patrick.net

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.....

FAB says:

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…

You have a point. Subsidized housing has gotten to be kind of silly. I saw on ad on Craigslist recently for a $200K dwelling in LA...but you had to be "low income" to qualify. Seems to create a perverse incentive for people to stay broke.

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

Exactly my point--you can't legislate away deadbeat dads.

>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…

How much is that going to cost? Someone has to pay all those judges, probation officers, social workers, etc., etc.. All of that infrastructure won't be paid for by the average deadbeat dad. Ultimately, what is the solution if the guy won't get a job? Put him in jail? Costs too much money. Cheaper to just give gov't money to the mom.

>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…

I think we agree on this issue.

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…

I'm sure you are right that there was more to the story, though I didn't talk to them in any detail. They did not appear to be high, drunk or crazy. However, they did not speak much English and I would guess (though I don't know) that they were recent undocumented (or "illegal," if you prefer) immigrants.

I know that this disclosure is likely to raise the ire of many on this board, who do not believe that a nickel of US taxpayer money should be used to provide social services to illegal immigrants. However, if that is your attitude then you should give back all of the money you have saved on fruits and vegetables, restaurant meals, housekeeping services, landscaping, etc. over the past few decades.

OB,

A couple of hedge fund guys I have tea with think the Bin Laden puts are a hedge fund trying to cover themself against something that I didn't quite understand what they were talking about. It sounded like they were insuring against the losses by betting on them, perhaps?

Then again the Air Force is in Stand Down mode Sept. 14.... (cue spooky music)

Here is the real story on the puts!

http://tinyurl.com/2moup7

From www.thestreet.com

Dispelling the 'Bin Laden' Options Trades

"As if the mortgage-market meltdown wasn't enough to spook investors, some market players expressed concerns about unusual options bets that some observers have dubbed "Bin Laden Trades."

MORE-

DennisN,

(That might have been a little too much information...)

Allah

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

Randy,

You took me off your rss filter? Suddenly, I feel important. :)

I don't know much about the CA housing markets; only that they are grossly overvalued. Are the prices not coming down? What makes you believe they aren't? You're not using the NAR's median and average prices are you? I hope not!

According to Shiller's index, I see CA prices falling.

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.

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

gavinln,

From what I have read, many of these mortgage products were very rarely used ever since the great depression (the first one). Here is a nice article about this you may want to read. The S & L crisis wasn't based on teaser rates that reset to much higher values like this one we are now in. These products are very dangerous because they actually inflate a bubble on their own, creating artificial demand by putting huge amounts of leverage into the wrong hands; when they reset and lending standards tighten, you get a sharp drop in demand and a sharp increase in supply due to foreclosures. Take out the ability to get those easy credit loans and you have no support for the prices.

illogical buyers + easy credit = overpriced housing
overpriced housing - easy credit = price crash

I know some areas may see their prices fall before others due of their own internal logic, but they will all eventually bite the dust. I see here on Long Island NY, asking prices are being slashed on a daily basis and the properties are still not selling. I have noticed an increase in these price cuts over the last month due to the Jumbo loans seeing a big increase in rates. Times are going to get worse and when we are in a full blown recession, it will be even harder for people to buy at those prices.

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

Here is a real piece of teflon for you Randy:

mls#1978761
271 Magnolia Blvd, Long Beach, NY
-46.8% change from first recorded price
Asking Price $665k as of 09/01/2007
Asking Price $890k as of 08/18/2007
Asking Price $1.25M as of 07/15/2007

....and it still hasn't sold! Just wondering how low they will go? I know, they were asking WAY too much to begin with, but that goes for many others as well.

They still have it advertised on mlsisland for $1.25M

Scroll down, it's listing number 1978761

Allah

I don't use a RSS filter on my own threads. Actually, the filtering hasn't been working for a while now.

You said prices wouldn't be sticky over 1.5 years ago, and you pejoratively asked "Randy, are you a realtor or something" because I disagreed with your absolutist statements of your opinions as if they were facts.

You were wrong. Prices were and still are sticky. Where I live houses have sat on the market for up to a year without any meaningful price reductions.

Houses that *don't* sell wouldn't be included in Shiller's data because the methodology is to price house-on-house equivalent sales.

Anyway, I'm not in a mood for you to come back in here nearly 2 years later yipping about how it's not sticky. It's not amusing any more given we're all sitting in this sticky ass shit and wish we weren't. In fact, don't call anyone who disagrees with you sheeple either; I've had it with that too.

You said prices wouldn’t be sticky over 1.5 years ago, and you pejoratively asked “Randy, are you a realtor or something” because I disagreed with your absolutist statements of your opinions as if they were facts.

Don't start that again. Yes, I did say they wouldn't be sticky and you will soon see I was right; mark my words!

You were wrong. Prices were and still are sticky. Where I live houses have sat on the market for up to a year without any meaningful price reductions.

Like I say, I don't know your area; I track Long Island and prices here are getting very slippery lately. I have written a program that collects thousands of listings into a database and records changes in the asking prices on a daily basis and asking prices are falling. If asking prices are falling and people are lowballing, it is only reasonable to assume that prices are falling without even looking at sales data. In your area there may be pockets that aren't dropping yet, but they soon will. Perhaps some of them can't drop the price low enough to fetch an offer.

Houses that *don’t* sell wouldn’t be included in Shiller’s data because the methodology is to price house-on-house equivalent sales.

Like I said, they aren't falling in all places because of their own internal logic, but they will soon. The ones that are falling are reflected in Shiller's price index.

Anyway, I’m not in a mood for you to come back in here nearly 2 years later yipping about how it’s not sticky. It’s not amusing any more given we’re all sitting in this sticky ass shit and wish we weren’t. In fact, don’t call anyone who disagrees with you sheeple either; I’ve had it with that too.

C'mon, is this a way to greet me after leaving me in silence for a year and a half just because I "asked" if you were a realtor? I honestly wasn't sure; it's not an insult. Take it easy for christs sakes! You brought up the sticky argument here...and no I don't call people sheeple is they disagree with me, only those who buy into a bubble because they think prices are in a permanent plateu.

peace already!

Yes, I did say they wouldn’t be sticky and you will soon see I was right; mark my words!

Like I said, they aren’t falling in all places because of their own internal logic, but they will soon.

...sigh

…sigh

Does that mean you think prices are going to stay high?

> The only thing missing from this is an outline of other
> variables in Michigan or Ohio such as:
> what is the typical income? what is the job market like?…

Why does that matter, since if you make the minimum wage (or even less) you can afford to buy a home in America (You won’t be able to live in South Marin, Emerald Hills or Woodside where vacant lost cost over $4mm but no one has to be a renter in America).

hold on, $100 a month at 8% interest only implies a house purchase price of $15,000. Even reasonable quality houses in economically depressed Detroit are not $15,000.

I suppose there are locations in the far northern wilds of Canada that are 'affordable' also, but the heating bills and isolation are the reasons for low value, and nobody could reasonably be expected to live there.

But if I have to tell you why the median income in an area, job opportunities and the unemployment rate factor into house prices, there's something seriously wrong. Hint: it's to do with being able to pay the bank each month...

# Allah Says:
Does that mean you think prices are going to stay high?

No, I think it means that "they aren’t falling in all places because of their own internal logic, but they will soon" is pretty much the commonly accepted definition of sticky prices on the downside.

"Sticky" doesn't mean "stuck on high". Just that the slide isn't smooth and continuous.

SP

Randy and Allah,

That brief interchange somehow made me picture one of those Peanuts cartoons with Linus (Randy) and Charlie Brown (Allah).

I know, I know, that was very dorky. Sorry.

No, I think it means that “they aren’t falling in all places because of their own internal logic, but they will soon” is pretty much the commonly accepted definition of sticky prices on the downside.“Sticky” doesn’t mean “stuck on high”. Just that the slide isn’t smooth and continuous.

When I say they aren't falling because of their own internal logic, I mean that there is a reason why they haven't YET started their inevitable continuous decline.

I believe that there are many people who are holding on doing whatever they can in hopes that they will be able to get bailed out. Some are paying their mortgages with credit cards; some are renting out rooms and working 2 or 3 jobs, some are opening brothels and perhaps some just have very deep pockets.

Allah,

We're not going to go through another digression and thread death simply because you have some mental retardation that prevents you from grasping a simple definition no matter how many times it is explained to you. I'll consider any more of this chicanery Trolling, so talk about something else. I've had a headache all day, so I'm apt to use my seldom touched moderator powers.

skibum

If there were a Lucy in the picture, then I'd find much more humor in it. Chuck throwing himself to the ground over and over on his own isn't quite as entertaining.

Maybe the more apt cartoon analogy is Ren (Randy) and Stimpy (Allah)...

Happy Happy Joy Joy

mental retardation

You are the only one throwing insults here!

I’m apt to use my seldom touched moderator powers.

Yes; when someones view differs from yours, eliminate them with your "moderators powers".

good night!

Yes; when someones view differs from yours, eliminate them with your “moderators powers”.

Are you 14 years old? If you don't like it then complain to Patrick or ask to author your own threads here. You can talk about anything else, whether I agree or not, just STFU about "sticky" already.

Where can I donate to SP's killfile project?