patrick.net

OO,

(From previous)

We get a "Pensions in Perspective" quarterly newsletter and usually it's quite informative. Right now everyone is being SO careful not to stick their foot in their mouth that actionable information has been sparse to say the least? Uh... the industry (and investors) are just asking for a little guidance here and YOU GUYS are supposed to be the tax atty's here so sack up and give us some damn direction!

Why is everyone in the legal depts. approaching this thing like it's "ticking"?! No one wants to hazard a guess so I suppose it's "easier to ask forgiveness than permission"? Oh I... get it! We're not in the tax advising business! O.K.

KurtS,

And... managed to push out affordable housing in one fell swoop! Now I could see if they were putting in a FACTORY (or anything that "might" create jobs) but you see, we've no need of such frivolous things any more.

All we need is houses.

And yes, "shoehorned" would be the correct term.

Not long back (in Wilsonville, OR) they moved out an aging (1970-ish) mobile home park to make more room for In-Focus or Mentor Graphix (can't remember which) and gave residents like uh... two years notice.

Well... (being Oregonians) we'd rather have dilipidated "single-wides" than jobs. We're just funny that way. Suffice to say they made a stink about it and are digging in like true squatters. Only in Oregon.

DinOR,

RE: the bailing out on patrick.net, perhaps it's a bit of "bubble fatigue"???

Les Canadiens (et les Canadiennes) are a part of the Florida Winter season. Perhaps they'll find us more affordable than in years past. Arrive in greater numbers. Stay a little longer. Dine out.

We'll see.

If they had a cooler flag, I’d think about it. That big tree leaf thing just dont give me any vibe.

Obviously the marine color guards thought the same thing, and they flew the flag upside down during the world series. How do you mistakenly fly a flag upside down when there is a leaf in the middle, it's not like the French or the German flag :)

Saw Greenspin's book at Borders today, "30% OFF" - yeah, especially if you pay in dollars...

@skibum,

Well that or "DinOR fatigue"???

Uh, I think everyone here well knows my position on the heap 'um plenty generous tax code where RE is concerned. But I... couldn't let it go?

Like I say though, I was very much surprised (at this late stage in the game) there were/are those still on the fence about it's impact?

HOWEVER!!! If *astrid wants me to get on bended knee and ask her forgiveness to get her back then that's what I guess I gotta' do! Costco gift certificates? O.K I'm an asshole already...! Let's not make a big deal out of it! Alright? :)

Hello Everyone,

I hate to bring up the Zillow fight again, but you guys seriously need to keep a tighter leash on one of your fellow bloggers. I regulalry post on Zillow and your friend Allah/LongIslandBubble is doing nothing but ruining the credibility of your site by writing that Davlid Lereah should be shot and by comparing Lereah to a mass murderer.

And I am not joking. These comments were actually made on Zillow:

http://www.zillow.com/site/ViewThread.htm?tid=7171

Good luck everyone!

http://www.zillow.com/site/ViewThread.htm?tid=7186

"...you guys seriously need to keep a tighter leash on one of your fellow bloggers"

Huh? Since when have we held each other's "leash"?
I'm sure Zillow can moderate its own blogs as it sees fit.

DinOR,

Huh? That particular discussion from last thread is closed, not necessarily in a satisfactory manner for me, but closed. I'm not going to act like a fifth grader and hate you now.

Economic slowdown is starting to show up in the Bay Area numbers:

http://www.mercurynews.com/ci_6969164?source=rss

How is it that there are MarketWatch titles - "Credit Storm Passing for Wall Street" - in the MSM now - I was thinking things are only going to get worse, much worse - what do they know that we don't - or is it that they haven't studied the Credit Suisse charts enough?

Claire,
What they are specifically referring to is that the credit markets (the market for buying/selling short term paper) is starting to see movement again, and it's moving away from total lockdown mode. It's all a confidence game. Between letting time pass from the initial fallout, to the lowering of the discount window rates, to the Fed funds rate cut, banks are starting to be willing to loan money to each other again.

I think there is still a lot of trepidation out there, though - more bad news, and it could start all over again.

Claire,

Did you also see Robert Lecoursiere's Bank of America ARM reset charts? As I understand it, CS calculated initial resets while the BoA data set tracks cumulative reset projections to November 2009. The methodology gives a different picture - if anything, it's more disturbing than Zellman's

CR link:

http://calculatedrisk.blogspot.com/2007/08/arm-reset-charts.html

allah and Randy,

If either of you are reading, you might want to check out this article in today's Sunday NYT that basically goes through the seller psychology component of sticky downward home prices:

http://www.nytimes.com/2007/09/23/business/yourmoney/23view.html?_r=1&ref=business&oref=slogin

"A Reality Check for Home Sellers"

ECONOMISTS and other humans don’t always see eye to eye. “Economists tend to think people are crazy because they won’t sell their houses for less than they paid for them — and people think economists are crazy for thinking things exactly like that,” said Professor Christopher Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School and an authority on real estate economics.

(snip)

Classical economics can’t explain this behavior. That’s because people who refuse to sell their houses for less than they paid for them are violating a cardinal rule of the market: stuff is worth what it’s worth. It doesn’t matter what you paid for it. But when Professor Mayer and his co-author, David Genesove, a professor of economics at the Hebrew University in Jerusalem, studied the Boston condominium market in the 1990s — scene of one of the biggest real estate busts in recent American memory — the actual patterns of human behavior did not seem to follow the standard rules at all.

From 1989 to 1992, prices in Boston fell sharply, with condominium prices dropping as much as 40 percent. For a great many of those who bought condominiums during that period, selling could be done only at a significant loss. And, basically, many people refused to sell.

Their study, “Loss Aversion and Seller Behavior: Evidence From the Housing Market,” appeared in The Quarterly Journal of Economics in November 2001. The professors gathered data on almost 6,000 Boston condominium listings from 1991 to 1997 and showed that for essentially identical condominiums, people who had bought at the peak and were facing a loss generally listed their properties for significantly more than those who had bought at a time when prices were lower.

Properties listed above the market price just sat there. In the Boston market over all, sellers listed their properties for an average of 35 percent above the expected sale price, and less than 30 percent of the properties sold in fewer than 180 days. In other words, much of the market went into a deep freeze as many people held out for market prices that no one would reasonably pay.

In classical economics, that’s not supposed to happen, but the episode did comport with the behavioral economics theory of loss aversion: people have a visceral — some might say “irrational” — hatred of losing money. They try to avoid doing so, even when it goes against their own best interests.

(snip)

What is to be done? Well, if you are holding out for an above-market price to recoup your losses, perhaps you would do well to hear the advice that Professor Mayer gives his own family members.

“If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”

Bruce - thanks for the link, I'm thinking Sept 08 is going to be an interesting month - Sept gives all those people time to be foreclosed upon (6 months) after the bulk of the inital resets.

Do other people have a different take on the time lags for these resets to affect the foreclosure market? Or do you think people are going to either be able to refinance and/or sell before these projected resets?

Market Observer - This is whats known as backlash!

there are plenty of ticked off Californians that suffered throught the
rolling black outs. We were told the lack of electricity was due to
high consumption and no new power gernation plants. Well what
we learned was Enron was turning the juice off to spike price up
for the every consumer. This was documented in the court papers
and the parties in Enron were charged with fraud. California did
attempt to get the $9B in over charges from Enron but only got
$1B or so. Yea! that were plenty of ticked off residences who saw
their PG&E bill sky rocket and wanted to hang Ken Lay!

skibum -

During the housing downturn in the UK in the 90's, my mother wisely told my brothers that even though they would be selling their houses for a loss, they would be buying other houses that had also lost value for their owners, so there was no reason not to sell and feel like they had lost, because they "gained" on the ones they were buying.

Of course, here it is different as a lot of people are going to lose large sums if they are pushed out of their housing due to foreclosures. And there are huge price differences in different areas of the country.

svcausguy Says:
News from up north…at least the phantom bids are exposed in Canada.
Two years back it was exposed in Australia. Wonder how long it takes
to hit the US border.

good post, svcausguy -- it might have just been released because it had 2 links in it tho...

auctions are a popular practice selling real estate under normal circumstances in Oz, not just foreclosures, which 1) might explain why it is so expensive, and 2) how the market almost instantly absorbs any spare capital in the hands of buyers... there are a number of unethical tricks at auction which I won't detail here. So, once again, when compared with housing, the US isn't quite the free market, free-wheelin' model of capitalism we all believed when compared with other countries...

American in Canada:

http://www.stockmania.com/2007_09_24_archive.html

skibum - good post. I had, HAD, a nice little business buying/selling eletronic surplus. I can tell you that most people are indeed not "homo economicus" in fact the "a thing is worth what it's worth" worldview is in fact very rare.

What are the two main forces in the stock market? Greed and fear. And I'd say the same emotions govern why people sell something - greed since they're making money on it, and if they can't, then the only thing that can make 'em sell is fear - fear of being evicted, of not eating, of not getting their fix, etc. So, a normal person will try to hang onto something if it's gone down in dollar value unless they're forced to sell it - until fear makes 'em sell.

So, we'll see the FBs sell all right, but if they can put it off 6 months (and yes, lose even more money) that's exactly what they will do.

I swear, this human behavior could be modeled on a Commodore 64, why is this beyond economists?

@Claire,

Your family's scenario in the UK will work for those sellers (who then become buyers) who have enough equity in their homes to be able to leave the sales transaction with some cash, or at worst to break even. The millions of people who bought at or near the top of the market (2005-2007) don't have the luxury of accepting less than their purchase price + closing costs, as they would have to bring cash to the table to close. This IMO will be a huge disincentive to sell beyond the seller psychology referenced in that NYT article. These people will most likely hold on for dear life as long as possible, hoping beyond hope that prices will rebound, or now that the government will bail them out, until it's too late and they face foreclosure.

So, we’ll see the FBs sell all right, but if they can put it off 6 months (and yes, lose even more money) that’s exactly what they will do.

I swear, this human behavior could be modeled on a Commodore 64, why is this beyond economists?

That's exactly right. I do think sellers will hold on as long as possible. Especially because many Realtors (tm) are still whispering in their ears that the market will bounce back in a season or two. Granted, some savvier Realtors (tm) are telling potential sellers to sell now, before they "lose" even more money, but much of that is motivated by the Realtors (tm) trying to get transactions, ie, commissions in a stalled market.

"Granted, some savvier Realtors ™ are telling potential sellers to sell now, before they “lose” even more money"

And telling the buyers there are multiple offers, bid higher above asking!
I would say sleaze is rampant.

Different Sean - we certainly are not seeing a tranparent open market place where all the information are known.

Skibum

Great article. I can see this happening here but I doubt so many people will be able to hold out as in the past. With all the neg-am loans and whatnot, who's going to be able to sit on their overpriced $hitbox after the loan adjusts?

skibum said:
many Realtors â„¢ are still whispering in their ears that the market will bounce back in a season or two.

This is usually the newbie realtors who got into the game after 1999. These are your "eight year veterans", who only rode the boom years and have no idea what a housing slide looks like. They only know how to talk the happy talk - and are themselves hoping that everything will be booming again so they can keep up their own tasteless overconsumption.

The respectable, experienced realtors seem to be quietly telling sellers to sell now for 10% below peak, or wait and sell at 25% below peak in a year or two. Of course, they still maintain a cautiously upbeat tone in public, to avoid spooking the few buyers that are still out there.

SP

Claire,

As far as I can tell, the elapsed time between reset and a given property coming to market as REO is shaped by too many variables to submit to a good estimate.

We're fond of presenting the delinquency, default, foreclosure, REO scenario here, but there's also workouts, short sale, bankruptcy and jingle mail to consider, any combination of which can screw up your time line.

Six months sounds as good an estimate as any, I guess, but I'm not sure I expect that March spike to show up intact in October - it may be somewhat diffused by then.

svcausguy Says:
Different Sean - we certainly are not seeing a tranparent open market place where all the information are known.

well, not that, no, but there can be more to creating a stable social settlement than transparent markets -- the stock market is reasonably transparent but regularly booms and busts. Housing is being exploited too much as a commodity or income-producing asset these days, in my book. It's not illegal, of course -- altho it would be in my workers paradise...

e.g.

The New Money Pit: Housing Bust Gets Worse
It started with subprime mortgages. Now owners of McMansions are defaulting, and the effects of the housing bust are beginning to ripple through the economy.

By Daniel Gross
Newsweek
Sept. 10, 2007 issue - Walking through the gated community of Black Mountain Vista on a hill in Henderson, Nev., Thomas Blanchard offers a guided tour of real-estate woe. A row of stucco duplexes that recently sold for as much as $500,000 sit empty. "That's a repo," the real-estate agent says as he stands in front of 678 Solitude Point Avenue. Then he points to the adjacent houses, where yellow patches blot the spartan lawns and phone books lie on front porches, their covers bleached from weeks under the desert sun. "No. 680, repo; 684, repo. Those two at the end, repo."

Three years ago, this Las Vegas suburb was teeming with modern-day prospectors armed with low-interest mortgages, all hoping to strike it rich in real estate. Now, what started with the subprime-mortgage mess and subsequent credit crunch are turning communities like Black Mountain Vista into luxury ghost towns. Buyers who got in over their heads are being forced to abandon their homes, leaving behind empty McMansions on the California coast and see-through condominium towers on Miami Beach. Real estate is turning into a money pit, sapping the fortunes of home buyers, hedge-fund managers and house painters alike. The really bad news? This is only the beginning. [...]

http://www.mercurynews.com/ci_6982565?nclick_check=1

Tax perk costs Santa Clara County
ENDING PROPERTY TAX BREAK CONSIDERED

Bruce,

I was also thinking that the pain from Feb, March, April and May's resets would all be coming into play in September 08. I guess maybe Jan 09 might be the time to start thinking about buying a house, but I'm wondering if the goverment/market will have come up with another solution that will help the poor FB's by then and ruin our chances.

Claire,

I think I prefer watching the builders' monthly opinion poll. It's been a good leading indicator, perhaps one of the best. No false signals so far and a five to six month lead in the bargain.

If we find ourselves in a Japan-style deflation, however, all bets are off for my plan and back to the drawing board.

BA Craigslist ShortSaleOMeter rises to 80 listings for Sept. 21&22. On the other hand, I finally ventured out to an open house this weekend, and it was hopping.

I was also thinking that the pain from Feb, March, April and May’s resets would all be coming into play in September 08.
The Presidential election is going to be wild. I am predict that the first candidate to recommend public floggings for specuvestors that owned four or more "primary residences" will win...

The Presidential election is going to be wild. I am predict that the first candidate to recommend public floggings for specuvestors that owned four or more “primary residences” will win…

This is America. And speculation is not a crime here.

Losing speculators should be allowed to fail. That's it.

And speculation is not a crime here.
Peter, there may be a little bit of fraud involved if the specuvestor owned four or more "primary residences" (see Casey Serin)...

Peter, there may be a little bit of fraud involved if the specuvestor owned four or more “primary residences” (see Casey Serin)…

Me bad.

Juggling (3) "primary residences" is perfectly fine. (I'm doing so myself) BUT... 4 or more might be pushing it a tad. I mean, c'mon let's not get greedy here!