patrick.net

What is wrong with changing arguments?

Playing contrarian is a good way to hear someone's point of view, and to ascertain the solidity of it.

Some of the people on this site have been helpful, others just reply to a contrarian argument with insults.

@Fuzzy,

Bubblizer is based on the time value of money, which will stand to increase any loss over time realized by the difference btw. owning and renting. Is there a time-value for quality of life? Is quality of life more important now than 10 years from now? It should be, as the chances we will be alive goes down the further out you look.

You may be a bright engineer, physicist, whatever. But you could use a nice basic finance course. There is good reason that, when you look at a typical silicon valley company, the engineers are almost always the single worst group of employees when it comes to monetizing their stock options (and the best are usually the lowly bean counters).

TVM "tends to increase the difference over time"? Isn't that the point??? I thought that physicists understood first order derivatives.

And for the record, the Bubblizer forces you to choose a period -- a fixed number of years for which you are planning. Set it to 2 years if you don't care about the difference over the entire time you'll be living there, paying your loan(s), and waiting until the fateful day when you need to sell it to the next bigger sucker -- or so you hope.

There is a time value for quality of life. Economists call this utility. It's what *you* get out of something you buy. If you get more utility than someone else, you'll be willing to pay a higher price. That's what makes a market. But this utility also comes at a price. Nothing is priceless. Simply, because you don't have infinite dollars.

If you feel good saying "but you can't put a price on seeing your kids run through your own little garden on a Sunday, August afternoon", then so be it. But I can put a price on it for you. It's the maximum amount you are willing and able to suffer.

The problem you face is that (a) many people to whom you'll be trying to sell your house in years coming will not be _able_ to buy your house for a price that causes you to break even; and (b) many other people who can afford your home will not be _willing_ to pay your future price for the utility the believe they'll receive.

SF guy,

"For the most part it means people like me who with creative financing can afford $750K, will be able to grab a safer loan for the same house"

I was not referring to myself personally. But in general people with similar incomes.

Randy,

I was not downing on the Bubblizer. It seems to be a handy tool.

If you reread what I wrote, I was not discounting TMV. And I noticed you even have a cell in the spreadsheet for how much owning a house is worth a month to the user.

It was that cell that spurred me to think about what it is actually worth, and if that can be as simple as $/month. Seems to almost be more of a philosophical question.

btw... perhaps an improvement to the bubblizer would be to encapsulate different loan structures.... like the creative ones for instance :)

What is wrong with changing arguments?

Playing contrarian is a good way to hear someone’s point of view, and to ascertain the solidity of it.

I agree with that. I also suggest that you ignore the namecalling from our troll-hunters and not reply in kind.

Everyone needs a foil and thus I think it's wrong to scare away borderline bulls like yourself. What you should realize is that bear crowd here is just somewhat tired of fighting the same battles here and with their co-workers, friends and inlaws. It's always us admitting that we could be wrong and that we need to pay attention to the data and to weigh the numbers between buying and not buying. Then we get lectured to by someone in a 1 year adjustable ARM who's been paying the negative amort amount every month and yet has scored a cool $200K of paper wealth (and used half of that on their cars).

Yes, you could keep the place and work like a dog to be able to upgrade when the cards come crashing down. With a 6% exit fee, I'd probably stick it out myself, but fortunately, I'm not in your shoes.

It was that cell that spurred me to think about what it is actually worth, and if that can be as simple as $/month. Seems to almost be more of a philosophical question.

It is nothing philosophical, perhaps just emotional.

On the original topic of Groupthink:

From the "groupthink wiki",

"antecedent conditions" likely to encourage groupthink:

* High stress from external threats with low hope of a better solution than the one offered by the leader(s)
* High group cohesiveness
* The persuasive strength of the group's leader

- This group is not highly cohesive.
- This group has no de jure or de facto leader. Patrick is the originator and technical/legal owner. Admins are appointed by Patrick, largely based on their authoring contributions and luck of timing.
- Anyone may take up the call to author, without implied or explicit censorship by any "leader".
- External threats would be the continued housing bubble itself. This group offers no direct protection from that threat. This group offers indirect support for others who similarly decide to attempt to avoid damages from the housing bubble by taking personal action, not by submitting to the group which promises to take action on their behalf.

His/Her eight symptoms indicative of groupthink:

1. Illusion of invulnerability
2. Unquestioned belief in the inherent morality of the group
3. Collective rationalization of group's decisions
4. Shared stereotypes of outgroup, particularly opponents
5. Self-censorship; members withhold criticisms
6. Illusion of unanimity (see false consensus effect)
7. Direct pressure on dissenters to conform
8. Self-appointed "mindguards" protect the group from negative information

1. Some here have the illusion of invulnerability. My own judgment counts exactly one in that group. Everyone else has expressed reservations, fears, doubts, and realism to greater or lesser degrees.

2. I don't think anyone here believes this group to have superior morals to the outgroup. There may be some self-righteousness held by savers, when comparing themselves to debtors. But that is not exclusive to this group. Probably 100% of the population over age 50 in the Midwest also 'fails' that test.

3. This group has no shortage of devil's advocates, internal contrarians, and even anarchists.

4. This group does tend to share stereotypes. But #3 above always comes to play when such stereotypes become broadly dangerous. I myself ran a heated thread on the value of treating future f-d buyers graciously.

5. Self-censorship is rarely the case here. This is the positive, for all its negatives, of anonymous participation. We have also recently relaxed our Troll-banning rules in order to prevent just such self-censorship.

6. There is no illusion of unanimity here. We can't even agree on whether there will be a soft/hard, sticky/not-sticky (it is sticky now, damnit!), deflationary/inflationary/hyperinflationary resolution. We can't even mention gold without raging debates about how the Federal Reserve system is illegitimate.

7. There may be direct pressure on dissenters to conform. But this seldom, if every, occurs with unanimity. I cannot recall a case where at least one, if not a few regulars will come to the defense of a dissenter -- even a rude or obnoxious one.

8. There are self-appointed would-be mind-guards here, as with any popular blog. But such mind-guards are only dangerous when they are all equally aligned. Here, mind-guards often argue directly against one another. And when one of us starts slipping into the mind-guard role, as I have done myself, we are not so gently reminded by the community that such intellectual bullying is not welcomed.

people like me who with creative financing can afford $750K

That's just the point you myopic twit, you can't afford the house if you had to use creative financing. You can afford the payment, not the house. That's ok if you're scared little buddy, as long as you have at least 6 months of cash on hand sufficient to cover all your monthly nuts, you should be just fine. You do, right? Then move on, I am sure there are any number of blogs that are “BA real estate never goes down” focused, why not find one of them? Your type comes by here periodically to boast, troll, and just generally bother people with inane bullshit. Why not just spend your time on craigslist, you are sure get all the attention you so desperately crave there.

Fuzzy,

Fair enough. I put that cell in particularly for that reason, valuing intangibles. It's very hard to do; I don't think anyone is capable of doing it for themselves. I know I can't. But it's always good to at least think through such things so you can "plug" the number into that cell that justifies your price, and see just what you will be paying, like it or not, for all that quality of life. Then you can ask, "is it worth it?"

I'd love to encapsulate complex loan structures. That is insanely difficult, and I won't engage in such a project unless I'm somehow strongly motivated. And most people here know I'm a hard-core capitalist, so you can deduce said motivation.

Btw, it is the very complexity of things like interest-only, option payment, adjustable mortgages that confirms for me this is all reached a level unsustainable hysteria. It would take me many days or more to fully model such a loan package in Excel, if I include opportunity costs. If you add in piggy-back loans, cash at closing, and HELOCs, MEWs, etc. that one might bake in, I'm not sure I can model it without writing an old fashioned computer program to brute-force it.

And someone watching a Ditech commercial at 11:15am on a Tuesday while flipping through People is supposed to understand what they're getting into?

dryfly,

I recall your mentioning this chap (and his quandry) before. Over at Ben's Blog 3 out of 5 articles are about FL! Mind you, Ben doesn't write 'em, he just posts 'em. They along w/Vegas and San Diego are so far advanced some are now re-calculating their market tops to have been in 2004. Yeah. Believe it.

So wether you're Heliben, trying to salvage the ship or a gold bug waiting the apocalypse there are far more interesting things going on right now than the BA. Squeaky wheel gets the grease.

Bryan,

Welcome aboard! Is FL as messy as we're being led to believe over on Ben Jones' Blog?

In response to Face Reality:

Oh, I think it will come home to roost in SF proper. And Marin. And despite the specialness of morning fogs chilling the air.

I live in Sarasota. It is an especially attractive seaside town - a near-perfect expression of what most people want Florida to be. People have been moving here quite steadily for years. In its particular way, it is as much admired as is your own city.

It is the 'recent middle class' which is unwinding here now, and surely they're not a purely local phenomenon. They weren't brought up in the anticipation of their recent good fortune, and they're unwittingly subject to all the classic foibles of the newly rich. It hasn't required the operation of international trends or monetary policy (contributory as we know these to be) to place them in harm's way. They've had to spin their priorities as it were out of thin air and have looked to their neighbors - similarly occupied - for confirmation and a peek at the scorecard.

Perhaps San Francisco has no such people. But as I believe they are as well-represented where you are as here, you'll permit me to doubt it.

Randy,

speaking of loan structures...

when I signed the dotted line on mine, I was essentially making a bet that in the next 10 years there will be a reasonalble rates. Granted, they were at an extreme low (they had just started to move up ) when I bought, but my own relative interest rate will go down compared to the prime as I get better credit.

My credit wasn't the best thanks to my lazy father, but that's a different story.

It looks like rates are moving down now. Do you think it would be a wise move to lock in my big loan into a 30 year fixed? Not right now, obviously, but perhaps a year from now.

As it appears I might be in this one for the long haul, I'm taking a substantial risk that once the 10 year fixed runs out interest rates won't be out of control.

"only they are still liquid and oblivious"

Well there's an earful! They're just going to have to look at it like a "hazing ritual" where having your eye-brows shaved and jock filled with Nair (TM) aren't the worst things that could happen to a person. Don't worry BA. It'll grow back........eventually.

Tony Bennett?

As in "I left my heart in......."?

SF Woman,

I found it by typing "san jose housing market"

it was the first result to pop up. More people will be reading it than you might think.

Cult? What, the Reality Cult? LOL!

Earlier speedingpullet brought to our attention that "we" don't have to prove ANYTHING to bulls! No more throwing down the gauntlet challenging US to disprove "their" wild @$$ theories. Enough!

Now, we will no longer tolerate being treated like some radical splinter group when it is in fact the MEW fed masses that are engaging in HELOC cult behavior!

Semper Fi!

SFGuy,

How long did you think a BA blog could go on without some reference?

Do admit.

Bryan,

No probalo!

Anyway your comments are not lost on us. That's why after a 400% run-up we have a 10% pull back and NAR runs full page ads telling us it's a great time to buy! (or sell?). What?

The other aggravating part of dealing with so many of the bulls here is that they don't seem to get it. It's "o.k" to be bullish! It's even "o.k" to be permanently bullish (you just have to find the right asset class for crissakes!)

In my business I'm forced to change horses all the freaking time. I don't fall in love with anything. It just doesn't pay. Every asset class has it's moment in the sun and then you move on. Their insistance on banging away on the same tired drum gets beyond old. It's even "o.k" to say "RE is my first blush, I'm just not adding anything more to more portfolio right now, but I AM looking at a few corporate preferred's right now?"

Everything has it's time, and it's place.

Is it just me, or is Paul Krugman lurking on this blog:

From his article today:

“It’s tough to make predictions,” Yogi Berra is supposed to have said, “especially about the future.”

Now, I know these old saws are dragged out whenever recession is discussed, but it's pretty funny considering the fact that I misquoted both of these jokes yesterday in this thread (see above).

Here's some more choice quotes:

Since last summer, when the housing bust became unmistakable, interest rates on long-term bonds have fallen sharply. They’re now yielding much less than short-term bonds. The fact that investors are willing to buy those long-term bonds anyway tells us that these investors expect interest rates to fall. And that will happen only if the economy weakens, forcing the Federal Reserve to cut rates. So bond buyers are, in effect, betting on a future economic slowdown.

How serious a slump is the bond market predicting? Pretty serious. Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we’re about to experience a formal recession. And since even a slowdown that doesn’t formally qualify as a recession can lead to a sharp rise in unemployment, the odds are very good — maybe 2 to 1 — that 2007 will be a very tough year.

Krugman's a smart cookie and no amateur. Watch out.

"I left my wallet in SF" LOL!

Actually I enjoyed my time there in the service and my wife has a cousin in Burlingame so we get down there from time to time! They do all the typical tourist stuff and really enjoy it. Truth is though, her cousin has never really been able to afford there and isn't exactly young anymore. If they don't see any relief soon there may well be an exodus of younger folks.

Cult? What, the Reality Cult? The Cult of Being Informed? The Cult of reading the FT instead of the Lereah Newsletter?

Nice... thanks, SFWoman!

HARM,

Great review of some of CR's gems up in that mutha too!

Sold for 855K above asking! etc. etc.

FuzzyMath

I can't give you specific advice. Not because I'm not allowed to, but because I simply don't know.

I'd say this about rates. They'll go up, eventually. I tend to believe the Fed will ease more before hiking again, instead driving up inflation. But I wouldn't bet my family wealth on that feeling.

As someone else who's also been an entrepreneur/operator for many years, I'll repeat what dryfly said: 'shit happens'. You can't ever be completely ready for it, but it will. I've had surprise lawsuits, director defections, patents undermined, a domain name stolen, and of course the mother of all cycles in the "telecom nuclear winter". I even once narrowly avoided a nervous breakdown by disappearing to Germany for a while.

For these reasons we've always considered only my wife's income plus 20% of my averaged income in our affordability. Most of our loans were 15 or 20 year fixed. We started our first home with a 30yr and a piggy-back 10% of value loan. But I had the cash for that 10%, it just wasn't legally liquid yet. I paid that off (plus about 4% more) two months after closing.

***I had the cash for that 10%, it just wasn’t legally liquid yet.

And note this was _not_ stock options related. It was related to contractual payment for my cut of a major source code license "we"* sold.

*meaning, "I", but that's another story. Did I mention the near nervous breakdown?

SFGuy,

Last year I went to Bay Area. Before Team Patrick showed up, it was a happy place. They had flowery meadows and rainbow skies, and rivers made of chocolate, where the homedebtors danced and laughed and played with gumdrop smiles.

Now, there's fear in the air and the laughter is gone. People are whispering about unhappy things they'd never heard before, like "price reduced", "option-ARM reset" and "revert to the mean".

Who is to blame for this sea change in sentiment? The speculators? The Fed? The lenders who supplied them with all that easy money? No!

Blame Team Patrick. Their reckless disregard for homedebtor happiness brought on this malaise today. Team Patrick, the blood of the victims of Kalifornia is on your hands! [HARM looks at his hands]

@Harm and @Jon

Now, there’s fear in the air and the laughter is gone. People are whispering about unhappy things they’d never heard before, like “price reduced”, “option-ARM reset” and “revert to the mean”.

Their loan will reset but their neighbors won’t until six months later. So for quite some time (months) that person gets the feeling that something’s wrong, but no one else has started to panic really. So they’re still hanging on as the value drops and the payment goes up, thinking, “is this right, or…?”

If only Rod Serling could narrate the whole thing.

Hilarious stuff. Keep it coming.

hmm, just stopped by the ol' facing foreclosure site to marvel at the latest:

"Borrow 50 Grand to Stop Foreclosure and Sell My Houses Creatively

This is one of the burning thoughts that I came up with during the facing foreclosure fast: I really want to sell all those houses ASAP and stop foreclosure! I’m sick and tired of having all this non-performing inventory continue dragging me down for so long. I need to be moving forward towards my goals of becoming a successful real estate investor. [DS: emphasis mine]
...
That’s great because the lenders will not loose any money on me and the credit-challenged buyers will get their dream of home ownership. We have the makings of a WIN-WIN here.
...
Also, I should borrow a little bit of extra money so that I can invest into additional marketing. This way I will have more buyers to choose from and can pick “the cream of the crop” instead of acting out of desperation. Christmas is coming up and I need to get those houses MOVED!!
...
What do you think of my idea to borrow money, stop foreclosure and sell the houses creatively?"

it gets worse if you read the whole thing...

Can anyone guess where I cribbed my "Team Patrick" speech from?

Bryan said: Investors will figure out sooner or later that they can make more money on other investments

I am not so sure - most of the flippers who call themselves "investors" aren't really that sophisticated. Flipping a house was pretty much the only trick they knew. They will go back to their mcJobs when they figure out they are losing their shirts in RE, but I doubt they will have any other "investments".

BTW, don't worry too much about explaining how 20% drop after a 300% gain is a 60% fall when denominated by the original, unappreciated value. We get it, and most of the regulars already have discussed it before.

SP

Kudlow is a partisan in rationalist clothing.

I say pull his show, cut that other sound effects clown back to a half hour, and put on Maria for an extra 90 minutes a day.

@SFGuy --you got it!
I just slightly padded & re-phrased two monologues given by Team America's 'Sean Penn' & 'Alec Baldwin'.

oops, should've [sic]ced the 'loose'... next time, there's always next time...

funny treatment of the gurus here, i can't resist, then i've gotta stop avoiding writing a submission concerning corruption in state planning...

"Then the ultimate, Casey doing a parody of a guru RE investment seminar.

SNL cast members make up the audience. Our young hero RUNS onstage to thunderous cheers.

Casey: Welcome everyone, who’s ready to do some sweet deals? I can’t hear you. Who is ready to do some sweeeeeeet real estate deals?

The crowd erupts. Casey runs around the stage pumping up the innocent deer who await their fate. He points at the screen behind him and clicks his remote.

A single wide trailer shows on screen.

Casey: Who wants to live in this house? Who wants to buy this house?
Crowd: Booooooooooooo!
Casey: I don’t either. But let me tell you what’s inside that house. Pure gold. No, there are not real gold bars in there. It’s a little thing I like to call cash out.
The crowd roars.
Casey reaches behind a podium and pulls out a hammer.
Casey: Who can tell me what this is?
Man in Crowd: A hammer.
Casey: True, but it’s not just a hammer. It’s the key to unlock the gold. I like to call it my sweet deal tool kit.
He clicks his remote. A gleaming version of the Taj Mahal shows on screen.
Casey: With this hammer, I turned that dump into this majestic castle. In FOUR days.
The crowd roars. Another click of the remote. A huge pile of cash.
He reaches behind the podium and pulls out a Starbucks.
Casey: You can buy a lot of these with that kind of sweet deal.
Click of the remote. Several hot strippers on screen.
Casey: And a lot of these.
More remote clicks. A homeless guy sitting in his new Mercedes. A dog sitting in a fancy dog house.
Casey: Even a dog can do it.
Lady in the crowd: You are a fake! You ripped off my grandma with this trash!
She pulls a gun. At that minute, the Feds bust in, guns blazing. Our hero is mowed down on stage.

Flash to Casey in a limo: That should get the blog traffic going again. "

MMMMMMM sweet delicious hate, although I do feel a bit dirty when SFWoman drinks from the delicious hate fountain.

Whose favorite stock was Yahoo ? Confused Realtor ?

Well, the most prominent news on Yahoo's page today is about risnig defaults and foreclosures. Check it out.

I like Yahoo.

I could be wrong though, since I never saw F-911.

i suppose you don't have to see it to appreciate that MM is a kind of clown in a performing sense. conversely, i haven't seen TA yet, i have to confess... but i lifted the GWB talking to his dogs quotes in the last thread from the screenplay to F-911 sitting on the desk right here next to me (as distinct from the F-111 fighter bomber)

Jon said:
Their loan will reset but their neighbors won’t until six months later.

Unless one is in the mortgage biz, it is probably impossible to get reliable data on the trend and magnitude of loan resets. MSM sob stories about fucked borrowers lag by a few months.

But is there a reliable way to find out current stats about Notices of Default? There are now sporadic news reports of spikes in the numbers of these being sent out. Since these are legal notices, the data should be publicly accessible - does anyone know of a site which tracks this?

SP

Speaking of Marin, I'm becoming so annoyed by the average denizens of this enclave that I've taken to toting around my new Sony HDR-SR1* everywhere so I can document their lunacy for later blog publication.

*which I can afford without barely cause for concern because I don't pay 3.5X my current rent for a shitty McMansion on stilts with no yard, no garage, and pissy ass trust fund baby neighbors who like to brag about the $1.2M POS they just bought next door, which wishes it was a McMansion. Kind of a WalMansion. Literally, 2 tiny homes illegally "glued" together with a little covered walkway hall. That, some granite, and idiots with money gets you $1.2M in Marin.

At least these people don't know how to drive and are aggressive about it. On Monday some guy rolled down the window of his S-Class and yelled that he would sue me if I didn't quit filming him, because he was a lawyer. Camera $1500, Starbucks hot Chi $5, some shithead making an ass of himself for me in public: Priceless.

...I've gotta quit drinking what X is serving.

Randy, I detect stress in you. Go have some sushi.

Not a bad idea. It feels like a Sushi Ran night.