patrick.net

George says,

"I boast about getting into the foreclosure market once this whole thing tanks around here, but its a sobering reminder that I may eventually be purchasing the foreclosed properties of my co-workers and friends. "

Another vulture? Even worse if they become your tenents. I feel bad about anyones loss, but I do remember the "investors" strategy of inflate and dump on the next fool.

DinOR

The Housing Bubble may not permanently kill the middle class. If the economic shock is severe as you think, many new laws will come about restricting easy finance. Then house prices will have to fall to where they people can afford them at the then current emplyment/wages and down payment requirements. Remember also, about half the homes in the country have no mortgage at all. Everyone will lose the phony equity, but middle class affordability will return.

People may be worried more about how to afford to heat/cool the 3500 sqft McM than how to purchase it.

StuckInBA Says:

> Most Americans are completely dense about Middle East.
> Including those responsible for the nation’s strategy.
> How many even know the different ethnic groups of Islam
> and how the perceive each other? Or the complex
> dynamics of Shiites and Sunnis?

It’s not just the Middle East and Islamic religion…most Americans do not know much about anything (other than the top vote getter on the last American Idol show) these days.

Most of my (well educated and less dense than average) Catholic friends could not name the Catholic priests that run St. Peter & Paul’s or St. Ignatius churches and most of my (even better educated and way less dense than average) Jewish friends could not tell me the difference between an Orthodox and Reform Jew…

Remember also, about half the homes in the country have no mortgage at all. Everyone will lose the phony equity, but middle class affordability will return.

If it's phony equity, they never had it to begin with. They are not any richer or poorer and in actuality, it's better for them since they can grieve their taxes downward and gain on cost of living.

> Most Americans are completely dense about Middle East.
> Including those responsible for the nation’s strategy.
> How many even know the different ethnic groups of Islam
> and how the perceive each other? Or the complex
> dynamics of Shiites and Sunnis?

fools rush in where angels fear to tread? as astrid said, the neocons got 1 vital part of the strategy wrong -- they thought they would be welcomed as saviours in iraq by an oppressed populace...

Allah,

Well put. I would like to see the taxes go down as you mentioned, but I wonder if the localities will raise the rates to make up for the "shortfall" in assessments. They may not consider the current inflated assessment reciepts as the windfall they clearly are.

This blog was greatly helpful to me in terms of making a decision that I now feel better about making.But As pointed out above:

"First of all, it’s WAY to early to declare victory. House prices at best have only stalled."

- I totally agree with this. yesterday on ben's blog, there was a story with this quote:

"The Gilroy Dispatch. “Developer Gary Walton said he thinks the time will come when so many fees are tacked on that even fewer Californians will be able to buy a pricey sun-drenched home. ‘You know, I don’t think I have to worry about it because pretty soon nobody will be able to afford to buy a house (in California),’ he said.”

This speaks volumes. As we now stand, the last 5 years were all about getting people with no credentials easy loan money, cutting layers of red tape, and basically helping to initiate an era of irresponsible financial decisions from both the buyer and the RE industry side. With a falling market, the RE and loan institutions are going to want to find ways to protect themselves. I'd say they already have these ready to go. As the quote mentions, even if prices come down, its possible that so many extra fees will be added that the price might as well be even higher than they are today.
I have a few ancedotal buckets of observation that I've made, and only because I'm thinking about my future living situation. First of all, I think in some of the more established neighborhoods with long time residents like Alameda, the inventory is going to continue to rise signifigantly. The reason I say this is that it seems that suddenly, all these older homes that have been lived in for decades are suddenly being fixed up. I see this same action being played out in pheonominal numbers. The reason I can tell is that compared to last year's number of lawn mowers found on the street, I've gotten double of last year's count. Why? Because people seem to be getting desperate and throw everything out on the street in preperation for their open houses. last week I saw a huge dumpster in front of one victorian. The dumpster looked like it was simply full of a household's worth of perfectly good furniture and posessions. One was a practically brand new 18 speed bike. These people want to sell, and sell now, even if they have to go to extremes like tossing out all their material posessions. It's weird to me that these people suddenly realized what is happening and decide that NOW is the time to sell the ole' family home and add to an already swelling inventory.

Another thing I've noticed is that if you look on the Rants and Raves section of any number of craigslist sites throuhout the southern region, and these include little rock, Montgomery, Atlanta, and especially anywhere in North Carolina, there were many Californians asking what its like to live there, and that they are moving to that region. It's almost like the " go west young man" slogan has been reversed.

The way that I see things now is that honestly, I wouldn't mind seeing the boom continue in California, NY, MA, FL, and NV for another year or 2. I doubt it will happen, but if it did, it would assure that the economy will hold together long enough for me to be able to get all my ducks in a row.

Otherwise I see a massive recession on the way right when I don't need it. I hope that this recession only affects the areas that got too caught up in the bubble business, but since these regions have most of the country's industry, especially financial business, I can see a few state recessions in CA and NY causing a national one.

SFWoman Says:
I’d be interested in different opinions about this, it gave me the chills, but it wouldn’t bother me to do it to violent felons/sex offenders.

hmmm, no longer the land of the brave OR the free. incarceration rates are the highest in the OECD, people are litigation crazy and expect the courts to solve all their problems, your social security no. is now tied to your credit history, etc... the RFIDs will make it a police state...

with the rice grain RFID, there would be problems even with the tagging of offenders, you would probably be able to obtain a simple reader device which would identify such people in public places, and you'd probably get lynch mobs forming... altho there may be ways of using it wisely and fairly, i don't know... it implies the use of scanners everywhere... sounds like a schwarzenegger sci-fi film plot to me...

Headset,

True, true. I was definitely wording things in train wreck scenario mode. And that may yet come to fruition. We don't know. I have heard that about half of the homes do not have mortgages but wonder how many of them are outside of OH, IN, IL, IA, WI and MN? Oh and MI and the UP? Mortgage brokers HATE to cold call these states b/c outright ownership there is common practice. So is staying in the same town for generations. For those WITH mortgages to pay, things are going to get tougher, no doubt.

My good friend (who's seldom wrong) tells me that underwriting standards have come back in vogue. This does not bode well for FB's who's lifestyles and consumption habits have become increasingly dependent on equity extraction.

Unity of purpose does not preclude diversity of opinion. It does, however, require a tacit level of respect for diverse opinions. Such is very rare in today's society, but it was the norm here for a long time.

You’re saying that being friends with people and fantasizing about a new world order in college aren’t adequate qualifications for ruling a divided, totally artificial country that had been tenuously held together by a strong arm dictator?

hmmm, that might just be, heh. hussein had a bloody difficult job, if you ask me... i can't begin to understand the mindset of washington neocons, tho, must be groupthink... there's a lot of good minds on this forum alone, most people here are better qualified to make foreign policy and run the country...

As a survivor of the last housing bubble where I watched prices in Los Angeles drop 50% on average from 1990 to 1994 I have mentioned that I things will be a lot worse this time due to not only the increasing interest rates and variable rate IO loans but the larger numbers.

I think that many of us have heard the “Frog in the Pot” story (if you turn the temp up slowly you cook the frog, but if you turn the temp up slowly the frog jumps out). People are just like frogs and if the temp slowly rises in a hot tub they will stay in but if you sent in a quick blast of much hotter (or colder) water they will jump out.

Around the end of 1986 a friend’s brother bought a home for about $180K in Woodland Hills. In 1990 the house had doubled in value and was worth about $360K. Over the next 4 years the market cooled and the house lost about $3.75K in value a month. The reasons my friends brother did not “jump out” aka sell was that it was cooling slowly and the temp. aka price change was not much and rent in the area would be more than his (fixed rate) mortgage payment.

Around 1999 a friend from grad school (who had a great job on Sand Hill Road) bought a little fixer upper not far from where I grew up on the Peninsula for $1.1 mm that would probably sell for over $4mm today. Everyone was happy to watch homes in the Bay Area go up by more than $30K a month, but when they start dropping by that much I think that a lot more people up here will jump out or sell then we had in S. Cal in the 90’s (especially since you can put the $500K you get tax free in to a CD and cover a big part of your rent)…

I think that many of us have heard the “Frog in the Pot” story (if you turn the temp up slowly you cook the frog, but if you turn the temp up slowly the frog jumps out). People are just like frogs and if the temp slowly rises in a hot tub they will stay in but if you sent in a quick blast of much hotter (or colder) water they will jump out.

i wrote just that in a letter to the editor of the SMH 3-4 years ago, with reference to overpriced $hit boxes... didn't see the light of day :(

The RFID devices, if ever adopted, will be defeated. People will find ways to render the "rice grain" inoperative, just like car thieves have got around all the high tech (some RF based) anti-theft devices.

SFWoman Says:

> I had to buy my Jewish sister in law a book about
> Judaism because it drove me nuts that she knew
> nothing about it. I knew a lot more than she did
> about her religion and I’m a WASP.

One of the funniest books I ever read was a joke book titled "How to be a Jewish Mother" (a friend's Jewish Aunt gave it to his Protestant Mom). One of the chapters was "Using guilt to get the kids to do what you want" and another chapter was "What to do if your child does not want to be a Doctor, Lawyer or CPA"...

yeah, they'll dig them back out or something, i spose... there isn't a technical new-fangled solution to every problem, that can also be a mistake in thinking...

DinOR says:
"I have heard that about half of the homes do not have mortgages but wonder how many of them are outside of OH, IN, IL, IA, WI and MN? Oh and MI and the UP? Mortgage brokers HATE to cold call these states b/c outright ownership there is common practice"

In that case, after the big crash the rest of the country will in economic servitude to the smart folk of OH, IN, IL, IA, WI, MN, and I add VA. We will be free while the rest grovel in the salt mines to pay off their self imposed indentured servant status!

Peter P,

As usual, you're right! The 1031 is actually called "Like Exchange" and was never intended to be solely RE. Somehow the use of RE exchanges has almost totally obscured it's versatility. Seems every weekend some "rugu" is sponsoring a RE 1031 Exchange Seminar at location near you! This is a large part of the reason "I" hope the 'Unity' will continue.

The next time someone boasts they're "gonna 1031" I can say, "Really"? Were you going to 1031 an aircraft equipment lease or livestock? When they give you the patented "huh?" look you can say, "Oh........ property" (with much contempt).

Interesting side note: Even the most casual research revealed that 1031's (of the RE variety) generate endless litigation as the IRS can disqualify the transaction even after it's been completed! So both the Rugu and Realtors (TM) can be exposed to liability later. It just grinds me that so many people describe this as being such a "lay up".

FAB,

Funny! I worked with a guy that was "jewish" twice a year. He would take off Yom Kippur and Rosh Hashanah. (Actually it wasn't such a bad idea) b/c typically stock market volumes are quite light on those days. What bothered my co-workers was that for a guy that swore, drank and did drugs he was quick to get defensive if anyone said anything he construed as defamation? People got tired of it and finally just said, whatever dude. He was a fun guy to go drinking with though!

DinOR,

Yes, the 1031 is a guru's dream, just like the America Funds or especially Destiny is to loaded funds salespersons.

Take 5 $100,000 rental houses ($100,000 is the appreciated price, with cap gains), 1031 them into one $500,000 rental house. Rent that $500,000 house out for a year. Then kick out the tenent and live in it yourself for 2 years. Now you can sell it and use the "2 of 5" years personal residence rule to eliminate the cap gains tax. Would still have recoup depreciation, though. -THIS IS GURU SARCASM, NOT INVESTMENT ADVICE-

HeadSet,
Well... as someone headed for the "less evil" part of the country, I don't know if they will be in eternal servitude to we in the ole' red states. I think the opposite will be true, in that we will ALL have to pay for the overexuberance of the bubblezones. However, I kind like the idea of having a few calfornians in the yard to help me out with chopping wood, mowing the yard, and washing the truck. Yar!

HeadSet,

VA? I think not! The NoVA is expensive, Virginia Beach is expensive, Richmond is getting there, Charlottesville is expensive, and the vacation homes are pricy too. There's also tons of expensive new construction in all over, and I doubt any of them are owned outright.

Most of the homes without mortgages will be elderly people living in their original homes or in cheap homes in AZ and FL bought before 2001. They're still gonna feel squeezed by rising property taxes and insurance.

SHTF,

How many Californians does it take to wash a truck?

I think there's a general consensus that houses are too expensive. Even new buyers and recent sellers don't think the prices are cheap, they just hope the prices can go up further to benefit/vindicate them personally.

George,

I don't know. The Republicans are very good at demonizing Democratic candidates. I thought lots of folks were very unhappy with Bush in 2004 but they still held their noses and voted for him, because Republicans got to them subliminally.

The way I see the next presidential election working out in a way that might make everyone happy is that someone like Wesley Clark or Senator Frist run, with Clark on the Democratic side, Frist on the Republican. This would be my most ideal lineup because either men would make way better presidential nominees than the last one. Both of these men are very intelligent, and do not have interests that spill into the interests of both parties. They both also sound like good ole' boys thus will appeal to a wide audience, yet appeal to educated people as well.Either one of these people winning would make me more than happy. Clark should have been nominated last time. He was a hell of a lot smarter than Kerry.
The last election was all about two canidated pointing out how diffrent the two parties are, and personifying the kinds of people that exsist in both parties as diffrent animals. We need an election that brings the similarities together, and makes these diffrences less jarring. This way you don't have as much side taking. I for one will vote for the person who I think will do the best job. If that person is on the Democratic of Republican, I could care less.

Astrid,

You are quite correct. I do not think many people in VA who bought recently paid cash.

However, many people own houses bought before the bubble. In 1995, a new 3 bed 2.5 bath two car could be bought for $105,000 in the Peninsula/Norfolk/VA Beach area. A new 4 bed 2400 sq ft 2car could be had for $140,000. This was well within the reach of cash buys for a saver in his late 30s/early 40s.

I know that most people with the cash would opt to put the $105,000 down on a $300,000 and borrow the difference, but some did not. For those who paid cash, I consider it a triumph of responsibility over vanity.

For those who think paying cash is a bad investment for tax and opportunity reasons, you really need to work out the numbers.

the_lingus,

Well then stop working a 40 hour week and come on over to the 1099 side. I've seen some of your comments over at Ben's Blog and I suppose they put you in your place so you've come over here for awhile?

headset,

This link kind of sums up where I was going with continued pressure on the middle class. Please to notice that most of the "TIUTA" was SELF INFLICTED! www.post-gazette.com/pg/06222/712559-28.stm.

Let me know what you think!

astrid Says:

> I don’t know. The Republicans are very good
> at demonizing Democratic candidates.

I was punching buttons in the car this morning and clicked on KGO AM 810 in the middle of an anti-Republican rant by a crazy lady. I was surprised to hear Ed Baxter cut her off by saying "Thank You Congresswoman Pelosi"...

the_lingus,

Bush turned a 500,000 voter deficit into a mandate in 2000. And never misunderestimate these people's vote getting abilities. There's plenty of seemingly open minded people out there who share Bap33's opinions about Democrats. Beats me why, maybe their preachers told them Democrats were all born with 666 on their heads.

However, an anti-War Democratic win will push the US out of Iraq and maybe make some inroads to cut our crazy military expenditures. There's plenty of real problems to tackle at home without exhausting ourselves fighting neo-Colonialist wars in the Middle East. Wars are inflationary, so ending one ought to help curb the inflation pressures.

The NoVA area is awash in irresponsibly spent Pentagon dollars -- taking that money away (combined with other factors) should depress the prices nicely, I'd say 50-70%. Ten years ago you could buy a decent middle class home here for under $200K, now that place will go for $600K or more.

SHTF,

Frist? I would never vote for that cat murderer and callous legislator! Truth be told, I could never vote for anyone the Republicans could nominate, they'd all run way to the right of Nixon and Reagan and Bush I.

And look for Republicans to demonize anybody Democrats put on a ticket. They made Howard Dean look like a raving leftist lunatic when his legislative policy was fiscally conservative and socially libertarian. They made Kerry look ineffective and stupid when his legislative record pre-2000 is anything but. Americans have been trained to believe they should vote for the guy they'd like to have a beer with and make them feel good, whether that's with a George W Bush nationally or with SF "Progressives" locally. I still don't notice the electorate getting any smarter.

Please use the link which takes you to the Post Gazette, then just plug "Mortgage" into their search and it's the first article that comes up.

Homeowners Feel Pain of Rising Rates

Mr. Technology, YEP that's what they call me. Mr. Technology.

DinOR,

You link gave me a "Missing Page"

FAB,

LOL! Damn that is funny!

Headset,

My bad. Like I say MISTER Technology.

DinOR,

That articles funny - if an accountant can't work out that the loans are a bad deal, then what about everybody else?

SFWoman,

Agreed, no Hillary! Now or ever! She's basically the Republican's dream Democratic candidate - polarizing, compromising, built in lady MacBeth persona, still married to Bill Clinton but doesn't have his personal charisma. I don't think Democrat outside of the DNC actually wants her to run, and I think she's smart enough to forgo it in 2008. I hear her name mentioned much more often by Republican pundits than Democratic pundits.

I really do hope the Democratic grassroots overwhelm the Beltway DNC bunch and pick a governor from outside of the Northeast. The Beltway bunch are just terrible: grey, overly compromising, defeatist.

The only exception might be Obama, but I don't think this country's ready for him yet.

FAB,

So what? How many sane congress people do you know of? The Republican leadership isn't exactly better. Pelosi's job is to motivate the House Democrats and keep them in line. She's never going to win a national office or even a state-wide one, so she can say whatever as long as the people of SF votes her back.

And as a Democrat, I'd say she's a damned sight better than her predacessor, at least she's willing to put up a fight against bad Republican legislation.

DinOR,

Sorry, I posted that before I saw you MISTER technology post.

Good article. I see it as irresponsibility coming to roost. Refinancing incures costs, usually thousands, even if the rate is lowered. I know, they roll the costs into the loan. Why do people always have to be in a monthly payment mindset? Why not forget about any home you cannot buy with a fixed rate, then work to pay off the mortgage? I would love to see a national mindset where people expect to own thier homes outright by the time they are 40. And only the very young would take out a loan for a car.

the_lingus,

Yes, that is my answer. I worked a 40 hour + week for over 3 DECADES! I don't recall being treated remotely fairly by ANY of my employers (be the liberal or conservative) or who resided in the White House. So armed with a lower middle class upbringing and an Assoc. in Fire Science (and a TON of debt) a wife and teen daughters I started my OWN business and now find that I am treated quite fairly. I fund my OWN pension and have my OWN healthcare plan.

Guys like you need to stop blaming the administration, sack up and start making a meaningful contribution. Your presence on Blogs of this caliber is only for the shear joy of starting flame wars and nothing else. I also recall that folks over at Ben's are about as receptive. Be they liberal or conservative. Bye bye.

DinOR,

OOPS, did I miss the point? Was it about the financial illiteracy of not only the public, but the supposed experts?