patrick.net

@ eburbed,

They were talking R E I C dollars!

The Case Shiller Index for Phoenix shows there's still *a lot* of pain yet to come there. San Francisco is notably _lower_ than Phoenix on the CSI, which makes sense when you consider the relative percentage bubble-prices versus historical trendline.

mmmmm....Globals....[drools]

eburbed - There are two housing tracker sites. The other site shows an increase:

But that page says that it's the old page, and that the new page has better data.

On creating a separate currency for REIC, we'll call them REIC dollars (R$):

You cannot do this by law in the US. It is illegal to mint and distribute a currency within the US (or most other nations for that matter).

"But wait a minute!" you say. How do these giant computer games that call themselves "virtual worlds" with bajillions of "residents" get away with it? How does Second Life get away printing Linden dollars (L$)?

The answer is not that complex:

a) No one has stopped them yet because its something new, and still relatively small. There aren't really bajillions of players, just a couple hundred thousand, even if there were bajillions of looky loos.

b) No one reads the License Agreement or Terms of Service agreement when they install the game. Just like you don't when you install MS Word. I mean, there's like dozens of pages and the font is really tiny.

c) If they did read the legalese they'd realize that they don't even own their L$. The game makers owns all the L$. They just let the players use it "as if" they owned it, and promise to always be nice and not steal their hard earned L$.

There's all kinds of sordid details on my blog. But most here won't really care. If the REIC tried to mint R$, they'd need to trick everyone with legal agreements they wouldn't read. That's actually probably possible. And lots of dumb people would believe the benevolent NAR would always be good guys and not steal their R$, and let them use their R$ "as if" it were real.

But the flaw is too many people actually give a shit about real real estate (versus "virtual" cartoon real estate). So as soon as the first guy lost some R$, even due to his own stupidity, he'd be interviewing trail lawyers to determine which he's going to award the prize of suing the shit out of the REIC.

Obviously the new page does not have better data since it's not even close to my own numbers, which I trust more than some random site on the internet.

"we'll call them REIC Dollars (R$)"

And why...NOT!

Backed 100% by cubic zirconia, they have the look, feel and smell of REAL money!

@eburbed et, al-

Santa Clara county is definitely rebounding, at least as far as the specific homes of interest I've tracked. I'm at a crossroads of whether to keep my '01-06 housing dollars in CA, raise our son here, and not move back "home" to live mortgage free.

T - 1 year and counting to so long and thanks for all the fish.

The answer from the Realtor was no. Due to high income and tech industry, prices would not fall and yes…BA is different.

It's not really clear to me what the consensus of this forum is - there seems to be some who expect 20% drops, and there seems to be some who expect the price to simply be "stuck" for the next 10 years (which is a drop in itself).

Glen,

You're absolutely right! The only reason I've ever considered Las Vegas is as a reprieve from Oregon's drab winters. Of course had we become empty nesters just a few years earlier I'd either be rolling aound in "big fat stacks" (or sending in some "jingle mail")

Now that I'm at a crossroads in life where a vacation home might actually make sense the market is totally f@#$&*! Probably at least 2 years out from being able to seriously consider it.

eburbed,

I think one of the biggest reasons for there being no consensus here is inflation. There's just no way to predict how many dollars the government is willing to print to keep housing, thus the economy, afloat over the next 5-10 years.

“It’s not really clear to me what the consensus …”

My 8-ball says no crash.

FAB:

Some of the same goes on here.

The people I actually feel for locally are the ones who've done a beautiful job restoring '20s bungalows to LIVE in and are nearing retirement now. I suppose they'll have to stay on now. Change of plans.

I just did a quick search. Homes that we are interested in seems to be cheaper than last year. Or perhaps they are trying to incite bidding wars?

BTW, we are looking at newer townhouses or condos in okay areas. We do not give a shit about school districts.

NV,

I'm hardly an expert where BA RE is concerned but with postings like eburbed's $1,048,000 Palo Alto "Open Lot" showing, how can there NOT be room for a meaningful correction?

Like he said, why the "Open Lot" showing? Just have a link for people to have an aerial view on Google Maps!

Since subprime lenders have their credit line cut off after two unprofitable quarters, June will be important as this entire distribution channel is shut down completely.

DinOR:

I've tried to relocate a chart I saw online last week but I can't. It showed ARM resets, stacked, for subprime, Alt-A and prime, by month through all of 2007 and 2008. There was a very large wave of resets in all categories beginning in May '07 which peaked in July.

I'll go looking again. Anyone else see it?

Here's an illiterate FB rambling, ranting.

Bruce,

Are you referring to that little gem structured like an "organization chart"? The one showing where Alt-A is "half a notch" above sub? I believe that link was provided by either PAR or allah. Let me see what I can do.

allah,

Hmm, how fortunate. (Nice FB rant btw). Do recall a few days ago a really great break-down of the MBS market? Started w/prime paper and works it's way down through all the ARM's neg. am's etc?

DinOR:

Not the same chart. It was a bar chart showing the value of loans resetting each month from Jan 07 to Dec 08.

Each bar was stacked prime (white) over alt-a (red) over subprime (black) so you could see how much debt was resetting cumulatively by month.

It may have been at Calculated Risk but, at least on my browser, I can only get the current page and archives from Feb and earlier. No way to look at last week.

NV,

I tend to think most builders view us as lotto tix regardless of locale? Then again, why not? For about a decade now we were willing to throw money at just about any liveable structure including converted chicken coops in Alameda. I'm going to track that on eburbed's site just for a goof.

All this time we've been told "but houses don't 'trade' like stocks". Really? Then why do PA sellers get more brazen w/every GOOG uptick?

Bruce,

Now I would have remembered seeing something like that! If you find, please link! TIA

DinOR

Bruce/Dinor:

Is this what you are looking for?:

http://www.autodogmatic.com/viewtopic.php?p=1226#1226

Bear in mind we have more ARM loans in BA than any other Metro in the nation. Somethings got to give.

More than San Diego?

I find that hard to believe.

Glen:

Thanks! Yes! That's the one.

Allah,

Digging back through her blog, you'll find that she and her parents have been refinancing their houses to pay off credit card debt. Despite not being able to pay their bills, they took a long trip to meet "The Wiggles" after they got their credit cards paid off from the last refi.

Now they're trying to refi again and find that they can't.

Whoops!

NV Says:

> Yesterday on KQED FM they spoke about subprime
> lending. A caller asked if prices would fall in BA.
> The answer from the Realtor was no. Due to high
> income and tech industry, prices would not fall and
> yes…BA is different.
> Over the past 10 years.

> Rent has gone up 35%

Let’s look at some actual examples:

Rent of a 1BR/1BA on Scott Street in the Marina w/ parking:
1997 $2,100 2007 $2,300 (up 9.5%)

Rent of a nice home west of El Camino in San Mateo:
1997: $1,900 2007 $2,200 (up 15.8%) (was up over 20% from ’97 in ’00)

Rent on a 1BR/1BA in Santa Clara I worked on back in ’96:
1997: $1,270 2007 $1,440 (up 13.4%)

> Home prices up 315%

Home on Easton in Burlingame

1997: $532K 2006: $1.78mm (up 335%)

Tiny home (just barely) in Sea Cliff:
1998: $420K 2006: $1.1mm (up 261%)

eBurbed, charts:
http://flickr.com/photos/7409273@N03/

Someone also asked for the "timebomb" graphic of resets in the pipeline. That's also posted here...

Allah,

More on the FB rant... if you read FAR enough back, you'll find that they bought that house in 2001. Currently, they can't sell it for more than the mortgage is worth.

They ATM'd themselves out of a house.

Glen,

Thanks. I haven't seen that accurate a breakdown since we started talking about this topic. Up until now it's been pretty vague (mostly numbers for the year) and no delineation between credit grades.

Some of the comments below were like "this is going to take forever to play out" and that's fine but I can't think of any other point in our history w/rapidly declining values and at least 15 to 30 bil in subprime ARM's re-setting per month. Kind of unprecedented.

http://tinyurl.com/youtjt

If the company is paying a loan back to a hedge fund at 13%, what will they have to charge customers to make the endeavor profitable? This seems a bit of a stretch to me. Or maybe the object isn't to make money longterm? Obviously, I don't get this.

If the company is paying a loan back to a hedge fund at 13%, what will they have to charge customers to make the endeavor profitable?

SFW, companies are run by people. Is absolute profit really important to the executives?

PAR,

Thanks. The Mortgage Origination Market Share is in the lower left hand on PAR's link for those that would like to see the "vast disparity" between sub and Alt-A in graphic form.

DinOR:

It will take a long time to play out. The Notice of Defaults are now starting to spike up. But REOs won't pick up for at least 6 more months. Then, I suspect the trend will accelerate as REO properties start hitting the market and dragging down comps.

A lot of the teaser rates won't expire for at least a couple more years. Although I think prices will start gradually coming down this year, the decline should steepen in '08, '09 and '10. Maximum pessimism should kick in around '10 or '11 when the last of the Option ARMS reset--at which point appraisals will be very conservative, lending will be tight, the market will be flooded with probate sales, REOs and foreclosures and only the most qualified buyers will be approved for a mortgage. Should be a decent time to buy. Hopefully most of us can sit tight and rent until then.

Glen,

You're probably right, especially so for the "prime" areas. Las Vegas? Phoenix? No so "prime". They'll probably free fall. I don't subscribe to the theory though that each and every re-set needs to result in a default for this to A) be meaningful or B) take forever.

Dinor,

I agree...we won't need for the last of the resets to happen for semi-sane prices to return. A tightening of credit should drive down demand, just as the defaults of marginal FBs, excess new construction, etc. add to supply.

However, I wouldn't anticipate a recovery (ie: appreciation) until at least '10 or '11. Maybe later. Because all of the resets will continue to add supply over an extended timeframe and I don't see how we could get a spike in demand to absorb all the new supply.

If you buy in '08 or '09, you will probably be able to get a decent price. But you won't get any appreciation for a while thereafter, IMO.

not to be a dick, but that $1M open lot in Palo Alto has a good reason to be sold for higher-than-average per acre price for city lot. I am not saying it is justified, I am just trying to explain why they are asking such ridiculous price.

Right now, for areas that I track (Los Altos, west Cupertino, west Saratoga, Los Gatos and west Almaden), lots are going for around $2M per acre for flat land. If the slope is 45 degrees steep, of course the price is a lot cheaper. However, undeveloped city lot in Palo Alto goes much higher, as shown in this example, pretty much $3M per acre.

The reason is because of the nasty Palo Alto city codes, it is excruciatingly difficult to tear down a house, in fact, it is almost impossible to tear down a home. All the buyers of these run-down shacks in Palo Alto who plan to tear down and rebuild are in for a big surprise, because they need to battle for months, if not years to get their permit. Therefore, land with no structure on it is far more desirable than those with structure.

In a sense, the city building codes skew the market for urban lots. If you go out to outlying places, for example, Gilroy (my favorite example), you can do whatever you want because Gilroy has very laissez-faire codes, so a flat lot asking for $500K per acre is having trouble finding any buyers. There are hundreds of lots in that price range for sale in Gilroy, and I suspect if the price will easily drop back to $100K per acre, which was the case 3 years ago.

Funny and sad post allah. "hell i'd beg borrow or stgeal at this point". Seems to me, that's what got her in this mess in the first place.

Here is what I found from BusinessWeek

http://www.businessweek.com/common_ssi/map_of_misery.htm

Seems California is peppered with payment options loans. Seems like 30-40% is common.