patrick.net

Here is the real story on the puts!

http://tinyurl.com/2moup7

From www.thestreet.com

Dispelling the 'Bin Laden' Options Trades

"As if the mortgage-market meltdown wasn't enough to spook investors, some market players expressed concerns about unusual options bets that some observers have dubbed "Bin Laden Trades."

MORE-

DennisN,

(That might have been a little too much information...)

Allah

Wait, they’re not sticky now, right? They’re just not going down yet.

Randy,

You took me off your rss filter? Suddenly, I feel important. :)

I don't know much about the CA housing markets; only that they are grossly overvalued. Are the prices not coming down? What makes you believe they aren't? You're not using the NAR's median and average prices are you? I hope not!

According to Shiller's index, I see CA prices falling.

Allah: Typically prices have never fallen unless there is a recession. When companies are laying off workers who are forced to sell, home prices fall.

Is “monopoly money” a new feature only present in this housing boom?

gavinln,

From what I have read, many of these mortgage products were very rarely used ever since the great depression (the first one). Here is a nice article about this you may want to read. The S & L crisis wasn't based on teaser rates that reset to much higher values like this one we are now in. These products are very dangerous because they actually inflate a bubble on their own, creating artificial demand by putting huge amounts of leverage into the wrong hands; when they reset and lending standards tighten, you get a sharp drop in demand and a sharp increase in supply due to foreclosures. Take out the ability to get those easy credit loans and you have no support for the prices.

illogical buyers + easy credit = overpriced housing
overpriced housing - easy credit = price crash

I know some areas may see their prices fall before others due of their own internal logic, but they will all eventually bite the dust. I see here on Long Island NY, asking prices are being slashed on a daily basis and the properties are still not selling. I have noticed an increase in these price cuts over the last month due to the Jumbo loans seeing a big increase in rates. Times are going to get worse and when we are in a full blown recession, it will be even harder for people to buy at those prices.

Wait, they’re not sticky now, right? They’re just not going down yet.

Here is a real piece of teflon for you Randy:

mls#1978761
271 Magnolia Blvd, Long Beach, NY
-46.8% change from first recorded price
Asking Price $665k as of 09/01/2007
Asking Price $890k as of 08/18/2007
Asking Price $1.25M as of 07/15/2007

....and it still hasn't sold! Just wondering how low they will go? I know, they were asking WAY too much to begin with, but that goes for many others as well.

They still have it advertised on mlsisland for $1.25M

Scroll down, it's listing number 1978761

Allah

I don't use a RSS filter on my own threads. Actually, the filtering hasn't been working for a while now.

You said prices wouldn't be sticky over 1.5 years ago, and you pejoratively asked "Randy, are you a realtor or something" because I disagreed with your absolutist statements of your opinions as if they were facts.

You were wrong. Prices were and still are sticky. Where I live houses have sat on the market for up to a year without any meaningful price reductions.

Houses that *don't* sell wouldn't be included in Shiller's data because the methodology is to price house-on-house equivalent sales.

Anyway, I'm not in a mood for you to come back in here nearly 2 years later yipping about how it's not sticky. It's not amusing any more given we're all sitting in this sticky ass shit and wish we weren't. In fact, don't call anyone who disagrees with you sheeple either; I've had it with that too.

You said prices wouldn’t be sticky over 1.5 years ago, and you pejoratively asked “Randy, are you a realtor or something” because I disagreed with your absolutist statements of your opinions as if they were facts.

Don't start that again. Yes, I did say they wouldn't be sticky and you will soon see I was right; mark my words!

You were wrong. Prices were and still are sticky. Where I live houses have sat on the market for up to a year without any meaningful price reductions.

Like I say, I don't know your area; I track Long Island and prices here are getting very slippery lately. I have written a program that collects thousands of listings into a database and records changes in the asking prices on a daily basis and asking prices are falling. If asking prices are falling and people are lowballing, it is only reasonable to assume that prices are falling without even looking at sales data. In your area there may be pockets that aren't dropping yet, but they soon will. Perhaps some of them can't drop the price low enough to fetch an offer.

Houses that *don’t* sell wouldn’t be included in Shiller’s data because the methodology is to price house-on-house equivalent sales.

Like I said, they aren't falling in all places because of their own internal logic, but they will soon. The ones that are falling are reflected in Shiller's price index.

Anyway, I’m not in a mood for you to come back in here nearly 2 years later yipping about how it’s not sticky. It’s not amusing any more given we’re all sitting in this sticky ass shit and wish we weren’t. In fact, don’t call anyone who disagrees with you sheeple either; I’ve had it with that too.

C'mon, is this a way to greet me after leaving me in silence for a year and a half just because I "asked" if you were a realtor? I honestly wasn't sure; it's not an insult. Take it easy for christs sakes! You brought up the sticky argument here...and no I don't call people sheeple is they disagree with me, only those who buy into a bubble because they think prices are in a permanent plateu.

peace already!

Yes, I did say they wouldn’t be sticky and you will soon see I was right; mark my words!

Like I said, they aren’t falling in all places because of their own internal logic, but they will soon.

...sigh

…sigh

Does that mean you think prices are going to stay high?

> The only thing missing from this is an outline of other
> variables in Michigan or Ohio such as:
> what is the typical income? what is the job market like?…

Why does that matter, since if you make the minimum wage (or even less) you can afford to buy a home in America (You won’t be able to live in South Marin, Emerald Hills or Woodside where vacant lost cost over $4mm but no one has to be a renter in America).

hold on, $100 a month at 8% interest only implies a house purchase price of $15,000. Even reasonable quality houses in economically depressed Detroit are not $15,000.

I suppose there are locations in the far northern wilds of Canada that are 'affordable' also, but the heating bills and isolation are the reasons for low value, and nobody could reasonably be expected to live there.

But if I have to tell you why the median income in an area, job opportunities and the unemployment rate factor into house prices, there's something seriously wrong. Hint: it's to do with being able to pay the bank each month...

# Allah Says:
Does that mean you think prices are going to stay high?

No, I think it means that "they aren’t falling in all places because of their own internal logic, but they will soon" is pretty much the commonly accepted definition of sticky prices on the downside.

"Sticky" doesn't mean "stuck on high". Just that the slide isn't smooth and continuous.

SP

Randy and Allah,

That brief interchange somehow made me picture one of those Peanuts cartoons with Linus (Randy) and Charlie Brown (Allah).

I know, I know, that was very dorky. Sorry.

No, I think it means that “they aren’t falling in all places because of their own internal logic, but they will soon” is pretty much the commonly accepted definition of sticky prices on the downside.“Sticky” doesn’t mean “stuck on high”. Just that the slide isn’t smooth and continuous.

When I say they aren't falling because of their own internal logic, I mean that there is a reason why they haven't YET started their inevitable continuous decline.

I believe that there are many people who are holding on doing whatever they can in hopes that they will be able to get bailed out. Some are paying their mortgages with credit cards; some are renting out rooms and working 2 or 3 jobs, some are opening brothels and perhaps some just have very deep pockets.

Allah,

We're not going to go through another digression and thread death simply because you have some mental retardation that prevents you from grasping a simple definition no matter how many times it is explained to you. I'll consider any more of this chicanery Trolling, so talk about something else. I've had a headache all day, so I'm apt to use my seldom touched moderator powers.

skibum

If there were a Lucy in the picture, then I'd find much more humor in it. Chuck throwing himself to the ground over and over on his own isn't quite as entertaining.

Maybe the more apt cartoon analogy is Ren (Randy) and Stimpy (Allah)...

Happy Happy Joy Joy

mental retardation

You are the only one throwing insults here!

I’m apt to use my seldom touched moderator powers.

Yes; when someones view differs from yours, eliminate them with your "moderators powers".

good night!

Yes; when someones view differs from yours, eliminate them with your “moderators powers”.

Are you 14 years old? If you don't like it then complain to Patrick or ask to author your own threads here. You can talk about anything else, whether I agree or not, just STFU about "sticky" already.

Where can I donate to SP's killfile project?

SFWoman said:

The arts receive next to no funding in the US outside of DC museums. Without write offs to arts institutions many, if not most, would cease to exist.
...I guess it depends on if you value having cultural institutions. I do, I contribute to them, and I consider them to be a vital and important part of life.

I'm not saying the arts are not important. I just don't want contributions to opera houses (or Harvard or MIT, for that matter) to be tax deductible. I seriously doubt that eliminating the charitable deduction would cause these institutions to wither and die. Many people would continue to support these institutions even if they couldn't get a write-off. (Or at least they would if they value the arts as much as you do.)

If your combined state and federal tax rate is 40%, then a $600 nondeductible contribution is equivalent to a $1000 deductible contribution. You are free to give the $600 to the opera house (or more if you want). I just don't think you should be able to deduct the contribution. Make all the nondeductible contributions if you want.

An allowed deduction is just the flip side of a subsidy. In the above example, if the deduction is allowed then the opera house gets $400 dollars which would otherwise go to the treasury (if there were no charitable deductions allowed). This $400 could be used to lower the overall tax rate, or to balance the budget, or to pay for *democratically* selected priorities (via gov't spending).

If it is really true that the opera houses would go under without the charitable deduction then I have to ask why should taxpayers subsidize opera houses who can't make it without deductible contributions?

I have been picking on the arts, but I am even more annoyed by the deduction for religious contributions. No wonder we have megachurches. What a racket!

Randy, I'm not sure I agree with your view on price stickiness. You of all people know to disconnect seller emotion from the equation. Of course people who don't have to take an immediate loss will hold out on the hope of a change. Willpower, and high hopes are irrelevant to market forces. A change in the equation like no loans above $450K, and people having to show they can repay a loan will far outweigh someone in denial who holds out while foreclosed neighbors' homes either go on the auction block, or go the short sale route.

BTW a quick update on my area: I have literally seen 3 Uhauls these last couple of weeks either driving out under cover of darkness or at first daybreak. Out of 22 homes being built across the street from my planned development, they have sold 2 and construction is off more than it is on. It is a bumpy hill but prices are definitely tumbling down here. I'd say my neighborhood now has a 5% bank owned ratio of homes.

I have not considered one thing though. You may in effect be concluding that Bay area prices are not overpriced, but I don't think you have ever stated that thought.

Nothing against Allah (really) but I gotta weigh in on Randy's side here. I don't live in an area that's even close to being as moneyed as the B.A. and we're seeing price stickiness here that defies all logic.

There's a house down the street from me that's been on the market a year. It started at almost $600k (waaay too high) and the guy dropped it to $490k over time. He has obstinately stuck at $490k even though it finally went into foreclosure. He didn't get it approved for short sale or anything. Baffles the heck out of me.

It would be easy to write that off as an aberration, but I'm seeing tons of this going on. People still think that homes are worth what they were appraised at two years ago and they are not realistic at all about current value. Most homes I see still go on the market priced way too high. My parents did this and I think they're going to lose the house.

I'm not saying the arts are not important. I just don't want contributions to opera houses (or Harvard or MIT for that matter) to be tax deductible."

That would place officialdom in a position of doing essentially nothing in support of visual and performing arts. The NEA budget is risible. Must we make our indifference quite so clear as that?

The sellers who refuse to lower their prices are irrelevant.

Homebuilders continue to slash prices. And more and more "bank owned" properties are showing up on craigslist. Also, as the inventory builds, probate estates and trusts will continue to reduce prices in order to liquidate estates. These kinds of sellers are in a race to the bottom.

The guy who is holding at $490K can continue to hold. But if you are in the market for a house, you don't need to buy from him.

In a few more years, there will deals a-plenty. Banks and homebuilders will not stick with their wishing prices--they will liquidate for whatever the market will bear. Hang in there. The reset wave is still accelerating. We aren't even close to the bottom yet.

Bruce says: That would place officialdom in a position of doing essentially nothing in support of visual and performing arts. The NEA budget is risible. Must we make our indifference quite so clear as that?

My objection to the charitable deduction is that it is a hidden subsidy. If the voters, through their representatives, decide to support the visual and performing arts, then so be it--I have no objection. But let them do it through a direct government subsidy, not a backdoor subsidy known as the charitable deduction.

When taxpayer money is spent, it is exposed to vigorous debate (ie: NEA, for example, is a political football). This, in my opinion, is entirely appropriate. However, when the government allows a charitable deduction (which also has the effect of depleting the treasury) no one seems to care how the money is spent. It is no longer seen as "our" money. Therefore, we do not criticize the rich if they decide to give money only to support rich people causes (like the opera house or the art museum). Nor do we criticize those who tithe in order to support Pat Robertson or Jimmy Swaggert. But why should this be the case? The effect is the same as if the government collected the taxes, then wrote a direct check to the opera house or the televangelist (or whatever).

If the voters, through their representatives, decide to support the visual and performing arts, then so be it-I have no objection.

In what way is passing such decisions through a legislature superior? As it stands, giving or not giving (and giving how much and to whom) is controlled by the donor. And the donation is not impaired by administrative costs.

When taxpayer money is spent, it is exposed to vigorous debate (ie: NEA, for example, is a political football).

Zut! I agree. If the NEA and some congressional windbag hadn't been involved, Mapplethorpe might never have become famous.

Glen, you will think I am not serious. But let me be clear for a moment.

Can you not see that your objection lies in seeing funds going to things you don't like much, or that you consider elitist, or that you just personally don't appreciate? And can you also not see that you propose that government decision and administration of such things is superior to individual choice?

I'd be the last person on earth to equate the contributions of Jussi Bjorling and Tammy Faye, but I don't resent a single dime the Bakkers received. Because it wasn't my dime.

Glen,

The arts do not only exist for the rich. In SF the museums have rather amazing outreach programs for children at little or no cost. Children can do studio arts, and the museums even have outreach programs in impoverished neighborhood latchkey programs. School children can visit the Fine Arts Museums for free. Can I donate twice as much to support these programs because of the tax write off? Yes. The Symphony also has an outreach program, Adventures in Music, that plays in public schools (and my children's private school walks over to the public school to see these wonderful performances).

When I lived in Europe, where the arts are highly government subsidized, nobody considered them as something only for the rich, they were part of what made up life, even in smaller towns.

I don't want all of our arts government funded here because I don't trust our government to properly vet them or to not politicize every little decision. We'd probably never see another performance of 'Tartuffe', let alone something that actually challenges the status quo.

I do agree that megachurch donations are annoying (actually I'd consider many of them predatory in their quest for donations). Any church that tells its parishoners how to vote should have their tax status yanked immediately.

Seller psychology, for *existing homes*, means pretty much _everything_ to how aggressively they are willing to drop their prices. What's happening is the sellers believe their losses from selling at a price are higher than they really are (they are miscalculating their marginal costs). This leads, in turn, to many more sellers riding all the way down to foreclosure in a spiraling escalation of commitment than would otherwise be necessary. And foreclosures are sticky by definition.

New homes sales have even been much more price sticky than even I had predicted a couple years ago. I argued that homebuilders were rational, sophisticated financial businesses, and as such would aggressively drop prices to clear inventory (and maximize marginal revenues). I don't pretend to understand the complex land-option nature of new home builders, but aside from that they have also been engaging in non-optimal stickiness, mostly with incentives in lieu of price cuts. My only rational explanation for this is that their marketing believes that they somehow need to mimic the (ir)rationalization of their customers, who don't want to think prices can go down. Of course, now home builders are cutting prices, so things have finally loosened up there.

Keep in mind that stickiness actually predicts there should be a buildup followed by a rapid breaking loose in price action.

Finally, as to the Bay Area, it turns out this area does have a particular "uniqueness" (abnormality?) which makes it even more sticky than almost everywhere else in the US. The BA has dramatically higher savings rates than pretty much everywhere else. 4 of the top 5 highest savings rate large cities are in the Bay Area (the other in Connecticut if I recall). I don't know why this is so; perhaps because of the high percentage of Asian immigrants with a savings bias, but the fact remains that the BA has in aggregate a much larger savings reserve to blow through than everywhere else.

This does *not* mean prices will stay high. I don't believe that. But it means price corrections will continue to trail other areas, and the scale of corrections might well be smaller.

Any church that tells its parishoners how to vote should have their tax status yanked immediately.

All churches should pay taxes at the same rate as taxable non profit organizations. Similarly, they should lose their non profit status if they, well, become de facto for profit organizations.

As I reason, this should result in (a) a reduction of hucksters and (b) a reduction in taxes as churches start telling their parishoners to demand lower taxes.

Yes - let's open up the discussion of tax deductions. . . Perhaps a new thread?

One of the things that bothers me about the new loan products is that you can front end load the interest payments. This has the effect of maximizing your tax deduction today. The national average length of time for owning a home is 7 years. An astutue buyer would think, "I will sell this home in 5 years- let me take an interest only loan for those 5 years to maximize my public subsidy." So every tax payer chips on the heavy interest years. In the years where it would balance out in the publics favor, the house is long since sold.
I think we could see much more affordable housing if we simply did away with the mortgage deduction.

On a similar note, don't mid-Westerners ever get sick of chipping in on Bay Area housing? When your mortgage deduction is for a $200k home and you pay X in taxes a BA person has an 800K loan and pays X-alot in taxes.

Randy H.,

Could people like me who won't move, somewhat in part because of Prop 13, be scewing the savings rate?

Bap33,

Totally OT.

"Surfin' Bird" was actually recorded by "The Trashmen" a "Surf Band" from of all places Minneapolis, MN! For those that appreciate "Pre-Beatles" music www.sundazed.com is an absolute treasure trove of "B-side" material.

*Not a paid endorser

Duke,

What's worse is that most people don't amoritize their loan points correctly either. Since we can get away with blue murder pretty much wherever RE is concerned I try not to get too worked up about it. And no, mid-westerners will never tire of that.

Duke,

There is still a net transfer of taxes from California to the southern and midwestern states. We had a thread on that a year or so ago when WW from Alameda was posting.

I am annoyed by the tax write off of second mortgages (provided you stay below the $1.1 million cap) for boats, plastic surgery, etc. I also think I could use my pretax medical savings account for cosmetic stuff. If that's actually true, tax free funbags or nose jobs are pretty offensive to me when a good chunk of people in the US can't afford basic healthcare. Now, if people would actually start taking care of their health...

I talked with a guy yesterday that owned up to having to do a short sale on an inv. prop. in PHX in 2006. He said what made it almost impossible to sell was that builders were offering TEN % comm! Times (for realtors) were tough enough as is so why attempt selling an overpriced existing home for a 3% comm. when you can sell a NEW lower priced POS for 10 (and in some cases TWELVE %) as George so astutely predictaed over a year ago?

Even in defeat, it looks like builders are still calling the shots.

Actually, George "predicted" it. :(