patrick.net

Nobody likes a rock in a sock.

Although we cannot recyle McDebtoress' augmentations after the crash, I am looking forward to many of their other material excesses being available on the used-market. Maybe a good business idea would be to set up some kind of a narrowly focused "e-bay" exchange targeting McDebtors unloading their junk (in local markets) for the "best price possible". We'll take a cut and get first dibs on fine jewelry and cars.

R Patrick
Patience is the name of the game, my friend. A year or two from now you'll be singin a different tune. I'm biting at the bit...obsessed with buying. I've owned 6 houses before and now I rent by choice. I'm dying to own again...but I was hurt by the last fall and if I buy high again then I deserve to lose.I made money on every house but one...and that one wiped out my nest egg back in the 90's.The market fell and I was one of those naive people that didn't know it could. Since then I've owned 2, fixed them up, like giving a sad old lady a face lift(there, I tied it to plastic surgery)and made mucho dinero$$$. Now I refuse to buy high again.It feels like it's taking forever...like it will never turn..but it will, my friend, it will.

Huh?

I guess fake breast is a form of FB. And it is definitely related to the Silicone Valley.

Yes, especially crown mouldings are made of pressed foam.

PS,

What can I say? You are on an absolute roll today! Keep the momentum, I like where you're going!

R Patrick,

it is a good thing that you doubted yourself, I hope more people like you start to doubt. That in itself is the illustration of the top. I have gone through two gigantic bubbles with friends and family participating so I can talk from an experience (not data driven) point of view. When most of the bubble believers starts to question if this is a bubble, that is when the market turns.

Let me tell you a story. I have a good friend who is a Wharton MBA, very sharp guy, financially savvy (working for an Ibank), and he was working at Hong Kong, starting from 1995. All the way along, he kept telling me that RE was crazy and they were in a gigantic bubble, believing that everybody was crazy to buy a home at that sort of price. He kept talking for 2 years, and reassued all his friends that he wouldn't buy a home until the market crashes. In summer 1997, he started questioning himself and asked if he actually didn't understand the uniqueness of demand and supply of Hong Kong, and plunged in at the aboslute top to buy a home costing 1.5M (1997 dollar), USD. Needless to say, he was under water for many years, and thank god he has secured a very high paying job in a low-tax place.

I recently have another friend who has long argued that we are in a RE bubble, and he is starting to question himself as the spring approaches because he is seeing his target neighborhood having more activities (he is on East Coast, so I can't comment on that). I know the data point is not sufficient from a statistics point of view, but I see the same pattern.

It doesn't matter at this point whether Fed drops rate or not (which I am sure they will), the income is so out of whack from the housing price so unless the interest rate is negative, the inventory of homes is not going to clear! Do yourself a favor by driving along major corridors, at night, to see how many new, and old homes are occupied. Seeing is believing.

R Patrick,

let me provide another way of reasoning. We all understand that there will be lots of USD printing, and our question is where will the extra USD go?

We had the answer of the last few years, it went to housing. Now, where will it go in the future? If you look at the basic needs of a human being, he needs shelter, food, transportation, healthcare, and everything else is relatively elastic in demand, aka, optional.

Let's examine shelter first. For shelter, you can own or rent. If owning is reasonably more expensive, people will still own. But if owning is so much ore expensive, people will rent, so there is a ceiling limit on how much money can flow into housing exerted by people's pay, and the second best alternative, renting.

Food. Basic staples are not substitutable, we need to eat and drink, simple as that. But since it account for such a small portion of our daily expenditure, it has plenty of room to accommodate the extra cash. Our food cost can go up 500% without jeopardizing our monthly expenditure, because we can always trade down from the fancy organic food or fresh seafood to canned foods. So this is my prime candidate of where the extra money will go.

Transportation. Oil has been on the rise for 2 years. Is it over yet? I don't know. But I know if oil goes to $100, or $150 a barrel, our way of living will be profoundly changed. If oil does go up that much, plenty of alternative energy sources will become viable, like solar power, methane, etc. So I know there is also a ceiling of how much oil price can go up. So this is a secondary candidate for me where the extra money can go.

Healthcare. This is an area that you can charge whatever you want, and the substitute is almost non-existent, unless you try to become healthy by exercising and eating right. Is our healthcare expensive? Yes. Can it be even more expensive without affecting people's life (except boomers) much? Yes. And because of that, I think bio stocks can go much higher, absorbing another chunk of extra cash. This is also a primary candidate for absorbing extra money.

So if you look at our aspects of life that can absorb the extra money supply, there are better candidates than housing. That is why I am a bit nervous now about shorting stocks, because if PPT is at work and presumably they have unlimited cash to support the market, I may never see the stock price plunge. In fact, stock price is another area that can keep going up without bothering our lives and upsetting social stability.

Moderator,

Kookoo is Juku, he is spamming again. I believe that Randy warned him before, someone should delete his post.

So like RE, women who get breast implants need to do their research, at least that’s what the courts have decided. It’s up to the consumer to know what they are getting into and make informed decisions. If you are going to get a waterballoon implanted into your chest, then you should do some research on whether or not that ballon is safe. If you are going to buy a house using a NAAVLP, then you best make sure you can afford it.

And if you are going to make cosmetic improvements, make sure you know what, if any, real value is added to your investment.

Great FB(fake boob) - FB(f@cked buyer) parallel! Completely agree.

Hahahah

@Owneroccupier,

Thanks for the tip --I will be keeping my eye on "Kookoo/Juku". He's behaving himself (for now), but if that changes, I will take appropriate action.

Thanks for the tip –I will be keeping my eye on “Kookoo/Juku”. He’s behaving himself (for now), but if that changes, I will take appropriate action.

Keep an eye on WhereCrash/HITMAN/MarinaPrime too.

"the banks had learned their lesson after the crash in the early 90’s, and they aren’t going to let that happen again.”

Common variant on "it's different this time". I remember reading an article arguing this exact point, and also said that builders got so badly burned by over-building on the last cycle, they would never let that happen again. To which I say "Bull$hit!" All you have to do is scan Patrick's or Ben's newslinks and you quickly realize that over-building and over-leveraging is not only happening again on a large scale, this time it may be even worse than last time.

Gravity must eventually re-assert itself. And when it does, it'll be a real bitch.

I told Juku that cross promoting was acceptable (in my threads at least) so long as he didn't troll or flame. It's good etiquette to keep cross promotions on topic, but not always easy to do. Being that I've self-promoted a bit off topic myself, I don't moderate those out unless the poster proceeds to flame bait.

New thread: Die grumpy Leaffrauen von Sacramento. (Just kidding)

Seattledude,

a new idea for you, voluntary one-child policy for America's middle class. One child per couple, then pass the home down to the kid, problem solved. For the next generation, if both of the couple come with an inherited home, they can have two kids. If only one comes with an inherited house, one kid. If none come with a home, then no kids. See how we resolve the population issue of our planet earth? oh wait, we are not having the population problem here, it is the developing countries that are having explosive population issue. OK, why don't we promote this high housing price idea to developing countries? No aid needed, just inflate all their home prices by 10x (which will fund their govt spending on fighting poverty), then they won't ever worry about having too much population.

Hmm, perhaps I should publish this idea through NAR, their overseas counterparts must be loving my idea.

Question for the blog:

Which RE bull are you MOST tired of hearing from day after day, week after week, month after month, year after year? For me it's a tie between NAR President David Lereah who has yet another book coming out this month and DataQuick analyst John Karevoll whose lame-ass analyses accompany each and every DataQuick press release every single month. Must be nice to make a good living polishing a turd every single day like these guys appear to do.

this question is for guys only.

Would you rather have your wife/gf smooth as a runway or curvy with fake boobs? Of course we all prefer the real thing, they move and feel differently, but why would an endowed woman do a boob job to begin with? So given the aforementioned choice, would you really mind fake boobs?

SFWoman Says:

"Did you know that the mouldings in many spec McMansions are pressed polystyrene?"

A friend paid almost $2mm for a McMansion in Danville and even the exposed wood beams are fake.

I don't make it out to the East Bay often but when I do go to parties out there I am reminded that there are a lot more people that are interested in "flash" than there are people who interested in "quality". Many people would rather a big new home with hollow core doors and plastic trim in Blackhawk or Alamo than a nice simple Hobart or Adler designed home in SF or the Peninsula. They would rather drive new leased HummerH2 or Escalade with 24" Bling wheels rather than 10 -15 year old Lexus or BMW (that costs less than a set of fancy 24' wheels and tires), and to stay on topic they would rather marry a bimbo with fake blond hair and fake boobs who spent a couple semesters at DVC than a smart athletic brunettes who went to good schools...

i am ok with david lereah. Come on, cut that guy some slack, he is just doing his job, albeit rather poorly in his PR spin. What would you say if you were in his shoes? Yeah, RE may be busting, and as the chairman of this association representing the interests of RE agents, i urge you buyers stop buying to wait for the bust?

It is the reporters' fault. They should always seek quotes from both sides, the bulls and the bears, and whenever they quote the bulls who have conflicts of interest, they should put down something like,

"the market won't crash", noted NAR President xxxx, who is representing the interest of xxx,xxx RE agents in the country. Their earnings have soared tremendously in the last few years along with the RE boom.

True! There is talk of bubble busts!

Costa Mess Says:

"I heard the banks had learned their lesson after the crash in the early 90’s, and they aren’t going to let that happen again.”

Then Harm said:

"Common variant on “it’s different this time”. I remember reading an article arguing this exact point, and also said that builders got so badly burned by over-building on the last cycle, they would never let that happen again. To which I say “Bull$hit!” "

The banks did learn a lot last time.

1990 Bank does a $1mm loan and makes a $10K fee.
1994 Bank takes the property back after default and sells it for $800K loosing $200K

2004 Bank does a $1mm loan and makes a $10K fee then makes another $10K selling the loan in to a MBS Pool
2008: The Borrower defaults on the loan but only the high risk bond buyers take a hit, the bank does not loose a penny.

It's funny how we can get used to the over-inflated prices. At this point $700,000 seems CHEAP for a 2bd-1.5.ba SFD around here. Back in the late 80s I remember complaining that a quarter of a million $ buys a crackerbox in the Hollywood Hills. Now it won't buy a crack house in South Central! Heck! $250 won't buy a tear down condo! Nowadays, if someone gets under a million$ for their house...well then it must not have been a very good house! Only 2 years ago, my neighbors and I were revelling that we couldn't believe that now we live in a million dollar neighborhood! But, that's beacuse most neighborhoods around here are million dollar hoods!
Seattledude
As the mom of a teen...It is frightening for all the parents I know thinking that their children may never be able to buya home near here. I want to think that if my son wants to buy a house down the street that he at least has that choice. As it is,the kids are priced out and then some.It's a tragedy.
I have a childhood friend, from San Jose, who moved to Oregon several years ago.(Portland) She claimed that"normal" people can own a home there...like the postman, school teachers, nurses. That sounded so refreshing to me! I guess that's changed...now even those prices are up!
Sorry...no ties to the plastic surgery topic...

FormerAptBroker Says: 2004 Bank does a $1mm loan and makes a $10K fee then makes another $10K selling the loan in to a MBS Pool
2008: The Borrower defaults on the loan but only the high risk bond buyers take a hit, the bank does not loose a penny."

That is not the end. Derivatives are created upping the yield a little and sold overseas; thus, transferring the risk of the default to the overseas derivatives buyer.

The derivative market is chaos worldwide:

...there is still a backlog of thousands of unconfirmed trades, and about 40% of new trades are still not matched electronically. There’s still no centralized means of processing trades. Unmatched means:

"...firms were typically assigning trades without the knowledge or consent of the original counterparties. "

From:
New York Federal Reserve President Timothy F. Geithner

What do fraudulently-inflated house prices and faux-inflated breasts have in common?

Hmm...I don't know.

The bigger they are, the harder they pop?

Yikes!

“A given [derivatives] contract may be valued at one price by Firm A and at another by Firm B. You can bet that the valuation differences – and I’m personally familiar with several that were huge – tend to be tilted in a direction favoring higher earnings at each firm. It’s a strange world in which two parties can carry out a paper transaction that each can promptly report as profitable.”
Warren Buffett. March 1, 2006

Seattledude
I do believe things will turn around. I certainly hope it will not be like this forever. I hope the fall doesn't hurt too many people and I hope the Fed is able to cushion the landing, though I don't believe they will prevent some kind of fall/correction. When that happens, I plan to buy. Heck, maybe I'll buy one for my son,too, if I can afford it. We'll see. LA wasn't always like this...but it is the town he grew up in and he loves it here. This bubble too shall pass!(kind of like a kidney stone!)

The Fed created a semi-secret fallback bank for the financial collapse.

In case of a T-note crisis …

By Eric Dash
March 2, 2006
A BANK created to provide emergency back-up for the US Treasury market will be ready to operate in the next 18 months, a bond industry group is set to announce today.

The so-called NewBank exists largely on paper, but like a superhero on standby, it can spring into action to stabilise the government securities market if a legal or financial disaster strikes.

The bank is a result of a five-year effort by government and banking officials to draw up plans in the unlikely event that either JP Morgan Chase or the Bank of New York, the only existing clearing banks in the Treasury market, are suddenly unable to operate.

The two banks play an obscure but crucial role in the government securities market, processing more than $US1.9 trillion ($2.6 trillion) of very short-term trades each day between investors who want small but safe returns and dealers who want to finance securities positions. The industry's dependence on just two big institutions has long concerned the Federal Reserve.

"All of a sudden half of the securities would not be able to clear their overnight positions," said Donald Layton, the former vice-chairman of JP Morgan Chase, who will lead the NewBank effort.

2004 Bank does a $1mm loan and makes a $10K fee then makes another $10K selling the loan in to a MBS Pool
2008: The Borrower defaults on the loan but only the high risk bond buyers take a hit, the bank does not lose a penny.

@FormerAptBroker,

You're absolutely right and I should have mentioned this --especially since it's one of my favorite themes ("socialize risk, privatize profits"). I guess the banks really did learn something since last time!

Linda said
It’s funny how we can get used to the over-inflated prices. At this point $700,000 seems CHEAP for a 2bd-1.5.ba SFD around here. Back in the late 80s I remember complaining that a quarter of a million $ buys a crackerbox in the Hollywood Hills.

In many countries, inflation does that to people. Here for housing, I am not worrying about the "permanently eleveted plateau" for no reason.

I don't care what the nominal price is for a house I want. I am simply worried about the price to income ratio not coming down.

DinOR Said :

PS,
What can I say? You are on an absolute roll today! Keep the momentum, I like where you’re going!

I hope he keeps drinking rum and pinapple every night.

SF
Wouldn't it be nice if awareness was being raised? I actually believe that most people that come to this site are already bubble-heads and ,like myself, are educating themselves about the facts and fundamentals. If this site had the power to blast it...then let's blast on! Get this boat turned around! To be honest, the real bubble blasting machine has to be the media. We have to reach the mass sheeple so they'll stop buying at rediculous prices!

BA
I believe the price/income will correct itsself. There are too many factors pressuring the numbers. I don't believe they will stay disconnected. The market has stalled because most people can no longer afford to jump in without great risk to their financial selves!

What do you think,SF Woman?

Linda said :

I believe the price/income will correct itsself.

I hope you (and we all) are right. I just wish Bay Area was at the one of the first to crash - like Phoenix for example.

From pure statistical point of view, Bay Area is not in as much trouble yet as are other parts of the country. USA Today has an article in print and on their website about delinquent home loans. The list for all states can be found at

www.usatoday.com/money/economy/housing/2006-03-16-delinquentchart.htm

The problem is CA. It's the LAST - meaning having the LEAST % of deliquent homes. I am still trying to understand why. I posted the link on Ben's blog as well.

My frustration is that the BIG catalyst is still not surfacing. The inventory is not exploding (although it is increasing) and interest rates are also slowly inching up. We need panic. Panic to set in sellers' and buyers' mind. Some big news in SJMN is really needed - or something similar. Else the stand off will continue for much longer.

I'm hoping we're in the calm before the storm. But, yes, I agree with you SF Woman...once the psychology of the people change, once panic sets in, chang will be a comin'.This blog is definately educating people(me included) as to some of the facts and figures behind the bear ideas. Also, the collection of links and articles certainly add up. I honestly believe that after the Fed meets on the 28th, and raises rates again, the fall will start like going over the waterfall. Perhaps I'm just an optimist.

SF,
Down here there was something similar a few weeks ago. I can't remember which builder it was, but they offered $100,000 off for one weekend only. Upon further investigation, the houses in question were in the upper 2mil range...so really the hundred grand wasn't that much off.

Good...now time for LA. The reators here like to say how LA creates it's own economy from the movie biz and therefore won't fall. Oops...that was two threads ago! There is that LA funny money...But, I've seen it fall.