patrick.net

The world’s worst mortgage: An interest-only, payment skipping/minimum-payment-option-enabled, negatively amortizing, no-money-down, no documentation, prepayment-penalizing, 3-month LIBOR 40-year adjustable-rate mortgage with a balloon.

No, this is the world's best mortgage! Imagine the possibilities!

Buy a house - any house - with zero down, then make no mortgage payments whatsoever!

The loan balance keeps increasing, but what do you care? Your children will pay it off someday, or you just file for bankruptcy.
Income limits on bankruptcy? No problem, dude! You can stop working and live a leisurely life of luxury off the ever-increasing equity. And the taxable income is $0! Woo hoo!

Now the only cash flow limiting factor is the property tax.
Quick, let's organize a grass-roots movement to abolish property taxes and replace them with a renter tax. Renters are stoopid anyway.

We can inflate the housing bubble forever! $10 million $hitboxes! Yay!

What a country!

Kurt,

If this is a sensitive topic for you right now, I completely understand, but was your job related to housing in some way? Just curious.

Girgl,

I'm sure Bull$hitter's is in 100% agreement with you!

HARM writes:
I’m sure Bull$hitter’s is in 100% agreement with you!

That would be so cool! Bull$hitter is my personal hero now.

LABubblehead Says:

Thanks for the great insights!

Argh. Should have been:

LABubblehead Says:
[excellent analysis about why lack of liquidity drives prices down]

Thanks for the great insights!

Jealous owneroccupier reporting latest drops in listing price here again.

95033 zip code, not even after a week, some more reductions, seemingly the landlords are getting benovolent.

Treehouse Way, 559,900 pending for a while, no longer pending, coming out at the same price

Southview Ave, originally 700K+, reduced to 659K, now 648K. IMHO, this one won't sell until at around 550K for 2005, perhaps the owner is shooting for more reductions in 2006.

Ida Drive, came out at 749K, reduced to 729K, latest reduction 695K. Claiming pricing 60K under appraisal, I'd like that appraisor for my home.

Vina Dr, 699K reduced to 689K

Skyline Road, 1,688,000 reduced to 1,488,000

If this is a sensitive topic for you right now, I completely understand, but was your job related to housing in some way? Just curious.

Nope...my group was textbook publishing, but I think the corporation has a business RE division, so perhaps they're feeling something already >:) (twisted smiley, I don't have the emoticon list)

I will schedule you in for espressos at the Fairfax coffee shop on Tuesday and Thursday mornings EVERY week!

Jack, thanks man! It sure will be good to have that dust settle, and the time to knock back an espresso! :)

KurtS,
sorry to hear. Must be hard for you, after 11 years...
But hey, it may turn out to be a great opportunity to start something new!

B.S.'er, I was thinking of making a post similar to yours (but not as obnoxious) since I began lurking here. Because, some of the regulars on here sure sound like they are bitter.

I agree with them about the valuation, the debt load, and the bubble. But I also agree with you that some of the posts here read too much like bitching and whining because for whatever reason, they were left behind or feel like they were left behind.

Borrowing money to buy a home in San Jose is no picnic and it was a major stressor. For instance, the market value of my 1989 purchase was below what I paid for about seven years, preventing me from taking risks like a career change, and making the idea of selling the house to trade up impractical. Making the extra principal payments to keep the loan balance above water during those seven years of famine was a sacrifice in the quality of life.

So the renters should not be so jealous. Instead, the oughta enjoy the freedom they have.

That said, the owner/borrowers should not be obnoxious and arrogant (like your posts). We all know that a lot of those owners are heavily indebted, essentially slaves of their possessions (and of the district cost of funds base rate).

matt_walsh writes:
* decent rentals in decent neighborhoods with ‘issues’ start at $2500 (i.e., near a highway, near a bario, etc.)

I'm sure you've considered that, but if you're willing to drive a bit more, you can get a decent place in a decent San Jose neighbourhood for about that amount.

* rentals that what I really want are like $3000

I've found that many landlords are willing to drop their asking rent in exchange for a decent tenant. Good tenants with stable income are not all that abundant.

* my tax-adjusted monthly outlay is $3100
* my main risk is opportunity cost on the downpayment, or the congressional tax deduction reduction

Add to that your loss of freedom if housing prices actually go down.
You'll have a choice of keeping the house even if you can't live there anymore for whatever reason and dealing with whatever the cash flow difference is, or writing a check at closing time.
Not a good place to be.

Can I say again how much of a hoss Peter P is for calling the top in October? The stream of articles on the housing/bubble.html page is getting fun to read.

Much better track record than 50%-correction-by-August-no!-January prat.

Go Bears,
prat

Hey Kurt S, I'm really sorry to hear about the job situation. But I'm glad at least that it's a good severance package.

@mw:

* decent rentals in decent neighborhoods with ‘issues’ start at $2500 (i.e., near a highway, near a bario, etc.)

I'm in a two bedroom condo right across from Stanford and I'm paying quite a bit less than that. You could get a three bedroom + office here for that amount. From what I saw a few months ago, 2 bedroom houses in Menlo were at around $2500 and 3 bedrooms were $2700.

_shrug_

Cheers,
prat

Landlords will easily drop 200 a month on a $1,800 monthly rent for good tenant. I know that for fact. My sister had her husband are both high-earning professionals who chose to stay out the bubble for the last few years. Once they show their bank account balance and their paycheck, the landlord offered to take a couple hundred off because good tenants are really hard to come by.

A lot of landlords bought their homes back in 1970, 1980, so their cost base is really low. Taking a few hundred off the rent is no big deal since their home is already paid off.

When you see an advertised $3,000 rent for a $1M home, you know this comes from a recent home owner (or indebtor, more precisely) who desperately needs rental income to cover his cashflow. So walk away, let him enjoy his home a bit longer.

KurtS,

Since you have a great deal of experience in publishing and extensive knowledge of the housing bubble (thanks in part to this blog, I hope), have you thought of writing a book about it? If you've ever had a desire to take some time off to write a book, this could be your opportunity.

KurtS, sorry to hear about the downsizing. However, great career moves are usually made during abrupt changes.

http://www.crimsonbee.com/house_graphs/sf_house_prices.html

This is an excellent article all potential home buyers should read. It confirms what I believe, it is going to be a long, painful process on the way down, and don't be surprised we will be stuck like the Japanese for a decade or so.

Anyone who is thinking about buying a home at the bottom should plan to sit at the sideline for another 5 years or so.

KurtS, sorry to hear about your job loss....but don't worry, I'm sure you'll find another.....at least your not an RE agent or work in the housing industry.....you would most definitely have problems finding work if you were.....you can look for work anywhere, since you rent, you can easily move.....be glad you have the mobility..... I wonder how many in your department bought a house in the past few years. :(

As far as this Jealous, bitter, renters thread goes...........who gave a troll the power to create a thread? I'm sure there are a few jealous renters..., me not being one of them...but at the same time, there are probably more jealous owners (if you like to call them that) that are very worried about what is to become of them when the dust settles and the lights come back on. Us renters are waiting for the right moment to buy which is coming soon.....Many of the owners are enjoying their temperary ownership....others are already suffering and having to work 2 or 3 jobs to make ends meet while us (jealous) renters are enjoying saving our money without a worry in the world. As far as bitterness goes, I am very bitter about how these wannabe buyers went on a spending spree with AG's monopoly money to drive prices up so us would-be buyers couldn't reasonably buy a house, now we have to wait.....but that's ok because they will be darwinized and will not be able to bid against us the next round.

Yes, I might have to wait a few years to buy at a real price, but I don't mind the wait......seeing prices drop on houses makes me feel richer and richer every day...just like the owners felt when their houses (artificially) appreciated......but I'm not going to do what they did and eat my nest egg to keep up with the joneses.........the joneses will soon be filing chapter 13 bankruptcy and maybe I'll buy some of their toys for pennies on the dollar. :)

new thread : Desperate Sellers

you can look for work anywhere, since you rent, you can easily move…..be glad you have the mobility

Thanks Allah, everyone!
Actually, we don't rent--but that's ok; we can make do on 1 income for now.

And, like PeterP and others said--this is a change for the better.
Better to build yourself a career that no corporation can take away at a moment's notice.

However, if you go to a lender (a mortgage company, for example) and give him $10,000 (10% down on a 15-year note), he gives you $100,000 which you can use to purchase a home. Now you have something that you can improve the value of, by rennovating or remodelling, and resell for a profit. You are in control.

ScottC, you are living in another time......... the neighbors dog fido wouldn't give up his doghouse for $100k. You seem to completely ignore the fact that we are at the very beginning of a serious down cycle in housing! Buying right now is like buying stock at the peak before the crash! Your advice will be good in a few years, but not right now.

And really this is the thing. It’s all about money, whether you work for money or whether money works for you. You’re either on the outside track, the rat race, or the inside track, the ownership circle. You’re either running around, working for money and accumulating expenses, building no wealth, or you’re sitting back, making money work for you and gathering revenues, building wealth, building an estate, a real estate. In other words, you’re either paying for someone else to retain ownership or you are retaining ownership.

Another pep talk....you seem to be good at this....and you should be....your a realtor. ;) "Now is the time to buy".

Renting only makes sense in the short term, as a temporary strategy to reduce living expenses until you can save the capital to invest in ownership.

The only reason I am renting is because I know the big sale is coming soon! You can buy a plasma TV at best buy and if it goes on sale a few weeks later, they will credit you with the difference......with housing the difference is huge and you get no such credit....It's not fun watching that better house on the better side of town sell for tens of thousands less than you paid for your shitbox.

BTW, Scott....I have one question for you......Is it always a good time to buy?

ScottC lives in Texas and therefore probably doesn’t quite understand how wacked out the markets are in California and the East Coast.

Yes the coasts are worse,...but someone mentioned they live in Texas and there is a bubble there too. As far as I know, there is a bubble across the majority of the US....there are areas that are less bubbly in the middle, and in those areas the decline would be very moderate, but there will be some decline. Along the coasts, we're talking major bubble! ...and I'm sure all realtors including ScottC know that better than most of us.....Real estate is their business and it is their job to research this stuff.

Realtors saying not to worry as sales always slow down during the holiday season.

Realtors know it always goes up....even while it is going down!

Affordability is THAT low here and renting IS a bargain.

Right--you can rent the same home here for about 1/3 of your monthly fixed mortgage.
Who really wants to pay $900K for a small, old beater home?
As long as that's the case--there's no reason to buy.

I want to correct a major misconception noted above. Real estate is in no way analogous to stocks, so the dot.com bubble is in now way analogous to the current real estate bubble in certain markets. It is simply a false analogy that reflects nothing but a profound misunderstanding of real estate.

It is the psycology of the stock bubble that is analogous to real estate. What is worse about real estate is that while it is falling, you can't instantly sell it like stock unless you were to (absolute) auction it. In previous crashes the runup was no way near what we are seeing now because there was no funny money in the picture............so the psycology of it falling wasn't anywhere near what we will have this time. Noone wants to be underwater by $100k or more and in this RE environment, this situation is not unlikely......because of this, I believe the fall in prices will be much more quicker than any other time in history as many rush to the exit door like a stampede. Give non-creditworthy buyers access to hundreds of thousands of dollars and you have a serious crash in the making. Hell, I could have jumped in and got a decent house for $1M, but when the liquidity disappears, I would be bankrupt with all the rest of the suckers who drank from AG's fountain of money.

“And her husband is such a financial genius— he just got his mortgage brokers license.”

I sure hope he didn't quit his day job. :)

Imagine selling the same poison that makes yourself ill.

"They’ve already taken 2 second mortgages out on their home, for necessities like a boat, and surprise surprise, they’re feeling financially squeezed. "

Wow....see, now THIS is the thing that gets me. Geez Louise, does anyone get it? And silly me, I'm doing quite well living below my means but I am always looking to cut fat. Just yesterday I called Verizon to analyze my contract for possible cost savings. I LIKE to live without stress. Some folks seem to feed on it. But, hey, I guess I'm just goofy like that. LOL!

Kurt...so sorry about the news. Was there myself several years back...but wound up in a better place, being trained for a better job, was wooed back to the old job by former boss and was able to write my own ticket. As the saying goes (paraphrasing)....often when one door closes, another one opens. Good luck to you. :-D

BayQT~

necessities like a boat

Well..if it's a house boat, it could become a necessity after they lose their house.

Apparently not. They’ve already taken 2 second mortgages out on their home, for necessities like a boat, and surprise surprise, they’re feeling financially squeezed.

And her husband is such a financial genius— he just got his mortgage brokers license.

When someone is so convinced of the housing game, let him live in his dream :)

... for a while. His alarm clock will get him.

Realtors know it always goes up….even while it is going down!

Real estate never goes down --it just appreciates in a different direction.

Newsfreak --loved the "Don't be jealous" poem!

square feet in square miles.

try typing "100000 square feet in square miles" into google. Or follow this link: http://www.google.com/search?q=100000%20square%20feet%20in%20square%20miles

Try "9.54 dkk per liter in dollars per gallon". It's a pretty featureful tool.

I still say google is way undervalued. This is not an example of why, but I couldn't let it go unsaid. : )

I am wondering what do you guys thinking about buying a manufactured homes? it is in between renting and buying. dont you agree?

MeACuLpA, Actually my wife and I investigated this as a possibility ourselves a couple of years ago (when prices were already escalating beyond the reach of mere mortals & sane financing). We went to one of the biggest and (IMO) best quality manufacturers in Corona (about 40 miles SE of downtown LA).

Well, here's the deal... a *whole lot* of other Californians had gotten the exact same idea and were bidding the price up on these things as well (sound familiar?). Even so, the price of a comparable new 2-3BDM manufactured house was still significantly lower than a regular house.--around $100-150K at the time, as I recall.

However --and this was the kicker-- the cost of raw land to build on was the same as for any other type of home. When you buy residentially zoned land, you are in competition with every other homebuilder out there, and must pay the seller the current (inflated) market value. You must also pay city/county permits, inspection, easement & other fees (often 10s of $thousands) and thousands more to have water, sewage, electricity, grading, foundation, phone service, etc. extended to your property. Sometimes, depending upon how far out of town you are, this can cost more than the house itself.

If you "buy" a manufactured home in town in one of those planned communities, then permits/easements/utilities are not an issue, but you will also pay a very high premiuim for that. As in, "close to conventional home price" premium. Also keep in mind that (in CA at least) you will NOT own the land the house sits on --you will be renting the property in addition to paying a loan for the manufactured home, usually on a 99-year lease. So this way you get the worst of both worlds: paying too much for a bubble-inflated depreciating shell, while enjoying few of the benefits of true home ownership: title to the land, tax deduction, ease of selling (who wants to "buy" a home so they can pay rent?), etc.

I'd think again before taking that plunge. Personally, I'm happy to rent until valuations once again reflect true economic fundamentals, like rents and incomes. Then I'll buy a regular home WITH the land it sits on.

Cindy,
The "Glidehouse" looks interesting, and definitely an idea whose time is due; there's so many possible departures from the average "tract home". However, I'm sure that particular design is over $200/sqft installed, not including land costs, which could easily put the home close to $1M anywhere near SF Bay area--does that sound right?
If land costs drop, it could be an interesting possibility someday.

"However, I’m sure that particular design is over $200/sqft installed, not including land costs, which could easily put the home close to $1M anywhere near SF Bay area–does that sound right?"

KurtS,

See my comments above. I did my research, crunched the numbers and came to the exact same conclusion. The biggest component by far of housing prices in CA is the land. I have nothing against manufactured houses per se, in fact I agree with Cindy that they're often better built than conventional ones. But anyone who thinks they can save a bundle going this route (in CA anyway) is kidding themselves.

Damn. We missed out on free butterfish sushi… if only MarinaPrime would take the bet.

There's nothing like eating butterfish sushi at a trolls expense during a resession.

There’s nothing like eating butterfish sushi at a trolls expense during a resession.

Now I worry that good sushi restaurants may close during the next recession. :(

I think good restaurants truly deserve Fed bailout packages.

maybe in areas where land is cheap they might be a viable option?

This only holds true is you don't believe prices will fall significantly....otherwise you are kidding yourself.....nothing worse than waking up one day and saying...."wow, I could have had that instead".

ScottC:
"You’re either on the outside track, the rat race, or the inside track, the ownership circle."

Robert DeNiro (in Meet the Parents):
Greg, with the knowledge you've been given, you are now on the inside of what I like to call... the Byrnes family 'circle of trust'. I keep nothing from you, you keep nothing from me... and round and round we go."