patrick.net

I worked with a guy in CT in 1992ish who had bought at the peak in the late 80s and didn't have enough equity to sell. Worse for him, he wanted desperately to move. Oh yes, a 10% decline in housing is going to cause a catalytic crash. Why?

Because Mr. and Mrs. Fat American with their heads up their arses are not going to be deterred from their consumption by anything until their fake equity dematerializes. At that point, they will slowly turn away from the plasma tv while slowly putting down their half eaten snickers bars. They will make eye contact. Their mouths will be agape. And, horrifyingly, the realization will hit them that the only thing more overextended than their waist lines is there finances. And the words Holy Shiite will be seen to form upon their lips. And they will know fear. And then they will look around and see that the things they have wasted their money on - the credit they institutionalized with the last 2 refis - have little value. They will recognize that their debt is virtually insurmountable and,

HUSH,

THEY WILL STOP BUYING CRAP.

And when that happens, get your googles on, because the crap is gonna fly.

NetGuru wrote, "Wow DC….you just sold your house for a gazillion more dollars than you bought it for. Why are you in such a bad mood?"

Well, mostly because I'm going to have to deal with the fallout. It's my libertarian perspective. I don't give too much of a crap what people do, as long as it doesn't affect me. But it bugs me when I know my taxes are going to go up to cover all the losses that will occur.

Heads up.

I just spoke with my former Realtor. He indicated that he is now telling clients in the DC market he works that the goal is to "sell your house within 30 days." For the last two years, at least, the goal was to sell it in a day.

Anecdotally, I have noticed a slew of houses come on the market. On my street, which has barely a score of houses, the fourth house in four months just went on sale. Unbelievable.

"I believe that in a society, everyone could work to profit together."

_smile_

And there, my trollish friend, is the rub.

No society ever got wealthy by trading pieces of paper with one another at a feverish rate. Society gets wealthy by, wait for it, producing wealth. The current market fevers really *are* a zero sum game: people exiting the market are taking money from people entering it. This is why I am exiting it. Perhaps in a few years I shall reenter it, if buying again becomes financially prudent. But right now the rent vs. buy numbers just aren't there.

I admire your commitment to capitalism, but todays credit driven economy is not capitalist. It is fantasy.

Perhaps I am wrong. and you shall get to rub my nose in it. But this is my honest and reasoned position.

Cheerio,
prat

Another anecdotal bit of evidence that a crash will soon be upon us . . .

I'm listening to the radio tonight and I hear an add for a real estate course. The standard huckster crap that has sprung up in the last 12 months. Come to us and we'll teach you how to make money in the real estate market.

The difference? This ad specifically said, "yes, THAT'S RIGHT, you can use your 401k money to invest in real estate."

When folks start tapping into their 401ks to buy houses in the DC bubble, man, that's gotta be a bad sign.

P:

You are welcome. The crash would start in the San Diego and/or
Las Vegas Markets. DQNews is a consistent source to track CA home prices.

I posted a link in an earlier post which tracks year-over-year appreciation in CA Markets.
The next few months in SD market will pretty much turn the tide.
I think Las Vegas is several months ahead in this cycle. What we are
seeing in SD now, started happenning in LV in Oct 2004.

But getting any kind of data from LV has been a challenge.
Which ever market gets the media's attention first, will trigger the
panic selling in other markets.

And yes I do agree that Bay Area's price correction will be much
more severe than anywhere else. Most other local bubbles are
5 yrs old, but BA has a 10 yr old expanding housing bubble.

The prices will fall back to 95-96 levels, adjusted for inflation.
The near 100% appreciation of the last 5yrs will definitely be
wiped out. That accounts for a near 50% drop. Then the appreciation
of late 90's will account for another 10-20%. So 50 to 65% drop
in the next few years is about right.

Those who think it is too big to happen, Nasdaq lost nearly 80%
of its peak value, and is now stable at about 40% of its peak.

_____________________________

Jack:

2000 - 1 in 8 Americans lived in CA
2005 - 1 in 8 Americans lives in CA, 7 out of 8 still dont live in CA.

If in 2005, 1 in 5 Americans were living in CA, it could possibly
explain a demand driven appreciation. But that's not the case, it is an expectation driven appreciation, which is essentially a bubble.

I can agree to a 100% premium over North Dakota,
but not 100% over Atlanta.

______________________________

DC

I witnessed another anecdotal evidence that this is gonna crash
sooner than later.
As I walked back home I saw a Home Ownership Fair on a public park.
Every lender Bank in the area had a table there , giving information about
how to buy a house.
About 100 people seated in a tent were listening to a speaker
who was explaining things about home ownership.

When commodities of over half million are being marketed like
$3 hotdogs on a weekend afternoon.
The end is pretty near and clear.

"If not why are you misleading people with something that you are not sure of?"

For sport, mainly. Seems like its working.

Deep breaths my boy, and repeat after me:

Prudence, prudence, prudence.

I offer this to assist you:

http://www.dinkytown.net/java/MortgageRentvsBuy.html

All the best,
prat

Mr. Mike wrote - " I feel that I am lucky to still have a job."

If more people felt like you, we wouldn't be in this mess.

Last week I ordered two sets of checks after I opened a new account.

One set of checks came with the wrong info on it, the other was "held" because they couldn't figure out that I sent one fax with two cancelled checks on it. As for the checking account, an ATM card was never ordered by the account opener. Why? Because these people do not "feel lucky to have a job." They think they're getting screwed.

Fake P - I appreciate your input. I don't understand it.

1st, I already stated I feel bad for the greedy pigs, but I won't lose any sleep over it. People should be responsible for what they decide.

2nd, I haven't figured out how to make money off a housing fall, and I'm not looking to get rich, anyway.

I'm talking about it the same way I talk about gene therapy - I think they're both interesting and both going to happen soon.

Interesting line from today's 'lead' story at yahoo finance about record setting home sales:

"By region, sales were up 7 percent in the South, 5.8 percent in the Midwest and 4.3 percent in the Northeast. They were unchanged in the West last month."

Think the speculators have left CA in search of greener pastures? I know the bay area is still on the upswing, but this leaves me feeling like so cal has definitely stalled.

Well Mike, i own a home. At least I have entered into a contract to own a home. And I do mean I will own it. It's great and it sucks.

I can't stop reading stuff. I haven't been this motivated to read since I was I was 50 pages into Atlas Shrugged, and before that, since I first started to figure out the molecular nature of cells. I've just read for 3 hours on line about various gold issues.

I found out that Roosevelt confiscated all privately held gold in 1933.

How is it that a man who most would describe as well educated has never heard of this? I am sadened by my ignorance. I am frightened when I consider how simple most Americans are.

I feel sadened by my pathetic education. I have four college degrees, including two graduate degrees, and not once was I exposed to any kind of education about the gold standard, fiat money, the Federal Reserve, etcetera. I'm embarrassed at myself for being so immature through the first 35 years of my life that I haven't had the inclination to examine my government's history more closely.

Wow. It's going to be tough to get any work done over the next few weeks.

It's time. It really is. Everything before was only the staging. The act begins soon. We, who have lived in the grandest cornucopia - albeit falsely purchased - will now face the product of our doings.

netrugu, that's it exactly. The Internet is an awesome resource. I like it for alternative news. The fact is, from the advent of TV through to the talk radio explosion 10 years ago, a very few individuals at a very few networks had far too much control over information. Now, anybody with 150 bucks can start a web.

We are not completely balanced, although we do welcome reasoned counter-arguments. I am going to miss Face Reality. Hope that he will be back soon.

This is the way I look at it. I've got a bunch of kids. I'm not a conspiracy theorist. I'd rather NOT have to worry about watching my saving wiped out by hyper inflation initiated by a RE B burst.

So I grudgingly have fought my way to the conclusion that I must prepare for what seems obvious.

I will add, however, that when I was in school in 1999, I was already telling people that our culture was unhealthy and that accumulated debt and lack of savings were going to catch up to us. The last 5 years have done nothing but confirm my observations. Heck, 5 years ago, relatively speaking, we weren't in bad shape.

"Are we balanced?"

It is conceivable that we are all wrong, and that housing is now a 20% per year asset. But until we see a compelling *why* housing changed in such a fundamental way in 1999-2000, we must rationally conclude that it is a short term aberration. Being a bear is never easy.

I am fully prepared to eat crow, as I am reluctantly doing so now with the google IPO. (Although I still think it too shall crash! A fool indeed!)

Chins up, gentlemen. And no schadenfreude. That would be unbecoming.

Cheers,
prat

The Best Part (BP) about Mike's link is that the "investors" are described on line one as the "new day traders." Jesus. Isn't that a bad thing? I remember one of my wife's friends was a day trader. Yeah, sat around in his underwear eating chips and buying Amazon. Till Summer '00. Then he had to get a job after blowing, I'm guessing, much of their cash.

Whoever made the point on Bankruptcy "reform," great point. It's like "A Perfect Storm." All this shiite is coming together at the same time - credit bubble, dollar devalued, savings all time low, real estate madness, China's consumption ramping up. Dammit, screw the fish, let's get the boat the hell out of here.

OK - I am a doomsday guy. Here's how I see it going down. Copy this blog and check in a year to see how I did . . .

The trigger is real estate. At some point in the next 6-12 months the panic sets in, and there is a substantial devaluation of housing in many major metro areas.

Meanwhile, the Fed has continued to raise rates through the summer and fall, which contributes to the housing panic.

Unfortunately, it is too late to save the slumping dollar, which continues to fall versus world currencies.

Foreigners, who are watching their treasury note investments become devalued with each incremental drop in the dollar, begin to divest. In response, the Fed must raise rates further in a pathetic attempt to readdict the foreign creditors.

The housing market is now abysmal. Foreclosures become common, and suddenly Joe and Sally homeowner are worried. The SuperBowl has it's lowest TV audience in 15 years. The commercials don't seem funny.

Consumer spending slows, and what consumer spending remains is, at miserable exchange rates, used to purchase expensive goods.

The dollar continues its devaulation.

The housing market is now a pit. Nobody is buying. Interest rate increases at the one year mark are now starting to loom as portents of financial ruin to the 5%-20% of Americans who will not be able to pay their debts as they come due because they have taken too much credit in the form of mortgages or HE credit lines.

Bankruptcy filings increase, and consumer spending is further demolished by the inability of Chap 13 filers to purchase anything other than necessities.

Oil prices are going up in a spike, as China begins panic buying of reserves.

Unemployment surges.

Other countries are now begininng to panic. With their main consumer struggling to stay above water, the spiral pulls in most of the WTO.

Right about now is when Congress decides that FDR didn't do quite enough to drive us, as Marx correctly predicted, to Socialism, and

fuggetaboutit.

That's my take.

Going off on a bit of a tangent here...I know you guys like statistics...what do you make of this.

US 2005 Population (rounded up) 300 Million
Average Annual Growth Rate (rounded up) 1%

Data source: http://www.indexmundi.com/united_states/

So, every year an addition 3 Million people
Estimate that an average of 3 people live in one home (I would say this is conservative as well)
So, US needs 1 Million new homes/year to keep up w/ population

Most recent data
1.316 Million new homes sales (annual, seasonally adjusted)

That's a lot of excess homes, especially when purchase of resale homes is not factored in. Am I missing something here? Are all the excess purchases by speculators?

Here some vegas price data, through March, for those of you that haven't seen it yet :)

http://www.salestraq.com/las_vegas/graphs.html

Lisa

Thanks for the link.

Las Vegas = Loser Magnet

I always thought the expression
"What happens in Vegas stays in Vegas" was pretty close.

That is, if "what happens" is your money.

Ptiemann. Sorry, my words are harsher in retrospect.

I don't dislike or look down on anybody who chooses to live in LV.

I just think, with the exception of CSI, the town is represtative of all of the bad things about human beings. I was there once. I found the place to be very sad.

I'll just throw out again, I don't care if people want to behave like children, run to LV to throw their money in the pit, hire whores and strippers, and otherwise waste money and act like fools. Unfortunately, I'll be the one they turn to when, mysteriously, they don't have sufficient retirement savings.

Hey Max, I never said I like DC! I'm leaving!

The U.S. Patent System is, to be polite, problematic.

The worst part? Fees taken in from filings and the myriad of other patent fees are more than is needed to support PTO activities. So where does the money go? You guessed it, the general fund. And given that patents have been issued on perpetual motion machines and EMR that is faster than light, . . .

screw it.
I can't change it and I can't stand it. Bad position.

You're looking for a website that's bullish on real estate?

Easy.

http://www.realtor.org/

If we're wrong then I'll be retired in 5 years laughing at how concerned I was over nothing. Hey, I thought Y2K might be a problem as well. On the other hand, even a blind dog . . .

We're not wrong. Whatever created us may make us wait a year or two more to see it all start to unravel, but we are not wrong. The darkness will be upon us soon. Our fellow Americans are like cattle following the easy credit bell to the slaughter.

I represent the "dumb money." My dumb money likes P's theory. I don't give it past Xmas.

With regard to conspiracy theory, mine is not that they're trying to depress housing. That would be simple. Greenspan saying, "there is a bubble and we expect a strong downword trend within 6 months" would pop the bubble. No no. Instead, I think the conspiracy is to keep the entire thing hush hush until it explodes. Maybe until Hillary takes over, but at least after AG leaves office. It's like an affair that's getting more difficult to conceal. More people are noticing. There are unfamiliar panties under the bed. The dog looks upset. And why has she lost 30 pounds and dyed her hair? My conspiracy theory is that Bush, AG, and all those in the top eschelon are scared as hell that there is a crash coming. Again, AG telling folks 6 months ago, or whatever, that getting an adjustable rate loan would be a good idea SCREAMS of a last ditch effort to prop up the phony GDP.

Here's my question - - -

WHY THE F _ _ _ ARE NO SENATORS TALKING ABOUT THIS???

Honestly, screw the filibuster and the textualis/activist debate. I don't care anymore. If things keep up the way they are, nobody's gonna be able to get a decent tonsilectomy, forget about an abortion.

Sorry to shotgun the board here, but I've gotta throw this in . . .

You're right about the housing bubble being hidden or at least not out in the open.

My first two inclings - House down the street sold high and a realtor friend told me 90% of mortgages in this are were IO (the 90% is hyperbolic but indicative). I then started surfing and eventually stumbled on this BLOG. Since then, I have seen many articles in main stream outlets.

I wonder how the PB Bunny is doing selling RE? At least Heff knows he's got a bunny in the hutch if he ever needs to sell in a pinch.

netrugu netrugu, quite contrarian, how does your garden grow?
At 4%, for the first 3 years, then adjustable don't you know.

TO WHOM IT MAY CONCERN:
The library is full of books written by innocent victims of scamming political systems. All governments dwindle down to human greed. And most inventive greed sets up a controlled inflation cloud over the unsuspecting hard working masses. Deflation is good for the masses, not good for the scamming political snakes.
We vote the government in, but we soon forget them, no feedback, no self checking questions. The best of government left to the few scamming apples will succumb, and of course we are too busy being chased by the system greed that engulfs the hard working masses.
It is not too late to show and share a proper citizen interest for the good of all.