patrick.net

DS,

Come on, please do not play Robert Cote of the left!

newsfreak,

You can catch most of his segments here

http://tinyurl.com/mlcqy

you need a high speed connection though

I think the increased access to informaiton will affect buyers and sellers differnetly.

Information re: the burst should have a strong affect on buyers; it will cause them to sit the market out. It will also disabuse them of any notions that buying a house is a good way to make easy money. This will make them less likely to speculate and/or take on enormous, risky debt loads. Moreover, it costs buyers little to sit the market out. They can always rent for another year.

Sellers, on the other hand, will be affected by information quite differnetly. A lot of them have a huge emotional investment in the price of their home. They simply will not want to admit that they are now half as "rich" as they were two years ago. Similarly, those who are leveraged to the hilt will not want to admit it to themselves, and they certainly won't want to publicly "admit defeat" by moving to a cheaper place. Very few people are emotionally cold-blooded enough to dump the family home on a moment's notice, especially when they have spent the past several years believing it was the "smartest decision they ever made," that their miserable tract home was the ticket to wealth, etc.

If both sellers and buyers were equally open-minded, the bubble would burst overnight. But since buyers are more open-minded than sellers, it will probably take a while longer. The Internet will almost certainly speed the crash, though, IMO. It'll happen fast anyway thanks to the leverage that people have been taking on, but the Internet will speed the process up even more.

skibum,

I miss my boyfriend's DV-R a lot...

Joe Schmoe,

I don't think it'll matter. Those mortgaged to the hilt will be foreclosure meat. They won't even be in a position to be a seller. The real sellers on the market will be the low basis homeowners and the builders/banks. Those guys will not have their head stuck in the sand.

So skibum,

Is the Daily Show your primary source of news? :P

HARM says:

"(G)iving interenet access to sheeple is like giving a blind man glasses..."

Yeah, and giving internet access to ignorant people is like giving condoms to bunnies!

-communting
+commuting

-nextr
+next

In Vancouver it's called a monster home. Stucco in Vancouver, particularly on condos, usually equals "leaky".

In California, from reading this blog, I detect an association between stucco and cr*p... ;)

Or as surfer-x says, stucco = sh*tbox...

Personally, I dream only of timbers and bricks....

Or that vinyl siding stuff, that's cool.... ;)

The Internet will almost certainly speed the crash, though, IMO. It’ll happen fast anyway thanks to the leverage that people have been taking on, but the Internet will speed the process up even more.

I must disagree for the following reasons:

1. Common sheeple's inability to filter useful information from industry propaganda, spam & biased crap. (see my above post)

2. Sheeple's general lack of critical thinking ability. (ditto)

3. The polls --up until very recently-- showed that most people had never even HEARD of the possibility of a housing bubble, much less believed we were in one. (I.e., most people are not Patrick.net regulars.)

4. Joe, you yourself made an excellent point contradicting this assertion:
the human ego/cognitive dissonance factor.
Similarly, those who are leveraged to the hilt will not want to admit it to themselves, and they certainly won’t want to publicly “admit defeat” by moving to a cheaper place. Very few people are emotionally cold-blooded enough to dump the family home on a moment’s notice, especially when they have spent the past several years believing it was the “smartest decision they ever made,” that their miserable tract home was the ticket to wealth, etc.

I suspect this bubble will pop pretty much the same way as those which preceded it: gradually in waves over several years, as interest rates on IOs/NAAVLPs reset, then amortize --depending on WHEN they bought. no one wants to even ADMIT they've made a million dollar mistake, much less ACT on this knowledge. Most sheeple will bury their collective heads in the sand until they are FORCED to deal with it (by Mr. Repo).

Well, don't forget how much the pressure for young people to buy come from their elders.

@SQT,

Yes, I saw that 70% figure quoted as well (might be on Patrick's links page). The thing is, there has already been plenty of MSM and local/anecdotal evidence of a bursting bubble in most parts of the country now. It always seems "obvious" to everyone AFTER the pop has started.

I didn't follow the RE news back in the last cycle ( I was fresh out of college), but I'd bet that there was also a fairly rapid shift in consumer sentiment back then as well. the Internet will speed up the news for some, but for most? I doubt it.

@SQT,

Btw, thanks for correcting my bad spelling.

You guys will crucify me for saying this, but I never forgave the Economist for it's infamous $10/barrel oil prediction and its support of BushCo in 2000 and 2004.

I think the internet has changed things in much the same way. Now I can not only have easy access to news from across the globe, but I can talk to people from all over the world and exchange information. I’m not even sure we’ve really grasped how much that has changed our world.

No arguing with that. I think where we differ is mostly in terms of degree of macro impact, not that the internet has had an impact. I still see the human factor as one that significantly limits any socio-economic benefits that most new technologies can have. Human beings are still have the same frailties and flaws they had 10,000 years ago. No matter how "smart' the tool, its impact is still limited by the tool-user. We live longer & better, have public education, yes. But still basically the same animal.

OTH, biotechnology/advanced genetic engineering may change this one day...

-are still
+still

Must start using Yahoo spellcheck, must start using Yahoo spellcheck...

astrid,

You are basing a lot of your interpretation of fundamentals on foreclosure rates. Foreclosure actions are very sticky, and will be even more so if there are record foreclosures. There is a capacity issue: legal and administrative systems are not staffed to handle massive foreclosure volumes. In fact, they probably only have skeleton crews now, because of record low foreclosure rates in recent years. It takes time to scale up operations. Also, if there are too many foreclosures in too short a time there might well be the intervention of political or legal action to stem the tide. I foresee class action lawsuits and political "temporary moratoriums" on foreclosures if it becomes an all out fire sale. The politicians will claim "stability" as justification; the lawyers will claim "liability" as a justification.

In either case, I see foreclosures increasing stickiness, not decreasing it. The least sticky scenario is an orderly "brisk" walk to the door, not a panic. There's another related problem. If it becomes a hard-landing, crash, Torschlusspanik, then it will be exceedingly difficult to get credit on reasonable terms. So, most people won't be able to buy anyway. This will be called a "credit crunch" and the various apparatus of government will creak into action (and inevitably make the problem worse). Again, it's a factor increasing stickiness. The best way for a frictionless market is for the market to be frictionless. Foreclosures are full of frictions.

HARM,

People come with filters and the internet is full of websites that will cater to their reexisting prejudices. The existence of the internet only increases their myopia.

I still maintain that it doesn't matter, the people with low equity in their homes will be wiped out, in 1 or 2 years' time, they will be in no position to be buyers or sellers.

SQT,

Though a fat lot of good that’s done………….

It's done very well by some interests. (And that's about as political as I'll get. They're all crooks and cranks.)

SQT,

I think the Economist made it's $10/barrel oil prediction in 1999 or 2000. I remember that a few months afterwards, oil started climbing upwards. I thought that was a rather amusing outcome for people who are so sure about themselves.

As for BushCo...I have a rather complicated relationship with the Economist. On one hand, I got most of my informal education re: business and economist from the Economist. On the other hand, the Economic have a schizophrenic approach about democracy in the OECD v. democracy in the 3rd world. I just can't bear to read it anymore.

-economist
+economics
:oops:

While it is obvious that all the people that post here are very well informed, most of those around us don't take advantage of the many new sources of information available on the Internet and feel "well informed" if they know who made the cut on the last American Idol...

P.S. to newsfreak, I don't see how looking for an attractive spouse shows lack of character. Unlike most of the women I know most of my male friends would rather die single than marry someone they didn't find attractive…

P.P.S. Despite my "lack of character" I'm volunteering to work all weekend on a Rebuilding Together project http://www.rebuildingtogethersf.org/ (one of the many SF charities I support with time and money)...

Come on, please do not play Robert Cote of the left!

i thought robert cote was hard left! :o

why didn't they just offer scott mclellan's job to bill o'reilly? that would make for some really interesting press conferences...

Apologies in advance if this sounds elitist, but giving internet access to sheeple is like giving a blind man glasses.

The answer is compulsory sociology training in schools...

I think the Economist made it’s $10/barrel oil prediction in 1999 or 2000. I remember that a few months afterwards, oil started climbing upwards. I thought that was a rather amusing outcome for people who are so sure about themselves.

they should swap jobs with the meteorologists and see if their hit rate goes up...

FAB,

It's okay, I can tell you that some successful white guys walk around with the butt ugliest Asian chicks, because of the difference in the perception of beauty.

"many new sources of information available on the Internet and feel “well informed” if they know who made the cut on the last American Idol…"

I always keep an eye on gawker.com and gofugyourself.com to keep track of celebrity faux pas :)

As I see it, there are three kinds of potential sellers.

The first is people with lots of equity. They bought their house 15-20 years ago and did not take out HELOC, or only took out a small one. These people will be reluctant to sell becuase they will not want to give up their "wealth." Some of them will have to sell anyway due to job loss, transfer, divorce, death, etc., and when they do they'll set new, lower comps. And some are wealthy and will be indifferent to the loss in value; they will not want to dely retirement another 5 years to wait for values to recover, etc.; they'll sell when it is convenient for them to do so. But a lot of these sellers will be resistant. It is not easy to part with hundreds of thousnads of dollars in "wealth" that you have come to believe is yours, even if it was only theoretical.

The second group is people with no equity/5-10% equity. These people are screwed anyway, when their ARMs adjust they will lose the house, there is nothing they can do about it. The information they have and their desires mean nothing, they will lose their house to foreclosure.

The third group is people with marginal equity. This group could save themselves now by cashing out (too late in some areas, the 11th hour in (Cal), but I don't think most of them will. They won't want to admit their mistakes either.

Think of the psychology of the leveraged buyer. Think of what must have motivated them to take on such a crushing level of debt. These are not rational people. They will never want to admit that they were mistaken or endure the "shame" of downsizing. If these people can hang on they will, even if the rational move is to sell. Even if they are underwater, a lot of them will try to hang on. Not everyone is as coldly rational as the people at patrick.net. The folks here who sold to rent are a very rare breed.

I think most sellers will have to be dragged down even if they have plenty of information that the bubble is bursting.

With the new housing index futures, we should be able to see where the market thinks prices are going.

Randy,

I'm not disagreeing with your assessment about foreclosures at all. However, I did want to point out that the sheeple with their head up their butts will soon be in no position to affect the market as sellers.

I’m not disagreeing with your assessment about foreclosures at all. However, I did want to point out that the sheeple with their head up their butts will soon be in no position to affect the market as sellers.

In a buyer's market, buyers affect the market.

Joe Schmoe,

I agree with your assessment. Most people, even so called financial advisers, can't think in real dollars and opportunity costs. They'll probably sit things out.

However, enough will sell (and many will eventually sell in foreclosure, once the system is in place to deal with the big gush of them) to move the prices lower

Joe Schmoe,

The first is people with lots of equity. They bought their house 15-20 years ago and did not take out HELOC, or only took out a small one. These people will be reluctant to sell becuase they will not want to give up their “wealth.”

I come to exactly the opposite conclusion, for a number of reasons:

1) People's "mental accounting" doesn't work that way. People who bought long ago will be affected by the "large number" effect, and won't really perceive the percentage difference between selling in 2004 versus 2007, even if it's some 35% difference. You can find the mental accounting research on my site.

2) A lot of these people are older, moving for change-of-life reasons, and don't give much of a squat about what we debate here in the blogosphere. They will just ask their friendly local agent and perhaps ask about something they read in the local paper, USA Today, or saw on the morning news show. They won't be that sensitive to marginal price swings. Many of these types of folks kept selling right through previous downturns.

Much lower prices are the best thing that could happen for the US economy, as it would free up a lot of dollars for capital investment elsewhere.

It might also allow consumers to spend without going into quite so much crazy debt, so as not to have to use their houses as ATMS out of "necessity".

My $.02.

When were the American "best times" economically? That's right, the 1950s, 1960s and to some extent the 1970s and 1980s.

The so-called good times now are an illusion.

What do those earlier periods all have in common?

That's right,

much lower house prices.

Need I add that when basic hard-working people can't even afford an apartment, it opens up the economy to all kinds of criminal pressures.

ie- I'm a cop but all I can afford is a mobile home, hey, maybe I'll accept those bribes... ;)

tsusiat,

There were a lot of other macro factors contributing to the "good time" periods. In fact, home prices may well be more of an affect than a cause. Especially the 50s and 60s were enormously different periods in terms of capital flows, trade balances, and global competition/friction.

tsusiat, is it true that Vancouver condo price (per sqft) are closing in on that of Honolulu?

That's true Randy,

but nonetheless, jobs + cheaper houses = better times.

It's that simple.

No idea on the condo prices per sq foot in Vancouver,

what I do know is Vancouver has an excellent history of crashing real estate, the last big one was starting in 1995-96.

We'll see, but no way Vancouver should be more expensive than Hawaii.

That's nuts!

There is a trend to smaller and smaller while more expensive among the new buildings. Thant may be influencing the price.