patrick.net

Our thesis is that buyers are more stubborn now than sellers, so the supply curve should shift in favor of lower prices.

Now that the fear of being priced out is gone, buyers operate on greed.

The greed within sellers are slowly turning into fear. Forget about fundamentals.

However, will buyers soon fear of missing the opportunity to buy on the dip?

According to some it's going to be a long time until the bottom of the dip is reached. It's way to early to worry about missing the opportunity of buying on the dip. I guess maybe the uninformed might think that's it's a temporary dip and go for it, but surely not after all the news coverage has finally started?

George - do you think it's hit rock bottom in Florida? Is that why you're looking to buy properties now?

Peter P,

I think that pretty much sums up the mindset right now. With so many "potential buyers" just now hearing horror stories from co-workers etc. I'm not too worried about people running out to jump all over the dips. While we here have tracked this meltdown in the making for what feels like a lifetime, the general public is just now learning that 20% appreciation per year is NOT the norm?

Even if they had the inclination to throw money at an attempt to bottom feed they're tapped out. Their DTI is barely hanging in there now. They'd have to sell one or all of their properties (in most cases). We ran into this last year with the auto mfrs. Great deals! Sure, but each incentive just seemed to lower their trade-in that much more.

Oh, would you care to venture an opinion on Claire's charitable giving quandry. Seems there's a tax bill waiting for her and she wondered how big an impact "giving" would have on her bill?

Anyone notice lately how the yield curve is now fully and strongly inverted (35 bps spread between the 6 mo. & 10-yr. Treas.)?

http://www.bloomberg.com/markets/rates/

Folks, the train has officially left Bubbleville, next stop: Recession City.

Oh, would you care to venture an opinion on Claire’s charitable giving quandry. Seems there’s a tax bill waiting for her and she wondered how big an impact “giving” would have on her bill?

I am not an expert, but what is wrong with paying that tax bill? That should involve less out-of-pocket money, right?

Uh, o.k so no one seems like they're in a real charitable mood right now AND I'M O.K WITH THAT!

If we'd rather scratch out a check for the FULL amount to the gub'ment please be my guest.

True, this is the quickest and easiest way out of ANY situation. Just CTC (cut the check). Lawsuit? CTC! Divorce? CTC! Dispute w/employee/employer? CTC! Short sale on overpriced sh@tbox? CTC! See? It all goes away. I know it's what most CPA's would say. This is why CPA's suck. Sorry.

This author of the article linked below has a disturbing take on household solvency (or lack thereof). The author notes that 20 million homeowner households have $0 or negative net worth. Also interesting to learn that there are 74 million households above the poverty level--and 69 million homeowner households (most of these are probably people who are barely above the poverty level--the rest are presumably perma-renters or bubble-sitters).

When the crash hits, who will win? The 20M FBs or the 5M solvent renters?

http://www.oftwominds.com/blogmay06/wealth-effect.html

Put my son’s money in a 5.85 CD today at Wamu.(The money he saved for a car ..10K)He’ll get it out when he’s 15 and 1/2…just in time to start dreaming about a car…which make…color…life is good.

Make sure it is a safe car (5-star rating frontal and side) though.

When the crash hits, who will win? The 20M FBs or the 5M solvent renters?

20M FBs? It is 20 vs. 5 or 4 to 1!

alien Says:

A note on renting - I just moved in to a 1/3 of a $1.5M house in Topanga,

I'm looking to buy in Topanga, once the prices come down. Nice little house, bit of land....

Already seeing some reductions - a 1.2 million place got a 25% "haircut" this morning to 900K.

So, what's Topanga like? The good? the bad? The ugly?

From Ben's blog:

Better to live next to a salvage yard than in a staged house during a slow real-estate market.

I know quite a few people who still expect high single digit appreciation as a sustainable norm.

So you are implying that people you know are not out and out clueless?

Pretty much everyone except for the out and out clueless has now heard that the ride is over.

Unfortunately, the "out and out clueless" group constitutes approx. 99% of the U.S. population.

I posted an article about the economics of what DinOR and I were discussing earlier on my blog: Housing Bubble Economics.

TN,

I'm pretty sure. The only bulls left are finding themselves like the guys that show up at a party with a keg over their shoulder only to find, it's not "that kind" of a party.

Cherry picking is one thing, ignoring overwhelming data is another.

FRIFY,

All you’re saying is that the supply curve rises late and steeply

I'm saying something a bit different. I'm saying there is a distinct discontinuity in the supply curve on the way down, just as there was in the demand curve on the way up. This discontinuity grows the most right before a shift in sentiment. A sloped or curved continuity would imply that the "in between price" was attainable. I contend it is not (in most cases), until the entire vertical is flushed from the system.

I’m saying there is a distinct discontinuity in the supply curve on the way down, just as there was in the demand curve on the way up.

I do not believe there are "discontinuities". I tend to think that the supply and demands curves themselves are heavily dependent on price expectations.

newsfreak,

I'm not saying it's an anomaly. I'm saying it is an erratic price, not likely to be reproduced with regularity. There is not enough supply at that level to support the assertion that 540K is the new equilibrium price, as a marginal price analysis would assert.

In technical terms, this is a price either on or below a discontinuity in the supply curve.

Moreover, price expectations themselves are based on price actions. As a result, any analysis of supply and demand would be completely useless.

However, although sellers may not accept the reality of lower comps, each anecdote of price reduction will only add to their fear.

Everybody breaks after a certain point.

I do not believe there are “discontinuities”. I tend to think that the supply and demands curves themselves are heavily dependent on price expectations.

Imagine there are only two sellers in an unique neighborhood. Say one is you and the other is me. You want to sell your condo $hitbox for 1.1mil, and won't take a penny under 1.0mil because you think you'll just rent it out otherwise.

I, on the other hand have to get the hell out, and will take whatever the market will bear. I therefore will consider an offer of $450K.

This is a discontinuity, by definition.

In fact, granularly, all housing is a series of discontinuities because each individual seller is a step function to the next. It is only in aggregate that we can integrate and assume continuity; but it is in reality an abstraction.

any analysis of supply and demand would be completely useless.

It is far from useless.

Everybody breaks after a certain point.

No, some people leave the market; just like we did on the way up. You're implying that everyone would sell for a penny if pushed far enough. That itself ignores behavioral factors.

In fact, granularly, all housing is a series of discontinuities because each individual seller is a step function to the next. It is only in aggregate that we can integrate and assume continuity; but it is in reality an abstraction.

I agree. However, if one is willing to look at a wide variety of housing units, the curve will appear to be less discontinuous.

You’re implying that everyone would sell for a penny if pushed far enough. That itself ignores behavioral factors.

They will. I did not say how far though. :)

No, some people leave the market; just like we did on the way up.

We all have breaking points.

Wha!

Wolf Blizter on CNN is going to have a story on the HB sometime this hour.

It is far from useless.

It is not only useless, it is counter-productive. Why was demand booming when prices were skyrocketing? Why is demand plummeting when prices begin to drift downwards?

Again, one should not trust me on economics. Randy is the expert.

"It is not only useless, it is counter-productive. Why was demand booming when prices were skyrocketing? Why is demand plummeting when prices begin to drift downwards?"

We've either found the elusive Giffen Good or its another case of people with unrealistic expectations about future price growth.

Most likely the latter. We also see similar behavior amongst people during periods of hyper-inflation.

Randy,

If push comes to shove, people will abandon property they own, if the net present value of the property is at zero or negative. This will happen if the cost of maintenance is greater than the value derived from the property. We see it all the time with old computers and abandoned mines all the time. We may soon see it amongst condos with high HOA fees and high desert houses with 3 hour commutes and $600 cooling bills.

Well that characterization is rather subjective but what I meant to say is that particular mentality isn’t as scarce as you might think.

That mentality is WIDEspread. Actually, I want to become clueless as well. It should give me better sleep at night.

In the case of that 50% off house, the seller must have had totally unrealistic original expectations about the value of the property. NoVA houses have not dropped anywhere near 50%. I'm seeing 5 to 10% reductions on SFHs and THs, maybe up to 20% on condos, but the asking prices are still pretty high and decently priced houses (around April-May 2005 levels) are still moving okay.

pbass,

Hehe. First they get designated as money laundering operations for the North Koreans and now this. Not to mention all the under-secured debts to SOEs that they're never getting back. I almost feel sorry for these bloated (cuz half their job is getting boozed and dinned by borrowers) Chinese bankers.

astrid Says:

> I predict 2008 to 2012 will be good years to buy exotic
> vacations and slightly used European handbags/cars
> with cash.

I wonder if any of the Junior League SF gals that bought $9K Hermes Birkin Bags (many JLSF gals have more than one) with cash from HELOCs will try and sell to save their homes from foreclosure?

http://tinyurl.com/f2qx8

Again, one should not trust me on economics. Randy is the expert.

**Disclaimer: Randy is not an expert, just well researched and opinionated. Always consult a licensed expert before you make a financial decision.

"**Disclaimer: Randy is not an expert, just well researched and opinionated. Always consult a licensed expert before you make a financial decision."

Egad! Licensed economists? Next thing I know, we're going to have a philosophers' strike on our hands.

In the spirit of really OTness, I bring you a link to eBay's guide to buying Hermes bags.

http://tinyurl.com/enleb

I like Hermes perfumes. But paying more than $1,000 for a bag seems pretty insane. I guess the secret is to get a sugardaddy to buy that stuff for you a la Carrie Bradshaw.

Not that I'd pay more than $250 for a bag. For my purposes, a man-purse is much more practical.

http://www.fatiguesarmynavy.com/store/item/FA1955

Apologies to all for going really really OT.

My crystal ball says property taxes will no longer be deductable off your federal income tax. They will be tax credits! You will get dollar for dollar off your federal tax bill for property taxes paid. This will effectively transfer the cost of local government to the federal budget which is perfect since they have the printing press. The result will be a reduction in the cost of owning; thereby putting a floor under housing prices.

"They will be tax credits!"

I sure hope you're kidding. This is ALL we need right now. Plunge Protection Team Damage Control to the rescue!

If anything the pendelum is swinging the other way. You mean to tell me we don't subsidize home ownership enough already? If this is what we're counting on to prop up the RE market we're all screwed.

Conor,

Please count yourself (along with the only guy studying for CFA) among this "esteemed" crowd! I actually value ALL of the posters here opinions. Or I wouldn't be here.

When you work at home this is the closest thing you have to a "water cooler".