patrick.net

Naw. I went to the web site and it looks like you have to be an online subscriber. :-( They tease you with the first few paragraphs, though.

BayQT~

At least I didn't waste 300K on interest!

Patrick

Fake P:

I don't know Patrick personally nor do I know his individual circumstances, but as far as "making" 300K goes it's all relative. OK, you have that paper gain. What do you do with it? Do a cash out refinance for near what it's worth now, start your loan all over with and never have your home paid off? Or sell it and then what? Where do you go? One would have to use the bulk of that 300K to buy a new property that has gone up just as much as the old one. Move to a different state? The housing boom that was so unique to California 5 years ago is anything but unique to the rest of the US. The "windfall" you get for leaving California is actually less so now than it was then. The hotspots for California exiles, Nevada, Arizona and Florida, are not the bargains they once were. So unless you want to trade in the Bay Area lifestyle for the likes of Oklahoma or North Dakota, be prepared for not getting the windfall you thought.

“30-year mortgages lowest since April 2004″

What does this mean?

It means that LTB rates are continuing their downward trend. When the yield curve inverts, watch out baby.

West Coast, a yield is the value of a bond divided by its interest rate payments.

Typically, long term bonds pay greater interest than short term bonds for the same reason that a 30 year mortage costs greater interest than a 15 year mortgage; the risk to the borrower is greater if the period of payback is longer.

So when you look at a graph with yield on the y axis and bond year length on the x axis increasing from the left to the right, you expect to see, roughly, a line going up (positive slope).

An inverted yield curve simply means that the line is going down. That is, the yield on short term bonds is greater than the yield on long term bonds.

So why would this happen? Why would an invester tie up his money for a longer period of time at a known lower interest rate? The answer - this happens when the investor believes that long term rates are going to go down and stay down. If one believes that, then it makes sense to "lock in" the lower rate for a longer term, because in a year or two short term bond rates may plummet and any gain you made by investing in the higher rate short term bond will be lost when you have to reinvest in a year or two and no bonds are paying as well as the long term bond you bought.

That's it in a nutshell, other than some sources claim that an inverted bond yield curve is ALWAYS a signe of bad economic times ahead. Expect , of course, for Alan "Bagdad Bob" Greenspan, who says that's one plausaible theory - one with which he disagrees.

West Coaster, I don't think any question is inappropriate. If patrick thinks we're not using this space efficiently, then he can let us know that.

The word "derivative," as I understand it, encompasses many different types of things. In other words, it's like saying dog rather than saying poodle. Regardless of how they are structured however, they generally can be used to hedge, which means they can be used to attempt to reduce the impact of a downturn. For example, the owner of an asset, like a stock, generally hopes the stock will go up in value. Without derivatives, however, the owner of the stock takes the risk that a decrease of 20% in the value of the stock will result in a net loss of 20%, which is, of course, undesirable. So what to do? Create a derivative. In this example, the derivative would be the owner of the stock working a deal with another investor. In essence, the owner of the stock pays a small fee to maintain the right to sell the stock to the other investor at a high price. If the stock stays the same in value, the stock owner has lost his small fee. If the stock goes down in value, however, the stock owner is able to force the investor to buy his stock at the agreed upon higher price. The investor takes the loss on the transaction.
The "derivative" here is the contract to sell/buy. If you think about it, you will see that virtually any asset can be "protected" in this way against loss. Some say houses. Obviously, the variations on the basic derivative theme are innumerous. Like contracts in general, the limitations are only those created by the parties, to a large extent.
Hope this helps.

"And so it begins, just as foretold."

Or its a troll, trying to inject some fear. Not that that's a *bad* thing.

Cheers,
prat

netrugu > "And so it begins, just as foretold."

Net....that link tells the story. It's exactly what I was talking about in my post on the craigslist listings in LV. Many, many people are advertising new homes that they are either trying to rent or rent w/option or sell....and they are ALL having trouble unloading the property because prices are sliding.

BayQT~

Ok.....here's something that I noticed. There are new condos, lofts and condo/conversions going up all over Oakland, San Francisco and Antioch (Baywoods). They advertise a "sneak preview" by having you sign up for their newsletter, they keep you posted with updates, then...get this...the sneak preview is for people who are already pre-approved or pre-qualified (you've got to have letter in-hand), ready to sign on the bottom line. And in one case (Baywoods) the price isn't even advertised! What happened to a regular, old-fashioned open house where you can come in look around, check out the models and price range and then mull over it. Gone, huh? Baywoods is describing their first open house as a "subscriber-only" sneak preview. Sheesh!

Oh! I found a link
http://www.craigslist.com/eby/rfs/76799761.html

BayQT!

Re: that vegas guy who is upside down on his property. Some eduction, please :)

So if he walks away from the property, what happens? He has another property that has appreciated 100K (or something like that). Does he just get to keep the profits from the profitable property and walk away from the property w/ losses? Also, what happens to him 6 months from now under new bankrupcy laws?

People who think they in the "know", and who think the are ahead of the game, are definitely not going to listen to someone who they feel is "behind".

BayQT~

This is a quote from one of Patrick's links:

"When this market adjusts, it's going to be painful," said UCLA economics professor Edward Leamer, who has been warning of a California housing bubble for three years. "Borrowers are getting in over their heads, and lenders are too."

DUH!! One would think that the lenders learned a few lessons back during the stock dot.com bomb. Banks and other lenders were taking stock certificates, and heaven knows what else, as collateral (substituting the down payment). And then those certificates soon weren't worth the paper and ink they were created with. I have a friend who bought a Mercedes 320SL about 3 years ago that had been sold back to the dealership because the seller needed to raise money to pay the taxes he owed Uncle Sam on the useless certificates. And now the lenders have bought into the current "frenzy"....the same thing all over again. It's amazing how pain has a way of lessening and moves back into the deep, dark recesses of our memory.

I know, I know.....all of this has been said before. It's just that every time I read it, I have to shake my head.

BayQT~

"I don’t think there is a bubble, for now."

You feel strongly enough about it to cross-post at thehousingbubble2 as well, I see.

Cheers,
prat

Hey, i think I figured out that post on upside down in Vegas.

it was a total set up.

If you follow the links up, about 5 or 8 posts up a guy pops in and says, "now wait, there's an OPPORTUNITY there." Another guy, a "noted national expert" who apparantly spends his time posting on boards, chimes in and writes, "yes! just what I was thinking." they then innocuously leave a link to a "free" article, which happens to have a "home" button off to the right. So you read the article, which says a whole bunch of nothing, then you click on "home" and you're looking at the splash page for some crap course on how to use "paper" to even further bury yourself.

I posted a few coherent thoughts, and I was immediately beaten down with, "you're no expert, what do you know." Jeez. How very sad that we take advantage of our brothers like that.

Great scam though. They must really be reeling the suckers in.

Hey Falls Church, I'm in Fairfax, are you right up the road? If so, aren't there just tons of RE signs?

I've seen some absolutely scary numbers in a post on thehousingbubble2 blog. A poster there mentioned that in Carolina Beach, NC (where he owns beach property), there are 700 listings in a community of 5,000. Prices had gone up 117% in one year....now folks are trying to sell, but obviously, there are no buyers. At least not at the prices they are asking. I'd say they are pretty ripe. Then posts continued regarding how much below asking would be reasonable.

And these are people who possibly bought 1-2 years ago.

As I said before, this is just the beginning....

BayQT~

Netrugu, like I posted over there, there are several sure signs of a charlatan . . .

Lots of quotes to "experience," "credentials," "recognition," and on and on.
Screams of "idiot," "inexperienced," "doom and gloom" for anyone who disagrees.
Refusal to answer direct questions, such as mine, which is the ultimate rhetorical answer to any huckster . . . If you've figured out how to make gold from lead, why would you tell anybody? I asked a guy that once and he said, "Orville redenbacher is a millionarre, right? Well he still makes popcorn." I almost couldn't stop laughing. I said, "the analogy you're looking for is Coke CEO teaches people how to make Coca Cola for 1,200$ at weekend seminar." Now why would he do that?

Someone wrote, "I hope the following becomes law soon:"

I hope they don't, although I agree with you that they would have the desired effect. The reason I hope they don't? Because I despise big government, which is the cause of most of these problems, and I hate laws that protect people from themselves.

Why not a law that you can't be fat?
How about you can't go to disney puke land on credit?
How about you must save 5% of your income?
How about credit card limits?
How about limit car ownership to 14% of you annual income?
How about . . . and on and on.

The problem is twofold. 1. Most people are children. More grown men are better at XBox than at Quicken. 2. The "government should take care of all of our problems by passing laws" is the second part.

Instead of endless laws protecting people from themselves, how about we shrink the federal government and burn down all of the central banks?

Hey WEST COASTER, Greenspan's comments don't conern me for two reasons . . .

1. The quote you have posted was in response to a question about Social Security. He was simply stating the obvious, which is SS isn't going to be fundable for the next 50 years.

2. Alan Greenspan is not going to say anything to concern anybody who doesn't have a head in ass. That is, he's not paid to cause market panics. If he got on TV like Jack Lemmon in China Syndrome and blurted out, "we're going down and there's nothing you can do to stop it," I believe that that would trigger a worldwide recession. So, he's been well chosen and well groomed to prevent such comments, or anything alarming.

I'm not sure if it's more sad or disturbing.

On the one hand, Realtors (TM) may really believe that the market can keep soaring and they can keep making easy money along with it. On the other hand, Realtors (TM) may known that the piper is starting to play, and are just resentful that all of the suckers in the buying public now have little media birdies chirping in their ears. "bubble, cheep cheep. Bubble, chirp."

That can't be true. Realtors will make money based on two things . . .

Number of houses that are sold, and
Price of house.

In these "hot" markets, not only are houses selling for a lot more money, but there is greater turnover.

The only think that I can see that would reduce/eliminate this effect would be a greater # of realtors.

In any case, the $ per transaction is most definitely much higher.

For example, the Realtor(TM) who bought my house made more than double my buyer's Realtor(TM) from 4.5 years ago. From about 9 to about 20.

Escape -- the thing to remember is that you need to be part of a transaction to make money. There are *some* realtors that are making money, but the large number of realtors aren't really cashing in -- especially the newbie ones.

Fake P, I am now "Peter P"! :)

P

Does anyone have a cheap offer for the Wall Street Journal (online) subscription? I get then all the time with the economist so I'm assuming it's the same with the WSJ. If you do would you mind emailing me at gbenefield@gmail.com please? Much appreciated.

Hmm, it should work. BTW, it is the "Top 10 Reasons Why the Northern California Housing Bubble Won’t Burst" link in housebubble.com.