patrick.net

@Aaron Erimez,

Your Photoshop & animation skills humble me. And welcome to the blog!

Anyone else notice the following in DQ's report. Emphasis mine.

Adjusted for inflation, mortgage payments are 14 percent higher than they were at the peak of the prior cycle fourteen years ago.

It's interesting that they are comparing this to the peak of previous cycle. Isn't that admitting that this is indeed a peak (and not a flat plateau) ? This is their strongest admission so far.

Maybe I am reading too much between the lines. But it's impossible that DQ does not understand what's going on. So this must have been a slip they did not intend to make.

Adjusted for inflation, mortgage payments are 14 percent higher than they were at the peak of the prior cycle fourteen years ago.

hmm. I've seen an analysis that shows that people are hurting more today with repayments relative to wages, due to exorbitant prices, than in the 18% interest days in the 1980s. That was about 20 years ago.

Entertaining Thread today! Thanks for the post Senor Harm much appreciated.. The David LeReah spoof very cheeky! I miss Cali especially with the holidays approaching..

@Ha Ha,

The spelling and grammar are par for realtors (TM): crappy!

Hey folks, this is your last chance !

http://tinyurl.com/yjpdvf

On ZipRealty, the description reads
Last chance! Huge price reduction! Must see to believe. Granite counters, real hardwood floors, marble entryways, tavertine tile bathrooms, 3 fireplaces, stainless steel appliances, french doors & much more.

DOM : 70 (!)
Price Reduced: 11/08/06 -- $989,000 to $959,000
Price Reduced: 11/10/06 -- $959,000 to $898,000

Last Chance ? To do what ??

This is clearly a remodelled house. Most likely puchased to flip. Last sale according to Zillow was in 6/2005 for 675K.

Price reduction of 100K in Cupertino. I thought Cupertino was the differentestest of the differentest BA.

Anyway. I will wait for the lastest of the last chances.

Flipper Nation - the Show

Am I the last one to hear about this? Cited on Casey Serin's blog, but he though it was legit! omg...

I'd just like to take this opportunity to declare Craigslist........ officially dead!

Obviously none of us can check each market every day but really, what's the point. There's this insane practice on the part of sellers to attempt to re-direct traffic back to their listing by tweaking or retooling the ad (however slightly) to once again expose you to their STILL overpriced POS!

Dude, you've posted your power line infested, zip privacy, quicker fixer upper for the last 11 months with the EXACT same pictures. I didn't want to buy it then and I DAMN sure don't want to buy it now! Yet again you've "tricked" me into clicking on your "steaming pile" and in essence stolen my time! Congratulations all delusional C/L posters!

"They're still waiting for Santa to deliver their asking price"

Who says Indians are without humor!

King_Cobra

I did not sell to time the market. I sold because we had to move for real-world reasons. My decision was to *not buy* until prices correct. I believe DinOR also had pragmatic reasons for selling.

I would not advise anyone to sell their primary home merely as a market speculation. But if you have to move anyway, then you should wait before buying again.

As to the stock-market versus home-as-investment: it all depends upon how you measure risk. Houses tend to be uncorrelated to stock prices, so in that regard they are "safe". But, stocks and bonds allow you to diversify, which makes them much less risky than putting all your family wealth into a leveraged McMansion off of 680.

King_Cobra,

That's one way of looking at it. I don't want to speak for Randy H but "timing the market" is what I do for a living and I haven't advocated anyone that likes their home AND can afford it bail out.

Realt-whores are fond of telling buyers "the seller pays the commission". Pffft you know....... just whatever. I paid 130K (early 90's) and sold for around 300K. I suppose had I sold it on my own I could have pocketed more but our "arrangement" was if he could sell it in the first 30 days he would get 6%, the next 30, 5%, then it bottomed out at 3.5% if memory serves.

I WAS downsizing. No question. As I'm self employed (I believe Randy H is as well) I haven't had any hole created by a lack of MID (mort. int. ded.) I couldn't fill through schedule C (profit/loss from bus.) I realize I'm not everybody but it has more than paid off for me. I'll actually expand that to include "Yes, even if I DID have to pay cap gains!"

The reason a lot of stock investors got their fanny handed to them in lunch sack in 2000/2001 is b/c they didn't want to cap gains! So rather than pay taxes and cut off a finger to save the hand they rode it all the way down. In a way I can see that. If your 250K became 750K that's a lot to eat in one filing year. So there were...... legitimate reasons.

Home sellers that are still waiting for Santa (and would have ZERO to pay in cap gains) don't have a f@cking excuse in the world! Buck up KC, nobody thinks renting is all THAT great but look at the alternative. Riding the razor clad bannister? No thanks, I'll be enjoying the holidays in rented "hovel".

King_Cobra, Randy H,

That's not e n t i r e l y true. I should have said "up until now" I've been able to fill the hole w/sched. C"! (Negotiating w/eldest daughter to claim as dep.) Hey! Every bit helps!

For me to buy this late in the year would provide very little if any MID anyway and I loath to say this but it might be a year where filing an extension (or starting a new "consulting service") may make sense.

Even maxing out your SEP/IRA only goes so far. Currently contemplating going "Solo (k)" but not quite 50 for the catch up clause. Folks it's a tightrope, no question. But given a choice to do this tap dance or trying to shell out incentives like I'll pay your first years taxes or throw in a Ford Excessive? I'll tap dance thank you.

King_Cobra,

You make some valid observations, especially point #1 about selling your primary home. If you (as Randy likes to say) derive more utility from your primary residence than you would derive from the profit you make (after high transaction costs), then why move? Houses you've bought to flip on margin are an entirely different story, however, and that's what's been really driving the market these past few years.

Transaction costs in the U.S. are extremely high because the RE market --unlike stocks & bonds-- is highly illiquid, inefficient and about as transparent as mud. Whereas 1-2% realtor commissions may be the standard in Europe, Oz & elsewhere, for some reason Realtors here feel entitled to 6%, often for little more than taking a few snapshots, listing the house in the MLS and installing a lockbox.

One of these days (possibly soon) the public may weary of the NAR/MLS cartel and decide to demand Congress do something about it. As in travel industry-style deregulation. Of course the REIC is a powerful political force, and they will not give up this monopoly easily. As the great unravelling unfolds, we shall see...

2. First time buyer’s or renters should wait now unless they get a compelling deal. I think price will come down in the next 2 years and I think 2007 will be great time to buy. We might see an increase in price in 2008 as FED will control the outcome by interest rate decrease.

2007 sounds a tad premature to me. As we've discussed here before, previous cycles have tended to show a rough 0.6 ratio in terms of bull market years : bear market years. In other words, if you figure the current boom started in 1997 and ended in 2005 (8 bull market years), you could expect a bear market of approx. 5 years, or ending around 2010. This also makes sense when you consider that two huge waves of option-ARM resets are going to occur in 2007 & 2008 ($1 Trillion in each of those years). Add to this considerable lag time between these people defaulting and the lender actually repossessing the house, and it's pretty obvious that we won't see a bottom for at least a few years.

3. If somebody is comfortable with the payments and plans to stay in the house for 8-10 years or more, he/she can buy anytime. Time factor will eliminate any near term loss. And moreover we pay for convenience everywhere. It’s more convenient to own than rent most of the time.

Again, this is largely a function of Randy's famous "personal utility derived from owning" variable. Personally, I can't see why anyone cannot just rent and wait for lower (real & nominal) prices, plus all the savings you'll reap in lower mortgage interest, property tax, insurance and transaction costs. Does anyone really "need" to buy right now? In my neighborhood (suburb of L.A. County), there are plenty of nice, big detached SFR houses to rent, most for about 40-50% of the monthly carrying costs of "owning", and none of the risk.

4. I don’t care much about affordability much. If you look at world real estate in big cities you will realize that. I just care how many people have money to buy at this price range. If more people have money there will always be a demand.

Big/desirable cities with low unemployment and high job growth (S.F., L.A., NYC, Miami, etc.) will *always* demand a certain premium over rural and not-so-desirable areas. However, this doesn't mean that no price is ever too high to live there, or that prices cannot correct because "everyone wants to live in ______".

California's long-term affordability averages have always been well below that of the rest of the country. Whereas the long-term median price-to-HH income ratio might be 3:1 in "flyover country", here in CA, it's probably closer to 5:1. Rents are also persistently higher in CA by a similar margin, which indicates that (a portion of) higher prices is *not* speculative in nature, but a true "destination" premium. The problem now is, prices are so far out of line with rents & incomes (the underlying fundamentals), the CA price-income ratio today is closer to 11:1, and rents cannot cover more than 50% of carrying costs (using a conventional mortgage).

When the fundamentals are this far out of whack, prices will eventually revert to the mean, either by general inflation, or by nominal price drops, or (likely) both. Either way, a house purchased today or recently is sure to lose substantial real value.

HARM,

Good points, especially the "about as transparent as mud" observation!

I'd further say that a holding period of 8-10 years would be bucking just about any established trend in the country right now. In Iowa..... maybe. Right now everyone is so fascinated w/trading up, trading down and trading for the sake of trading I'm doubting that number has much meaning these days. Considering kids, school, job transfer/change?

Besides (and I know this going to grind some people) any time a client buys a stock of their own accord and it completely tanks that's never an issue. Now the stock you put them in that's down 2 1/2%! Oh, that's a big deal! With mental accounting the buyers tell themselves "It's not that big a deal, I bought this Long Term!" Really?

Knife catchers that buckle and give in will justify it in their own mind by saying, "Yeah, comps may be falling all around me but long term this will be good for me". By the time those fencesitters.......yada yada.....

I should also mention that part of CA's persistently higher price-income ration is also a function of the NIMBYism and illegal immigration, as much as a "sunshine"/destination premium.

40 years ago (before UBLs, Prop. 13, anti-development zealots, NURBs/TODLers, MEChA, Aztlan, etc.), the price-income ratio here was about equal with the rest of the country --about 3:1. Explosive population growth among illegals has increased real housing demand, while virulently anti-market forces have artifically constricted supply. Hence, we have arrived at a long-term price-income ratio closer to 5:1.

unless there is a 20 years of decline like Japan people’s psychology will not change. They will still regard real estate as one of the safest investment over time.

I doubt a decline of that extreme duration (or even close) is necessary to change seller/buyer mass psychology. I already sense a lot of fear out there and read about it daily in the MSM (drop by Ben's blog or check out Patrick's daily news links). And prices have only been dropping modestly for a few months. Imagine what the psychology will be like in a couple of years, after a few big waves of option-ARM resets and foreclosures?

King_Cobra,

I actually sold "early" and closed on the last day of 2003 (after having been there for 10 years). What a lot of people fail to realize about Oregon is that much of our "run up" started in the mid-late 90's. Most of our "appreciation" came before the "time of madness" (2004-2005). According to zillow it's continued to appreciate! (What on zillow hasn't?) Hmm? I could go on a lengthy tirade but everyone's heard that before. Suffice it to say my former neighbors have not made maint. a big priority.

Zillow aside, when I look at comps in the area the new owner "might" be able to sell and net out 25-50K more than I did. If it's gone up at all it's been more from MEW based appraisals. As we are now learning borrowing money is real easy, selling for what you now owe isn't. That kind of money just isn't worth being stuck holding the bag. Not at all.

Who was it that said "I made all my money by selling early"? Look, the only guys that buy at the exact bottom and sell at the exact top are referred to as.........liars. Besides, whenever we've bought in the past it was b/c my family had always been homeowners. I did like you say, out of tradition without really thinking. Someday I'll buy again. When the price is right, I'm a bottom feeder, not a momentum player.

SFWoman,

That's a real good question. Niece is realtor? Nephew? Some people just feel the need to "get over on the system"? Were any of the transactions done........ within a 2 year period? No, who in their right mind would do that?

My guess? Probably major grease in a riskless transaction that affords more...... grease for everyone involved? Fricken people.

King_Cobra,

Sorry to hear that. What did you think of their....... what was it? Beaverton in the Round? I actually commuted to downtown from a far flung hamlet called Marquam*. What most Oregonians RAVE about when they're salivating over "appreciation" is either the Pearl District, Bend or the coast. All of which now have some major "re-trenching" to do price-wise.

*Site of the first Clackamas County Fair. Bet'cha didn't know that Mr. Fancy Pants Beavertonite! (Just kidding). Like Bend, poverty w/ a view.

Personally, I can’t see why anyone cannot just rent and wait [...] Does anyone really “need” to buy right now?

Wheel chair access. Seeing my mother has fallen again tends to drive up ownership utility pretty fast. Although you are right, there are alternatives to even that. We're looking at finding her something very nearby which is partially-disabled-friendly. But it's still suboptimal. This is why we will buy _before_ absolute bottom, and feel very good about it, irrespective of whether I'm called a sheep or not.

@King_Cobra:

I'm renting in Mill Valley, and we're looking to move north to get out of the fog. I'm tired of having a near-miss head-on collision every morning leaving my house on these blind-curve .75lane streets, anyway.

Randy H,

We have those kind of roads all over OR! (They're called "a lane and half!) It really requires cooperative driving techniques and both parties full attention.

SFWoman,

As I understand it (in CA) people are still liable for an equity line, even if the house is repossed and sold for less. The first mortgage, however, they are able to walk away from and the bank can't go after them for any difference between mortgage and selling price. Help me out here, if anyone knows better.

That could be why someone is selling from one person in the family to another and then back again - or maybe I am too suspicious and paranoid - sounds like dodgy dealings anyway - either mortgage fraud (or close to it) or tax dodging?

@Patch Tuesday,

I'm getting "You are not authorized to view this page" errors for those links you posted. Is there an alternate site you can upload them to?

HARM,

Any time someone even "suggests" lower int. rates re-igniting speculative fervor I get so flustered I can't even speak. I have to hand it to you keeping your composure like that. It is so........ begging the issue.

thanks for that extremely long post earlier, Ha Ha. I forwarded it on to a mate who's a professor of political economy at syd u, the content of the article on all topics is exactly the sort of thing he writes and lectures about...

you may make obscene and incalculable amounts of money but you have a heart of gold...

sydney university has just 'won' a $50m 'US Studies Centre' contract, which is located just around the corner from me. not sure what that really means, is it a signal for an even bigger influx of exchange students for landlords in the area to gouge for rent? interestingly, it's being funded by Lowy of Westfield (owns all US shopping centres) and Murdoch of News Corp (owns all US papers, TV and radio stations). or at least it seems like it. they've asked me to be the founding professor...

Sydney University wins bid for US centre

@DinOR,

I know what you mean, but I've --as they say-- "been at this a while". Over the last 18 months or so, I've learned not to assume that everyone else out there knows what we (who have been carefully dissecting this mess for months/years) know. They don't, and the non-trolls, who are willing to listen, require our patience.

Randy H,

Sorry to hear about your mom. Seems like we'll be in a similar situation sooner than we think. We had looked (not all that seriously) at a few condos in LV and Mrs. DinOR is keen to remind me not to "waste time" looking at anything that isn't on ground level. Kind of drag. What's better than being in Vegas and looking out over the pool from your balcony! Oh well.

@Randy H,

Ditto to what DinOR said. I agree that sometimes it's difficult to find an *exact* rental substitute for your needs in any market, especially given your mom's situation.

I'm also not expecting to time the absolute market bottom. "Close enough" is good enough for me. As DinOR says, anyone who can consistently do that is a liar. Even Buffett says he made his billions by buying & selling "too early".

HARM,

As always, good point. Just in passing, bubble watching isn't just some perverse thrill for me. Well in ways it is, but imagine having today's technology to monitor the events leading up to the Crash of 29. Knowing all of the events that are about to unfold just not having the exact date!

Who among us could resist watching that?

I've often heard of attempting to over analyze the timing of the market as "getting too cute".

Damn it, if you think the cops are on their way do you really need to stick around to prove your point?

King_Cobra,

Petaluma? No. We're trying to stay south of the "Wall of Traffic". I have some friends who bought a virtual estate in Novato, but he is already complaining about the traffic into SF every day. The other day I heard on the radio the trip from Rowland to the bridge was nearly 90 minutes. My trip to the bridge is 8 minutes.

Maybe if the Larkspur Ferry schedule didn't suck so bad.

@dryfly - so can you view those images? Odd, but for some reason I can't.

So far, we've had parodies with images of D.L., LAY, Gary "Bagman" Watts, Bendover Ben, Greedspin, Senor Cardgage, an alligator and even a crackhead. But so far, not one with Casey Serin. What gives?

He's got youtube videos of himself whining up, so it takes all the fun out of it.

Randy,

If you can view/download those 'Patch Tuesday' images, could you email them to me? Thanks.