patrick.net

“housing in California ONLY goes up”

I think when people make comments like that it's purely out of desperation. They've spent more than they can afford, and if it doesn't go up, they're screwed. So they keep saying ridiculous things like that to make themselves feel better.

What's even funnier about the article in the Sac Bee is the guy seems to think Rocklin is an upscale neighborhood that can't go down. Give me a break. If there is any area around here that is defined by the massive number of tract housing developments it has it's Rocklin. Rocklin also has more apartment complexes than I have ever seen. It amazes me that a house in Rocklin could go for $750,000 and people are thinking the market isn't going to go down. Utterly ridiculous.

Saw a particularly apt post from "'Collective Amnesia' And Real Estate Cycles" on Ben's site:

"...prior downturns actually reinforce current bullishness, because they have been followed by new higher highs in prices. They will convince themselves that if they just ride out the downturn, the next upturn will surely bail them out.

I want to read, "Real Estate isn't coming back this time" as a headline in Time Magazine.

He's basically predicting successive waves of selling in the crash by different groups that participated in the bull market run-up, as each group reaches its own "tipping point":

1. flippers/speculators
2. overstretched new owners
3. long time holders cashing in gains before they totally disappear
4. divorcees and unemployed
5. diehard bulls will sell right at the bottom (followed by "Real Estate isn't coming back this time" headline in Time magazine)

Does this ring true to you?

In talking to him yesterday I had to suppress my shock in learning that the annual interest on his mortgage is over $300,000.

:shock:

"The big question in a lot of people’s mind hinges around whether we get more inflation or deflation going forward. What happens to asset prices depends largely on that. Inflation can keep asset prices up even as the economy goes down the tubes. Deflation would mean a sharp fall in asset prices. So far we’ve been having a combination of the two, with inflation in the cost of things people need (fuel, food) and deflation in the cost of things people want (imported toys and gadgets).

The current Fed seems determined to keep the status quo going at the expense of the country’s long term health, as the manufacturing sector shrinks and debt burdens rise. How long they can get away with this is beyond my knowledge. Greenspan’s successor might come in next year and restore some discipline to the banking sector, or he may just keep propping the markets up until they finally crumble under their own weight (as did the tech bubble). My guess is that he’ll keep inflating for many years more, keeping asset values up, even as living standards decline, because that is the path of least resistance."

Indeed. I would also add overpriced "investment" housing to the list of non-essential things people "want", which will soon be experiencing deflation. As Peter often says, "inflation is no longer a single variable". You can have a condition of rising costs for "things people need" (fuel, food, healthcare, etc.), declining costs for non-essential goods (RE, imported gadgets, etc.) and stagnant or falling real wages.

In a word: Stagflation.

."..but you dont want to be a victim of “need-based predicting” either, right?...My guess is that “perception of too-high prices” will not stop someone from finding out that they can get a shorter commute (or any other intangible) for the same money– for very long. "

Yeah--good point Jack! Since we don't actually need a new place, there's no overwhelming pressure to conform my thought process to my desires. I'm not wishing "doom on Marin", but rather contrasting the attitudes I've experienced with a hopefully objective (albeit outsider's) take on life here. Since Marin strkes me as somewhat provincial, I'll venture to say an outsider's perspective could be more accurate than the local consensus--at least in guessing how a homebuyer from the outside may view Marin RE.

Marin seems to have an identity unto itself, and understandably: long-term residents have a strong, heartfelt connection to this place (as I do for Seattle). Needs-based expectation can go both ways, you know. ;) That said, and since we're often discussing the "intangibles" of Marin, I thought I'd summarize the pros/cons of this place.

I realize this is a bit of a tangent, but perhaps it can serve as a gauge for "intangibles" in other areas. And, to the degree this offends, take it "tongue in cheek" ;)

Pros
•Fresh air, nice scenery, wildlife, water + mountain views
•Great recreational opportunities (for above reasons)
•Quaint, peaceful setting (mostly), much like some other outlying urban towns w/character
•Decent schools for the most part (some just ok scores)
•Culture: some art galleries, Marin Symphony, a few playhouses
•Some nice restaurants (but really no more than anywhere else)
•Crime rate fairly low. Yet, about the same as Cupertino, Sunnyvale, Los Altos, etc.
•Well, it's Marin! (this "intangible" I just don't get) ;)

Cons. Huh...in Marin?
•Houses in Marin aren't that spectacular for their price, even judged by the rest of the BA. Quite a few in fact where built for the so-called "working class"; they're old, small and unremarkable. Presently, there's a lot of dumpy, poorly maintained little homes being sold for close to $1M. Only a small percentage of home I'd call "distinctive," unless we're talking about ueMoney buys less here presently than other BA towns.
•Infrastructure: the roads here a in pretty poor shape, there's too many overhead lines for my liking, traffic is really bad in certain areas (much worse than the peninsula).
•appearance: Despite some "charm", a lot of areas look downright seedy/shoddy. Whether I'm in Sausalito, Mill Valley, San Anselmo, or San Rafael--some areas look unclean, unkempt, ready to crumble.
Don't get me started about Ross. Sure, there's some big homes, but it's just a small town--with little else to offer: I don't see the reason for prices here. Laughable place--I much prefer your town of Fairfax!
•culture/lack of culture: I'm ambivalent here. There's a few things to do in Marin, but there's actually much, much, much more to do in Berkeley or SF. Art, music, whatever.
•prices/selection: Groceries and gas are expensive in Marin--and for no discernable reason. As an example of selection, we're hard pressed to find any good home furnishings here; we have to travel to Berkeley or SF for that. If the incomes are so high here, it's certainly not reflected by convenience.

I sense this is spinning off into a rant, so I'll stop.
Jack, to soften the inpact of above, I'll say this: I still love Marin (but mostly because we have the good fortune to own a place, in a lovely spot)

Since then, it’s been in and out of escrow three times and is listed at $950,000 to $975,000

Can someone explain this sentence to me…

Someone made an offer, got accepted, went into contract, but the transaction fell through, the house was relisted at a new price... repeat these three times.

Usually, a transaction falls through because some of the contingencies are not satified. One common example is failure to secure financing because the house does not appraise.

Yes, it "helps" people engage in bidding wars, like if they still exist in SD at all!

Soon enough...

“They need to buy. We have an extraordinary inventory, excellent interest rates, 60% lower prices than just a few years ago. What are they waiting for?”

In talking to him yesterday I had to suppress my shock in learning that the annual interest on his mortgage is over $300,000.

Holy ____! What's the principal on that--$20M+?

Yes, that $300k/year annual interest is hard to believe on a government salary.

Don't worry. One can pay his mortgage by taking out a home-equity loan.

Holy ____! What’s the principal on that–$20M+?

If he pays 6% interest, the principal would be 5M.

If he pays 4% interest, the principal would be 7.5M

Ouch! 50K to 100K of property tax a year!

I'd like to know what kind of "government job" pays enough to buy a $5-7 million house?? The President of the United States only earns $400,000 a year in salary.

I’d like to know what kind of “government job” pays enough to buy a $5-7 million house??

Above or below table?

I am very aware that on this blog, I am perceived as a homeowner who doesnt want his home’s price to slip, and who is all “rah-rah” for Marin County intangibles, and therefore in total denial and unable to see the obvious.

No, you are actually very objective even without considering the fact that you are a homeowner.

“need based predictions can work both ways”…

This is why we need faith-based predictions. ;)

Re: “need based predictions can work both ways”…(implying that I have a need to see the price of my property hold up?…..and dont worry, I’m just arguing because I enjoy the back and forth too much, no big deal!)

Jack, no--I was not directing my rant at you (and rant it was). I'm only suggesting that some investor optimism I heard in Marin strikes me as a need for the market to go up--versus the alternative. Ok, so I picked apart Marin, but it was only to get at the heart of those "intangibles"; I could roast Palo Alto just as easily.

"Cycles": I think both you and I agree the RE inflation since '98 is vastly different than previous booms. Hell, take Marin's growth data for 20 years previous to the bubble, and extrapolate to today, the difference is huge. So, it's an unprecedented boom; what follows is hard to predict.

Jack, I apologize if I sound dismissive; I'm not trying to pidgeon-hole you. Like you, the reason I'm striving to make a point here is based on previous experience too. Up north, my family lived in this somewhat chi-chi waterfront country club, exclusive, "prime," bla, bla, bla.. (Tiburon here is the closest analogy).
Life was good, until the bottom fell out of Boeing, and droves lost their jobs, plummeting proprety values. That's a little bit of where I'm coming from, hence my angle on the current scene.

MarinaPrime, San Francisco median prices dropped from 776K in July-05 to 745K in Aug-05.

BTW, do you want to have sushi this weekend? Seriously. Jack needs to go to Hayweird.

From July-04 to July-05, SF (not just BA) median went from 650K to 668K. Oops, there was a sizable increase from July to Aug last year.

There is a decrease this year from July to August. The market is turning in San Francisco?

Sub-prime locations are registering huge growth. Should I change my name to "San Jose Sub-Prime"?

Then, I’d just drive the mofo around, and as prices only go up for
ever and ever, I figure with gas prices and housing insanity colliding I
should be able to refi my bubblemobile at the gas station everytime I fill
er up, using the cash out to buy the gas. I can just drive this damn thing around the earth FOREVER!

Amoney, LMAO...that's a perputual money machine.

Jack, Kurt, interested in lunch this Saturday?

Jack, Kurt, interested in lunch this Saturday?

Yeah, that would be cool to hang w/you guys--time/place?

All your points are worthy of much consideration, and I often read your posts twice. Even Monty Python.
Hey, thanks...yeah--and your posts keep me from straying too far into "the bear pit"

I can't top Monty Python; perhaps I should simply quote them from now on?

Yeah, that would be cool to hang w/you guys–time/place?

I am planning to go to Marin county this Saturday to look around and take some pictures. I know nothing about the place but I guess we can meet in one of the restaurants you guys recommended. :)

(My wife is going to a cruise so I will be alone. :( )

That leaves me a rather small window. Besides really FULL by dinner! Perhaps meeting up for coffee or something might be easier for me on this particular weekend.

That's sounds good to me. Kurt, what do you think?

If you make it around 1:30, I could hang out for awhile at least. We should meet somewhere central, unless you guys want to meet in Fairfax WAY out here!

That's fine with me. Or San Rafael?

Sushi or Thai are both fine to me.

Jack, Kurt, if you both agree, I will send you the e-mail address of the other person.

Let’s move to e-mail so MP cannot figure out where we meet. Just in case he decides to troll restaurants as well. :)

That leaves me a rather small window. Besides really FULL by dinner! Perhaps meeting up for coffee or something might be easier for me on this particular weekend.

That’s sounds good to me. Kurt, what do you think?

I'll be around until 3 pm...one option would be Marin Brewing Co. (Larkspur), since it's close proximity to 101 (ok, close to me) I'm good for anywhere along SFD.

http://www.marinbrewing.com/

Two or three sushi bars on fourth street also… but Kurt likes Thai food….

I'm totally open to anything...except that Thai restaurant on 4th, Lisanne and I got something nasty there. Ok: email--kurtstory[at]yahoo[dot]com

It is only when I come to this site, I see a lot of comments on house prices going down

SK,
I think what I've noticed sofar here (and a few others elsewhere) is increased inventory, and lagging sales, which could be a precursor to falling prices. Just a guess.

Decreasing sales, increasing inventory, unstable market.

Wow, no kidding! I'm surprised a realtor publishes these figures.
I suppose the increasing inventory I've seen isn't a "local anomaly".

Look at this:
http://tinyurl.com/a5hw6

That market looks quite unstable - what’s next? Will houses for sale decrease as the owners take them off the market, or even higher as more folks try to sell before it’s too late?

@BubbleSitter,

Leading/Lagging indicators of a bubble bust was actually the subject of a previous thread (“I See Debt People” July 12th, 2005 : patrick.net/wp/index.php?paged=5). Most of us were in general agreement that rising unsold inventory and time-to-sell are both leading indicators preceding busts in previous RE cycles.

Houses take longer to sell as the pool of potential buyers who can afford the payments (even with NAAVLPs) dries up. Smart speculators, sensing a shift in the market psychology gradually move to the sidelines, and so inventory slowly but steadily builds.

Crazy loans: Is this how the boom ends?
Lenders are pushing risky loans with low payments. Desperate home buyers snap them up. Worried yet?
MONEY Magazine: tinyurl.com/7tze2

At greatest risk, says David Lereah, chief economist with the National Association of Realtors, are markets where a majority of buyers are opting for nontraditional loans.

"There will be cases where lenders and borrowers will be caught with their financial pants down," he says.

Wow. :shock:
Did David Lereah, chief pimp for the NAR, just say something truthful, or have I fallen into an alternate Universe? Hmmm... default risk must now be so obvious that even the NAR feels the need to start its CYA campaign.

But like I said, not even my dog listens to me.

My cats do not listen to me either, they still want me to buy them a cat condo. :)

Some strange shit going down today.
First, Bush makes a speech promising massive LBJ-style federal spending programs to help poor hurricane victims, now David Lereah telling the truth. What's next??

Tomorrow's headlines(?):

Victory Declared in the War on Terror - Osama says "my bad" and turns self/comrades in to U.S. Military

Cats and Dogs Living Together

He's definitely a conservative when it comes to the culture war/family values thing, but as you say, not on spending. Hence the term, "Big-Government Conservative".

Personal disclaimer:
I'm a registered independent. I don't care for PC, knee-jerk neo-liberalism any more than I care for stingy, militaristic neo-conservatism.

"stingy, militaristic neo-conservatism."

Awwwwwww.

_hangs head and starts to walk away_

_kicks cat_

_walks a bit futher_

_kicks a poor person_

_walks a bit further_

_kicks a defenseless puppy_

_walks a bit further_

_starts a preemptive unilateral war_

_walks a bit further_

_holds side while cackling with Karl Rove, exposing razor sharp yellow teeth_

Cheers,
prat