patrick.net

@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.

Ha Ha Says:

Extreme: Movin’ Out

Extreme Networks Inc. (Nasdaq: EXTR - message board) could be on the hunt for a new headquarters soon, as it’s putting its Silicon Valley home up for sale.

Maybe this is the high-tech shot heard 'round the Valley...

An old hooker and a young hooker are walking down the street. The young hooker, curious about what happens if they get arrested, asks "Hey, have you ever been picked up by the fuzz?" The old hooker replies, "No, but I've been thrown by the tits."

In a profound way, the above joke illustrates the "socialize risk, privatize profits" principle as related to GSE's and bundled mortgage backed securities, however there is not sufficient space here to explain.

Amazing. Clearly they are selling the flexibility of the financing as the primary solution to affordability of their housing product. It almost makes purchasing a car seem honest and straight forward.

The effective annual rate (EAR), which is what the debtor actually cares about, ends up being much higher than all those APR numbers that are thrown around, especially given the complexity of bundling loans together. If I understand the financial engineering correctly, what the lenders are doing is effectively taking away the optionality from the buyer by shortening the duration of the "loan product". Therefore, these buyers won't benefit even if they hold their homes long-term; in fact they are financially incentivized to turn them over fairly quickly.

Would a $600,000 condo really rent for $2921? That seems to be an exaggerated figure to begin with. I am presently a renter and I wouldn't rent any condo for $3000...but then I like land around me and a workshop in the backyard.

Idea for a new thread...How can we help instill the necessary panic to turn this ship around? Is there anything we can do to push it along? I like the idea of the deserted open houses. DON"T GO TO OPEN HOUSES The realt-whores interpret visits as activity. The market should be DEAD at these prices. Spreading true stories of price drops at dinner parties.(Won't WE be popular) Ther is enough real data out there...no need to make things up. We, as a group should plant the seeds. Save these potential homedebtors from themselves and their predatory mortgage brokers! Get the newspaper involved...and the nightly news. Any ideas?

I slept in and its a beautiful day here in LA LA Land. I guess its the weather that makes $925 sound f@cking reasonable for a 2 bdrm $hitbox in my neighborhood.I'm dreaming of a virtual army of bloggers going out into the world...recruiting. Don't add to the insanity! Revolt! Don't you want your kids to someday be able to buy in this town?? If you buy now you will be helping to prop up thes artificially inflated prices! Wouldn't you rather wait for the half price sale in just a few years???? Don't be part of the huge bra for the huge unwieldy breasts. Set the girls free! Let them fly! Lay down your burdons and RENT! LOL

make that $925K

SF Woman
I agree...absolutely...the bubble seems to be based on emotions. It sure isn't based on logic! So logic isn't the best tool. But, perhaps emotional logic, as you suggested.

‘Real estate goes up? Houses in Sacramento are selling for $90,000 less than they were a week ago! You don’t want to be caught in that, do you?

That's great! And what George is saying about prices in Fla. People don't seem to be interested in the dry facts...so we just tell the juicy ones. The gossipy facts.I hate to admit it but most of the women I know would rather talk about someone elses misfortune than monetary ideas. You know, the moms at the school? Actually, they have quite a network!
It's our civic duty!

LOL

People talk about the "Google effect" on bay area RE; how 'bout the "Cisco effect"

mercurynews.com/mld/mercurynews/news/breaking_news/14116735.htm

"Morales's bail was waived. She has signed a promissory note to repay Cisco and has handed over the deeds to her home and other investment properties to the company, Reader said."

Figures she's from The Hose...we'll do anything to make a buck here.

SF--How about putting flyers in those little boxes beneath 'for sale' signs? Would that be illegal? We make up our own flyers that say something like....'Now is the WORST' time to buy real estate! Don't be the last to buy in this pyramid scheme!Go to Patrick.net to find out what's really going on! etc. etc.'
Our target market are those potential buyers.
The Oil Bourse will certainly contribute...but as said earlier....Often, the bubble can last until even the bubble believers start to doubt...

SQT-You are right...there needs to be a glut of inventory. Down here in LA there ISN'T. There are slim pickins out there, and what is there is way overpriced. But, if anything reasonably priced comes on the market, it is still scooped up with multiple offers!Therefore, prices are still flat today.Zillow shows some houses up in value and others down...all in the same neighborhoods.

Linda LaLa:
"SF–How about putting flyers in those little boxes beneath ‘for sale’ signs?"

I thought about printing a bunch of these data plots & doing just that in the specific complex for which the data applies:
photos1.blogger.com/blogger/2676/1886/1600/comm_hill_2br.1.jpg

Of course, some might think $450-$500/ft^2 would be a bargain....