patrick.net

This shouldn't be hard, Palin & Co. have identified that White Boomers have suddenly decided to become energized about something other than lawn care. They have money and savings that can be raided, so it will be. They are irrational and illogical and shit-scared about nearly everything, which plays right into her hands. All you need is the right sound-bites and watch the checks roll in.

Is it me or does this conversation smack of splitting hairs? Not even sure what the argument is about anymore? So we all agree that house prices continue to fall in some or most areas, we're just not agreeing how much, or who's graph is correct.

Who here really believes we're over the worst and it's pay-day again... take one step forward.

Side note: I just got back from Provence where I put an offer on a home for $275K. Out the door cash. The exchange rate is working me $1.36 to the €. Yet still the house is a deal compared to what I get here in CA. I can rent it out as a holiday home and make more than I'm getting in a US bank. Not to mention I'm getting paid in Euros. Paris is 2 hrs away on the TGV. Marseilles 1 hour by car. Cote d'Azur is 2.5 hours away on the motorway.

I know it's apples vs oranges, but seriously... what the fuck we fighting over? Overpriced, crappy cardboard boxes burning in the desert sun.

If it truly is a global economy... I just threw down an alternative.

junkmail says

Side note: I just got back from Provence where I put an offer on a home for $275K.

C'est génial! Avec un petit porche au soleil , et des tournesols ...

It's simple - interest rates are far too low. When a government shows that it does not value its own currency, there is nothing "bubbleicious" about a move towards precious metals. We've seen trillions of dollars borrowed and printed in the name of bailouts and handouts with near-constant reminders that the Fed will attempt even more of said to ameliorate today's pathetic economic situation.

Question for you: Where do you think the gold price would've gone had Volker not increased interest rates to 21%+?

ANOTHER question for you: When do you think Bernanke/the Fed will be able to raise rates to even a paltry 5-6%? HINT: Once you go ZIRP it's EXTREMELY difficult to go back up without imploding the entire system.

Doesn't all of this discussion of the "market is up" have to be in the context of what market you're referring to? For example, the sub-$200k crappy homes in certain slummy parts of the SF Bay Area are as expensive as some nicer homes in Nebraska. Are they the same market? Likewise, the $1.5-2M market in, say, Palo Alto appeals to a different set of buyers and goals.

If you're just thinking about it just from an investing standpoint, you can't buy and rent those Palo Alto houses at current market rates for anywhere near break-even cash flow, while perhaps you can for the $200k homes.

So these big national numbers seem so meaningless. What is an "average" house?

I say again - Shiller was on the radio last night saying prices were still falling and that he would not buy, absolutely nothing about being at a bottom.

FalconMaster says

HOUSING HAS NOT BOTTOMED!

Oh, wait a second. If you say it in all caps with an exclamation point after it, then it must be true.

Consider me convinced.

Look, we all know there's a lot of money in San Fran, Los Angeles, and San Diego..... Not everyone is going broke.... In fact, the wealth divide is just getting even LARGER in these cities, as it is in the united states in general.

The ghettos are becoming more ghetto... and the top "fortress" areas are thriving, but getting smaller. Naturally as the boundaries of fortress areas erode and the ghettos expand real estate values will go up in the fortress areas and down in the borderline areas. I'm seeing this first hand in Los Angeles county.

I'm waiting to buy partly because I can only afford to buy in the "border" areas of fortresses that are ERODING quickly.. So why on earth would I lock myself in a 30-year mortgage in a place that in 10-15 years could be a GHETTO!

Renting is the only sensible option for me personally at the moment. Is anyone else out there scared to commit to a mortgage for fear of school districts getting worse ect. Personally I like the idea of renting, possibly even until my wife and I have kids and they are ready to go to elementary school.... With impending budget cuts in CA and economic uncertainty in general.. a month to month lease is much less scary than realizing in 10 years you bought into a ghetto in the making.

thunderlips11 says

I think the new numbers are going to be real bad. Whether it’s coincidence or if they have other proprietary means of checking information, banks are suddenly moving to “pause” their ongoing foreclosure proceedings:
http://patrick.net/?p=541362

Couldn't one interpret banks "pausing" foreclosures many ways?

Spin 1 - prices are going higher so banks are waiting to foreclose to sell the houses next spring when prices are higher.

Spin 2 - few people are buying so banks aren't bothering to foreclose since they can't sell them.

Depending on the situation in Spin 2, if banks know prices are going to completely plunge, shouldn't they be trying to unload now and get 80 cents on the dollar instead of 50 cents? Or do they expect more government help?

Los Angeles Renter says

Renting is the only sensible option for me personally at the moment. Is anyone else out there scared to commit to a mortgage for fear of school districts getting worse ect. Personally I like the idea of renting, possibly even until my wife and I have kids and they are ready to go to elementary school…. With impending budget cuts in CA and economic uncertainty in general.. a month to month lease is much less scary than realizing in 10 years you bought into a ghetto in the making.

That's EXACTLY what we're doing... and saving several thousand dollars every single month along the way! Renting a nice big house in a non-ghetto area for half the cost of buying it (and with rent fixed for three years). And that's savings versus the real, fully-loaded cost including property taxes, insurance and maintenance, minus any potential tax deductions. Oh, and no capital or major maintenance risks at all. :-)

It's a great strategy right now, which will set you up for 2013 or so with a bigger bank account to boot. And besides, if interest rates do go up, which should lower capital costs proportionally, you can use all those savings to pay down the (smaller) mortgage and lessen the interest hit. OR, if the duck is right and property goes up over the next few years, I calculate the rental savings will roughly offset the higher future capital costs assuming even a 5% annual price inflation (as if). So with no near term capital or maintenance risks, it sure seems win-win.

"More modifications have become permanent and no longer counted as delinquent, and Fannie Mae and Freddie Mac are foreclosing again (they have a record number of REOs) - so there has been a decline in the delinquency rate."

This is nothing but FCs and mods eating through the weak and the dead.

From the graph they'll have a full plate for a very long time still.

From the source data:

The total mortgage portfolio decreased at an annualized rate of 5.2% in August.
Total number of loan modifications 114,568 for the eight months ended August 31, 2010

This is not evidence of a recovery and has nothing to do with affordability.

This is just pure semantic GARBAGE. Fewer deadbeats are being strung along for months (and years) on end and are instead having their butts tossed more expediently to the curb in FORECLOSURES (and justly so).

Foreclosures hit an all-time record in August. September stats aren't out yet.

You wanna guess what they'll be?

Recovery? US median household income WENT DOWN AGAIN FOR THE SECOND YEAR IN A ROW according to census data we just got. Another 3% overall median decline for the US. Some states, like ones in the Rust Belt, have seen declines of over 6%.

This is not at all bullish for spending and/or any imagined "recovery."

That's fine, but the published statistics clearly show that involuntary foreclosures ARE BREAKING RECORDS.

August 2010 (the most recent month for which we have available data) was the WORST EVER for foreclosures.

July 2010 (at the time the August numbers were published) then becamse the SECOND worst ever month for foreclosures.

This is not a very positive trend.

"There’s more money out there than you can possibly imagine, and it’s all desperate for higher returns. Not only does real estate hedge against inflation, but it pays a dividend. If the investing public ever decides that interest rates are headed up, there isn’t going to be enough real property to go around."

Actually, the trillions pumped into the economy are precisely to keep interest rates _LOW_. If interest rates rise, that's bye bye overpriced housing flipping!

I love the logic that goes that if the economy goes into the toilet then buy overpriced housing because, hey, real estate will go up with inflation and people will buy it then. Generally speaking, that's like saying that if Y2K had really gone bad and the end of the world came, then an overpriced McMansion in the near city suburbs would be your best bet.

Gold buyers and canned food hoarders are not going to buy overpriced real estate. In addition, as the economy falters that will undermine consumer confidence overall.

This isn't terribly difficult to figure out.

What market has prices that only move in straight lines? Any/all market(s) can go down, go up and retrace some of the previous drop only to resume the drop. This is what I think is going to happen to housing (as well as the rest of the US economy). We had our initial plunge followed by unprecedented government prop-ups which brought some stability, but the background fundamentals have not improved one iota.

Are those three metro areas in CA experiencing an increase in household formation? Most of the USA is not - it's just the opposite. This is a very bad fundamental for housing.

Are those three MAs experiencing significant job growth recovering what was lost during the bust? Most of the USA is not - another very bad fundamental for housing.

Have the debt levels of the average citizen in those areas declined to the point where they can comfortably handle more debt? Most citizens are still in the process of deleveraging. Young people are under unprecedented debt burdens.

Are wages and incomes rising for those in those MAs? In the entirety of the USA, median household income is declining and has been for two years straight now (census data out today).

and on and on and on. When I look at the fundamentals, I see housing (along with the rest of the economy) going on to resume its drop in the relatively near future. Government tricks won't work forever - gold and silver are already screaming this out loud.

Seaside comments about the craziness of Moscva on the Potomac: "NoVA alway is special. no recession ever happened, ehh… mabye recession for couple monthes, people still are sticking with 2007 price and starbucks are crowded than ever."

I never viewed Starbucks as a very high end place. On the contrary, the coffee there is quite good and well priced if you get a venti coffee, about 2 bucks. While that certainly is higher than the 50 cent coffees at Denny's I remember 30 years ago, they still taste a lot better than that stuff at Denny's :-)

The high end of the market is a bit more sticky because these people are playing with the banks' and taxpayers' money but also sometimes their own. When they cash their 401k's, it's a lot more than your or my 401K's. It's just taking them longer to go belly up.

If there's an suburban leftist American nightmare, I can only imagine that it would be a dual income career wonk family with a total of $300K per year salary (before taxes, lots of NEW taxes coming up!) and TWO mortgages with the smaller unit they're trying to offload (probably for about the same price as their new McMansion) with equity being eaten away month after month. So... go into denial and say that it MUST be worth 2007 prices! They DESERVE a half a million profit after buying 10 years ago because, hey, the world owes it to them. Or at least the buyers.

When they go belly up, it's not some Discovery card they're going to get cut up but rather their platinum AMEX and perhaps even life's savings. It couldn't happen to better folks since, after all, they're RICH! :-)

Didja ever see those condos on the waterfront in Georgetown? If you go just before dark, you can see the rats returning (or is that leaving) the potomoc and watch what's on their big screen tvs (yeah, really, you can see their whole loft place including what they're doing.) Yep, worth a cool million for those 600 square feet...

Another cool aid denier tried to tell me I should buy now before it's too late and I told him how much I paid in rent including utilities. He turned pale and couldn't believe it. He pays that much in taxes alone. Shut him up quick.

"Meanwhile there’s a Saudi family somewhere who could afford to buy every single home in Fremont……..literally…….and pay cash."

Ah yes, the newest Democrat special interest voting bloc. I'd love to see them and Steven Spielberg get together to discuss the newest Democrat talking points... :-)

OK, seriously though, didn't we take out the bank of Iceland and the Treasury of Russia because they had already taken a massive hit on our "you can't lose prime credit!" loans? :-) Hey, the Euro was doing great so real estate in 2007 was a sure bet! You better hurry up before you miss the next boat!

Really? Are you REALLY thinking this logic is still going to fly?

Yeah, sure. Saudis are going to buy all the spare homes in Fremont because nothing like an Arab sheik loves more than a split level ranch to land his helicopter on. Hahahaha!

How about this: Why don't the Saudi's just.. invest in more oil! Or better yet, windmill factories in Germany for American taxpayers to buy? Or Chinese CPB factories?

I have lived through three housing recessions now but I have never seen anything like this! The problem that is unique to this downturn is the number of houses that have been allowed to fall into ruin in Yuma and Phoenix, the two markets with which I am most familiar.

I was raised in San Diego and get back there now and then and have even looked at a few homes for sale on the low end of the market. I have not seen a real scraper there yet like the countless properties in that condition here in AZ.

These houses are setting on the bank's balance sheets but have not yet been marked to market which is even less than the land value because of the cost of demolition when you consider the lead-based paint and asbestos issues since the majority of the homes in this condition are older.

Someday that chicken has got to come home to roost and when it does I believe we will see even more bank failures. This is another time bomb waiting to go off that is national in scope; the view from some markets that have faired better notwithstanding.

schmitz_kris says

Question for you: Where do you think the gold price would’ve gone had Volker not increased interest rates to 21%+?

ANOTHER question for you: When do you think Bernanke/the Fed will be able to raise rates to even a paltry 5-6%? HINT: Once you go ZIRP it’s EXTREMELY difficult to go back up without imploding the entire system.

So I guess you are saying that Japanese did great buying gold, right after their central bank tried to inflate their way out of a very similar situation.

schmitz_kris says

When do you think Bernanke/the Fed will be able to raise rates to even a paltry 5-6%

IT seems like you are arguing that if we are going to have a gold situation similar to '79-'80, it is many years off, that is after inflation very slowly builds and interest rates follow. Maybe I'll write my post for 10 years from now. I'm going to title it "2020 hindsight."

Well, in those days it was Japan going down, not the entire world. They (the Japanese) had their pick of the USD, GBP, AUD, other Euro currencies, etc. which were being respected at the time (relatively decent interest rates). Paper is far more convenient and mainstream than gold. These days the whole world seems to be in a race to the bottom with currency debasement and trashing. I guess you could argue the tiny ozzie buck is an exception, but guess what commodity that currency is intimately tied to? Yep, gold.

Man sounds like Larry Yun's spin.

tmgbooks.com says

Someday that chicken has got to come home to roost and when it does I believe we will see even more bank failures.

yeah, I've been tracking FAZ every day I don't know if $13 is the bottom, but I do expect it to hit $100.

Well, not "expect" but I wouldn't be surprised to see a total repeat of March 2009 again.

This is not a normal "recession" where we dust ourselves off and the machines come back on.

^ no, I have no money short at this time, and have not been short since early 2009.

FAZ is of course a timing play. I've been watching it bounce between $13 and $18 for months now. Can't pull the trigger, just watching it for fun to see if I can mentally call the corner before it is confirmed.

^ IYF is + 0.5%, SKF is -20% and FAZ is -30% YTD.

Clearly the solution here is to eliminate medicare. All the tea partiers will then die. Two birds, one stone.

I haven't read the whole thread but aren't the numbers of sales per month at record lows? Wouldn't this allow quite large movements in prices based on a very small number of sales? I just don't see the fundamentals (jobs, wages, etc) recovering enough to give long-term price stability.

Are you freaking kidding me? OH man, Man, it is clearly NOT GETTING better, it is getting worse. These manipulated numbers (reporting has changed, come on man)

Rates are still very high by traditional standards but the trend is very clear and in the right direction

It certainly will not vanish to zero overnight. You can still look forward with more forclosures occuring into several years. What ever number went into foreclosure from bottom to peak 1,2,3,4,5% we will simple repeat during the decline, 5,4,3,2,1% for several years.

If n Million homes went into foreclosure, you can bet you will see the another n Million repeating.

There were a large number of foreclosure hitting the market back in mid90s even though the recession was over years prior.

PPete says

how did two companies with cute little names like Fannie and Freddie come to destroy the entire US economy???

They are a symptom but they weren't the agents of destruction.

The bubble and bust was caused by people becoming able to borrow more than they could service.

stated income / stated asset, interest only, "pick a pay" / negative amortization, teaser rates with early refi penalties.

None of this was the GSEs doing, this was a deregulated industry reaching for the brass ring 2002-2006.

Countrywide, Washington Mutual, S&P/Fitch/Moody's, and Wall Street making the CDOs to grease the skids to hell.

http://research.stlouisfed.org/fred2/series/HHMSDODNS

http://en.wikipedia.org/wiki/Fannie_Mae

http://en.wikipedia.org/wiki/Us_housing_bubble#Causes

Here's reality folks.

From CR:

Economist Patrick Newport of IHs Global: “The second homebuyers’ tax credit pumped up demand, and helped stabilize house prices. Now that the tax credits are behind us, the evidence is accumulating that demand for housing is extremely weak. Existing home sales collapsed in July and remained near a 15-year low in August, while new home sales were at near record lows in July and August. The Mortgage Bankers Association’s Purchases Index, which covers activity through mid September, indicates that home sales in September will be nearly as bad as they were in August. Weak demand, combined with a massive housing glut and a high foreclosure rate, will translate into house prices declining about 6-8% over the next year.”

I know that homes in my home town have rebounded, and that there is 3 yrs worth of applications for new housing in front of the planning board right now. We limit the number of new construction homes, so a builder has to get in line early. I'm guessing its just wishfull thinking on their part, they'd rather eat the $200 than be told they just lost a buyer. This is a different pattern than the last 3 years, however, when NOTHING was going on.

There's no way real estate is going up in the next 5-7 years. The idea that foreign investors are going to swoop in and pluck loser homes off the market is a fantasy of a kind I'm not familiar with. The big piles of money are real, but the last time they tried investing in housing it was something safe, like mortgages insured with CDOs. Nothing could go wrong with that. They will invest in real estate in their own country. Rents here will only go as high as people can afford/willing to pay, and that's just about where they are now.

shrekgrinch says

So, home prices are still overpriced.

Gerneralizations like that are not productive. Comparing price to rent for any particular area is useful--do it on a case by case basis.

shrekgrinch says

Renting is still the way to go…only to be re-evaluated when all the mess clears up or when interest rates rise (because that will lower prices sellers can actually get across the board) or both, in my opinion.

Maybe, maybe not. Historically there hasn't been a strong correlation between interest rates and housing prices. Maybe it will change in the future, but it's by no means a sure thing...

For example, homes will NEVER drop below $230,000 on Carey Drive in Concord.
Are you going to the auction on October 13? I know you don't like the home, but are you curious what it will go for (or if the bank just takes it back)?

shrekgrinch says

In 1968, median California homes were selling for $23,210. Adjusted for inflation, that is $145,604.07 today. That was 2.49 times annual household income (calculated with then median household income $9,302).

$318,660 is 5.22 times annual household income today (calculated with current median household income $61,000).

Back in the late 60s banks would only look at the man's income. Mortgage rates were over 7%.

This is not to say that $320,000 isn't too much for a $60,000 income, though the this loan has a monthly outgo of $2200. But not counting principal repayments, its total cost of ownership is only $1200/mo on average over the 30 yr life of the loan.

Buying a house never makes sense unless you consider a large part of the price the premium for escaping the rent escalator.

At any given time renting may be "cheaper" than buying, but EVERY DECADE so far rents have gone UP, making the buy side's speculative premium pay off.

One problem I see with this picture now is that our governmental processes at the state and national level is simply falling apart. Minarchists cheer this on, but I think it's going to bring a lot of pain and outright wealth destruction this decade as much of America gets to find out what a banana republic is all about.

http://www.bloomberg.com/news/2010-09-28/median-household-income-in-u-s-falls-second-year-to-50-221-census-says.html?source=patrick.net#related_categories_tags_top

US median household income has been GOING DOWN for several years in a row now. Census data just out this week shows the most recent decline (last twelve months).

Last year it went down by another 3% on average. Some places in the Rust Belt, such as Michigan, experienced losses of greater than 6% in just the last twelve months.

Those wage stats are correct; however, when millions are laid off and an economy begins to experience high unemployment, wage numbers are not as meaningful (the lower-paid, low-end workers lose their jobs which distorts averages).

For meaningful work it's best to use the US median income numbers.

Additionally, poverty is rising very quickly in the US (most recent report was dire - no getting around it).

Also to consider: Number of Medicaid recipients soars to new record

http://news.yahoo.com/s/ap/20100930/ap_on_bi_ge/us_medicaid

All of the record-breaking these days seems to be on the side of the bears. Or to the bulls if you are talking contrarian investments.

And Closer to home, pulling it out of Ass, BusinessWeek article...

Silicon Valley Wages Decline 14% Since Dot-Com Boom (Correct)
February 02, 2010, 5:52 PM EST

Even after the declines, Silicon Valley’s technology workers earned about 61 percent more than people in the same industry in the rest of the nation in 2008, according to the report.

Silicon Valley Struggling to Keep Competitive Edge, Study Says
February 11, 2010, 4:16 PM EST

“What do we do? A call to action -- so that as we come out of this recession, around technology, talent and policy, we can compete to continue to be the innovation capital,” he said