patrick.net

Let me propose something more meaningful.

Here we've got a bunch of renters who'd like to buy cheap. The best thing you can help this market turn is through facts. As an owneroccupier I'd like to see the market tank as well since I got in so early so unless the market tanks 2/3, I will be able to upgrade much easily.

So here's the proposal. Every other week or so, we collect data on the houses that have dropped and not sold/pending, like what I did with the Los Gatos 95033 zip code area. Quote the address (just the name of the road is sufficient), and state dropped how much, didn't sell for how long. This way, you talk with data. And those people who are seeing their homes talked about on blogs as homes that are NOT moving will start to panic and perhaps drop even more. Let's help out a bit on this downward process so we can all personally benefit from the bust.

H.Z.,
I'm no expert either, and yes, it's true that the GSEs (FNM, FRE, GNM) cannot securitize "non-conforming" loans, which excludes a lot of the exotic stuff. However, it's quite a leap to say that credit/default is still not a significant risk to GSE-issued MBS paper. If the market really tanks and takes much of the economy/jobs with it, recent buyers with zero to negative equity are going to get squeezed everywhere, even ones with conventional ARMs and fixed-rate mortgages. Obviously, this will pale in comparison to what will happen to Subprime securitizers.

As far as the GSE "guarantee" goes, ultimately, I fear it's the taxpayer (read: you & me) who will be on the hook for all this paper (regardless of what AG says publicly). Think of it as S&L bailout, part II... on steroids.

Our mortgage was sold 3X in Nevada.

newsfreak,

I'm curious, what's the time frame here? I know lots of people who have bought in the last 5-10 years or so, who are seeing their mortgages traded like baseball cards. I know two couples who ended up making payments to the wrong company because their mortgage was traded without them even being notified.

Courts will not overlook the implication.

And what's more, voters will not overlook the implication, either ;-).

H.Z., I have to admit, I wasn't aware that the government takes money from the GSEs to fund other programs. I'd like to learn more about that --do you have any links? Thanks.

He is full of wishful thinking. There is a bubble in Texas. The man that wants 20 acres square will get it. The man that wants a small horsefarm in South Texas for $150k will have it if he keeps on looking. Don’t be mad because the potential customer is not stupid.

$150K for 20 developed acres with a ranch house and a stable? Unless we plunge into a financial dark age and a financial ice age at the same time... I think we will fall into one of them, but not both.

Thanks, H.Z. Hmmm... I wonder what sort of 'benevolent' government housing programs all those GSE windfall profits will get spent on? (chuckle, chuckle...).

Jack, sorry, dude --wasn't trying to beat up on you. Just highlighting a point we disagree on. Btw, I never said I expected the bubble to unwind in a matter of weeks or months. I've always said it will probably take several years. I believe we are past the crest, and that slowly (but steadily) building inventory and time on market are leading indicators of this. When we start seeing YOY falling prices statewide, then it will get more "interesting". :-)

I plead for a little more exploration of the grey areas and a little less cheerleading.

Bubble, Bubble, Sis-Boom-Bah!
Gimme a "P"
Gimme an "O"
Gimme a "P"
What does it spell...? :mrgreen:

I am not even trying to say that this one week year over year snapshot of Marin is a significan enough sampling to draw any conclusions from, but before we generalize ourselves into a frenzied state, at least agree that this does not have crash written all over it, let alone a sharp correction.

Jack, thanks for posting those numbers, albeit from our local RE cheerleader, no? I found the list/sell average interesting. As I've been tracking price reductions too (but for current MLS listings), I'm looking forward to seeing how Oct/Nov data stacks up.

Again, I see your point on the LOCAL angle. In fact, I say we track some individual prices, starting at the initial listing, following through on reductions/increases. Specificity is good data, no?

albeit from our local RE cheerleader, no?

Jack-
And I didn't mean you, but the IJ...

H.Z “MBS does not work the way you think.”

Care to enlighten us

Yes...What have I said that is wrong?...because what I said was not opinionated, unless the half dozen articles that I read describing what I had originally said are all opinionated and wrong. H.Z. If anything that I said seems wrong to you can you please tell me the parts that are and why they are wrong....because I like to believe the many articles I read are not bullshit. The fact is (according to what I read) that these GSE's are the main flow of liquidity that allowed banks to defer their risks and write more mortgages than otherwise possible....the statement "MBS doesn't work that way" doesn't explain how it does work. I know banks will not hold a mortgage that is from a marginal, risky buyer, but they would be happy to give him/her a mortgage and sell the note to fannie.

As far as location, location, location is concerned, the better areas within the bubble areas (the coasts) will be more overinflated due to demand and easy access to money, and I don't see any reason why these areas won't crash more than other areas.

"You havent a clue if you think someone will buy a bad area when they can get a good area for anywhere NEAR the same price."

What if we did so just to spite you?

Did you ever consider that? Ever plug that little eventuality into your computer models? Eh? Hmm? Ever set "x" to that value as you solved your differential equation of life? What's that? I'm sorry? Eh?

I didn't think so.

Cheers,
prat

Wow, guys dressed up in cheerleader outfits tonight! Blog's in rare form.

Wow, guys dressed up in cheerleader outfits tonight!

Whatev. I ain't no holla back girl.

Cheers,
prat

“You havent a clue if you think someone will buy a bad area when they can get a good area for anywhere NEAR the same price.”

What if we did so just to spite you?

LOL - Prat, you crack me up!

I must concede Jack's point. All real estate is LOCAL:

Leveraged
Opportunists
Counting on
Appreciation
Lasting forever

It is not that difficult to get a pulse of the local sentiment.

First, get the sale price of these properties. I have a list of sale price that I constantly receive from the realtors, and I keep track of the numbers published at the SJMN.

Then, track the MLS to see if these properties are listed at a price in line with recent transactions. In any case, nobody wants a reduction after a few months because buyers tend to see reductions quite negatively. If you have a full array of "price reduced"properties, it doesn't look good locally.

Then, publish them, let more people know about these reductions and help out on the gloomy side of the market. Buyer sentiment will definitely be swayed in a rate-hike environment amidst a flurry of price reductions. The more buyers who hold off, the more the reductions, which is a self-feeding cycle, the key is to get potential buyers into this cycle first.

Then comes the spiral down that will take years to climb out, as you sit on the sideline, pick and choose your prey at a price you want.

upon the assumption that the property was fairly priced to begin with, and how do you know that?

Well, sure a lot about real estate may assumed, and what is a "fair" price anyways? That seems to be one big question this blog is asking. Obviously, there's many assumptions about which way the market is headed, everything from those "educated guesses" to emotional responses. Should we listen to Lereah or Shiller? Unless we want to reduce the market to some undecipherable, relativistic mush, what can be said about price levels? I tend to think that sales history, inventory, DOM, and other data can show trends, and something can be learned.

So, if future conditions no longer support (or support higher prices) than today, careful study of data should indicate that--a testable hypothesis. Studying data is the only way I can get reality ahead of my expectations.

Some more reductions in 95120 neighborhood (Almaden Valley, the "prime" part of San Jose)

Almaden Road, from 1,000,000 to 899,000
Redmond Avenue, from 868,888 to 838,888
Vegas Drive, from 939,000 to 919,000
Almaden Road, 1,050,000 to 950,000, then to 899,500
Cross Spring Court, 1,295,990 to 1,195,990
Hillcrest Drive, 1,939,000 to 1,785,000

This is definitely a non-exhaustive list, I just didn't track this area so closely, so my database didn't show most of the reductions.

More reductions on prime neighborhoods, Los Altos

Del Monte, 1,050,000 reduced to 990,000 and pending

Pine Lane, 1,279,000 reduced to 1,195,000

Selig Lane, 1,545,000 reduced to 1,450,000

University Avenue, 1,575,000 reduced to 1,499,000 and pending

Edge Lane, 1,749,000 reduced to 1,688,880

Manresa Lane, 2,195,000 reduced to 1,950,000

Alicia Way, 2,795,000 reduced to 2,595,000

The point is securitizers keep most of the credit risk on their own books. GSEs in particular keep almost all of the credit risk. - H.Z.

I cannot get anymore down to earth than this:
http://money.howstuffworks.com/mortgage21.htm

Here is a snip:

They purchase mortgages from lenders and then sell them as securities in the bond market. This provides lenders with the money to make more mortgages. These mortgage-backed securities (MBS) offer investors a good return.

Just like I said.

Can someone explain to me the effects on rental rates in the event that the housing bubble pops? It would seem to me, that they would go up. More people in the rental pool due to increased defaults — I have zero data…just curiosity.

This was already discussed....there is a thread on this particular subject.

In order for houses to drop in price people are banking on foreclosures. In order for that to happen interest rates are going to have to go up (more), right? And if that’s the case home prices are going to have to go down substantially before someone holding out will bite. Is there any data from previous crashes that show where these two (interest rate and market decline) meet?

House prices don't have to drop much for the avalanche to accelerate. There are so many people who bought with no money down unlike any other time in history. These people only need a drop of 5% to be underwater. If you want to compare previous crashes, you have to go back to the Great Depression to find something that looks close to what we have.

Actually you are wrong about the good areas going up at a higher percentage than the bad areas.

Well you know your territory better than I.

LOL This is what I feel like saying to you after reading EVERY post you have ever left on this blog!

Thanks for the insult Jack, .......maybe you need to read them over slowly so that you understand what I was really saying.

I do think our readers, and I am one, do not want doublespeak. They come here seeking info or sources for info. Even ScottC gives plain advice.

Sometimes you have to repeat yourself because some people didn't understand the first time or weren't there to begin with (new members)...........You know what I can't stand? Bogus chit-chat....read the first 100 or so posts of the "Tangent thread".....I rest my case!

And thank YOU likewise for YOUR insult!

That was no insult.....it was bogus chit-chat, it didn't have anything topic-worthy as was self evident....................but thanks again for an even bigger insult it only shows what kind of a person you are!

More reductions on prime neighborhoods, Los Altos

Owneroccupier--
Good to see those figures, which illustrate how there have been price reductions in "prime" areas as well. I've tracked price reductions on par or greater in Marin. Of course, we could say all these homes were priced "unrealistically" to start, but I suspect the truth is more complex than that. Perhaps someone who knows can chime in here, but I've read that homes are typically priced to comporable home sales. So, if the market cools/inventory increases, those prices will no longer be supported by the market, and will need to be reduced to generate interest. Hence, all the "price reduced" I've seen on MLS. I'll maintain that market reductions can be seen in the data.

Regarding "price compression": what I've seen is not so much the "prime" areas stabilizing, but homes in specific price points have inflated just a bit more than others. Since the majority of the market are buying homes under $1.5M, I've tracked slightly higher increases in this range. Then again, the homes I've seen at $2-$5M have a pretty small market (perhaps since 11% in Marin can only "afford" median--$950K). These homes are pretty much dead in the water (8 months sitting), so I wonder if they're priced "realistically" as well?

I do think our readers, and I am one, do not want doublespeak.

Go to the Tangent thread..............do a search for "speculator".....keep on searching.....you can do the same in the previous thread "Anecdotal Reports....".

Dan wrote:
Can someone explain to me the effects on rental rates in the event that the housing bubble pops? It would seem to me, that they would go up. More people in the rental pool due to increased defaults — I have zero data…just curiosity.

There's also the additional supply coming from people who have to move away for whatever reason, but don't want to take the loss (or simply don't have the cash to write the check at closing), and thus rent their place out. At least that's what I do in my own personal real estate sob story, and that's what my former landlord did while he was underwater for almost 10 years after having bought in Cupertino in 1988.
On the other hand, there will be the growing number of people who could very well buy, but choose not to do so because everybody will have been losing money in real estate for the last x years, thus adding to the demand for rentals. That's the situation in the post-bubble area that I know.

I really have no idea what will end up being larger - additional supply or additional demand.
However, no one will spend money on rent that they'd otherwise buy food from, so there's a natural limit to how high rents will go before people start leaving the area. When renting, your cash flow HAS to be positive, unless someone invents "Option Rents".

In order for houses to drop in price people are banking on foreclosures. In order for that to happen interest rates are going to have to go up (more), right? And if that’s the case home prices are going to have to go down substantially before someone holding out will bite. Is there any data from previous crashes that show where these two (interest rate and market decline) meet?

In the post-bubble environment I know, prices fell pretty rapidly until they bounced off the level where investing in real estate for income (not for appreciation) makes sense again. Right now, my tenant would pay less per month than when he bought the place from me.
If that'll be the case in the S.F. Bay Area, we have a long way to go.
And that's not such a outrageous thought. At the last bottom around here, in 1996, buying and renting was pretty comparable in terms of cash flow.

f it’s a GOOD area, lots of people will want to buy there…since there are only so many houses in that area and everyone loves it there, the prices will be bid up higher

Allah--
I've observed this effect as well. Whether it's Los Gatos, Los Altos, Palo Alto, or Mill Valley. In these towns, anything (even shitboxes) have appreciated tremendously since the late '90s. I'm talking about 50% over long-term trends. If people want to see specific data; I can post that (I've posted some already)

was thinking mostly in the 700 to 900 K range in Marin,

Agreed...because few people could qualify for homes above that range...

Right now, my tenant would pay less per month than when he bought the place from me.

Make that: Right now, my tenant would pay less per month if he bought the place from me.

In the absence of hard information, prices are made through buyers' emotions. Today, emotions are positive and housing is overvalued, tomorrow, emotions will be negative and housing will end up being undervalued.

In 2000 and 2001, we heard a lot of "once everybody hates stocks, it'll be time to buy again".

So, again, shopping for what does not exist is only a sign of a complete detachment from reality.

This is a perfect example of why I have to repeat again.............Buying at these prices is a complete detachment from reality.

South Texas is certainly not experiencing a bubble of any kind. Housing prices in this area are up 3.5% over last year, which is steady, sustainable appreciation in line with economic growth and inflation.

Could be over there....but not in my neck of the woods.

As I explained most of the MBS do not pass the default risk to MBS investors.

How is that? Once the MBS is sold to investors, they have assumed all risk for it......haven't they? ....if not, who does? I could dig up many articles that describe exactly this if you want me to.

Because the sellers incurred substantial costs in purchasing and maintaining or developing and improving it, and they’re not about to sell it for less than it’s worth, any more than they’re about to sell it to lose money.

This brings up an interesting point--how much cost of improvement can be passed along in the sales price? Sure, in a steeply appreciating market, dropping $100K into a new kitchen may be absorbed if you sell, but what about a flat, or normal market. Say you bought a house in 2000 for $500K, then you spent $100K on a gourmet "remodel" kitchen. Since then, prices have appreciated annually at 3.5%*, and theoretically your house should now "value" at around $600K if you sell. But wait--you also spent $100K on that kitchen...so would the price now be $700K? Wouldn't the pool of buyers willing to spend that premium for your kitchen be smaller?

I do think our readers, and I am one, do not want doublespeak. -Newsfreak

the true speculators have left the market

You have mentioned this 5 times..........3 times in "Tangent thread", once in “Anecdotal Reports….” and once in this thread. I am not putting you down for this, I'm just saying that others do this for whatever reason.

Because the sellers incurred substantial costs in purchasing and maintaining or developing and improving it, and they’re not about to sell it for less than it’s worth, any more than they’re about to sell it to lose money.

If this is the case, the stock market will never fall. Why would anyone who bought Qualcomm at $400 a share even sell at $399 a share?

It is a market of greed and fear.

Fear is my favorite emotion.

the true speculators have left the market

Whew. I am glad that my friends are not true speculators so they will be fine. They are still deep in the market.