patrick.net

Too many charts! My head just asploded!

Speaking of my head asploded, I'd appreciate if someone could explain to me the significance of this article:

http://www.insidebayarea.com/business/ci_4635986

Is it a sign of the Crash? or just more nothing?

Speaking of my head asploded, I’d appreciate if someone could explain to me the significance of this article:

Is it a sign of the Crash? or just more nothing?

It means the debtors are trying to pull out as much of their imaginary equity as they can from their house....some of them will try to use it to help pay off their mortgage, others will take the cash and bail knowing they cannot sell their house to meet the size of the loan. You see the banks will still give you an amount up to the bubble value even though it's really not worth that much. This is a debtors last chance to get any money before the beating they will be taking.

confused. but i might wait a year or two before purchasing to see what happens.

I guess if she's planning to move soon and wants as much cash now as possible for whatever, that move could make sense.

Neg Amort ARMs actually make a lot of sense...for people who believe they're sure to sell the house in 2 year's time for 100% more than they paid for it.

In the article linked above, the lady cited refinanced from a 30 yr fixed to a 10yr I/O. Please don’t laugh at me as this is a serious question: in general terms, when if ever is this advisable?

Did it say what her former FT job was?

If she's making $200k a year (not impossible around here) then this might work out.

Neg Amort ARMs actually make a lot of sense…for people who believe they’re sure to sell the house in 2 year’s time for 100% more than they paid for it.

You need to replace "believe they're sure to" with "can".

What clearer evidence does one need that we're in a world gone mad when a homeowner of 2-3 years can totally fund a start -up (the riskiest of business ventures btw) solely from MEW?

They used to be able to do this ethically years ago but there was a huge difference. People that literally gambled the roof over their head had a specific calling. We referred to them as f a r m e r s......

The whole notion of "being on the margin" was originated by sod busters (there's one we haven't heard in awhile) bringing their stock "certificates" (another one) down to the bank to borrow the money to plant their crop. During that time, the bank got the dividends BUT provided the loan against reasonable security for seed. From before the time John Deere invented the steel plow this worked out pretty good. Lord willing a harvestable crop, your collateral. In the Illinois River Valley (considered by experts as the most fertile place on the planet) this was considered a "purdy" safe bet.

Land produced. That's what it's supposed to do. What does a concrete bunker (new fab loft) "produce"? What does a McAlbatross produce? Should the "utility" value of a bunker increase? Enough to fund a new company?

Sure. WTF. Why not?

These debtors don't have any more to lose by cashing out and throwing the money into something else that is risky. Maybe some are going to cash out and throw all the money into gold. I know Peter Schiff recommended if you are stuck with an overpriced house, to do a full cash out and throw it into Euro Pacific Capital :lol:

Linda,

Well said. Well said. *astrid long ago broght to our pathetic untinking eyes that these Mcalbatrosses afforded ZERO privacy/intamacy with their sprawling vistas and open "space". Vertically, horizontally you name it, just wasted space.

Not long ago there was an expose' about the" winners" of the "dream house" from HGTV pleading with buyers to alleviate them from their ungodly burden. Taxes, maint. etc. mounted to 4/5K a month. Even though the house was "free" they still couldn't afford it.

Every man a King!

This video says it all about the McMansions.

Allah,

Where DO you come up with this stuff?

I'm waiting for McMansions to be handed out to anyone who can afford to maintain them. It'll be like those great English houses that only the extremely wealthy can afford to maintain.

Look for a National Trust for McMansions in 2025.

HARM, your anger concerns me.
Do not you realize that it only goes up?
Invest young man, invest, single family homes are an investment.
Your future is yours.
Your anger concerns me.
hehehehehehhe

What clearer evidence does one need that we’re in a world gone mad when a homeowner of 2-3 years can totally fund a start -up (the riskiest of business ventures btw) solely from MEW?

It could be if it's a Web 2.0 company:

http://www.nytimes.com/2006/11/09/technology/09venture.html?em&ex=1163394000&en=542b13f17c0d72a9&ei=5070

A friend of a friend of a friend is in the photo at the top.

From the McMansion rant piece:

When are people going to realize square footage is not indicative of a nice house, but instead, a hindrance? What is the point of a dinette and a formal dining room? How many times a year do you actually use the formal one? Once on Christmas and once on Thanksgiving? What about a den and a great room? I’m sure you get shit tons of use out of that great room, don’t you? How about a four bedroom house when you only have 2 kids? I bet that’s useful, huh? Three and a half baths? How often does everyone in your house need to use the restroom at the same time? Sunroom? Library? Playroom? Two offices? Three car garage and only two cars?

Uh... isn't have anything less than 1 car per person against the law in California?

I've shown some of my CA friends photos of the house I lived in NY. Most are perplexed how there could be only 1 bathroom and 4 bedrooms. Even a box condo in Sunnyvale with 2br comes with 2ba.

I'm not sure where I'm going with this comment so I'll end now.

what do those picshas mean, mister?

I know of a (really) small company here in Oz that’s currently trying to break into the US Olive Oil market; sounds like it might have picked a good time to do so.

Really? I thought all Olive Oil was imported. The "Extra Virgin Oil" we get is from Italy. I don't know of any U.S. manufactured Olive Oil.

SFWoman,

Can you buy online? I live on the east coast and would be interested in buying but it's to far away for me.

Correction....It's about 10 times the price. We pay $5/liter and it's advertised on the site for $50/liter. We really like the Oil we are using, I ca't imagine their Oil being 10 times better than this. We were getting the Oil $10/3 liter bottle, now it's $15, a 50% increase.

Did you know you can buy ancient olive trees for your house out here? You can have 50 or 100 year old trees delivered and put in. They then take four or five years to start really producing fruit. I was very surprised when I saw the very large palms that you can buy and the very old olive trees. I had never seen large or old trees moved like that back east.

No this would never happen here in the North East. The weather isn't too kind to the Olives. :(

Correction….It’s about 10 times the price. We pay $5/liter and it’s advertised on the site for $50/liter. We really like the Oil we are using, I ca’t imagine their Oil being 10 times better than this.

Do you use Genco Olive Oil Co? If so, I have an offer you can't refuse!

CR,

http://tinyurl.com/ruf9l

Don’t these people know that real estate isn't crashing?

"And some smaller metro areas fell precipitously, including Danville, Illinois (down 17.7 percent) and Akron, Ohio (11.5 percent) ."

@ConfusedRealtor,

No one here gives a crap what's in your stock portfolio. :)
Give it a rest. :)
I feel giddy too! :)

SFWoman Says:

> Nan McEvoy has a very well respected olive oil that
> comes from her ranch in Petaluma.

Nan McEvoy makes good olive oil, but if I was picking up a bottle of high end olive oil to bring to a party in St. Helena with a basket of heirloom tomatoes I would buy a bottle of Maria Manetti Farrow’s Villa Mille Rose olive oil. I first tried it at a (Paula LeDuc catered) wedding reception at Farrow’s Oakville estate (that is on Money Road just across from Silver Oak and hidden at the end of the street just past the crappy little warehouse where the Venge family cellars their Saddleback wine)

http://www.villamillerose.com/estate.html

Another good (but expensive) olive oil made by a wealthy SF family is the Harris Ranch Napa Valley oil made by Gingy Harris and her little brother Jody with olives from their family ranch in St. Helena. The oil I use every day (that is still expensive) is the ETRURIA oil from Italy (that I buy at the little butcher shop in Laurel Village).

ConfusedRenter Says:

> I AM a believer of selling investment property around
> the cycles. I’m wondering if people realize that owning
> one property you live in is equal to net neutrality, renting
> = shorting, and owning more than one property = long.

As a former homeowner who sold his home (taking a large gain with the first $500K tax free) that still owns investment property (with a low Prop. 13 tax rate and fixed rate financing of just over 5%) I’m interested to hear ConfunedRenter explain why selling my investment property and paying capital gains tax on every penny of profit would have been a better idea than selling my home and taking a half million tax free gain?

allah Says:

> Correction….It’s about 10 times the price. We pay
> $5/liter and it’s advertised on the site for $50/liter.
> We really like the Oil we are using, I can’t imagine
> their Oil being 10 times better than this. We were
> getting the Oil $10/3 liter bottle, now it’s $15, a
> 50% increase.

With anything in life the increase in quality is rarely in line with the increase in price.

A $100 Napa Cabernet is not 10x better than a $10 Napa Cabernet, and an Aston Martin is not 10x better than a Toyota...

The landing won't be "soft" when real estate CEOs are using terms like "no end in sight" and "death spiral" to describe the market:

http://www.paperdinero.com/BNN.aspx?id=50

When (mostly falling) median prices in many parts of the U.S. are now several standard deviations away from the long-term mean vs. supporting rents and incomes, and unsold inventory (phantom or not) continues to grow.

In case you happen to be one of those suffering from this popular delusion [...]

Well then, I guess there's no point in daring to have a differing perspective, else I "doth protesteth too much". I'll go put my lips back on Bernanke's ass right after I collect my royalty check from the NAR. By the way, 7σ = 0.00000000026% in a normal distribution. With certainty like that, there's no point in discussing this at all.

With anything in life the increase in quality is rarely in line with the increase in price.

Who says there is an increase in quality? The Italians wrote the book on Olive Oil!

Oh yeah, here’s a nice little slide for those want to know why it’s all about location. Found it on money.com.

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

That's old and it was written by the RE industry. We will see in the years to follow what is bubble-proof.

CR

FAB - You do realize that if you sold anytime before this year, you lost out on another 4-7% appreciation right?

I owned in Belmont and sold in 4/05. Considering all factors, my money has returned about 7% more in Vanguard funds than had I stayed and sold today, judging by neighborhood comparables. That number is conservative. Factoring AMT tax treatment it may be closer to 10% in the end.

@Surfer-X,

No need for an "intervention", my friend. Warm weather, Pacifico, tacos, afternoon surfing and listening to RHCP or the Ventures are all well and good (though personally, I prefer mountains and a change of seasons).

Sadly, though, I don't live in $anta Barbara. Nor do most Californians. Unlike your little slice of coastal paradise, most places where regular people actually live and work in Califofornia wouldn't look very good on a postcard. I live in the L.A. basin rat race, which is perhaps why I'm somewhat jaded about the "California lifestyle". I don't personally know many people living it, and most of those few are born-lucky Boomers hell-bent on trying to keep anyone else from achieving it.

@Randy H,

Relax, I wasn't referring to you. We've had a wave of doubting newcomers recently and I wanted to give them a "bubblenomics" refresh. Even better would be to get some good perma-links up on the mainpage (some day...).

Besides, baiting you is really Allah's job :-) .

HARM

I know. Just pointing out that there are still those of us who think that inflation will play a significant role in re-equilibration. Of course it won't do anywhere near all the work, but it will probably do more of the work than any of us would prefer. At least two of the authors here are still open to a soft landing scenario; probably just not as soft as those newcomers you're referring to.

I don't see allah's comments anymore; they're filtered out of my RSS feed. I gave him every chance for civility, in my own humble opinion. But he insisted on calling me a realtor as a pejorative. Contrast that to FAB who also likes to get under my skin, but does so without name calling and with a willingness to back up his arguments and admit the existence of alternative interpretations.

By the way, after searching phantom inventory more widely I found that FAB's definition is widely used in RE circles, especially his type of RE circles (commercial and rental income). Seems there was quite a flap over unlisted properties in Manhattan -- which they called phantom inventory -- recently. So please update the bubble glossary with FAB's definition as an alternate one if we're going to keep it. I found the term applied to both meanings in relation to RE.

Randy H: wrote:

> By the way, after searching phantom inventory more
> widely I found that FAB’s definition is widely used in
> RE circles, especially his type of RE circles (commercial
> and rental income).

I was just reminded that I hear this term most often from commercial leasing brokers who use the term “phantom inventory” to describe sublease space. Public companies don’t like anyone to know when they have leased more space then they need so they will usually hire a broker to look for a subtenant and instruct him not to publicize that the space is vacant.

http://tinyurl.com/y2gbms

Here is a video on the housing market...they also describe "sticky prices" the way I always believed it to mean.

SFGuy,

what is your understanding of significant?

The problem answering that question is the way the math works. If inflation is very small, like a true 4% or less, then it will have a very small impact on equilibration -- say less than 10% of the total adjustment.

But for every percent rise in inflation, there is exponentially less value to the saving renter (assuming compared to the fixed-rate mortgage owner). Crank up true inflation to 10% and it could easily account for somewhere closer to 50% of the equilibration.

The common wisdom that real-estate is a natural hedge against inflation did not come about because people are stupid. It came about because it's historically been the case. This wisdom will only come undone if there is (a) persistent secular deflation like Japan, or (b) the economy by and large begins to truly believe that future nominal interest rates will _not_ rise in response to inflation.

CR

Comps for single family homes like the one we sold, the upper range for Belmont, are decidedly *down*.

Let me get this straight:

So, although you made money selling 04/05, you have to admit that if you were still a homeowner, your place is at LEAST 10% more than it is now. So, if you ever want to get back in, the wait will take longer than you think. This is why you shouldn’t sell your primary residence.

So my *real* returns are 7%-10% *higher* than if I'd held the home and sold *today*. Somehow that means I need to wait *longer* to buy back in???

I'd love to see your calculator. I imagine a CAR-issued one with really big buttons, and nothing but + signs and numbers that "only go up".

By the way, I'll go tell my old neighbors, some of whose homes have sat on the market since June, that their prices are _increasing_.

I'll let X tell you what you are, but know that it's what I'm also thinking at this point.

@CR: Well, why don't you post those comps? As a realtor you have access to the tools and data. Your vague statements have damaged your credibility, so let's see some numbers already.

ConfusedRenter Says:

> I have two homeowner friends in Belmont, one who bought
> a couple years ago, and another who bought in July of 2005.
> Both have confirmed they have seen prices rise by more
> than 12% in 2005 for same comps and another 5% this year.
> One bought in a new townhouse complex and has had at least
> 6 exact same comparables sell this year for 12-18%+ more
> than last year.

CR never answered when I asked why it was better to sell commercial real estate and pay capital gains taxes and I’m betting that he won’t tell us the name of the Peninsula condo complex where values have gone up 12-18% in the past year…