patrick.net

I'm with Allah, this one should definitely be called the dead sheeple bounce. It's hard for me to imagine any sheeple is left, but according to my mom, one of her RE specuvestor friends is trying to buy Baltimore homes at auction and she was really disappointed when she got outbid.

This is the same woman who is having trouble selling the 4 properties she already has on hand. She bought in DC in 2003 and 2004 so she still has equity, but she won't for long if she starts "winning" auctions.

I've been surprised by the recent surge of strength in South Marin. While the inventory is still building, prices aren't budging much. It seems like most of the properties that discounted 10-15% have sold. Many others have been pulled and put up for rent or sit empty. Meanwhile, new stuff is popping up all the time, but for the same old bubble prices.

But that's not the story. Simply from my own perspective, I've been tracking between 4 and 12 homes since 3/05. I'd say the entire portfolio of homes I kept putting on the watch list (homes we'd truly want to live in) there has only been about 1.5 turnover. Until this past weekend. Everything suddenly turned over. Every last one.

As of today, none are left. I think maybe 2 unlisted, but 4 seem to have sold and 2 more are escrow-firm. One of which I'm sitting here looking at a "lowball" offer I was intending to deliver on Tuesday this week, for a home in CM. Listed at 1.9M three weeks ago. Dropped to 1.8M last week. The agent called me and told me they were "accepting bids now". I've heard that ploy before and ignored it, intending to lowball. When I saw it go into escrow I called the listing agent and she said they received 3 firm bids, accepted one, and put one into backup, so sorry. I'd truly think this home is maybe worth a fundamental value of 1.5M, 1.3M would be an over-correction.

To simply dismiss this demand surge as "sheep" may fit as a nice pejorative, but it doesn't do much to analyze the situation and incorporate it into one's strategy. Markets, whether stock or housing, have a nasty tendency to stay irrational longer than bears can remain solvent. (I know, not directly applicable, but you get my drift).

I think probably we'll have a period of microbounces caused by people thinking they're the next Trump until the point is hammered home that real estate is a great way to lose your life savings, posthaste. After Katrina, wasn't there a deluge of carpetbaggers buying up houses in New Orleans? How is that working out for them?

Well, you CAN make money off a dead cat bounce. We've all probably done it in some fashion or another. I have trader friends that are practically experts in taming this rare animal. The problem w/DCB and RE is that if softness continues you can't just "close out the position"!

I like chuckleby's "microbounces" and see these rare instances of "support" as more of a "false floor". You think you're standing on solid ground and it turns out to be a trap door.

What's frustrating is that I'M STILL seeing virtually every new listing that comes up insisting on "testing the market". I'd heard Nicolaus Cage is now selling his Bel Aire "manse" for 35 mil! It seems every seller still believes THEY have the ability to time the market. Look guys, it's really pretty simple so I don't know why I chip my teeth over it but if you've JUST HEARD there was a housing bubble today, and you decide you need to sell today YOU my good friend are a genius! Since we're all experts on timing the market, the day we decide to sell must be "the absolute peak" w/room for just one more ridiculously overpriced POS to be absorbed by the market before it goes kaput! It's really that simple.

RE, (unlike the stock market) you have to convince a lot of really sharp people that your company merits a higher stock price. By and large you have to sway them toward seeing things your way.

In RE, all you have to do is ask! It only takes one GF to prove you right. This is why we're seeing so much abuse. Particularly on C/L where dreams are free! The true story is in the volume.

Randy H, this was bound to happen. None of us should be surprised that listings are being taken off the market at this stage in the game. It may also be wrong for any of us to assume that the seller took it off b/c he/she is a RE perma bull waiting to re-list in the spring "after the market has resumed it's rightful 20% a year". Hell, we don't know that. All we know is that they've taken it off. I'll take that at face value. Defeat.

My sources tell me that this house just sold for about $780k after listing at $738k.

http://www.movoto.com/real-estate/homes-for-sale/CA/Belmont/2200-SEMERIA-AV-664093.htm

There were about 6 bids apparently.

Argh. :(

Marin and other areas may be holding their own right now, however San Jose looks weak. I've been tracking homes in Willow Glen and the Rose Garden areas of SJ - lots of price reductions, especially in Willow Glen. SFH inventory in some SJ zip codes is almost double what it was last year at this time. Sunnyvale inventory is also way up.

How much was a house like this selling for before 2000?

Last sale was in 1975. In the 80s it was merged with another lot giving it alot more land, and a legal 1/1 rental was built in the back (single floor, driveway accessible, perfect for a disabled mother).

So I have no real market point for what it would have sold for in 2000, or 1990, or even 1980. Zillow's 10-year history graph shows it basically slowly rising from about 900K in '97 to 1.45M in '05, right before "the big spike" where it suddenly went over 2M in a couple months.

Judging from the long-run sustainable increases over 10 years, 1.4 to 1.5 would be the normal regression line.

Socketsite reports that:

65 St. Germain (that looks a lot like a smallerversion of the house I grew up in) was originally listed for $6,750,000 at the end of last year. On Friday, the price was reduced for the fifth time and it’s now listed for $3,950,000 (41.5% under the original asking)...

OK, I am going to sound like a troll.

Can there be a small chance that there is oddly enough households in BA who can afford the aforementioned homes in select neighborhoods? I do think there is a lot of demand and affordability support for homes priced between 1-1.5M, or even up to 2M. I'd say most of that demand comes from trading up.

Grant it, the entry level is breaking down, but certainly not fast enough. Anybody who got into a TH, or condo, or a SFH in the last 5-10 years should see a windfall of at least $300-400K gain on their equity, tax free. Roll that in along with the first dp, that will give them 500-700K dp on the second home, and carrying another 500K-750K loan shouldn't be hard for a $250K+ household. And since all of them want to trade up to the same select areas, the support should be fairly strong.

Mike,

Over all, pretty good post. I agree watching rents will be key going forward. When I got off active duty service in 1989 rents/mortgage payments were roughly equal. In fact in OR it may have been a little cheaper to buy and I mean on a straight dollar for dollar basis. NOT after factoring in tax advantages etc!

One reason though that financial planners can sit back in their high back leather chair is b/c of dollar cost averaging. Trust me, no one in equity markets was having fun by April of 2000. It sucked, huge. However, had we continued to buy funds or yes even "the company's stock" a miracle of sorts takes place. As we continue to "buy in" each pay period we effectively reduce our cost basis by purchasing more shares when prices are lower. (Basic stuff...... I know).

We simply can't do this with our house or investment properties! (Certainly not on an individual basis). Maybe FAB can run around town and say, oops! Don't be sore. Buy some more! Most of us are lucky to have disposable income after we've made our ONE mortgage let alone several.

I still have high hopes for housing market derivatives. If a portion of our monthly payment went to insuring OUR needs were being met, buying could become less of a timing issue and housing might just get back to being shelter driven, not speculation driven.

DinOR

I still have high hopes for housing market derivatives.

I'm all ears. I just don't see how the backwardation is going to happen. Who's buying the other end of these things in either direction? Earlier I gave my reasons why I don't see the HBs being players any time soon.

Randy H,

Oh agreed, it doesn't look promising in their present form. I had heard however that rust belt towns like Buffalo, NY (or was it Rochester) had implemented like a "safe buyer" program where if you held for at least "X" years you'd be assured of at least getting what you paid for it?

I realize for those in the BA that may, hell DOES sound silly but it is happening in towns like Buffalo. I'm not sure how they structured it but it did sound like a gov't/private effort. If the NAR is serious about averting a national disaster they had best look into this approach.

Mike,

I'm still in the workforce for the foreseeable future and Oregon gets mostly rain, not snow. But it's good to know us "rainbirds" will have plenty to choose from!

Doesn't CA have a legislative protection that allows owners to "walk away" upon foreclosure without risk of bankruptcy, so long as they didn't commit fraud and are using the house as a primary residence? (And there's some refinancing complications too, if I recall).

C/L where dreams are free!

@DinOR,
That's awesome! You should suggest that to Craig as their new slogan.

We are going to see one round of knife-catchers after the other, all rushing in to "grab that bargain" before prices shoot up to the sky again. And --as RC likes to point out-- we should be grateful for them. These knife-catchers will be setting the new comps... all the way down.

Despite all the MSM pronunciations that the bottom has already been reached and a new housing boom juts around the corner, we've only BEGUN to see the barest beginnings of this down cycle. Remember that est. $2.5 Trillion in option-ARM resets? Well, we're only going to see $300-500 million of them by end of this year, depending upon whose estimates you go by. Next year? Another $1 Trillion. Year after that (2008)? Another $1 Trillion.

Oh, and btw foreclosure is a lengthy, complicated time-consuming process that takes months to YEARS to complete. So even 2008 is a bit premature for guesstimating the bottom. So, how can we be seeing the bottom when this roller coaster has barely rounded the top?

Patience, please. RE is an extremely illiquid, inefficient and snail-slow market. Do not expect NASDAQ-style crashes.

Remember that, as has been discussed here before, many "falling knife cathchers" will be the housing bears (like us), as they are often the last to capitulate. There's clearly a lot of itchiness to buy coming from many of the regular posters here, and the question is, are we going to be part of the group of the last GF's who will be left holding the bag as the dead cat bounce(s) happen, and the inexorable correction continues for several years?

skibum,

Just ask FAB. When you're PAYING for advertising (and it ain't cheap) you need to have your market and ROI well defined! When it's free that's when we see all of this "throw your hat in the ring" pricing. Like when you see Vegas listings on the Portland page (or vice versa). C/L has really become a last resort for f'd flippers.

random user,

I've known a lot of developers/builders/specuvestors over the years and it seems to me that the $'s are always in "the next deal". Their next project is going to be huge and that's where they're going to make their killing! I fear that in all too many cases these people were as you suggest, their own GF's.

Actually, the liquidity is slowly being turned off.

It really is remarkable how internationally coordinated this effort seems. The major central banks all seem to think it's time or has been time to tighten credit. Now there can't be collusion going on, can there?

It was my understanding that many, perhaps most, states have special laws governing foreclosures and allowing owners to escape forced bankruptcy. I think they're left over from the Great Depression and the stagflationary 70s.

Speaking of foreclosures, they are up statewide:

http://www.dqnews.com/RRFor1006.shtm

I just wish they'd give historical context to these numbers - are they relatively low still? Should DQ change their "signs of market distress remain moderate" to "things are looking worse. Man the lifeboats (just in case)?

HARM,

I wouldn't be so damned impatient except for the fact that it's like watching a teetering dictatorships final hours. The REIC is literally reeling on all fronts and the only thing I see holding the line is the sellers themselves! They are truly on their own and there is little if anything that can be done on their behalf. That's why we're seeing the "let's stick together" and "don't GIVE your house away" posts.

Even the REIC has turned on them now calling these sellers "unrealistic" and greedy. These are the very people that put them in this place! So I guess I'd rather be an impatient bottom feeder than a frantic seller. Selling is great when you can come from a position of strength, otherwise.....it sucks.

I've read that 96% of those that file for bankruptcy (to stop a foreclosure) wind up in foreclosure anyway!

I’ve read that 96% of those that file for bankruptcy (to stop a foreclosure) wind up in foreclosure anyway!

Yeah, not surprising. If your cash flow situation is so dire that you haven't made a mortgage payment for several months (think Casey Serin), then what good is a BK going to do? Little more than a delaying tactic, really. I guess it buys FBs a few more months of 'free rent' before the sheriff comes.

Randy said:
"To simply dismiss this demand surge as “sheep” may fit as a nice pejorative, but it doesn’t do much to analyze the situation and incorporate it into one’s strategy. Markets, whether stock or housing, have a nasty tendency to stay irrational longer than bears can remain solvent. (I know, not directly applicable, but you get my drift). "

Randy, don't you to some degree answer your own question here? Markets tend to stay irrational longer than people think. The housing market is irrational and has been for some time. To try to explain why all of a sudden a bunch of houses sold is trying to explain the irrational with rational argument. It can't be done. There are probably a thousand reasons people are buying houses now even though it is irrational to do so, and each person that does so probably has a different reason.

All you can do is shake your head in disbelief until you do one of two things, you capitulate for your own "irrational" reason, which may be perfectly rational to you, or you wait longer.

HARM,

My pal says that in most cases filing for BK actually accelerates the process b/c they've agreed to stay on a certain payment schedule. Once they deviate from that the process really starts to ramp up. His genuine concern is that any money you paid out to a BK attorney rightfully should have gone to your mortgage lender! There are a number of intermediate steps they can take toward a loan "work-out" that while painful, are a path toward recovery.

None of this matters much though b/c I'm hearing in LV and Phoenix FB's are just walking away. So let's dispense with all the legal mumbo jumbo.

Good point ric. That's the problem with trying to rationalize things.

It reminds me of the game-theory cliche about the hyper-rational economist.

Some game theorists were running one of those experiments to see how people would react given the opportunity to cooperate and/or compete. The kind of game where one player will end up controlling most of the $ while the other players can only veto, thereby ensuring that neither he nor they get any $ at all.

The rational thing for lessor players to do is accept any amount of $ in return for their cooperation, even if it's only $1. Even behavioral economists would say the rational thing to do is accept any amount of $ up to their definition of "fair" -- the point at which they're willing to essentially buy punishment for the greedy guy by forgoing their own winnings.

But in the actual experiment the non-control veto people ended up vetoing even when they were offered more than half, or sometimes close to all, of the $. Fair wasn't enough, they wanted control and were willing to ruin the payout for everyone.

Well, during one of the rounds the controlling player ended up being a hyper rational economist. After the game ended with no payout numerous times he stood up, kicked over his chair, turned to the organizers and said "The problem isn't how I'm playing the game. The problem is these people are too stupid to know how they should play!"

Allah,

Not to be "hyper critical" but we're at the dumbfounded stage now. That's why nothing is moving! The shock and awe WILL come. When ARM reset and default worlds collide it will be truly a sight.

What makes it even better is the bubble held the promise to elevate one's station in life so completely we'll see it across the board. From fringe neighborhoods to the upscale. We had a great article a few weeks back about the explosive inventory growth on Chicago's North Shore simply b/c the "move-up" crowd couldn't handle their new tax bills!

Since I've almost always used a VA loan (PITI by regulation) I can't say as I've had the experience of getting a $29,000 tax bill in the mail!

Allah,

Oh, I gotcha. Zandi, Thornberg, Roach and other bears have done some back peddling of late and I'm not sure why?

As far as grandchildren? Hell, I'm already ashamed of our conduct! How will we explain ourselves? What can we possibly say to rationalize this level of mania?

LILLL,

Oh the panic is there. It's there alright, just like the ancients seeing a full solar eclipse for the first time! Sellers have about the same level of understanding too! But, but, bu housing always goes up..........

GOOG stock hits all time new high. House prices in Mountain View and Los Altos to go up even further. :(

@charlie,

What a find! And only $1/2 Million! "One of very few homes in silverlake where you can completely redo your own way" is pretty much the understatement of the year. Thanks for the afternoon laugh.

GOOG stock hits all time new high. House prices in Mountain View and Los Altos to go up even further.

It's all paper gains unless they cash out - just like housing!

*unlurks*
CB & Randy H:

Thanks for your notes from the last thread. yes Randy H it's definitely looking like a mini-insurance policy (not that those can't fail) for taking a career break for kids. I might drop you a note direct later today. CB: I'm not crazy about getting a THIRD degree from the same school but I've been thwarted from leaving the city each time and now with spouse in a job and house bought (*ducks* we got it with 25% down / conventional fixed / under 33% of take home pay) I'm probably never leaving. One thing is for sure: I'm already making the "median" exiting salary so I'm not looking for big $$$$ when I get out (not that I will say no if I get them anyway).

Anybody been to Astrid / Peter P's food blog lately?

*relurks*

I hear that the (Central) Bank of England is poised to raise rates in November, and there's the possibility of another raise early next year - I'm thinking this will mean that the US will have to raise rates too? What does everyone else think?

Most people who work at these places are not fools. They will not put all their net worth in a house.

True - one of my friend's friend works at YouTube. (Not a founder.) He's buying a helicopter.

Unfortuately, I have talked to a couple of people and they are falling for the rents are increasing a lot - but I think (and this is what I should have said) that they have a long way to go before they are the same as PITI.

Randy said:

"Well, during one of the rounds the controlling player ended up being a hyper rational economist. After the game ended with no payout numerous times he stood up, kicked over his chair, turned to the organizers and said “The problem isn’t how I’m playing the game. The problem is these people are too stupid to know how they should play!”

LOL
Your Honor, I provide you Exhibit A - Casey Serin.