patrick.net

Since this thread is starting to deteriorate, I don't feel bad posting a couple of data points from the the "luxury coastal vacation home market".
Here are the prices for a FSBO 1/10 fractional interest in a Sea Ranch home:
2004: $ 85,000
2005/6: $119,000
2006 now: $ 99,000
The owner does not seem desperate as he has less than $85k on his first mortgage, but he has no probelm seeing what the "market will bear". An interesting window as the "comp" is previous shares sold in the home. Wonder if he sold any shares at the $119k price?

I’m getting flashbacks. Soon we’ll be seeing stories about kids at startups rolling around in scooters again. Please, not that.

As I mentioned yesterday, a friend of a friend is at youtube. He's shopping for a helicopter.

As I mentioned yesterday, a friend of a friend is at youtube. He’s shopping for a helicopter.

Maybe he can supplant HeliBen and drop some of his youtube winnings in cash to help the economy along.

As I mentioned yesterday, a friend of a friend is at youtube. He’s shopping for a helicopter.

How much is a new helicopter anyway? Last time I checked it costs less than half of a crappy townhouse in the Bay Area.

I have co-workers who own planes.

Water cooler conversation -

Three clerks in my office were talking about the housing market. One is buying now, one bought last year, one the year before. They all have under $100k combined income. One of them apparently has an adjustable that has gone up $1200 over the course of the loan. I keep hearing about all the "rich" people buying - but of the people I know, it's these lower income people who are jumping into the market. I do know one stock option couple who paid cash for two houses - one Santa Clara and one in Santa Cruz.

Other people I know who have bought:

2003 - San Jose, $70k income, $475k house
2004 - San Francisco $1,000,000 condo, $90k income. Bought another condo to flip at the end of 2005 - last I heard it had not sold and he was going to rent it out.
2004 - Santa Clara, $60k income, $400k house/condo?
2004- San Jose, $150k income, $600k house
2005- Santa Clara, $90k income, $550k condo

I just don't see this ending well at all.

2004- San Jose, $150k income, $600k house

This should be fine with 20% down.

@ Peter P - I forgot to mention, they financed the entire amount.

I forgot to mention, they financed the entire amount

They should still be fine, but only marginally. The "San Francisco $1,000,000 condo, $90k income" combination is not very good though.

I hope they will be fine, however, they have one baby and another on the way. The husband is a spender and the wife has left work to stay home and care for the child. So...

The $90k guy - oh brother. I don't even know where to begin. I've known him since high school. He's never been real bright.

The husband is a spender and the wife has left work to stay home and care for the child. So…

If they still have 150K income, it should be okay. It depends on how big a spender is the husband though.

@lunarpark,

It's the $90k income $1m guy that scares me the most. yikes.

@skibum - Yeah, I know. Is he an anomaly in this market or...? Scary to even contemplate. I wonder if he knows Casey-

EBGuy,

Yeah, you could say that. Maybe we should have said:

MBS and You!

Avoiding Peer Pressure in the New Paradigm:

That aside owning fractional shares is real popular in Oregon especially in Bend and on the coast. It strikes me that these are some of the most vulnerable holdings (after timeshares of course). If you want a window into what a failed boomertopia will look like go no further than Bend!

SFGuy,

The info there is from First American RE Solutions and appears to be the research arm of First American Title. Dr. Cagan is calling for 266,000 foreclosures in the next 5 years in CA. MORE if equity declines! Just the fact that he's carrying his projection out 5 years leads me to believe that unlike DL he is not calling this month's numbers "the bottom of the trough"?

@SFGuy,

A 20% decline would be highly optimistic for California, Land of Eternal Appreciation. I'd consider the source here, described as "Christopher Cagan, Director of Research and Analytics at First American Real Estate Solutions". Let's face it, forecasts are like assholes, everyone's got one.

That aside, at least he's actually calling for a significant drop, which puts him way ahead of DL, LAY & Watts in terms of credibility. Plus, he's hedging his bets with that little disclaimer "if prices fall 5%, move one row down", etc.

DinOR & I simultaneously posted and basically said the same thing.
Great minds...?

chicken!

I thought doctors had to be gutsy….

@SFGuy,

Not with money! Although I do know more than a few colleagues who are pretty close to being FB's. MD's are often scarily naive about money issues.

HARM, SFGuy,

My mom worked for Chicago, Ticor and American Title over the years. Since almost without exception all of the data they dealt w/was empirical I'd say Dr. Cagan's credibility is in better shape than some industry shills.

Assuming Dr. Cagan's data is good, and that he is simply being hopeful that prices won't fall too far, we can simply slide down the rows in his disclaimer to find the appropriate numbers. He may say "X foreclosures over the next n years", but we can read that as "here's how foreclosure rates are affected by price drops".

The opium analogy is fitting, until we get hooked on the same opium.

I am all for printing money in exchange for real goods from China, and then depreciate the hell out of their reserve, that's what I would do if I were running this country, and I had a whole country of smart and disciplined people to work with. However, that's not the reality.

The status of the world's reserve currency is something that the American ancestors fought hard to garnish. With that status, we as Americans can enjoy higher standard of living at a lower cost, if you ever lived elsewhere outside the US, you would understand that this is about the only place on earth that quality of life comes at such a cheap price, until the housing bubble forms. The whole US economy is largely based on one important assumption: cheap energy. We are able to enjoy cheap energy partially because of our reserve currency status. If we lose that, how much do you think a carton of milk will cost? How much will your amazon shipping cost be? How can people continue to live in the boonies on acres of land, especially in the northeastern corner?

The job migration to China is not worriesome in the sense that it displaces our lower-strata citizens. It is disturbing that in the longer run, once they have a monopoly of supply chain on certain goods, that's when their pricing power begins to take hold, and their knowhow leaps ahead of ours. For example, do you know that starting from 2005, almost 100% of the notebooks in the world are assembled in an industrial area just outside of Shanghai called Kunshan? Notebook assembly used to be spread across Malaysia, Taiwan and Singapore, now, regardless of who you order from, all notebooks are shipped straight out of Shanghai. Grant it, they are still quite low on the food chain, but the extreme concentration of manufacturing in one base is alarming. And, it takes time to break up that clutter of supply chain vendors, even if we want to migrate certain functions to another country in search of even lower cost. They are determined to climb up the food chain, and if we continue to act stupid, they will.

Therefore, it is much better for us to crash now, while having them share the cushion of blow, than crashing later, when they have climbed high enough to help engineer our fall.

For a fleeting moment, I sometimes wish for an out-and-out depression….

Sometimes I wish for the Judgement Day.

Person,

Huh? Option on option? Sounds like a bad deal - double the chance of getting someone screwing you out of your winnings and complicates legal recourses. I'm also pretty sure that it would qualify as gambling and securities and be subject to both state law AND the SEC. (Though I'm too lazy to actually backup this opinion with sources).

SP,

DinOR usually has a fit when I bring it up, but I really don't think there should be separate tax treatments for investment income or retirement plans (given that this pretty much drives DinOR out of business - no wonder)

I will now do some preemptive poxing on my own chosen profession, once I completely figure out what that might be.

DinOR,

I don't need a time machine to 1999. A time machine to last year is just fine. I'm not greedy -- two or three multistate powerball jackpots will sustain me just fine.

Lunarpark,

What worries me are the $120K-200K/yr families who bought their primary residence before 2002 and just acquired 3 or 4 "investment properties." Half of my parents' friends and associates seem to fall into this category.

I'm still having trouble processing the YouTube acquisition. My head flash back to 2001 when seniors got great job offers (then lost their jobs within months of starting).

Stop the Presses!

My rent (In Accordance with the Oregon Residential Landlord Act ORS 90.240 (4) (a)), has been raised from $850 to $865 a month! Outrageous! I'm challenging this! Outrageous!

That's pricing power baby!

(pathetic)

RE: bubble-proof markets

Too bad this bubble-proof-ness is already baked into the price. As a result, nothing is bubble-proof.

astrid,

It really wouldn't put me out of business (I also manage corporate, charitable and institutional accounts) as well. All I've ever asked for was a level playing field! With the 250/500K exemption on primary residence IT'S FORCING rank and file Americans to play the "buy all the house you can afford and then some" game! Isn't that what mortgage "planners/coaches" broadcast to their "clients"?

If we're going to say no pre-tax contributions to 401K/IRA's that's fine. While we're at it let's not only do away w/the 250/500K exemption let's not re-institute the "one time" exemption either! Just look at how lopsided things have become.

ConfusedRenter,

I've been waiting to see how long it would take for you to cling on to the glimmer of RE bullish-ness from that cnn article. Thanks for obliging. Are you planning to use that in your next Realtor newsletter to send out to your clients?

As a counterweight, cnn/money has also published places NOT to buy, as they are "bad investment" areas because of "too much appreciation" recently:

http://money.cnn.com/popups/2006/biz2/newrules_wherenot/index.html

Looks like the vast majority are CA (central valley in particular). Yes, I know, this is just cnn/money talking out of their asses. But, what the hey.

BTW astrid,

I've been having trouble getting to your greencrabs blog. Have you noticed any trouble today?

skibum,

Unfortunately, all the blogspot blogs seem to be down right now. They did an upgrade this afternoon and the upgrade may be having trouble taking.

Sorry about that. It must be my bad karma against the preferential capital gains tax system.

Confused Renter,

If you didn't bother to read the contents of the threads you posted on (which would answer your question very clearly), then what you really need is a reading tutor.

ConfusedRenter Says:
What are your thoughts if the Fed cuts rates back down to 4% from 5.25%?

ConfusedRealtor,
Why don't you just ask your proctologist to pull an answer out for you?
SP

RandyH - I just saw this artickle in the The Marin Independent Journal. “Home foreclosures in Marin County were up nearly 60 percent in the third quarter compared with the same period last year, Dataquick reported." SHOCKING! I was sure these homes would sell within a week for AT LEAST 100,000 over asking. Boy, was I wrong! What's worse, the artickle also said: "Marin’s foreclosure picture was still rosier than most of the other eight counties in the Bay Area, where overall foreclosures surged 89.2 percent in the third quarter."

Oh well, one mustn't wish harm or agony - so I guess I should just Enjoy the Whether. It was over 70 degrees in SF today.

ConfusedRealtwhore

ConfusedRenter,

Any serious investor will tell you that the expected return on a illiquid investment should be at least be 3% points about a liquid investment to compensate for the risk. Even with if real estate matches stocks over the long haul (which is not possible due to residential real estate having no economic productive capacity after it is built), it's still not a good investment.

The Fed doesn't control mortgage rates, only the federal funds rate. Even without the default risk that has not be properly priced into MBS, 6% is too little return on a 30 year callable fixed investment. Mortgage rates are headed up in the long run regardless of the fed's action. The S&P 500 is up over 10% for the year. The strong stock market performance will shift investment from fixed income to equities.

@SP,

Keep the ConfusedRenter spoofs comin'. I enjoy the occasional chuckle.

Funny you think i’m a realtor. Can you remind me again what your background/occupation/story is?

CR, Why don't you search some of the previous threads and find out. I'm sure it's there. I'd point you to the right thread, but then again, "this blog is so enthusiastic, that by the time i turn around, i can’t find what i posted anymore."

SQT,

Actually the ML article said that Merrill has backed down from their original position of rate reductions starting as early as Jan. 07 to Mar. 07! Had Cornfused Realtor read further he might have noted that Credit Suisse is of the opinion that we'll be at 5.25 for quite some time. Not to knock Merrill but Credit Suisse has an equal right to their forecast.

I'll agree, even if we lowered the overnight lending rate back to 1% it would only add volatility, not salvation.

Allah,

Aren't 1,2,3 usually the same person?

Allah,

LOL! Would it have killed you to just come out and say it? I know, I know we don't want to come off as being prejudicial to FB's!

SP

Thanks for the enjoyable satire on a pretty rough evening. I saw the Marin surge in foreclosures too, and I'm happy to see it (and not ashamed either). Although I don't think we'll see this translate into price action for some months yet to come, but it is a promising *leading indicator*. A banker guy a was talking to over the weekend (who may or may not have known what he was talking about, but he was good enough to fool me) said that it usually takes 4-6 months for foreclosed properties to re-enter the primary housing market. It came up when I was asking about how badly banks do or don't want to assume homes, in the context of my questions about short sales, credit fraud, etc.

His quite insistent take was that banks almost never want homes, unless it's a credibility thing. I told him my complex "game theory" argument about banks needing to signal intent to other banks vis-a-vis borrowers. He laughed at me and said I was being far too generous in my assessment of most banks strategic planning. Oh well, so much for theory, lol. (Actually his first response was something about me smoking crack).

Anyway, he said the banks will usually dicker around for a couple of months trying to avoid foreclosure, putting the homeowner on this and that structured plan. Then they try short sales and some other stuff I didn't quite understand the difference from short sales. Finally, they'll foreclose. From that point forward it's a couple months to actually foreclose. He said no sooner than 60 days in CA, usually 90 in Marin. Then the bank takes another 30-60 days to sell the property to a foreclosure investor -- the guys who buy foreclosures at auctions. Sometimes they don't auction the home, but sell direct to some foreclosure investor they've worked with before, depending on the situation. Expensive homes get auctioned. Finally those guys will resell the home again to the regular homebuying public, after fixing up any damage and marketing it; or they'll transfer it to an agency they work with that buys inventory. A bunch of tax stuff is apparently involved too.

So if this guy's for real, then it'll be up to half a year before any of those foreclosures start to move prices. Ugh.

(Oh, and the rate isn't 80some% foreclosures, but an increase in the *rate* of 80some%. An increase from 2% to 3.6% is an 80% increase in the rate).

Allah

….and it is because of this that RE will not be sticky this time.

You are too much, my friend. You're continually confusing sticky with something else. You studied engineering, if I recall. So you understand continuous functions versus threshold discontinuities. Sticky just means the latter. It is ironically *necessary* for fast price movements (when the value passes through a discontinuity).

If it makes you feel better, we won't say "sticky", we'll just call it Allah Price Movements (APMs).

So you understand continuous functions versus threshold discontinuities. Sticky just means the latter. It is ironically *necessary* for fast price movements (when the value passes through a discontinuity).

A more general engineering analogy is that RE prices exhibit hysteresis on the way up vs. down.

Person,

Putting your scheme into an option pricing formula will tell you exactly why your scheme won't work. The "odds" are too far to the extreme. It's not like writing a call on oil at a $90 strike with, say $70 underlying today. It's more like writing that $90 strike with $0.000001 underlying today. Remember, the tickets themselves sell for $1 in the open market, with 0% volatility. Given the odds of a winner (even counting all the minor winners), your options would be essentially worthless.