patrick.net

MM,

I agree with you. It seems as though there's an elephant dancing on the head of a pin and everyone is waiting for something to push him one way or another.

Here's my question:

We know wages are so far behind inflation there's no add'l dollars in most people's pockets....so.....where's the money coming from that allows for continued consumer spending? Housing is taking an ever increasing bite out of the budget, REAL inflation continues to be an issue, and people are still spending money like there's no tomorrow.....HOW??????

Back in the days of Prez Jimmy's economic nightmare, I was scrimping and saving while my friends were blowing and going. Fast forward and they are still on a spending binge and I'm looking for ways to NOT spend money. How in blue blazes do they continue to dodge the credit bullet?

I feel like I'm the last sober person at a drunken orgy.

The link to "The Star" was possibly.......... no, definitely the longest 28 seconds of my life. Sadly that includes several motorcycle accidents that were not quite as....... painful. Anyway!

The fact that the two Oregon towns represented showed little if any decline leaves me in NO WAY disheartened! They're not increases! Just having a "high end" market in Portland is something of a new development. So we're still kind of attached to it, unwilling to relinquish this new found status symbol. If nothing else Oregonians have an admirable sense of self preservation. Money doesn't come easy here and I'm supremely confident that push come to shove we'll distance ourselves from McAlbatrosses like an ugly girl at a dance!

In ways, having the RE market meet FAB's "Black Monday" would be a lot like hearing your nemesis..... your archenemy........pffft, a dickhead O.K? died in a car crash! You're numb. You're beside yourself with disbelief. How could this have happened? I didn't cut his brake lines (like I'd planned)? I didn't get to have one active part in dickhead's demise! (All my best laid plans, up in smoke?)

Oh in time you'll come to appreciate the fact that your karma (and trail) are clean and you didn't have to so much as lift a finger but for now you're just........numb.

SFWoman,

mike* had a great post 2 threads back that addressed this very scenario in some detail. He doesn't post often but when he does, he nails it.

If we can't get the workforce to save, maybe....... we can have/create a catalyst by which we can drive real int. rates into the neg? With favorable tax legislation already in place we can eliminate/diminish the need for savings/retirement accounts (which we know they don't much care for anyway!)

This is the inception point of Debt=Wealth. Obviously (they) grossly miscalculated our appetite for MEW and are now conceeding that further tweaking is necessary?

Woo hoo! Fort Collins, CO is forecast for a -6% bottom by February '07! I'm already seeing stagnation in DOM and lowered selling prices. I bet some ranges pressure into -15% though. Lots of people lost high end jobs in tech in the last two years. If you take two years ago as a baseline, the ratio of sellers vs. buyers has tilted almost 2.5x at this point. There's also a steady stream of foreclosure notices converting into REO. This jives pretty well with my plan to get a 6 month apartment lease and keep checking the market.

I've noticed a lot of REO and pre-foreclosures on $1M+ properties. A builder just finished a huge golf course development north of town (5000+ sq.ft. homes on the high end) and I don't think anybody is buying those.

It would be nice to have the drops now, but I'll be ready after the banks and flippers have a long, cold winter of taxes, HOA fees and heating bills on a bunch of empty properties.

The Moody's report seems disengaged from reality. The example I know reasonably well is Boston. They call for a peak in 3rd Q 06 (ie, just passed) and a 2.2% decline. It's already well documented by more than one source, the MAR and the Warren Report, that home prices have already dropped 6-8% YoY nominal, even more so real prices-wise. And they are continuing to drop. I call bullshit on them.

skibum,

Moody's definitely has a "dog in the fight". This type of 11th hour damage control is to be expected. I agree though, I'm predicting the White Sox will not make a post-season appearance this year! I'm staking my reputation on it!

Pink Slips at Intel's Hillsboro, OR Plant! Oh and Freightliner too!

All told it should be about 1,000 of the 17k workforce here locally.

I think there's about a 50% chance still that the Bay Area will undergo a soft-landing correction. Every time I see evidence of a harder-landing, I come across equally convincing soft-landing data.

DinOR,

Swan will have to change it's name to "Deserted Island" if it's a pretty severe downsize. Was Intel's announcement a result of their plan or part of some new news in the area?

Doug H,

LOL! That's a good one! It's incredible how much business we've turned away b/c of our "convictions". We refuse to dredge the Columbia River to allow the new deeper draft cargo ships up the channel, we sent our very last floating drydock to some 3rd world hole and are not allowing any real growth on Hayden Island either. I'm told the local infrastructure just couldn't handle a "big box" so they're putting a 24 month moratorium on building out there. 24 MONTHS! Sheesh. I'm trying to make it to Friday!

SFWoman,

I suspect we'll see a great deal more of people refinancing at higher rates. And yes it is "discouraging". Remember though, these were many of the same people that were rubbing their "low-low rate" in our faces just 18 months ago!

Re: your mum-in-law in Medford.

There are a great many things in life I have, can and will do without for 6-9 months (a sale just isn't one of them!) How long can you go without selling a house and still call yourself a realtor? I guess we're fixin' to find out!

See the link to my analysis of the San Francisco housing market

http://www.crimsonbee.com/house_graphs/sf_house_prices.html

The market was as over-priced when comparing house prices to mortgage rates and income in 1981 and 1989. In both cases affordability improved significantly because of a combination of falling house prices, decreasing mortgages rates or rising incomes. I would expect affordability to improve rapidly once again.

If house prices are flat this time it would mean that either incomes would rise significantly or mortgage rates would fall. Either of the two are unlikely this time.

If house prices are flat it would be unprecedented based on the history of the last 30 years. We do have only two previous example of such over-priced housing in San Francisco so I cannot say the results are statistically significant.

Says:

"...My dad kept ratcheting up the debt because he didn’t want my mom to know how bad things were... At the end of the day $800k in debt when you bought your house for $250k over 20 years ago doesn’t make much sense, but people do stupid things all the time.

I can’t say I know the mindset of the average joe, but people may still be in denial and trying to live the “dream” for as long as they can.
_____

Good, honest assessment. I believe your dad's cash-flow/debt scenario is being played out, more or less, throughout the country in various degrees.

No doubt, it's going to be interesting to see how the whole Baby Boomer socio-political-economic phenomenon shakes out. I know there are a lot of 50 something - 60 somethings still doing a lot of drugs.

It's as if we're on the economic leg of the same, strange, social, hippy-ass trip that started in the 60s.

Where/when does it all end? When the last Boomer has huffed his final bong hit, as a shot heard round the world, and Led Zep's Stairway to Heaven has been played for the last time on the only remaining, terrestrial FM station?

The prior quote should say:

"SQT Says..."

If you look at the RE industry, many people are treating mortgages like derivatives. It is worst than a derivative because many of the loans are obtained with no downpayment. You can gamble with someone elses money, risk none of your own and make a quick buck in the process. The problem that you run into is the ever decreasing supply of "greater fools". Give it time. This mess will work itself out and the prices will revert to the historical mean. There will be many people burned and it will be a painful adjustment.

Michael Holliday,

(And I'm perfectly serious here)

What would it take to get a "Housing Crash Radio Network" going? I realize that nearly every rugu on the financial airwaves has staked his/her reputation on a short lived and mild "correction" so it would have to be somebody totally new or a consumer advocate like Tom DiMartino?

I could really see a show like this taking off.

Caller, go ahead!

Hi, Michael?

Could you turn your radio down dear?

(Pause)

We have Doreen from Daly City, Doreen welcome to the show!

Mike, my husband and I got one of those IO loans and we were barely making the payment to begin with and now they've raised the payment by over $539! Can they do that?

Well Doreen you're what we call in financial circles like to refer to as scuh-rude! Thanks for calling!

No seriously, not sound bites from Schiller on NPR, but a 2 hour call-in type show?

thenuttyneutron,

Glen has brought that up and I'm glad you are as well!

Try getting the bank to loan you 1mm to play in the corn futures market. Why not? We do it all the time for people to speculate on houses!

For a goof I tried (w/a pretty solid fico) to get an "un-secured" loan to "expand" my personal practice. 50k max! This at almost 18%! 3-4 year term MAX! Good luck w/that.

MMAfia Says:

> Not every single market will have price drops occur
> at the same rate nor at the same time

Real estate "markets" are tough to track since a city like Burlingame may have a large number of homes in the hills sell for $2mm+ in a month showing a huge increase in both the average and median home price when every sale was for lower than the exact homes sold for last year...

I think there’s about a 50% chance still that the Bay Area will undergo a soft-landing correction. Every time I see evidence of a harder-landing, I come across equally convincing soft-landing data.

I also feel that soft-landing is a real possibility. Homes that we do not want may crash hard though. :(

@SF Woman,
Your on-the-street anectodes from Weston and Milton definitely corroborate what I've heard and seen. Friends in Newton and Wellesley tell me similar stories.

Regarding the apparent price stickiness in some areas, I think there is a phenomenon not often mentioned by the MSM: the folks still buying today are not necassarily saying, they want a certain type of house (let's say, a 3BR/2BA stucco box), and now that prices are dropping, they will keep following that house and its comparables downward. No, I think many buyers will stay at the same price point, and just look at nicer and nicer houses, maybe even bigger houses, better neighborhoods, etc. As a result, recorded purchase prices don't necessarily plummet quickly - another reason for price stickiness in the face of slower sales numbers.

Gavin (who put together a great site) says:

> See the link to my analysis of the San Francisco housing market
> http://www.crimsonbee.com/house_graphs/sf_house_prices.html

Looking at the data it will be "different" (drop more) this time since:

1. Interest rates are not dropping
2. The number of jobs are dropping (and soon to drop even faster when most of the jobs related to buying, selling, financing and remodeling homes go away).
3. The population dropping (and will drop faster as more people with kids move out of the expensive Bay Area)...

No, I think many buyers will stay at the same price point, and just look at nicer and nicer houses, maybe even bigger houses, better neighborhoods, etc.

We only needed a condo or townhouse in the first place. It is unlikely that we will "stay at the same price point" for long.

3. The population dropping (and will drop faster as more people with kids move out of the expensive Bay Area)…

Not so sure about that. The Bay Area population is actually dropping less. The NY Times had an article a while back about how Silicon Valley's population is set to increase next year.

You can already feel it on 101.

All I wanted was for prices to roll back to 2002. Is that too much to ask for?

We only needed a condo or townhouse in the first place. It is unlikely that we will “stay at the same price point” for long.

At least for the Peninsula, you describe a different situation. I would argue that outside of the city, there is only a small minority that actually prefers a condo over a SFH. Most would switch from looking at condos to SFH's if the prices of SFH's started to creep down into the condo range. For instance, I just did a quick search in PA: there are no condos for sale over $1M, and the SFH's under $1M all seem to be piles of crap. If your "price point" is under $1M, you'd have a hard time finding any habitable SFH in PA, so many are "forced" to look at condos as an "entry point." If SFH's that are not basically teardowns start overlapping in price with these higher-end priced condos, don't you think a fair number of buyers will switch over to looking at SFH's? (Of course, this exercise assumes you'd only be looking in PA).

Sorry to bore some of you with our BA bubble (and housing bubble) talk. Here is a leading economic indicator in our neck of the woods -- traffic.

Published Thursday, September 28, 2006, by the San Jose Mercury News

Roadshow

Complaints of more traffic jams mirror recovery of the economy

By Gary Richards
Mercury News Staff Columnist

Q Can you help my husband and me out? We carpool on Highway 101 from
Masten Avenue to Bernal Road and have seen a considerable increase
in traffic in the past month. It wasn't bad at all this time last
year. There isn't any construction, Amber Alert signs or accidents.
Have that many people moved to South County and beyond? Help. It
used to take us 20 minutes; now it takes about 35 minutes.

Nancy Taves
Gilroy

A Bad traffic here and elsewhere.

Q The westbound morning commute on Highway 85 passing Almaden
Expressway has always been a bit slow, but since school started it
has been much worse than usual, even compared with last year. I
remember a few months ago you wrote that the metering lights from
Almaden to 85 were not working. Were they fixed? Even the carpool
lane crawls for about a mile.

Mark Marley
San Jose

A Bad on 101, 85 and ...

Q I commute to Cupertino (Wolfe Road) daily via I-280, normally a 30-
minute drive on a bad day. During the past few days, my commute has
taken awfully long, like one hour Monday and 45 minutes Tuesday. I
have XM traffic playing and switch to local traffic reports trying
to find out what accidents may be ahead, but there are none. What
gives? I know kids are back to school, but it could not be this bad.
I have gone to I-880 to Stevens Creek Boulevard onto city roads, but
that is a nightmare.

Andrew
San Jose

A Avoid I-880 as well.

Q I travel on I-880 north and traffic used to open up after Stevens
Creek. There would be some tie-ups around the Coleman construction
site, but then it would open up again. Now, I-880 between The
Alameda and First Street is always clogged. What is causing that?
Just more cars?

John Formale

A These calls roll in every September, when traffic can be 3,000 to
5,000 more vehicles a day on any given route. No one is on vacation,
and school is in session. But the biggie -- the economy is picking
up and more folks are commuting to work. Come next month, you should
see an easing of traffic as people begin leaving earlier or later to
avoid the jams. On 85, the Almaden meter is working. But Caltrans
has noticed the tie-ups and could slow down meters.

I'd like to see some reputable, hard, verifiable data that shows or suggests that the Bay Area population will decrease or already is decreasing. Census and sample data show the exact opposite. Both population and median incomes are rising in the Bay Area at present. I believe the number of dependent children has also risen substantially, not decreased.

"Don't show the same impatience on the way down"

George, so true. I've been so busy not wallowing in misery that I may have lost sight of that. Much like boxing fans not wanting the fight to be decided by judges, we're looking for that "telling blow" that sends the "guy we don't have money on" reeling. Wether it's KO/TKO or decision we still collect!

And long rates are currently dropping, unless my ears and eyes have deceived me all this week. And by a healthy amount. And, despite the certain longer term pause in Fed rate hikes. And, the USD has strengthened during all this, not weakened as IRP would predict. This is the kind of data that doesn't bode well for those expecting a non-sticky, sharp, hard landing. Diversified, large MSA economic areas, of which the BA is one, have as good of a chance as not to land softly.

At least for the Peninsula, you describe a different situation. I would argue that outside of the city, there is only a small minority that actually prefers a condo over a SFH.

We would prefer a house. However, a well-built townhouse will do.

The SFH market will be hot even after the bust because they are not building enough of them.

However, I will prefer a steel-and-concrete high-end condo with marble bath to a crappy SFH in PA anyday.

And long rates are currently dropping, unless my ears and eyes have deceived me all this week.

Long rates may drop to below 4% again. The Fed may have to use the "conundrum" to handle housing and inflation at the same time.

I believe the number of dependent children has also risen substantially, not decreased.

Childrens are net liabilities though, financially speaking.

Childrens are net liabilities though, financially speaking.

I was merely addressing the notion that having children forces people out of this area. It may seem intuitive, but I don't see the empirical evidence.

Traffic has also increased as a factor of rising employment, not just population increases. Bay Area employment has been rising steadily throughout 06.

DinOR:

Your radio idea is a good one. Still, on my station during the day, are realtwhore-huckster-info-mercials hawking their housing/land wares and optimism as if it were still spring of '05.

I wouldn't mind, myself, doing an over-the-phone, round-table discussion on the state of housing in the West (CA, NV, AZ).

It could just be a few people from this site giving their views (Patrick, Randy, you, et al) and taking calls, etc. We could get like three or four people on the phone concurrently and take some calls. I'm up for it.

It would be pretty funny to hear Surfer-x weighing in on behalf of Gen-X. Definitely some fur would fly if a realtwhore called in to counter the negative sentiments of those successful people--like surfer-x--who played by the rules, got educated beyond the call of duty, and are still locked out of BA and other housing markets, notwithstanding the landed gentry (makes for good, entertaining radio).

I would definitely have my sound engineer's finger on the bleep button in case things got a little excited.

Traffic has also increased as a factor of rising employment, not just population increases.

Restaurants are getting overcrowded. This is a problem that is more acute than the housing bubble.

Here is a leading economic indicator in our neck of the woods — traffic.

Last time traffic increased dramatically, a bust followed quickly. Perhaps traffic is an indication of overheating and the inevitable bust?

wo or more years of experience with Sales Supervision within a private client group or Compliance of a retail brokerage firm.

That's not bad as a static analysis. There's a problem, though. The last bust was many years ago, and the population has continued to climb in absolute numbers since then. What happened was a dramatic decrease in the population growth rate, not an absolute drop in population. I think there were only a couple of quarters where absolute pop'l estimates dropped. We did hit a very low growth rate, below .1%.

During that period, very little infrastructure capacity has been added, either roadways or various public transits. So the system may just be more sensitive now. Also note that there are currently a large number of highway improvement projects underway. Infrastructure grows in fits and starts, while population grows smoothly.

Last time traffic increased dramatically, a bust followed quickly. Perhaps traffic is an indication of overheating and the inevitable bust?

should have been the quote. Some dangling copy left in my clipboard apparently. And if you know any PE RE Brokerage sales managers....lol

should have been the quote. Some dangling copy left in my clipboard apparently. And if you know any PE RE Brokerage sales managers….lol

Huh?

Correction:

"...It could just be a few people from this site giving their views (Patrick [i.e. Peter P.] Randy, you, et al)..."

I think since the site is Patrick.net...I call Peter, Patrick.

Ha, ha!

The market was as over-priced when comparing house prices to mortgage rates and income in 1981 and 1989. In both cases affordability improved significantly because of a combination of falling house prices, decreasing mortgages rates or rising incomes. I would expect affordability to improve rapidly once again.

If house prices are flat this time it would mean that either incomes would rise significantly or mortgage rates would fall. Either of the two are unlikely this time.

Bingo!

Yes, the Fed can panic-drop rates again to 1% or 0%, but given how low long rates are already (note how strongly inverted yield curve indicates bond market is already pricing in future rate cuts), I doubt mortgage rates can/will drop much further than they already have. So that's a non-starter.

Incomes rising? Asking your boss for a raise as we head into recession? Good luck with that. We're already seeing all kinds of reports of home builder & mortgage company RIFs/layoffs in the MSM. And this down cycle's just getting warmed up.

So of our three major correction mechanisms, what does that leave us?: falling house prices. Good luck with the soft landing scenario ( NOT GONNA HAPPEN ).