patrick.net

"Add to above proposal-

will there be
coal in your stocking?
:mrgreen: "

Coal isn't a bad gift....It can heat the house ;)

"That’s for existing buyers as their 3-1 and 5-1 loans convert over the next few years. For new buyers, how are they supposed to continue to pay higher prices for homes as the interest rates they get are increasing so quickly percentage-wise? Even for risky IO loans, an increase from 4% to 5% is a 25% increase in monthly payments."

Anyone who is buying right now will be darwinized.......The bubble already has popped, but much like sound waves take time to travel so does the air out of the bubble. Sellers are in a handcuffed situation.....Just look at how many houses are for sale.....I have never seen so many in my entire life....and we are approaching winter! Obviously the sellers know their equity is at stake.........The ones that are waiting for spring are going to have a surprise waiting for them, but it won't be spring flowers!

Update on my sister's home-buying saga:

So there's selling their previous home, a 3 BR 1400 sqft eichler which they had newly landscaped and remodeled the kitchen (viking gas range, deep freeze, granite etc.). It was smallish, but nicely done.

Now they've just bought an 1100 sqft 2BR on a hill, "better area" etc. This home also has a basement not included in sqft. So their angle is to make the basement a liveable space, adding 500sqft to the home, thereby in their words "increasing the equity". (How does this help, if you buy at the top? But I digress...) Right now, the basement has a 7ft ceiling, so their plan is to raise the whole house by a foot. This sounds very ambitious to us (not to mention expensive), but my sis' husband calmly says "I know a guy who will do it for $10K". I suggested that sounds more like $100K, just by the sheer magnitude of the project, and all the possible details he'll face.

Hmm...any thoughts out there?

I'll repeat....Anyone buying a house now will be darwinized :twisted:

I've asked that before......I'd love to see the "suicide loan" useage timeline. I bet it resembles the stock market bubble chart.

KurtS, wouldn’t it be easier for her to lower the basement floor?

Yes, we kept asking that, but it seems it would undercut the foundation, and apparently the city won't let that be done for integrity issues. We suggested there must be a workaround, but they've firmly sold themselves on the idea (just as firm on buying now, despite my cautions)

KurtS,

Does your sister have any regrets at all about buying? Even after seeing/hearing about sellers cutting their prices, inventory rising and fewer buyers showing up at open houses.

Does your sister have any regrets at all about buying? Even after seeing/hearing about sellers cutting their prices, inventory rising and fewer buyers showing up at open houses.

I'm not sure; she's hard to read. Personally, I think this is all the husband's idea, and typically he's very bullish on anything he thinks up--pretty much the cookie-cutter Silicon Valley optimism. His 'grand plan' sofar has been for them to quit good biotech jobs, she looks after their newborn, and he's now a wedding photographer.

Presently they're not as concerned as I am, but that might change as their first home sits on the market. Alas...

I think it’s the spring when everyone will put their house on the market and we’ll see real trouble. Rates will be even higher, so if inventory shoots up, the real price correcting may begin in earnest.

I agree...based on anecdotal evidence (here & elsewhere) about people waiting for the market to "heat up again in the spring. I think inventory growth is slowing right now...but it is also is at unusually high levels and, contrary to the slight dip in prices, the steady increase all through the fall is not a seasonal norm. By mid-spring, I'm guessing inventory will be monstrous; some enerpreneurial city official will propose charging advertising costs to place "Open House" signs on street corners.

But would there be a source showing when and how many funky loans were written, like a tracking of the peak? Or do the banks keep that info to themselves?

I've seen charts showing this; unfortunately I didn't bookmark any of them. They show a decent amount of ARMs (expressed in $$$ value) re-setting in 2006, and a huge increase in 2007.
Maybe someone will show up with a link.

"and he’s now a wedding photographer."

Why just weddings? That's got to be one of the most stressful kinds of photography...the kind some photograhers refused to do (if they're smart!).

"refused"

Er, I meant, refuse.

I mean really, on a hill, earthquake zone?

Yes--on that range of hills just a couple miles east of the San Andreas rift zone.
I suppose I'm more concerned about them overextending themselves.

And, while I have little real knowledge here, I tend to trust my gut.
It also seems they'd have the land to expand on laterally, which strikes me less complicated than building down/up?

http://tinyurl.com/84rbv :)

Why just weddings? That’s got to be one of the most stressful kinds of photography…the kind some photograhers refused to do (if they’re smart!).

I think he's also working into corporate photography. However, I used to hire photographers for corporate work, and knowing quite a few over the years, I know how seasonal that work is. When the economy tanks, marketing budgets wither. And, wedding work is seasonal to the extreme.

Of course, I offered my perspective when the guy decided to change careers, but after a few seminars, he thinks he knows everything about the business. He enjoys taking risk more than I.

Allah, LOL...and damn scary for those who will tumble all the way down!

Just think: if interest rates rise, and equity drops to the degree we see there?
damn.

Here's a quote regarding ARM reset timelines:

This year [2005], only $83 billion, or 1 percent, of mortgage debt will switch to an adjustable rate based largely on prevailing interest rates, according to an analysis by Deutsche Bank in New York. Next year [2006], some $300 billion of mortgage debt will be similarly adjusted.

In 2007, a time bomb could go off when $1 trillion of U.S. mortgage debt - or about 12 percent of it - will switch to adjustable payments, according to the analysis.
Who knows where interest rates will be in 2007.

The authors go on to site economists who believe this will only cause a minor slowdown to US economy.
Link:
http://tinyurl.com/7frez

if you raise the house by 1 foot, wouldn’t that break all the incoming / out going pipes attatched to the house? wiring? can’t they just finish the basement and leave it with 7ft. ceilings?

Yes--one reason I thought the cost could be just a little more.
Well, consider their apparent reason to buy this house:
Small "fixer" in "prime" area w/land to build. Increase square footage and capitalize off a higher value (do they intend to sell?). It smells like speculation to me, and a wise move to him since "RE is going up."
Personally, their reasoning suggests they intend to flip the house, but I think the timing's wayyyy late.

Superuncool--

Yes, your approach of digging the basement sounds reasonable to me; we discussed this him. He gave the reasons I mention (above).

Yes, lots of possible, unintended consequences!
Not to mention, where will they live when the house gets jacked?
Maybe they're holding onto their old house for now...I don't know.

"eeeks i don’t know about that one … if you raise the house by 1 foot, wouldn’t that break all the incoming / out going pipes attatched to the house? wiring? can’t they just finish the basement and leave it with 7′ ceilings? "

They should just leave it alone and let the next buyer who gets it at a discount do all the improvements. :lol:

what happens if the bird flu threat materializes and puts a dent in the asian economies? how would an asian recession cut into the re outlook?

If the bird flu mutates and spread among both humans and birds, no quarantine measure can stop it from infecting the whole world. It will not be an Asian problem alone.

I think a critical mutation this year is quite unlikely. Do not worry about that. If it does happen, stay home and short stocks all day.

I’ve never heard of anyone jacking up their entire home in lieu of excavating the basement a measely 1′ but, hey, I’m not standing in their shoes.

Me neither.

Why not 2 feet to make it 9 feet? 8 feet ceiling is unacceptable.

On the other hand, if we had 500sf of storage space in the basement for our junk, 1100sf of living space would be enough.

Onto another subject; I think Surfer-X will love this story:

"The word around town was that the Hummers weren't moving. ... the scuttlebutt was that inventory had been building for months now and the local Hummer dealer had panicked. He had begun storing his Hummer inventory at an undisclosed location, far from the dealer showroom so as not to spook jittery, prospective buyers with the mounting number of unsold H2s and H3s."

http://tinyurl.com/d7pzz

Check out the photos--they're classic!

“Why not 2 feet to make it 9 feet? 8 feet ceiling is unacceptable.”

Yeah--once you get used to high ceilings (10ft+), you don't want to go back.

I think their previous home only had 8fts.

“The word around town was that the Hummers weren’t moving. … the scuttlebutt was that inventory had been building for months now and the local Hummer dealer had panicked. He had begun storing his Hummer inventory at an undisclosed location, far from the dealer showroom so as not to spook jittery, prospective buyers with the mounting number of unsold H2s and H3s.”

http://tinyurl.com/d7pzz

Are you sure they are not duplicated using computer graphics? OMG!

Are you sure they are not duplicated using computer graphics? OMG!

Good work if it is...I don't see any discernable repetition.
It's gotta suck to be GM.

Mr. Superwayuncool,

I think you should go back to being Mr Right or Mr Wrong or perhaps even...Mr Wad. I keep forgetting who you are! :-P

Much better!

What will you do (if anything) if by the end of 2006 the bubble hasn’t burst yet and housing has appreciated another 10%?

Ditto for 2007 and 2008.

Hypothetically?....I'll toast to our present equity.
Realistically? Inventory is up, and "price reduced" signs abound.
It's anybody's guess--but I won't bet on Spring being an easy sell.

I know all of you are die-hard housing bubble advocates, but just wanted to pose a hypothetical question:

Ditto for 2007 and 2008.

You need to provide more info to the hypothetical. Will my salary increase by the same amount? Will median household income increase by the same amount? (as of the past 5-8 yrs, income "growth" has lagged RE appreciation by A LOT...it's difficult to imagine it getting worse, especially 10% a year worse).
Hmmm...what else. Will I be married by then?
That is just a very difficult question to answer. I will say, if RE appreciates by 10% a year for the next 3 years, and if wages don't increase similarly, there will probably be a lot of negatives to living in such an environment...people spending 60% of their gross income on their homes??? Shopping malls would be ghosttowns (not that I enjoy going to shopping malls :) ).

What will you do (if anything) if by the end of 2006 the bubble hasn’t burst yet and housing has appreciated another 10%?

Ditto for 2007 and 2008.

Since I do not ask for much in a home, I can probably tolerate another 20% run-up if job and interest rate does not change drastically.

Unless you are worse off than other similar first-time homebuyers, you have nothing to fear. Stick to your analysis unless your original assumptions are violated.

Real estate is an excellent investment vehicle most of the times. The present time is one of the few exceptions.

basically anyone other than the CEO of Exxon or Bill Gates, you have absolutely no incentive voting for someone like George W because his views and policies do not help your kind at all, in fact they hurt you.

And you think someone other than Bush will help us more? :)

I think we have more chance working towards being the CEO of Exxon or Bill Gates. ;)

"What will you do (if anything) if by the end of 2006 the bubble hasn’t burst yet and housing has appreciated another 10%?
Ditto for 2007 and 2008.
Not trying to incite, just curious as to whether that will impact anyone’s beliefs. "

Continue to save big bucks by renting? No, it wouldn't change my belief that real estate is overpriced.

flak, I think the SARS situation was handled pretty well overall. It could have been really bad.

“What will you do (if anything) if by the end of 2006 the bubble hasn’t burst yet and housing has appreciated another 10%? Ditto for 2007 and 2008. Not trying to incite, just curious as to whether that will impact anyone’s beliefs.”

It already burst!

"Allah based on that graph, what would be the way to time 2004 in that for here?"

You mean the very bottom of the fall for the US? There is no way of timing it...it will probably fall for a few years........I don't think the fall will stretch out over a decade. I do believe the tumble will be alot quicker than most people think. When you have a huge number of houses on the market and then suddenly you have bursts of foreclosures (due to "suicide loans") during a time while interest rates are rising, there will be a great deal of downward pressure on house prices. Remember this "suicide loans" have only been used before the great depression....and they also were the cause of it they were never used again until now.
see http://tinyurl.com/7e8z2

"Until the bay area house is 3-4 x annual median income-
Then the bubble will have burst. Until then, still looks kinda dismal to me."

The bubble did burst...the houses are already worth less...the sellers don't realize this.....but the buyers sure do.....notice how noone is buying now? The sellers are just starting to realize this...they are cutting their asking prices trying to find what their houses are worth.....they have a long way to go and due to interest rates, time is definitely not on their side!

"i repeat the party is over ….10% :) hee hee!"

You have a better chance of spotting a flying pig!
http://tinyurl.com/83uog

Stray post here:

I know afterhours stock quotes need to be taken with a grain of salt, but 31% down???

http://tinyurl.com/8wd3p

How would you feel about having sold if rents have doubled 5 years from now?

Again, anyone who can convince me of this scenario I will buy ASAP.

Good predictions or bad, they are all meaningless until you start discussing specific locations.

Agreed--the local economy and market conditions play a big part. The question is: to what degree do macro-factors, such as money supply and investor activity, affect pricing dynamics in local markets?

If our national obsession with RE is any indication, aren't we seeing a large-scale effect, particularly by investors that chase after untapped markets, hoping to get a larger slice of pie in the end. Hence, the serious price runups in places where "fundamentals" are far shakier than our beloved SF Bay. This explains the rental glut in areas like Phoenix, Boise, Portland, etc. I see it as a pyramid scheme roaming the country, looking for the next big deal.

I realize we probably don't agree totally on the "investor component" of the current scene, but I'll agree that specific markets all have their own supply/demand histories. Perhaps at any other time I'd agree that real estate (particularly California's) fall under local circumstances. However, doing some recent research, I came across a mortgage firm's analysis of metro areas nationwide, estimating housing costs based on fundamentals vs. current market prices. I was surprised by the results, showing the familiar "bubble" trend line across the nation. Predictably, the trend shot upward in coastal markets early (around 00), followed later by slower markets. What's curious to me is how these trends appear to follow news I read about regional investor activity.

This comment be overworked, but I respect your take on things, and wouldn't make the effort otherwise.