patrick.net

CrazyMan says

@ ch_tah
He wasn’t talking to you, he was quoting “chip designer”.
1. Look up mortgage recasts, not resets. They’re OPTION arms. These things will begin to detonate next year. I’ve seen some of the recast #’s and it’s obnoxious.
2. Refinance with negative equity?
3. Maybe
4. Lowest sales count on record. Who are they selling to again?
5. Not with 10%+ unemployment.
6. Most certainly possible.

I know he was. I was making a funny.
1. It's not as bad as you think
2. Are you sure it is negative? Prices may have gone up in the particular area.

I have to question the data on the 16 sales too. According to redfin.com the number is much higher. Maybe sales haven't dropped off at all. I thought we were having honest discussions here. According to redfin.com in the past 6 months, in 94301, there have been 82 sales. That's only 6 months. If I go for a year, it's 140 sales. What's going on here? 16 versus 140?

Crazy_man: Thanks for answering Ch_Tah's questions for me. You took the words right out of my mouth. I don't have anything to add to what you wrote.

ch_tah says
1. It’s not as bad as you think

orly?

60% of these recasts are in CA, of which the vast majority are in the BA and OC.

It's not bad, it's obnoxious.

ch_tah says

1. It’s not as bad as you think
2. Are you sure it is negative? Prices may have gone up in the particular area.

1. Prove it.
2. For the 1000x time, alt-a/option ARMs have a 5year fuse. Prices haven't dropped because the bombs have not exploded.

I can't answer the sales number because I didn't post it. I do seem to remember there was a discussion that redfin counts foreclosure as a "sale". No sure if that applys in this discussion.

ch_tah you're an idiot for implying i'm lying.

go check propertyshark; any house in 94031.

Anon is right. This is anecdotal but I imagine all too popular: I've got relatives that are completely assed out after purchasing their 53 year old POS San Carlos home for almost $1 million. They are house poor now and comps are going for $750k - $800k. They are not in default, and likely won't be, but they obviously won't be buying another home or buying much of anything for the next couple decades. Their hands are tied, all because they had to own. And they are in complete denial.

Same for my relatives in the East Bay. I have a feeling there's a lot of this up there. Extreme leverage, though not necessarily defaulting. Of course both families I describe were part of the bubble on the way up, buying already-overpriced homes early in the bubble, selling them, and then rolling their profits into larger, more overpriced homes. Then, BOOM. They got stuck in them. They both bought at almost the exact worst time.

How many other white collar, dual income families in the Fortress areas are tapped out like my relatives? I bet a lot.

http://articles.sfgate.com/2009-09-20/news/17207000_1_option-arms-fitch-ratings-payment-option/2

"When option ARMs recast, the payment shock is much more intense than we've seen (with other types of loans, such as subprime)," said Maeve Elise Brown, executive director of Housing and Economic Rights Advocates in Oakland, a consumer advocacy group. "That makes them potentially much more damaging."

Unlike subprime loans, which were more commonly used for entry-level homes, option ARMs started out with high balances. In the five-county San Francisco area, option ARMs average about $584,000 and were used to buy homes averaging $823,000, according to an analysis of First American data.

http://articles.sfgate.com/2009-09-20/news/17207000_1_option-arms-fitch-ratings-payment-option/4
54,000

Number of option ARMs in Bay Area

$30.9 billion

Bay Area option ARM loan balance

Source: First American CoreLogic

94%

Borrowers who make minimum monthly payments

Serpentor says

http://articles.sfgate.com/2009-09-20/news/17207000_1_option-arms-fitch-ratings-payment-option/2

And more to the point of how important this is:

From 2004 to 2008, "one in five people who took out a mortgage loan (for both purchases and refinancing) in the San Francisco metropolitan region (San Francisco, Alameda, Contra Costa, Marin and San Mateo counties) got an option ARM," said Bob Visini, senior director of marketing in San Francisco at First American CoreLogic, a mortgage research firm

Yeah, it's a big deal. Banks don't seem so eager to foreclose though. Not to hard to figure out why. It's going to be a long, long time before it's all sorted out.

yep.. its going to be a long painful process until everything is sorted out.

more interesting data... Prime Jumbo loans have all but evaporated. per patrick's friday news links.

I'll try to address all of your points at once:

@Serpentor
I never said prices weren't inflated in the prime areas by the bubble. History and numbers prove they were. I just don't think they are going to crash like you do.

Your point about people looking to Sunnyvale instead of PA is questionable at best. Many people would never buy anywhere but PA. Cupertino is a better example of this. People say Cupertino or nothing because of the schools. Anecdotally, I know many people who have paid an extra $500k for a Cupertino house because of the schools. I mentioned Sunnyvale to them; they said no thanks.

Your #2 of "for the 1000x...": I was responding to Crazy's point that people won't be able to refinance because they are underwater. Maybe they aren't underwater and will be able to refinance was my point.

Your sfgate article is from Sept. 2009. Aren't we about to enter 2011??? You seem to live in the past. Fundamentals have changed since then. Rates have dropped. Gov't has intervened. The economy is improving.

@Crazy
Is your Barclays chart updated for the current interest rates? If you are using a chart that is assuming 6+% rates when they are below 5%, that's not fair. If rates rise significantly without wage inflation, then I'll jump on board with your sentiment. But as discussed in other threads, that's pretty uncommon. I have no problem changing my view if fundamentals change. I don't think the same could be said about Serpentor.

@anon - I checked out city-data too, and they also have many more sales than 16 for 94301 (btw, it's not 94031). Unless someone can prove that redfin and city-data distort their numbers significantly, I call complete and utter BS on the lack of sales for this zip. If 100+ houses are still selling in this zip, it proves there is still significant demand, and your little red dots mean nothing.

@Quant HF - your anecdote actually helps prove my point - sure these people got in over their heads, but they aren't in default and likely won't be (your words). Many other people are probably in a similar boat. Your anecdote just means one more house is not available for purchase thus shrinking supply.

@MarkInSF - If I read that right, 20% of people who took out mortgages used an option ARM. So first of all, anyone who bought with cash is fine, which for PA, may be a significant number. 80% of others are not exposed to the option ARM. Banks aren't looking to foreclose on these people. What % of option ARM folks are really going to default? 94%? Less? Even if they all did, they won't do it at the same time. The market seems to be able to absorb the pressure. If the economy really picks up, you'll have plenty of demand. I don't see Option ARMaggedon out of the numbers you guys are providing.

ch_tah, apparently your brain has shutdown. no point debating when that happens.

anon says

ch_tah, apparently your brain has shutdown. no point debating when that happens.

Ok, so you provide false data, and it is my brain that has shut down. ???

You are right though, no point debating considering you have resorted to lying to prove your point. I'll stick with honest discussions. You guys can continue to perpetuate your lies on this thread without me commenting.

ch_tah says

@MarkInSF - If I read that right, 20% of people who took out mortgages used an option ARM. So first of all, anyone who bought with cash is fine, which for PA, may be a significant number. 80% of others are not exposed to the option ARM. Banks aren’t looking to foreclose on these people. What % of option ARM folks are really going to default? 94%? Less? Even if they all did, they won’t do it at the same time. The market seems to be able to absorb the pressure. If the economy really picks up, you’ll have plenty of demand. I don’t see Option ARMaggedon out of the numbers you guys are providing.

No, I don't see "ARMageddon" either, like happened in some areas where prices tripled. But it's not something you can just brush off. The availability and use of option ARMS and even interest only loans were a key part of what drove housing prices up in the bay area in the mid 2000's, and they are a key part of what will keep it slumping for years.

ch_tah says

Your point about people looking to Sunnyvale instead of PA is questionable at best. Many people would never buy anywhere but PA. Cupertino is a better example of this. People say Cupertino or nothing because of the schools. Anecdotally, I know many people who have paid an extra $500k for a Cupertino house because of the schools. I mentioned Sunnyvale to them; they said no thanks.

Markets are never so black and white, and you're anecdote is not convincing. There are always a large number of marginal buyers that will be willing to live in the 80th percentile of good neighborhoods rather than the 90th percent if the price differential gets big enough.

BTW, I have my anecdote as well. I have two friends that bought in good Oakland neighborhoods this year, because they got sick of waiting for prices to fall in San Francisco, and noticed Oakland had become much cheaper.

MarkInSF says

ch_tah says

Your point about people looking to Sunnyvale instead of PA is questionable at best. Many people would never buy anywhere but PA. Cupertino is a better example of this. People say Cupertino or nothing because of the schools. Anecdotally, I know many people who have paid an extra $500k for a Cupertino house because of the schools. I mentioned Sunnyvale to them; they said no thanks.

Markets are never so black and white, and you’re anecdote is not convincing. There are always a large number of marginal buyers that will be willing to live in the 80th percentile of good neighborhoods rather than the 90th percent if the price differential gets big enough.
BTW, I have my anecdote as well. I have two friends that bought in good Oakland neighborhoods this year, because they got sick of waiting for prices to fall in San Francisco, and noticed Oakland had become much cheaper.

so they must work in Oakland. Nice area, but avoid driving thru downtown or keep always an eye open snooping the surrounding.

anon says

ch_tah, apparently your brain has shutdown. no point debating when that happens.

that is hilarious.

It seems I post this link about once a year.
In the Bay Area, almost three- quarters of mortgage loans taken out last [2005] year allowed borrowers to delay the payment of principal and, in some cases, interest, according to data from San Francisco research firm LoanPerformance. Our very own CL seems to be one of them; these folks will continue to come out of the woodwork (especially in 2012, which is the last year that Uncle Sam allows mortgage debt forgiveness).
As foretold in the Book of Zelman. Those who can, will refinance. Those who can't will be recast into the lake of underwater homeowners. YMMV...

ch_tah says

Your point about people looking to Sunnyvale instead of PA is questionable at best. Many people would never buy anywhere but PA. Cupertino is a better example of this. People say Cupertino or nothing because of the schools. Anecdotally, I know many people who have paid an extra $500k for a Cupertino house because of the schools. I mentioned Sunnyvale to them; they said no thanks.

LOL! Irrational Exhuberance raises its ugly head, with kids being the scapegoat.
Can we think back and say buyers overpaid by equal amount in decades past for same reason, I think not! Many old timers would say, these buyers are just insane.

ch_tah says

@Serpentor
I never said prices weren’t inflated in the prime areas by the bubble. History and numbers prove they were. I just don’t think they are going to crash like you do.

Your point about people looking to Sunnyvale instead of PA is questionable at best. Many people would never buy anywhere but PA. Cupertino is a better example of this. People say Cupertino or nothing because of the schools. Anecdotally, I know many people who have paid an extra $500k for a Cupertino house because of the schools. I mentioned Sunnyvale to them; they said no thanks.

Your #2 of “for the 1000x…”: I was responding to Crazy’s point that people won’t be able to refinance because they are underwater. Maybe they aren’t underwater and will be able to refinance was my point.

Your sfgate article is from Sept. 2009. Aren’t we about to enter 2011??? You seem to live in the past. Fundamentals have changed since then. Rates have dropped. Gov’t has intervened. The economy is improving.

right just because you know a few math-impaired idiots that will overpay just to be in the right zip code doesn't mean that what normal people think. That extra few hundred grand will pay for not only private school but also pay for most of college tuition. Try again.

The info in the sf gate article still applies today, mortgages are continuing to explode. Government has intervened and rates are low, but it seems like you don't understand the concept of "RECAST". Apparently you haven't been reading the news, the government "intervention" has only helped the banks, the sheeple loan-owners have all be hung out to dry.

Serpent,
Chill out dude. Resentment or anger will eat you up from within. Just because they don't Follow Your Path does not mean that they are idiots. Quite likely, theirs is a different logic where your logic doesn't apply.

http://www.mercurynews.com/crime-courts/ci_16842648

getting your purse stolen walking from your car in a million-dollar neighborhood.

what's the world coming to

Troy,
your link
"the woman, in her 40s, described the suspect as an African-American man".

Reinforces The Fortress attitudes

sybrib says

Troy,

your link

“the woman, in her 40s, described the suspect as an African-American man”.
Reinforces The Fortress attitudes

It's also a reality. How much is not getting robbed worth to you?

I think things are going to be getting increasingly hairy here for the foreseeable future.

The pain is only beginning.

I agree, sadly. Things will be getting worse and crime will increase.

On the somewhat lighter side (or serious side, really), if you were going to mug people, where do you think it would be the most successful and the most profitable? Palo Alto or Oakland?

yeah, exactly.

http://gizmodo.com/5711252/white-guy-becomes-black-bank-robber-with-super-realistic-hollywood-mask

invert the colors and things are going to get really interesting.

I don't think I've seen a black person on the street in the south bay (Sunnyvale - Cupertino - PA) in months (I'm not that close to the fortress but I enter it often on daytrips).

Now, I don't know how "bad' it's going to get compared to some past baseline, but I don't think we're moving into any recovery model for the bottom 80% of this State. Quite the opposite, I think things are going to resume the downslide.

sybrib says

Serpent,

Chill out dude. Resentment or anger will eat you up from within. Just because they don’t Follow Your Path does not mean that they are idiots. Quite likely, theirs is a different logic where your logic doesn’t apply.

I don't resent idiots who overpay. I resent the other idiots who worship them.

Troy says

sybrib says

Troy,

your link

“the woman, in her 40s, described the suspect as an African-American man”.
Reinforces The Fortress attitudes

It’s also a reality. How much is not getting robbed worth to you?

Yeah, I guess that's part of what you pay for. Reducing your chance of being mugged from 0.1% to 0.01%.

I don't think it's part of any trend. Crime rates are very low, especially considering the state of the economy.

If the wing nuts wing of the Republican party get their way, and end unemployment benefits to let the "free market" work, that will all change. Lots of "entrepreneurs" will notice a mask and a gun has a high ROI.

CrazyMan says

I agree, sadly. Things will be getting worse and crime will increase.

You mean DECREASE, like it has in 2008 and 2009, during the peak of the great recession?

One White woman getting mugged doesn't mean that crime is increasing. It just means one white woman got mugged.

Troy says

http://gizmodo.com/5711252/white-guy-becomes-black-bank-robber-with-super-realistic-hollywood-mask
invert the colors and things are going to get really interesting.
I don’t think I’ve seen a black person on the street in the south bay (Sunnyvale - Cupertino - PA) in months (I’m not that close to the fortress but I enter it often on daytrips).

Not any different than in prior decades. I dont see any difference today vs 20-30 years ago.
But you will see black professionals in the hi-tech work place today as was in prior decades: Marketing, Accounting, Engineering, Lawyers, Doctors. However the term 'fortress', is certainly a more recent alien concept.

good analysis.

but, MOST of the executives mgmt level, the wealthy families, the elite are living in these areas. Needeless to say, they are not dependent on two income or even just one income to pay the mortgage. Compare this with an engineer who makes >100K, but paying $1500 rent.
So the people above makes at least $500k/year or have at least $1 million savings, paying at least $3k mortagage.

your analysis is just for those two income families, dreaming to live there. I know some people, who lives in a very shabby palo alto home, just because it is in PA. Go figure.

whats the income distribution of Palo Alto again? I don't think majority there makes anywhere near $500k. Median HOUSEHOLD income is more like $100-130k (City data, zillow, plenty of other sources). Wealthy, but not enough to justify 1.2M price of an avg home. I'd be willing to bet the higher income residents are old money and have been living there for decades.

Serpentor says

whats the income distribution of Palo Alto again? I don’t think majority there makes anywhere near $500k. Median HOUSEHOLD income is more like $100-130k (City data, zillow, plenty of other sources). Wealthy, but not enough to justify 1.2M price of an avg home. I’d be willing to bet the higher income residents are old money and have been living there for decades.

Exactly, I've generally stopped arguing with those who just make up stuff about incomes. Certainly there are some big earners but: Estimated Palo Alto median household income in 2009: $123,732.

Read more: http://www.city-data.com/city/Palo-Alto-California.html#ixzz18yLc04xG

The question in my mind is mainly about capital. So someone's family income is say $150k. Do they have a huge amount of capital and are they willing to put it down on a house in PA, Woodside, Atherton, etc.? This will prop up values/prices somewhat but how much? This is perhaps the most important question when considering what prices might bottom out to. That, and how much outside pressure from money that wants to move in. Hard to say - how crappy of a structure are they willing to buy just to be on the peninsula? I am still astounded by the low quality of CA housing compared to the rest of the country when looking areas with similar demographic.

Even Atherton, second highest in the nation is only $240,651 for 2009

http://www.city-data.com/city/Atherton-California.html#ixzz18yO9Emw6

But again, reported income versus real capital. I am confident Meg Whitman does not need a mortgage. Neither does Charles Schwab (Both are Atherton residents last I heard).

However "the peninsula" is much broader than this tiny enclave.

Serpentor says

whats the income distribution of Palo Alto again? I don’t think majority there makes anywhere near $500k. Median HOUSEHOLD income is more like $100-130k (City data, zillow, plenty of other sources). Wealthy, but not enough to justify 1.2M price of an avg home. I’d be willing to bet the higher income residents are old money and have been living there for decades.

you got it! establsihed neighboorhoods, folks who bought homes in 70s, and still living there, and or pass to their offsprings. All these public data does not tell you the real story. Nobody wants public to know how much they make, they just give a low ball figure. Do you think business owners voluntarily and honestly tell how much they really make or they rather keep quiet?

Lol why is it that you always go back to theories that theres no data? rich foreigners, secret incomes, gold egg laying dragons, lol. Fantasy

Do you think only palo alto residents under report their incomes?

Pop quiz, if most of the high income families have already lived there for decades. How does that skew the income distribution for people who bought during the bubble years?

That's a new one - housing prices are high because of tax evasion. Love it.

Man, I can't see it, how some of you think that Housing is going to sustain upwards pricing, and even rents are going to have to come down, in my outlook. I am not looking for sudden crash (dah that happened) While we could get a fairly big BANKING Crisis II (smaller chance) but still, our economic health is in need of an, the state is broke, the fed is running a trillion plus deficit, yet they still have to BAIL out all of these Bankrupt local governments all over the USA... Holy cow, we are going to at best a rough ride for a few more years, and then the big unknowns are so big. NOT IN ORDER OF Trouble, just some of the biggest issues I see heading our way.

1) Aging and retirement of the baby boomers (large % have ZERO in bank to retire with)
2) Energy prices going to spike way way up
3) Food possibly going to get very much more expensive.
4) Healthcare Costs going to eat major parts of the now used for housing home budgets.
5) Large term structural unemployment over 9.2% for years! and in Ca. over 11% (U6=15-18% LONG TERM)

Serpentor says

whats the income distribution of Palo Alto again? I don’t think majority there makes anywhere near $500k. Median HOUSEHOLD income is more like $100-130k (City data, zillow, plenty of other sources). Wealthy, but not enough to justify 1.2M price of an avg home. I’d be willing to bet the higher income residents are old money and have been living there for decades

Old is in how many years back ?
Last 20-30 ... not likley.

Most came to wealth from stock options over the past 10-12 years. As it turned out someones gain was another persons big time loss. That is how long we had a housing bubble way back then. Spent it like drunken sailors, because "it was free money".

http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.lowmarkt.php

He's speaking only partly tongue in cheek, of course. Atwell, who specializes in the Mountain View housing market, is familiar with today's real-estate maxim that those who have the most money win. But first-time homebuyers who haven't cashed in on the high-tech boom can take heart. While $2.5 million properties grab newspaper headlines, more modest deals can still be had for a half-million dollars or less.

yep... the height of the stock options feeding frenzy was in the late 1990s/early 2000s... Those were good times!