patrick.net

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

Sub-prime Surprise … Not!
http://www.federalreserve.gov/SECRS/2007/July/20070726/OP-1288/OP-1288_2_1.pdf

Prices taken from a RW's website in Santa Clara 95054 (Rivermark). I would say prices are down 10% from peak.

MLS List Price Sale Price Sq Ft Close Date
772815 1,400,000 -- 3395 --
761572 1,369,000 1,320,000 3395 12/31/07
732492 1,419,000 1,377,000 3395 08/06/07
721885 1,449,000 1,410,000 3395 06/28/07
704245 1,450,000 1,410,000 3395 03/21/07
754458 1,410,000 1,399,000 3113 11/01/07
710953 1,399,000 1,355,000 3113 05/22/07
783448 1,298,000 -- 3073 --
779550 1,350,000 -- 3073 04/04/08
749620 1,359,000 1,290,000 3073 10/11/07
778229 1,331,000 -- 2989 --
759080 1,349,000 1,331,000 2989 12/07/07
717725 1,395,000 1,395,000 2989 04/17/07
747672 1,269,950 1,260,000 2645 10/04/07
737725 1,335,000 1,335,000 2645 08/15/07
726142 1,239,999 1,240,000 2627 06/20/07
712603 1,239,000 1,190,000 2627 05/17/07
759851 1,250,000 -- 2408 --
774920 1,230,000 1,230,000 2408 02/26/08
736900 1,239,000 1,234,000 2408 08/01/07
734011 1,259,000 1,276,888 2408 07/12/07
703592 1,199,800 1,200,000 2408 03/16/07
765980 1,099,999 -- 2331 --
743272 1,199,000 1,199,000 2331 09/08/07
717016 1,175,000 1,217,000 2331 05/02/07
723209 905,770 858,906 2139 09/21/07
711913 1,038,000 1,048,000 2128 04/12/07
733480 1,050,000 1,082,000 2117 08/02/07
759895 1,069,000 1,080,000 2083 12/17/07
741339 1,089,000 1,108,000 2083 08/21/07
718187 1,049,000 1,081,000 2083 05/02/07
702528 990,000 1,045,000 2083 02/06/07
777885 959,000 -- 2036 --
774272 939,900 942,000 2036 03/04/08
746297 978,000 965,000 2036 10/02/07
741151 964,000 964,000 2036 09/14/07
728725 959,999 947,000 2036 06/21/07
724376 989,000 985,000 2036 05/18/07
754784 939,888 930,000 1754 10/31/07
724816 975,000 1,035,000 1754 05/31/07
716031 839,000 829,000 1716 06/15/07
762212 909,000 900,000 1671 02/12/08
771781 849,950 830,000 1657 02/29/08
729160 868,000 872,000 1657 06/29/07
723435 878,000 865,000 1657 06/28/07
722393 898,000 900,000 1657 06/15/07
704028 878,888 878,000 1657 03/29/07
774408 829,000 -- 1590 --
771664 828,000 820,000 1590 02/15/08
760836 810,000 800,000 1590 01/30/08
755399 849,950 800,000 1590 12/04/07
738529 870,000 852,500 1590 10/25/07
738194 865,000 840,000 1590 09/28/07
731682 868,888 865,000 1590 08/27/07
737987 889,850 895,000 1590 08/07/07
727569 848,000 826,000 1590 07/18/07
725285 849,900 830,000 1590 05/29/07

I found this site "MortagageNewsDaily" that doesn't appear to be updated frequently. This story is still at the top. www.mortgagenewsdaily.com/12112006_Housing_Panic.asp

Odd how the December 2006 prediction was for modest price growth extending into 2007 and 2008.

Peter P, we agree again (that makes it at least thrice in the last 6 months).

Don't we usually agree on things? ;)

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.

Teardowns are not allowed to preserve the blue-collar "character" of the neighborhood.

Only idiots brag about an address. :)

Rich people "brag" about having yachts too large to enter harbors.

"there are no libertarians during financial crises" LOL!

No sh!t!

I was so p!ssed I had to run next door to pick up fax when Larry was being... less than generous wit da' Prez. Tongue-tied as ever he tackled "moral hazard" in a fashion that would have made Will Ferrell proud! I've never seen a man so eager to get something over with.

Is there any precedent for this? Anyone? Has any former President had to go on national television to explain why the well has run dry? I'm truly *not trying to be flippant here.

Better Perma-Renter than Perma-Debter! Nice post, thanks.

Is there any precedent for this? Anyone? Has any former President had to go on national television to explain why the well has run dry? I’m truly *not trying to be flippant here.

Maybe Hoover? Carter?

I didn't realize that Hoover ever appeared on "national television".

Carter did appear in a sweater telling us that the energy well had run dry.

I didn’t realize that Hoover ever appeared on “national television”.

C'mon, you know what I mean - needing to appear before a large, if not national forum to explain why the country is in deep financial doo-doo.

Greetings from a long time lurker. I have learned so much from reading everyone here. Thanks!

A thread titled Silicon Valley Prices seems a perfect opportunity to tell my own FB story. I live in an East San Jose house my wife bought in 2005. She bought for 620k, 120k down with 500k 5-year IO loan, a little over 2 years to go until the reset. Judging by the asking prices in the neighborhood I figure our house is worth 400k. "Worth" is such a wishful word, I know.

Our current plan is to stay put until reality returns to all of the Bay Area, sell the house at whatever loss and move to a better neighborhood where we can stay long term, hopefully making up for the loss in the reduced price of the next house. We already tried to sell but it was too late. Fortunately we are financially secure and in that sense we aren't truly FBs. Refinancing to a 30-year FRM is a possibility, but that seems pointless given we don't want to live here long term.

And with all the recent bailout talks and especially with the BS fiasco I'm beginning to wonder, will we see banks become desperate enough for cash that they would consider selling me the mortgage note at a discount? Does that sounds at all feasible, or is it crazy? I'm considering offering 50%. My lender is Wells Fargo and so far they don't appear to be in big trouble but who knows.

Even if they're interested in my proposal I suppose it would only be possible if they kept my loan in house. How do I find out if the loan has been securitized and sold? Just call them up and ask? I doubt the person who picks up the phone will even understand what I'm asking.

TIA

Debtonator

Thanks for posting and sharing, and genuinely best of luck with your situation. It really doesn't sound too bad at all.

Cash flow problems at banking institutions are essentially balance sheet problems. Assuming your bank is carrying the loan, if it were to accept your offer of 50% of balance it would essentially be forced to "mark to market" your loan. This would mean a large loss recognition which would not make them happy.

Unfortunately, this scenario is unlikely.

Yours would not be characterized as a short sale, in which a bank might accept less than full note value. In that scenario, you would have to fully disclose your personal balance sheet and assets, and if you were deemed capable of fulfilling your obligation the bank would tell you to go pound sand. They will only accept a short sale when you have them cornered, which you do not.

This said, it sounds to me like you are endeavoring to game the system in your favor. If its all in your wifes name, you might nuke her balance sheet and endeavor a short sale but thats probably not ideal.

And you are talking about an act of very questionable morality, btw.

Justme

Thanks man :-)

I know you CA residents are not familiar with benefits of deregulation.....:-)

This is only the beginning IMO, we really haven't seen anything yet. Climate control will be an unaffordable luxury for most on the other side of this thing. From today’s Washington Post below:

Residents Stung by High Cost Of Power
Bills Have Risen 14 to 78 Percent

By Kirstin Downey
Washington Post Staff Writer
Sunday, March 16, 2008; Page A01

George Mann, an $18-an-hour grocery store clerk in Waldorf, found himself trembling last month as he wrote the check to pay his $644 electricity bill.

Still financially recovering from a $549 electricity bill in January, Mann said he noticed he was "shaking" as he paid the bill, full of anxiety about how he would find the money to pay other household expenses for the three-bedroom rambler where he lives with his wife and four children.

"When they deregulated the market, there was supposed to be competition and prices were supposed to go down," he said. "But why did the bills go in the opposite direction?"

That is a question being echoed in households across the region, particularly as heating bills rise in the coldest months of the year.

Electricity costs 78 percent more for Marylanders who get their power from Pepco than it did in 2001, and Virginians pay 14 percent more than they did at that time. Rates in the District have climbed 55 percent over the past six years.

According to Pepco, the average monthly bill in the District was $60.28 in 2004 and $87.45 in 2007. The average bill in Maryland was $90.45 in 2004 and $138.29 in 2007. In Virginia, bills have climbed from $98.85 to $103.90 in the same time period, according to Dominion.

As electricity prices have risen, so has the cost of gas heat. Its price has increased about 40 percent in the region, affected by many of the same factors that have caused electricity rates to go up, according to Washington Gas, which serves customers in Maryland, Virginia and the District. The average District resident paid $852 for gas in 2002 and $1,209 in 2007. Marylanders paid $789 annually in 2002 and $1,218 in 2007, and Virginians paid $851 in 2002 and $1,131 in 2007.

NVR,

Yeah, we're really not in a bad situation and for the most part I'm just thinking out the possibilities.

I thought that banks would rather not realize a loss if they don't have to and you confirmed it. But can that attitude ever change? What would have to happen for banks to appreciate cash more? I understand whatever cash I can offer is not even a drop in the bucket, but I'm curious as to how banks think and operate.

It's interesting you mention gaming the system and questionable morality. I knew my post would raise those alarms. Notice I didn't say I was going to walk away or engineer a way to become eligible for principal forgiveness-type bailout. Yes, those ideas have crossed my mind. ;) What I was contemplating though was buying my mortgage from the lender at a discount. I figured paying cash would make a meaningful difference, but maybe it's all the same from the bank's point of view?

northernvirginiarenter Says:
March 15th, 2008 at 1:35 pm
"I know you CA residents are not familiar with benefits of deregulation
This is only the beginning IMO, we really haven’t seen anything yet. Climate control will be an unaffordable luxury for most on the other side of this thing. From today’s Washington Post below:
Residents Stung by High Cost Of Power
Bills Have Risen 14 to 78 Percent"

I just paid my whole electric bill for last year. It was $60. Stories like this just crack me up because I've had to put up with stupid people telling me solar is not cost effective.

I just paid my whole electric bill for last year. It was $60. Stories like this just crack me up because I’ve had to put up with stupid people telling me solar is not cost effective.

I thought your bill would be negative. ;)