patrick.net

You are all correct, except...

Fed may start cutting rate later in the year when the trouble starts. I am not saying that rate cutting can save the world, but it gives the FBs extra breathing room on the way down.

The worst capitalized FBs (who are usually specuvestors at this stage) will be gone in 12 months, chap 13, chap 7 whatever. But if the Fed starts cutting rate, I'd say the low/no-volume, slow-motion price dipping will go on for about 1-2 years until the FBs run out of savings (or financing alternatives). Then you will see a big crash.

So I predict a 10-15% drop by the end of the year till mid 2007, then level off, after the Fed starts cutting rates. Give it another couple of years, then you will see the true avalanche.

People won't get serious about price cutting for their main residence until they run out of options.

Peter P,

if you are buying in CA where your property tax now and in the future is tied to ONE thing and one thing only - sale price, you should just forgo all incentives and head straight for the home run - price reduction. Sale price affects the perpetual cashflow on property tax.

For a difference of $50K in sale price, the difference in property tax paid in the first year is 625, the summation of such difference for 30 years, in undiscounted cashflow is about 25K. So the $50K difference is not just $50K, it is rather $75K or more.

Therefore, even if the incentives appeal to me, I will reject them just based on principal, without even considering the impact on my financing cost difference.

Therefore, even if the incentives appeal to me, I will reject them just based on principal, without even considering the impact on my financing cost difference.

Of course, I prefer price reduction. However, it is easier to get incentives than a reduction from builders. Just keep the discounted cashflow in mind.

I am under the impression that it is easier to get 50K worth of incentives than 25K in reduction. The key is whether you can find utility in the incentives.

Of course, I prefer price reduction. However, it is easier to get incentives than a reduction from builders.

It's always easier to get the incentives, this is true. Of course, successful negotiating is never easy, as it is always in your interest to obtain concessions the other party does not want to give you. Remember: builders and sellers have been playing hardball with buyers now for 6+ years running. Isn't it about time to be our turn?

I'd still wait at least couple of years, when blood is running freely in the streets. You just might be able to get both without much haggling.

I am not sure if you want to get anything from the builders in a down market. They are losing money, they are laying off people, so the quality of their homes will definitely suffer. There are so many ways to skimp, and inspection can hardly uncover all the problems. Plus, I think you only have a walk-through but no inspection for a new construction?

There are already horror stories out there about builders substituting recycled pipes in their new construction which will greatly reduce the lifetime of the house. Get something that is built in the late 90s (but not early 90s) is probably a better bet for quality.

We should have a vintage chart for homes built in the BA according to economic cycles and local events. Houses built right after the big quake are likely to be more conservative in shock-resistant designs. Houses built at the top of the bubble are more likely to be rushed to the market.

OO,

Good points. Ties in nicely with DinOR's "nothing built, bought, HELOC'ed or Refi-ed since 2001" rule.

OO,

Fed may start cutting rate later in the year when the trouble starts. I am not saying that rate cutting can save the world, but it gives the FBs extra breathing room on the way down.

Not only that, but the credit industry will simply keep moving around the goal posts until someone calls them on it. And, with liquidity, that someone won't be the market collapsing, but will have to be government regulators.

These are the fundamentals that keep me undecided about hard v soft landing.

(and please spare any global calamity, MBS-China catrastophe, gold fiat trilateral arguments. there's a higher probability that a real war starts before all that mumbo jumbo ever comes to pass, then all the rules change anyway)

Unfortunately some people think they are really getting $5000 out of that deal.

They are really getting $5000 out of the deal if and only if they plan to buy that for $5000 anyway.

These are the fundamentals that keep me undecided about hard v soft landing.

Just flip a condo and decide.

- condo
+ coin

Randy,

Have you considered the impending global calamity, MBS-China catrastophe, or gold fiat trilateral arguments? How about the impact of Mel Gibson's arrest on the international credit markets? Just wondering...

Peter P Says:

- condo
+ coin

LOL.

Are you also suggesting 50:50 odds of a hard landing? I call "tails" on the condo.

The secondary MBS market is very likely to turn later this year.

Our biggest bagholder, China, is going for a generous pay hike for their civil servants by Oct, paid out of their own pocket of course. No details are given, but this is the general directive from the central. Now keep in mind their civil service employs far far more percentage of the labor force. This is an attempt to stimulate internal demand to soak up their own excess housing inventory, and more important, to put their enormous U$ paper reserve to a better use than holding the bag. Increasing their internal money supply is also a way to fend off Yuan appreciation. Chinese money supply is growing at 15%+ per year, at a higher rate than us, uhh, till end of March, 2006 of course since we have no idea of what happens beyond then.

In the beginning of 2006, their speed of adding on U$ treasury has already gone down, Japan even started reducing slightly. But for the increased demand from the Arabs (well, our recent stance behind Israel is not going to please too many moneyed Arabs), and Brits (what the hell are they buying our treasury for??), the excess supply of our treasury would have ended up with no buyers.

The party of course is going to end. I'd say the steps taken by the Chinese bagholders will be gradual and calculated, so expect no big moves there, although they are definitely moving in a direction unfavorable to our housing market.

Will our politicians get tough even AFTER the election? I am not sure. If Republicans secure their current representation, there is absolutely no chance of them poo pooing the party in light of the 2008 election. If the Democrats win, maybe, but they certainly don't want to be the scapegoat in triggering any crash events cos' they have the same election do deal with 2 years down the road.

My only optimistic hope of a fast and furious correction comes down to a major earthquake, for which California is overdue. That will be one hell of a trigger event, but I hope at least I can survive that quake when that happens.

As long as someone is still buying the MBS at an acceptable price, don't expect the mortgage lender to care about fraud. They wash their hands off the entire thing the moment the loan package is sold.

Unfortunately it does take a serious crash to wipe out the fraudulent practices in the RE related industry. The crash has to come first, not after.

ptiemann,

If your friend does agree to go through with the cash-back scheme, please forward his/her name and the name of the buyer to me so I can report them to the authorities and have the MLS sale price properly rolled back. Nothing would give me greater satisfaction than sending crooks and liars to prison, while simultaneously helping to expose mortgage fraud.

"Have you considered the impending global calamity, MBS-China catrastophe, or gold fiat trilateral arguments? How about the impact of Mel Gibson’s arrest on the international credit markets? Just wondering…"

So what's the Elders of Zion's position on the global credit bubble? (And hurry it up with the weather machines, okay?)

How about the impact of Mel Gibson’s arrest on the international credit markets? Just wondering…

If you drink, you cannot drive. It is as simple as that.

If your friend does agree to go through with the cash-back scheme, please forward his/her name and the name of the buyer to me so I can report them to the authorities and have the MLS sale price properly rolled back. Nothing would give me greater satisfaction than sending crooks and liars to prison, while simultaneously helping to expose mortgage fraud.

HARM, forget about it. I know you are angry, but the market will fall on its own weight. How much mortgage fraud are you willing to expose?

My only optimistic hope of a fast and furious correction comes down to a major earthquake, for which California is overdue. That will be one hell of a trigger event, but I hope at least I can survive that quake when that happens.

Please do not wish for that.

Those of you who were around back then and posted predictions can click here to see how your forecasts compared to actual results. I will post my own here to get things started:

Maybe next year... ;)

Peter P,

I am not wishing for the earthquake, it will happen regardless of what we wish for. We are long overdue for a big one per consensus by many scientists.

In history, natural disaster typically serves as the trigger event for some major changes, e.g. weather-induced famine leading up to the French revolution, tbe Russian revoution, a prolonged drought in China triggering the overthrowing of the Ming Dynasty...

In history, natural disaster typically serves as the trigger event for some major changes, e.g. weather-induced famine leading up to the French revolution, tbe Russian revoution, a prolonged drought in China triggering the overthrowing of the Ming Dynasty…

Or it can cause the FED to lower interest rate all the way down to 0.25%.

In history, natural disaster typically serves as the trigger event for some major changes, e.g. weather-induced famine leading up to the French revolution, tbe Russian revoution, a prolonged drought in China triggering the overthrowing of the Ming Dynasty…

Natural disasters may be associated with astrological patterns that also cause instability though.

Anyone know if Saturn and/or Jupiter are retrograde for the USA atm?

Throw in Mercury Rx too - lots of bad communication out there at the moment

Have you considered the impending global calamity, MBS-China catrastophe, or gold fiat trilateral arguments? How about the impact of Mel Gibson’s arrest on the international credit markets? Just wondering…

You may be onto something with the Mel Gibson angle...

Natural Disaster induced ZIRP policy. Now that is a theory I can buy into.

Where can I buy those puts?

is the $10,000 bonus higher quality fittings, etc? that's just an agreement with the developer, and gets listed on the sale price -- you could, i suppose, argue with a valuer that your place is worth 10K more than you paid, but that's immaterial.

developers who offer quiet 'rebates' are looked at askance by the banks, and are at risk of suffering action for incomplete disclosure of the whole deal.

the point is, the bank wants to know exactly what your exposure is. not telling them is tantamount to fraud in their eyes, and the courts agree. the whole thing boils down to a system where the banks, first and foremost, are protecting themselves. if you do the builder's rebate trick and therefore borrow 80% of an inflated figure which then becomes 100% of the true final figure, the bank has just lent you 100% (on the real imputed 'value' of the property in the market) rather than their intended 80% with 20% breathing space for them to foreclose on you later without losing a cent if you can't meet the repayments. it's their risk management, not yours. there's not really much 'morality' in it, the banks don't really care if you live or die, except that they need someone to gouge interest from to get rich...

http://quake.wr.usgs.gov/recenteqs/Quakes/nc40187964.html

Funny thread, considering I just felt a disconcerting little earthquake up here in Marin.

Well I was on 3rd floor of this rented McMansion built in 1994 (I think). If this is up to code I'm a postmodernist. People on floor one felt minor shaking. I was almost bounced off my chair sitting up here.

Magnitude 4.4 - regional moment magnitude (Mw)
Time Wednesday, August 2, 2006 at 8:08:12 PM (PDT)
Thursday, August 3, 2006 at 3:08:12 (UTC)
Distance from Glen Ellen, CA - 5 km (3 miles) W (268 degrees)
Rohnert Park, CA - 9 km (6 miles) E (79 degrees)
Cotati, CA - 11 km (7 miles) ENE (69 degrees)
Santa Rosa, CA - 14 km (9 miles) SE (133 degrees)
San Francisco City Hall, CA - 67 km (42 miles) NNW (347 degrees)
Coordinates 38 deg. 21.8 min. N (38.363N), 122 deg. 35.4 min. W (122.589W)
Depth 9.1 km (5.7 miles)

SQT

You're not making me feel better, lol. Maybe I'll be moving out of this McMansion earlier than originally planned.

Guys,

Disclaimer: I have nothing, absolutely NOTHING to do with the earthquake that just happened on August 2, 2006 at 8:08:12 PM (PDT).

We just had a 5.x down here a month ago centered in east Morgan Hill which was felt throughout southern SJ area.

SQT,

Kobe quake ended in ~4500 deaths, most buildings that collapsed were built before the adoption of new earthquake-resilient building codes. Therefore, houses in Japan built before a certain year (I believe it to be 1982) are worth next to nothing because that was the year that a much stricter set of building codes were established.

Randy,

you should be fine, your McMansion was built in 1994 when the memory of the big one was still fresh. I wouldn't be too comfortable living in a McMansion built after 2002 tho.

F***ed Borrower

Anyone know if Saturn and/or Jupiter are retrograde for the USA atm?

I think Jupiter, Pluto, Neptune, Uranus, Mercury are retrograde.

I have no idea what that means.

http://www.astrologyclub.org/articles/retrogrades/retro.htm

Sorry, I read from the wrong chart. Mercury and Jupiter are not in retrograde.

California Foreclosure Activity Hits Three-Year High

Aside from providing more evidence that the housing market is transitioning from boom to crash, this report was notable for two quotes:

"We hear a lot of talk about rising payments on adjustable-rate loans triggering borrower distress," Prentice continued. "While there's no doubt some of that is going on, as far as we can tell the spike in defaults is mainly the result of slowing price appreciation. It makes it harder for people behind on their mortgage to sell their homes and pay off the lender."

Intriguing. According to all the perma-bulls (incl. DQ spokesmen) over the last few years, the boom was driven mainly by equity-rich buyers and solid economic fundamentals, not reckless speculation fueled by cheap credit. Prentice seems to be implying that people currently in default (a) were counting on perpetual appreciation, and (b) either had no existing equity to begin with or have spent it all.

How can this be?? :lol:
And here's the other "money quote":

"This is an important trend to watch but doesn't strike us as ominous,"

This must be an "important trend" indeed if they feel comfortable dropping the obligatory "indicators of market distress are still largely absent" refrain.

Shaping up to be a loooong brutal summer. And I'm not talkin' about the hot weather.