patrick.net

I guess Peter P and I will have to be content with being proven right --MP is long gone and never really accepted the sushi payoff to begin with. :-(

California is also a special case. It, along with NYC are the only two places in the country generating enormous amounts of wealth for large numbers of people. Hollywood, Silicon Valley, and Wall Street are unique in the world.

Yes, we are very special indeed. This is way housing prices will continue to go up through the end of the decade, 20% a years for many years. Don't worry, be happy.

I guess Peter P and I will have to be content with being proven right –MP is long gone and never really accepted the sushi payoff to begin with.

Let's buy ourselves sushi anyway. :)

California is also a special case. It, along with NYC are the only two places in the country generating enormous amounts of wealth for large numbers of people. Hollywood, Silicon Valley, and Wall Street are unique in the world. Of course housing is through the roof there. Best three places in the world to make a fortune. People sacrifice to grab the opportunity. Every google just increases the allure. Can’t think of a single IPO in the last 20 years that created more than 500 employee millionaires in any rust belt state. (As an aside, look at housing prices in Central London - at least double those in NYC based on square footage, because London is the only place in Western Europe to make a fortune at a young age.)

Classic Kali-phonier babble. Gold rush. Nothing more.

Ricky,

I have heard the old "my area is different" and "population growth will bailout my area" arguments many times, and they're no more true during this market cycle than they were in previous cycles. When asset prices become completely disconnected from market fundamentals supporting them (rents, incomes, etc.), prices will mean-revert --or even overshoot-- and there's nothing anyone can do about it.

Population growth is NOT outstripping housing production, but quite the opposite: usnews.com/usnews/biztech/articles/050606/6home.htm
As far as "everyone" wanting to come live here despite stratospheric cost of living, overcrowding, traffic, pollution, and a much degraded middle class lifestyle, I could point out that CA would now have negative population growth were it not for a high birth rate among mostly dirt poor immigrants: usatoday.com/printedition/news/20051222/a_census22.art.htm

Despite all those new mortgage products for illegal aliens, I wouldn't count on tomato-picker bought McMansions bailing out this bubble anytime soon. The only question is HOW and WHEN the correction will play out. Will is be mostly nominal price drops or inflation-eroded value, or a combination of both? Will it be a relatively sharp (for RE) correction of a few years, or play out for more than a decade (like Japan)?

I think it was going to happen a lot sooner...but the hurricanes caused a delay.
Bloomberg has a decent curve, that isn't so resolution-challenged like some of the others I've seen:
bloomberg.com/markets/rates/index.html

I wonder how far it'll go. Will the 30-yr drop below the 6-mo???

I wonder how far it’ll go. Will the 30-yr drop below the 6-mo???

It may drop below the fed rate.

Will it be a relatively sharp (for RE) correction of a few years, or play out for more than a decade (like Japan)?

I think it will be much sharper than in Japan. Americans do not feel the urge to commit seppuku when they are about to foreclose their homes.

Prat, do you want sushi? We can surely meet for sushi in Menlo Park sometime.

Hey i'm headed off to san luis obispo. Maybe I'll run into srfrx...well probably not since i'll only be taking pictures of, not riding, the big surf that's rolling in, lol.
Happy bloggin' all, and do enjoy the well-deserved sushi!

Sunnyvale_Renter,

I just don't see the U.S. "sending back" millions of immigrants this time --legal or otherwise, even if things get really bad economically. Firstly, we have the uber-liberals in charge of CA, who instantly label you a rascist if you merely dare to use term "illegal alien" (It's "undocumented guest worker", you Nazi pig!). Anyone who starts advocating mass deportations will instantly become the new Hitler/Stalin/Satan.

Then there's the prohibitive cost/logistics of deporting millions of illegals, at a time when NEITHER party has the political will even to start enforcing existing immigration/employment laws. Then of course there's the mass media and zillions of citizens with cameras who would have a field day with a 21st century "Trail of Tears".

No, I seriously doubt we'll ever see a repeat of the forced mass repatriation of any ethnic group in this country --which is a good thing. Even so, this doesn't rule out a voluntary repatriation by illegals who suddenly find themselves out of work here, thanks to the credit bubble aftermath.

"California was a right-wing mofo kind of place for a good part of its history. If I were to go back to college I’d get a degree in history, it’s the most subversive shit you can possibly study - what really happened."

Since insulting the white trash hipocrite Ivy-league pseudo-liberal communists didn't incite any good controversey, I see if this will:

I met my wife at the University of Virginia in 1992 while we were both students. We were back for her 10 year reunion last memorial day. While we had time to kill, we went to see Monticello. On our way back from the house, we stopped by the cemetery to pay our respects to Mr. Jefferson. Also, my wife has kin in the Jefferson/Randolph family cemetery at Monticello. What kind of flags do you think are in Tommy J's cemetery for memorial day? I'll give you a hint: George Washington and Thomas Jefferson have Abraham Lincoln on a leash, and they beat him and fuck him in the ass twice a day. If you want to be subversive, check cemeteries in VA. If you knew who was related to who, you would all vote Republican.

Subversive enough for you?

How do you think a drop in mortgage rates before the Spring 2006 buying season is going to affect the market?

Free butterfish sashimi?

Marina is Prime

And remember last Depression we as a country sent back something like 2 million “mexicans”, equivalent to sending back 10-20 million today, and I say “mexicans” because not only were not all specifically from mexico.

How many were citizen children who got deported with their non-citizen parents? Did they assert their right as citizens?

Why did google spring up in the bay area and not in Toledo or South Dakota? Why did Gateway in fact move from South Dakota to San Diego? Because thats where the talent is.

Why did Microsoft spring up in Washington? Why did Dell operate from Austin, Texas?

Microsoft can crush Google with one finger. It is just positioning itself for more important things for now.

Dell has already crushed Gateway.

More on Topic: Ron Insana predicted the housing bubble as well as the rise in gold and oil in his book "Trendwatching" in 2002. He claims that all bubbles have this in common:

1.A new invention that creates new investment opptys: "Exotic Mortgages".

2.An exogenous shock that causes monetary policy to be too easy: Tech bubble burst, 911 causing record low interest rates to prevent economic collapse.

3. Event that causes easing in fiscal policy: 911 leading to war, homeland security spending, tax cuts.

4.Investors believe that future gains will continue: Did you see the survey of expectations for 22% Yoy gains in LA lasting a least a decade?

5. Overtrading and mass participation by the public: flipping. 'nough said.

6. "Going parabolic". As the mainia feeds on itself, there is a dramatic spike in both transaction volume and prices (2003--July 2005).

7. Sudden collapse: dramatic fall when all buyers have bought.
8. Typical declines of 50-90%.
9. Often the whole process was kicked off by the unintended consequence of responding to a previous financial crisis: Tech bubble.

10. Those who got in early (smart money) make all the profits. everyone else all head for the exits at the same time, causing their profits to disappear and the smart money to accumualte all the winnings.

Kind of creepy.

Deo Vindice

Hmmm... new bull going by name of "Ricky", posting with email address of "hoss@cartwright.com" and using a vaguely familiar IP address.

Must resist urge to feed old trolls... must resist...

But for the 10% - 20% of the population that wants to compete on the world stage, there are only a few places you can really live and be taken seriously. And the housing prices in the those areas will always be much higher than the rest of the country.

You have no clue. If you want to compete on the world stage, you need to setup shops in developing countries (China is already too expensive) and oppress the population there. (You need your private army to protect your ass though.)

Peter P, unless I'm mistaken, I believe "Ricky" owes us some butterfish sushi (and an apology). :mrgreen:

Peter P, unless I’m mistaken, I believe “Ricky” owes us some butterfish sushi (and an apology).

I know. I won't count on it though.

Prat, do you want sushi? We can surely meet for sushi in Menlo Park sometime.

Sure. You've got access to my email? I only check yahoo every few days, but I do check it.

Cheers,
prat

http://www.newscoast.com/apps/pbcs.dll/article?AID=/20051223/BUSINESS/512230430

I look at the TUT spread, which is 2yr / 10yr. I am under the impression that many trading systems use this to obtain yield curve information.

Lulu,

Determining exactly when the yield curve "inverts" can be tricky to pinpoint because there's more than one way to measure it. In general, though, the MSM media (including Prat's CNN money article) seem to use the 2/10-year bond spread as the main benchmark.

For the little wager Peter P, myself and MarinaPrime had going back in August, I believe we settled on the 1/10 year spread, (mainly as a token/concession to MP). If you use the U.S. Treasury Dept's own yield curve data, it inverted on BOTH the 1/10 and 2/10-year spreads today: treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

Sure. You’ve got access to my email? I only check yahoo every few days, but I do check it.

Cool. Have you tried Kaygetsu (www.kaygetsu.com) yet? The owner used to run the famous Toshi Sushi in Menlo Park.

It is in the Sharon Height shopping mall, just be Santa Cruz and Sand Hill. Prime location for Palo Alto workers. :)

That’s what i’d do if i had one of those ‘exotic loans.’ Seems rational.

Too bad, sheeple are not as rational as you. Besides, if people could not afford 5% 30yr FRM last year, what makes you think that they can afford a 6.5% 10/1 ARM now?

Too bad they have been silly. Now many sheeple are stuck. Wolves are closing in on them.

Also, just wondering on this slight inversion… what does this mean for the economy? Is the bond market forecasting a recession? Or, is the bond market just saying that the inflationary outlook is benign and that the Fed is wrong?

Whatever you want to see it as.

peter p. this one is for you:

It requires registration. :(

@Lulu,

Yield curve inversion can signal a number of things. In general, the "standard' interpretation is that the bond market is expecting a weakening economy, which usually means falling future yields (interest rates) are on the way. An inverted yield curve has historically been a very reliable predictor of recessions, which usually follow with 6-12 months of the initial inversion.

peter p. this one is for you:
It requires registration.

Try BugMenot.com

There is no exterior distinction between affordable and market-rate housing.

How about interior distinctions? Perhaps one has pergraniteel and one does not. ;)

BTW, thanks primetroll.

I guess that makes sense. Is it possible that we can be in a recession, but still have rising home prices as investors shun stocks?

Or investors may shun housing and go to metals. It is all about prevailing expectations. Economic fundamentals are reactions to such expectations.

I guess investors can also shun everything, in which case liquidity rises tremendously as cash gets hoarded in money markets and savings, which results in a rightward shift in the LM Money Supply curve, which further pushes down real interest rates, which ultimately proves to be a catalyst for corporates and consumers to borrow and invest again?

Unlikely. You are describing a textbook economic utopia. The fact is that markets are 100% driven by psychology and that liquidity bubbles forms and disappears.

Read Soros.

Lulu,

The fact that so much money (and credit) has already been thrown at RE since 2000, and that housing prices have outpaced incomes, rents and overall inflation for so long tells me that much more appreciation is unlikely at this point. 2000 was really the point at which the current RE bubble took off, thanks to AG's negative real interest rates combined with relatively new speculator-friendly tax incentives and fleeing Dot.com "investors".

The odds of this trend-line continuing indefinitely, given the current sky-high price/rent ratios must be very low. Trees just don't grow to the sky. Of course, median prices (on falling inventory) can still go up a bit further, as the remaining few buyers can now "scale up" and cherry-pick among much greater inventories, but it's very likely that we're already at or near peak prices in most regions.

Whether or not the Fed can start another asset/credit bubble in another market is anyone's guess, but housing's day is done --you can stick a fork in it. :-)

thanks to AG’s negative real interest rates combined with relatively new speculator-friendly tax incentives and fleeing Dot.com “investors”.

Forgot to mention the massive role that GSE/MBS risk underwriting has played in this cycle. Fannie, Freddie & Ginnie have purchased (and guaranteed) around 50% of outstanding residential mortgages out there, allowing banks and sub-prime lenders to hand out I/O mortgages to minimum-wage earners, illegals and dead people.

Whether or not the Fed can start another asset/credit bubble in another market is anyone’s guess, but housing’s day is done –you can stick a fork in it.

I am wondering how much gold will go up in value if just a portion of the excess liquidity is going after it.

All gold ever surfaced in history can fit inside just a few McMansions.

I am not a gold bug.

Things are definitely cyclical, but i think in general, due to population growth, and inflation.. things tend to continue moving up in the long run.

Very true. However, one must be able to meet short-term obligations. How many "investors" can withstand a 10-year drawdown in real-estate on negative cashflow?