patrick.net

"What’s not to like?!" --DinOR

How about being upside-down on a $700K mortgage in Oakland and one day realizing that you are stuck there basically forever in the job you hate untill you pay that thing off. Ouch!

The national affect of the bursting housing bubble will collapse banks, affect the overall level of consumer confidence and cause layoffs accross the nation.

The world wide impact will be from financial instruments deflauting. MBSs are turned into CDOs and derivatives which are sold mostly overseas.

Nomadtoons,

it is easy to estimate how much networth an average middle-upper class can amass in 10 years. In today's job market, unless you are damn lucky and joined Googled when it first started, it is just not that easy to save up a million dollars a few years out of school.

To qualify for a high-paying job, most likely you will have to go for MBA or JD or MD, which means an extra 200-300K on top of your college student loan, these programs offer almost no scholarships and are known for their hefty tuition. Even assuming that such a student has a rich dad to pay for undergrad entirely, or goes to public school, he will still need to come up with the extra $$$ for these programs. Plus, there are not so many rich dads to go around to begin with.

Then we are talking about a typical John starting to make some serious money (100K+) when he reaches 26-28, with a student loan of 150-200K average. After uncle sam claims his portion, there is simply not that much left. So give it 10 years, the most he can save up alone is going to be less than 500K, by the time he is approaching 40. Let's say he meets another professional woman and they make a power couple, their savings will still be much less than a million combined, and once the kids come in the picture, and as they take on a mortgage (most of which is interest payment), the saving ability goes further down.

Therefore, you can safely deduce that MOST of these people you see are just putting up a facade to emulate the lifestyle of the rich and famous while they are most definitely not. There are certainly those lucky Ibankers, VCers, startup founders, but they just account for a very small percentage of the population, far smaller than the percent you see driving nice cars.

Collateralized debt obligations are securitized interests in pools of—generally non-mortgage—assets. Assets—called collateral—usually comprise loans or debt instruments. A CDO may be called a collateralized loan obligation (CLO) or collateralized bond obligation (CBO) if it holds only loans or bonds, respectively. Investors bear the credit risk of the collateral. Multiple tranches of securities are issued by the CDO, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according to their degree of credit risk. If there are defaults or the CDO's collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. Senior and mezzanine tranches are typically rated, with the former receiving ratings of A to AAA and the latter receiving ratings of B to BBB. The ratings reflect both the credit quality of underlying collateral as well as how much protection a given tranch is afforded by tranches that are subordinate to it.

A CDO has a sponsoring organization, which establishes a special purpose vehicle to hold collateral and issue securities. Sponsors can include banks, other financial institutions or investment managers, as described below. Expenses associated with running the special purpose vehicle are subtracted from cash flows to investors. Often, the sponsoring organization retains the most subordinate equity tranch of a CDO.

Owneroccupier-
It is interesting that on this board, people that make 100-150k a year are almost in the same sentence as those in the middle class. For me personally, I do not know anyone in my web of friends who make that much, even as a combined couple. Me and my wife make 85k together, which is great by national standards, but the last time I checked on what the price would need to be in order or us to buy a home within reason would be something like 175-220k. Prices haven't been anywhere near that level since the mid-nineties, thus either wages need to come up about 50%, which they won't since businesses can easily move to another state or city, or those prices on housing needs to come down 50%, which if so, would probably spell severe recession.
What I'm getting at is what defines a middle income couple these days? If it is 100-200k, then we are far from that. Sort of like what a friend of mine who is also married says about the area. Either you're rich- or you're poor.
Surely there are a signifigant number of couples like us who don't make glamourous yet decent wages who are realistically counted in the mix of those affected as middle income citizens definantly shut out of the market by a huge margin.

Every community says that their community is special and immune to a crash in RE prices. Then, when confronted, they pull out the "intangibles" argument. Such arguments are meaningless during periods of stress IMO. They only hold water during periods of easy credit when people can "afford" to throw money away.

@Pop!,

Thanks for the Fortune link --that 23%/yr expectation will definitely go down as one of the classic red flags that we're at/past peak of the cycle.

"but the last time I checked on what the price would need to be in order or us to buy a home within reason would be something like 175-220k." --nomadtoons2

Aha, but you are thinking in terms of a traditional mortgage. The people you are competing against for homes are often using "exotic financing." Again, easy money has increased the demand which has increased the price.

Who needs a raise! My house is going up X amount a WEEK! “I’ve never done anything but lose money in the stock market anyway”!

I've been saving quotes that I find on various blogs that best communicate the speculative mania thought process and this one is going in for sure. I want to be able to pull out these quotes and flaunt when the time comes.

Hey SF renter,
Well, that's definatly no new news to me, since the few people I do know who bought in the last 2 years are using IO and combined ARM loans, thus when you break down the equation, they are actually paying nothing on the principal. That's not news either.
No, I am not willing to place me and my wife in that situation. On the other hand, will old-fashioned home buying ever be the norm, especially in this area?
I am a relatively newcomer to this forum since the Craigslist housing forum has turned into a shouting match, and so far, I am impressed with the maturity and good content on this site, as well as posters who have good ideas. That said, a basic question for everyone is what are we doing here on this blog?
I'll start:I'll be as dead honest and say the only reason I'm on this forum is that I'm pissed that I've done my homework and earn a decent living but cannot afford to get the basic, no-nonsense home even though I am 30 years old and save as much as possible.I'm irratated that there is no rhyme or reason to why someone 5 years ago could shoehorn themselves into a home, when I was still climbing the ladder, and now that I have, those same people who bought 5 years ago could not afford now, and neither can I. So what makes them anymore entitled than me? This sense of undeserved entitlement that I hear from those who are " in" really bothers me.- that and the fact that nobody seems to care about business or new ideas- the things that get you money so you can live your life. Now all anyone talks about is their damned houses. So the equation is reverssed. If anything I'd LOVE to not hear about housing and high prices ever again once this is over. Anyhow.. there.. I said it. As immature as it might be.

"So what makes them anymore entitled than me? This sense of undeserved entitlement that I hear from those who are ” in” really bothers me" -nomadtoons2

I would just say try not to let it bother you, after all, it's normal human nature to feel resentful when you've missed out on something, or weren't invited to the party, or however you want to put it.

But it's best to seperate all emotion from financial decisions and analysis if you don't want to lose your ass in the long run. It's best to take solace in the fact that you've used good reason to determine it would most likely not be wise to leverage yourself to the hilt to buy something you really cannot afford. Leverage has been the downfall of many in the past, and it will unfortunately be the downfall of many a homedebtor in the near future.

San Fran Renter-
Well said. Perhaps that's what people who are in our boat need to do. I can almost gaurantee that everyone who has enough energy to come to a forum and complain about housing must feel somewhat similiar to me, in that "hey- what about me!?", so I just out and said it.
If people simply looked at why the feel housing is so important to them and seperate reality from emotion, then maybe this would cure part of the problem: people would stop buying carelessly, and stop making housing such a unessecarily precious asset.
In my setup, I am renting a large victorian home with a couple of other guys who are there maybe a few hours out of the week. I pay $500 a month for a large room and my own office, a large yard, workshop, and garden, along with the rest of the house. If I were to buy this place, it is valued at 700k, which means I would be paying close to $4,000 a month for the same privelage of living here. That's a HUGE diffrence, as in night and day. This of course is diffrent for people who insist on living in the city where rents are like 1000 bucks or more these days and perhaps the diffrence isn't as severe.
The only reason I hear people buying these days give me is that they just know that some day, decades from now, their investment would pay off. True perhaps, but you could also invest in savings accounts, mutual funds, and stocks just the same and have more immediate returns to apply to assets- such as housing. It is ironic that people don't seem to look at money the same anymore.

I am a relatively newcomer to this forum since the Craigslist housing forum has turned into a shouting match, and so far, I am impressed with the maturity and good content on this site, as well as posters who have good ideas.

It is understandable considering that the sheeple are now scared. :)

That said, a basic question for everyone is what are we doing here on this blog?

We are trying to chart out the probable future and see if we can do something about it.

Just a note: side airbags (torso and head) are more important than frontal airbags, especially if you wear seatbelt religiously.

Cars are getting a lot safer. But the "competitions" are driving much heavier vehicles. Sometimes I do have the urge to get a 6000lb+ SUV.

Hey Peter,
Actually, I decided to start doing something about it. I wrote to the SF Gaurdian, the San Jose Mercury Times, along with all CA senators like Barbera Boxer, The Mayors of Oakland, Berkeley, and Alameda, and countless other editorial sections on various web sites. I get surprisingly few responses. So far only the Gaurdian replied back with positive feeback and agreed to publish one of my editorials. I didn't expect a reply from the big guys, like Boxer, but in each instance, I got generic pre-generated replies from all of them that sounded like they were written by the same person. They basically said that they "understood there was a need for low-income housing"..., which tells me that either they are out of touch, or like any popular politician, don't want to tarnish their hands with all the homeowners. The real problems are not being adressed. If people want to jump on board and do something about it, I am seriously considering attending city planning commisions and speaking up since our local board is ALL homeowners.
Thus my opinion is that Blogs and forums are fine to vent and voice ideas, and to get great discussions going to arrive at ideas, but in the end, the root of the problem is the rotten foundation of most city planning commisions that lack the ability to win over new housing developments since their hands are tied by homeowners. The fact that almost 50% of us are now non-homeowners means we have a fair number of citizens to contribute to a increase in local representation at civic planning. This above all is what has to happen unless we want this same trend to happen again and again.

3% year over year decline...

“KB Homes, the Los Angeles builder noted that the U.S. Census Bureau reported that single-family housing starts in December fell 12% from November, and about 8% from December 2004. Also, the bureau reported that the median sales price for new homes declined approximately 3% in December from a year earlier."

Voila - no more spam from that web site.

Too late. I have an account at ZipRealty already. :(

If I spend more time searching, an agent will even call me to see if I need any help.

Can’t people see that distortions in the housing market are bad for the state and its residents, or do they know and not care? I think this is definitely an example of the tragedy of the commons. My question is what can we do about it?

Of course we cannot change the course of the society single-handedly. We can at beast predict its probable path and adapt to the changes pre-emptively.

From today's CNBC Market Dispatch:

Housing is becoming a real problem. The Philadelphia Housing Sector Index is down 13.% since August and 9% since early January. Standard Pacific (SPF, news, msgs), a big Western builder is down 20% since early January; Lennar (LEN, news, msgs) is down 14.6%.

http://articles.moneycentral.msn.com/Investing/CNBC/Dispatch/060213markets.aspx

Housing is becoming a real problem.

The stock market is always a leading indicator. The housing bubble will soon burst.

The most important question is: what level of housing bubble damage have the market already discounted? This helps determine whether there will still be good profit shorting homebuilders now.

NOT INVESTMENT ADVICE

This sense of undeserved entitlement that I hear from those who are ” in” really bothers me.- that and the fact that nobody seems to care about business or new ideas- the things that get you money so you can live your life. Now all anyone talks about is their damned houses.

You've just described a classic bubble and the psychology which drives and sustains it. It's very hard for one to seperate lucky timing from true merit. Sort of like gambling. When you're on a streak, it's very difficult to recognize it for what it is: a lucky streak. Most people ride their luck back down to mean regression (actually beyond), instead of walking away in the money.

Housing markets will go up; housing markets will go down. You can be right on either side of the bet. It's all a matter of timing and discipline--discipline to follow your convictions and not be tempted to join the herd, no matter how loudly they all start mooing.

discipline to follow your convictions and not be tempted to join the herd, no matter how loudly they all start mooing

Very true indeed. I myself used to be very prone to self-doubt.

Randy, I have learned so much from you. I will now even agree that the economy is NOT a zeo-sum game. :)

Plenty of room for shorting.

Cool. :)

"White House says no worries here - “soft landing” all the way!" --Doodler

Oh no, now we're REALLY screwed! Whenever the White House starts talking about the "strength of the Economy" it starts going to Hell! When will they learn?!

White House says no worries here - “soft landing” all the way!

For the nation in general, there is not much of a housing bubble. However, there are huge bubbles in many local markets that are large enough to affect the entire economy.

Will there be government (taxpayer) bail outs?

There will probably be bailouts for financial institutes but not for individual homeowners.

Dinor,
The interesting thing about Google is that it seems to have Henry Ford Syndrome, whereas when it first appeared, it was a no-nonsense, simple and relativly clean idea( think the Model T). Then it turned into more of a hybrid yahoo-AOL engine with all the crap hidden one page deep. The original allure is gone, and so is the sex appeal for it.. thus... people dumped it.

Oh, one little thing about high end cars. I buy a safe luxury car every 10 or twelve years. I do think they hold up better in the long run.

Safety is the most important thing. I doubt I will get another car without at least 6-8 airbags.

Stability control is also very important. It may just save the vehicle from spinning out of control in front of a charging big rig.

And though I like a safe car, the issue of safety became a distraction from the greater need to create fuel economy.

I have a confession to make... if I have to make a choice, I rather drive a large 10mpg car than a small 35mpg car.

Randy, I have learned so much from you. I will now even agree that the economy is NOT a zeo-sum game.

Thanks Peter. I think we've all learnt from one another here.

I am wondering who will ultimately pick up the tab for all of the houses that people will walk away from and banks will own.

I'll be in line to buy one of them.

Is this a new record? Is this as far as we've ever gotten into a thread without a friendly neighborhood troll dropping in to tell us what a bunch of idiotic jealous bitter renters who need to get a real job we all are?!

So if the housing market really does crash, not only will a lot of people lose their homes, but they will lose their pension as well, as many pension funds are tied up in Motgage backed securities. Have I got that right?

I have a feeling that it may even affect money market funds. Correct me if I am wrong.

I think BMW’s are terrific cars. My Dad got hit by in a head on collision by a drunk driver doing 75 mph, and walked away without a scratch. The firemen at the scene said he’d have probably been killed in just about any other car.

Perhaps I should look into getting one next time. ;)

The problem is that BMW is not something that I dare to buy used. (Again, correct me if I am wrong.) It is so desirable that it is difficult to find bargain-basement purchase or leasing deals.

We drive a big SUV type vehicle. At least we don’t have to worry about a Toyota hitting as, or do we?

Depending on Toyota what.

Toyota's answer to Hummer: www.megacruiser.com

It’s probably best to buy private party if you can.

Perhaps. But somehow I feel more comfortable buying a used Lexus.

That’s the only thing that matters. I wouldn’t want to be in a Tercel while being hit by a large SUV though.

No, physics eventually prevails.

I do not understand why people will want to buy a new Tercel when one can get a 10-year-old Lexus LS400 or BMW 740i for a little bit more.