

Lenders shouldn’t lend unless they believe they can be repaid in the normal course of events. Foreclosures, etc. are extraordinary and should be thought of as worst-case scenarios: a lender who thinks that’s relatively likely in a particular loan, should keep their money in their pocket.

 
 
Comment by bob in boca
2008-12-24 18:12:12

The guy next door who can afford to pay would get shafted on the value write down and would likely put in for an adjustment or walk

 
Comment by SaladSD
2008-12-24 23:31:23

Okay, then, for laugh & giggles, why don’t we just unilaterally reduce all mortgages by, say, 50%? Otherwise, I’m going to HELOC the hell out of my modest house loan so I can have some stuff, too.

Comment by jimbo
2008-12-25 13:56:58

Hey– The claim that no bank will ever lend on a house again? Well, that’s one of the “con” arguments. The “sanctity of contracts” and incentive just to go out and run up dischargeable debt contentions? They can be raised about bankruptcy law and all manner of other debts as it stands now (or at least as it stood 10 to 15 years ago, when I knew a little about it). I’m just saying that, IIRC, Vermont’s Sen. Leahy, of the Judiciary Committee, floted this idea last summer. I don’t think we have heard the last of it.

 
 
Comment by Professor Bear
2009-01-01 11:05:40

‘The complete silence currently surrounding the idea leads me to believe work is feverishly being done behind the scenes on it right now; it will be resurrected as a “bold” initiative by the new administration soon after inauguration.’

Shhhh!

Wall Street Journal

* REAL ESTATE
* DECEMBER 31, 2008

Mortgage ‘Cram-Downs’ Loom as Foreclosures Mount

President-elect Barack Obama and his incoming administration aren’t disclosing details of the much-awaited foreclosure-prevention plans, but during the campaign Mr. Obama called for closing the loophole that prevents bankruptcy judges from restructuring mortgages on primary residences. Lawrence Summers, a top economic adviser of Mr. Obama, publicly voiced support for bankruptcy reform before his appointment.

“To the extent that nothing else is working, bankruptcy cram-downs are becoming more likely,” says Rod Dubitsky, head of asset-backed-securities research at Credit Suisse.

Comment by Professor Bear
2009-01-01 11:13:35

Wall Street Journal

* December 31, 2008

The Many Models of Mortgage Modification

A number of different proposals have been floated to assist ailing borrowers and stop the flood of foreclosures. Here’s a look:

 
Comment by GH
2009-01-01 12:15:07

If this happens the bankruptcy courts will be flooded. What needs to happen is the idiots who lied on thier loan apps need to be held accountable. Perhaps some kind of work for reduction plan, where the govt helps with the mortgage and they give up a couple of weekens a month cleaning our roads etc?

 
 
 
Comment by mrktMaven
2008-12-24 14:00:52

The housing market will bottom when it bottoms. Meanwhile, explore and take advantage of developing opportunities. There are greater fools in every market. There is truth and untruth in every market.

What’s more, it’s not like prices are going bounce of the floor beyond reach when the housing market actually bottoms. Most of yesteryear’s FBs are in dire straits. It will take a very long time for this market to repair itself.

Merry Christmas and Happy Holidays Everyone!

 
Comment by CA renter
2008-12-24 14:19:51

Merry Christmas, everyone!!!

May the next year bring you lots of love from family and friends, good health, and no job losses (and new jobs for those who’ve already lost theirs).

Best wishes!

CA renter

 
Comment by sleepless_near_seattle
2008-12-24 14:46:05

Unfortunately I won’t be able to check in for the next few days but just wanted wish everyone a MERRY CHRISTMAS!! I hope you all have a wonderful holiday.

My OCD and addiction to this site guarantees that I’ll be ticking and twitching for 1.5 days until I can check back in.

Be safe!! (or not, if being safe brings on boredom)

Comment by Lost in Utah
2008-12-24 16:35:32

Sleepless, have fun snowboarding!!

(If you’re not going snowboarding, why not? Change your plans, tons of snow!)

 
 
Comment by Muir
2008-12-24 14:46:33

Like mrktMaven’s reply above.
-
Just how much dodo are we in?

research.stlouisfed.org/publications/usfd/20081219/usfd.pdf
(warning 26 page PDF)

 
Comment by SanFranciscoBayAreaGal
2008-12-24 15:29:13

Merry Christmas everyone. Here’s my gift to all the HBBers. I love Yosemite.

http://www.yosemite.org/vryos/index.htm

 
Comment by cobaltblue
2008-12-24 15:42:33

How long?
How long must we sing this song?

http://www.kwaves.com/kond_overview.htm

5 years ago, proponents of this view of economic cycles were calling for a deflationary depression. Spot on, I’d say.

 
Comment by desertdweller
2008-12-24 16:46:06

MERRY CHRISTMAS all and to all a goodnight.

Thanks Ben.

 
Comment by meadows
2008-12-24 16:54:42

My prediction of the bottom and after;

It’ll be a “dead cat bounce” w/out the bounce part.

 
Comment by cactus
2008-12-24 16:55:30

The housing market will bottom when stuff like this stops
from SDCIA;
that reminds me of my friend’s tactic.

He nets about $9k a month.
Owns only 1 house - primary residence. Extracted equity like crazy and sent all the money to India. Mortgage payment is about $3k- certainly no hardship

Then he took out $200k on credit cards, send all the cash to India.
The credit cards’ total minimum payment is over 4k I believe (not all of them are 0% any more).

Then he waited 3 months (upon advice from attorney).

Including tax and insurance, cost of living.. he can prove financial hardship. Of course he has $500k cash in India but the last transfer is 3 months ago and not considered any more.

Yes, CitiMortgage is in the process of offering him 3 strategies to modify his mortgage.

The kicker is, he’s going to default on those $200k credit cards right after the mortgage is ‘adjusted’. About 12 months later he will default on the mortgage, then wait 9 months until his house is foreclosed - leaving him just enough time for his already scheduled return to India. The adjustment simply serves to improve cashflow.

-Peter

Comment by Neil
2008-12-24 17:36:43

send all the cash to India.
No wonder they had a bubble there. Down payments stop obvious fraud like this… That lesson is being relearned…

Got Popcorn?
Neil

 
Comment by VaBeyatch in Virginia Beach
2008-12-24 18:35:18

What’s his name? I’ll turn him in.

Comment by dude
2008-12-24 22:33:33

Go ahead and turn him in, that plan is being repeated time and time again across this debtor nation. He’ll never be prosecuted and he’ll never do time.

 
 
Comment by SaladSD
2008-12-24 23:43:07

I hate hearing stories like these, what a creep.

 
Comment by AnonyRuss
2008-12-25 12:59:06

That Indian scammer story is attached to the interesting “Losing Shirt in Tucson” thread over at SDCIA. The first several pages of that thread are well worth the read or re-read.

http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1205179&trail=240

I visit the site every couple of months to see if anything amusing shows up. The “Jeff” saga threads are also classic, of course.

Comment by San Diego RE Bear
2008-12-25 18:22:17

Oh wow. What memories that brings back. Listening to the SDCIA forum (so unlike the very bearish SDCIA meetings) talk about “Ben’s Mushroom Farm” brings back all the warm fuzzy feelings of ‘how stupid can they be?’

Sometimes it hard to remember that at one time we were the fringe insane, screaming into the wind about a problem that couldn’t possibly exist. Now that everyone knows the bubble existed and is seeing the consequences and (for the most part excluding certain family members in my case) admit that we were right, it’s sometimes hard to remember just how much we were derided for our beliefs.

More of a fringe church group than a mushroom farm I think. :D

 
 
 
Comment by milkcrate
2008-12-24 17:18:59

I can’t say where the market bottom may be.
But when I go outside at about 11 p.m. this time of year, the constellation Orion is always lowish in the southern sky. Even when it is cloudy, and those days are few, I know it is there. I don’t even care that it is named after a mythical hunter.
It helps me keep my bearings. It will set, then rise again the next night.
All all the other stars are just a bonus.
Merry Christmas and/or Happy Holidays to all.

Milkcrate

 
Comment by WhatOnceWas
2008-12-24 17:19:05

…as long as there are people still willing to gamble…
My fiance’s Grandmother just sold her house 3 days after Thanksgiving.
Listed at $425 ,sold for $432. buyer was a young 20’s couple that outbid an offer, and had 20% down! In Sonoma county. I think there will be the majority that are forclosure,ARM resets,and sideline waiters, but there is going to be a percentage that will buy no matter what, and so this is going to be a long drawn out process. SO I say, Mar.17, 2010 745pm.

 
Comment by cactus
2008-12-24 18:41:15

way back machine 2007 Softer economy predicted

Because the rest of the economy has stayed strong while home sales have declined, most sellers aren’t in a position where they have to sell. That has created a standoff between buyers and sellers that the UCSB forecast predicts could end in one of two ways: Either a large number of people lose their jobs, increasing the pressure to sell and driving down prices; or, what is deemed more likely, buyers will eventually be pushed back into the market at current prices.

While both the UCSB and a recent UCLA forecast say the state is not headed for a recession, both predict a lot of “softening” and “slowing.”

The definition of a “recession” varies, but the National Bureau of Economic Research defines it as a “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP (gross domestic product), real income, employment, industrial production, and wholesale-retail sales.”

The UCLA quarterly forecast predicts a slightly slower and longer period of “sluggishness” than in its previous forecast after accounting for higher job loss estimates in the financial sector and continued weakness in construction and manufacturing.

UCSB’s state forecast, released in October and expected to be updated quarterly next year, determined that California was slightly better off in economic growth than the country as a whole and that strong areas of industry, such as technology, world trade, agriculture and entrepreneurship, would more than offset the troubles in the real estate market.

The state will have an economic slowdown through the first half of 2008 and then start to see a slow acceleration in the second half, the UCSB report predicts.

That slowdown will vary greatly across California, with the Bay Area having the strongest economy and the Central Valley the weakest.

The next quarterly forecast from UCSB will be in January. Hamilton said California’s state budget problems — not having enough money to cover existing obligations — could add more negative risk to the forecast, as does the negative data coming in on residential real estate.

Still, the state has strong economic growth. California is on track for growth of 3.6 percent or maybe a bit slower for 2007.

“It might be revised down a little bit, but it’s nowhere near a recession,” Hamilton said

HoHoHo Merry Christmas

Comment by Professor Bear
2008-12-24 22:38:12

It’s nowhere near a recession, all right. More like a depression.

Happy Christmas, and a Merry New Year!

 
 
Comment by San Jose Pete
2008-12-24 22:26:52

A Merry Christmas to all and a happy New Year. This web site has certainly helped prepare many of us for the economic fiasco that is already here and for even more insanity that is coming our way in the coming years as well.

 
Comment by dude
2008-12-24 22:37:56

Merry Christmas everybody!

 
Comment by Ria Rhodes
2008-12-25 05:35:53

“In a 4 to 1 vote, the Federal Reserve Board approved GMAC’s application to transform itself into a bank holding company “in light of the unusual and exigent circumstances” affecting the financial markets. The move will allow GMAC to tap as much as $6 billion in government bailout money.”

Bad players continue to get fed cash.

GMAC/DiTech back in get rich quick days: http://www.youtube.com/watch?v=Yc7V7q5Y7Hs

 
Comment by SDGreg
2008-12-25 05:38:32

I don’t see how we can have a bottom in housing until we have a floor under the economy. The economy we’ve known no longer exists. In maybe 2 to 3 years we’ll finally realize the old economy isn’t coming back and maybe start working on a sustainable replacement.

Based on the underlying economy and the upcoming loan resets, housing will go lower for another 2 to 3 years, but at a declining rate after 2009.
After that, either flat or slightly declining for at least another decade tied to the economy. Given that there’s a sizable surplus of housing, I’d expect the economy to exert a stronger influence on housing than internal housing supply/demand issues.

 
Comment by combotechie
2008-12-25 08:36:02

It’s all about money flow, IMO. When money flows into an area you get Silicon Valley. When the money flow stops you get Cleveland.

As of now the money doesn’t seem to be flowing very easily. That’s because banks aren’t lending and consumers aren’t consuming. When this phenom will reverse itself is anyone’s guess. But until it does our 70% consumer based economy is headed for some Interesting Times.

 
Comment by Fresno Dude
2008-12-25 08:52:57

What bothers me is all the credit card debt, new car debt, the payments on the homes that are half the value now, this means we have nothing left over to spend and get us out of this coming economic depression. We also have credit almost completely frozen up because the banks finally realize folks have no money left to pay on any loans. I read a book by John Kenneth Galbraith about the great depression where he thought that people buying expensive items on time and the banks going out of business from runs, meaning there was no money to loan, were major contributing factors. We will be in a depression until people can get rid of their debt. Lower interest on loans would free up some money for paying gown the loans, but banks want all they can get. The government needs to get in the loan business with low interest credit cards that folks can switch high interest loans to. The government could even make some real money this way instead of investing in banks and car companies. Remember 70% of the economy is J6P buying.

Comment by combotechie
2008-12-25 08:59:19

“Remember 70% of the economy is J6P buying.”

That’s the problem.

Comment by Fresno Dude
2008-12-25 09:15:43

I had a look at a one dollar bill and is says in God we trust. Put that on the Government credit card and maybe it will help.

 
Comment by Fresno Dude
2008-12-25 09:49:39

I just had a look at http://en.wikipedia.org/wiki/John_Kenneth_Galbraith and maybe he is an economist for our time. Here is what I took away from the Wikipedia entry: Society becomes more affluent so that basic needs are met. Therefore, this requires business to advertise and create a demand for goods and services. However, the public sector is neglected because of the advertising and as a result, while we purchase luxury items, infrastructure like roads, parks, and schools are neglected, pollution increases, and kids go to schools that do not educate them. Galbraith proposed curbing consumption through taxes of these unneeded items; say McMansions and SUV cars. He wanted to “invest in men” through education programs to empower J6P and have J6P be entrusted with the future of our country.

Comment by Professor Bear
2008-12-25 11:38:00

Main stream economists dislike Galbraith. I never quite figured out whether this was because he spoke directly to the people, instead of limiting his reach to the communion of high priests of the profession who publish in top academic journals, or because they generally disliked his unconventional views.

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Comment by Muir
2008-12-25 14:02:47

Ohhh, the first.
For sure.
I’m not in academia but I’d say it’s a given that the ego of “communion of high priests of the profession who publish in top academic journals” wins out.

 
Comment by not a gator
2008-12-28 08:06:27

Galbraith made it very clear that he came from the ranks of the lower middle class and that he was the first generation in his family and among his social stratum to attend college. He was very conscious of being completely opposed to the opinions and theories of the academics who hailed from the leisure class and who had dominated American letters for the previous fifty years.

 
 
 
 
 
Comment by reuven
2008-12-25 11:36:22

I can tell you EXACTLY when the bottom will be!

When median house price becomes 2x median income.

Comment by zup
2008-12-25 12:09:47

and medium income is sinking as we speak

 
 
Comment by Professor Bear
2008-12-25 18:49:53

In Fed We Trust.

Forecasters share predictions for economy’s outlook in 2009
By Barbara Hagenbaugh, USA TODAY

WASHINGTON — It may come as a surprise, given all the bad news of late, but the U.S. economy is expected to emerge from the recession sometime around mid-2009.

Until that happens, the economy will remain mired in one of the deepest and longest downturns the nation has seen in decades.

If the recession continues past the spring, as many economists predict, it will be the most prolonged one since the Great Depression. Employers are expected to continue to shed jobs at a rapid pace. Consumers will pull back spending. Businesses will cancel equipment purchases. Unsold, empty homes will dot city blocks.

However, once the massive amount of fiscal stimulus currently being crafted by lawmakers and aggressive action by the Federal Reserve kicks in, the economy is expected to improve, according to several economists and business owners.

“We all just need to hang on,” says Allen Sinai, president of Decision Economics, an economic consulting firm. “By late in the year, the economy will be moving up, and 2010 should be a recovery year.”

 
Comment by Professor Bear
2008-12-25 18:51:20

Sales of New Houses in U.S. Dropped to 17-Year Low in November
By Bob Willis

Dec. 23 (Bloomberg) — Sales of new homes in the U.S. fell in November to a 17-year low as credit dried up and consumer confidence sank.

Purchases dropped 2.9 percent to an annual pace of 407,000, lower than forecast, according to figures from the Commerce Department today in Washington. The median sales price declined 11.5 percent from a year earlier.

The housing recession and credit crisis may extend into 2009, signaling little relief for the broader economy. The Federal Reserve last week dropped its target rate to as low as zero to spur lending, while President-elect Barack Obama has pledged to work to halt foreclosures, boost housing and provide a “jolt” to the economy.

“The housing market is still trying to find a bottom, and the rapidly deteriorating economy is making it all the more difficult,” Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report.

 
Comment by Professor Bear
2008-12-25 18:56:37

One thing is clear at this point: Whatever lessons the writers of this editorial believe should have been learned have been lost on politicians, who are still barking up the same dead tree, only louder than before.

Fading Housing Hope
A mortgage bailout plan’s paltry results, and their lessons
Friday, December 26, 2008; Page A22

PASSED BY Congress in July and put into effect on Oct. 1, the federal government’s Hope for Homeowners program was billed as strong medicine for the twin ills of rampant foreclosures and sagging home prices. Advocates argued that it would help stave off recession by delivering mortgage relief to the most deserving of distressed homeowners — all while creating the least possible taxpayer expense and avoiding perverse incentives. Basically, the plan was to offer as much as $300 billion in government-guaranteed home loans to people whose current mortgages exceed the value of their houses; 400,000 people would benefit, it was said. Well, the early returns are in, and the program is, at this point, a flop. There have been only 312 applications, according to the Department of Housing and Urban Development. At that rate, the three-year program would help only about 5,400 borrowers.

We hate to say we told you so, but — we told you so. Except that we never guessed that the program would perform quite this poorly. The Bush administration and the program’s congressional author, House Financial Services Committee Chairman Barney Frank (D-Mass.), are now engaged in a blame game, with Bush officials saying that the program is a victim of burdensome conditions imposed by Congress and Frank asserting that he only agreed to those conditions as the price of a politically acceptable bill. Each side has a point. Mortgage relief causes genuine ambivalence among Americans of good faith. They feel sorry for their neighbors and want protection against an uncontrolled housing collapse, but they don’t think it’s fair to spend taxpayers’ money bailing out people who took on unaffordable loans and the bankers who enabled them. Hope for Homeowners tried to keep everyone happy by requiring lenders to sacrifice some of the principal value of homes while requiring borrowers to give up future profits and assume monthly payments of at least 31 percent of their incomes. This may have been the best available deal, politically, but it doesn’t make sense, economically, for very many people. Therefore, hardly anyone has chosen it.

 
Comment by Professor Bear
2009-01-01 11:39:20

CSUF dean eyes no home-price rebound until 2011
December 23rd, 2008, 12:00 pm · 24 Comments · posted by Jon Lansner/ocregister.com

Economist Anil Puri is the dean of the Mihaylo College of Business & Economics at Cal State University Fullerton, the third largest business school in the country. His latest widely watched annual forecast for Orange County’s housing markets saw home prices rebounding not until 2010, at the earliest. We got him to elaborate!

Eyeball: What’s the OC housing outlook for 2009?

Anil: Given the overhang of foreclosures and other macro factors, we expect continuing slide in the median housing price through the middle of 2009 in the range of 5% to 7% from a year ago level. Prices will stop declining appreciably after that but will show little movement for a while. Any uptick will have to wait until 2011 or later.

Comment by Professor Bear
2009-01-01 11:49:50

“…we expect continuing slide in the median housing price through the middle of 2009 in the range of 5% to 7% from a year ago level…”

I guess it is different there in The OC, nestled between the LA metro area, where home prices fell by 27.9 pct through the year ended in October 2008, and the SD metro area, where home prices fell by 26.7 pct over the same period. Why do academics willingly mock themselves by making implausible predictions?

Wall Street Journal
December 30, 2008, 9:24 am
Case-Shiller Numbers, By Metro Area

Home prices continued to drop in October, according to the S&P/Case-Shiller home-price indexes, with home prices in the Sun Belt continuing to be hit hardest.

“The bear market continues; home prices are back to their March 2004 levels,” said David M. Blitzer, chairman of S&P’s index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines. As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Blitzer said.

Metro Area October 2008 Change from September Year-over-year change
Atlanta 119.77 -2.4% -10.5%
Boston 159.17 -1.1% -6.0%
Charlotte 128.02 -1.8% -4.4%
Chicago 145.49 -1.6% -10.8%
Cleveland 108.76 -1.0% -6.2%
Dallas 120.60 -1.1% -3.0%
Denver 129.05 -1.5% -5.2%
Detroit 86.10 -4.5% -20.4%
Las Vegas 142.57 -2.7% -31.7%
Los Angeles 179.82 -2.6% -27.9%
Miami 173.42 -3.0% -29.0
Minneapolis 135.71 -3.4% -16.3%
New York 190.04 -0.9% -7.5%
Phoenix 135.18 -3.3% -32.7%
Portland 166.44 -1.9% -10.1%
San Diego 159.12 -3.0% -26.7%
San Francisco 139.44 -4.2% -31.0%
Seattle 170.45 -1.4% -10.2%
Tampa 165.44 -3.4% -19.8%
Washington 184.92 -2.7% -18.7%
Source: Standard & Poor’s and FiservData

Comment by Professor Bear
2009-01-01 12:19:34

Do you think this academic dean is utterly oblivious to the existence of online real estate sales price data providers such as DataQuick?

Orange County Home Sale Activity
for Home Sales Recorded in November 2008
Reporting resale single family residences and condos as well as new homes
% Change is from the same month last year
Past Issues are available from DQNews Custom Reports
Community Zip Median % Chng Sales % Chng
All homes $400,000 -31.4% 2,177 38.9%

Comment by rms
2009-01-02 00:30:38

“Do you think this academic dean is utterly oblivious to the existence of online real estate sales price data providers such as DataQuick?”

Are you making fun of the fact that this fellow wears a belt and suspenders?

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Comment by Professor Bear
2009-01-01 12:26:54

Wake up! Get a clue!!! No fancy econometrics is needed here — an ounce of common sense will suffice.

Orange County Home Sale Activity
for Home Sales Recorded in November 2008
Reporting resale single family residences and condos as well as new homes
% Change is from the same month last year
Past Issues are available from DQNews Custom Reports

Community Zip Median % Chng Sales % Chng
Fullerton 92831 $402,500 -28.6% 14 40.0%
Fullerton 92832 $395,000 -13.2% 14 27.3%
Fullerton 92833 $383,250 -24.9% 26 -7.1%
Fullerton 92835 $569,500 -37.1% 14 75.0%

 
Comment by DennisN
2009-01-01 13:14:11

“Economist Anil Puri is the dean of the Mihaylo College of Business & Economics at Cal State University Fullerton, the third largest business school in the country.”

Huh? Why the heck do those guys have a giant B-school?

Comment by Professor Bear
2009-01-01 13:31:39

My favorite-ever comment on business school professors:

“If you overhear a business school professor debating a philosophy professor, you know two things:

1) The philosophy professor is kicking the business school professor’s butt in the debate.

2) The business school professor earns twice as much salary as the philosophy professor.”

 
 
Comment by Bill in Los Angeles
2009-01-01 13:16:37

Briefly between Election Day and the first few weeks of December I had hopes that some of Obama’s cabinet positions would be indicative that he will be pragmatic during his upcoming term, rather than sticking to the class warfare ideology.

I’m having doubts.

Given the liklihood that house prices will slide into late 2010 (before Option ARM resets get to the peak), and if Obama sticks to his socialist class warfare agenda, there could be a lot of formerly politically correct people with black and blue marks on their behinds from their own heels in three years.

The consensus on this HBB is that house prices will continue to slide, well paying jobs are continuing to leave to other countries, and the economy will get much worse the next few years. So how can people on here think the Messiah will get a second term in January 2013?

Comment by scdave
2009-01-01 13:48:10

He may not get a 2nd term…He may be a casualty of the “can” that was kicked on to him…But him achiving a 2nd term does not realy matter..I believe two things were achived with the election of Obama;

#1…The confederacy is dead…Angry white men in the south are now irrelevant…The “plight” of the black man no longer is a rally point…The rainbow coalition is history…

#2…Forced dogma will never return….The Neo agenda has lost a whole generation of voters…

Comment by Bill in Los Angeles
2009-01-01 14:37:49

So maybe it’s irrelevent to consider who will be taking the oath in January 2013. We’ll probably get more of the same. People won’t be sick of getting unintended consequences (which are always bad) from socialism until maybe the Fall of 2016.

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Comment by oxide
2009-01-01 15:17:08

If Obama truly achieved both points, then he will get a second term, because the opposing party depended heavily on both confederacy thinking and the forced dogma of the neo-agenda as their base voting block.

Bill in LA, I’ve heard “pragmatic” used far too much, primarily as a talking point from right-wing pundits. In this context, is it the same connotation as “center-right?” Or something kind of code: “Obama had better use our right-wing ideas, because those are the pragmatic ideas that will work.”

It’s only when conservatives lose that they oh-so-suddenly become interested in reaching across the aisle.

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Comment by Bill in Los Angeles
2009-01-01 19:02:21

Actually, the socialists, er, “Compassionate” conservatives, have gone great strides in reaching across the aisle for decades. It’s naive to think they never compromise. It’s a fact of politics.

Hence, there are those of use who use the term “Demopuclican” or “Republicrat.”

The situation is that they are busy taking advantage of the American public who wish to trade freedom/responsibility for security.

 
 
 
 
 
Comment by Bungalowball
2009-01-01 12:02:48

House prices will have bottomed…

…when the word “granite” is considered synonymous with “fixer-upper”

Comment by not a gator
2009-01-01 15:25:13

Here’s to ripping out “ugly, impractical” granite and replacing it with quality Corian!

Comment by CA renter
2009-01-02 03:44:39

Formica!! :)

Comment by scdave
2009-01-02 11:15:43

:)

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Comment by Professor Bear
2009-01-01 12:13:25

Easy prediction: The intensive margin effect of lower interest rates on How-much-a-month Harold’s decision to refi into a 30-yr-fixed mortgage will not fully offset destruction to the extensive margin of mortgage lending demand from a return of underwriting standards that prevent Jose Strawberry-picker from using a no doc option ARM to buy a $700K home on $20K of income. Hence prices will continue to seek a lower equilibrium for the foreseeable future.

Home loan applications sent soaring by low rates
Associated Press
2:00 a.m. January 1, 2009

WASHINGTON — WASHINGTON – Rates on 30-year mortgages fell to a record low for the third straight week and borrowers took advantage of the drop, sending new applications soaring.

With the Federal Reserve on the verge of pouring hundreds of billions of dollars into the devastated U.S. housing market, mortgage rates have plunged to the lowest level since Freddie Mac started tracking the data in April 1971.

Freddie Mac reported yesterday that average rates on 30-year, fixed-rate mortgages dropped to 5.1 percent this week, down from the previous record of 5.14 percent set last week. It was the ninth straight weekly drop. The survey was released a day early due to the New Year’s holiday.

 
Comment by Professor Bear
2009-01-01 12:15:40

So long, symbiosis

Comment by Bill in Los Angeles
2009-01-01 13:33:11

A couple years ago there was a statistic about ocean freight traffic decreasing. It was noted as a harbinger of bad economic times ahead. It took awhile for the major stock indices to catch up. I guess that would be related to Chinese exports too.

For equities, I am only interested in long term fundamentals (20 year periods). So I don’t change my investing style based on bearish stats that I’m aware of.

Comment by not a gator
2009-01-01 15:30:05

So when I short some fat pig equity down to zero you’re the guy whose stock the broker lends to me?

Sweet.

 
Comment by oxide
2009-01-01 17:00:16

How funny. I remember some years ago, there was a dock stike in California, and some stores were unable to keep their shelves full of new stuff from China. Exhibit A in the news was AC Moore, a craft store. Craft stores are worse than Wal-Mart when it comes to plastic trinkets and the like.

I wonder if anyone would notice a dock strike now.

 
 
Comment by measton
2009-01-01 22:14:24

http://www.nytimes.com/2009/01/02/business/02dairy.html?_r=2&partner=rss&emc=rss

So in summary
The world is buying less from China and can’t afford milk from the US. Yep recovery is just around the corner.

 
 
Comment by Professor Bear
2009-01-01 15:26:52

The Marketplace folks see a recovery currently underway where I see none. Last I time I checked (just yesterday), U.S. housing prices were dropping at their fastest rate in history, and at an accelerating pace. The only reason I can think of for housing to bottom out next year is that with prices falling this swiftly, either equilibrium will soon be reached or prices will drop to $0.

Wednesday, December 31, 2008

Housing recovery slow but steady
Sign outside a house indicates reduced sale price

Experts have varying opinions on where the housing market is going to go in 2009. We asked our Senior Business Correspondent Bob Moon to weigh in. He tells Scott Jagow how real estate might recover in the new year.

 
Comment by Professor Bear
2009-01-01 15:45:55

I just heard Nicholas Retsinas (Harvard Joint Center for Housing Studies) interviewed on American Public Media’s Marketplace radio show. He was repeating the oft-stated economist’s folk wisdom that foreclosures create a “negative externality” by pushing down the sale price of all other homes in the area. I personally am highly skeptical about this idea. So far as I am aware, an unencumbered market which experiences an increase in the supply of a good adjusts to a new equilibrium at a lower price, attracting an increase in the number of buyers, and thereby restoring equilibrium. There is no externality here. This story simply reveals that Nicholas needs to open up his Econ 1 textbook and brush up on his understanding of basic economic theory.

It seems like foreclosure homes entering the market can actually help the market become more efficient, by helping to keep the market liquid, thereby aiding in the price discovery process. It seems obvious that foreclosure homes coming on to the market can help to to satisfy a longstanding desire by policy makers to provide affordable housing to the masses. Further, it is patently unfair to tax prospective homeowners and renters in order to help homeowners hang on to homes they bought but cannot afford.

Comment by LongIslandLost
2009-01-01 19:14:52

Vacant houses can decrease the value of nearby homes. They can be ugly and a magnet for crime, vermin, and uncertainty (who moves in next?).

But, vacant houses can also indicate that local house prices are too high. In fact, they are so high that no one will pay the market price to occupy the vacant house.

It would be a fascinating, but tricky, exercise to separate the two effects.

Often foreclosed homes are vacant. So, I think that Retsinas is somewhat correct. But, he hasn’t explored this point very well.

Comment by Professor Bear
2009-01-01 21:07:05

“So, I think that Retsinas is somewhat correct.”

Perhaps I misunderstood his point, but I thought he was suggesting that foreclosed homes need to be kept off the market, or else they would lower the price of other homes in the neighborhood. But one of the best ways that comes to mind for turning a vacant foreclosed home into an owner-occupied foreclosed home is to put it on the market and sell it.

Comment by CA renter
2009-01-02 03:50:17

Good posts, PB.

Let’s hope 2009 sees greater efficiencies in the process of transferring homes from those who cannot afford them to new buyers who can afford and plan to live in these homes.

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Comment by SDGreg
2009-01-01 18:50:06

For the “early” markets (those that declined first), 2009 will be the year of largest dollar price declines so far. For the “late” markets, 2009 will have the largest percentage price declines so far. This year will not be the bottom. Even the lowest prices of 2009 will not be achieved again in the next decade for most markets due to the combined effects of energy (more expensive and scarcer) and an impaired economy.

The unfolding depression will be more evident in the next year due to a mountain of job losses, the increasing effects of deferred maintenance, and increasing commercial vacancies (empty store fronts).

For anyone keeping score or that might care, a couple of my predictions from a year ago:

http://thehousingbubbleblog.com/?p=3953#comments

“It will be evident by the end of 2008 that the current fiscal problems in California, which will eventually seem minor in comparison, will be increasingly severe in the two years that follow.”

“The administration that takes office in January 2009 will inherit the greatest set of financial challenges this country has faced since the Great Depression and possibly the greatest in the history of this country.”

Comment by waiting in_la
2009-01-02 02:04:20

Nice!

Wow as well to the Prof. and others who nailed so many other key ‘08 moments, such as the Dow breaking 10k by Sept. / Oct.

Reading this blog the pas 4 years has been nothing short of amazing! I have been thinking a lot lately about how much all of you have taught me.

Thanks and Happy New Year!

Comment by SDGreg
2009-01-02 08:06:49

I may have to already amend slightly my 2009 predictions. Based on Professor Bear’s numbers, it may simply not be possible for some locations in the CV/IE in California and portions of Florida to fall in line with my prediction and not fall to less than zero, so for some properties in these areas, the largest declines - both dollar and percentage, must already have occurred.

This is one of my favorite threads on the HBB each year. I learn much more about the likely range of possibilities and why these are more likely than I would from the consistently wrong concensus MSM view.

I have learned so much through the HBB the past few years. There are some very smart people that post on this blog. I have learned so much from them, both directly and through references to other sources of information. My base of information has improved tremendously.

Thanks Ben for your continuing efforts with this blog!

 
 
Comment by CA renter
2009-01-02 04:11:19

Nice job on the predictions, Greg!

Comment by Muggy
2009-01-02 07:02:31

You’re doing a lot better than SDJeff!

 
 
Comment by NOVAwatcher
2009-01-02 07:07:32

In that same spirit, I predicted that NoVA “will be off 18% ±2% by this time next year.”

http://thehousingbubbleblog.com/?p=3953#comments

drum roll please…

(1) according the the latest Case-Shiller (Oct ‘08 vs. Oct ‘07), DC-metro is off 18.1%

(2) according to housingtracker.net, the median price is off 21%.

(3) according to MRIS, the median sold price for Fairfax (11/8 vs. 11/7) is off 16.9%.

(4) according to NVAR, “the average sales price in November fell by 17.68 percent from November 2007, to $423,088, compared with last November’s average of $513,930.”

Comment by dc_renter
2009-01-02 16:08:54

Well, my rent keeps going up 6% (in dc metro) a year so all this is moot to me. dammit.

On another note, any predictions for federal gov’t layoffs? I keep hearing that word “never” as in the Federal gov’t never lays off people. Also, words like DC is “recession proof” … heard it today at work. I say with all the money the Fed is throwing around, it will have an effect. Just like Freddie/Fannie kept buying up all those garbage mortgages… the buck has got to stop somewhere.

 
 
 
Comment by ouro verde
2009-01-01 20:38:05

SDgreg, you are the man.

 
Comment by Professor Bear
2009-01-01 21:52:10

Wall Street Journal

* JANUARY 2, 2009

The Doomsayers Who Got It Right
More Bad News in Store for 2009? Last Year’s Cassandras Are Still Gloomy

 
Comment by cactus
2009-01-02 07:53:43

I quickly scaned the 2008 predictions and liked this one best

novasold
I predict that there will be massive Q! stock market drops b/c of financial disclosures that a major US bank or two are not having liquidity problems but are insolvent.

2008 was an exciting crash year all assets but treasuries went down.
I has to back pedal and sell commodities in 2008 and buy bonds.

So whats going to happen in 2009 ? I wish I knew but it does look like a treasury bubble

 
Comment by Ginger
2009-01-02 10:08:39

Remember the old saying, “bottom picker get dirty finger.”

 
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