patrick.net

( I had to take out links because of the "awaiting moderation" message.)

ARM’d,

You’re welcome.

Here’s more news. I have family in Las Vegas so I stay relatively abreast of the changes going on there. A few months ago I read about the cancellation of one of the tower condo projects (Krystal Sands), but another one just bit the dust….Aqua Blue. It’s Michael Jordan’s new high rise project. I haven’t read the whole story yet but here are a couple of links:

(press.arrivenet.com/bus/article/php/661092) add the http:// and .html and you will have the whole link

(www.klastv.com) put Aqua Blue in the search box on the left.

Krystal Sands is now Turnberry Towers. I saw the site when I was there during the Memorial Day weekend. 1, 2, & 3 bdrm condos, $500K to over $1million. If you want in, all you have to have is a cool $50k deposit.

BayQT~

Fake P >People, the increasing use of IO loan does not necessarily mean that the bubble is growing bigger. It could be the case that IO loans made a lot of sense for people, and so it increased in popularity.

Well, DUHHH, of course it increased in popularity. The kool-aid was so cool and refreshing, they couldn't taste the poison. Their minds got all foggy and they couldn't reason for themselves. It made sense for a lot of people because they thought they would be "left behind" in the housing market if they didn't. So what if you do! You just rent. It is NOT the most important thing to do in life. And it is NOT the most intelligent thing to do (take out an I/O loan) if your salary cannot support it.

Whatever happened to using common sense, I'd like to know?? It is REALLY a no-brainer. Betting on the future in this very questionable, very out-of-ordinary, unsustainable, global affecting housing market is not the smartest thing to do...especially not at the peak.

BayQT~

Face Reality >Assuming that all people with ARMs or with IO loans are over-stretched is a gross generalization.

Face....speaking for myself, I try NOT to generalize like that. I may say "a lot of..." or "many", but not "all". Regardless of what you or I may feel, however, doesn't change the fact that there ARE many people getting in trouble over-stretching using these loan products. Now, personally, I've had an ARM back when I bought a house in the 80's....and if I recall correctly, it was a 5/1. The big jump at the end of the 5 years was around $400. It was do-able. The big scary monster option ARMs and I/Os that are happening now, and with some folks thinking that they must go for the bigger house/condo, the added cost once they start paying off the principle is double and triple my little $400. THAT is the scary part.

Granted, there are people who CAN afford the added expense, but there is no denying that there are many who can't. Have you not been reading Patrick's links that document such stories? It is documented that lenders who once offered I/Os to wealthier consumers are now offering to lower income and credit poor buyers. THESE are the people who's eyes are bigger then their stomachs and who will be in trouble. Increased taxes from the inflated "value" of the property can kill whatever plan they thought they had. A lot of people are just not thinking....

BayQT~

From one of Patrick's June links:

Boston Herald
"Experts say the first signs of a bursting housing bubble include falling sales volume, but prices that don't immediately drop - exactly what the latest Massachusetts real estate figures show.
The Massachusetts Association of Realtors reported yesterday that single-family house sales fell 11.1 percent in May - the worst decline in almost three years. But median house-sale prices actually rose 6.2 percent, hitting $359,900.
Economists say this combination - higher prices amid lower sales volume - is precisely what you'd see in a bubble that's dying. "

There are a lot of things to look at when evaluating what the market is doing. One of the things you see in the nightly news is what the median house price is....not so much the change in sales volumes which speaks (pardon the pun) volumes about the changing market.

Quoting Warren Buffet (from MarketWatch article):

Lending practices, low interest rates and herd mentality are "coming together in the real-estate market in a way that would lead me to believe that -- certainly at the high end -- people who buy houses today may have some periods when they regret it....

Ok, so is Warren Buffet talking out of his ass, too?? I think not. He didn't get where he is be saying stupid stuff and doing dumb things. The handwriting is on the wall. As it's been said before, it's not a matter of "if", it's a matter of "when".

Here's another article you can read. It's also from Patrick's list:
http://www.thetrumpet.com/index.php?page=article&id=1561

BayQT~

Absolutely, TWIT....I don't think they are reading the links. That was my point in citing a few of Patrick's links, too.

But you know what? Their arguments aren't good. To them I say, as quote from the movie, A Few Good Men...."You can't handle the truth." :-)

BayQT~

Oh, and have we even talked enough about the "no doc" or "stated income" loans? Now THAT is scary. I'd say both the borrower AND the lender are walking a tight rope in those scenarios. Lenders are throwing hundreds of thousands of dollars at people who can't even show proof that they can pay the money back.

Talk about creative financing.

But I've got a good seat and I'm enjoying my popcorn while this story keeps unfolding.

BayQT~

Hey ARM'd!

I like that Bubble Posse tag. ;-)

BayQT~

Face Reality >Among other things, you may recall that I showed that prices in the major towns of Santa Clara County haven’t really gone up that much since 2000.

I haven't read all of the posts after yours but I beg to differ with you on this, as well. I have a friend who bought a house in Gilroy 8 or 9 years ago in the $200's....they are supposedly valued in the upper $600's now according to the ditech site. Now, if you can get out of that that property is "not going up much", we'll need to sit you down and have a quick math and logic refresher.

ARM'd, you are too much! Baby Got Back. LOL! How long did it take you to get those lyrics together. You SLAY me! :-D

BayQT~

hymie >You make a great point about most of the IOs being in Oakland.

Is that true? ARM's corrected my post with information for 2005, and it turns out that Oakland does NOT have the most I/Os. See heavily ARM's post of July 2nd, 1:39pm. I went to the Loan Performance web site but it's not very user friendly. I couldn't pull up the 2005 numbers myself to post here.

ARM'd? Would you mind posting the 2005 stats from that site? Thanks , homie. :-D

BayQT~

Face > The expansion of 101 from 2 to 4 lanes helped with this, of course.

I sure can agree with you here (see! I'm not picking on you. :-) ) That expansion gave much needed breathing room. Before that, you had to make sure you had your bathroom stop before passing Milpitas. LOL!

Thanks, ARM'd. I was looking for info that would line up Oakland "with" the other cities where people are using I/Os to stretch their incomes. And my point would be that it doesn't really matter where you live in the Bay Area...Oakland or Marin...it's bad all over.

BayQT~

TWIT >Well, gosh, I didn’t think about how the widening of 101 between helped push up the price of housing in the East Bay and Santa Rosa, etc..

In Face's defense, I think he was referring to the lightening up of the traffic flow, thus making some people feel that it was/is a commute they could stomach. And from there they started considering purchasing property out that way. But that would mainly affect the ones who would actually live in the place. For speculators, it would not matter whether the road remained 2 lane or was expanded to the now 4 lane.

At least that's how I understood what he was saying.

BayQT~

Face > How is it global?

I'm just going to give you one link to review to help answer this question. It's from Patrick's link from April 10th

http://www.jenman.com.au/NewsArticles1.php?id=136

BayQT~

Actually, Face, it's much bigger than just the information in that link I cited (how our interest rates are set in global markets, connections to China and Japan, how our dollars are spent, blah, blah..) but someone else can explain more eloquently than I can.

Here's another little tidbit.

http://www.roubiniglobal.com/setser/archives/2005/06/if_there_is_a_g.html

BayQT~

The blog goes on just fine without me... :)

Just come back from Bodega Bay. It is a beautiful place. I did not give too much thought to the housing bubble issue though.

People, the increasing use of IO loan does not necessarily mean that the bubble is growing bigger. It could be the case that IO loans made a lot of sense for people, and so it increased in popularity.

Of course IO loan makes a lot of sense. It allows marginal buyers to get into houses that they cannot otherwise afford.

What about non-marginal buyers? IO loan makes sense because of the flawed assumption that home prices will continue to soar and that these homeowners can trade up within 5 years.

None of the above sounds good to me.

Bingo! Bravo! I hope these bubble heads will come to their senses and not be so extreme. It is sad that these bubble heads see a bubble in anything and everything.

We visited a small town called Occidental. I saw a lot of soap bubbles flying around! :)

That’s indeed a very big jump. Gilroy and Morgan Hill are good examples of areas with a very large population change. The expansion of 101 from 2 to 4 lanes helped with this, of course.

This is classic urban sprawling and is very bad for the environment. Soon enough, the new lanes will be clogged with new traffic.

IMHO, we should designate certain areas inside the Bay Area proper to have higher population density. People should have the option to trade living space for proximity at a given price.

Jack, you can use intangibles to justify practically everything, because they are not tangible. :)

It is quite possible that someone could have justified pets.com by intangibles too. ("I love my pets so much that I bought pets.com even though it is worthless." Of course I did not buy pets.com.)

“250 per cent premium to live here?”

How about the premium of owning versus renting? This should be more stable across the nation, right? Why is there a 250% premium to buy here and only a 100% premium to rent here?

"To summarize: big credit bubble, but bay area survives because wealthier people are replacing those leaving. Rest of america becomes wasteland of economic horror."

I heard that after the Asian Financial Crisis some billionaire real estate tycoon in Thailand had to sell food on the street. The credit bubble is precisely about wealth.

On the other hand, there are perhaps a lot of wealthy people in the Bay Area. But are they going to buy all the 500K homes on the market when the bubble bursts?

Does the “Pets.com” analogy REALLY have anything to do with this conversation Peter?

No, I was just saying that to provoke you.

Peter P, is it totally impossible that there are a lot of people here who are not “wealthy”, but they have some net worth which enables them to buy $500-$1M (but not multi-million dollar) houses with a sane loan? Why do you think that people are either broke or multi-millionaires? Most of the people I know have a net worth of a few hundred thousand dollars, so such people can’t be all that rare…

Face Reality, how many of these semi-wealthy people are going to be net buyers of real estate if the market is expected to stagnate in a "soft landing" scenario?

There were also a lot of semi-wealthy people in Tokyo with significant savings. There were also vultures who circled around Tokyo. Yet they were unable to prevent a large decline in real estate prices there.

Jack, can people rent an apartment or house in the Marin county and enjoy the same intangibles?

West Coaster,

I agree with you (see my post from June 27th). Actually, I noticed that participation was coming from a small number beginning in the last topic and it carried on to this one. I started getting lost with the MACRO, hedging, etc conversation.

Patrick? We DO need a little help here to liven up the blog. A new topic, perhaps, that more of us can participate in? I don't know what the dqnews is, but do we have to wait for that?

Here's an idea....if someone has a topic, question, concerns that they would like to address here, can those be brought forward as suggestions?

BayQT~

And since “most people” is what drives the marketplace, the rental market has almost no bearing on ownership prices in the SF Bay Area.

The rental market always has bearing on ownership prices anywhere in the world except in periods of housing bubbles.

I started getting lost with the MACRO, hedging, etc conversation.

My fault... let me think of a popular topic.

If you are REALLY interested in “what is to be done?”, you will first have to acknowledge some of this stuff without resorting to chipping away at what the premium SHOULD BE to live here….based on your opinion, which usually uses Omaha Nebraska as a baseline for what ” normal “is.

I do not know what the premium should be. But I know what it should NOT be.

Yes….but under what conditions and requirements by the owner?

Choose a premium apartment complex with rules that you can live with.

Yes….but for how long? When does the OWNER decide its time for you to go?

Except when the P/E ratio is temprarily out of whack, apartment complexes usually favor long term residents and one can stay as long as she wants.

Yes….but how long will this period of low rents last?

Rent can be 50% higher and it will still be cheap.

Yes….but how much control over your immediate envrironment do you want?

Most apartment allows wall painting (yes, even salmon and green) so long as you can restore the original color.

Yes….but can you stay if you like the neighborhood, but the home sells?

Discussed above.

Yes….but wouldn’t it be nice to have a bigger window in the living room?

Move to an apartment complex with a bigger window in the living room.

:)

(Just for the sake of argument...)

"Your answers are too contrived, even solely for the sake of argument…"

Fake P (or anyone), can you please give suggestions for the next thread?

West Coaster Says:

July 4th, 2005 at 12:25 pm
At this point there are about 5-7 posters on this blog who contribute. The threads need to be opened up to attract more input. This is turning into a private chat room.

As far as "contributing" goes, I'm pretty sure that anyone can post his/her opinions here. There's nothing stopping you that I know of, aside from those occasional annoying "you comment is awaiting moderation" messages (happens when your post includes a full URL).

On the other hand, starting a NEW thread/topic seems to be a bit more difficult. Supposedly anyone who registers can do so (see links to right of the main threads page). However, after I registered, I didn't notice that any new links magically appeared allowing me to do so. At the risk of revealing my own ignorance, I have no idea how to do it, aside from emailing Patrick directly.

Peter P, you seem to be the only one other than Patrick who has started a new thread. Can you lend us morons a hand? Thanks.

C F, thanks for the suggestion. I have created a new thread about the causes of the bubble. The discussion will be interesting, I hope.

:)

BTW, any registered user of this site can request permission to post from Patrick.

HARM, after you register, Patrick will grant you permission to post. Then, you can use the Site Admin link to write a blog entry. Hope this helps.

(To avoid "you comment is awaiting moderation", use tinyurl.com)

Thanks, Peter, but I can't find the "Site Admin" link. Is it on the main threads page?

It should be on the main threads page under "Meta" after you are logged in. If you do not see it, you do not have the permission to post yet. Please send an e-mail to Patrick to request the permission.

Many thanks! I wonder how many others were wondering about that, but too embarrassed to ask?

fyi: For those who feel this one's gotten stale, Peter started a fresh thread, "Why", on the underlying causes of the Bubble.

IDEA, what happen to you?

One thing I like about this blog is the mutual respect among its participants. Anger solves nothing. Violence brings more problem. Curses will have no effect on the matter.

Jack, of course I understood your need to use that language. My previous post was directed mostly at Surfer-X. I am worried about him too. I hope that he made up the story about that two guys. It would be pretty bad otherwise.