patrick.net

-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.

Randy-

I don't know if I accept the mental accounting thesis. Maybe in a normal market, but lately housing prices have become the talk of the town. In places like SoCal, EVERYONE knows what their house is worth today.

My in-laws are 80 and 81, and their neigbors on either side are in their late 70's, and every single one of them knows exactly how much their houses are worth. My father-in-law is a retired tool and die maker, my mother-in-law does not speak English; if news of the housing market has reached them, it has reached everyone. The hysteria has reached that level; housing prices are on the evening news almost every night.

There are no 80 year-old retirees who bought their house for $30k and will be "pleasantly" surprised to learn that it is now worth $300k. Not if it was worth $500k two years ago.

A lot of these people will still sell because they have to, or becuase they are just as pleased with a $270k gain as with a $470k gain; but they'll all feel as if they are taking a loss.

And the 80 year olds are an extreme example. What about the 50 year-old who bought his house for $250k 10 years ago? Today it has appreciated to $1.25mm. This person is still fifteen years away from retirement; he almost certainly considers his home equity to be a substantial part of his net worth. He has probably even factored it into his future plans.

For these reasons, I think that equity-rich sellers resistance to taking a "loss" will play a role here.

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

Well, Canadian dollars can only appreciate over time...

NOT INVESTMENT ADVICE

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

Sad. To me, a 2/2 under 1000 sqft is too small. Ideally, it should be more than 1500 sqft.

I have great faith in Canada, not because it has free healthcare, but I think Canadians are some of the nicest people in the world.

And being nice get karmic rewards. :)

tsusiat,
According to an economics book I'm reading, the year that the highest number of Americans were the most content was in 1957. What's striking about that is that the ag american home was only 700 square feet, the avg family had one car, and only 30% of the population had television sets. If you gauge the incremental increase in TV's and house sizes, the prices go up and up and up. The book was written at the height of the dot-com, when the economy was percieved to be the best it had ever been, yet the level of discontent, even for people that were well off was at an all time high.

Joe,
I see an awful lot of the older folks in Alameda selling. These are regular folks- people who worked for a living who've never had lots of money. Suddenly they have the possibility to sell for 800k and move to Dallas where they can live comfortably for the rest of their lives. I can't say I don't blame them. I also think these people will be the ones, if not already, who will sell the quickest and be willing to even take signifigant low bids if they have to. I can see these people undercutting the average 30-50somethings who bought 4-5 years ago, and possibly even investors. These older folks are the ones who will make the most off of their equitty- almost 100% in some cases, so they will jump at the chance. I would also imagine that they want to do this to perhaps leave an inheritence to their children.

Did you say: "boy I'm hungry.. I think I'm going to Mcdonalds(tm)." They have the best burgers, so don't forget to stop by today and say hey to the clown."

And the 80 year olds are an extreme example. What about the 50 year-old who bought his house for $250k 10 years ago? Today it has appreciated to $1.25mm. This person is still fifteen years away from retirement; he almost certainly considers his home equity to be a substantial part of his net worth. He has probably even factored it into his future plans.

For these reasons, I think that equity-rich sellers resistance to taking a “loss” will play a role here.

Joe,

I think you may be overstating the percentage of elderly retirees who are closely following the market online (or in the MSM) or flipping properties. I don't have the statistic handy, but I'd wager that most seniors still don't even have Internet access --not even in CA. What's to keep such a person from selling for a $500K profit instead of a $1million profit?

Regardless, it is not "needs-based' pricing of the seller that determines the sale price, it is whatever price that will bring a buyer at the time the property is offered. With average residential turn-over somewhere around 7-8%/year, it doesn't take many "motivated" sellers to quickly reset market expectations. IMHO, the really resistant sellers will be underwater f@cked buyers who cannot afford to sell or refinance, and will hold out until the bitter (and inevitable) conclusion.

HARM,

My limited experience agrees with Joe's. These old people know how much their houses are worth. If they didn't five years ago, all the recent hoopla about RE has made them aware. And 80 year olds start thinking very carefully about estate planning and where they leave their money.

@astrid,

You and Joe may be right about that, I'm no gerontologist ;-). Even so, I still stand by my truism: Regardless, it is not “needs-based’ pricing of the seller that determines the sale price, it is whatever price that will bring a buyer at the time the property is offered.

What happened to SQT?

On a whim I wandered to Wikipedia to see what it had to say about different building techniques. The first image in the "Stucco" article was completely unexpected; dating from around 1850 in Iran: "Stucco from the House of Borujerdi-ha".

As for [physical] attractiveness, I think there's a continuum between three poles: cute, hot, and plain. For some reason I don't think I'd find someone at the extremes of the 'hot' and 'plain' categories that attractive. (But then I try to maintain a strict filter on personality and cluefulness, so looks end up being more of a bonus than a selection criteria.)

newsfreak,

Oh, let's get over FAB's thing, maybe guys are different. It was just a tinge impolite to state it in mixed company, even if it is online and semi-anonymous mixed company. ;) FAB probably keeps rather exaulted company offline, so the guys can get hot chicks easily and the women have over inflated ideas of their personal attractiveness.

(Admittedly, I wouldn't want to be with a guy who was TOO good looking or TOO social because I'd be afraid that he'll be cheating on me or ready to dump me at every moment of the relationship. Oh, give me an ole lovable nerd any day)

I have great faith in Canada, not because it has free healthcare, but I think Canadians are some of the nicest people in the world.

because they are in the british commonwealth :P , and knew things would get better if they just waited a couple of centuries...

Joe,

I don't disagree with much of your logic, although I dispute whether the "average" equity rich seller will ultimately sell on needs-based pricing. This gets down to how people negotiate, as we discussed in a previous thread. The seller with a lot of equity has a lot of room to still come out ahead. They are weighing real-life concerns on the other hand, and can easily convince themselves that their "winnings" are worth much less than potentially more "losses". This is basic mental accounting theory.

And, you don't have to agree with the thesis of mental accounting to recognize the massive body of empirically supporting evidence for the effect. Put it this way, if mental accounting theory is wrong then vegas casinos and state lotteries don't make any money.

Robert,

Stickyness won’t apply this time.

I'll take that bet. Loser pays the sushi bill.

I am not big on emperical evidence. Statistics, figures...they just make my eyes glaze over.