patrick.net

Chan,

Actually, it is a little different this time. In fact it is a little different every time. However, the fundamental forces continue every time.

The current problems are real. However, the situation today looks far better than the way the future looked in the 1970s and even the very early 1980s.

MP, if there is no obvious sign of a pending crash in October, Fake P will chase me down anyway and I will have to admit that my prediction is inaccurate.

...and never apologize to people they are giving advice to.

I bet he did not say "not investment advice" when he called for the downturn :)

MP,

I bought nothing after 1987 until 1998. During the early 1990s the property values continued down. I never buy while prices are declining. So I waited for the appreciation to be firmly established before buying. I would have bought earlier but the downturn was so severe that I wanted to be sure there would be no relapse.

The current problems are real. However, the situation today looks far better than the way the future looked in the 1970s and even the very early 1980s.

I don't agree with you. The amount of fraud committed during this credit bubble will dwarf the 1970's oil crisis and the 1980's S&L debacle.

This is the tip of the iceberg. Lot's of fraud ahead, homebuilders, mortgage companies, appraisers, and the borrowers just to name a few.

Plus, I was very focused on the stock market until 1998 when I sold everything with the dow around 9600..

Chan,

Perhaps what you predict will happen. But it has not happened yet. If it will happen, then this market must continue up for several more years for the problems to build to a comparable level as last time.

The real estate bust of the 1990s followed upon excesses in the 1980s, many of which we have not yet seen this time. Remember that the Savings and Loan Crisis of the 1980s started about four years before the real estate market peaked. We had many savings banks already going insolvent at least three years before the real estate market peaked. The RE Bubble was so bad in the 1980s that the Federal S&L Insurance Corp. was declared insolvent – TWO YEARS BEFORE the RE market peaked. And the bubble marched on.

After four years of financial collapses by banks, builders and property owners, the Federal Gov. created the Resolution Trust Corporation to engage in an orderly disposition of all the troubled assets. The last of the major bubble markets peaked in that same year (1989).

We have yet to see any of these severe symptoms in this cycle. Once we do it will take only a few years to get just as bad. Pray that it never happens.

Perhaps what you predict will happen. But it has not happened yet. If it will happen, then this market must continue up for several more years for the problems to build to a comparable level as last time.

Do you really believe that everyone has been honest through all of this run-up?

Look what has happened to Fannie Mae today...possible delisting in the near future. What is really going to tank housing is the fraud that was/has been committed.

So soon we forget what happened after the NASD crashed. Worldcom, Tyco, Enron, Adelphia, and many others.

What makes you think that the same thing won't happen, soon with RE related companies?

Chan,

Yes it can happen again. However, last time the companies, banks and others were visibly in financial trouble for several years before the market collapsed. To happen again we will need more time for the problems to grow.

I believe we will see a more normal decline start before those extreme excesses have a chance to become as prevalent as last time.

I believe we will see a lot of financially distressed property owners in the coming decline. The longer it takes before the decline starts the worse it will be.

Chan, you said “Do you really believe that everyone has been honest through all of this run-up?”

No, I do not. However, it was much worse last time. Show me the long list of lenders who have gone bankrupt from rampant loan fraud. Show me the bankrupt homebuilders… etc.

Chan you said: “So soon we forget what happened after the NASD crashed. Worldcom, Tyco, Enron, Adelphia, and many others. What makes you think that the same thing won’t happen, soon with RE related companies?”
What makes you think that it will?

These companies are cases of fraud committed by the key officers of the corporations. How does this relate to the housing cycle?

NASD crash was a tech stock crash. More specifically it was the logical ending for investors who bought companies that had little or no business or revenues and many were just shams to steal money from over-exuberant, foolish investors. While real estate attracts these people as well, it is a real asset, with real utility and revenue potential.

No, I do not. However, it was much worse last time. Show me the long list of lenders who have gone bankrupt from rampant loan fraud. Show me the bankrupt homebuilders… etc.

Worse from whose perspective? It is just starting to unwind. What's different this time is a lot of individuals will go BK and lose their homes, vis-à-vis; major lending institutions and BIG RE companies...That’s the difference.

I don't remember too many people that were financially hurt in the 70's and 80's. THIS time greed is more widespread, and in the end, the "invisible hand" will cleanse the market and the little guy is the one who will be really hurt.

These companies are cases of fraud committed by the key officers of the corporations. How does this relate to the housing cycle?

NASD crash was a tech stock crash. More specifically it was the logical ending for investors who bought companies that had little or no business or revenues and many were just shams to steal money from over-exuberant, foolish investors. While real estate attracts these people as well, it is a real asset, with real utility and revenue potential.

And...

Holy Christ! You don't think that the same thing is happening in the RE industry.? Just read the news, Fannie Mae, Freddy Mack, Countrywide, Citibank...

Chan, It might be madness but I don’t think it’s fishy… it’s a cyclical peak. It happens after a while. Eventually we will have cyclical bottom…

Good luck with your shorting. I will look forward to hearing from you on your results.

Chan, there is a big difference between accuracy of accounting for derivatives, and sophisticated embezzling.

MP, I believe that the 1980s were worse. Which is not to say that all is well now.

The real estate bust of the 1990s followed upon excesses in the 1980s, many of which we have not yet seen this time. Remember that the Savings and Loan Crisis of the 1980s started about four years before the real estate market peaked. We had many savings banks already going insolvent at least three years before the real estate market peaked. The RE Bubble was so bad in the 1980s that the Federal S&L Insurance Corp. was declared insolvent – TWO YEARS BEFORE the RE market peaked. And the bubble marched on.

After four years of financial collapses by banks, builders and property owners, the Federal Gov. created the Resolution Trust Corporation to engage in an orderly disposition of all the troubled assets. The last of the major bubble markets peaked in that same year (1989).

Zephyr, I'm not so sure that things will necessarily play out exactly the same way this time around. I do see the prospect of institutional bankruptcies and financial collapses, especially for holders of large amounts of sub-prime NAAVLP paper, but it I believe --like Chan-- that the banks and S&Ls have learned a very important lesson this time around: privatize profits, but share ("public-ize"?) risk.

What's different to me this time is how many lenders don't even hold much (if any) of the mortgage paper they're generating. Not when they can easily sell it to the GSEs or some private outfit to repackage and re-sell as MBSs. I realize that not all banks operate like this and not all of them are huge into the NAAVLP game, but the ones that do are pretty much running the show right now. When the sh*t really hits the fan 2-3 years from now (when that $2.4 Trillion of IOs adjust to fully amortizing loans - in a higher interest-rate environment to boot), it's not going to be pretty for individual and institutional hoders of residential MBS paper.... IMO

The banks and S&Ls may not fail en masse, but recent buyers and investors sure will.

Btw, MP, you'll notice I've not been predicting huge immediate drops in prices for most areas --especially those "prime" locations you talk so much about. I've long believed --and you're welcome to trawl the archives to check on this-- that the corrections will play out over a long period of time. Perhaps 5-7 years, as a wild guess.

Where we disagree is that broad substantial prices declines are possible (you seem to disagree) and on size. Yes prices are sticky on the way down, and prime locations hold their value better than non-prime. We agree on this much. However, corrections can and do happen.

part of my passion for counteracting the ‘bubbleheads’ and bubble pundits is my intense dislike for people who’ve been calling for the crash for 3 years, and who never admit they are wrong, and never apologize to people they are giving advice to.

I am fighting for all the people out there who listened to him over the years, and put off buying b/c of his advice. These good people now have an even longer wait, or a more difficult struggle to own. It’s for these people that I put up this balanced fight. I was almost one of them, and I know i would be outright outraged I had listened to Ed.

Ok, now I kind of see why you were initially resistant to a give-and-take debate with us. It's true that many economists saw the bubble for what it was early on, and some may have even called the peak too soon. Another prominent early-bear that comes to mind is Dean Baker of CEPR.

Yes, I agree we should all balance and challenge our viewpoints by listening to the other side. However, I would not fall into the trap of buying into the "broken clock" theory, or blaming someone for being too prescient. After all, didn't Greenspan himself call the NASDAQ bubble 4 years too early with that "irrational exhuberance" speech? Imagine if people had actually listened to him then, instead of cowing him into submission?

Calling the exact top to any asset bubble it difficult at best, impossible at worst, because (all together now!): Asset bubbles tend to last much longer and grow far bigger than any reasonable person at the time would have thought possible. Missing the exact peak doesn't mean there's no bubble, any more than missing the exact trough proves there was no correction.

Yes, if you put off a buying decision 100% because of listening to the "early birds" you missed out on some juicy paper gains. On the other hand, if you bought recently using an NAAVLP and overextended to the hilt, you'll soon come to wish you had listened to the early birds instead. And as to those recent paper gains... "What the market giveth, the market taketh away."

Kurt - I have no idea about that market. Those ‘prime’ Mt. Tam view condos in Marin are probably ‘prime’ for Mountain climbers and nature lovers, but I believe that demand curve is low and limited.
It sure sounds like you don't--and yet you downgrade the value--how does that work towards your argument (other than a straw-man approach). Btw, if it's waterfront property with a dock, it's probably not located on some rocky crag on Mt. Tam. A "low and limited" demand curve on a Marin waterfront? Jack, what say you?

HARM: "Btw, MP, you’ll notice I’ve not been predicting huge immediate drops in prices for most areas"

Sissy.

50% correction, in *PACIFIC* *EFFIN* *HEIGHTS*, by the end of this month.

I look forward to picking up a mansion at the top of the hill for a mere 4 million dollars...

Cheerio,
prat

Off the debate path for a moment, I wanted to take the time to thank all the "non-regulars" here who have shared their personal stories, some of you posting here for the first time.

I salute you: vayeyatch, laverty, SoldatThePeak, HighSierraGuy, Kurt S, pbass, SacRenter, Jamie, Josh, NewAttorney, WillItCrash, G P, CntrlValleyRenter, Paul_from_Oz, NewbieBear, Zeta, Yakim, Kim and anyone else I managed to miss.

Your stories have not only helped to make this thread a smashing success, but more importantly, have added context and personality to the entire blog.

MP: "I am fighting for all the people out there who listened to him over the years, and put off buying b/c of his advice. These good people now have an even longer wait, or a more difficult struggle to own. It’s for these people that I put up this balanced fight. I was almost one of them, and I know i would be outright outraged I had listened to Ed."

_applauds politely_

Cheerio,
prat

HARM, do not forget to thank yourself for creating this highly sucessful thread. :)

Thanks!

Thanks, Peter!

*sigh*

I'm having thread envy. ;)

Don't sell yourself short, SactoQt --you should only short sell homebuilders, REITs & MBSs!

Don’t sell yourself short

If I short myself my face will get ripped off. ;)

Marin County consistantly kicks ass on median San Francisco home prices, and has for years...due to the “prime” relationship to one of the truly pristine (”world class” I might add) natural environments....while being minutes from San Francisco, (and all that MP enjoys.)

Yeah--given how far 'in the sticks' we are, the Marina is about a 25 minute drive for us--and during morning rush hour! Also, fantastic view here this morning, the sunrise casting light on the fog, water, and profile of Tam.

Morning Jack!
I think I can place the area. On my lunch break, I often bike up through Kentfield into Fairfax. We're in a 2BR condo on Corte Madera creek, overlooking Piper park...if you can place that. I know...pretty dumpy digs, but that's all we can afford
This morning I've been watching the rowing crews, egrets, and herons out my LR window.

Ok, I'd post this in "bubble stories", but this is where the activity is.

My last egregious "bubble" example was a 2BR/2BA 1000 sqft bungalo in Marin--for $800K (and on a busy road)...

Now, consider a 2BR/2BA--and a spacious 1200 sqft!--only for $1.3 Million.
This is in St. Helena (allegedy a "prime" Napa location). Damn...I better buy that before it goes up!
http://tinyurl.com/9tj3m

It doesn’t seem unreasonable. It has 1 acre of land!
Ah--over an acre..missed that detail, thanks

Ok, here's a few others--I guess this one's for land value:
roughly 1/2 acre St. Helena: $1.3M: http://tinyurl.com/9rxfv
"Prime" for that McMansion --and resale (hopefully)

So, what does $1.2M get you in St. Helena?
Here's a 2BR/2BA (1300 sqft) on .26 acre:
http://tinyurl.com/88gd5
I suppose a McMansion will fit there too!

2BR/1BA (1300sqft) Yountville (Napa) .26 acre: $1.1M
http://tinyurl.com/8nwul

There's lots of examples. Bubble, nahhh...that's Valueâ„¢

If they HADN’T said anything about it when they saw how it was going, they would have been roundly criticized later. Can’t win, I guess.

No kidding! (see my post on this above) Another thing that gets me is how quick bulls are to pounce on anyone who questions the "wisdom" of gambling on bubble-inflated assets, while uber-bulls are NEVER criticized, no matter how horribly wrong they are.

Take those two idiots who wrote "Dow 36,000" right before the tech bubble burst -- James K. Glassman & Kevin Hassett. You might think they'd be hiding out, hanging their heads in shame/ignominy. But, you'd be wrong! Guess where they are now? A: still writing for the Washington Post, National Review, etc. and shilling their clueless bull$hit to the unsuspecting public.

Jack - It feels weird to not have anybody put me down anymore. It’s actually no fun. So Jack, I am designating you as my arch-nemesis.

No more arch-nemesis please... :(

MP, I do know a lady who used to own homes in China and SF. She sold her Shanghai apartment right before "governmental intervention" because of gut feel. She is using the proceed to buy commercial properties in southern China.

She sold her SF house recently and is renting though.

Take those two idiots who wrote “Dow 36,000″ right before the tech bubble burst — James K. Glassman & Kevin Hassett. You might think they’d be hiding out, hanging their heads in shame/ignominy. But, you’d be wrong!

Perhaps I will write a book about Dow 360. :)

I heard those idiots were publicly bullish on housing recently. How can they have any credibility left??? The fact that THEY’RE bullish on housing should give anyone pause…

Why anyone still listens to these morons, much less pays them for their worthless advice is beyond me.

Take those two idiots who wrote “Dow 36,000″ right before the tech bubble burst — James K. Glassman & Kevin Hassett. You might think they’d be hiding out, hanging their heads in shame/ignominy. But, you’d be wrong! Guess where they are now? A: still writing for the Washington Post, National Review, etc. and shilling their clueless bull$hit to the unsuspecting public.

Those guys still claim the market is going to go to 36,000 or higher. I guess you can't win on either side of the fence. If your predictions don't come true sooner than later, you're gonna take a pounding by the other side. I'm not saying they're right btw, just that predictions are a tricky business.