patrick.net

IF I am to buy gold coins, I may consider the Krugerrands. They do not cost much over spot.

Gold is gold.

>>Remember the BA has a great many people who are retiring and they have plenty of margin for ‘giving up’ 20%. This is the ‘elect to sell close to the peak crowd.’

The problem with that is it's rational thinking.

These people aren't going to "give away" their houses for "free".

Plus, their Prop 13 status isn't going to encourage them either.

All the gold ever mined can fit inside a 19 m^3 cube

You could store it all in your small 1800 ft house!

Hmm...maybe I should get out my pan and head out for some creeks in the Owyhee mountains this spring. At $1,000 an oz even getting a few nuggets a day could supplement my income. I presume "found gold" has a cap gains basis of $0.
http://pubs.usgs.gov/gip/prospect2/prospectgip.html

You could store it all in your small 1800 ft house!

Only if it has a 130-foot ceiling. :)

The problem with that is it’s rational thinking.

Plus, their Prop 13 status isn’t going to encourage them either.

eburbed,

I believe that's so 2007 type of thinking. There still are rational people out there, perfectly capable of reading the writing on the wall and cutting their price early enough to get out of dodge with a great nest egg. They're your 70 year olds who are moving to Colorado/Arizona/Florida/Texas to be closer to the grandkids. It doesn't take too many to get the ball rolling. I think.

Only if it has a 130-foot ceiling.

Oops. That was 19 cubic meters, I was thinking feet.

I wonder how many toilet tanks it would take to store 19 cubic meters of gold.

There still are rational people out there, perfectly capable of reading the writing on the wall and cutting their price early enough to get out of dodge with a great nest egg.

I did this in May '06 when my friends thought I was nuts. Funny how quiet those guys are nowadays.

BAI :

I will add more. People might start thinking that if they wait, they will have to "give away" their houses for "free".

Who is realistically expecting house prices in BA to start rising ? The best case scenario according to bullest of bulls is for prices to remain "stagnant".

A real estate agent told me last week that all these "jumbo mortgage problems" will go away in 2009 and RE market will be fine. I asked him point blank, if he thinks banks will start lending at 0% down ever again ? When he sheepishly said no, I asked him, so what will happen when banks start demanding over 20% down payment ? It hit home, and hit very hard.

Look guys, this whole debate about interest rates, seller stickiness, pent up demand in Fortress etc is so 2006-7. The mantra for 2008 is "Show me the money". If you cannot bring money to the lending table and prove that you will be able to service the loan for the foreseeable future, please don't bother.

I have mentally put a limit order for 2001 prices. When it triggers, I buy. I can wait forever, as I am getting paid to wait.

Funny how quiet those guys are nowadays.

Perhaps they're contemplating that you weren't as nuts as you seemed! Eventually it may dawn on someone that you weren't nuts at all and they'll follow suit.

I wonder how many toilet tanks it would take to store 19 cubic meters of gold.

Let's assume each toilet tank holds 1.6 gal, that is about 0.006 m^3. So about 1.1M toilet tanks can hold all gold.

See, all the gold in the world can be "hidden" in a small city like San Francisco. :)

A cursory examination of trulia "sold homes" in San Jose with a filter on for older homes *seems* to indicate they are selling for below avg prices. Some of that is because newer stuff tends to command a premium for all kinds of reasons. But - I believe - some of it is because these are the types of sales (other than distressed sales) which are marching things down - people with low cost basis. I wish there was a way to see a 2007 spreadsheet for non distressed sales of homes with last purchase/extraction refi more than 15 years ago.

See, all the gold in the world can be “hidden” in a small city like San Francisco.
Talk about a "fortress". ;)

My point exactly Dennis.
Some can get out and now is better then lter.
The boguht recently crowd who does not want to realise a loss of 15-20% (today, so far) can either hang-on or lose their home to foreclosure, or HELOC it fully, then get tax amnesty and a nice paydy. Sorry, was thatcynical?
Others will have to move do to job-loss (probably coming, but who knows), divorce, job-relocation, etc. They will have to realize a loss.

I would say the hang-on crowd is by far the largest so we pick up marginal buyers pretty quickly for the relatively small crowd electing to or being forced to sell in a depressed market.

Higher rates are every savers friend. Presumably it means you have a very large down payment, and thus can finance your small (or 0) mortgage after taking advantage of the price declines that must follow the near-absolute truism of homes being sold on monthly affordability.

Cough cough. Not that liar loans, 0 down, teaser rate hyper speculation is out of the housing market.

By the way, the normal real estate addage is that market timing is not an good bet in RE. The cost of closing, RE fees, movig expenses, then renting expenses makes it a very difficult process to come out ahead.

Not so in this market. At least for the Bay Area.

The run-up was so huge, and the prices were so high, that given a run-down of 30-50% means you can be pretty far off the edges and still time this market.

Not advice. Determine for yourself if renting through the storm is right for you and your family.

People might start thinking that if they wait, they will have to “give away” their houses for “free”.
Definitely will be interesting to see how people respond. That is why I used the term critical mass when referring to the fact that 1/3 of the transactions in SoCal involved foreclosures. Retirees waiting for the end of the housing Gold Rush are getting some pretty clear signals now. You can't stop the REO speedwagon, so get on board.
BTW, for those of you who have feared that Used Home Salesperson's would put their photoshopping skilz to more nefarious uses than touching up their headshots, you must check out Socketsite and their latest thread on 2221 Baker Street. Well, maybe it will draw some buyers to the property, but its not exactly generating goodwill.

You can’t stop the REO speedwagon, so get on board.

Good one EBGuy. Keep the fire burning ...

2221 Baker Street? Wasn't that Sherlock Holmes' address?

good catch sriram (almost)
http://www.sherlock-holmes.co.uk/

it was 221b

Duke :

I would add that the advice to not time the RE market is for non-professionals and against using your primary residence.

For the first time buyers, I would say that timing is very important. And it's not hard - if you don't care for the "exact" bottom. RE cycles are long. It doesn't do an intra-day reversal.

For the first time buyers, it's very important to understand what part of cycle they are in. What are the price-rent ratios, what are the prince-income ratios, what is the economy (job market) expected to do over the medium term etc.

I am just going to let you in a small formula that has worked for me for years in terms of investment.

I identified several acquaintances as "idiots", of course without telling them. I always consult them on what they do (what companies they want to join, what skills they want to pick up, what investment they want to make etc.)

When they mention something they are doing or attempt to do, I exit. It has worked wonderfully for me in the past. So find yourself some people you consider idiots and do the opposite of what they do. If they are buying gold, exit. If they look at you as if you were from outer space, load up.

Now, another way of doing this is to find some really smart people who are your role models and follow what they are doing. But it is lot harder to get these smart people to share their inner thoughts. They have been ultra successful precisely because they know what NOT to share.

Therefore, identifying the idiots among your acquaintances and do the opposite of what they do is probably a more doable route.

Buffet played with physical silver in late 90s but sold all his stake to SLV when they came online.

It is very hard for people like himself to play physical PM. First of all, you have to go physical with a certain proportion, or just forget about it. People who buy PM are assuming the worst, or you'd be doing much better with agricultural future contacts. But storage, security and insurance are very big issues for hoarding physical PM on a large scale. Buffet once hoarded 1/6 of all silver on the face of earth and was boycotted by Silver Council for fear of his monopolistic power over silver pricing. The carrying cost of physical silver was so high that even silver price more than doubled between Buffet's entry and exit, he ended up coming out even. He openly admitted that his way of playing physical silver was probably a mistake.

People with his wealth and peons like us have very different considerations when it comes to protection of personal asset.

I identified several acquaintances as “idiots”, of course without telling them.

So if I am an idiot I will get my wife to trade against me. :)

SIBA is right. There are two dominant forces at play in the BA right now, financing (or lack thereof), and micromarkets. The headline news and DQ stats show the dominant forces affecting the "not real Bay Area" as eburbed likes to say, which is brutal price declines, foreclosures, and slow as molasses sales.

What I am finding personally, as we are still going to open houses and chatting up realtors on some weekends, is that in the super-Fortress locations, good houses are still selling. Houses with decent space, layout, remodeling, have actually pretty strong interest and sometimes even multiple offers. The houses with something "wrong" with them, like busy street, poor layout, 1980's bathrooms, or that kind of thing, sit and sit.

On top of that, there are fewer buyers who can financially qualify. In the end, there's still a small but definite cadre of willing and able buyers in the price range I've been following who all like the same few good houses that come on the market.

So if I am an idiot I will get my wife to trade against me.
My strategy exactly! My wife is my hedge.

BAI,

you can just use up the 6 free inquiries from propertyshark to look up the financing situation of your target neighborhood.

I actually keep a file of my target neighborhood and the financing situation of each house by propertyshark, it is entirely doable. If you know what you want, the kind of neighborhoods you are looking at probably only has several hundred houses, and you get 6 free inquiries a day. It takes a few months to get to "know" all your potential neighbors and sellers.

Carol Lloyd has again borrowed some ideas that we've discussed on here before - "slumburbia":

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2008/03/14/carollloyd.DTL&type=news

I recall us discussing the trend of exurban decay as housing collapses outside in several times.

OO said:
I identified several acquaintances as “idiots”, of course without telling them.

How interesting what you mentioned is what I have been learning to do that.. figuring who are the winners and who are the "idiots".
In fact, an "idiot" friend the other day opined on how one should invest the opposite as what suggested by Cramer. I told him he was wrong because Cramer is useless because he's right/wrong exactly 50% of times and there are web sites that prove this scientifically.

Doh... moderation is now set to one url? I'm stuck.

There’s a consistent poster (I think the same guy on the giant thread at Yelp) who swears that property prices will double in Palo Alto in the next few years.

So he thinks USD will not be worth a Continental in a few years?

Palo Alto is one of the most over-rated places in the world, though London is still waaaaaay ahead in this category.

Other over-rated places:

Paris, Shanghai, New York (pretty much any place with too many people)

who swears that property prices will double in Palo Alto in the next few years

Ask him to define "few".

I'd say South Palo Alto and East Cupertino are the most overvalued places in entire Bay Area. They are just --- San Jose.

But you cannot imagine how many Chinese are struggling to buy into South Palo Alto (even next to 101) just to get Palo Alto on their address so that they can brag to friends. I know of a couple of examples like that, paying over a million for a run-down eichler that the city doesn't even allow one to tear down and replace easily on a postage-size lot in a visually blue-collar neighborhood in PA next to lots of apartments. Both of them got in with 5% down on a double worker-bee wage with jobs that they absolutely cannot afford to lose. It takes me lots of self-control not to say it in their face, "you are the biggest idiot I know."

Uncle Sam Nears a Massive Banking, Housing Bailout
http://www.usnews.com/blogs/capital-commerce/2008/3/14/uncle-sam-nears-a-massive-banking-housing-bailout.html

Of course, the irony of today's Federal Reserve
bailout of investment bank Bear Stearns is that the
firm has a reputation as being among the most
free-market loving on Wall Street—and that's saying
something about a company located smack in the middle
in America's financial capital. But just as there are
no atheists in foxholes, there are no libertarians
during financial crises, at least not if it's their
dough at stake. And while there are plenty of
economists out there who are advocating a hands-off
approach to the credit crisis and housing
implosion—echoing Andrew Mellon's infamous advocacy of
"liquidate...liquidate...liquidate"—they will be
disappointed. Uncle Sam will probably continue to
intervene during this financial turmoil.

And not just the Fed. More and more, it looks as
though Congress, followed by a reluctant White House,
will move ever more boldly to stop the hemorrhaging in
housing and unfreeze the credit markets. Richard Bove,
banking analyst at Punk Ziegel, says in a note this
morning that it's "more certain than ever" that there
will be a housing bailout to stop the increasing rate
of foreclosures and the continuing drop in home
prices. And political analyst Alec Phillips of Goldman
Sachs says that he sees "a high likelihood that some
type of housing measure is enacted this year." Most of
the legislative energy seems to be swirling around a
plan put forward by Democratic Rep. Barney Frank. The
plan, as outlined by Bove:

• FHA provides up to $300 billion in new guarantees to
help refinance at-risk borrowers into viable
mortgages.

• The terms of the first mortgage are set at a level
that the borrower can afford.

• A second mortgage is put in place, which pays off on
sale of the house and allows the government to recover
the losses absorbed by creating the first mortgage at
below market rates.

• The existing lender agrees to accept a reduced
payment, which could be substantial since the new loan
is based on the house's current appraised value.

• Gets the existing lender free of all obligations and
exposure to the borrower.

• Refinance between 1 and 2 million homes.

• Provide funds to refurbish empty homes and put them
back on the market.

Phillips thinks that while President Bush might prefer
a more free-market approach, the White House is "not
likely to come out strongly against the proposal
initially. Given our expectation for Democratic gains
in the upcoming election, such proposals are likely to
become law by mid-2009 in the event that they fail to
gain support this year. For this reason, Republicans
may seek a compromise in 2008."

Indeed, President Bush has almost gone out of his way
not to rule out a bailout. Nor did he do so in a
speech to the Economic Club of New York this morning.
And in an interview on CNBC today with Lawrence
Kudlow, the president basically said that in
extraordinary situations, extraordinary action is
required.

Now, don't expect a financial miracle or a relaunch of
the housing boom here. Instead, a bailout would give
clarity to investors by shifting the price and
foreclosure risk of the tumbling housing market to the
government and taxpayers. Bove, who has been
advocating a plan like Frank's, thinks passage would
be great news for homeowners and the credit markets:

This program will work. It makes sense. It penalizes
the bad lenders. It allows the householder to stay in
the home and forces him/her to pay the government at
the time of sale for its initial losses. It allows the
holders of structured financial securities to be paid
off and reestablishes the credibility of these
securities. It cleans away the financial garbage that
is now depressing the markets. It provides a solution
to the empty housing dilemma. Plus, and this is
important, it creates a format that can be used by the
private sector to rid itself of the troubled loans
without government getting involved. Big banks can do
this without the government's aid. This idea is as
brilliant as the Fed's securities swap idea. Clearly I
am biased in reviewing this proposal because it is one
that I have been advocating for months in almost the
exact same format. If this gets through Congress the
financial crisis is definitely over.

And there are other ideas floating around as well.
Nobel laureate and financier Myron Scholes wants the
government to inject capital into the banking system
by investing in debt and stock. International Monetary
Fund official John Lipsky, a Wall Street veteran, also
thinks the government may need to put taxpayer money
directly into banks. And Vincent Reinhart, the Fed's
former chief monetary economist, told Bloomberg that
the Fed is inching closer to buying up those
beaten-down mortgage-backed securities.

Are any of these suggestions likely to happen? Today's
move by the Fed, using a little-used Depression-era
provision of the Federal Reserve Act, makes previously
unlikely actions seem far more possible.

Speaking of the fortress, have everyone noticed how inventory (or listings) in Mountain View has jumped a good 30% the last two months. I think we have a nice leading indicator here.

Peter P, we agree again (that makes it at least thrice in the last 6 months). Palo Alto is near the most overvalued location on the planet. I don't know about London, I haven't barely been there since there financial industry bubble started. But I can imagine how bad it is.

NVR,

Good stuff again!

OO,

Love your idiot-as-contrarian-indicator concept. I've been dabbling in it myself, but I never know exactly when to pull the trigger, it seems. Part of the problems is that with some help from the government, the idiots can stay solvent longer than I can stay sane, to rewrite the popular quote. Only kidding.

Patrick,

Looks like your esteemed service provider once again needs to be reminded that daylight savings time has commenced. I'm now a patrick.net veteran of something like 4-5 DST changes, if memory serves me.

Release Date: March 14, 2008
For immediate release

The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system. The Board voted unanimously to approve the arrangement announced by JPMorgan Chase and Bear Stearns this morning.

Identifying the Role of Moral Hazard in International Financial Markets
http://www.federalreserve.gov/pubs/ifdp/2002/736/ifdp736.pdf