patrick.net

Case Shiller is out.

SFO now at 145.53
Down 3.89% MOM
Down 29.51% YOY
Down 33.36% from Peak

Accelerating my model to 2% MOM depreciation we can reach equilibrium by April 2009. This means reverting to norm using the BA price appreciation of 4.25% a year.

It is clear that we will overshoot equilibrium. Up to now I have been quoting corrections to return us FROM the bubble. We simply now must begin to factor in the credit crunch and the recession. Guessing that the recession lasts at least 2 more years and that prices seem likely to fall at their current rate through that period, we could see 1998 pricing in early 2011. This means most RE is simply unthinkable until late 2010 as we are seeing YOY declines in excess of 20%. Um, unless you do not mind your 20% down payment being immediately vaporized.

Headset,
Not sure what else you folks discuss at conventions... What is the word on the street regarding maintenance costs for hybrid fleets?

mickrussom,

I think your tinfoil hat is on too tight.

http://www.coinlink.com/Articles/top-ten/the-top-ten-largest-gold-reserves-in-bullion/

I guess its possibly Fort Knox is full of gold-painted bricks; but when you think about it anything is possible, really.

If the SHF in a major way we can just roll the military into NYC and seize the Federal Reserve building and confiscate all the other countries gold as well. What would stop us?b

What is the word on the street regarding maintenance costs for hybrid fleets?

That was a major topic. The New York City fleets owners had nothing good to say about hybrids. They strongly discouraged anyone from using them. On the other hand, the owner of a large Phoenix/Scottsdale company recently put 200 Prius hybrids in one of his fleets. He was very happy with them. The difference may be that the New Yorkers are looking at Ford Escapes, while the Phoenix folks are using Toyotas.

Duke, I have a similar view of the cycle timing. I think price declines will continue into 2010, but I expect that 2010 will be nearly flat overall. I see no reason to buy before then. In fact, I will wait until I see a beginning of price increases.

As an investor there is no reason to rush in - RE prices recover very slowly at first. If you aare buying for personal use you will have other needs that could accelerate your move.

30 year Mortgage rates below 5%

I bow to out mint masters.

typo: I bow to our mint masters.

sa,

that mortgage rate monitor table is showing 5.98%.

It's always interesting to check in and see what the CME has to say about the market. Next stop for Ess Eff (and environs) is 122.0 in May 2009 (an approximately 16% drop from where we currently stand). Looks like the market likes you prediction, Duke.

OO,

I suspect, It might show up tomorrow.

PermaRenter Says:
Tivo layoff:
EXPECTS PRE-TAX CHARGES OF APPROX $1 MILLION PRIMARILY FOR EMPLOYEE-RELATED severance benefits and out-placement costs

If the charge is only 1 million, it probably is a small layoff. (Temps and contractors are not counted, of course)

I just called a loan agent, 5.5%, already reflected in this rate, for $417K conforming or below, 75% LTV max, that is the best they can do.

No drop for non-conforming jumbo.

The funding for the above quote is from Chase and Wells Fargo and reflects the latest drop.

If we really just dropped the 30 year rate to 4.875 by direct governeent intervention - wow. Just wow.
That will: help clear inventory, prop up prices, re-emply people into finance (to handle the re-fi load), help stabailize property tax incomes to states. It is an amazing, if expensive, method to buy time until the public works programs can ramp up. In fact, that lower rate in interest paid savings may compare directly over a 30 year period to current lost equity.

Normally I would hate this kind of massive housing intervention, but in terms of staving-off our spiral into Depression, at first blush this looks really smart.

Yeah, and as a result of this intervention, Euro is again above 1.3

So, its boosting exports and hindering imports. . .

(lets just ignore the destruction of value of the dollar and savings)

Hmm. Gentleman, I give you the Bigger Bubble. The Government.

OK, just called up Chase, my home loan servicer and bag holder, here is what they are offering, all fixed

5.25% for 30 years, fee $2,500
5.25% for 15 years, fee $4,100
5.25% for 10 years, fee $3,600

Now can you tell me which loan do the banks and the government want to herd everybody into?

If it really drops below 5%, I will refinance to the 10yr fixed, but so far I will still wait for our government to pull an even bigger wonder :-)

@OO

I thought you sold your house and were renting. Are you planning to buy again soon?

I don't understand one thing, if they are encouraging good behavior, why don't they intervene while letting the market reflect the risk of time lag.

Shouldn't 10-yr loan be always priced lower than 30-yr? The loan is paid off faster, it is subject to shorter time lag in which any black swan can happen, why would the government herd everyone to a 30yr loan?

No, I didn't sell, when I was planning to sell came the deleveraging in which everything was whacked down very violently and it looked like things were coming off the wheel very fast. I didn't want to be caught in the middle of that.

I am not actively looking for refi, but if the terms are good, why not?

@Danville,

If they really manage to manipulate rates to below 5% for 30-yr fixed loan, and if you have a load of cash which can qualify for conforming, it may not be a bad time to buy.

While price can still come down, you won't see such a good rate for a long time to come, because our government cannot get away with rates being so low and USD being so high. This will be a brief window of deflation coupled with low interest rate that you can take advantage of. What you should look at is not just the housing price, but the total housing payment. You may buy at a higher price but a lower interest payment, or at a lower price but a higher interest payment, you need to look at what the TOTAL payment is, not just the housing price.

We have enjoyed a very low interest rate for a long time, this will have to change. And if our government is raw printing to keep the Treasury yield down, at some point USD will simply collapse and you'd better off to hold some land than cash.

That will: help clear inventory, prop up prices, re-emply people into finance (to handle the re-fi load), help stabailize property tax incomes to states

I do see some people would try to refinance and few people might be hired for it. Propping up prices would be more difficult. I have a 15 year fixed at 5.125%. I wouldn’t be excited till I see a 3 handle on rates. We are entering a phase of steepest job losses and I can’t think of any sector of economy that is holding up strong. More inventory would be dumped onto market due to job losses. No interest rate could help people without a paychek.

My loan agent sounded pissed that I didn't want to go through with refinance (I unfortunately have a 10-yr fixed @5.5%, and only 8.5 years left). So I need the rate to get down to at least below 4.5% for me to be motivated to contribute pts and closing fees to my loan agent.

But I do think that if the rate can get down to 4.x% or even below 4%, the economy will get a big boost, we will have added a few music chairs to keep it going. It is not like half of the country is unemployed, there are still people with jobs, and nobody doesn't like refinancing to a lower rate if they already have a job and a home, which will be more than 50% of the American household. That is a lot of refinancing. But of course, after this is done, then what?

It is of course given that USD will be worthless by then, but don't you love to lock in a long-term low rate to pay back worthless dollars?

Mick,

Whelp, the ole' chestnut about the Fort Knox being full of nothing but hot air is a favorite amongst the conspiracy theory buffs.

http://en.wikipedia.org/wiki/United_States_Bullion_Depository#Conspiracy_theory

So I calls 'em like eye sees' em'.

Peter Schiff has tinfoil headgear in the family; ever hear of Irwin Schiff?

http://en.wikipedia.org/wiki/Irwin_Schiff

So no surprise he has a chip on his shoulder against a US government. A very costly chip I might add, as his funds got *murdered* this year.

The mistake he made was to think the bubble was in the U.S. and all the real growth was in emerging markets, oil and foreign currency. He bet the farm on a dollar collapse against these asset classes. Unfortunately for him, it turns out the bubbles overseas were just as bad (if not worse) than the ones here and everything fell the other way.

I freely admit that we are in deep doo-doo as a debtor nation; as we are either going to end up being indentured servants to our Asian overseers or sell off our assets (including that gold bullion) at fire sale prices to pay off our creditors.

Re:Ron Paul. He is Magneto at the end of the last Xmen movie. Cranky, crazy old fart sitting alone in the park feeding pigeons, trying to move chess pieces with his mind.

OO, I wouldn't get a new loan either. 5.5% fixed is still nothing to sneeze at.

Just to do the math I ran:
30 year fixed at 4.875% for a $500,000 loan. After 30 years, total interest paid is $452,574.80
Compare against the same but with 9% loan (where I think loans will go as soon as the recession is over) and you get interest of $948,320.71, which is $495,745.91 more than the first loan. It is also the same in difference as the entire pricpal of the house.
So, for those planning to buy and hold - no moving, no losing your job, no trading up, etc. The math looks pretty interesting.

@OO
Have you checked Fremont Bank recently? A few years ago my husband and I used them to get a no fee loan with a slightly higher interest. It worked well for us because we only needed the loan for a short period of time.

Compare against the same but with 9% loan (where I think loans will go as soon as the recession is over)

Duke,

Are you kidding? 9% home loans?

Duke Says:
Just to do the math I ran: 30 year fixed at 4.875% for a $500,000 loan. After 30 years, total interest paid is $452,574.80. Compare against the same but with 9% loan (where I think loans will go as soon as the recession is over) and you get interest of $948,320.71

The arithmetic is only one part of the math. :-)

With rates at 9%, that 500,000 loan (and your down-payment) is going to buy you a nicer house than when the rate is less than 5%.

Also, by buying now, you are putting your down-payment directly at risk- especially if you expect rates to go to 9% or if you expect more layoffs in the area.

If you already have a loan at a higher than 5% rate - i.e. you are stuck with a principal already - this is a great opportunity to lower your rate. But if you are holding cash and looking to buy, it isn't very tempting.

Anyone with a decent down-payment in savings should be praying for a high mortgage-rate environment to bring prices down. :-)

[not investment advice]

sa Says:
Are you kidding? 9% home loans?

Wells-Fargo's 30-year-fixed Jumbo was at 9.875% a month ago. And you needed a proctological exam of your finances before they gave you the loan.

It has dropped now to 8.625, but is not too far south of 9%.

Conforming rates are below 6%, but in the parts of the Bay Area that Surfer-X likes, a conforming loan won't buy you much.

I doubt that mortgage rates will go up in the next year or so. But once we start to see inflation from the current policies rates could go up a lot.

As SP points out, when rates get higher than normal prices tend to get depressed further. So, buy when prices are depressed, even if you must pay high interest rates. Then refinance a few years later at lower rates, and you get the best of both worlds (low price and low rate). This strategy worked well for me in the early 1980s and the 1990s. It should work again.

So.....Volker, eh?
Interesting choice. Hope he lives long enough to do some good.

Right now, obama can do no wrong. He can take in a puppy and name it something, the stocks could go higher. Bush that bad?

There are so many arguments against buying now. . .

I just wanted to throw out to some the view that with the govt intervening in the mortgage market, that a run-out loan cost compared to principal destruction is pretty interesting. Especially for those who feel that this period of deflation is going to be followed by a period of inflation.

Given how fast home prices are collapsing it looks like the gummint has no qualms throwing the speculators under a bus. Which is as it should be.

A friend who short-sold his house for $500k just found out it got short-sold again for $370. Talk about knife catching!

I'm actually curious exactly *how* anyone could prop up home prices.

How do you entice/force someone to overpay for something? And if the banks are doing loan modifications, why not just stop paying every six months and force another cram-down?

Um, Kewp. I would think the period from 1997 to 2006 is a pretty good example of how to get someone to overpay for something. . .

Well, that's kinda my point. Once that incentive is gone, whats left?

Nobody wants to be a bag-holder.

Say, weren't rates at this level like 6 months ago?

It didn't seem to help housing then.

I don't see this development as being anything significant for the general public. It was just another way to stuff money into the banks. If they actually wanted to help the people, and the economy, they would force the banks to cram down a certain number of mortgages (with shared future profits) for every government program they participate in.

By the end of this mess we're going to have some rich ass banks, and zero middle class. Woopee!

Here is one scenario that you'd be better off buying now. Not applicable to a whole lot of people. Location is only confined to desirable areas that everyone wants to get into.

1) you have lots of cash, at least 25% down, or even more.
2) secure jobs, no fear of job loss, can easily support payment with one income.
3) can lock in a low, long-term FIXED rate
and most importantly
4) you believe (which is what I believe) that the government will do everything to reflate, including trashing the USD. If they don't give a damn to dollar, then it becomes an asset allocation issue, it is no longer about buying a home.

Most people cannot satisfy the first 3 criteria, so 4) is mute. But for those who have a big wad of cash with no exposure to real estate at all, it may not be a bad time, especially if the government is really able to get the long-term fixed rate down. 5.25% is not good enough, 4.25% will be very enticing.

kewp,

just theoretically speaking, not that I believe it will happen, hyperinflation or high inflation (15-30% a year) can absolutely hold up the nominal housing price, if not propping it up.

It is again based on your belief that the government is capable of releasing rampant inflation, I believe that they can, and they will.