By Randy H
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2007 Sep 11, 8:30am
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I know other markets have already started correcting at a healthy clip. Others might even be nearing the end of the cycle. But much of coastal California, and especially the San Francisco Bay Area, have barely begun to see the downward hill in residential real estate prices.
It is my current opinion that nothing significant will break in prices -- and I mean significant -- until next Spring. In fact, I really don't expect the nicer areas of the Bay to start going down meaningfully until early Summer, '08.
My reasoning is that everyone who can, by any means possible, will hang on until next Spring's "selling season". They're being told by a lot of pretend "professionals" that they should hold out, that by next Spring the storm will be over and they'll get their price, or better.
There will, of course, be plenty of foreclosures and the sporadic forced-sales (divorce, job change, etc.), and some of those may be good deals on prices, but they'll be very hard to come by, in my estimation. Agents are doing everything they can to hide the real sales prices of those deals with some agencies outright not reporting those sales to the CAR statistics because they don't qualify as "standard sales". Foreclosures may not even be priced all that attractively. A lot of banks are still trying to figure out what to do with their growing inventory of houses on their balance sheets. Right now banks aren't really in a position to start marking down hard assets, and they don't have enough inventory to make a material difference yet anyway.
Cometh the Spring I expect that prices will be right around where they are today, maybe a few points lower, but nothing major. On the ground we'll all see the same old houses sitting there, or relisted, for the same prices they left off at after the Summer of '07. Then the real fun begins, as I finally expect by the end of Spring a number of sellers will capitulate and take their lumps. Once price cuts really start, then it should turn into more competitive pricing by sellers, each trying to out maneuver the other as they all chase each other down the market.
I should briefly qualify what I mean by "lower prices". I mean price cuts from the true peak, which given your specific area should be anywhere from Q4-2005 to Q4-2006, even Q1-2007 for a few super prime areas. Fantasy wishing prices listed between your area's peak and today are nonsense, and cuts off of those prices are essentially not cuts at all. Assume the price is listed at your area's peak price, and ignore any goofball premium some real estate party latecomer tried to squeeze out of the waning days. For example, there's a home here in Mill Valley the current owners bought the end of 2005 for $1.895mm, which they listed the Summer of 2007 for $2.45mm. In my mind, that home peaked at $1.895mm, and is at best likely to sell again for around $1.48mm, the price a nearly identical home on the block sold for in early 2005.
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Iâ€™ll add one theory for why the HBs have been surprisingly sticky with lowering prices. They canâ€™t afford to piss off current owners, especially ones who bought recently.
I think the real superglue element in this stickiness was mortgage rates. The mortgage implosion started only this year. Subprime imploded in Feb/March. But the Alt-A/JUmno/Mumbo started only last month ! IT HAS JUST STARTED.
All the while we discussed inherent stickiness in RE and other topics, sheeple (esp in BA) had no problem getting a nice and thick rope to tie around their own neck. Now the factories for creating nylon are shutting down, the rope assemblers and rope salespeople are crying out for help.
Whatâ€™s worse is that most people donâ€™t amoritize their loan points correctly either.
Please elaborate ! Loan points need to be amortized ? I thought it was a classic strategy to front-end your mortgage interest tax deduction. (In NORMAL times that is and if you have a large stock options gain etc.)
Why are charitable entities inherently more deserving of government largess (in the form of tax exemption) than taxable ventures? The vast majority of innovation in the last two hundred years was done by taxable entities, and most of the rest by government funded research. Why do charities deserve more just because they hired tax lawyers to help them squeeze into a particular form?
Nope, you amortize loan points on investment properties. I think it is over the term of the loan, so a 15 year loan is 1/15th of the points each year.
Correct Astrid, innovation comes from commercial (taxable) ventures. Charities are not formed for innovation, they are formed to carry out public purpose functions. Government is basically outsourcing what would be a government function to a quasi (the tax implications are a subsidy) private sector entity. This allows us to judge the performance of the entity by donating to it, or not. Because we live in an open society, the media and other entities can give commentaries about the organization. I think Katrina illustrated the difference in performance between the Red Cross, and FEMA.
I used to roll my eyes when Iâ€™d hear someone saying, well Iâ€™ll just sell when prices start to turn. In a downturn, holding out just compounds the problem for the seller.
Overconfidence bias. Nearly 80% of drivers rate themselves as "significantly above average" when asked. Nearly 100% of drivers doubt they will ever be in a serious accident. Both are examples of irrational, but entirely natural beliefs that directly inform behavior.
I assure you that every single person sitting in a house who has some means to ride it out thinks they will be the last man standing, even if everyone else folds. Enough of this behavior in aggregate seriously affects the market.
And as for foreclosures clearing the market, I am skeptical as to how well this works as a market mechanism. Foreclosures certainly force the price down on the margins, that is undeniable. But housing is not an efficient market, thus prices are not by and large set marginally. The supply curve is "kinked", so foreclosure prices only affect sellers on the same kink of the supply curve. Others will continue to hold out until they either get their price or are forced to sell themselves, either through foreclosure or other means.
And foreclosures are slow, even slower during high volume periods, subject to government interventions like bail-outs, temporary moratoriums, and self-administered "restructuring" settlements by lenders. Again, the more foreclosures, the more likely intervention occurs. When i was a kid in the 70s in Ohio many counties extend eviction periods and some Sheriffs departments started refusing to evict, owners or tenants. Eventually this was corrected, but it took over a year and a lot of hubbub. There is an old lady somewhere up in Henry County, Ohio who's been sitting in a long-since foreclosed farmhouse for I think over 5 years now. No one will evict her, and she'll probably be allowed to squat there till she dies. The local bank holds the title, but they know they'll lose half their business if they chase her onto the street. Not everywhere goes like Flint, MI. Lots of little towns dotting the countryside of this land are sticky in their own way.
I accept all of this as factual Randy, but your original conclusion is correct. You can only delay, not prevent the inevitable. The market has all kinds of forces, and kinks, any market has them. Bad weather for a crop type is one. Even looking at it (you almost hint at this model) as a cartel model, sooner or later people have to start undercutting each other, and the seller psychology, can quickly turn to dumping panic.
BTW, while I believe housing behaves like a commodity, this is one area which I further agree with you shows that it is not a true commodity. Mr Fence Sitter doesn't HAVE to buy a house, he has the option of renting it, or even more creative subsitutions, while someone with a car does have to buy gasoline, and does need to buy eggs.
From the article on sticky prices:
This behavior appears to bear some resonance with the macroeconomic and new Keynesian literature regarding sticky prices and the microfoundations of price rigidities. Blinder (1982), for example, suggests that commodity prices are more likely to be sticky downwards when goods are storable.
When this applies to real estate, it means that if the seller is able to hold off selling the house (goods are storable), prices can be sticky. The key words here are â€œable toâ€.
First we have those sheeple that are nearing a rate reset; most of them arenâ€™t even able to lower their price enough to generate interest because of the price they paid (they canâ€™t sell for less than they paid); that would explain their stickiness, but this stickiness expires when the loan resets. When the bank gets the house, they may even hold off on selling it at a colossal loss (their own stickiness), but that will only last until their inventories rise too high and/or the comps come in lower.
Then you have those who have lots of (theoretical) equity in their house; perhaps those who bought before the bubble or just when it was getting started. Many of these people were intoxicated with the forever rising prices and they are convinced that their houses are worth what they think they are; classic denial. Many of them will hold out thinking the market will get better, but some of them will eventually start chopping their prices to find where the buyers start to become interested (this is happening now in my area). When the few buyers (knife catchers) that are out there start to bite, the comps they generate will knock more of the sellers that are in denial back to reality forcing them to cut as well. It kind of creates a strong urgency to cut and run; not too much differently than a stock market crash. This will cause a spiral in prices which breaks out of the sticky logic.
You cannot compare this market to any other in the past because this time there were so many houses built which makes supply incredibly high; add to that the high number of people who will lose their house further increasing supply.
At the same time, prices are so high because they are based on monthly payments at teaser rates using toxic loans that are now becoming non-existent. This causes the demand to be extremely lean (thatâ€™s why I say, â€œWithout monopoly money, you canâ€™t pay monopoly pricesâ€); add to that the fear of overpaying and you have a record low demand.
Real house prices appear to exhibit some price rigidity, reacting more readily to positively lagged changes than to negative lagged changes in prices. Homeowners may be reacting to negative market changes by temporarily holding off from listing or releasing for sale existing housing stock. Alternatively, buyers and sellers may simply be adjusting to market conditions, with both sides trying to account for past and future predicted price movements.
This article was published at the end of 2006 at which time sellers in my area seemed to be reluctant to cut their price. It is now 9 months later and school season has begun; in my area, many sellers are cutting their prices 4 or 5 times (or more) in just the past few weeks. There seems to be an urgency for them to get out and based on the inventories, there doesnâ€™t seem to be any urgency to buy. Although this has also to do with the fear of overpaying, I think it is more a liquidity issue from tighter lending standards. The cookie jar of money is running dry and when the sellers all finally acknowledge this (future predicted price movements.), I think the bottom will fall out.
Sorry for the long post, but I just had to drop my opinion here. You are free to disagree if you want, this is just my opinion.
First of all, I'm very wary of government dollars indirectly funding quasi government organizations. It's one thing if the funding is direct and I can expect some accountability (though that is sadly missing in the current administration + congress), quite another to expect me to subsidize someone else's pet project without any real expectation of oversight.
Secondly, I would take Clinton era FEMA over Red Cross. In fact, one of my friends works for a competing blood bank and she thinks very poorly of the Red Cross. Just because something is private sector does not make it an unadulterated good, quite often, the reverse is true. Many charitable trusts run more for the benefit of people running the charity than whatever they claim to be for. In my opinion, that money would be better off in the government coffers or heirs' hands than in hundred year trusts.
Many charitable trusts run more for the benefit of people running the charity than whatever they claim to be for. In my opinion, that money would be better off in the government coffers or heirsâ€™ hands than in hundred year trusts.
Exactly. And let's not forget our esteemed institutions of higher learning. The tax status loophole has allowed them to build endowments into the tens of billions of dollars in some cases (even as they continue to jack up tuition at a rate much greater than generalized inflation). Then the fund managers who invest this money end up squandering it by investing in leveraged portfolios of toxic mortgage derivatives. See...it all comes back around to the housing bubble...
Good point about Clinton-era FEMA. Government isn't always or inevitably operated by incompetent and corrupt screw-ups.
Please to note, all nine criteria must be met in order to be able to write off all of the eligible points in the year paid. Re-fi's (even if on your primary) are generally *not eligible!
2nd. homes (a whole other topic) do *not qualify.
Malcom in theory is correct however how many REP's (real estate partiers) can be bothered with this level of detail?
Do you intend to carry on until I cut you off just so you can march around crying about how unfair life is? You're done talking about stickiness, in any form or fashion, on my threads. Whine to someone else if you don't like it, I've had it with your stubbornness. You're too dimwitted to realize all you're doing is describing stickiness over and over and over and over and then authoritatively proclaiming it'll be sticky until it's not sticky, and therefore it isn't sticky. You were wrong dude. Move on. Having an opinion about something you don't understand isn't really an opinion, it's ignorance. Read a little more and copy/paste links a little less and you might learn some as you go.
Correct Astrid, innovation comes from commercial (taxable) ventures. Charities are not formed for innovation, they are formed to carry out public purpose functions.
I would never trust anyone who claims to be void of the profit motive.
Youâ€™re too dimwitted to realize all youâ€™re doing is describing stickiness over and over and over and over and then authoritatively proclaiming itâ€™ll be sticky until itâ€™s not sticky, and therefore it isnâ€™t sticky.
Perhaps he should have some mango sticky rice. That should inject some sense into him. :)
One firm I used to work for (back in the day) had a phone number that was (1) digit off from the Portland Opera. Usually it was grandparents calling to see if "we" were still open so they could take the kids to see it one time before it closed for good.
When I said that prices would lose their stickiness, the argument is that while they may be sticky for a while (because of their own internal logic), they will eventually break and prices will collapse. Once some of the sellers decide to cut their price, driving comps down in the area, I believe others will panic and cut as well.
Allah (and Randy),
I think some of the disagreement is semantic. This statement above is exactly the "stickiness" that Randy is describing - prices stuck for a while, and then sudden lunges downward once in a while. Perhaps a better term than "stickiness" would be "herky-jerkyness."
I am sure you know this, but just an FYI to everyone else: Props 60 and 90 can possibly allow you to move and keep your prop 13 basis.
I like attending recitals or chamber concerts held at college or conservatory campuses. They're pretty much come-as-you-are, the programs are often more interesting and varied, the attendees are generally there for the music, and the performers are usually really fine rather than merely famous.
I do attend opera here, but I know what I'm in for when I do - just as you describe.
Allah (and Randy),
I think some of the disagreement is semantic. This statement above is exactly the â€œstickinessâ€ that Randy is describing - prices stuck for a while, and then sudden lunges downward once in a while. Perhaps a better term than â€œstickinessâ€ would be â€œherky-jerkyness.â€
Skibum (not Randy),
I was just proving that I understood what stickiness meant. Forget about stickiness anyway, it is redundant; the point I was making is that IMO the prices will fall sharply and steadily when they do. I don't think it will be even "herky-jerkyness" as you describe. I really enjoyed the serenity and peacefulness of when Randy filtered me out with his rss filter allowing me to voice my own opinion for the last year and a half or so. I wish he didn't break that code of silence like he did in this thread. I don't see anyone else complaining about my opinions.
Again, I am not saying that people shouldnâ€™t contribute. Give all you want! But why should I pay more taxes so that you can give *extra* money to the â€œHour of Powerâ€? If you itemize deductions and you are in the 40% bracket, then your $600 after tax contribution becomes a $1000 contribution. If I do not itemize (because I rent) then my $600 contribution remains a $600 contribution. Does this make any sense? Why should only itemizers get this benefit of directing their charitable money?
Glen, firstly, thanks for your patient response. You do have an excellent point, but this problem really is the issue of 'itemizing'. The direct way to address this would be for all charitable contributions to be deductible, regardless of itemization. Letting the government take the $600 and piss it away on the Politico-Bureaucratic Industrial Complex is pointless, nor the answer to this problem.
Just look at the numerous attempts to resuscitate the symphonies?
The Jan Hammer Group plays the Beatles greatest hits (w/the New York Philharmonic)
Celine sings her greatest hits w/the Montreal Symphony
The Moody Blues themselves... could not save "strings"!
Numerous attempts were made to "update" and as far as I can tell have failed. We just need to let it go...
My husband and I don't qualify for either prop 60 or 90 for many years. They are only applicable to people over 55.
At least they allow people to downsize without taking a tax hit. I told my husband that if our kids look like they are going to try to keep living with us after grad school we'll downsize into a nice one bedroom in a doorman building. We'll use our prop 60 then.
Wow, I just saw this:
"With a population of nearly 300,000, Stockton has acquired the unfortunate distinction of having the highest foreclosure rate of any US city, with one in 27 households left counting the cost of the credit crunch, according to Realtytrac, an online marketplace for foreclosure sales."
1 out of 27?
DinOR and Malcom :
Thanks. There is always something new to learn.
Thanks for pointing out some of the more horrid examples out there. Imagine it from the pov of one of the musicians. They probably keep barf bags at their sides as they churn out yet another rendition of that god-awful theme from "Titanic."
There's still a place for symphonies and operas. It's just not globally relevant anymore. Ever listen to new composers? They fall into 2 categories: cliched rehashes of themes from the 19th century, vs. atonal stuff you can't listen to.
Bay Area home sales slowest since early 1990s, flat prices
Seems like not just the gold and oil, but all agricultural commodities are rising too. Ain't it real nice that we don't consider these useless things in our core CPI ?
I mean imagine this. Fed cuts the interest rate and the next day CPI screams higher. Without this core CPI to hide under, how can Fed save its face ?
As always, you are (data)quicker on the draw.
Sale numbers down by 1/3 in Marin County, but median up by 12.4%...
For those of you who don't understand the mystique of the BA, SF is starting to see increased instances of vigilante justice as the DA doesn't seem to want to lock up repeat offenders. And the SFPD has recruiting ads plastered on AC Transit buses in the "affordable" East Bay. Michael H. where are you....
Not a problem. The more you scroll down and read the more you're convinced you might want to get someone else involved. I believe that Sched. A is specific in asking; "Points reported to you on 1099". Yet people think if there's a 1 in a 100 chance that you might qualify they'll throw their hat in the ring!
Hey, if they catch it, they catch it, right?
As of 12:45pm, the DQ numbers haven't hit the Chronicle or Mercury web sites yet. After a bit of lead time, we should expect to see one of our friendly trolls saunter by and tout how MEDIAN is up yoy again... Same old bullshit coming our way. Brace yourselves.
SF is starting to see increased instances of vigilante justice as the DA doesnâ€™t seem to want to lock up repeat offenders.
I am also against locking up repeat offenders. Prison is not the solution.
Repeat offenders ought to be swiftly executed.
BTW, the only one thing about Ron Paul that bugs me a lot is his stance on capital punishment.
Wow! using words like "sheeple" or "knife-catchter" get you in trouble in these blogs... but calling latinos "cockroaches" who are fat dumb and happy sucking welfare is ok cause its just an opinon?
all i can say is wow :-)
DinOR, Skibum . . .
You wouldn't bait a person just because they're a musician, would you??
He didn't know until 2005/2006???? As long as I can remember back to when I was a teenager I knew you don't borrow more money than you can pay back. Also don't borrow money if you don't have to. My parents taught me that when I was young, but he didn't know? Give me a break
"... Ever listen to new composers? They fall into 2 categories: cliched rehashes of themes from the 19th century, vs. atonal stuff you canâ€™t listen to."
Still, you have to hand it to people like Elvis Costello and the Chronos Quartet for at least trying to make decent modern classical music.
Glen, firstly, thanks for your patient response. You do have an excellent point, but this problem really is the issue of â€˜itemizingâ€™. The direct way to address this would be for all charitable contributions to be deductible, regardless of itemization. Letting the government take the $600 and piss it away on the Politico-Bureaucratic Industrial Complex is pointless, nor the answer to this problem.
This still won't solve the problem. If you are in the 40% bracket and I am in the 15% bracket then you are able to direct 67 cents on every dollar (40/60) which would otherwise be paid in taxes to the charity of your choice, while I can only direct 18 cents of every dollar (15/85) to the charity of my choice. There is no way around it as long as income taxes are progressive.
Are charities favored by high income taxpayers more important, dollar for dollar, than charities favored by low income taxpayers? If not, then you either need to advocate a flat tax along with eliminating the itemizer/non-itemizer distinction.
Bottom line is that the charitable deduction is a hidden benefit for high income itemizers, who are able to leverage their charitable contributions more than non-itemizers and low income itemizers.
Like most IRS rules, it is messy and opaque. The alternative is NOT to let the government collect more tax revenues to waste on boondogggle spending. The alternative IS to just lower taxes across the board and let people donate however they see fit.
Not at all! I are one (kinda?) My guitar heroes growing up were Buddy Guy, Albert (The Ice Man) Collins and Johnny Winter! I've just always felt that the music needs to stand on it's own two feet. Guys that suck on guitar (like me) won't fill bars (let alone stadiums). It's not that I suck THAT bad it's that I can't "deliver" w/consistency like an SRV or his multitude of clones. I've seen guys that do SRV better than SRV!
Guess that explains why I'm not an "opera fan". Oh and Dick Dale (King of the Surf Guitar) will be in PDX on the 28th!
Peter P Says:
> BTW, the only one thing about Ron Paul that bugs
> me a lot is his stance on capital punishment.
In theory it makes sense to kill all the violent scumbags out there to make the world a better place, but in reality capital punishment is a big waste of time and money that removes a very small number of guilty scumbags from the planet. Not even considering that capital punishment does end up killing a few innocent people every now and then, we would be better off spending the money that we give every killer to pay for a decade (or two) of court appeals to the cops to catch more criminals and put them in jailâ€¦
This will be my last thread article. I trust that everyone will be happier with Allah and my other "haterz" of late than with I. I think I've offended a few readers and thereby caused too many complaints. For myself, life is too short to waste precious cycles. Anyone interested save for the Trolls are welcome to visit my blog from time to time.
Best of luck and regards,
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