patrick.net

Duke,

you are right. Any optimism I hear out there seems to be assuming that the housing drop is over.

Perhaps our government has staved off a disaster that was a consequence of housing dropping 15% nationwide. BUT, they had to prop up the ENTIRE financial system to do it.

What will they do after the next 10% decline in housing I wonder? They are out of bullets. They will be staring at stimulous/default OR direct pain for pretty much everyone. That choice will be coming sometime over the next year.

I'm trying to find anything in the economy to be optimistic about, but the negatives are just too pervasive. A month ago, you could fool yourself by saying the crisis is a financial one, but the economy is on strong feet. That hope has been confirmed a whopping FALSITY.

Personally, I don't think home prices will stop dropping in this environment until the monthly payment on a 20% down 30 year fixed loan at current rates is LESS than the monthly payment of renting the same property.

Too many people are getting burned... and they won't forget it any time soon.

I think people are still not getting how bad this will be.

This is why a minor Spring bounce is still a possibility. ;)

But if the stock market gets hit earlier than Spring...

I'm afraid everyone is right that the economy will get worse, maybe MUCH worse before it gets better.

I think we just saw an election (pre-)bounce in the stock market, but I suspect it will not last.

I do not think there will be an election bounce in housing. Spring seems too distant. even to think about.

Not that I'm wishing for a bounce, I would like prices to revert to the mean, like everyone else here.

The 5 Trillion dollar question is how to allocate (or assign) the losses from the housing market. Spread it out on everyone through generic inflation, or let those who deserve the responsibility take their punishment. In the end, I expect there will be a mix of the two. I'm all for 100% punishment here, but it may not be politically nor practically possible.

I'm in a happy but somber Obama mood. He is a great man, but he cannot perform miracles in short order. It will take time to fix all of this. Give him a chance, and I think many will be surprised what this man can accomplish.

John McCain gave a gracious concession speech, but I admit I am not sure I believe what he said. I hope all will give Obama the chance to get us back on track.

I still find myself (sadly) eager for some show trials. There was so much fraud that prosecuting a few thousand people would be cathartic. Especially people who: lied about income, lied about primary residence, lied on appraisal, max HELOCed on a 0% down and walked away, etc.
I would love to see some of the recourse loans get psuhed so that banks do go after other assets.
In the end there is a ton of money sitting in the poockets of: CEOs like Mozilla, lying apprasers, lying realtors, lying mortgage brokers, fraudulent specuvestors, lying bond rating companies, lying IBs.
That money could go a fair way to relieving some of the harm going on.

Yet there were millions and millions of dollars to turn school kids into political footballs over gay marriage.

Duke,

"Especially people who: lied about income, lied about primary residence, lied on appraisal, max HELOCed on a 0% down and walked away"

I'm not sure maxing HELOCs and walking away constitutes fraud. The others sure do.

A glaring omission I find in your list is the banks themselves. As well as the rating companies.

They should definitely go after those who have committed fraud for profit. I doubt they have the political will to prosecute small guys who just wanted a home.

The best way to educate the public is to let them lose their shirt. But again I doubt this is going to happen.

Moral hazard begets moral hazard.

Duke, yeah. Maybe we could create a special mark on people's credit report that designate them as convicted financial felons. That ought to put the fear of god into the small-time crooks that were part of the bubble.

I wonder about the cost of prosecution, though.

I wonder about the cost of prosecution, though.

Too much.

They should compound the duration of foreclosure marks on the credit report though.

If a single foreclosure stays on for 7 years, two foreclosures should stay on for 14 years.

If the FB has 10 foreclosed houses, the marks should stay with him practically for the rest of his life.

People should first look at managements who made away with millions of dollars and still doing it now( ex: Major Banks have set aside something like 120B for year end bonuses. Govt. Investment about 150B).

Let's get this fixed first. Let's fix the bigger hole here, then we can look at smaller ones.

sa,

I think that is right. Go after the big crooks first. More fair, and better return on the investment in prosecutorial effort.

...but they need to go after some big-wigs in ALLl of the related industries. For example, do not let NAR and David Lereah off the hook, even if it is not practical to go after individual realtors.

I agree, we need to go after all crooks. Initially they need to go after few people and send a strong message for the rest.

I think a highly publicized campaign by the IRS could do wonders for morale. Start with the $250k capital gain fraudsters who did not actually qualify for the expemption, and then move on to flippers who walked away (with cash in hand) from a property that was not a "qualified principal residence" as defined in the Mortgage Forgiveness Debt Relief Act of 2007.

I just know that some of you will appreciate this:

Message from the President-Elect to Mr. Market

Hat tip to JimPortlandOR, over at Calculated Risk Blog

OMG, I sent that picture to everyone I know who isn't sensitive to the F-bomb.

Prop 1A passed!

99.5% ( 25,318 of 25,423 ) precincts partially
or fully reporting as of Nov. 5, 2008, at 3:34 p.m.
State Ballot Measures

A - Safe, Reliable High-Speed Train Bond Act
YES: 5,053,442 52.2%
NO: 4,641,088 47.8%

http://vote.sos.ca.gov/props/index.html

Looks like high speed passenger train travel WILL become part of the USA experience, at least in a decade or two.

http://www.cahighspeedrail.ca.gov/

http://tinyurl.com/69n7mw

Prop 1A passed!

My other post in moderation for the excessive dual links!

@Bap33
all the way back to the philipines... not a hunch, I know of several people that bought various houses as investments and would talk crap about not buying and how housing always goes up. One lady has or had 10 houses... I just giggle every time I see her.... Another older guy took his money from housing and moved back home to the philipines just in the nick of time, he was the only person I know that made any money off of it.

Congratulations, patricket.netters, at least in Ca. The champers must be flowing, schadenfreude freuding, etc. It remains to be seen what the new administration is going to do about the whole mess:

http://www.mybudget360.com/california-housing-prices-down-41-examining-the-summer-selling-season-and-future-trends/

What a difference a year makes. In May of 2007 the median price for a California home was $595,000. Today the median price stands at $350,140, a drop of 41% from the peak. The drop in itself is stunning but what is more amazing is the speed in which this correction has occurred. The previous bubble which was seen in Southern California saw prices drop over a period of 6 years following a gradual trajectory. This time, that is not the case. There are many reasons why this correction has happened so quickly and in contrast to the other one, is very different even though it occurred in the same location.

Oh my goodness, I can't believe this story. Everyone knows that fine art only goes up in price.

www.nytimes.com/2008/11/06/arts/design/06auction.html?hp

"In a hushed salesroom at Christie’s on Wednesday night, works by a wide range of artists, from Manet, Cézanne and Renoir to Rothko and de Kooning, failed to sell, and prices for things that did find buyers often went for far less than what they would have a year ago. "

Peter P Says:
a minor Spring bounce is in the cards.

There is that little thing called "winter" to get through before you get to spring. :-)

What should we call this winter?
"The Underwater Winter"?
"The Winter of Dunk?"
"The Winter of Nowhere to Hide"?

I am wary of the claim that median prices are down 41%. With 50% + of home sales in CA coming from REO we are seeing desperate banks get what they can in the face of future losses.
Hmm, this article has forced me to look much more closely at the Case Shiller methodology. I can see problems. By not excluding REO and looking for resale pairs, we are specificially picking the most distresssed part of the current market. Notably, specuvesting homes that did not pan out.
I guess that leaves me back with the notion of:
1) down payment availability
2) interest rate
3) Multiple of household income
4) rent equivalency

Sorry to ramble here, but we may be seeing an intersting secular shft. Recent home price decline in CA may have been a pure function of RE as investmet smf the failure of exotic finance. Now we may be seeing the other inherent risk part of RE - job loss. People lose homes in recession and depressions for the simple reason that they have no income to make their payments. It is scary to think that part of the downturn is only starting.
This could get really ugly.

COULD get ugly? Dude, where have you been?!

It already is ugly. The data just hasn't fully captured how ugly it already is.

CA is teetering on the cliff. Another 5% drop in home prices will send it over. There is a good amount of people that will tolerate a "correction". But almost no one is going to tolerate a crash. Not when you have the next 20-30 years of your earnings tied up in that asset.

That next 5% will break almost all of the people that were willing to ride it out.

The good part about this is that I think it will happen fast. I believe CA will see the bottom before the end of 2009. That is of course assuming that our economy has not also fallen off a cliff.

Different Sean, that was a rare person to see lately. Welcome back, stick around for a while :-).

Duke,

Right observation. Including distressed sales could skew the data to downside. We might see the steepest decline when layoffs start.

SP:
What should we call this winter?
“The Underwater Winter”?
“The Winter of Dunk?”
“The Winter of Nowhere to Hide”?

The Winter of Their Discontent

What should we call this winter?
Nuclear Winter: the fallout from ARMageddon

LOL!!! Much better. :)

Fuzzy,
I coentend it is not that bad yet. We know a great many homes going to REO were failed flips, 0% down walk-aways, extract-the-cash-and-walk-aways, etc. The hurt wa real, but mostly the banks and thus by extension the pensions funds, foreign investors, etc.
But good 'ol misery is comin when it isn't that new $600k spec home in Sac or Los Banos. Bad is when Mtn' View drops from $1.1m to $500k and people lose that $400k of actual, real equity made out of 10 years of dual inome pumping dollars into mortgages.
Misery is when: AMD, EBAY, Yahoo, startups, etc employees lose their jobs, cannot find another, cannot meet their debts and slowly watch their home slide away.
I guess what I am saying is, bad is when resonsible people who understood risk lose their home because of a really bad economy. As opposed to people who lost their mad money on second homes becuase RE was the can't miss investment of the early 21st century.

I guess what I am saying is, bad is when resonsible people who understood risk lose their home because of a really bad economy.

Well said.

Over the past few years, people who understood risks were not reasonable people, judging by societal standards.

Bad is when Mtn’ View drops from $1.1m to $500k and people lose that $400k of actual, real equity made out of 10 years of dual inome pumping dollars into mortgages.

You predict that Mtn View prices will fall to 1998 levels? I presume you means a $900k mortgage started in 1998 that has been paid on for ten years. In that case, only about $156k in "real" equity would be paid off (at 6%).

Or did you mean a $500k house in 1998, rising to $1.1 million, "ought" to be $900k (your $500k + $400k), that will fall back to $500k?

Interesting. Fortune magazine now describes deflation as the "new" threat: http://money.cnn.com/2008/11/06/news/deflation.fortune/index.htm

New to whom?

500 jobs get axed at AMD, mostly in Sunnyvale.
100 jobs gone at Serena, Redwood Shores.
Also, layoffs at LinkedIn, Mountain View.

Forced "holidays" for Christmas at several companies.

Wild arsed rumors about many other big name tech and software companies.

Could the BA go back to 1998 valuations?
I don't think so.
But.
It could.
Almost every job is very vulnerable.
Other web sites disclose how Health Care is a bubble industry.
Tech is 'good enough' that people can easily delay the next best thing.
Biotech has such deep startup costs that remind us that even good and proftiable ideas are shelved in bad times.
All BA work can be performed more cheaply in, say, Vegas. We already had tech flight once before when the Motorolas (4 pahse, Zilog, etc) of the area left.
So, my guess is no. But it could. . .

Bush to Obama:

"Hey, do you think you'd like to start early?"

Obama to Bush:

"Sure, Jan 2010"

Wait, please distinguish asset deflation from monetary deflation.

We can have a combination of asset deflation AND monetary inflation, in midst of wage disinflation and attempted reflation.

http://www.mercurynews.com/ci_10916051?source=most_viewed

And he claims to be a Republican?

To balance the state budget, the best way is to downsize the government and cut services. We need more tax incentives to keep businesses here not tax hikes to drive them away.

California always runs into problem in tough times because its taxes are too dependent on growth.

Why can't McClintock become the next governor?

It is so gloomy. :(

If we have deflation, this will result in an default on the national debt.

When when our debt is denominated in dollars and we own the only printing press!