patrick.net

SFBubbleBuyer says: Figure that you’ll wind up having to sell your 100k condo for, say, 60k. If that doesn’t make you balk, you might consider it.

What sane person wouldn't balk at losing $40,000? I would be interested to know how you arrived at your number. I could easily believe a 40-50% price decline in the Bay Area, considering that real estate has had a 2-3x run up since 2001. In northern Colorado, we only experienced 20-30% of price increases since 2001.

Our issues are somewhat different than the Bay Area. First, I feel that condos and townhomes were massively overbuilt in the last 4 years based on population and wage growth that never materialized. Second, we lost a lot of high paying jobs at HP, Sun, Advanced Energy, Agilent, Intel and other major tech employers. In a tech town, I think that damages your ownership base for the $250K-350K single family homes. However, $350K out here still buys a 3500 sq.ft. house (2500 finished) on a half acre lot in a beautiful neighborhood with schools that trouce California. We're nowhere near the Bay Area level of bubble mania. Third, our neighbor to the east, Greeley, has managed to rack up a ridiculous number of foreclosures thanks to exotic loans. It is mostly a blue collar immigrant town (hablas espanol?), and suffered several major plant closures over the past few years. It is a much less desirable town, but who knows what kind of drag those foreclosures will place on the local economy?

The failure mechanism that concerns me is around cost basis. Most of the people who lost high-paying jobs have lived here for a long time. Thus they have a much lower cost basis for their house, and if pressured enough, they might sell at considerably below what I might pay for a single family home. For condos and townhomes, I believe the same is true of builders still holding inventory--they can cut deeply because they are a business. And for properties that came back to banks, if they have a sudden flood of REO, they could also devalue my purchase.

Do I think that property prices could come down 40% here? In my opinion, no. But as people on this forum have often pointed out, if I put 20% down, it only takes a 20% decline to wipe out all my equity.

If I picked something up at a 20%-30% discount vs. the selling price from 2003, in most cases that puts me below the regression line for property prices, so even with a sudden implosion (people haven't really lowered prices yet, so that could happen), there is a very good chance that I'm still above water.

Whew. Sorry all for the long-winded analysis.

StuckinBA,

I haven't received the paperwork you mentioned, but I suspect that you are referring to the taxation of PFIC (Passive Foreign Investment Company). I strongly advise you to hold DBA, DBC and CEF in your IRA accounts which are not taxable, because PFIC is set up by IRS to discourage US investors to invest in foreign companies with passive income (read: foreign investment fund).

http://www.altassets.com/casefor/countries/2002/nz3254.php
Here are some pointers of how to manage them in your taxable account.

If a US company comes up with a similar product like DBA, I will sell my shares and switch to a US outfit. But such an option is currently unavailable. Another one that I've held for years to bet on the agricultural market is BG, but it is not a perfect hedge like DBA.

"population and wage growth that never materialized"

You sure? I mean, check again. Brand, I'm sorry. Until you can back up your assertions with charts, graphs and a note from your mother I move that the jury ignore that as hearsay! :)

But... but... bu..

There CAN'T be a bubble in the Portland Metro area!

www.katu.com

Scroll down to "Top Headlines" and click on the "Builder offers an amazing deal to buyers" link and then yuck it up! A 5,000+ s/f home for under $1,000 a month? Impossible you say? Not at Buena Vista Homes!

Seems there's quite a "glut" of homes in Happy Valley (a little south and east of Portland) where there's absolutely no sense of community and purchasing just about anything means getting in your car and fighting traffic. Good luck w/THAT fellas! :)

Brand,

I was slapping up a 40% loss as a 'worst case scenario' for you. 40% would be easy in the bay area, even buying at a 20% discount. My point was that if you really dug the property, and you have the reserves to absorb a 40k loss without breaking your bank, you might as well give it a go.

However, even if you're not as 'bubbly' there, it does seem to hold true that Condos suffer the most from ups and downs everywhere, as they're the cheapest entrypoint for investors, be they flippers or builders. So it's easy to imagine their prices crashing harder than SFHs in the area.

I would personally never buy a condo, just because I hate people living around me like in apartment buildings. I would move to a different town before buying a condo. Or just rent. (I dislike townhomes for the share wall reasons as well.)

It looks like they are starting to realize what is happening, but there are still some that are totally clueless! :roll:

I'll believe it when I see it. All these stupid articles have been predicting prices to go down for the past two years.

This to me means... once the hot season hits... prices may go up... but they won't be going down anymore.

"I see two possible starting points"

SP, I agree. Any rational discussion of an entry point should be "pre-bubble". I understand it's more difficult to gauge in the BA what with the tech wreck and all but if 2003 prices get blown out like "sh#t through a goose" yes, 1998 is just around the corner!

Ha Ha,

Is it "NEWC"? :)

Oh and it it looks like Accredited Home Lenders (LEND) is down over 57% and the west coast just woke up! Change that ticker symbol to "LENT"?

money.cnn.com looks like a veritable housing bear web site today! Check out some of the stories. I'll just post one link so the post doesn't end up in moderation:

http://money.cnn.com/2007/03/12/real_estate/new_real_estate_reality/index.htm?postversion=2007031311

"Scary math: More homes, fewer buyers"
...The problem with subprime lenders means there will be more homes in an over-supplied market and not as many people who can step in to make purchases.

or...

"NYSE moves to delist New Century"

or...

"Subprime lender Accredited stock value halved"
...Cash strapped company shares drop 52% as it weighs options to raise capital, boost its liquidity.

or...

"Record foreclosures in fourth quarter"
...Mortgage Bankers Association reports a spike in loans entering into some stage of foreclosure. Number of subprime borrowers late with payments is on the rise.

or...

"Is this the subprime apocalypse? (Or is it just a scary story?)"

******

This all came out on the same day! The rapidity and the force of the subprime collapse is really pretty darn impressive. The ripple effects through to the rest of the industry will be VERY interesting to see.

skibum,

Absolute hysteria! Dogs and children living together!

Funny how the MSM is now trying to "out bear" their competition after years of arrogant denial.

Jon,
Check out the link to that CNN article I posted. As the subprime collapse continues, the first "rung" of the housing ladder will get cut off, as the pool of entry-level buyers AND the money that enables many of them to buy goes away. This stalls out those selling these entry-level homes looking to trade up, which stalls the mid-level sellers, etc. etc., leading to a housing stalemate. Not only does this increase supply (foreclosed homes) while decreasing demand (lack of buyers eventually at all levels of the "housing ladder", but the nasty added effect is that it brings down prices directly via the foreclosure process.

The rapidity and the force of the subprime collapse is really pretty darn impressive.

It's amazing to say the least. NEW, NFI, FMT and now LEND all followed the same trajectory. Since LEND started last it fell fast. A month ago the stock was 25. On last Thu it was 12. Now it's below 4.

The real thing is, it doesn't even seem like an over-reaction. Their business model was worse than a dot com.

The MSM is completely in shock. They are now waking up to the fact that this was a house of cards. In blogsphere, the tone is simply, "Told you so".

Check this out, it's pretty funny!

Every Breath Bernanke Takes

StuckinBA,

What makes the price action (cratering) of the subs even more spectacular is that these aren't some "binary situation" biotech stocks that either (will) or (will not) get FDA approval! We've all seen charts like these before but typically from relative unkowns in highly speculative sectors.

I guess here the "binary situation" is that FB's (may) or (may not) pay back their loans and it took us until 2007 to figure that out? Was this really as complicated as mapping the human genome?

"causing fearful cluelessness to chase out greedy cluelessness"

Says it all for me! :)

Just wait for the Web2.0 bullshit to crack and jerk a bunch of people out of work. That will be when the BA loses it.

Web 2.0 is just vaporware.

Seems there’s quite a “glut” of homes in Happy Valley (a little south and east of Portland) where there’s absolutely no sense of community and purchasing just about anything means getting in your car and fighting traffic.

Or as California and the rest of America calls it, "Home"

eburbed,

What makes that significant is that "Happy" Valley constitutes about HALF of our "high end" (850-999K) listings in Portland! The other half being the "Pearl District" and the West Hills. So seeing them grovel for sales by paying 2/3rds of your mortgage payment for TWO YEARS is a major black eye for the "bubbles are for bathtubs" Portland market!

"Homey" isn't it?

parents with a bad case of the school-fetish.

Hey ! :-) You are dissing Miller-Lynbrook ? Watch your mouth, next you might say something about Monta Vista !

It is not only the first-home-buyer doofus who needed the suicide loan. Often, the trade-up buyer had to take the proceeds (usually about 300K-500K) from the sale of the first home AND another suicide loan to pitchfork themselves into a McMansion in Crappertino (about 1.5M).

Sigh. These are the people that baffled me the MOST. They were not going to be "priced out forever". They were lucky to have been here to purchase pre-1998. Most of them had really good equity. And they decided to screw themselves.

One of my colleagues had purchased a house for like 200K 15 years ago. A BA native. He almost owned it completely. Then one day decided to move to Saratoga, bought a 1.5M house with -ve amortization. This was in 2004. First time I heard that term. The madness that has been going on is beyond words.

The MSM is completely in shock. They are now waking up to the fact that this was a house of cards. In blogsphere, the tone is simply, “Told you so”.
I must say, I am in total shock. Some of the more daring types were shorting (and losing their shirts) on the HB stocks last year (see Ben's blog). Most everyone else on the "Internets" was talking about how the ARM resets would trickle down and eventually bring sanity to the market. About the only hint of this &%$#@! storm was a couple of MSM articles and many first person blogosphere accounts of the massive fraud that was happening in the marketplace. Amazing how "free money" brings the creative folks out of the wood work.
I hope the "pine table" ends up in the Smithsonian when all is said and down.

The technology (JSF, vXML, SOAP) and collaborative-content aspects (wiki) are quite real. Where it starts to come off the rails is when you look at the business applications and the business model. Just like back in Y2000.

Yeah, but technologies do not make money. Businesses do. :)

Schools are really over-rated. Let's just say the kid goes to a good elementary school, a better high school, and then Stanford. So what? He will just become YET another geek squandering his life in a cubical.

The subprime story is making me nervous. My biggest fear in my life right now is missing yet another great shorting opportunity.

He will just become YET another geek squandering his life in a cubical.

Better than squandering it at a french fry station.

Good schools DO help kids have more choices in what they do with their lives. But they won't turn a moron into a doctor. I can understand not wanting to live in a district with really crappy schools, but at the same time I don't think it's worth 200K-500k more for a house with a school district that's 'tops' over a house in a school district that's 'good'. The parents that demand all schools over 900 API for their kids and pay so much more will probably not get a much better education than schools in the 800s. People who won't consider a school 'good' unless it's in the top 5% are a little crazy. It's especially funny when you meet somebody who's looking for those schools and you meet their kids who are decidedly 'average'.

You shouldn't use the retarded levels that some parents will go to for 'super schools' to dismiss the fact that schools DO have a valid impact on housing. And usually a self reinforcing one. Schools get some of their budget based on local taxes, so higher house prices usually result in better funded schools. Any township wanting to 'gentrify' itself a bit would be well advised to start boosting school funding.

Sub-prime problems? I think Alt-A will be a BIGGER problem - back in 04 we had a broker tell us we should just state the income we needed to get the house we wanted and laid out a range of salaries against a range of house prices to show what our stated income would need to be for a specific price range! He did not want to know what we really earnt at all.

Of course, we thought that was just crazy, so we didn't go for it!

SP,

XP == S&M ? That's a great one. :-))

But I MIGHT like lap programming depending on who is sitting on my lap.

Claire,

I agree. Besides the distinction between sub and Alt is almost non-existent which we're about to learn here shortly. That IS funny though. The MB was basically saying do you want to lie a "little" (and live in a dump) OR... lie a "lot" and have a place you can both be "proud" of!

What I should have said is, borrowers that elected to go the sub-prime route DISCLOSED their credit short falls whereas Alt A borrowers elected to CONCEAL them?

So....big difference!

You have your pick of Gollum, “Pat” from SNL, or Chris Farley.

I choose Gollum. At least he's occasionally funny.

Better than squandering it at a french fry station.

Only superficially. Did you mean Freedom Fries? ;)

Any township wanting to ‘gentrify’ itself a bit would be well advised to start boosting school funding.

How does school funding work in California?

In most places, local property taxes goes directly to the schools - with some state aid.

I thought schools here are completely paid by the state, to ensure equality and all that jazz.

If that's the case, then spending per pupil should be the same in all schools in CA... right? So what can local cities do?

(Ignoring the strange edge cases where Gunn parents donate $2k per student to hire a music teacher, etc)

I thought schools here are completely paid by the state, to ensure equality and all that jazz.

The best way to ensure inequality is to attempt equality.

NEW has been de-listed and is no longer view-able @ Yahoo finance, but you can still see the chart for it under the ticker "NEWC" at Bloomberg:

http://www.bloomberg.com/apps/cbuilder?ticker1=NEWC:US

The 5-year chart is my 'fav --truly a thing of beauty! :-)

Dang... It's under a buck according to the bloomberg tracker...

The subprime story is making me nervous. My biggest fear in my life right now is missing yet another great shorting opportunity.

My biggest fear now is much much faster than anticipated RE meltdown. We knew ARM resets are coming en masse, we knew it would be difficult to refinance. But what now ?

It's going to be IMPOSSIBLE to refinance a subprime loan. The speed of death spiral may shock everyone. No one here wanted a slow 10 year downturn. But it happens in 1 year the financial shocks are hard to imagine. It won't be gloom and doom. But a big unpredictable chaos. It will be harder to find opportunities then.

StuckinBA,

Did you mean it will be harder to "find" or "fund" opportunities?

Finding may be a dime a dozen, getting someone to finance it might be another matter.

SIBA,

It's the beggings of Mad Max. Gas prices and subprime meltdown lead to a wasteland distopia.

Of course, that means the ThunderDome development is going to be the new 'prime' area. Get in while it's cheap!

No one here wanted a slow 10 year downturn. But it happens in 1 year the financial shocks are hard to imagine.

I guess the lesson is to be careful what you wish for. You will know it is time to buy a house when roaming mobs start engaging in random violence and destruction of private property. This should be the point of peak pessimism.

http://en.wikipedia.org/wiki/Argentine_economic_crisis_(1999-2002)

The dow is down over 200 points and sinking!

It WILL be imposible to "refinance" a subprime loan! No question. It might be a two part answer though. Obviously as the easy money spigot gets wrenched ever tighter it will get harder to find. I contend though that what might be the bigger factor is..... all the negative equity Mr. FB is sitting squarely on top of!

We all knew going in that the guy had shaky credit BUT.... as long as the asset was appreciating...? There will still be some sub dollars out there, just not for YOU Mr. TooMuchHomeBuyer! :)