patrick.net

ak! i can vouch personally that there's still such a sense of entitlement by homeowners that they deserve all the "gains" they've "made"; but it does look like the laws of economics are starting to finally reassert themselves. this has been one very steep hyperbolic parabola.

Robert Cote'

I've never really seen why concrete would be that fuel dependent but I'm confident someone will enlighten us. Anecdotally, Freightliner is laying off about 1,500 from it's Portland plant.

People in OR love to kid about the disconnect between lumber prices and homes b/c when you really look at it, there isn't all that much "lumber" in a home these days! Right now everyone connected to the REIC wants to draw attention away from the fact that building materials are slipping w/no traction in sight. They'd much prefer to talk about int. rates and mort. applications.

To have a hard landing you need "forced" sellers. In any market there are a certain number of forced sellers because of death, divorce, disability or job loss. But to have a hard landing you need an increase in the number of forced sellers due to either
1. A recession
2. Glut of new homes. Builders will cut prices rather than hold on to homes.
3. Resets in negative amortization and interest only mortgages along with flat housing prices and rising interest rates.

California is unlikely to be in a recession in the next few months. However an excess inventory of new homes has already cause a fall in prices in Sacramento and the central valley and could lead to a hard landing (sharp drops in nominal house prices).

The Bay Area does not have many new homes especially San Francisco, Marin county and the peninsula. But the outskirts like Napa, Sonoma, Solano and eastern parts of Contra Costa and Alameda counties could feel the effects of new construction and a hard landing in Sacramento and the central valley.

So does it mean a soft landing for the parts of the Bay Area around San Francisco and a harder landing for the outskirts?

The unknown factor is number 3 above. Will homeowners be able to handle larger payments when the rate on their interest only or negative amortization mortgages adjust? Or will they be forced to sell?

Was this bound to happen?

As the credit fueled bubble spiraled ever skyward (with the attendant run up in the demand for building materials) reaching it's crescendo was it inevitable that after "peak demand" this "selling point" would play itself out?

Was ever increasing costs for materials a big part of "buy now or be priced out forever"? If so, what role will they be playing in the downturn, making a soft landing....... out of the question?

I agree with Gavin regarding new homes in the immediate Bay Area (not out in the boonies -- over the hills :-) Can anyone comment on the condo situation in the East Bay which DQ specifically referred to in their report. This is the one possible source of overbuilding that could occur. I know they have been slapping them up furiously in Oakland and Emeryville (is there still a lot in the pipeline that will continue to put downward pressure on prices?) In Berkeley there is a ten unit building with two remaining. The developer does not sound desperate (yet :-) but they are offering some incentives.

Stunning New Condos in Berkeley at the South Side Lofts
Open House Saturday & Sunday – 1pm-4pm
Located at 2400 Dowling Place @ Telegraph Ave.
New Prices on the 2 remaining units $560,000 - $615,000. Promotions – Choose 1 1. Seller carry down payment of up to 10% with no interest or payments for three years. This offer will be valid during October 2006 and for well qualified buyers. This program can save the buyer approximately $420 a month, $5,000 per year and $15,000 over the 3 year life of the loan, please contact sales consultant for details. 2. $15,000 credit towards Non Recurring Closing Costs 3. Seller buydown of the first loan interest rate. Seller will contribute up to 3 points to reduce buyer’s interest rate. For example, use this program to get an 80% first loan with a 5-year fixed interest only payment of 4.875%, lowering your loan payment to $1999/month, a savings of over $400/mo for 5 years! (5/1 adjustable, 6.267% APR, subject to borrower qualification).

Thanks for the numbers of new condos SFWoman.

I was looking to predict falls in nominal house prices in the next six months. Flat housing prices (real price drops) are foregone conclusions at this stage. Currently San Francisco does not have a huge inventory of new condos available for sale. I stress new because builders are more willing to drop prices than existing homeowners. In the next couple of years if sales continue to stay low or fall, the condo market in San Francisco could take a hit.

I am still looking for the trigger that would cause a hard landing in the price of existing single family homes in San Francisco, Marin county or the peninsula.

SP,

You know in a way, that's a perfectly legitimate point! If the REIC can litter our towns and neighborhoods w/for sale signs and sign spinners in their endless pursuit of easy money! If flippers can install vinyl siding at 10:00pm w/floodlights, how out of line is inviting "X" and company for their "big event"?

I stress new because builders are more willing to drop prices than existing homeowners.

I repeat Gavin's statement because this is key to fueling a hard landing, if one is to occur in the Bay Area.

People who are selling existing homes have one bullet, price. They don't want to shoot it. Homebuilders have an arsenal, and they are unloading that now. They don't have to adjust price until it is in their interest to do so.

--

New homes are sold by *companies*. Companies can adjust numerous variables in a declining market:

- They can exercise options on land and construction by canceling.
- They can constrict inventory over time and reduce supply.
- They can financially engineer.
- They can undergo M&A consolidation.

...and of course,

- They can adjust *price*.

Existing home sellers are (by and large) individual *people* like you and me. They have only one variable:

- They can adjust *price*

anfamily:

Alan Lovelace's crystal ball is likely to be as good as anyone else's: cloudy.

If you want to know what is happening to home prices over the short term, next six months, look at the number of homes for sale and the sales data. After almost 2 years of falling sales and 15%-30% fall in sales over the last year we have prices fall by less than 5%.

Over a longer period no one knows.

Current market sentiment seems rather frigid. A deep freeze may follow, then fissures might form in the ice. Once cracking arrives chunks of equity are likely to fall into the sea or simply slip into the bay. Seriously the Bay Area might fair much better than the Central Valley. Sac seems to be going into a long term sag. Slump seems to be the shape of things to come in many areas of this country.

Randy H,

I'll have to agree. "Some" sellers have made a foray into the incentives arena by offering to cover HOA's/golf membership etc. for a year but by and large you're absolutely right. Many (it seem s to me anyway) are making promises we all pretty much know they can't keep!

I've seen several homes listed on C/L where the "owner" is basically saying, take over my payments and uh...... we'll straighten out that bothersome paper work later. Somehow you'll get the MID? Well even with an auto loan, I think the bank might have something to say about this "arrangement"?

@SFWoman
Thanks for the link. I will do more research.

@MIke
Excellent post in the previous thread. Corruption is soo well hidden that middle class ppl never realise it unless someone brings them to the limelight. Thats why rich ppl get richer and poor ppl get poorer.

@Skibum
Do you ever think about what the doctors are doing while you are waiting for their service in ER or at their office? You sit in the waiting room for a while, then are taken into another waiting room where the nurse gets your details and then wait for a while before the doctor comes in. You think the doctor is reading up about you or your previous visits. Yeah right. I think doctors are paid a lot here for doing just about nothing. I personally think they are very incompetent. I go to ER's in Marin county and they are not inundated with illegals and still it is very slow. I have yet to use ER service but had to accompany my friends in.

@Phil,
I am a doctor, so I know very well what I do between patients. I will not dignify your post with a response.

FYI, I blog all day while making patients wait. ; )

Builders to have a huge incentive to not adjust price. It lowers the comps for the rest of their units and begets a deflation mentality. I would expect price adjustments to only be forced by cash flow concerns.

And in the current environment, distressed cash flow is as likely to lead to a private equity firm LBO'ing the homebuilder as it is to have them cut prices.

I'm no expert in this area by any means, but I wouldn't be surprised to see half the public listing disappear over the next 18-24 months.

Doctors here have too much administrative work to do. :(

Actually, I think they are under-compensated for what they have go through.

Many fresh-grads have 200K student loans attached.

skibum,

One of the first things I learned about having practicing physicians for clients is that when they hang up on you in mid-sentence it's not their intent to be rude. It really isn't. Typically you leave a msg. on their cell or pager and they return the call when they can. After awhile you get acclimated to THEIR schedule and find "windows" of 3-5 minutes and you learn to talk fast! These guys/gals don't "chit chat" and if they don't balk at the decision to amputate trust me they ain't gonna balk at the decision to take a 5K loss! I guess they learn to grieve later.

Builders to have a huge incentive to not adjust price. It lowers the comps for the rest of their units and begets a deflation mentality.

Do they care? They have huge profit at practically any price.

Remember, they do not need to go through the 5-stages of grief. They are cold and in business.

Anyone who is willing to become a doctor should get an award. There is so much stressful work and doctors never become rich.

How many doctors own their jets? How many lawyers own their jets?

I have nothing against lawyers though.

Peter P,

One of the great injustices that happens w/doctors is that b/c they ARE so busy they have a natural tendency to be exploited in their business relationships. For many years people would just say, "Oh he/she is a doctor, they have more money than sense anyway" and have a big hardy laugh about it. Also (and I had no part in this) b/c of their busy schedules many brokers/estate planners etc. would exercise "discretion" with their financial affairs. Bad ju-ju.

Even if I've made them a TON of money I make sure they understand I have no interest in having a "discretionary account". Way too much liability. Also it's important that they appreciate if "I" came in as a patient they would at least have me sign a form before they started to amputate!

Jon, Gavin,

When it's all said and done "I" believe the bubble will become the victim of it's own success (or excess) in this particular case. Yeah, employment, inflation and "funny money" loans (along with bldg. materials prices) will all have their effect but even w/funny loans we're bumping up against the appearance of affordability.

www.fantasylandmortgage.com

Do they care? They have huge profit at practically any price.

Remember, they do not need to go through the 5-stages of grief. They are cold and in business.

Yes, they care. Not because they (the companies) are emotional, but because the buyers of their products are.

Here in NW Ohio it is not good. I was at the county court house looking at the open end mortgages of a local builder and was horrified. 2 million dollars in loans, taken out in 2003 and 2004, for a development and 51 of the 55 lots empty makes me think he is in deep trouble. He recently droped prices by about 25%. I went and looked at the 2 models he has and was given a nice presentation with lots of high pressure sales tactics. I was told that the lowered price would not last long and that it was for the "non-premium" lots that are not next to some manmade ponds. I can hit harder by not saying a thing and just passing it by. Maybe the bank will have a "fire" sale when the guy defaults.

I don't see how this will end with anything other than a hard landing. I know of another developement 10 miles away with only about 12 lots of the 155 lots developed. It was started in 2002! I have seen 3 "For Sale by Owner" signs in front of those homes and they have sat empty for a year. People will be hurt and I don't want to share in the pain.

Damn, looks like they took it down!

For those that didn't get to see it, great parody of todays NAAVLP's!

"Perhaps you'd prefer our nothing down, no payments until you hit the lottery plan!" Get the money you DESERVE!

To make it up to you guys........!

www.homestarrunner.com/senormortgage.html

Crank it up!

If you've seen it before....... TFB.

Yes, they care. Not because they (the companies) are emotional, but because the buyers of their products are.

So they will just take a big one-time price cut and resume incremental price increases quickly. This creates an illusion of a good deal that will soon disappear.

RE: "overpaid" American doctors. I posted this at the end of the healthcare thread, but since that's been abandoned and the discussion has moved here, I will re-post:

Before declaring doctors here “overpaid”, you should consider that: a) malpractice insurance and legal fees (thanks to ambulance chasers) will consume a huge portion of that doctor’s lifetime earnings, and b) s/he probably took on a quarter-million dollars in student loans just to get that MD (even more for specialists), which s/he will spend the next 10-20 years paying off.

Not a doctor, not married to one, nor do I have a close family member who is one. I just have a lot of respect for anyone willing to go through the 8+ years of medical school & residency, take on an enormous debt burden, then accept enormous malpractice liability for a fairly mediocre long term ROI. Compare the average physician's salary to that of your average corporate bigwig or RE developer. Not very impressive and and it requires far more formal education, brains, effort & liability.

I came across this just now:

http://www.bloomberg.com/apps/news?pid=20601087&sid=arZq5Sg0ruzo&refer=homec

@Sriram Gopalan,

That's just a 'radar blip'. The RE ship will right itself and normal 20%/year will resume forthwith. Stay right there and let me go fetch you some 'special' Liarealtor-formulated Kool-Aid.

Sriram Gopalan,

While in the past your contributions here have been highly valued your......ahem, credibility has come under question. The article you linked supposedly citing DQ (Data Quick) as it's primary reference did not contain their customary "Signs of market distress are notably absent" disclaimer at the bottom!

I suggest you explain yourself sir!

The article you linked supposedly citing DQ (Data Quick) as it’s primary reference did not contain their customary “Signs of market distress are notably absent” disclaimer at the bottom!

What happened to the moderate distress signal?

Ooops!

"Signs of "moderate distress" are still notably absent"

LILLL,

This past Sunday Oregonian ran fraud at USB as it's lead story. The "ring leader" (former SF cop btw) started out there as a fraud investigator and what followed over the next 8+ years sounded like "Tammany Hall". The guy had this very modest roll (and modest 30K a year salary) but through "sharing the wealth" quickly rose in the system. In no time at all he was living in a posh house in Lake Oswego and doing land deals w/Walmart no less! All of this on a 30K salary!

Numerous co-workers complained and I mean loudly and then were let go. He plans to plead guilty but had they heeded the warnings from people that were in a position to know this should have stopped as early as 2000! One for the bank, one for me, one for the bank, TWO for "us".

RE: homebuilder resistance to cutting prices.

Of course HBs don't like to cut prices. What manufacturer or salesman does? Lower prices = lower profits. They will always prefer to try incentives/upgrades first. Nonethless, when push comes to shove and McAlbatrosses aren't selling, drop them they will (and some already have: http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=azJPMYd1ec3M, http://www.sptimes.com/2006/08/08/Business/Home_glut_brings_pric.shtml, http://www.news-press.com/apps/pbcs.dll/article?AID=/20060926/BUSINESS/609260391/1076, http://money.cnn.com/2006/08/09/news/companies/toll_brothers/index.htm).

HBs profit margins over the last few years have been HUGE. They still have an enormous amount of room to cut prices and turn a profit, and --like every other cold-hearted, profit-maximizing business-- they will do so when they must. HBs are not in the subsidized rental business, nor in the "sunk costs, let's keep feeding the alligator" business. They will do whatever it takes to to move inventory and stay afloat.

I see a lot of young MD's starting out with 300k in debt and think: you poor bastard. How will you ever pay this off? Sadly this is forcing MD's to behave more like businessmen than Physicians. When patients became "clients", when "physician" became "provider", the profession sufferred.

SP,

One of my clients (MD) was about to retire. The closer he got to it, the more candid he became. One of the things he said that really astonished me was that "first generation" doc's can't realistically be expected to EVER be all that wealthy! Now if your father and your grandfather were doc's well that's something different! It really cleared up a lot of stereotypes for me.

Rather than be shaking these guys down like they had more money than they knew what to do with, we should be supporting them by helping them contend w/their considerable debt as well as supporting them in the community. IMHO.

Sorry for the late response, guys. I read your posts every day but seldom post. Mainly because I have nothing new to say. I am a SF peninsula renter, hoping to buy in 09 or 10. Let us see.

Regardless whether there is a hard or soft landing, I will buy IF and ONLY IF it makes good financial sense for me. That means at least 20% down and a fixed mortgage (15 year if possible).

I grew up in a country where people (still) buy houses only when they have most of the money needed. The rest, they prefer to borrow from friends or family and repay ASAP. I like that practice and believe that, in the long run, this keeps the prices down since the price cannot exceed real affordability.

My dad built the house I grew up in, over the period of 3 years. But, by the time he was done and we moved in, he actually owned most of it! I remember some stressful times in between when my Mom had to sell her jewelry etc. but overall, not having debt felt good.

I strongly believe that houses over here in the US would cost much less if we didn't have big government "incentivizing" house purchases.

Comptroller urges stronger mortgage underwriting

In another speech Monday, [Comptroller of the Currency] Dugan told members of the American Bankers Association that a recent underwriting survey showed a "significant easing" in residential mortgage lending standards.

"Frankly, that concerns me," Dugan said. "We don’t want to see the lending decisions bankers make today result in excessive foreclosures -- and reduced affordable housing credit -- tomorrow."

Lenders easing borrowing standards at the peak of possibly the largest RE bubble in history? I'm shocked, shocked, I tell you! :roll:

Lenders easing borrowing standards at the peak of possibly the largest RE bubble in history? I’m shocked, shocked, I tell you!

This is expected. They need the volume.

Standard will be tighten only after there is blood on the street. Not before.

They are actually more proactive than I have expected.

how do you define that?

When banks start having trouble recovering money from foreclosed properties.