patrick.net

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.

astrid, thanks for the comment.

DS, re: the article on super and retirement assumptions, it is again the same type of entitlement echoed in the American counterparts that pisses me off. $45K per person for a comfortable retirement life? What the heck!

My parents live in QLD, with 1 home and 1 car entirely paid off, and spend less than $35K as a couple on everything else, ranging from private medicare to international travel. They can't fathom their life being more comfortable.

Senior cards in different states typically offer a variety of govt subsidies for 65+, ranging from serious tax breaks, free denture to 50% car registratoin or public transportation, and then there's the commonwealth subsidy on phones, gas, electricity, etc. Unless a retired couple demand to eat out every day, go on a 3-month cruise vacation every year, there is really no reason why each one needs $45K to support his/her lifestyle.

A recent Barron's article displays the same exact attitude, talking about some "mere" millionaires finding it hard to retire on an after-tax-$100K lifestyle. I mean, why on earth do you need $100K a year when you have had your house and car paid for? My wife and I will have a hard time parting with $50K a year if we are empty-nesters.

OO,

Yeah, the housing cost and family wealth issues come up a lot amongst my parents' friends' children. As only children, these kids can look forward to inheriting practically every cent their parents have. There's a huge spread in likely lifetime wealth of a child of two Shanghai civil servants (with networth over 1M RMB and often 2M+ RMB) and the likely wealth of a child of two peasants (or even a child of two urban factory workers). The gap btwn the two is greater than the average lifetime earning capacity of the child.

The one child policy produces some interesting outcomes similar to English primogeniture. I wonder about the average tradeoff between square footage of parental residence of one party and the inches in height of the other party (Shanghai girls seem all very biased for tall boys).

SFWoman,

I'm not surprised at all. Shanghai girls think very highly of themselves - they tend to look down on expat Chinese, esp. those from Malaysia or Taiwan. They prefer Shanghai boys, or failing that, either southern boys who went to college in Shanghai or boys from the Yangtze delta region. The big boom in Shanghai real estate has really upped the networth of many Shanghai boys, so there's even more incentive to look locally.

In Shanghai, the MINI Cooper is known as the "mistress car", to the extent that a decent woman won't drive a MINI for fear of being confused as a kept woman.

I'd say the Shanghai girls' highest preference would still be FOB Chinese tech geeks (preferably ones employed by Google or Microsoft). They do respect technical competence and an American visa, but they prefer a pliable husband who could be molded to suit their whims and who doesn't have foreign habits.

We shall all see…I think rates will rise.

I'll take the other side of that bet with everyone here. Rates won't rise for quite a while to come. And the reason will have _absolutely nothing_ to do with the dollar vis-a-vis FX. It will purely be domestic inflation, with perhaps a minor factor of import costs, none of which being from any Anglo-economy country.

- The US has not had a dollar rate policy in over 20 years.
- When the US did have a strong dollar policy in the 80s it was a disaster, causing huge damage to US manufacturers.
- A weaker dollar helps exports.
- A weaker dollar helps domestic producers.
- A weaker dollar helps US debt repayments.

Australia, Canada, UK, South Africa, New Zealand are all carry-trades, meaning that any rate moves they make have only a fractional effect on the USD real-rate versus nominal-rate (which for anyone who knows the equation is an expression of inflation).

SFWoman,

China may ultimately pull off their grand strategy. There's a lot between here and there yet to come though. The biggest hitch in their plan is the pressurized inflation they've managed to keep jamming into the closet. They use very draconian capital controls and "sterilization" techniques to prevent hot money, arbitrage, and ultimately inflation from naturally working through the system. If someone can give me an example of any major economy that's managed to transition to equilibrium through centrally planned, controlled, non-free markets I'd love to hear where I missed that chapter in econ history. Rather I think that the longer China dodges the realities of free trade the more they jeopardize their great plan.

The economist had a piece over a year ago about how if China were to float the RMB -- which cannot be done practically without also opening up capital flows -- they'd suffer inflation requiring upwards of 30-35% rates to control. The ensuing credit crunch alone would disrupt their plans, but the real threat would be instant loss of absolute labor advantage they enjoy now. Many of their low-end products (which is mostly what we import) would barely hold adjusted value above the cost of shipping.

$45K per person for a comfortable retirement life? What the heck! My parents live in QLD, with 1 home and 1 car entirely paid off, and spend less than $35K as a couple on everything else, ranging from private medicare to international travel. They can’t fathom their life being more comfortable.

yes, that part's quite true. the super funds seem to want to scare people into investing more with these sorts of stories, or something. once you've got a house paid off, your cost of living goes down dramatically. but, we now know how market forces right now are trying to prevent people from ever owning, and to try to concentrate ownership into the hands of boomer landlords... that means there will be a generation of lifelong renters coming up soon, who were never allowed to get equity in a place...

If someone can give me an example of any major economy that’s managed to transition to equilibrium through centrally planned, controlled, non-free markets I’d love to hear where I missed that chapter in econ history. Rather I think that the longer China dodges the realities of free trade the more they jeopardize their great plan.

well, we haven't had very much history to test that -- we are only talking about perhaps a century of this kind of thinking about economies, the rise of modern capitalism and significant international flows of capital, and so on. further, is china really a centrally planned, controlled economy these days when you look at doctrinaire beijing isolated in the north and the commercial centres of shanghai, macau, hong kong etc operating in the south? decision making and deal making about how introduce offshored factories into china has been devolved a whole lot lower than that. besides, they still have a billion low-paid labourers to draw from, and that is the essence of the labour arbitrage that has driven the success of china in this period of industrialisation and re-commercialisation. i don't think they're necessarily forcibly holding down inflation, localised wage inflation is simply an artifact of prosperity and improving conditions, but there is still a huge, almost inexhaustible, pool of cheap labour to draw from for a long time to come. we are certainly witnessing a number of social changes which parallel the advent of industrialism in the western world tho -- improving conditions, higher salaries, greater individuation and rising expectations, etc, at least for some...

If someone can give me an example of any major economy that’s managed to transition to equilibrium through centrally planned, controlled, non-free markets I’d love to hear where I missed that chapter in econ history. Rather I think that the longer China dodges the realities of free trade the more they jeopardize their great plan.

well, we haven't had very much history to test that -- we are only talking about perhaps a century of this kind of thinking about economies, the rise of modern capitalism and significant international flows of capital, and so on. further, is china really a centrally planned, controlled economy these days when you look at doctrinaire beijing isolated in the north and the commercial centres of shanghai, macau, hong kong etc operating in the south? decision making and deal making about how introduce offshored factories into china has been devolved a whole lot lower than that. besides, they still have a billion low-paid labourers to draw from, and that is the essence of the labour arbitrage that has driven the success of china in this period of industrialisation and re-commercia1isation. i don't think they're necessarily forcibly holding down inflation, localised wage inflation is simply an artifact of prosperity and improving conditions, but there is still a huge, almost inexhaustible, pool of cheap labour to draw from for a long time to come. we are certainly witnessing a number of social changes which parallel the advent of industrialism in the western world tho -- improving conditions, higher salaries, greater individuation and rising expectations, etc, at least for some...

different countries will raise and lower interest rates depending on their own domestic situation. while there are contemporaneous parallels between countries through carry trade, there are also differences, depending on who your trading partners are and what your chief commodities are. australia's 'old economy' has actually shielded it from some of the vagaries of dotcom booms/busts and asian speculation crashes etc. interest rates will be adjusted up if inflation looks to be a problem for a particular economy...

I am also in the camp of no rate increases, and if anything rate cuts in the middle of 2007 if not earlier. Economics be damned, political pressure before 2008 elections will win hands down.

So IMO it's wise to have "some" money in Gold, ForEx and international stocks.

* NOT AN INVESTMENT ADVISE

@eburbed and SFGuy,

We have beaten to death the issue of GOOG holding up the BA market. My take is a bit different now.

Psychology of BA residents is tied to the stock market far more than most parts of the country. Employees routinely invest in ESPP, have varying degrees of stock options, invest in 401K and are tuned to IPO, buy-out news. The good news in stock market lifts the spirit. This is undeniable.

So even if lot of people don't make millions, they generally feel upbeat about economy and their financial future. Add to that the feeling - as long as BA produces rich folks, house prices will keep going up. Buy now or be priced out forever.

Psychology is way more important than fundamentals. If stock market indeed keeps going up, the day of reckoning will take a looooong time in BA. So long, that waiting for that day is fruitless if you can extract utility out of the home, depending upon your unique personal situation. I don't think that's likely to happen, stocks seem overbought to me, but it is not that crazy a scenario either.

If you want to feel better, see the drop after a week of gain in asking prices. Updated today.

http://www.housingtracker.net/askingprices/metro/California/SanJose-Sunnyvale-SantaClara/

I'm all for leaving ConfusedRenter on this board if all he does is post his lame arguments and Realtor-spin. I'm all for beating on the pinata. However, if he keeps posting the same Marina/Pac Heights "I'm so surprised this place went over asking price" crap, I say let's give him the boot.

I say, let's put him on probation. One more realtor ad with some MLS link that he keeps re-posting, and outta here. Anyone else have an opinion on this?

Sorry to beat the dead horse ....

I just read on Views from Silicon Valley that Y-o-y volume was negative for the 22nd straight months (since December, 2004) and 25th out of the last 26 months.

More than 2 years of slowing sales and inventory build-up hasn't translated into substantial price declines yet. I think I now understand what Randy meant about stickiness. Maybe, but I am a slow person.

Unless the belief about BA's invincibility is shaken, there won't be big declines. That process has just started. We will see what happens in spring.

ConfusedRenter,

Be warned.

We've seen this same listing multiple times now. You could at least pick another outlier and try to hide your identity: MP, FR. Next time I see this thing you go into auto-moderation where most your posts will drown with the Jukubot spam.

Did you happen to see the MBA related discussions last thread? We talked a lot about investment bank Junior Associates who don't make the cut. Perhaps if you'd studied harder on the GMAT you could have kept playing with the big boys instead of peddling overpriced condos to new batch of recruits.

I'm just curious, what was your last bonus before you got bumped? You do know that your idol, that other sub-famous IB guy turned real estate "investor", moved to NYC and *rents* there, no? His genius was selling a book claiming that anyone could make more than an IB by getting a RE 'license'. You shoulda gone for your Series 7 .. oh, that's right, sorry. You've got to be bright enough to pass the test.

Bloomberg just reported that CDS prices have gone up, indicating that the increased risk of default is (finally?) making itself felt in the secondary MBS market. To my untrained eye, this looks like something that will inevitably cause mortgage interest rates to rise, no matter what Heli-Ben decides to do with the fed rate.

Not really my area, but perhaps DinOR or Randy can comment more authoritatively?

SP

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

Also, I have read (don't have the link anymore) that due to easy lending, there is overinvestment in some industries to the extent of 6X the worldwide demand. The over-capacity (and related bad-loans) will also lead to a slippery situation for them.

SP

Where is that food blog that I've heard about for a while, still alive and kicking? Can someone post the new food blog started by the food enthusiasts here please?

skibum said:
I say, let’s put him on probation. One more realtor ad with some MLS link that he keeps re-posting, and outta here. Anyone else have an opinion on this?

Seconded. "Confused Realtor" is not adding anything to the discussion other than shill-talk.

SP

Sorry, I meant to sign off my previous two posts as "confused realtwhore", but mistyped. I am confused, after all.

Confused Realtwhore

@SP,

That cracks me up. You've even got the right cadence and feigned disbelief. All you're missing is the bad grammar (?English as a second language).

"Enjoy the whether!"

Found this old article again on a spring clean:

Stay grounded: prices haven't hit the floor
January 20, 2005
Hold tight until the end of the decade before any real property upswing begins, writes Peter Martin.

[...]None of them lied about the state of the houses they were selling. But when we asked about the state of the market they began to babble.

Prices were just about to pick up. They could sense it. They were getting more inquiries. Some confided that they believed prices were already moving up. This was at a time when Sydney prices were relentlessly falling and when the agents themselves were coming back to us with progressively lower asking prices.

[...]Each year the executive of Australian Business Economists (ABE) presents its forecasts for the 12 months ahead. Not a single member of that committee expects an increase in overall house prices during the next 12 months. The committee's forecast is for a fall in prices of between 5 and 10 per cent. And it says there's no sign of a pick-up beyond that. There won't be a "meaningful" increase in prices until the end of the decade.

Professor Peter Abelson, from Macquarie University, has done anyone interested in house prices a huge favour by putting together reliable data for each Australian city going back to 1970.

When adjusted for inflation, Abelson's data points to four distinct house price booms in Australia, each separated by years of stagnant or falling prices. The first thing to note is that each of the first three booms was short. Beginning in 1971, 1979 and 1987, each lasted two to three years. The most recent boom is the exception. It lasted from 1996 to 2003. [T]he slumps between them have lasted even longer: some for the best part of a decade.

The second thing to note is that after each boom collapsed it took five to seven years for Sydney prices to crawl back to their previous real level. And Abelson believes the true story on prices is even grimmer than those figures suggest. That's because houses are getting bigger. New homes have typically 40 per cent more floor space than they did 20 years ago. And existing homes are continually being extended at the owners' expense.
[...]
Peter Martin is the economics correspondent for SBS television.

My nominal g/f sent an SMS to someone selling a 3 yo place for $580K (now reduced to $559K) -- 3 br, 3 bath townhouse with double garage -- and as a joke made an offer for $470K. They're very interested, apparently. (I've discovered for $3.95 it's possible to find out the most recent price on a property via an SMS text message. Other price reports cost about $60 -- I don't think there's a free information service operating in this city.)

Randy H Says:

> ConfusedRenter, Be warned.
> We’ve seen this same listing multiple times now.

We have seen this listing before (that as SF Woman points out is not in a prime part of the Marina). It looks like these buyers may have fallen off the last turnip truck to drive down Lombard in a while...

CR is correct that "it went for $110,000 over asking to $1.81!", but even more impressive is that is went for almost a million more than the $850K that it sold for on 9/22/05...

Top 10 mistakes Casey Made:
http://tinyurl.com/yc4hge

SFWoman et. al.

They have not changed the inflation calculations recently. Energy and food have always been part of the calculation, just not of the component they consider critical to consumer-inflation indexing. You can look up PCE Deflator, CPI, and all the other indices and deflators easily enough on the web if you want to know what's included and how it's computed.

There are plenty of valid criticisms of the Fed's inflation computation methods. In my opinion, one of them is not transparent frivolity.

SFWoman,

Sure, it happens everyday. In order to have the scam make sense though it's better to have a large "supporting cast". This way they can change roles as lender/appraiser/strawman etc. They are still looking for a couple (sheesh, it's always a couple) from the Atlanta area that walked away w/about 15 mil? I'm sure they were decent church goin' folk that we never saw drink nor heard cuss. Oh and for a goof!

http://bend.craigslist.org/rfs/224005690.html

The reason I thought Casey's friend up in Bend, OR was SO funny is his complete lack of understanding of what a "short sale" involves! These people are so used to winning, so used to showing up w/borrowed money, hold for a few months and then collect their profits they've never imagined there WAS a downside!

Dear Mr. Specuvestor in Bend, OR

When one goes "tango uniform" on one's debt obligations you may (with the lender's blessing) do a short sale. Ahem, however it is done to a private party NOT a short sale BACK to the bank!

What a dickhead! Arrrgh. Can you believe this stuff? Somebody, "somebody" loaned this DH 400k+ to buy an empty lot? An empty lot? 400k, can you believe this? Now..... "Son of Casey" claims he "just" sold an identical lot for 600k. Well, o.k why don't you just sell this one for 600k then? Oh....... The Bend market is falling apart now and when you say "just" evidently that means OCT 2005? DH.