patrick.net

Quant,

>>These are six examples of former buyers who will *not* be buying homes any time soon. The pool of potential buyers is shriking due to this sort of phenomenon.

This is a good point: Some "fortress" or inner sf bay area (and equivalent) inhabitants are also in over their head because they started to speculate in non-fortress areas.

yup. Living in Japan 1992-2000 I've seen this movie before.

Our economy was spun up artificially 2002-2006. It will spin down, and as it does the loss of velocity will cause many bodies to hit the floor.

We're spending $6 to $6.5T on government this year. That's 120 million $50K paychecks. ? Where is this money going???

At any rate we're going to have to cut spending or raise taxes, both deflationary.

Interest rates are still at 5% so the cost of borrowing is as low as it's going to be unless the PTB wheel out special measures (which I DO NOT put past them).

Money to the mideast for our oil, money to China for our stuff. We're getting mugged economically.

During the peak, 25% of sales were non-owner occupied. Should be illegal.

I can add three more families I know to that list:

* One couple with kids already forced out of a $2M+ house in Palo Alto.

* One couple in Menlo Park who burned all their savings during a period of unemployment and just barely saved their $1.5M house, for now. Guy got a new job.

* One couple in Menlo Park who just don't make much money and had to put their $1.5M house up for sale recently, but somehow recovered and pulled it off the market.

Anyway, I know from personal contacts that there is a lot of stress out there even at the high end.

Unfortunately I've got another recent example to add...I'll try to describe it but keep the person's identity hidden so I don't lose a friend over this. We know a fighter pilot for one of the armed services who bought an $840k home in one of San Diego less expensive beach areas...back in 2004 which was only about a year before the peak down there. First question, what the hell is a fighter pilot (I know what they make; it is public information) buying that expensive of a home for? Better yet, HOW? Then I find out last week that he got transfered to a highly undesirable base inland AND THEY BOUGHT ANOTHER HOME THERE. They purchased that one in January. Cost = $300k. So this pilot who makes about $100k has purchased $1.14 million of real estate. I cannot figure out how these people are making decisions, to save my life.

follow on from last post....yes, they still have the $840k home (that is now worth about $650k, best I can tell from comps). Nice going, pal. Did the San Diego Real Estate Crash inspire you to buy another home???? As pilots say, Whiskey Tango Foxtrot???

I have a friend that just sold a few months ago. They had an option ARM and were offered to refinance into a fixed low interest before the recast, but decided they would be better off selling, since their payments would still be very high, and the home did not appreciate like they had hoped. They pretty much broke even on the place they had for 3 years, before transaction costs.

I know another couple that bought into a 2 unit condo deal a year ago. The people that own the other unit told them that they will be selling this year or next. Reason: recasting finance, though I don't know the details.

The one I wonder about the most is a friend who bought an "investment" property 2 years ago. According to her, the financed cash flow was "only" $100/mo negative, but that did not include any maintenance costs or vacancies, which I am always astonished that people just seem to assume is $100 a month or something . The value of the home is almost certainly lower than it was 2 years ago.

All San Francisco properties.

I'm going to be sarcastic with an edge towards totally honest:

These stories are plentiful and I'm sure real, but there are still plenty of people perfectly willing and able to plunk down close to and over a million dollars to buy a 50 year old shack in Cupertino on a dime-sized lot.

There is still obviously a very large contingent of people with tons of money and very little standards.

"It's a big club... and you ain't in it." - George Carlin

Affirmative. I am hearing a lot of the same old stories at parties these days. Everybody and their grandma is looking for a good mortgage broker. A friend who bought in north Oakland a year or two ago talks about how much the place has appreciated so far. There are some unlucky souls out there, to be sure, but in a parallel world, real estate is kind of a hot topic again. I will be unhappy if this is a sustainable rebound, honest I will, but if it isn't a rebound, what on earth is it? What would explain it?

Yeah, plenty of people got in underwater, I can add a couple stories too.

But, as stocksjustgoup said, still tons of people who got cash in bank or somewhere in their home.

A lady I knew of never bought a house for 20 years. What she bought instead was gas stations, and now she got dozen. You will never know this small lady looks like a janitor got a pile of cash higher than her height. She decided to buy a home for the first time in her entire life because she is sick of sleeping in the small space back in the station. What she is planning to buy this year? 200K condo, Yeah, this lady is early 40's and have no kids, still available. Anyone want to marry her? :)

A lady I knew of never bought a house for 20 years. What she bought instead was gas stations, and now she got dozen.

Unfortunately, gas station owners make razor-thin profits. Your friend's sacrifices all these years probably weren't voluntary.

I think you're seeing a lot of people who think that prices are going to shoot back up (a recent Biz Journal report cited a Gallup poll showing 77% of Americans polled think home prices are on their way back up) and are giddily saddling up to a stint over the barrel with machinations of a windfall in five or ten years. In other words - speculators.

Granted, it could be that some of these buyers are sitting on bubble-era profits, or have been hoarding cash while sitting in a defaulted home, or have just been saving for years. In any event, I wouldn't confuse people's stuff with their means, especially when it comes to automobiles and houses. It's increasingly rare that there's any correlation. People are overextending themselves, just like they always have. I have seen a lot of really nice houses over the years with furnishings that would make a dorm room look stately. These buyers went broke on the house, and now they're subsisting on Carl's Jr and X-Box, waiting to flip, or for the Gods on Mt. Heloc to smile down on them once the economy gets chugging again.

We don't see a person like her often. She is humble person, is a rare example.

What we can see more often everywhere in these days is the opposites. People who acts like somthing, in fact is nothing. People who admire home price even more than the God, People who blindly rode on investment bandwagon, People who overextended to the max, lived larger than their means, etc. I hate to see people suffer, but when the time is over, they need to learn how to suck it up.

It is not surprising at all when the poll said 77% of people think home prices are on their way back up. It was what they've seen, what made them rich for last 10 years and they're really missing those good old days. Yeah, home price will go back up eventually in the long run, when the madness settled down, sanity come back into play.

http://www.zillow.com/homedetails/2425-Fairoak-Ct-San-Jose-CA-95125/19692443_zpid/

Here's a nice little flip. Pending. Nearly 100K profit in just seven months. Ech. Nothing new.

For the "tons of loaded people on the sidelines with cash" people posting on this thread...I ask you, respectfully, show me some undeniable quantitative data demonstrating that is the case. No attitude meant by that challenge. Where are all the people? Where do they live? Where do they have their money? In cash? In stocks? In bonds? Do they currently live in homes? Or do they rent?

I interact with a few very, very wealthy people on a daily basis...and what you describe sounds nothing like them.

No, the stats on Mr. Mortgage and Dr. Housing Bubble are undeniable and show increasing NODs, NOTs, shadow inventory, etc., plus loads of households sitting on toxic debt. This isn't my opinion; this is reading the data.

Quant,

It is a little dated now, but to get some insight into your question read the 1990's book by professors Danko and Stanley, "The Millionaire Next Door".

The professors explain how not all of the people with tons of cash are Hip Cool and Beautiful; many, maybe most of them, are what the professors call "dull normal". Over the years I've known many such people, been related to some of them, and call a few of them colleagues in the dull normal tech department that I work in at a dull normal outfit. The last thing they would want to do is call attention to themselves, perhaps especially not to a self-identified "Quant Mgr" (weren't the "quants" some of the ones who got us into such a mess?)

I agree with your conclusion about all of the folks in trouble, no doubt about those facts. But it can also be true, and I believe that it is, that there's tons of folks around here sitting on the sidelines with cash, or perhaps other forms of wealth that are nearly as liquid as cash.

Are there enough such folks to create a rising tide to lift all of the boats in housing around here? I doubt it. Those "dull-normal" wealthy people sitting on tons of cash (or other investments) got to where they are by being value conscious. RIght now paying cash for a place doesn't pencil out compared to some dividend paying stocks, unless you are counting on appreciation. But another way of saying counting on appreciation is saying "speculating". The dull-normal wealthy don't speculate. They invest.