patrick.net

The one ace card that the housing bubble crowd had going for them was the interest rate increases.

Yes, but we have a royal flush with that ace.

6) Emerging market debt (small exposure)

If MBS goes there may be another flight to quaility like the one in 1998. This is one of the risks though.

Obviously feliz is a lousy realtor who doesn't even know what owners think.

I am no investor, so whatever price my home is worth to doesn't impact my life one single bit. In fact, I don't like a housing boom because that prohibits me from upgrading to my dream neighborhood and dream house at a steal. I want a housing boom when I am done with the Bay Area so that I can cash out and go somewhere else with a fat wallet.

No congratulations for me! If I upgrade, I will have to shell out over $20,000 on property tax alone for the same damn house that I could have bought 6 years ago for 1/2 the price. The only winners are the realtor and the government.

So as an owner who has seen his property tripled, I'd love to see the market getting crushed by half. I sell cheap, I buy cheap, no commission for you lousy RE agents because my wife will get a licence just for the transaction, and less property tax to the government.

Want to know how bad the housing bubble is going to get? Look around you right now, today December 30th 2005 is as bad as it’s going to get….”

What a stupid thing to say! I look at the bubble as the psycology of the housing market and yes, you can say there is no bubble because it already popped! Houses have already lost a significant amount of value...you don't realize this until you actually sell the house. Look around you, look at the inventories! No one is buying anymore yet there are certainly many sellers desperately trying to sell. The ones that have been selling have sold progressively for lower prices. Many have cut their prices yet the house still sits....yes the bubble popped, but the crash has just begun.

The worst it's going to get? Just wait until those ARM's start adjusting, I believe $300B will adjust this year and $1T in 2007. There will be many that will have to sell when they realize they have to make real payments on their loans, and they realize that they can't handle real payments on a grossly overvalued property. Watch what happens when they start putting their houses up on a market that already hasn't seen these inventories in almost a decade.

I am going to sit out 2006 and I'll be waiting with cash in hand to buy in 2007 when it really starts to get ugly for the sellers.....when that time comes I will be ready to buy at a real price without getting in way over my head like many sheeple have.

Happy New Year Everyone!

If you torture data long enough
It will confess anything.

Where you put your money should depend on where you think the economy is headed. First put aside some emergency cash (3 to 6 months expenses) into a money market account. Don't touch this.

The rest, if you will there will be huge inflation and interest rate increase, buy some gold or gold shares. If you don't want the hassle of physical gold, create a pool account with kitco (or some place like that).

If you think the stock market will do well when real estate crashes, research and buy some stocks or maybe some broad index funds.

If you think all the jobs will go to Bangalore and are fuming about it (say you are renting in Sunnyvale and feel that way ;-)), buy some real estate in India!

Generally speaking, your investments should reflect (a) what you think will happen and (b) a little bit of what you fear will happen (hedge).

In terms of "parking" I wish some people could get it straight! If life was as simple as Paul Farrell on CBS Marketwatch contends (and boy does he beat it to death) then the only criteria used in investment selection would be the FEES! Not that it's going to do any good but for the last time, Fees are the tail wagging the dog! If a money manager brings me 20, 35 or 70% returns why would I care if it takes him 200 bps to run the damn thing? Capital always seeks it's most efficient use, so if the fund manger falls out of your parameters FIRE THE GUY! It's really no big deal but please tout Index Funds someplace else.

"Homeowners are smiling all the way to the bank with an inflation hedge, terrorist hedge, money making asset, meanwhile those not in the market continue to throw their money to rent, and build nothing under their name." -- Feliz

The problem in the Bay Area, Feliz, is that real estate is no longer a "money making asset." Because our price/rent ratio is so f'ed up here, you cannot buy a house or condo and have the rent you can charge even cover the interest portion of your mortgage payment. This of course means that the only reason anyone would buy propery in the Bay Area at current valuations is to make a big bet on future appreciation. After 5 straight years of 10% plus appreciation, making a big bet on future appreciation to bail you of a negative cash flow investment is a very stupid bet. Feel free to make that bet if you'd like though--this is why we have market corrections--they're necessary to wipe the stupid people out of the market. Darwinism at work.

"No congratulations for me! If I upgrade, I will have to shell out over $20,000 on property tax alone for the same damn house that I could have bought 6 years ago for 1/2 the price. The only winners are the realtor and the government." --Owneroccupier

Exactly--here we have a smart home owner. I don't understand why more of them don't stop by here more often. Most Bay Area home owners seem to be ecstatic about their homes appreciation, but this is just an unrealized gain. The only way you can lock in that gain is to sell and leave the Bay Area, because otherwise you'd have to buy right back into the same overvalued market and kill yourself on taxes. It seems that Real Estate unrealized gains are the only kind that actually end up costing you more in taxes. Because with a stock of course you can just hang on to the security and don't have to pay a dime in taxes untill the end of the year in which you sell.

"Where you put your money should depend on where you think the economy is headed. First put aside some emergency cash (3 to 6 months expenses) into a money market account. Don’t touch this." -- Sriram

Yes. Then fund the 401K to fully realize employer matching. Then max out the Roth IRA. Then go back and max out the 401K. Then you fund your taxable brokerage account. Then you allocate your funds based on what you think the economic outlook is. I like big, strong, dividend paying blue chip stocks. They can ride out an economic downturn and are an inflation hedge. Energy stocks, consumer staples, utilities come to mind as convervative choices.

"If you torture data long enough
It will confess anything." --SurferX

Data mining is fun!

How about buying a house to live in ?

You do not need to buy a house to live in. You can rent at a 50% discount.

Well, it looks like there are more and more people who seem to be agitated by our bubble talk. Good.

1. Denial. Done
2. Anger. In progress.
3. ...

“Clearly, housing is still a safe-haven investment… and in general we
underestimated demand.”

Clearly, SF Chronicle is a shill.

Hi Happy Chuck, I have a question for you, what the fuck does someone living on the Pampas know about real estate in California and the bay area in general? One more question, why is this blog plagued with fucking trolls from other countries?

No prediction, prices in Santa Barbara are down 15% in Dec alone, kindly go back to fucking your llama and find another place to troll.

Obviously, your predictions must be Negative YoY appreciation since you guys are all negative right? Right??

Obviously you are out of your mind. YoY numbers are lagged by months. Go to hell.

Parking the wad?

Vintage wine. has more "upside" than most investments, plus it's very liquid.

Surfer X,

Right On! Nothing starts the year off on a sour note quite like barnyard stud! Hey Chuck, most of the people here have owned homes over the years. I consider myself a "veteran" homeowner. If it can break, I've fixed it. Roofing, decking, water heater, well, septic, wiring, painting etc. etc. etc. My wife and I finally got tired of dedicating our entire weekend to keeping some guy at Home Despot employed. I never minded "a" weekend project but when it becomes an "every weekend project" forget it! In short, I've paid my dues. The last thing I need is some newbie telling me about the virtues of "home ownership". I have other RE holdings, even some overseas, but I'll be damned if I'm going to listen to some new recruit ramble on. Chuck, the "idea" is to use the llama to ride to town and thennnnn

"Because they get distrubed by all these twisted arguments and had to do a lot of research/homework to sort out the facts and make their own decisions." - SFResident

Reality sure is a "disturbing" thing ain't it? Inability to deal with reality is even more disturbing in my mind, but that's just me.

"How about buying a house to live in?" --SFResident

Why would I buy an overvalued asset when I can rent for less than the mortgage interest expense and save/invest lots of money?

"The market has a mind of its own, it will NOT listen to your command to crash when you needed it to and go through the roof again when it is to your advantage." -SFResident

No shit Sherlock! Likewise the market will NOT listen to your command to continue appreciating when you need it to.

"They need more sellers, not more buyers." --SFResident

Then why is inventory increasing across the Bay Area?

Has anyone else noticed that we seem to be experiencing an increase in troll activity lately, and our trolls are becoming increasingly more illogical, shrill, and just plain crazy?

I'll bite Feliz: negative 8% for Bay Area housing market in '06.

As to how you'll fare with your mud hovels down in Argentina, I don't give a damn.

"There are 2 ways to realize your dream.
1. Stay put and remodel your existing house to your dream house.
2. Buy the cheapest house in your dream neighborhood and rebubild/remodel to
your liking (dream house).

If you house has tripled in value, you can handel either route to your dream very easily." - SFResident

well, both options include a reset of my tax base, which I locked in at around 1/3 of its current market value. I am living in the same damn house, and why should I pay more to the government for bettering my living condition? Of course I admit that I am greedy, I want to have the cake and eat it too, it just seems that my wish will very soon be granted as the market heads for a hard, not a soft, landing.

Owneroccupier Says:

"I have been saying this all along: gold, silver, oil/gas, a basket of foreign currencies including Euro, AUD, CAD, Swiss Franc, perhaps a bit Yen just in case. And sleep soundly through the turmoil ahead."

How about this:

I have been saying this all along: chocolate, vanilla, syrup/beans,
a basket of foreign cookies including Euro-crumpets, Moon pies, Cadbury eggs, Swiss chocolate, French cheeses, perhaps a bit of rice pudding
just in case you have a yen for it. And sleep plumply through the turmoil ahead."

Wow. Too many threads, too little time. Sorry for failing to finish the states right thread--maybe over sushi.

RE Parking the wad: I've been trying to figure out how so many smart people can disagree? Can they all be right? I have an explanation that I think fits.

First: Is Ben Bernanke's worst fear deflation? No. Why? Wasn't his point with the helcopter comment that in any case he could prevent deflation?

He is worried about growing expectations about future inflation. Why? He is afraid that if it gets out of hand, it will go to the moon. What is his worst fear? Being forced to pull a Paul Volcker with an 18% prime rate. Imagine how that would screw up the world over the next 10years.

Why is gold up? Why is oil up? Why are we turning in such great GDP numbers, when we aren't creating jobs apart from Real Estate?

In a word, MEW. Mortgage Equity Withdrawl. How is it spent? Lavishly on unnecessary consumerism. In addition to the MEW, home building is also very commodity (lumber, energy, etc) intensive. We have inflation, people. Think about how much commodity price inflation we have exported to China. It takes a lot of energy to build all that crap. They also have a property boom that is highly resource intensive. why? MEW.

Are we getting anything for all this investment and inflation? we are getting malinvestment. What will Ben do? He will raise rates further after a pause between March and June. Why? Because it will take more to slow down this freight train. All that money is sloshing around, and rates are still historically low. What happens if he cuts at the first sign of a housing collapse?

In a word, the end of the dollar as we know it. Creditors will sell everything denominated in dollars. It would collapse, inflation and interest would go to the moon. What will Ben do? He will furhter invert the yield curve, with an additional 100bps in 2H 2006 if necessary, to create a recession. Commodity prices will drop. Oil will hit $36.

Then what? That will totally CRUSH inflation expectations. That will allow him to reduce rates sharply 2h2007 and into 2008. JIT for the ARM resets in 2008. Mortgaes rates will hit 4.75% for a 30 year fixed.

I withdraw my comments for energy until the price drops in 2007-2008, and then I will buy lots. what will gold do? It discounts FEAR. There will be many fearful people. They will move into gold with enthusiasm and without common sense and bid it way up. The hedge funds will pile in and manipulate, and VOILA. Our next over the top speculative bubble.

FOR ENTERTAINMENT PURPOSES--NOT INVESTMENT ADVICE.

--Deo Vindice

oh yeah: avg drop for the s&p during a recession--43%.

When the housing market turned south in England about a year ago, the Bank of England dropped interest rates a percentage point and turned a falling housing market into a stagnant one. I would imagine the Fed will try to do the same thing here. The collapse of the dollar is highly unlikely as the Chinese and Japanese want to prop up our economy as long as possible. The only thing that could stop the Japanese from buying US Bonds would be if their own economy turned inflationary and I don't see that happening in the near future.

I am slowly building up my cash horde, which as 5% of my liquid net worth a year ago, to 10% today to hopefully 30% by the end of the year. I am going to sell the pile of company stock I got pre-IPO to get there. That is going to sit in a one year CD paying 4.25%.

The rest is about 3/4 in foreign markets, mostly ETFs. I have about equal amounts in ILF, BZF, CEE, EWG, EWJ, CEE, TKF, EWY and EWW. If you look those up, you will see that I am scattered all over the world, but concentrated in Latin America and the developing world. This portfolio has done very well the last two years, up 30% last year and about half that the year before. The company 401k is split between the two foreign funds I have available, MRIVX and MRGSX. They are mostly invested in the developed world.

The only US stocks I have are KMP for the dividend and YHOO because I think it has a chance to shoot the moon. Both of those are pretty small.

I have 2% in physical gold, for emergency use only.

I also have a smallish put on TOL, which I see got killed today. It is still up overall.

As you can see, I am not too bullish in the US economy right now either, but I want to be invested so I am in overseas markets. I also look on it as a kind of hedge, since if the US economy does well, my wife and I will tend to get raises and do well but if the economy tanks, I would hate to lose my job and see my investments fall at the same time.

I am liking EWJ and EWG (Japan and Germany) more and more. They have not had a housing bubble, at least not in the last 15 years, so they will ride out the effects of this one going down better than most economies.

The collapse of the dollar is highly unlikely as the Chinese and Japanese want to prop up our economy as long as possible.

What about our "friendly oil partners" in the middle east?

Yeah, I suspect that a lot of oil money is already not being invested here anymore. The Egyptian stock market is up 150% this year and that is after a 100% gain last year. This is not because the Egyptian economy is doing that great.

Abu Dubai is soaking up some of that, as are other investments in the region.

Here is a good WashPo article about it:

http://tinyurl.com/9c7lz

I really don't know what affect that has on our economy though. $54B in treasuries is a drop in the bucket, so even if they sold all their US treasuries, people would barely notice. All those dollars leaving the country to buy oil and then being converted to Dinars must put downward pressure on the buck though.

Shelter it all in Rhodium, currently $2,930 an ounce. After the Federal thugs outlaw private ownership of gold, we can retreat to the woods and thrive in the Rhodium underground.

Hey, does anyone know of an efficient method of determining what banks have the least mortgage exposure? (For example, I want to avoid CDs at Countrywide and other mortgage banks, regardless of FDIC membership.) Grateful for any ideas.