patrick.net

I’ve read that 96% of those that file for bankruptcy (to stop a foreclosure) wind up in foreclosure anyway!

Yeah, not surprising. If your cash flow situation is so dire that you haven't made a mortgage payment for several months (think Casey Serin), then what good is a BK going to do? Little more than a delaying tactic, really. I guess it buys FBs a few more months of 'free rent' before the sheriff comes.

Randy said:
"To simply dismiss this demand surge as “sheep” may fit as a nice pejorative, but it doesn’t do much to analyze the situation and incorporate it into one’s strategy. Markets, whether stock or housing, have a nasty tendency to stay irrational longer than bears can remain solvent. (I know, not directly applicable, but you get my drift). "

Randy, don't you to some degree answer your own question here? Markets tend to stay irrational longer than people think. The housing market is irrational and has been for some time. To try to explain why all of a sudden a bunch of houses sold is trying to explain the irrational with rational argument. It can't be done. There are probably a thousand reasons people are buying houses now even though it is irrational to do so, and each person that does so probably has a different reason.

All you can do is shake your head in disbelief until you do one of two things, you capitulate for your own "irrational" reason, which may be perfectly rational to you, or you wait longer.

HARM,

My pal says that in most cases filing for BK actually accelerates the process b/c they've agreed to stay on a certain payment schedule. Once they deviate from that the process really starts to ramp up. His genuine concern is that any money you paid out to a BK attorney rightfully should have gone to your mortgage lender! There are a number of intermediate steps they can take toward a loan "work-out" that while painful, are a path toward recovery.

None of this matters much though b/c I'm hearing in LV and Phoenix FB's are just walking away. So let's dispense with all the legal mumbo jumbo.

Good point ric. That's the problem with trying to rationalize things.

It reminds me of the game-theory cliche about the hyper-rational economist.

Some game theorists were running one of those experiments to see how people would react given the opportunity to cooperate and/or compete. The kind of game where one player will end up controlling most of the $ while the other players can only veto, thereby ensuring that neither he nor they get any $ at all.

The rational thing for lessor players to do is accept any amount of $ in return for their cooperation, even if it's only $1. Even behavioral economists would say the rational thing to do is accept any amount of $ up to their definition of "fair" -- the point at which they're willing to essentially buy punishment for the greedy guy by forgoing their own winnings.

But in the actual experiment the non-control veto people ended up vetoing even when they were offered more than half, or sometimes close to all, of the $. Fair wasn't enough, they wanted control and were willing to ruin the payout for everyone.

Well, during one of the rounds the controlling player ended up being a hyper rational economist. After the game ended with no payout numerous times he stood up, kicked over his chair, turned to the organizers and said "The problem isn't how I'm playing the game. The problem is these people are too stupid to know how they should play!"

Allah,

Not to be "hyper critical" but we're at the dumbfounded stage now. That's why nothing is moving! The shock and awe WILL come. When ARM reset and default worlds collide it will be truly a sight.

What makes it even better is the bubble held the promise to elevate one's station in life so completely we'll see it across the board. From fringe neighborhoods to the upscale. We had a great article a few weeks back about the explosive inventory growth on Chicago's North Shore simply b/c the "move-up" crowd couldn't handle their new tax bills!

Since I've almost always used a VA loan (PITI by regulation) I can't say as I've had the experience of getting a $29,000 tax bill in the mail!

Allah,

Oh, I gotcha. Zandi, Thornberg, Roach and other bears have done some back peddling of late and I'm not sure why?

As far as grandchildren? Hell, I'm already ashamed of our conduct! How will we explain ourselves? What can we possibly say to rationalize this level of mania?

LILLL,

Oh the panic is there. It's there alright, just like the ancients seeing a full solar eclipse for the first time! Sellers have about the same level of understanding too! But, but, bu housing always goes up..........

GOOG stock hits all time new high. House prices in Mountain View and Los Altos to go up even further. :(

@charlie,

What a find! And only $1/2 Million! "One of very few homes in silverlake where you can completely redo your own way" is pretty much the understatement of the year. Thanks for the afternoon laugh.

GOOG stock hits all time new high. House prices in Mountain View and Los Altos to go up even further.

It's all paper gains unless they cash out - just like housing!

*unlurks*
CB & Randy H:

Thanks for your notes from the last thread. yes Randy H it's definitely looking like a mini-insurance policy (not that those can't fail) for taking a career break for kids. I might drop you a note direct later today. CB: I'm not crazy about getting a THIRD degree from the same school but I've been thwarted from leaving the city each time and now with spouse in a job and house bought (*ducks* we got it with 25% down / conventional fixed / under 33% of take home pay) I'm probably never leaving. One thing is for sure: I'm already making the "median" exiting salary so I'm not looking for big $$$$ when I get out (not that I will say no if I get them anyway).

Anybody been to Astrid / Peter P's food blog lately?

*relurks*

I hear that the (Central) Bank of England is poised to raise rates in November, and there's the possibility of another raise early next year - I'm thinking this will mean that the US will have to raise rates too? What does everyone else think?

Most people who work at these places are not fools. They will not put all their net worth in a house.

True - one of my friend's friend works at YouTube. (Not a founder.) He's buying a helicopter.

Unfortuately, I have talked to a couple of people and they are falling for the rents are increasing a lot - but I think (and this is what I should have said) that they have a long way to go before they are the same as PITI.

Randy said:

"Well, during one of the rounds the controlling player ended up being a hyper rational economist. After the game ended with no payout numerous times he stood up, kicked over his chair, turned to the organizers and said “The problem isn’t how I’m playing the game. The problem is these people are too stupid to know how they should play!”

LOL
Your Honor, I provide you Exhibit A - Casey Serin.

CB,

I just don't think San Ramon competes with Cupertino or Palo Alto in terms of school district, not even Mission SJ, because they are all on the east side of the bay.

For school chasers, they most likely will switch from Monta Vista in Cupertino to Almaden, if Almaden drops fast (because Saratoga and Los Gatos are around the same price point for the LG-Saratoga Union area). For prestige chasers, they probably will switch from Los Altos to part of Los Gatos bordering SJ for the address if the latter drops far enough.

I think east bay and west valley are two different markets, they don't really intersect with each other.

Allah,

Much as a would like to see people like Mike's relative get their comeuppance, I'm not so sure most will. As long as the guy (described as "pretty smart at not getting involved in anything where the tax guys can get him") didn't do something stupid like admit to lying on his loan docs a-la Casey Serin, I don't see what they're likely to do to him.

$110K is really NOT a lot of money to banks, CC companies and mortgage lenders. They churn huge multiples of that every day before breakfast. And --as Mike repeatedly pointed out-- if the creditors & court-appointed trustee/executor don't believe they can easily recover much from you, they will usually just write it off. Any type of "investigation" is likely to cost the courts and/or creditors far more in money and time than whatever they are going to recover. Simple cost-benefit calculus --they will probably just let him go.

As to this guy's credit rating, based on Mike's description, I very much doubt he even cares. And for that matter, anyone can easily obtain a mortgage --sometimes with government help-- within a couple of years of a BK discharge. BK is (sadly) no longer the debt impediment it once was. As Mike pointed out, you don't even have to wait the 7 years before it's off your report before rebuilding your credit. It's more difficult of course, but not impossible.

Much as I hate to admit it, about the only thing this guy is certain to be on the hook for is taxable "imputed income" based on the difference between what he owed and the final sale price of the house (loan forgiveness). And even there, he might be able to dodge the bullet, especially if he can appear to be broke and destitute (likely). There's even a special program with the IRS called "Offer in Compromise", where you can get away with paying only pennies on the dollar for any back taxes owed, provided you can look broke enough. Should be easy for Mr. Clever Sleazebag.

Why the "dead cat bounce," you ask?

Ha, haaa!

The answer is simple: because cats have nine lives!

What are we on now, life three or four?

I took a look of these "million-dollar-homes" in San Ramon, even after 10-15% reduction, they are still horrible deals compared to the squatter huts in west valley.

Sure there are lots of craps out here, but at least these are craps with 1/4 acre land - all the value is in the land anyway. These San Ramon houses have no yards! They are built on sub-5000sft land, grant it, they are new, but I have seen many new houses built in the last couple of years up close and personal, they are bound to fall apart in a decade or so. These cookie cutter houses won't last.

I would rather pay $1M for an 1/4-acre land in Monte Sereno than $1M for a McMansion in San Ramon. In fact, if you go south to Almaden, you can get a 1500 sft home in a liveable condition on an 1/4-acre land.

I don't think the Fed dares to raise rate. It will keep talking, but no action will be taken, which is the only way to engineer a soft landing for the US currency and the US economy.

I expect a rate drop in early 2007. By 2008, I believe we will be back to the 2.x% zone for short term rate.

Claire Says:
I hear that the (Central) Bank of England is poised to raise rates in November, and there’s the possibility of another raise early next year - I’m thinking this will mean that the US will have to raise rates too? What does everyone else think?

they are intending to lift them in oz also, also in november and next year i believe.

i think the whole thing is ridiculous. they lower rates and gleefully watch a housing bubble form. after it's all over, and people are way over-committed, and the RE industry has constructed a sea of myths about how it always goes up etc, and 40% of new mortgages are for 'investment', they then announce they will raise interest rates again, and it will just have to be a bit 'painful' for those consumers/voters/citizens who paid too much. whose interests are they acting in anyway? altho i've said before it's a bit lame to have only 1 lever of monetary policy to do anything with. if the Reserve only has only 1 lever, it's necessary to use other regulators to control the after-effects, e.g. prudential lending regulators, state govts, etc etc. but that would require anticipation and thoughtfulness...

DS,

I don't think Oz will raise rate after the Nov one either. ajh mentioned before that the current central banker was appointed by the finance minister who'd like to get elected as the PM after John Howard, I don't think he wants to rock the boat.

I think you guys will stay flat at 6.25%.

We shall all see...I think rates will rise.

imagine buying $100K or more stuff using a credit card and then turning around and selling it (as if it were hot) and then doing some matress stuffing.

Imagine... imagine...??? I don't need to "imagine" this at all. All I need to do is look out my front window at all the new SUVs, boats, lawn ornaments, pergraniteel and spouse, uh... "upgrades" I see in my neighborhood. Almost all of it paid for with Fed-GSE MEW bubble bucks.

it was very easy to do this, don’t you think there would be tens of thousands of people doing this?

There are. Closer to tens of MILLIONS actually. Which is one of the reasons why a Silver Lake tear-down is going for half a million. Each successive GF is paying for the SUV/pergraniteel/plasma/Euro-vacation excess of the previous GF.

Need I remind you, for every ten thousand people that do this, it is $1 trillion dollars lost. I don’t believe that credit card companies are THAT stupid.

Not that simple. These people by and large have been spending their monopoly money, which as we know has been driving the consumer economy for the last 5+ years. And the credit card companies have been successfully shifting all that deliquency risk onto other borrowers, via sky-high interest rates and fees (ever wonder why all the CCs were still charging 18%+ interest when the Fed dropped rates to 1%?). And if they ever do get into a really bad jam, they'll just ask the Fed (taxpayer) to bail them out, a-la LTCM.

Privatize profits, socialize risk. Hmmm.... where have I heard that before? :-)

Well, what I am particularly concerned about is what will happen to those of us who choose to pay off our credit card in full every month?

When massive CC defaults happen, CC companies need to recoup their loss somewhere. As far as I know, my CC company makes no dime from me for as long as I've stayed with them, and the only fee they could collect was merchant fees, but I get the float for 28 days. Not only that, I am getting 1% back for all my purchases.

So, I know I am a money-losing customer for my CC companies. When they get into deep doo doo, will they just slap a hefty annual fee to pay for my own cost? That's won't be nice. :-(

@justme,

Good point. Flat, rather than dropping inventories at this time of year doesn't bode well for the Spring selling season, either.

so what about Barack Obama? is he the bush-killing, hillary-killing, kerry-killing, gore-killing arriviste he is made out to be? he actually appears honest... President Barack Obama -- not very establishment, is it?

OT... and not highly relevant to housing, just retirement for boomers... 'super' = 401(k) or whatever...

A super shock for boomers

THE baby boomer retirement shock was not supposed to be this bad. Half of all women in the boomer generation - those aged 45 to 60 - have just $8000 or less saved in superannuation.

If they were relying on men for a comfortable retirement, many will be disappointed: the average male baby boomer has a relatively modest $87,000 in super. Half have less than $30,700.

Research by Simon Kelly from the University of Canberra's National Centre for Social and Economic Modelling confirms what generations X and Y have suspected for years: the boomers will not have enough to live in the manner they are accustomed to.

"The baby boomers have terrific expectations for their retirement but very little savings apart from their houses," he said. "Most of them are going to have a fairly modest retirement."

OO,

CC companies will love us. 28 day float is better than loosing the money altogether for them. Thy also make Tx fee. So they won'tsump us.

OO - I heard that fees are in the pipeline for people that don't use CC's - I think I read it in TIME magazine or maybe Consumer Reports, I guess I'll be cutting back on the number I have if they start charging or switch to one that doesn't!

justme and skibum,

Exactly. I was thinking the same. Inventory not disappearing is the BIG news. Compare things YOY and not MOM. That "days of inventory" indicator is increasing and increasing and increasing.

Common folks. Nothing gos down in a straight line like an arrow. There are lots of folks who very seriously believe, that it will only go down 5-10% before shooting up. We need these people to buy and move on to the next milestone.

Every RE agent now says the same think like a parrot. The real story is, 6 months ago, they were saying it only goes up, 3 months ago they said it's a flat market and now this new tune of only 5-10% down. We have a real short term memory.

Frankly, I have no interest in tracking the market till next spring. Remember, this spring was the peak of medain in BA. No matter what, next spring will bring the first YOY -ve in a string selling season. Let's talk about psychology then.

SFWoman,

don't worry, that is a 20-year plan. In the next 5 years, they have no choice but to hold the bags.

Right now China is seeing a shrinking, not a growing middle class due to the same reason we encounter - a gigantic asset bubble. Worse than us, Chinese govt shirked major responsbilities on education and medicare. The govt used to pick up the bill for education and medicare for the urban population, this is no longer the case. So their middle class is squeezed even more than ours.

I am not saying that we shouldn't worry about overspending and overborrowing, but it is not an urgent matter as of now. I'd say our recession will hit before they build up a big enough base for middle class - which means they have more to worry than us at this point.

Randy and Allah,

Hehe, that hyper rational economist didn't bother to learn anything about non-monetary utility or psychology.

I guess he would never be able to think himself out of a "keeping up with the Joneses" situation.

I think people are much more rational, not less, than the hypothesis used by economists who study them. While economists only look at monetized value, real people also mentally account for other forms of value.

OO,

You don't sound like a troll. If you were speaking as a troll, then you must be of a much superior breed of trolls, so much so as to lack intrinsic trollishness.

Your hypothesis is an interesting one, though it's difficult to collect datapoints ahead of time. (Is there a zip code separated data on cash-out mortgage refinancing or HELOC?) However, it will be an interesting thing to observe in real time in the next 5 years or so.

SFGuy,

The null hypothesis correlating technology know-how (sufficient for IPO money) and sane financial management is a bit shaky. My dad is a physics Ph.D, but he still has trouble understanding the utility of diversification and efficiency frontier (something I, whose math skills dropped off after basic linear algebra, was able to grasp).

Mike,

Sadly, besides bankruptcy (which might be a lot more of a dark mark after all the fallout from this round of loose credit), there is no other penalty for merely being a reckless spendthrift. However, the credit card companies now have an extra incentive be very rough to those within their mercy, ie those with above median income - if only to discourage more bankruptcies. I predict future chapter 13 BKs will be painful, even if there is little recovery of actual money by the lender.

I don’t think Oz will raise rate after the Nov one either. ajh mentioned before that the current central banker was appointed by the finance minister who’d like to get elected as the PM after John Howard, I don’t think he wants to rock the boat.

it's hard to know. the reserve is meant to be independent of the govt, and has made a number of recent rate rises, as in the US. the election cycle is definitely a factor tho, and the govt campaigned on no interest rate rises 3 years ago, heh, then the reserve promptly raised rates anyhow. there's a lot of game-playing and spin that goes on, as political parties know that the electorate simply can't put 2 and 2 together to connect the different facets of the economy, and don't know who's responsible for what...

altho the treasurer makes the appointment, it doesn't imply that the reserve bank head is politically beholden to the guy, altho macfarlane trod very carefully and didn't want to be a 'third force' in political wrangling by actually informing the public about what's really going on...

Reserve's new chief warns rate rise likely

THE top priority of the new Reserve Bank governor, Glenn Stevens, is to ensure the recent rise in inflation is stopped - and it's likely higher interest rates will be needed to achieve this.

In his first speech since taking over, Mr Stevens told a business dinner last night that "some months ago we were saying it is still more likely that rates will rise than they will fall … that is still the case".

He emphasised the risks to the economy if rising inflation was not kept in check.

1 lever...

"Right now China is seeing a shrinking, not a growing middle class due to the same reason we encounter - a gigantic asset bubble. Worse than us, Chinese govt shirked major responsbilities on education and medicare. The govt used to pick up the bill for education and medicare for the urban population, this is no longer the case. So their middle class is squeezed even more than ours."

Yeah, pretty much. The reality for anyone who didn't buy in (or have parents who bought in) before 2002 is that they'll spend the next 30 years paying off an 800 sq ft flat. - that means over 50% of total of a two income family in the top 20 percent. Right now, much of the spending seems to be fueled by people who did buy into RE before 2002 and also the civil servants who got a major jump in compensation in the last 5 years (something like 150-250%).

Did you guys really think the CC gravy train would last forever?

I would pity the CC companies and issuing banks, since they've got tons of retrenching after giving CC to anyone with a pulse...but they were the ones giving CC to anyone with a pulse.

BTW, kudos to Randy H or HARM for posting such an adorable picture.

http://tinyurl.com/y9h95n

A slight tangent but it may signal that AMEX senses some borrowers in the UK even with perfect credit are in over their heads!

Apartment supply in my area just went down by 2 units - the building is on fire three doors down across the street.