patrick.net

By doing well do you mean meeting earnings expectations or beating the “whisper” number?

DinOR, you asked the right question! ;)

The market discounts all information. Price changes occur only for new information, either factual or psychological.

Many people believe that if a company is good the stock will only go up. Alternatively, they believe that if an area is desirable, real estate prices will only go up. As a result, they refuse to believe that a place as "desirable" as the Bay Area can have a real estate slump.

But there are still people who think the market will gain this year (though I’m not naming names)

How can it not gain anything when 2006 is already in the bag? ;)

Add to the above WalMart, doing well, but company policies are alienating employees and consumers.

Scrooge McDuck

Peter P,

Thanks, it sure looked "loaded".

SQT,

You're probably right about 07/08 given the lag time for an event like foreclosures. Perhaps Randy H could shed some light here. I've heard there are states like MI where 90 days in arrears is 2 weeks from the street. What is the practice in CA? Are they lenient or do they take a hard line there? I would like to see Open MLS in "06" though. Can anyone get me T shirts or bumper stickers, you know like Mr. Housing Bubble!

I am not a big believer in the Efficient Market Theory. RE, stocks, assets rise and fall for lots of reasons. For example the Fed is DOOMING FLIPPERS & SUBPRIME LENDERS. The Fed has declared flippers as unsound and lenders should not give them loans. Non traditional mortgage lenders (ie subprime lenders) can be required to have higher capital requirements which dooms them.

This one of the paragraphs the Fed published:

“Collateral-Dependent Loans – Institutions should avoid the use of loan terms and underwriting practices that may result in the borrower having to rely on the sale or refinancing of the property once amortization begins. Loans to borrowers who do not demonstrate the capacity to repay, as structured, from sources other than the collateral pledged are generally considered unsafe and unsound. Institutions determined to be originating collateral-dependent mortgage loans, may be subject to criticism, corrective action, and higher capital requirements.”

I am not a big believer in the Efficient Market Theory. RE, stocks, assets rise and fall for lots of reasons.

Me neither. But the market is mostly efficient. Price actions are driven mostly by psychology.

Institutions determined to be originating collateral-dependent mortgage loans, may be subject to criticism

Huh? So they will just say, "you bad!"

Peter

Yes, the "madness of crowds & manias" is one of my favorite reads. One website devoted to panics is www.stock-market-crash.net .

SQT,

Thanks for the link! I had a friend in Menifee (am I spelling that correctly) and his "ex" held off the lender for almost a year so I was curious. Evidently the state laws are more minimum guidelines to protect consumers. As more and more of these properties go "back to the bank" lenders are likely to become very flexible and may even take partial payments? Then again, they may decide to bite the bullet and adhere more closely to state foreclosure laws. Doesn't much matter, it'll be ugly.

Yes, the “madness of crowds & manias” is one of my favorite reads. One website devoted to panics is www.stock-market-crash.net .

Charles MacKay?

The Alchemy of Finance by Soros also has great analysis on asset/credit bubbles.

Institutions should avoid the use of loan terms and underwriting practices that may result in the borrower having to rely on the sale or refinancing of the property once amortization begins.

They should qualify everyone with the PITI of 20yr FRMs.

Institutions should avoid the use of loan terms and underwriting practices that may result in the borrower having to rely on the sale or refinancing of the property once amortization begins.

Doesn't it also follow that mortgage terms should not be longer than the remaining productive life of the borrower?

If the future sale is not considered, how can a 55 year old be qualified for a 15YR FRM when the expected retirement age is 65?

This is VERY significant!

well, a worker who’s “non-value-adding job” has just been outsourced, and who is in the process of “re-inventing” himself is hardly likely to take on a risky NAAVLP mortgage and move into a bigger, more expensive $hitbox

But he may...

1) refinance to NAAVLP for cash (in order to make mortgage payments), or
2) use NAAVLPs to flip houses and become a realtor

It was kinda long and full of Fed speak, but here it was. On Dec 20 the Fed published for 60 day comment a new rule:

“Interagency Guidance on Nontraditional Mortgage Products”

Mother Ocean,

Thank you! I'll need the "I can't believe I paid 500K for fixer" in XL also please! You know how those damn things shrink!

PS,

Yes it's true glaciers do take time, but my friend and avid reader of Scientific American reminds me that Ice Ages begin with snow that starts before normal in the fall and sticks around longer in the spring. As summers become shorter and shorter eventually it stays year round at lower and lower lattitudes until you have snow that doesn't melt even in July. Substitute "previous years unsold housing inventory" for snow. Man, it's getting chilly around here!

An interesting analysis on housing and gdp growth by Jas Jain on FinancialSense.com
When housing goes, look out below....

http://www.financialsense.com/fsu/editorials/jain/2006/0130.html

well, a worker who’s “non-value-adding job” has just been outsourced, and who is in the process of “re-inventing” himself is hardly likely to take on a risky NAAVLP mortgage and move into a bigger, more expensive $hitbox

PS, I'll have to second Peter P here and somewhat disagree. Yes, the RATIONAL/SANE thing to do would be not to buy in such a situation. However, as has often been pointed out on this blog, most buyers today are not thinking rationally or with an adequate understanding of the bubble and the real risks involved with such financing.

I actually know a guy who just did exactly that, and recently "bought" a (how do we say it in Realtorâ„¢-speak?) "handy-man's special" in a fairly bad part of East L.A. (Lincoln Heights) for way too much ($510K) using an IO loan. He did this 4 months after being laid off, using his severance for down/closing (at least he did put some $ down, unlike most CA buyers these days). The place is a 100-year-old badly neglected mess --foundation is river rock with completely shot mortar, the whole house is tilting badly and had to be jacked up and repositioned/relevelled. The wiring is awful/antique, ditto for the plumbing, and pretty much all the cabinets and windows will have to be replaced as well. After fixing all that out of pocket, he'll have the joy of living in a high-crime (how shall we say?) "ethnically diverse" L.A. neighborhood with bad schools and bars on the windows.

When I politely suggested to him back in July (when he was still looking), that buying at/close to the peak of a 5+ year bull market without a job might not be the wisest move, I was quickly brushed off with the ol' "it never goes down", "we'll be priced out if we wait any longer", "it's an investment", etc, etc.

I've gradually come to the inescapable (and depressing) conclusion that there's just no educating the willfully ignorant.

sheeple

@tannenbaum,

I know exactly what you're going through --my boss (though not interested in buying "investment" property) has often made similar comments, and flat-out denies the mere possibility of a bubble even to this day. Yes, we all *have* to buy sooner or later, regardless of incomes/affordaibility/fundamentals. There's just no such thing as alternative (renting), right? I mean, it's like downright UN-AMERICAN to keep renting year after year.

Santa Clara Co. is markedly lower than othe ogther BA counties on that list. What gives?

We need to look at the difference between average wage and average household income in the context of housing.

Anyone?

@Scott,

TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL, TROLL!!

Just kidding ;-). Two observations:
1. The government's CPi figures are half-baked at best, given the magic of hedonics/substitution or just plain old leaving shit out (energy, education, food, etc.)
2. Even assuming the BLS CPI statistics weren't total Bull$hit, and San Mateo real wages were rising 2-3% a year (a very good clip), how long would it take for incomes to catch-up to make housing affordable for half the county?

Anyone out there care to crunch the numbers?

Also, average and median are very different. Average wage, which can be skewed by very high executive income, was used in the study.

From the desperate homeowners files:

"SUPER SAT Feb 4th..3 bd, 1.5 ba, ...Saturday Night Sale to Highest & Best Bidder over $285,500" [From the Stockton Record Jan. 29th pg. H-5]

I guess, if you don't get multiple offers anymore, create multiple offers.

Harm,

I want to make sure I understand this, a guy who's been laid off for 4 months gets a loan for 510K? Never mind "peak of the market", call me old fashioned but when is it EVER smart to buy a house without a job? What broker/lender approved this? I've heard of people that just got laid off doing a re-fi with a somewhat "dated" pay stub but four months. Oh, now that's special!

A lot of ppl are using HITMAN’s logic in deciding what they can afford - at higher incomes, the idea is that they can spend more than 50% of gross on their house because it still leaves them a thou or two a month to live on.

Using this logic Bill Gates should spend 99.95% of his income on housing. How about a lunar vacation base? :)

DinOR:

It's called a NINA loan - acronym for NO Income NO Asset verification - perfect for those that can't documet their income - unemployed, drug dealers, etc.

@DinOR,

He was able to "look" employed during escrow due to the generous severance terms of his former employer. Basically, they allowed him a 120-day grace period after getting his pink slip, in which he was allowed to seek other offers inside the company (he didn't get any) or look for work elsewhere. The lender had no reason to believe he was in the process of being laid off, and he obviously didn't feel compelled to tip them off.

It’s called a NINA loan - acronym for NO Income NO Asset verification - perfect for those that can’t documet their income - unemployed, drug dealers, etc.

Anyone who gets a NINA loan with income should be sent to jail for tax evasion.

Anyone who gets a NINA loan without income should be sent to jail for fraud.

Two observations:
1. The government’s CPi figures are half-baked at best, given the magic of hedonics/substitution or just plain old leaving shit out (energy, education, food, etc.)
2. Even assuming the BLS CPI statistics weren’t total Bull$hit, and San Mateo real wages were rising 2-3% a year (a very good clip), how long would it take for incomes to catch-up to make housing affordable for half the county?

Anyone out there care to crunch the numbers?

Since none of the math rugus out there (notice I didn't say "gurus' :-) ) didn't accept the challenge, I tried it myself. Here goes...

The latest median SF Bay area home price according to CAR is $723,080
(sadly they didn't provide a San Mateo-only figure). car.org/index.php? id=MzU4NDc=

plugging the SFB median home price into GinnieMae's loan estimator (ginniemae.gov/2x_prequal/le_detail_estimate.asp), you get total estimated monthly housing costs of $6,731, or annual @$80,772

If we use the old 30% gross income applied to housing (PITI) rule of thumb for "affordability", you'd need approx $269,240 annual gross family income for a median purchase to make sense.

The 2004 estimated median family/household gross income is $87,762, or less than a third of what's required to buy the median @30% gross family income: bayareacensus.ca.gov/counties/SanMateoCounty.htm

Assuming real (inflation-adjusted) income appreciation of 3% (we'll be generous) in perpetuity, and assuming housing prices also remain flat, you'd have to wait 38 years before the median houshold gross income reached the affordability mark: $87,762 (1.03*E) = $269,240.

Scott, I hope longevity runs in your family. :mrgreen:

20% of lenders going down....

Press Telegram 1/20/06

"The California Association of Mortgage Brokers (CAMB) has issued a warning to beware of advertisements from desperate lenders. And lenders may get more desperate if the state's mortgage industry sheds 20 percent of its some 80,000 licensed lenders in 2006 as forecast by CAMB."

opps...Press Telegram 1/30/06

The desperate lenders phone spammed my entire company today.

1. Is there a reliable, public record of past home sales that I can look at to see when and what price a given property was last sold at? i.e. 1234 Any Street, Mytown, CA was sold in 1980 for $35K, then in 1989 for $220K, etc.

2. Is there a free public record of the debt burden carried by an individual (i.e. ways to infer from a public record if someone is likely to be an FB due to NAAVLP and/or HELOC addiction)

@PS,

The first item is definitely public record. You can either go to your County Tax Assessor's office, or (if you live in a technologically up-to-date area), their website.

The second item is privileged/private information, and lenders would probably be exposing themselves to lawsuits and/or criminal prosecution by giving it out, unless you have been legally granted access (as a creditor, debt counselor, judge, attorney, etc.).

The second item is privileged/private information, and lenders would probably be exposing themselves to lawsuits and/or criminal prosecution by giving it out, unless you have been legally granted access (as a creditor, debt counselor, judge, attorney, etc.).

Your realtor should be able to tell you the mortgage loan amount for a given listing though. This is a very powerful piece of information.

New thread: Santa Barbara Realtors ‘Refuse’ To Share Data

Yes, Ben's blog already beat me to it, but I thought it merits discussion here as well.

I’m confused. You owned your house for 20 years and then sold it? [...]

Firstly, I was exagerrating more than a bit, to feed the troll. We bought in 1990 (I'm the top end of the same gen as you).

Secondly, we owned 4 houses in that period, and used the equity earnings to "move up" regionally: from Ohio, to Chicago, to the Bay Area. So a large portion of our equity was consumed as we moved to more expensive areas. We did buy in the BA in 1996, which allowed us a good pop from then to 2004. That's the portion of banked equity gains.

Not nearly enough to be home free, but plenty to ensure we don't end up back in Ohio. We can probably hope to buy back in somewhere between 60-90% equity in a year, if all goes our direction. And, more importantly, we didn't sell to time the market. We sold because we had to move from the Peninsula (Belmont) to Marin for family & job reasons (we don't suffer commuting with a small child). It just happens to be convenient that we don't feel any hurry to buy back in until sanity returns.

I'll try not to exagerrate so much in the future, lol. If we bought BA in '84, I'd have sold and moved to Wyoming or something and not work anymore.

"The latest median SF Bay area home price according to CAR is $723,080."

As someone who grew up in San Jose, and now resides in Phoenix, those numbers seem totally unreal to me...disconnected from reality.

Un-fricken' believable.

What an outrage!

This shit has got to stop.

What planet am I on?