patrick.net

Neighbours who where underwater in 1990 decided to hold on to their SFH because they bought to live and raise a family.

Most people buy a home to live in it. If the potential selling price rises they still will need a place to live. If the potential selling price declines they will still need a place to live. Either way, most will just continue doing what they expected to do... which is to live in the house, and go on with their lives.

Until you actually sell the exact price is not important. And becuase almost all sellers are also buyers (trading up) price movements affect their intended purchase as much or more than their sale.

I have been in the situation of declining prices during several market cycle declines. And I expect declines in the near future. What was on my mind during those declines, and now? The same thing as during the rises... I was (and am) thinking about making home improvements that we would enjoy.

Until you actually sell the exact price is not important. And becuase almost all sellers are also buyers (trading up) price movements affect their intended purchase as much or more than their sale.

Not exactly. Many rely on serial refinancing to stay in their homes. The "mark-to-market" price is very important important indeed.

Also, if the mortgage is upside down, the homedebtor will not be able to trade-up. If he foreclosures, he will not be able to get another loan any time soon (assuming normal credit standard).

Considering the number of late vintage high CLTV (combined loan to value) loans, this must be taken into account.

"...what is going through your mind right now?"

Hmm...I'd be envious of the Venus de Milo...she has no ARM.

Most people buy a home to live in it.

Ok, you lost me right there. I don't recall exactly where you live, but in my neck of the woods (SCAL), you "buy" a home to flip it. Or, at the very least, you might hold it a year then refinance to "liberate" all of that guaranteed equity. Which you will then spend on something important --like a new H2, a Caribbean cruise or some cool bling.

C'mon, Zephyr --you're enough of a Patrick.net "old-timer" to know better. Are you just pulling our leg here?

Side anecdote: a new contractor started in a cube nearby. We've had lunch a few times and one day the conversation turned to housing. Well, turns out he bought in '02 at a not too-bad price, but just recently refi'd into a neg-am/option-ARM with a hefty cash-out ($100K) of "liberated" equity. And what was all that liberated equity spent on? New plasma TVs, digital cameras, plus an $80K cinematography degree for his wife (now working PT in a non-film capacity).

"Most people buy a home to live in it."

Oh, if only....

just recently refi’d into a neg-am/option-ARM with a hefty cash-out ($100K) of “liberated” equity

Newly liberated equity can readily disappear.

As said on the links section, if the 50 year mortagage comes out it will be popular and there may be lot of refinances and price might keep going up as the affordability goes up.

As said on the links section, if the 50 year mortagage comes out it will be popular and there may be lot of refinances and price might keep going up as the affordability goes up.

50 year mortgages (or even 1000000 year mortgages) are still more expensive than interest only mortgages.

As a side note, I was "pre-approved" for a 40 year mortgage last May. At 6.5%+, increasing the term does little to reduce the size of the payment.

But 50 year mortgages will not lower the size of the payment. The rate will be higher than that of a 5/1 ARM and P+I will be higher than I only no matter what you say.

Moreover, serial refinancing will not work in a non-appreciating environment. I start hearing a lot of stories in which FB's are having difficulties extracting enough equities to pay their mortgages.

Talk about timing!

"Californians plan exit strategies" is the first article, and it's very revealing. I love the couple in their 50's talking about selling their Moreno Valley home and moving to North Carolina, golfing doing pottery and growing their own vegetables. Not so fast! Buying was the easy part, selling is where we seperate the men from the boys. The article describes people in different stages of life with various incomes but it seemed like everybody had the same unreal expectations. Most had just bought or had only lived in their homes for a few years, and they're talking about retirement? What seemed shocking was that "exit strategies" were on just about everyone's minds. What is going on in the minds of homedebtors? It would appear that they think the whole world is going to stand still while they "cash out" and walk away in an effort to turn "paper" profit into spendable cash. "Everyone will keep buying, so I'll be able to get out from under this $hitbox and even though I may not be pretending I'm a potter in North Carolina at least I'll get a big screen out of the deal".

Wonder what's going through this suckers mind!

It's official, home sales have dropped for the third month in a row:

http://news.yahoo.com/s/nm/20060125/bs_nm/economy_existinghomes_dc

What is going through the mind of a homedebtor? What is more important is what is going through the mind of a prospective buyer, and that is clear: why should I buy now when prices are clearly in decline and the market is over the hump? The market is fresh out of buyers, and that's the main issue here in my mind.

"There is something out there."

It is the truth.
And it is going to hurt.

I think people are pointing to the 50-year out of desperation. Maybe trying to convince themselves that there is something out there that will prevent the market from crashing and sending them into foreclosure.

Perhaps we should have "Half-life Mortgages". Imagine, a term as long as the half-life of plutonium. You do not have to pay it all off until the civilization falls, rises, and falls again! Payment will be just a bit higher than an I/O ARM. Rate adjusted monthly.

"Leaving California" makes the case that the state job market is not the reason folks are leaving...but take away the real estate boom and a lot of employment will go *poof*

Someone on Ben's blog pointed this out:

FYI - The NAR's Mission Statement, taken directly from the NAR website (http://www.realtor.org/realtororg.nsf/pages/narmission) is:
The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful.

If the market is a zero-sum game, then it would appear that their mission is to screw non-members.

I expect the following things after the burst:

1. Mortgage interest deduction reform
2. Heavy mortgage industry regulation
3. Heavy GSE regulation
4. Open MLS
5. A few scandals, trials, and scapegoats

I also expect something like a "Foreclosure Abuse Prevention, Homeowner Protection Act" that makes it very hard to walk away from upside-down mortgages.

If we never said the word bubble, there wouldn’t have been one. WE created the frenzy. Jeeze….

It only proves that our prediction is correct and that they should have listened to us earlier.

What I’m worried about is that when it gets really bad, all of a sudden Realtors and the NAR will say that the reason for the Burst is that guys like us have been discussing it. If we never said the word bubble, there wouldn’t have been one. WE created the frenzy. Jeeze…

Nonsense --that would be shooting the messenger. That would be like blaming Richard Clark or Jack Murtha just for telling the truth...

Oh, shit! :-(

If the market is a zero-sum game, then it would appear that their mission is to screw non-members.

LOL. You don't need your "zero-sum-game" economy fallacy to prove that the NAR is out to screw non-members. The DoJ is working on that right now.

LOL. You don’t need your “zero-sum-game” economy fallacy to prove that the NAR is out to screw non-members. The DoJ is working on that right now.

Well, I said IF it is a zero-sum game... :)

Nonsense –that would be shooting the messenger. That would be like blaming Richard Clark or Jack Murtha just for telling the truth…

Don't worry... they only go for people who have made out like bandits in the bubble. Who made money?

Living a Godly lifestyle by obeying and thanking God for His blessings
Staying financially free from debt
Maintaining strong ties with family and friends
Exercising and eating healthy
Reading Patrick.net

God bless you. God bless patrick.net.

Living a Godly lifestyle

No disrespect, but I always wondered what this meant.
Have y'all obeyed god today?

The 10 yr moved somewhat significantly today:

http://finance.yahoo.com/q?s=%5ETNX

"What I’m worried about is that when it gets really bad, all of a sudden Realtors and the NAR will say that the reason for the Burst is that guys like us have been discussing it. If we never said the word bubble, there wouldn’t have been one. WE created the frenzy." --Michael

Not to worry, there are number of rational counters to that argument:
1.) Not only did you DISCUSS the bubble, but you refused to participate in it in by not buying into the market. You actually put your money where your mouth is, and thereby did not contribute to the price run-up with your actions, which of course speak louder than words.
2.) You tried to warn people to NOT buy into the bubble in hopes of stopping them from inflating it even more. So you actually tried to stop the excessive inflation BEFORE it burst.

There is no doubt that people will look for a scapegoat after the bubble has decisively burst. We are way too early in the game for that. But the bottom line is that the people they will scapegoat are the people who fueled this thing and especially the people who made money. See: flippers, Realtors, brokers, appraisers.

When the tech bubble burst it was mainly cheerleading stock Analysts that were scapegoated, Henry Blodgett and Mary Meeker being the most public examples. Arthur Levitt, chairman of the SEC at the time, actually tried to go after the big brokerages like Merrill and Bear at the time, but guess who ended up settling with Wall Street? Elliot Spitzer.

Why believe in the Christian imaginary friend when you can believe in the Mogambo Guru?

Huh?

I have been lurking for a couple of months, 1st time posting.

I also left Los Gatos, CA in 2000. I am not having the same experience as "not missing California". I miss it TERRIBLY! The schools are really bad, I could go on and on but I won't. We will be leaving here and heading back to the Bay Area in about a month! Oh and it is true about the u-hauls being cheap, $240.00 from Colorado Springs to the Bay Area, the guy said they are really low on trucks in CA. I wonder how many people will be going back in about 5 years like us?

Does “Patrick” own or rent?
Does “Peter P” own or rent?

Does David Lereah rent or own?

oh, and we will rent, thanks to patrick.net!

The Mogambo Guru:

http://www.dailyreckoning.com/Issues/2006/DRUS011606.html

If I said "I own", I would be accused of being a hypocrite. If I said "I rent", I would be accused of being a bitter renter. Answering the question by asking another question is the best response.

Okay...off the thread, but I've been watching metals markets. Why is this sector rising so fast? And it's not just gold and platinum. 20 articles give you 20 spins. I can't believe that the middle class in India is suddenly spending more on jewelry, causing a worldwide surge. Are investors who see the RE decline turning to metals? Are the oil mullahs hedging against an Iran-Israeli armageddon? Anyone have a "spin-free" angle on this?

Anyone have a “spin-free” angle on this?

Perhaps a lack of confidence in fiat currencies?

Does " " rent or own?

We all "rent" space on this blog. :)

Btw, there's no reason why owners shouldn't take issue with the current market.

Btw, there’s no reason why owners shouldn’t take issue with the current market.

Exactly. 100% of all homedebtors rent money from the bank anyway.