patrick.net

"I think you should continue renting, wait for the market to correct, and then come in."

This is our plan.

"Right now they are selling for 600-800K, but in a year or two, I can easily see them slashed to 50% the current price."

I agree, I can see the outlying areas becoming affordable again pretty soon.

"I am not sure if you are targeting the established neighborhoods,"

Yep, it will depend on where my husband finds work, but I know he left his heart in SF. ;-)

Hey HubbaBubba, where is that Groove Sushi? I could not find it.

What is Groove Sushi?

LOL!

Is everybody on this board excited that Disney’s ‘Chicken Little’ is coming to a theater near you!?! I know I am!

I do not like Disney. Moreover, I prefer duck over chicken. Do not let your government regulate duck farms and/or foie gras production!

BTW, foie gras is supposed to be from geese. How come it is so difficult to find goose meat products (other than canned ones)?

I think the constitution should be amended to guarantee culinary freedom and liberty against unreasonable food regulations.

How about butter-fish marinara?

"Thats the problem with moving out of the NYC metro area. Once I leave I am done, and can’t get back in. That I would think keeps alot of people on LI"

I don't see anything so great about LI.............the only reason why I haven't left is because I eventually want to buy a house, I am renting pretty cheaply right now....I don't see the point of leaving just to rent again.....my next move will be a house. I have some family over here, but that won't stop me from leaving. When I do buy a house, I am not so sure I'm going to want to stay here even after a correction.......I mean the cost of living itself is so high over here and it's getting so crowded. So we have nice beaches over here, I don't go to the beaches much anyhow. There are so many up and coming areas that I can bring up a family without stuggling......... I mean the taxes alone are so damn high...and by the time my children grow up, are they going to be able to stay? I mean I would rather live closer to my children than my siblings.

"I say- nah-they’ll just continue to outsource."

Yes....they will continue to outsource...but some jobs cannot be moved overseas. They will realize that they can save so much more money and maximize their profits by moving certain parts of the operation to cheaper areas. Don't forget, when fewer young technical people can afford to live in a high tech area, these companies will have a hard time finding new talent....this is another reason I am not sure I want to stay on LI.

I remember the president of Computer Associates siad "There certainly are cheaper places to hire than LI".

" cant resist… wait. Yes. I can."

Jack, such restraint! So unlike you!

Let me be the devil's advocate.

Most people/economists believe that our Helicopter Drop Bernanke will stop the interest hike at around 4.5-4.75% and probably start cutting to avoid recession. If this is true, how will this affect the housing market?

Bubblesitter,

let me further develop my devilish streak :-)

Will 4.75% really be enough to pop the bubble? See, our new chief is targeting the inflation as measured by the core rate, and as long as oil remains below 60, or even slips to 50, then the inflation number will go back to around 2.5% (whether you believe this is the true inflation rate is entirely up for debate).

The percentage of NAAFL loans didn't go drastically up until 2004. Most people have a 3-5 rate locked in, which means the effect of higher interest won't be felt until 2007 onwards. So, does it mean housing will continue to go up until 2007? Or have we already exhausted all buying power in the market at this point? You know, as long as there are people with $$$ sitting at the sideline, you can't say the buying power is exhausted, and most likely this cash rich investor will jump in out of desperation or frustration.

So let's say our Bernanke chief keeps the rate constant once he reaches 4.75%, does that mean our housing bubble can still hang on for another 2-3 years? Will there be any other events that will prompt the RE bubble to pop aside from the rates?

Ownerocc,
I think inflation pressures due to recent energy cost spikes will not finish working their way into the CPI numbers until perhaps the end of the year or later. This sentiment may be reflected by recent Fed speak, which has recently mentioned, for the first time. 5.5% as an upper limit to the desired "neutral" funds rate.

Not to mention, if bond markets think Fed will stop increasing, or decrease rates, the conundrum might come back in full force, with markets driving down long yields. Currently, I think the yield curve is still relatively flat, with the long end still having a decent amount of ground to make up.

Also, some argue that higher interest rates aren't necessarily requisite for popping this bubble. Even in a low-interest rate environment, the lending industry has had to turn to increasingly "creative" loans for the past 18-24 mos. Remember, home ownership is at very high levels, while at the same time affordability is at very low levels...how much more extreme can it go? Will the lending become even more exotic? Perhaps it will; but recently we've been hearing about the possible onset of tighter lending practices. Plus, irrespective of quasi-regulated lending practices, the global appetite for such high-risk mortgages can't persist forever (or can it???).

And finally...there is the big question of home ATM cashflow. I think it is very hard to foresee the magnitude of the ripple effect due to slowdown in HELOC consumer binging. Big? Small? Nill? A slowdown in house appreciation would cause some decrease in consumer spending (how much? how big could the effect be on the economy? I think highly localized & difficult to predict). Some speculate this could be a big effect, yet others curiously leave it completely out of the equation.

I am curious about consumer spending this holiday season, and here is why:
I see it as a sort of test. That is, even if this current lag is merely a pause in the RE boom, it certainly has gotten a lot of press, right? And possibly spooked quite a few people? Well, I think consumer spending this holiday season might just give us an indication of how fragile, or how robust, the economy is. If there is poor spending this season, than to me that would imply that we are VERY dependent on RE appreciation and the economy is somewhat at the mercy of housing appreciation. If, on the other hand, people spend normally this season, then (A) economy is not very dependent on RE appreciation, (B) nobody pays any attention to media reports of RE bubble bursting, (C) everyone is too addicted to spending money to stop.

***NOTE: when I say "the economy", I realize that certain effects may be localized to bubble-areas, & certain aspects may apply to local economies only.

Well, this is the best I could muster to counter your devlish advocacy. :)

"(A) economy is not very dependent on RE appreciation, (B) nobody pays any attention to media reports of RE bubble bursting, (C) everyone is too addicted to spending money to stop."

C................always has been, always will be! There is still room on that credit card.

Well, I think consumer spending this holiday season might just give us an indication of how fragile, or how robust, the economy is. If there is poor spending this season, than to me that would imply that we are VERY dependent on RE appreciation and the economy is somewhat at the mercy of housing appreciation.

Yes, will people draw back spending this holiday, or go on an all-out binge-fest to feel good? I do know that the house-ATM was "hell-locked" at record highs in '04, and appears to be petering out. Once the mainstream realizes that house prices won't keep flying to the moon, there's could be a bit of panicked belt-tightening. But despite the warning signs, if people continue their credit-loose ways, that might suggest the RE mania could continue for a while longer?

Just for fun, a while back I compared some builders stocks against home improvement stocks. It was interesting to observe a relative peak that happens to coincide with the July/Aug RE peak. Nothing definitive, but interesting all the same:

http://tinyurl.com/9bdmq

"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