patrick.net

The "high-tech" capital of the U.S. (and arguably the world) cannot even create a statewide database after 10 years and nearly $2 billion in sunk costs. Pathetic...

Looks like I grossly abused the image tag above (or maybe we can't link in images). At any rate, here is a good graphic for a Jumbo(dumbo) loan thread -- maybe after the August apocalypse.
http://www.amazon.com/Goodbye-Jumbo-World-Party/dp/B00004YS2O

GC,

While the Chinese are historically quite defensive, especially after the An Rushan crisis in middle Tang, they do have a long track record as long distance overlords.

I’d happily move back to Redwood City (or rather maybe Emerald Hills)

Maybe Emerald Hills - but RWC itself?

Most of the housing stock I've seen there has been pretty awful. Like wtf is up with this?

http://www.burbed.com/2007/08/28/this-is-not-a-motel-really/

A lot of the neighborhoods have very strange rental properties. And the streets are choked with parked cars.

Blah.

I’m I correct in assuming that a fed rate cut will devalue the dollar against other currencies?

Basically, yes, but indirectly. The likely scenario is a Fed rate cut will signal to foreign investors looming inflation. They will move their savings out of US dollars.

And additionally add fuel to the inflation fire that’s eating up my paycheck?

See above.

AND…not help FBs at all?

That's the best irony of all.

If these of those assumptions are correct, why again is Cramer (and his buddies) screaming for a rate cut ?

Cramer and his ilk don't care about long-term economic growth. Heck, they don't even care if hyperinflation or stagflation looms, as long as they can foresee it and respond appropriately. They mostly care about being able to continue the free credit party that fuels all the M+A/private equity/HF action, which drives up equity markets, which means more $ for them to pocket. That is why a Fed rate cut in today's marcroeconomic environment amounts blatantly to a Wall Street bailout, IMO.

SP,

Not bad. But, too many notes.

HARM,

The problems you alluded to suggest that there is fraud and waste in the current system. I don't know what kinds of checks are in place, but it certainly seems like the system could be tightened up. But the vast majority of welfare recipients obtain their benefits honestly--they really are broke and they really don't drive BMWs.

Some level of fraud and waste is probably inevitable in any government run program. The more fundamental quesiton is whether you believe any programs should exist. Or should the fraudulent acts of some justify the elimination of benefits for many more?

A few months ago a family of four with two young kids came to my place of employment (law firm) asking if we knew of any public assistance programs that could help them. They had just been evicted from their apartment because they couldn't keep up with their rent and they had been wandering the streets all morning. They had no famly in the area and no place to stay for the night. I guess I can understand if you think the parents were lazy or "shiftless." They must have known that they were about to be evicted and if they were in the least bit resourceful, they probably could have lined up something in advance. But the problem is that not everyone is quite so organized. The kids looked hot, tired and scared and I felt bad for them.

It is fine to talk about eliminating welfare programs in the abstract, but you have to be a cold SOB to put kids out in the street. I don't mind paying a few tax dollars to provide a modest social safety net. Frankly, I think it is a better use of my money (and yours) than yet another upscale sushi dinner.

As a fairly high income renter who gets nailed on taxes every year, I have a much bigger beef with the mortgage interest deduction. Not to mention charitable deductions which allow the rich to take write-offs for donating to well-endowed private colleges or opera houses. Maybe if you only allowed charitable deductions for true charitable causes (shelters, social services, etc.) then less tax money would need to be used for these purposes.

Duke,

There may have been a time when the BA appreciated at 5% but that would not describe the last 10 years. In some cases homes have tripled in value during this time frame. Ken Heebner (CGM Realty Focus Fund) says he won't be surprised by a 50% correction on the coasts. Now granted he felt that may come in a number of ways, incentives (free pools, landscaping, flatscreen TV's) and much of it will come from price reductions. (So far he's been spot on).

DinOR and Randy,

I had asked about this specifically at least a couple of times. There doesn't seem to be any reliable statistics collected on this. Anecdotally, I know quite a few people who have "liberated" their equity to "invest" in other "upcoming" areas. This not only includes Sacramento region but also San Diego, Phoenix, Las Vegas and of course Central Valley.

It will be interesting to see how the complete bust in those markets affect RE here.

Some level of fraud and waste is probably inevitable in any government run program.

So a smaller government will have less fraud and waste.

It is fine to talk about eliminating welfare programs in the abstract, but you have to be a cold SOB to put kids out in the street.

With a reasonable welfare system, there will not be that many poor kids.

I oppose any means-based welfare system. Why should welfare recipients get more money with more kids? They should be taxed for each kid they cannot afford to raise on their own dime!

I don’t mind paying a few tax dollars to provide a modest social safety net.

I agree. There must be a system for people to get back on their feet.

Glen,

Right on, my man. Right on. I didn't know how litttle most people make untile very recently. And the bastards making 4-10X of that income are crying aloud for not being compenstated enough. Freaking assholes. On my graduate student stipend, I used to donate to local theatres and (once) to an environmental cause.

Univeral health care.

So a smaller government will have less fraud and waste.

I would suspect that a few African governments would disprove that theory.

Glen,

The arts receive next to no funding in the US outside of DC museums. Without write offs to arts institutions many, if not most, would cease to exist.

Admittedly people use their donations to the opera/symphony/museums to social climb or get better seats, but the ticket prices only cover a portion of the cost of each visitor. The large cash donations cover that gap. Most museums also include education as a major part of their mission- they aren't just repositories of art or science artifacts. I guess it depends on if you value having cultural institutions. I do, I contribute to them, and I consider them to be a vital and important part of life.

StuckinBA,

I don't have any hard data either other than the USAToday article that showed in a typical year sales of 2nd homes hovers between 3 and 5%. They went on to say that 2005 estimates are as high as 40%! (Even NAR will cop to 35%). Well "somebody" had to be buying up all those homes!

Given that prices are "set at the margins" I thought Randy would be more open to the potential for damage? Many may not be forced to sell but having a default on your credit can not make it easy refinance your way out of that mess? Sorry if I ignored your topic in the past!

HARM Says:
The “high-tech” capital of the U.S. (and arguably the world) cannot even create a statewide database after 10 years and nearly $2 billion in sunk costs.

Of the literally hundreds of people in the cafeteria right now, I could pick any two engineers to work with and could get this up and running in less than three months, using completely open-source software and hardware that is lying around in our garage. But if you want government subcontractors to build it, good luck. :-)

SP

Glen,

That's so funny! In Portland (anyway) you can't swing a dead cat without hitting an art museum or gallery. (Unfortunately you also can't swing a dead cat without hitting homeless person!)

Here are the DQ Socal numbers for August:

http://www.dqnews.com/RRSCA0907.shtm

These don't reflect much effect at all of the credit crisis. Somehow, Prentice seems to think these numbers represent a "floor" level on sales numbers. Yeah, right...

House prices have been generally belived to be downward sticky. When prices are falling sellers take their homes off the market rather than lower prices. Why has stickiness failed in Stockton and Sacramento?

And could it happen in the Bay Area?

House prices have been generally belived to be downward sticky. When prices are falling sellers take their homes off the market rather than lower prices. Why has stickiness failed in Stockton and Sacramento?

WD40

And could it happen in the Bay Area?

It will happen in many places because you can't sell at monopoly prices without buyers having access to monopoly money; and buyers who previously bought with monopoly money don't have the luxury of taking it off the market.

In regards to the multiple offer thing, my friend just sold his Belmont house in early August (before the "credit crunch" turmoil). He had 3 offers -- one lowball and 2 above asking (by about 10k) around 900k.

On the other hand, he listed it for about 50k lower than he had wanted to and what his Realtor thought it would go for in March.

It sold to a first time home buyer. The close date was after the credit crunch thing happened, but the buyers managed to come up the money one way or another because the deal happened.

I have another friend selling his house in Belmont later this month. It will be interesting to see if his results differ.

On the flip side, around my house the for sale signs are multiplying, though there does seem to be some activity. There are two houses close to me that both went pending recently after a month or two on the market. I'll be watching to see if they go above or below their ask. At least one of them had a list price for less than they paid for it two years ago. I believe early in the MLS listing the agent said it was a short sale, though that language was taken out after about a week.

Sean,here is link for iTulip 15 year correction to mean prediction link. Its from 2005.

http://www.itulip.com/housingbubblecorrection.htm

Duke Says:
"If you take the peak as Summer of ‘06, use the historic rate of appreciation for the Bay Area (5% as opposed to the national average of 2.3%) and perform regression to the mean using the last year prices made any sense (housing costs as 30% of gross income) of 1998 you get:
Summer 2007 = 35% down from peak
Summer 2008 = 32% down from peak
Summer 2009 = 29% down from peak
Summer 2010 = 25%
Summer 2011 =21%
Summer 2012 = 17%"

I've been saying this all along. It doesn't really matter what the slope is the overall effect is going to be the same. These of course are averages, so buying from the forced sellers will probably see real significant declines but overall even if prices just stick, as they have here, they have not really moved up since 2004 the proposition is still bad. I tend to think that growing supply will show eventually a real 30% or more drop in prices. Here in San Diego there are already condos which sold once for $325K, and now have listings with no takers at $210K. The effect also of no credit available for jumbo loans can't be ignored. The high end homes are already suffering big time.

Allah: Typically prices have never fallen unless there is a recession. When companies are laying off workers who are forced to sell, home prices fall.

Currently there isn't a recession in California but prices have fallen about 10 percent over the last year in Sacramento and Stockton.

Is "monopoly money" a new feature only present in this housing boom?

The scenario that I have always bought into was that tightening money will slow the economy causing people to have no choice but to walk away from their McMansions. It is all progressing as predicted. The old argument that the economy is strong so people can afford the houses is now shifting to real concern of a MAJOR recession.

I read somewhere that an anal-ist was arguing for the rate cut saying that Fed should not wait for the recession signals to emerge, and get "in front of this thing". That's a great argument if your hedge fund desperately needs a rate cut to not go to zero.

But how about this. With rising oil (increases inflation), rising gold (indicates inflation expectation) and falling USD shouldn't the Fed get "in front of this thing" ?

Oh I forgot. Volker retired long time ago. (No disrespect to Mr. Bernanke. He MAY not be willing to bend-over, but we live in bailout times. He has no choice.)

This thread is devolving so I will post a horrifying spam from NAR here:

------------------------------
As a REALTOR you recognize that stabilizing the current mortgage market turmoil requires an immediate and significant response from Congress. I strongly recommend contacting your Member of Congress to ask for his or her YES vote on H.R. 1852, the Expanding American Homeownership Act of 2007 and a YES vote on the Frank-Miller-Cardoza amendment.

Click Here to TAKE ACTION

H.R. 1852 reforms the FHA program by building on the strength and security of successfully insuring mortgages for more than 70 years. It is the immediate and significant response necessary to return stability to the mortgage market.

The amendment offered by Congressmen Frank (D-MA), Gary Miller (R-CA) and Cardoza (D-CA) raises the single-family FHA loan limits to 125% of area median home prices and permits the Secretary of Housing and Urban Development to grant additional increases if required by market conditions.

Click Here to TAKE ACTION

Sincerely,
Pat V. Combs, NAR President
--------------------
(notice the 125% of area median for FHA. In Bay Area that will be what 800k??? The 800K FHA loan.....coming soon to a neighboorhood near you?)

Is “monopoly money” a new feature only present in this housing boom?

Actually, home prices went up during the 70s at the same time rates were rising. There was rampant inflation, of course, and job stagnation. So I'm not so sure there are any easy prescriptions for when X then Y. Realtors certainly like to make it sound like things are that easy, but I always wondered. Hmm. Are realtors the only "professionals" capable of looking up mortgage rates? Seems to me if ever really were that easy then everyone would be a real estate investment mogul. In truth, real estate market trends are terribly tricky and ill behaved beasts.

Randy,

When I used the term “monopoly money”, I wasn’t talking about interest rates. I meant to highlight the innovation in mortgages that include low or zero down payments, interest only and negative amortization.

I heard that negative amortization mortgages first became popular in Texas in the mid 80s. Texas had a sharp drop in the real estate market during that time that occurred along with a recession. From the beginning of 1985 to the middle of 1986 the unemployment rate in that state, rose from 6.7% to 10.1%

I am looking for instances when home prices fell without a recession, possibly because of credit tightening (or the end of “monopoly money”)

Allah

and buyers who previously bought with monopoly money don’t have the luxury of taking it off the market.

Just like prices cannot ever, never ever, not under any circumstances, and anyone who disagrees is a dirty "sheeple", *sticky*, right?

Wait, they're not sticky now, right? They're just not going down yet.

gavinln

I think credit access is probably a big lever in house prices, but it's not necessarily always correlated in synch. I don't have any data in front of me but I'm reasonably sure there were a couple of periods between 1970 and 1985 when there were credit crunches but house prices didn't go down, at least not until some years later.

"I’d argue that the 10%, 5% could easily be 25%, 15% respectively. Truly, none of us can know until after we get there"

True, true. I think that 15-25% will be seen, but in less desirable areas. This is admittedly just based on anecdotal evidence. A good friend has been considering buying a place, and I went around with her during the 2007 season. Each weekend we targetted a different class of property that was within her price range. On one weekend we looked at a very nice 1700sf townhouse, about 5 years old, in a good location. It was perfect for her, except the price. Sure enough the place was snapped up by someone, for the asking, the very next week (this was before jumbos took a hit). In contrast, on another weekend we looked at a series of SFRs that were around 50 years old, 1000sf or so, single garage, and well you get the idea, same price range though. Some of them were well-kept, some had updates, but basically they were not upscale neighborhoods, just solid neighborhoods of the sort that at one time might have been called "blue collar". These houses have found few buyers and have lingered on MLS for months.

My intuition is that there is pent-up demand from people who are currently renting, many of whom have saved their money to get conventional financing, many of whom may also have some windfalls from stock option gains, and this relatively small pool of buyers is going to be picky about what and where they buy, but a bit less picky about the price. Meanwhile other places will go begging because their buyer pool would have required the type of mortgages that thankfully lenders won't be originating anymore. Possibly, and I don't have any evidence, more of those places are owned by people who are going to see their loans explode in the next few months, thus creating a double-whammy of desparate sellers and no qualified buyers. So, I think we will see a bifurcated market over the next two years, JMHO of course.

Stuck,
I agree. I just raised my blood pressure by tuning in briefly to that asshat Kudlow on CNBC. He and his merry band of talking heads were "expecting" at least a 50bp cut in the Fed rate, and anything less would be "disappointing". Every talking head on Bloomberg says similar things. We've heard Cramer's lunacy already. Talk about forcing the Fed's hand! I won't be surprised when they buckle to the pressure to cut. The only thing is, it will look ridiculous in the face of gold at $720 at today's close, oil above $80/barrel today, and the tanking dollar.

In the end, this will be in line with all the other moves by this boomer generation: Screw our children. Let them clean up our financial mess.

DJM,

I'm in the pool that you're talking about -- but believe me I'm picky about the price. I've been looking casually for the past year, but the prices don't come anywhere toward making financial sense. There are many 50-60 year old small houses (2/3 br 1 ba, 1000-1500 sq ft) in marginal neighborhoods with asking prices in the 600-800K range. Given that current prices for these houses are 300X+ (or more) the current monthly rent, it would take a substantial and meaningful reduction in price to make these appealing.

Many of these houses sold for one-third of the current asking price only 5 years ago. I'm not that desparate to buy; I suspect that many in the pool, having waited 2-3 years to buy, will wait another 1-2 years.

As an aside, it looks like many of the properties for sale are empty. Anyone else seeing this?

What is Emerald Hills' zip code? How does one look for properties in Emerald Hills?

I actually drove around that place a few months ago for the first time, and liked the view and woods of that area very much. It feels more like Woodside than RWC. It also seems to be that there may be plenty of vacant land. Technically, it is in the western foothills, and with a bit of luck, I can't see why it cannot become a Woodside-like community. I often took my in-law to Sequoia Hospital from 280, and have always wondered why that stretch of the hills remain undeveloped.

OO,

Emerald Hills is indeed very nice. There's a reason the RE prices there are noticeably lower than surrounding Peninsula towns in the hills - it's the schools. Not only do kids go to Sequoia High, and in some cases Woodside High, both mediocre at best. The elementary schools are reasonably good, though. Schools are the reason the place hasn't been overrun by the Chindian crowd. :)

The one sign of hope on my bike ride home was a 900+sq.ft. cottage/condo ($500k+) that evidently fell out of contract as they had a broker open house last week. And an open house on Sunday. And then a "Sale Pending" sign appeared today... sigh. Also, we dont' seem to have a declining enrollment problem with our schools... in fact, they are getting a bit crowded.

skibum commented on DQ SoCal numbers:
These don’t reflect much effect at all of the credit crisis. Somehow, Prentice seems to think these numbers represent a “floor” level on sales numbers.
At least 33% sales declines in most counties. This has eliminated second home buyers and specuvestors (third, fourth, fifth and sixth homebuyers). Honestly, I suppose the sales numbers could go lower, but I think the main point is that only "rational" players are now left in the game.

Here are some other high(low)lights from the DQ release:
When adjusted for shifts in market mix (i.e. fewer lower-cost homes selling now), year-over-year price changes went negative in January and are now 3.5 percent below year-ago levels. Wow, can't believe they put that in there!

The anticipated drop in financing with "jumbo" mortgages, home loans above $417,000, was barely noticeable. During the first half of August (through the 17th) 43.4 percent of the Southland's home loans were jumbo loans. That dropped to 39.7 percent for the rest of the month.

Glen Says:

> FAB and Astrid I see that the “welfare queen”
> myth is alive and well.

I’m not saying that everyone on welfare is living like a king or queen driving a Cadillac to buy filet minion with their food stamps I’m just saying that we have a lot of people who should be working sitting around doing nothing while people like myself are working 7 days a week to pay their bills.

> First of all, the bipartisan welfare reform bill eliminated welfare
> as a lifestyle choice. What remains is a strict program with a 5
> year cap, which rewards work.

The “bipartisan welfare reform bill” just made it a little harder to spend the rest of your life doing nothing. Most of the people in public housing in CA have been there for more than 5 years and will probably still be there when I die. My two section 8 tenants (who are in their 40’s and 50’s and should be working) are not on “welfare” but get thousands a month from other agencies like HUD, Social Security and others. I know a lot of other landlords with able bodied tenants who have not worked a day in decades…

> The “baby-daddies” are required by law to pay child support.

And people are “required by law” not to sell or use drugs…

> If they are earning a paycheck and don’t pay, their wages are
> garnished. Child support obligations are nondischargeable in
> bankruptcy. However, if the “baby daddy” is unemployed, or
> in jail, or participating in the “underground economy” it is hard
> to collect from them.

It would be a lot easier to collect from them if we caught them and made them live under court supervision until they paid child support for a full year…

> Your family has apparently done quite well for themselves.
> The military industrial complex and the “prison industrial
> complex” (2 million in jail and counting) are there (at great
> expense) to protect you and your property rights from
> kidnappers, vandals and invading armies.

Most of the cost of the “prison industrial complex” is a political pay off to the prison industry (both private sector and the union guards). We only need to lock up a small number of non violent offenders who refuse other punishment. Most of the “military industrial complex” is just a political pay off to the military industry (both private sector and the many men in women in uniform that like the military lifestyle). We have over 200,000 US military personnel currently stationed on hundreds of US Military bases in over 100 countries around the globe NOT COUNTING the men and women in Iraq…

> A few months ago a family of four with two young kids
> came to my place of employment (law firm) asking if we
> knew of any public assistance programs that could help them.
> They had just been evicted from their apartment because they
> couldn’t keep up with their rent and they had been wandering
> the streets all morning. They had no family in the area and no
> place to stay for the night. I guess I can understand if you think
> the parents were lazy or “shiftless.”

There is a lot more to this story since there has to be a reason that an intact family of four does not try and get help from family, friends (of the parents or the kids), neighbors, church, or any of the hundreds of groups in the Bay Area that help people BEFORE the Sheriff locks them out and forced them to wander the street. It was a sad day for me when I had to evict a guy years ago and had to look at him standing there in the street next to his 5 year old son holding a TV. It was unfortunate but the Dad chose crack cocaine over keeping a place for his son to live…

"True, true. I think that 15-25% will be seen, but in less desirable areas. This is admittedly just based on anecdotal evidence."

I wasnt aware that Saratoga and Los Gatos were undesirable.. but
both suffered actual price declines in 2001. That was just a small blip.
You may not be aware of the major correction we had back in 1991 when
we had a 35% dip in those two cities.

"HARM Says:
The “high-tech” capital of the U.S. (and arguably the world) cannot even create a statewide database after 10 years and nearly $2 billion in sunk costs."

Yes actually the DMV fisasco has been going on since the 80s trying replace their IT infrustructure. There were other CA Govt agencies also had similar problems for 2 decades and counting.

I'm curious if any of the forecasted price declines are based upon the buyer's newly lowered spending power, now that the subprime market has imploded, jumbo rates are rising, and "creative" loans are harder to come by.

For instance, with a low teaser rate my payments would have been X for a $500,000 loan. If X is all I can afford each month, how much house would this buy with a 30 year fixed today, with higher interest, etc.?

In the end, this will be in line with all the other moves by this boomer generation: Screw our children. Let them clean up our financial mess.

Damned straight. You children need to get back to work and support old guys like me.

Note: I never had any children. I never even got married. I haven't had a girlfriend since the 1970's, living my entire life in celebacy. Some of the late-boomers did nothing with their lives but work 50-60 hours a week until we dropped, and even then we never had enough money to live in "the fortress".

And Surfer-X still thinks we lived it up and partied all our lives.....