patrick.net

I forgot to comment about the show on CNBC called "House of Cards". I don't see an easy way out of this. Someone has to take some losses here. Because I am debt free, never owned a home, and have a job that is vital for modern living ( I make electricity), I don't think I should have to suffer any pain for this mess. I know that I will be forced to pay for this mess in some way. It is not right, but that does not matter. Democracy is nothing more than 2 canibals and a normal person deciding on what to eat for dinner.

Just watched it. I'm more optimistic. I believe most of the time democracy is two normal people and a canibal deciding what is for dinner.

Instead of spending money to keep prices high there are less draconian methods where the government can channel the free market to reach a morally sound equilibrium in prices. It is outrageous that CEOs are whining and bonuses are/were paid to failures who are still considered experts and now live a subsidized life. Ironically they used to look down on people they considered unworthy but entitled. Here are some ideas:

1. Since most agree it is not a fair policy for government to pick winners and losers, I say instead of inflating house prices with tax money, remove the capital gains exemptions on houses. This will reduce the stream of homes to the market, increase tax revenues and will help a balance point come faster to where banks will have a real idea of how much they can safely lend.
2. Allow banks to refinance the current value of homes and allow the balance to sit as a silent second position mortgage. The silent second would be interest free until the first is paid off and then it would be either financed or forgiven at the bank's discretion; but a deal would have to be struck for the house to be sold short. For people who haven't refinanced and really are the victims they should still be able to walk away from a nonrecourse, nontaxable balance if a bank doesn't want to work with them.
3. Bring back the debt forgiveness tax for people who default on a modified loan. This again raises taxes and holds people to their commitments. I am disturbed by how quickly the ethic of repaying debts has changed to only repaying the ones that will boost a credit score or where there is money to be made on the financed asset.

Thoughts??

Goddamn traffic jams around the malls at Valley Fair and Oakridge the past two weekends. I hate the malls and I don't go tothem but during other errands I cannot avoid driving past.

Distressed sale home on my street sold this week to an investor.

The overall big picture is doom and gloom, yes, but in the meanwhile, for the time being, we might be in a blip of a good times coming up. I trust anecdotal observation a whole lot more than what the spinsters tell us.

Permarenter,

Sheesh. 825K. What is the monthly cost for that high-maintenance lifestyle?

God Bless you for signing up to subsidize our public schools with that property tax assessment.

Sybrib, I keep seeing mixed signals as well. Some days I stop by the mall and escalators are turned off and the lights are turned way down with vacancy signs everywhere. Then I go to South Coast Plaza, or Del Amo in LA and swear someone forgot to tell those people there is a depression on, because everyone is just out living it up. My anecdotal observations are similar, I think there is a protected class of elitists who by some birthright don't ever have to lose money like the rest of us so a crisis to them is a national emergency that "We're all in together." Uh, no we're not.

WE might all be in this together, but I don't consider them part of we, so no pity here.

Neutron,

Or in other words, it is all about who is going to be allocated the losses.

Everything that is going on, every four-letter TARP-like acronym, is simply a mechanism for either (a) postponing the losses OR (b) steering the losses away from the principals and onto someone else.

Re: Mall Traffic

Anything to do with Valentine's Day?

Received mail from ZipRealty realtor today morning:

In 2008, we saw the housing market went through seemingly a 'perfect storm' scenario that caused it to essentially crash across the states and the Bay Area is not at all immuned. After the market peaked in Summer of 2006, we went through a series of events - first the market adjustment, then the sub-prime crisis, followed by the stock market & finance sector melt-down, weakening economy, and the latest to hit us is the dismal job market news.

As the result, the flood of foreclosures & distressed properties continue to dominate the market. Though the actual depreciation varies in different areas, we are seeing an average 30+% in the South Bay, with as high as 45-50%+ in some areas.

The most common question these days - When is the market going to bottom out?

My take is that the market will go down further in the upcoming few months. But when the market reaches bottom, it may be too late to act. The housing market is cyclic. When it gets to the bottom, everyone will know that market is starting its up-swing & human nature takes over to propel buyers to jump on the wagon.

If you are a qualified buyer waiting on the sideline, you are in a great position to buy a home at bargain price, often 10+% below the current market value; thus providing a margin to soften the risk. Why buy now? High inventory, great bargaining power, low interest rate; this is much better position to be in than competing with other buyers when the market recovers.

Most buyers will focus on foreclosures and that can be a mistake. Resale properties on the market these days are competitively priced and generally in much better condition. Furthermore, it is much easier to deal with a seller than the bank in terms of negotiation and resale sellers are obligated to provide full property disclosures.

Regarding the stimulus package. The good news is that the legislation resets the conforming loan limit cap at $729,750, up from $625,500. Numerous counties in California experienced a marked decrease in their conforming loan and FHA limits on Jan. 1, and the stimulus bill reinstates 2008 loan limits through Dec. 31, 2009.

The bill also increases the first-time home buyer credit from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years. It also extends the expiration date for the credit from July 1 to Dec. 1, 2009. Homebuyers must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009, to be eligible for the $8,000 credit.

If I can be of help in any way, or answer any questions you may have, I am just a phone call or email away.

Take care & enjoy the rest of this weekend!

Travis Jackson walks through his modest ranch house, admiring the kitchen's built-in spice rack and the red-oak floors. He draws back the curtains, and sunlight illuminates the pride on his face.

The young banker just bought Federal Reserve Chairman Ben Bernanke's childhood home at a foreclosure sale.

"This is where it all happened," marvels Mr. Jackson, a 27-year-old loan officer at First Citizens Bancorp, which is down the street from the old Bernanke place. "Kind of a surreal feeling, isn't it?"

Mr. Bernanke's family sold the property more than a decade ago. It ended up on the block late last year after its former owners fell behind on their mortgage payments.

I just read an article by James Quinn on Financial Sense that points out the cyclical nature of human history:

http://www.financialsense.com/editorials/quinn/2009/0210.html

It's a VERY interesting article and well worth the read for a new (at least to me) theory of the way things work.

====

The recent song by the group Five for Fighting called 100 Years reflects the 100 year cycle that all humans live through.

15 there's still time for you
Time to buy and time to lose
15, there's never a wish better than this
When you only got 100 years to live
I'm 33 for a moment
Still the man, but you see I'm a they
A kid on the way
A family on my mind
I'm 45 for a moment
The sea is high
And I'm heading into a crisis
Chasing the years of my life

The lyrics heading into a crisis couldn’t be truer today. We are only on this earth for 100 years. Why shouldn’t every person want to leave the earth a better place than they were born into? Instead, the world has periods of advancement and periods of regression, periods of peace and periods of war, periods of awakening and periods of crisis.

"There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny." Franklin Roosevelt – 1936

I am declaring that we have reached a short term bottom.

Evidence? UCLA Anderson economists recently came out to say we are facing a worse economic situation than the last great depression in the next 2 years. The SAME group of people said in 2005 that housing value was justified and could go on for another decade.

I am going to bet on the opposite of these economists' view.

When everyone is murmuring GD2, there's gotta be a bit of an over-hype. The fact that mainstream media starts to use the word depression makes me believe that shorting stocks will be an unprofitable activity for the next 12 months.

When you hear more people saying bottom is in, that is about the time to start shorting again.

So that newsletter from ZipRealty can be distilled down to: now is a good time to buy, and if a buyer waits, s/he might miss out.

Well, when did a realtor newsletter NOT say such things?

On the other hand, now might be a good time to get a mortgage. Things might've "bottomed" for the RATES. Not sure it means a panic to buy like realtors try to goad people; it could be a long bottom. But it feels like its gotta be near the bottom.

My grandparents told me they got a 3.5% fixed mortgage in the NYC area during the Depression, the rates are getting close to that now.

A difference that's been pointed out here by others, during the Depression the USA had trade and balance of payments surpluses, which could protect the dollar even when FDR depreciated it against gold. It's different this time, unlike the Depression I really don't see how long term borrowing rates for USD borrowers can stay so low so long.

I saw that James Quinn article too.

Sounds like he's not a man of positive action, but instead just worried scared and paranoid about losing what he has, - sprinkled with some lecturing about the past and how if you'll be a better person if you accept his interpretation of history, and a fool who'll regret it if you don't. Kinda like so many college professors.

Sybrib,

It will be interesting to see whether the masses still only care about mortage rates, or if the asset prices now will be more of a deciding factor.

Bottom definition: When the price of something seems like a bargain based on your own method of valuation. Very simple.

No, not a bargain. More like, a "trend".

Residential real estate in the Bay Area and the Fortress in particular is not and probably never will be a "bargain". But the nominal price might've trended to a bottom. ALso the interest rate for borrowing might've, also.

I have cancelled my Blockbuster account ... now getting DVD from Cupertino Library. I am thus saving around $11/month.

The only 2 ways people will "flood" the market are the same 2 ways Bay Area real estate bottomed and came to life big time in the late 90s: 1) Jobs have to come back in a BIG way. No way in hell 9% or 10% unemployment will make buyers come back in a huge way regardless of those "bargains". 2) Creative financing will also have to come back in a big way so all the bottom feeders with lousy credit can buy. We can't get all THAT much lower in rates than we have right now and when the economy does improve, they have nowhere to go but up. Just my 2 cents.

This Generation has a rendezvous with destiny.

That 1936 generation had a rendezvous with an evil president.

You're talking about Adolf Hitler, one would have to assume.

Rising gas prices have Silicon Valley drivers howling
By Gary Richards, Mercury News

Crude oil is selling for the low price of under $35 a barrel. The precious black commodity is awash at storage tanks across the country. And drivers from New York to the Bay Area are motoring less and less as the economy continues to sink.

But the price of gas is going up and up and up — to $2.29 a gallon in California on Saturday, 25 cents higher than a month ago and 49 cents more than before Christmas.

What gives?

The price for gas that companies pay on a daily basis in California is now about 50 cents higher than the national price. That's more than double the usual gap.

That has some motorists howling as prices at the pump continue to rise. Many think low crude costs should mean gas selling for under two bucks a gallon like before Christmas, when the state average had fallen to $1.80. Never mind that a year ago South Bay drivers were paying $3.16 a gallon.

"I was furious to see gas at Costco in Santa Clara go up 12 cents a gallon from just eight days earlier," said Randall Fullner of San Jose after a recent fill-up. "Big Oil is fattening its wallet by ripping off the consumer and charging what it can get away with."

Added motorist Roland Beech:

"They can call it scheduled maintenance, but that's not the truth. Let's face it, they are just cutting back to keep prices higher."

Today I explained the CENTRAL EQUATION of this thread to my relative in Houston:

MONEY = LABOR

He got it ... I gave example how lot of money is sitting in Banks and not moving ... since people who have earned and saved money through their labor do not want money to move.

So we have a confidence (money movement) crisis ... not a credit (money) crisis.

Exactly. I've said many times that I believe Obama will be an effective President because he instills so much confidence that companies will start investing again on things they pulled back on out of fear.

sybrib Says:
February 15th, 2009 at 12:58 pm
"No, not a bargain. More like, a “trend”."

Bargain is solely in the eye of the beholder. If my valuation of what I think BA housing is is higher than someone elses it is a bargain to me, and the bottom is set when I buy. As long as my decision is not emotional speculation it doesn't matter what the trend is. Trends, specualtion, and fraud are what caused the mess in the first place.

The largest lesson in finance this country needs to learn as a whole is how to put a value on something. It still amazes me that people buy houses and have no idea if the price they are paying is high or low, they don't even know how to put a value on it, the bank tells them what they can afford and they shop on payment.

A friend just bought a house near Tracy. He asked if I thought the area had hit bottom. I said there is no way to know if you just look at graphs and interest rates, but in helping him think it through we realized that the selling price was less than the cost to build the house and less than he rented his prior place for. His decision was rational and not emotional. He thinks he did well, I think so as well.

When you hear more people saying bottom is in, that is about the time to start shorting again.

Very true. :)

Malcolm,

I think trend has everything to do with it. The trend was, about three years ago, that folks were paying more for homes than they could afford, taking mortgages that were irrational, signing up for property taxes that were off the charts. That was the trend, it was irrational and nonsense.

Now the trend is that in SOME cases, housing is become REASONABLY priced here compared to renting, in some cases even with the property taxes can pencil out decently compared to renting. Maybe not in The Enclave/Fortress, but those buyers are in a different dynamic and are mostly not Americans (not naturalized nor native).

There will probably never be bargains here, if you compare the amount of labor an employee or small business owner would have to trade for housing, and what you get for the housing in comparison to the tradeoffs (commuting, public schools, tiny lots, small homes, etc.).

And then there's the other aspect to the Quality of Life in the Bay Area, involving the congestion, higher cost of non-housing stuff like car insurance, hospital stays, childcare, preschool tuition, etc, and of course necessity of sharing the same space with so many Alpha-types who put all else second to coming here from all over the USA and all over the world to "make it".

Why do you suppose that so many local kids from working class, when they come of age, move out of the area? And why so many long-time locals, when they reach retirement age, also do so?

Because if the "trend" is a low point in comparison to renting, housing might be a bargain to a rich person in a crowded place like Mumbai or Shanghai, but to an American, it ain't no bargain.

A quick Fed report for last week. The balance sheet declined by ~$10billion but this week will pick up another ~$35B from last week's TAF auction (28 day facility). It also looks like the Treasury supplemental increased by ~$30B.

This link should probably be in the last thread. Time is money...
In a small, backroom office at the Community Reformed Church in East Oakland's Sobrante Park district, a handful of local residents are running their own neighborhood bank. Instead of U.S. currency, though, the transactions are recorded in hours and minutes.

Instead of U.S. currency, though, the transactions are recorded in hours and minutes.

Hours and minutes or what? Swedish massage?

... necessity of sharing the same space with so many Alpha-types who put all else second to coming here from all over the USA and all over the world to “make it”.

Why do you suppose that so many local kids from working class, when they come of age, move out of the area? And why so many long-time locals, when they reach retirement age, also do so?

I for one wish that "silicon valley" never happened. My family moved to northern California in the 1860's, and lived in Santa Clara Co. since around 1900. These "alpha types" as you call them really are the root of the problem. People come to SV from all over not to settle there but instead just to "make their bag of gold" after which they leave. Certainly a bunch of H1-B visas doesn't help matters much. The outcome is that there is no sense of community nor the political will to fund needed infrastructure (e.g. transit). Those "alpha types" couldn't care less about SV as a place to put down roots.

And yes I retired out of the area to Boise after selling off my little stucco box in May 2006.

DennisN and Sybrib,

I'm not exactly in disagreement with you, but I think there is another aspects of the situation which is overlooked: The rampant "pyramid-scheming" around the valley by those who have been here longer, exploiting those who arrived more recently.

When times are good, the schemers are cheerleaders because they can sit around and watch their property values and rents go up. When times go bad, as they now have, even some of the same people (and I do not mean any of you two) are whining about immigrants taking their jobs, blah, blah, blah.

There is also a real division among the old-timers between property owners and the plain blue-collar folks. The latter have children that move away, the former have children that become real-estate agents and tax the newcomers. If they are really blue-blood, they dabble in *commercial* real-estate and play lots of golf.

That is more or less the picture, and I think it has been ongoing for a LONG time, maybe since 1940-1945. Right now it looks like the pyramid has stopped growing.

aspects=aspect

justme, I agree with you!

That is more or less the picture, and I think it has been ongoing for a LONG time, maybe since 1940-1945.

It was the New Deal's fault.

Hardly. More like the generic tendency of pyramid-scheming in the US, coupled with WW2, Cold War buildup, and so on.

New thread:

What now?

justme, I agree with what you said. Prop.13 is a fine example of this.