patrick.net

bg says

I am often amazed by the things that people do that make little financial sense.

Hi bg. Maybe you misunderstood me. I agree with you too. Most people do do things which makes little financial sense. That's why 75% of underwater mortgage holders are not defaulting now, thinking there is some kind of a return to normalcy. That makes very little financial sense. However, as the bubble transitions from "return to normalcy" phase to "fear" and "capitulation", you will see more and more of these 75%'ers defaulting. The majority of them will be defaulting at the trough of the housing market, which, again will make absolutely no financial sense at all.

dunnross says

bg says

I am often amazed by the things that people do that make little financial sense.

Hi bg. Maybe you misunderstood me. I agree with you too. Most people do do things which makes little financial sense. That’s why 75% of underwater mortgage holders are not defaulting now, thinking there is some kind of a return to normalcy. That makes very little financial sense. However, as the bubble transitions from “return to normalcy” phase to “fear” and “capitulation”, you will see more and more of these 75%’ers defaulting. The majority of them will be defaulting at the trough of the housing market, which, again will make absolutely no financial sense at all.

That is why this 75%'ers will never see the money they want, because they simply does not exist. Bear euphoria! Inflation will fetch me that money. Yeah right! Buyers salaries are hardly able to catch up with existing prices so forget about increase in home prices,may be 10 years from now.

E-man says

bubblesitter says

Yeah, Japanese are smart a$$ people and they couldn’t correct their bubble. Economics of nature. I don’t see any reason why US could quickly buy their way out so fast without producing goods and service to counter the bubble money.

Bubblesitter,
Your chart is missing the last 5.5 years of housing data. How can we continue the debate when you’re presenting only 1/2 of the info??????

Come on haven't you learnt pattern in your primary school? You know where it is heading. If it shot back to your imaginary line of 200 then post your chart and we will discuss further.

E-man says

Real estate is local people.

Hmm. Interesting, San Francisco had the biggest "Bull Trap" rebound. That's probably where most of the Bulls are going to be trapped, then.

E-man says

With the current rate of price declining in the housing market, free house for everyone by the end of this year

Good for ya. You are getting some free investment properties.

dunnross says

bg says

I am often amazed by the things that people do that make little financial sense.

Hi bg. Maybe you misunderstood me. I agree with you too. Most people do do things which makes little financial sense. That’s why 75% of underwater mortgage holders are not defaulting now, thinking there is some kind of a return to normalcy. That makes very little financial sense. However, as the bubble transitions from “return to normalcy” phase to “fear” and “capitulation”, you will see more and more of these 75%’ers defaulting. The majority of them will be defaulting at the trough of the housing market, which, again will make absolutely no financial sense at all.

I may have misunderstood something there.

It will be heart breaking if folks pay for some period of time and then give up to default in a trough. Is that typically how trends work when asset prices drop?

Do you think we are in the "return to normalcy" part of the transition? or maybe some fear?

dunnross says

1st of all, the “Bull Trap” did not last for 3 years. It lasted from Apr, 2009 to July, 2010, that’s not even 1.5 years.

He's in denial that prices have been falling since last summer. He attributed it to winter seasonal variation.

klarek says

dunnross says

1st of all, the “Bull Trap” did not last for 3 years. It lasted from Apr, 2009 to July, 2010, that’s not even 1.5 years.

He’s in denial that prices have been falling since last summer. He attributed it to winter seasonal variation.

That doesn't even make any sense. If he denies that prices have been falling, then why would he he need to attribute the falling prices to anything?

dunnross says

Gold at $250/oz was also not a result of any fundamentals, where it cost $400 just to take it out of the ground.

I recall that a revolution forced a despot out of power in Iran and then shortly afterwards (about two months) was the nuclear accident in Pennsylavania. Next came gold going parabolic and our one-term president lost his job in the following election year.
Somebody I think it was maybe Mark Twain said that history rhymes.

Nomograph says

Do you honestly think some graph on the Internet is going to predict the future?

Why not? Does the graph showing a trajectory of a comet in space, predict where that comet is going to be 6 months from now? Does a graph showing change falling concentration of blood glucose tell doctors that the patient might die soon? Economics is a science just like astronomy or medicine. People who ignore or don't understand these graphs or correlations are simply not learning anything from history.

Wrong, the spike in listing prices we are seeing now is the lag of the huge spike in selling prices we saw last summer. That was followed by a drop in selling prices starting in the fall. The fallout of that will be seen in the drop in asking prices 3 months from now. You are the only infamous "Emperor of Disingenuity" on this board, and if you continue to lie and weasel out of every argument, like you have up to now, while foaming at your mouth, soon most fellow patricker's will realize that your have no clothes.

mthom says

And it certainly doesn’t seem to be crashing down to the 97 price

Peoples incomes dropped to the 1997 ranges. Prices will follow. It will take several years, it always does.
Minimum wage is higher so it looks like average income is higher, but all it did is move the low end ceiling up a bit. from 4.75 to 8something.

There are almost no first time home buyers out there. Out of all the sales, which are not many, only 6% are FTHB. Prices are too high, and I think an average person is not interested in indentured servitude so that some ahole flipper can make his easy retirement at the expense of another citizen.

ChrisLA says

mthom says

And it certainly doesn’t seem to be crashing down to the 97 price

Peoples incomes dropped to the 1997 ranges. Prices will follow. It will take several years, it always does.

Minimum wage is higher so it looks like average income is higher, but all it did is move the low end ceiling up a bit. from 4.75 to 8something.
There are almost no first time home buyers out there. Out of all the sales, which are not many, only 6% are FTHB. Prices are too high, and I think an average person is not interested in indentured servitude so that some ahole flipper can make his easy retirement at the expense of another citizen.

There has never been a genuine bull market carried by speculator-only buying. That's what we are seeing now in housing, and very soon, all these speculators will find out that there will be no people willing to live in their newly acquired investment.

This thread is hilarious, good comic relief entertainment for a rainy weekend.

You guys can probably cherry pick all the data you want to for making the cases for your arguments.

In the broader context one would question the spin from anyone who would claim to pay $3500 per month for a rental with a gardner and a pool in Willow Glen (where we don't have real summers to enjoy the pool like they do in places like Chicago).

But then nor should we take too seriously the spin from who too often refers to some he disagrees with "liar" or "lying" even though he boasted that he and his lawyer spouse fibbed on a legal document about their intention to be owner occupants, except, to consider the source of the argument.

I don't get why asking prices predicting the short term direction of closing prices, or visa versa, is even relevant.

They say nothing about the long term trend.

MarkInSF says

They say nothing about the long term trend.

Here is my prediction for the long term trend: in the aggregate, for the (materialistic) way that many of us think of as standard of living and quality of life, it is in for continuation of a long trend decline.

Your right dunnross, '89 was a trap. Even though prices did go up but so, did jobs, new industries and incomes in BA. That unfortunatly changed and took prices down. It certainly was a bubble looking back. Todays massive bubble saw prices double and triple. Its going to be a long one if it doesnt correct swiftly and deep.

gameisrigged says

Wishful thinking. The bulls all own homes and are frightened of losing equity, so they remain in denial.

I been a homeowner since 92 but even these high prices will impact job creation/growth.

You cant have it both ways.. high prices/equity and expect jobs and careers to stick around.
Anyone who lived and worked in SV high techland 80s-90s, knows high home prices
dont mix well in the long run. It just doesnt work!
I value my career and not more equity/debt.

Most of these "bulls" are realtors since only high home prices ensure higher commissions.
Equity is a mear instrument to get more debt. Equity isnt anykind of wealth or forced savings.
Its sad to see people dont know how to save or have counted on higher debt as form of savings. Its insane!

klarek says

It’s exactly what I knew was going to happen, and the numbers confirm this more with each passing month

We'll see. I've seen several reports stating that housing acivity strengthened in February. I think it's still too early to tell. If prices are still falling month over month in July, then I will agree that you are correct.

Nobody's gonna take your arguments seriously, even if your right.

Haven't been back for a long time, wondering how the old pals are doing?

HARM, astrid, FAB, Peter P, Randy H, skibum, SP, EBGuy, SFWoman, etc, are you guys still lurking around? Does everything work out as you have envisioned? Is MarinaPrime still around?

Seriously, I am so beyond buying or remodeling or trading up or building from scratch. Me thinks that we are in so much sh*t that I would hesitate to invest a dime more in something so immobile as real estate. Gotta stay nimble.

vain says

Put 20% down ($90k). ... San Francisco minimum wage is nearly $10/hour. A couple earning minimum wage has a household income of $41k.

Any useful tips on saving $90k reasonably fast while living on a minimum wage in SF?

gameisrigged says

We’re on to you, bub.

Yes, we're on to you, bub!

From Bloomberg:

SFBA home/house prices/values fall for FIVE MONTHS STRAIGHT - now nearing NEGATIVE 5% y-o-y. The dead cat bounce facilitated by knife catchers/investors chasing yesterday's news ended half a year ago or so.

http://www.businessweek.com/news/2011-03-17/san-francisco-bay-area-home-prices-fall-for-fifth-month.html

Several counties in your metro area ARE DOWN significant double digits Y-O-Y - more leveraged losses for mainstreamers - how nice.

Just out a few minutes ago:

http://news.yahoo.com/s/nm/20110321/ts_nm/us_usa_economy_housing

Housing/real estate IS TANKING - prices are at 9 YEAR LOWS, WHICH ARE BRAND-NEW LOWS BY THE WAY, and sales of existing homes are just plain collapsing / in the gutter.

One point of view that hasn't been addressed that of cultural psychology. It doesn't take a brain surgeon to realize there's a shift in the wind. I'm talking about the buyers and the buyers to come. Seems most folk here are from the Bay Area or California in general, so there's no excuse...

If you pay attention to the next gen coming up into the work force, it's a completely different animal. Tomorrow's buyer WILL NOT BE THE SAME AS YESTERDAY'S. All the charts posted here about the housing boom-fall-rebound fail to take that into account. All charts should say "ALL THINGS BEING EQUAL". There's a serious movement away from status symbols. This will affect THE most important factor on home prices... Demand. When that drops, it's goodnight sweet prince. And it has. Those throwing up graphs I ask you to honestly try find a reliable graph showing the negative effects of the technological revolution and the aftermath, then plot the return where we become the power-house in manufacturing we once were. No? Because you're not stupid. You know it's over in manufacturing for this country. Why can't it be the same for housing? Don't give me that malarky about "Everyone needs somewhere to live."

If it is true (as I claim) that the US is metamorphosing into a leaner, environmentally aware, coffee drinking, live/work, shared-space, bicycle riding, low key, urban dweller... who doesn't have a dirt-bike and a boat and a jet ski and all the other trappings that hobbled the baby-boomers and Gen-Xers. Todays buyers don't sense a stigma attached to having little to no belongings, living in an 800 sq ft apartment... they don't give a shit and the machine that used to convince them to buy into the American Dream broke down a few years ago.

What I've described above are not a bunch of listless teenagers who will 'grow-out-of-it'... this isn't a fad. They are changing like this out of necessity. Adapt or die. Job opportunities not looking good for them, so they have to keep it tight. Gas prices high? Public transport or bicycle for you my friend. Where does a house fit into all this again?

If you think I've lost my mind... and you haven't been on a plane in recent memory I advise you to go to Barcelona, London, Paris... any large metropolitan city and see how families live all their lives in tiny apartment. No biggie... we're talking middle class. Notice I didn't mention Asia where EVERYONE lives in a shoebox, and they don't even feel bad about it. Their minds are on other things, so are their values.

So if you own a big house, or just bought a big house... you're a dying breed and the meteor just hit.

Theres no fundamental change other than our standard of living going down.

Its been going on for a while. People who got in early have houses with yards, its a real luxury
now pretty soon the majority of people buying will settle for a condo.
owning or even renting your own house is becoming a luxury that not many people can afford.

junkmail says

If it is true (as I claim) that the US is metamorphosing into a leaner, environmentally aware, coffee drinking, live/work, shared-space, bicycle riding, low key, urban dweller… who doesn’t have a dirt-bike and a boat and a jet ski and all the other trappings that hobbled the baby-boomers and Gen-Xers. Todays buyers don’t sense a stigma attached to having little to no belongings, living in an 800 sq ft apartment…

I agree that there ought not to be any stigma about where we live. But the other part, there is a whole lot of the USA between The Left Coast and NYC/DC. I don't think so many of those folks are ready for the metamorphosis we're observing in the Cool and Hip Coastal areas. If anything, as their standard of living declines in proportion to their dependence on gasoline for their Red State lives, they will get angry and start to look for scapegoats. Like us.

schmitz_kris says

Just out a few minutes ago:
http://news.yahoo.com/s/nm/20110321/ts_nm/us_usa_economy_housing
Housing/real estate IS TANKING - prices are at 9 YEAR LOWS, WHICH ARE BRAND-NEW LOWS BY THE WAY, and sales of existing homes are just plain collapsing / in the gutter.

But the bulls have said that prices were UP! Er, or was that flat? Both apparently.

klarek says

schmitz_kris says

Just out a few minutes ago:
http://news.yahoo.com/s/nm/20110321/ts_nm/us_usa_economy_housing
Housing/real estate IS TANKING - prices are at 9 YEAR LOWS, WHICH ARE BRAND-NEW LOWS BY THE WAY, and sales of existing homes are just plain collapsing / in the gutter.

But the bulls have said that prices were UP! Er, or was that flat? Both apparently.

OK 9 years ago...All that is left is the correction for prices doubling between 1998-2000.

thomas.wong1986 says

OK 9 years ago…All that is left is the correction for prices doubling between 1998-2000.

Don't think they doubled in that time period in any market.

Tude says

Vain says

I think prices are correct in my area.
Let’s look at a typical lower end home in San Francisco.
You should be able to get one for $450k or so in the south eastern neighborhoods.
Put 20% down ($90k). You will need a loan of $360k. The mortgage for that is around $1800/month. Income requirement for a safe mortgage is $5400/month, or $65k/year. That’s couple earning $32500/year. San Francisco minimum wage is nearly $10/hour. A couple earning minimum wage has a household income of $41k. If prices go any lower, you will soon be competing with minimum wage earners. Do you guys realistically think market conditions will allow minimum wage earners to be able to afford a home?

Your fuzzy math is what got us into this problem in the first place. You act as if taxes don’t exist!

I really don't see very many minimum wage earners having 90K laying around to put down as a down payment either.

I don't know if Gary Shilling is very accurate in past predictions, but here are his claims for what they are worth...
Who knows much about this guy? He claims another 20% drop nationally in housing will be coming.

http://finance.yahoo.com/tech-ticker/gary-shillings-5-things-to-worry-about-yftt_536059.html

About housing in Japan-- as far as I know, home mortgages are very "recourse". One more reason why a few of the people underwater just commit suicide.

junkmail says

Public transport or bicycle for you my friend. Where does a house fit into all this again?

If you think I’ve lost my mind… and you haven’t been on a plane in recent memory I advise you to go to Barcelona, London, Paris… any large metropolitan city and see how families live all their lives in tiny apartment. No biggie…

Interesting looking ahead.
But there is enough land in USA. USA is a big open space, house with driveways, wide streets, big cars, big american ego. History repeats itself, it is human nature. And Americans have short memory. Without efficient public transport such as found in Europe/Asia, cannot compare with them. When will we see shinkansen corridor SF LA Boston NY or even a bart extension to san jose? The fact of the matter is nobody knows what the future lies ahead.

I've been really surprised not to see more information about ARM terms during the last year. Since the peak of the housing market is generally agreed to be April 2006, this April marks five years since the peak. ARMs generally come in three and five year terms. A very large percentage of mortgages taken in California were necessarily ARMS due to the incredible differences between sales prices and income. This was often reported during the bubble.

So have they all been refinanced? Considering the dollar amounts involved according to articles in all the major newspapers(WSJ, NYT, WashPost), I'd expect more attention to the April milestone.

If a big number of those ARMs are in place, I expect some of the largest price adjustments in California to occur.

uni6jon2 says

So have they all been refinanced? Considering the dollar amounts involved according to articles in all the major newspapers(WSJ, NYT, WashPost), I’d expect more attention to the April milestone.

So here's part of the answer. Interest rates have stayed low and the indexes to which the ARMs are tied stayed low. So no large defaults. Seems the interest rates must go up as prices fall, so loan agents balance their returns.

http://seattletimes.nwsource.com/html/realestate/2014325127_realarms27.html

Zlxr says

And Thomas - what about the tripling of house prices between 1975 and 1985?

More like doubled from what saw I from 1998-2000 due to easy lotto winning from stock options/tech bubble.

I would say from 1980 - 1989 there was good reason why prices went up. The birth and expansion of local tech companies. Boom in industries led to boom in hiring and incomes with near zero global competition. We are talking about not only professional salary jobs but also hourly wage earners. So it effected all income brackets. We had plants working 3 shifts daily 6-7 days a week. Yes we had that here in Silicon Valley. Yes that maid/janitor would have made more if they worked in tech mfg and many did.

Overall back in the '80s we didnt see the tech stock and than housing speculation as we seen 1998 to present. It was more reasonable era back than.

klarek says

thomas.wong1986 says

OK 9 years ago…All that is left is the correction for prices doubling between 1998-2000.

Don’t think they doubled in that time period in any market.

Like dunken sailors, some who cashed out their stock options could and did pay any amount.
Plenty of uncashed stock options left, so lets party. Except the party ended back in Q1 of 2000.

It was very common to hear.. "its free money anyway, i never really earned it".

vain says

Put 20% down ($90k). You will need a loan of $360k. The mortgage for that is around $1800/month. Income requirement for a safe mortgage is $5400/month, or $65k/year.

Somebody is having nostalgia from the housing bubble, where people could magically afford a house 5.5 times their annual salary. And your assumption that someone at that income level would typically have $90k saved up is outrageous.

edit: that is an old post, I know, but the outlandish math being used to justify SF prices shows just how desperate people are to make themselves believe that it's anywhere near sustainable.