patrick.net

* The specuvestor with 14 open interest properties is not likely a fast food night manager. The credit bubble was bad, but not that extreme on balance.

Randy,

The Taco Bell night manager buying 14 properties I described above is no hypothetical. I based this on a real SDCIA specuvestor, named "Jeff". I included the link to his autobiographical thread above, and here it is again:
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1101481

You have to read all the way through 6 pages or so of comments & replies to get the whole scoop, but unless he made the whole thing up, this is the "real deal"! Of course, I don't imagine he is necessarily your average flopper, but these guys definitely exist.

but the sad part of the story is the “Joe Sixpack” FB who got seduced by the sudden capability of “owning” a home, something that was out of reach prior to the crazy lending practices of the past few years.

I don't pity them one bit. They took a gamble with the odds mostly against them and they lost. Equivalent to going to vegas with your nest egg on black and it comes up red.... would you feel sorry for them? You cannot pity the stupid. People do stupid things every day, and some of them die because of it.

Off Topic

SHTF:

Hello fellow animator!
I've just finished a 2d/3d course at SMC-AET, and have heard the stories from all over (EA Spouse, anyone?). It was interesting and educational to learn how to do 2D, but as the writing was on the wall 4 years ago when I started my course, unless I move to South Korea I will never find a job doing it here in CA.

Fortunately, the husband works for a big Japanese games company in Santa Monica, so at the moment I have the 'luxury' of looking for something along the lines of Junior Artist - rigging/modelling, etc...or contract work using Flash/Maya etc.

As we have a steady salary coming in, the pressure is off for me to have to make a good living all on my own, but I feel really sorry for younger people trying to live in LA on contract/junior salaries. I just don't think its possible any more.

We've had an ex-pat (UK) friend living with us for the last few months who is finally moved out to his own place at the weekend. Its nice enough - a big guesthouse at the back of a big Los Feliz house, but its 2K a month to rent! Our friend used to live in Brighton in the UK, where housing was as expensive (if not more so) than London, and even he was apalled at the prices over here in L.A. What seemed like a good reason to come over here (100K salary, health insurance, etc...) has turned out to be way more expensive than he imagined. Add to that the insane, illogical US Visa system, and the odds are he won't be here next year. Sadly, as many of the bigger games developers in the UK are going out of business, he's sort of caught between a rock and a hard place.

As for us - we came over in 2000 and tried to save enough for a deposit from day 1. However, every time we thought we'd saved up enough for a 20% DP, the prices would go up again out of our reach - and this on a combined salary of median income X 3!
Now, I thank my lucky stars that we never had the opportunity to buy. We were seriously considering trying to get on the ladder last year, but it would have meant the husband using part of his 401K, and a toxic loan (and this with an income of over 100K pa).

Anyway, enough about me - my guess about the FED announcement? I have no %ucking idea ;-)

Speeding bullet,
I would suggest doing one of 2 things: Study 3D modeling in Maya, etc, and try to get in as a game designer or modeler at a studio. That would be the most difficult direction. On the other hand, there is actually quite a bit of flash animation available. Flash is great because it elliminates the middle man from the picture. You can produce the entire thing from scratch. Once the characters are made, you can reuse the parts for the rest of the toon. Ever see those Esurance ads- the ones with the silly secret agents with the pink-haired girl? That's made in flash with a small studio here in SF. The costs are low.
There's a lot of kiddie TV shows now made in flash for the same reasons: cheap cheap cheap! Flash isn't the hard to learn either, so go out and get some books!

Speedingpullet, I would suggest being a highly paid manager, or a movie star, have you considered being rich?

_____________________
sarcasm off

allah Says:

I don’t pity them one bit. They took a gamble with the odds mostly against them and they lost. Equivalent to going to vegas with your nest egg on black and it comes up red…. would you feel sorry for them? You cannot pity the stupid. People do stupid things every day, and some of them die because of it.

Calling the plight of the FB sad doesn't necessarily mean I pity them. It's a sad example of the state of American culture: lack of financial prudence, inability to save money, living off of debt, always being the "victim" who is not at fault. I don't feel sorry for them at all, but I do get extremely depressed about the state of affairs in this country.

HARM,

I especially liked this:

With

Linden Labs in SF was hiring quite a few people recently after getting a big infusion of new VC.

http://lindenlab.com/employment

I don't know if they're still hiring animators/modelers. Disclaimer: I generally dislike the business model of this segment of the games sector, but lots of VCs seem to disagree with me.

skibum,

You know in a way I do see what you're saying. What makes it worse for "Joe" is that he will absolutely knock himself out trying to make good on his obligation. No matter how ugly it gets and at whatever the cost.

Mr. Specuvestor on the other hand.........

Maybe his renters (if he has any) could be suckered into entering a lease to buy option with him, if they too cannot get credit to buy a house on their own, it would ante up some cash to bail out some of the houses. Is this the guy that put all the leverage onto just one house and said he would let that one go and save the others? Or how about putting the houses in an IRA, then if they are repossed and some debt forgiven, then the IRS couldn't tax him on it? Is that possible?

I don't own, can't afford to own, and plan not to own until the market crashes or my husband moves out of CA for a different job.

Claire,

I still consider doing some form of lease option from time to time. In most cases they are a bad deal. They'll promise to keep you at today's LOW LOW price and YOU get to "keep" the profit! Uh, no thanks. Besides the amount of your "deposit" just so happens to have a direct correlation to the amount of their arrears! So why would I bail you out? I would just let it slide towards inevitable foreclosure and just pick it up from the bank if so inclined.

The only way I will consider it is to have two appraisals done at the END of the lease period.

Wow. And I though "Jeff" from SDCIA was in a big hole:

http://www.creonline.com/wwwboard/messages/24397.html

DinOR -

I know lease to own is not a good option - especially in teh current market - hence I'm still renting, but I was commenting on the guy with the 14 houses - if I was him, I would probably have at least one renter that would be stupid enough to fall for it. But reading some of his posts, he's not planning on selling any houses, in fact his goal is to own 20.

Pause, dove, probably a HOLD not a PAUSE. We won't see any rate hikes for a while I think.

Well is it time for the black helicopters? I'll take my money drop now please.

LILLL, chill.

It seems almost as if each time Ben made a statement along the lines of "We're going to look at the data, and decide then what to do", people interpreted it to mean a pause was coming. I think he could justify a hike based on inflation numbers as well as to send a "yes, I really do mean it" signal to the market.

Pause, dove, probably a HOLD not a PAUSE. We won’t see any rate hikes for a while I think.

I don't think so..... I think after they pause (if they do), inflation is going to strongarm the markets and they will have to continue raising in September.....but what do I know.

The Fed action makes me really worried that we are headed straight towards inflationary times, or worse yet, stagflation. It's hard to fathom how BB can continuously say his decisions are "data driven," and yet he pauses in the midst of very concerning indicators pointing towards inflation. He may be hanging his hat on the poor jobs numbers, but that only points to stagflation, especially given the recent volatility of crude oil futures. Once again, savers are f%#ked!

Surfer-X Says:

Speedingpullet, I would suggest being a highly paid manager, or a movie star, have you considered being rich?

Sadly, Surfer X, it appears I may very well be rich in a few weeks.

My mom died in early june, and as an only child of a single parent I have the double-edged advantage of being her sole inheritor. After selling her flat in London I would be able to buy pretty much whatever I want.

Still, the money is nothing compared to not having my mum around any more. And having to travel back to the UK to clear out her sweet little place in 90 degree heat, and deal with probate lawyers and estate agents, getting death certificates etc. Meh

Claire,

I only tinkered with the Lease/Option as a way to "accelerate" the price correction. Probably wouldn't consider using this with an FB (remember they lied like a black dog to get the loan in the first place) so how could they have any credibility going two or three years out? We've already seen ample evidence these guys are living from hand to mouth.

I'd prefer to work with a RE perma bull that was so convinced that RE will do nothing but appreciate he's running red lights to get down to your attorney's office!

This way, you'd be into the home of your choosing (paying about 1/2 to 2/3rds what his PITI is) getting the place just as you like it knowing all the while that comps are softening by the day! There's no saying our "perma bull" may not try to wriggle out of the contract but if he does just make sure it's written so he has to "CTC"! (Cut the check).

Stagflation cometh? (Reminder, this thread is FBer psychology, the last one is Inflation)

Still, the money is nothing compared to not having my mum around any more.

Very true, sorry to hear of your loss.

The one thing I wouldn't like with the lease option is that you'd have a bitter, unhappy person who knows where you live. So, I guess someone who doesn't care too much about such things, or who already has a collection of such people could go for something like that.

Off topic

Surfer-X Says:

Very true, sorry to hear of your loss.

No worries, mate - you weren't to know.

Its the reason that I started reading housing blogs - for a little insight into what to do with the cash..

I guess its just a confirmation of old adage "be careful what you wish for, because it may come true".

speedingpullet,

Lost my mom due to cancer 11 years ago --very sorry to hear that.

requiem,

Lost a post there some where but all I can say is wether you buy 2 years down the road from some FB after making 9 counter offers (each successively lower) or do a lease/option none of us "bubble-sitters" are going to be racking up any brownie points. Who cares?

Dinor,

Point taken, I was thinking of the.. uh.. karmic effects.

Sorry to hear that SP, I lost my father the same way.

Off topic:

Thanks guys :-)

Sorry - I didn't mean to hijack the thread!

But what about now? The Fed has paused. All everyone is going to hear over the next few days is how the Interest rates will “no longer be rising”.

The FED pausing is not going to stop interest rates from rising. It may even have the reverse effect due to inflation fears which is what I think is going to happen.

Yes, even the delectable Ali Velshi on CNN was musing that, rather than calming nerves, its just going to make everyone jumpy until the next meeting in september.

George, you may be right, but wouldn't it be simple enough to change tack and use “get your loan now before inflation rises any further”?

Well, no matter what happens, your FB can rest easy knowing he still has his car/SUV to sleep in. Whoops --maybe not.

and today, Bendover bent over.

requiem,

Karmic effects are exactly what is pounding FB's, specuvestors, flippers and all the other lazy people that want 200K/500K+ over what they "paid" 2 years prior for just occupying a residence! This is a time for them to consider "their" karma, not for us to worry so much about ours.

As much fun as we have at flippers and specuvestors expense it really has been rank and file folks, your co-workers, friends and neighbors that have done the brunt of the damage. We also have fun with "equity extraction" but more of late it feels like "equity extortion"! Look, I ran my cc's up to their max limit and I KNOW you don't expect ME to pay them! Hence the stalled and sputtering market. Flippers had TV shows so we tend to focus on their folly.

Speaking of delving into the mind of the FB has anyone else noticed the recent battle cry of "it's the flippers that created all this mess"!

I'd even heard one Portland "luxury loft" builder (third major project in 4 years) say that the slowdown is attributable to the speculators! Really? Is that so? Then why do you have a full time realt-whore in your model taking app's with a grand down? Why did you put on events like wine and cheese "lotteries" to see who would get first crack? Your entire sales model (and building) is made to cater to flippers!

I can't wait for Portland to have it's very own "Dark Tower of Financial Doom"!

Lenders have been putting the pressure on fence-sitters with the “get your loan now before rates rise any further” tactic. Though completely divorced from reality (Mortgage rates have actually dropped in the past few months), I’m sure it scared more then a few people into buying sooner rather then later.

That tactic would have been smart 3 or 4 years ago. There just aren't that many people left who can afford a fixed rate mtg, who don't already have one.

The market's up-cycle went like this:
1. Demand catches up with supply in the late '90s as the economy booms and the market starts picking up ('97-'00).
2. Fed starts lowering rates to soften tech crash, making mortgages more affordable and fueling the boom ('01-'03).
3. Frenzy takes hold as home buyers are convinced that they will be "priced out" and flippers begin leveraging their equity gains. Potential sellers hang on to properties because real estate "always goes up," limiting supply. Creative financing becomes the norm, fueling demand. ('04-'05).

The down cycle will go like this, IMO:
1. Inventory climbs while prices stabilize. A few overleveraged flippers are forced to unload properties at a loss, adding to supply. ('06).
2. Creative financing starts to bite, forcing homedebtors to sell to get out of their ARMs. Potential buyers are less frenzied to buy and are more willing to wait things out, limiting demand. Foreclosures and fire sales become more common ('07-'08).
3. Lenders need to liquidate massive inventory and need to slash prices in order to do it. Many FBs send in their keys, rather than face foreclosure or remain in "upside down" loans. Many move away. ('09-'10).
4. Market bottoms out. There are no more real estate radio shows. Nobody talks abour real estate at dinner parties. Nobody even goes to dinner parties. Disgruntled FBs grouse about California's high taxes, smog, traffic, crime, earthquakes and decaying infrastructure. People let their houses fall into disrepair. Local economy sucks. Inventory liquidation continues, along with natural increases in supply (deaths, divorces, job losses and job changes). Inventory stays at relatively high levels. Nobody shows up to probate sales. ('11-
12). This is the time to buy.

Just a guess.

Speaking of delving into the mind of the FB has anyone else noticed the recent battle cry of “it’s the flippers that created all this mess”!

Hopefully that has enough momentum to kill any attempt to bail out FBs. (Not that the builders have no responsibility of their own, but as the saying goes, "the enemy of my enemy is useful".)

Kinda sucks but it seems the Feds are going to do whatever it takes to keep this Ponzi going for as long as possible.

Too late. Look at the last interest rate cycle--the fed started raising rates in Nov, 1998 in order to slow down the stock bubble. They stopped raising rates in May, 2000. By that time, it was far too late for a "soft landing" of the NASDAQ. The Fed eased like crazy to limit the fallout, but it was too little too late. The NASDAQ finally hit rock bottom in'03. The fed lowered rates for the last time in June of '03.

Then the fed started raising rates to contain the housing bubble. After 17 straight hikes, it is pretty clear that the bubble is finally turning over. But at this point, pausing or even dropping rates in a "counter-cyclical" move will not save the housing market.

Glen,

Uh... I'd say, uh... I'd say that about wraps it up! I'm not really a doom and gloom guy but the way you describe the unraveling sounds about right! Also I believe your calls on the upswing were spot on. Many people get the time frames all wrong. Many "homeowners" seem to want to cram the whole chronology from bubble inception to implosion between 2004 and 2005. So basically the free money leading up to that was "A ok". Everything else (in their minds anway) was perfectly normal up until those damn flippers "took over". It didn't happen that way.

I wish I could give proper credit but someone here said it best. When the cost of money is high, there's plenty of land. When the cost of money is cheap, we're running out of land!