patrick.net

I’m just making the point that being a housing bear in 1997 could be interpreted as rather extreme risk aversion. Today it’s a different story that’s far more justified…

Ok, so this is a fair criticism. Most of the regulars here would happily buy today at 1997 prices, which basically marks the exact bottom of the last RE market cycle. If Patrick balked at prices way back then, then, yes, it looks like he missed a prime buying opportunity. C'est la vie, missed opportunity --perhaps he is a little older and wiser now. Maybe he had other large debts and could not make the mortgage payments. I don't know the exact details of his particular situation.

Personally, I was not in the market way back then, nor had I even heard of the concept of a "housing bubble". I wasn't introduced to the term until late 2003, when my wife and I first started looking to buy (SoCal) and were astonished at skyrocketing prices. It took me another full year of asking questions and doing online research until I finally concluded that the RE/easy-credit bubble really existed and that a correction was inevitable.

That WSJ slime job (among other things) basically insinuates that everyone who is reluctant to buy NOW was also reluctant way back THEN --an irrational perma-bear, which is complete horse$hit.

Interesting figures, SP.

Are they preliminary, based on sampling, subject to a corrected final version later? Please forgive my ignorance, I simply don't know.

That WSJ slime job (among other things) basically insinuates that everyone who is reluctant to buy NOW was also reluctant way back THEN –an irrational perma-bear, which is complete horse$hit.

Quite correct.

We bought our first CA BA home in 1996, just before the bottom of the market there. We didn't give much cause for concern given that the home, even though quite pricey by national standards at $365K, was well within our affordability as measured by historical standards. Our rate was 8.25% on a 30 year fixed, 20% down, which then was a Jumbo.

But after selling to move (not the same home) in 2005, we were looking at spending the better part of $2M in order to just buy a home comparable to the one were selling. Granted, there is a premium difference between Southern Marin and Belmont, but there is a fundamentally deeper problem:

People with quite high salaries cannot afford to buy reasonable homes. Although we could easily buy something, there is no reason to believe that we should expect to be forced to buy less home even though our salaries are increasing (many times faster than the median salary).

So folks like me and myriad others here vote with our rent checks. Like Patrick, I'll gladly keep banking my 50% greater total return on invested capital until these prices lose the 25% nominal value that isn't just likely, but necessary.

Or maybe Dow 36,000 is just around the corner.

(quantitative support for all this is provided on my blog, just click and download the Bubblizer).

You can accuse me of being a troll if I don’t blindly agree with everyone here. But don’t accuse me of saying that someone needs to have had a crystal ball or time traveling instruments to make decisions. I’m just making the point that being a housing bear in 1997 could be interpreted as rather extreme risk aversion.

In '97, he had just arrived in the area. I know I didn't want to buy when I first got here. You want to get the lay of the land and figure out the neighborhoods. In '99-'00, there was a housing crisis here in rentals (thank you market-distorting rent control - NOT) so presumably his rent situation was stable enough to not fret. Suddenly, in '00-'01, most tech workers are wondering if they'll have a job in 2 months. It seemed crazy to buy then too.

The fact that your salivating about buying in '97 shows the mania is still here. In a true free market, renting is supposed to be more expensive than buying because you preserve the option to move and because the owner of your property wants to see a reasonable ROI after PITI. If you were presented with a chance to buy in 2004, you would presumably jump at it because you see the 2005 prices are higher and you dream about those leveraged returns.

Until you truly comprehend the disconnect between $5000-$6000 PITI vs $2300 rental prices here in the Bay Area, you will remain vulnerable to catching the falling knife. Renters can flee if rents increase (I know it's an option I'm considering). Owners are under the knife.

I tend to agree with most of the blogheads on these boards that it’s crazy to buy now but I would give away a kidney to go back to 1997 and buy into the market. It was hardly crazy then.

It would be great to be an investor with 20/20 foresight. I predicted the stock market crash of '97 in '95 and that cash would pour into housing as an escape valve. I then predicted 9/11 and that Greenspan would keep interest rates low forever. With my inside connections at the banks, I knew they were going to start throwing money at anyone, just like in the '80s. For that reason, I bought in 1984, on entering high school...

I haven't read the WSJ article yet. I'm sure the pine table is very nice. Patrick assembles articles from all over, I've been lucky the local paper runs 'objective' stories on the situation at times for suitable posting to my blog, but is simultaneously beholden to RE advertising revenues. It often depends who the journo is and what group they are in at the paper as to the nature of an article -- the RE writer says it only goes up, the next boom is just around the corner, the economics people are more cautious. I'd hate to think who the RE writer drinks with, tho, come to think of it...

Interestingly, the rough equivalent of the WSJ here would be the AFR, Australian Financial Review, which is also a Fairfax paper, but it is a pretty balanced and objective paper, mainly because business types need to make informed decisions. It's a dry read, not much mainstream circulation. 'The Australian' is much more ra-ra and right wing, being a Murdoch paper, with much less substance behind its claims.

New Residential Sales continue to show steep declines as compared to a year ago. In colder climate areas, seasonally adjusted sales increased as compared to a month ago due to unusually warm weather.

Falling prices in the form of greater incentives have been the theme with most new home builders as they strive to offload sitting inventory.

Small or individual RE investors may not be as willing or able to lower prices and are likely to remain steadfast until the end.

PA Renter,

Here's an option to get 2002 prices on a California house:

http://www.nytimes.com/aponline/us/AP-Laci-Peterson.html?_r=1&oref=slogin

I now proclaim Gerry Roberts the King of the FBs

Randy,

I was just thinking about the book Dow 36,000. Maybe they were just a bit early in the books release! Germany in 1922, "...stock market at 743 in January and rose to 8981 in December."

http://www.nowandfutures.com/us_weimar.html

Patrick,

Congrats on the WSJ article! It's interesting that the web site hasn't really picked up much additional traffic. Anyway, thanks for time and money spent on the site!

Regards,

Paul

From Ha Ha's post about the article that says: "is the ‘mark of the beast’ in the Old Testament."

I hate to break it to the author but 666/mark of the beast is from Revelation.....the New Testament. For all you CA heathens.....it's the last book in the Bible. LOL

"the fact that you're salivating about buying in '97 shows the mania is still here"

Amen. What's more, it isn't like Patrick moved up from LA or Down from Seattle! Being a native mid-westerner myself I can honestly say my first impression of CA was that it really IS different out here!

Saying, "Yeah you could have bought stocks or bonds or whatever but DAMN look at all that housing appreciation!" tells me that "the girl" may have moved out (but that doesn't mean we don't miss her!)

Paul,

That's an interesting site, even if I disagree with the general analogy. 21st Century USA is not all that comparable Deutschland from nearly a century earlier. Quite a lot has changed, including a couple of fundamental paradigms. The intervening period holds the Great Depression, World War II, not to mention a couple of important revolutions in communication and war making technologies.

My contention is that what inevitably ends bouts of hyperinflation is a credible capability to make war. Germany's Inflationszeit ended promptly when they gained enough credible threat to halt foreign debt payments. Russia's short hyperinflation was no different over 50 years later. The US will not suffer hyperinflation of any form so long as we have big things that go boom. Ditto for Russia, France, UK, und so weiter.

It is false to say that in 1997 nobody thought that houses were good investments. Some of us thought it was the market bottom, and a time of bargains.

It is true that most people were not enthusiastic about real estate investment in 1997 - which is understandable because most people (about 99%) do not really understand economics or market cycles. Because of this the average person tends to be bullish at the top of the cycle and bearish at the bottom. They are the ones who sell when it is smart to be buying, and buy when it is smart to be selling. The stock market is the best example of this - but housing gets a strong dose of this effect as well. They make it easy for the other 1% to make a killing playing the cycles and markets.

Most people who try to time the market actually hurt themselves by their very bad timing decisions - such as thinking in 1997 that it was a bad time to buy. It was a great time to buy - and the fundamentals were screaming that at the time.

In 2003 and 2004 I expected prices in the hot markets to peak in 2005, and then decline at about 10% in real terms until about 2008 or 2009. I still hold this view.

Of course, the price declines will be very uneven depending on the area and type of housing. Condo prices will decline by more than house prices. Florida condos will have a bloodbath.

Housing prices are slow to recover at first, so the optimal time to buy will probably be 2010.

10% per year

After 2010 I expect that home prices will appreciate at a rate comparable to the available 30 year fixed mortgage rate.

Bap33, I think the bulk of buyers ultimately see the use value as being the very important. When you buy a house you are locking in the bulk of your housing costs for the life of the loan with a substantial reduction in cost after the loan balance is paid off. This long term cost protection is worth a premium, so owning should be more expensive at first - with the payoff coming in the later years (not counting appreciation).

Of course, it is not so good to lock in near the top of the market cycle. Even so, in the long run it has always been cheaper to own than to rent. However, in recent years the math suggests otherwise in most of the expensive markets. But it looked that way at the top of previous cycles as well.

Prices have a long, long, long way to fall before I even start to get interested in just looking to buy!

Zephyr,

I'll have to agree with your overall assessment. I worked at a small boutique house in Portland in the early/mid 90's and we cold called the BA and LA "relentlessly"! Any time the sore subject of RE came up prospects were really touchy about it. Like, do we really have to go there?

By '96/'97 there was 'cautious optimism' (at least amongst qualified investors) that the darkest days were behind them. All of this anecdotal of course. If Patrick was off base at all it's simply b/c mid westerners seldom consider their primary residence as part of their overall investment strategy, or at least certainly not in the mid 90's.

In fact if you were attempting to impress a client or prospect with how much your home has appreciated over the last year it would probably be the end of that relationship! They would firstly struggle with why any male would be so obsessed with a "woman's domain" and further wonder why you lacked the confidence in your self to such a degree that you were in some way reliant on appreciation of your home/homes as being such a large part of your net worth that you felt it merited discussion. Obviously things have changed but at the time the differences in culture really were that drastic.

Paise the Lord & pass the Kool-aid:
_____

US home resales increased 0.6 percent in November, industry data showed, suggesting the slumping property market is stabilizing.

The National Association of Realtors said existing-home sales amounted to a seasonally adjusted annual rate of 6.28 million units in November, well ahead of the 6.15 million figure expected on Wall Street. This followed a 0.5 percent increase in October.

The November sales level was 10.7 percent below the pace of a year ago, reflecting the tumble in the real estate market after years of spectacular growth.

David Lereah, NAR's chief economist, said the report suggests the worst may be over for the housing slump.

“As the housing market recovers from its correction, existing-home sales should be rising gradually during 2007 -- it looks like we may have reached the low point for the current cycle in September," he said.

"We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down."

The latest report showed housing inventory levels fell 1.0 percent at the end of November to 3.82 million existing homes available for sale, which represents a 7.3-month supply at the current sales pace.

The median existing-home price for all housing types was 218,000 dollars in November, which is 3.1 percent lower than November 2005 and slightly below the October median.

The report came a day after government data showed new US home sales rose 3.4 percent in November, also defying expectations for a further slide.
_____

Could this be the last hurrah?

Certainly hope so!

Ha Ha,

Liz Pulliam-Weston wrote a companion article based on Alicia's research and it's pretty chilling. They also did a piece on how 401k's are failing most Americans, equally disturbing.

I’d be content to buy a house that appreciates at the same rate as inflation, IF I could get back into the market at a rational price point. Alas, I cannot. I am dumbfounded by the fact that my wife and I make $300k/year in combined household income and can’t afford a decent house with decent schools in the Bay Area. I hate being a renter, but I do it because I’m pocketing about $2k/mo.

pa renter,

I'm in more or less the same boat as you financially. I think what irks me the most about all of this is that the kind of house/neighborhood we can pay for comfortably with a standard FRM, 20% downpayment sucks. Friends of ours have done this, and not to sound elitist, but they live in neighborhoods that until recently lawyers, doctors, financial types never even drove through much less lived in. Clearly, if you or I wanted to, we could ARM it up and get a place we found "acceptable." But then, what would be the cost, being house-poor and with an ARM reset looming a few years down the line.

Also, not to be nosy, but one thing I must comment on is if your family nets over $300K, you should be able to save more than $2K/month easily (unless I misread, and you're just saying you net a $2K difference between renting and mortgage).

“In a true free market, renting is supposed to be more expensive than buying because you preserve the option to move and because the owner of your property wants to see a reasonable ROI after PITI.”

Eh, this point is debatable. My landlord makes a ton of money on me because he bought this place when it was built in 1972. It prints money for him now. The market sets the rate.

Several people here with considerable experience in RE investment have debated this point at length (see Zephyr's comments above). I don't know much about markets outside CA, but I do know that renting being cheaper than ownership's monthly carrying costs ( roughly PITI -tax deduction +HOA/Mello-Roos +maintenance ) is a relatively rare occurrence here. The last time this was broadly possible in CA was probably close to that last market bottom in 1997.

As Zephyr pointed out, ownership costs generally start out a bit higher (though not the exorbitant 100-200% premiums we see today), then gradually diminish, assuming PITI is fixed (not an option-ARM) as inflation gradually raises rents and the cost of everything else.

I, like Randy H, am willing to pay a reasonable premium for ownership for my primary residence, assuming my monthly carrying costs can be fixed and I plan to stay in place for a while, because I know that inflation will slowly erode the relative burden of that cost over time and eventually provide me with below-market rate shelter. Each individual might define "reasonable premium" a little differently, depending on what Randy likes to call their ownership utility value. For me it might be, say 10 or 20%, but it's certainly nowhere near the average 100-200% we see today (in bubbly markets like CA).

OTH, if one expects to have to move frequently, buying may not be a good idea at all, because transaction costs will chew up considerable (~9%) equity each time. You can usually (though not always) find an equivalent house to rent in a desirable neighborhood if you don't like apartment living or need a yard (pets, children).

Also, if one is buying solely for investment purposes, then it's completely reasonable to seek out properties that provide positive cash-flow immediately. In this case, you should not expect to pay any "ownership premium" at all, as this defeats the whole purpose of an "investment".

Ha Ha Says:

> I am thinking of buying Garmin Nuvi 660 GPS.
> This costs around $750. Should I apply for a
> 3/6 month no interest and then pay it off?
> I can pay it off right now but still I want to go
> for easy credit ….

It is not worth risking your credit score to save less than $10 in interest, pay cash for the GPS.

One more thing to add to the list of ways to get ahead in 2007 is “Figure out how to pay less taxes”. There are hundreds of legal ways to pay less taxes including getting an employer to pay as many of your expenses with pre tax dollars as possible and starting a company to not only make extra money but gain the ability to write off a lot of expenses on a Schedule C.

If you folks have a few minutes and want a good laugh, check out David Lereah's powerpoint presentation from last month:

http://www.realtor.org/Research.nsf/files/06NovResForum3.ppt/$FILE/06NovResForum3.ppt#883,1,The Road to Recovery

This thing is so chock full of laughable stats, mis-conclusions, realtor spin and platitudes, I can't even begin to list them here! Lemme just start by saying, I'm not sure if he meant the reference or not, but with a title for the talk "The Road to Recovery," the first thing I thought of is a housing sector drunk on easy credit joining a 12-step program...

3. Don’t buy crap.

Amen. Take a nice vacation; your joy/memory/stress relief per dollar is substantially higher (higher still if you like camping).

PA Renter, color me a little dubious. Either you were insanely leveraged with your 2004 property (which is quite insane if you're grossing $25K/month) or else you're quite the speculator/flipper. You argued about the intangibles of home ownership before but now you state that you called the peak by selling your "it's not a house, it's a home".

It's not impossible that you're on the level (in which case, accept my congratulations on your market timing); Randy did something similar although his hand was nudged due to job migration. Nonetheless, as I see it, you can afford a decent house on a fixed-rate with your combined salary and yet you choose to rent to save an extra 10% of your salary. If your situation has been fairly described by these facts, you are a very curious bear. Can you provide additional details to assure us that you are not in fact a bull in bear clothing?

Whisper the camoflaged bull: "Watch out, there are $300K/year couples among you renters! Better get in now before things get out of control when they start plonking down their bull-run house winnings!"

The salaries aren't unbelievable, as Haha points out. It's the tactics that are far more suspect than Patrick's frugal house search in the late 90s.

“Until you truly comprehend the disconnect between $5000-$6000 PITI vs $2300 rental prices here in the Bay Area, you will remain vulnerable to catching the falling knife.”

I understand this concept well. I rent, remember. I believe it’ll revert to the mean. I do worry that it’ll take five years to play out and I’ll be stuck in this crappy rental, but what can you do?

palo alto renter,

Most regulars here agree --based on previous cycles-- that the correction will take several years to fully play out. 5 years is as good a guess as any. If your current rental is truly "crappy", then I'd recommend moving to a better one.

If you cannot find a rental house equivalent to the kind of house you eventually want to buy, then you might want to broaden your search radius. Most cities, unless they have extremely draconian anti-rental ordinances, have such plenty of homes on the market today. In fact, the specuvestor glut is increasing that inventory every day.

Remember, we must always compare apples to apples, not apples to oranges when we calculate the Rent vs. Buy numbers. Rentals properties must be EQUIVALENT to the house you want to buy, or the cost comparison has no value. The fact that I can rent a cheap 500 sft apartment in the 'hood means nothing if I want to buy a 2500 sft house in the burbs.

Why is my 10:55 comment in moderation? No links, and no bad words that I know of

FAB,

Sound advice. Randy H and I have been advocating that for some time. For those like myself that have pretty much exhausted Schedule C there's a strong temptation to start a "new" business. 3 years goes by awfully fast.

For the record, I consider myself to be Patricks doppelganger -- our situations are slightly different, but I decided to buy at the same time Patrick got out of the market. The winter of 1999/2000 was brutal as inventory was seasonally low but the same number of buyers were scrambling to make bids on places. After seeing that "cattle drive" I can understand why Patrick decided to head for the sidelines. I bought "unconventionally" in the spring and am glad I have my own place with reasonable payments. I do feel somewhat bad for Patrick as I am sure he could have had a 2/1 in Berkeley for the payments he is currently paying for his PA place, but then again, in PA, he gets to miss out on things like Traders Joes protests....

And here's a subtle sign of bubble collapse from the edges of the BA. You need to read between the lines.
Wilson said that to rent a house or larger apartment in Berkeley would have cost $800-to-$1,000 more than he had been paying to rent the flat at 2217 Roosevelt Ave. Wilson said it was important for him to move to a community with good public schools. He looked in Albany, but it was also too expensive.

The three-bedroom house he rents in Hercules costs less than the rent he paid for the smaller flat in Berkeley, Wilson said. According to Rent Board records, Wilson had been paying $1,800 per month for the two-bedroom flat.
http://www.berkeleydailyplanet.com/article.cfm?issue=12-22-06&storyID=25923

Palo Alto Renter wrote:

> My landlord makes a ton of money on me because he
> bought this place when it was built in 1972. It prints money
> for him now. The market sets the rate.

Odds are the landlord is actually making a relatively low cash return on equity if they own a Palo Alto rental home free and clear (take your annual rent - $4K /Home Value to get the return on equity)

HARM Says:

> Several people here with considerable experience in RE investment
> have debated this point at length (see Zephyr’s comments above).
> I don’t know much about markets outside CA, but I do know that
> renting being cheaper than ownership’s monthly carrying costs
> ( roughly PITI -tax deduction +HOA/Mello-Roos +maintenance )
> is a relatively rare occurrence here.

Since the bubble started…

> The last time this was broadly possible in CA was probably
> close to that last market bottom in 1997.

From the late 60’s to the late 80’s my parents bought rental homes (and apartments) on the Peninsula and every one had positive cash flow from day one (at times with as little as 5% cash down).

As a student of real estate history I can tell you that there only have been a few times when it cost much more to buy then rent (when you put at least 20% down).

In the San Francisco Bay area there is a “Crazy” disconnect from real estate fundamentals where as I posted a week ago a home in Jordan Park/Laurel Heights sold early this year for $3.8mm (with a new monthly property tax cost of ~$3,600) on the same block as a nice (but not remodeled) home renting for $4,400 a month. If the “owners” put down 20% (who doesn’t have $760K in cash sitting around) they will be paying ~$18K a month (over $200K a year) more than the people renting on the same block (plus they won’t be getting any return on the $760K that would kick off enough cash to rent a decent home a few blocks west of Laurel Heights in the Inner Richmond)…

When I bought my house on the Peninsula almost 10 years ago my (after tax) cost to own per month was less than I was paying to rent a similar house (until I went nuts remodeling like I always do)…

HARM,

I'm more than just a little doubtful where the "crappy rental" stereotype is concerned. I forget exactly who said it but one poster from the Topanga Canyon area said there all kinds of nice homes for rent well below cost of ownership and was actually having difficulty making up her mind which one to "upgrade" to!

What doesn't get said nearly enough is that for many years rental=apartment. Period. You had your choice of apts! I've NEVER seen so many homes for rent before! That's where specuvestors are perhaps being put over a barrell. Their flip/2nd home gone bad simply isn't located in an area that people normally associate with having "rentals"?

Uh, like Bend, OR? Fabulous place, great views on a golf course just ZERO employment and a "little" tough to commute to Portland. I realize this is an extreme case but most fence/bubblesitters that work downtown probably weren't thinking "Topanga!" when they were looking for a rental?

Personally, I plan on becoming a "rental snob". One that turns their nose up at FB's in "exclusive" areas and is always seeking the status that comes with an ever more prestigious rental! I may even get one at the beach AND in Bend where I make disparaging comments about the riff-raff that thought they could afford to live here and now spoil my view with their endless "For Sale/Price Reduced" signs!

FAB,

Wow, I can't believe I'm actually on the (sort of) "bullish" side of a debate for a change. Feels... strange ;-) .

Anyhow, I wasn't trying to justify the insane "ownership" premiums people are paying nowadays. Just conceding that a small premium might be justifiable under some circumstances --and only for a primary residence you intend to be in a long time, not investment properties. See my last paragraph from the same post:

Also, if one is buying solely for investment purposes, then it’s completely reasonable to seek out properties that provide positive cash-flow immediately. In this case, you should not expect to pay any “ownership premium” at all, as this defeats the whole purpose of an “investment”.

@DinOR,

Yes, as FRIFY and others have pointed out, I too smell a stealth-troll in PA renter. The timing and figures look very suspicious, and the language is rather Realtwhore-ish ("stuck in crappy rental", etc.).

I suspect we will be seeing much more of this as the correction gets underway. The tactics and tone frequently shifts, but the message always stays the same: renting = bad, mortgage debt = good, never a better time to buy, etc.

Personally, I plan on becoming a “rental snob”. One that turns their nose up at FB’s in “exclusive” areas and is always seeking the status that comes with an ever more prestigious rental! I may even get one at the beach AND in Bend where I make disparaging comments about the riff-raff that thought they could afford to live here and now spoil my view with their endless “For Sale/Price Reduced” signs!

"Rental snob" :lol: Classic! This one is destined for the Bubble Glossary.

Another rocket scientist on Clark Howard's Message Board:

"Ok... Heres my plan. I want to, over the next year and a half to two years, save the 15 to 20 grand to for a down payment on an apartment building. My Credit sucks now. its geting better, all bills on time, two credit cards, no balence. i'll be debt free in about 6 months. What can/should i be doing in the next year or so to get ready for this?? As in my credit, eduction in real estate, or any thing else. I'm Single, 55 grand a year, in Atl."

1) Credit sucks
2) Makes $55k/yr (probably closer to $30k)
3) Clueless

But, he wants to buy an apartment building.......

Being a sole proprietor and filling out a Schedule C is hardly anything new. Even if you're not sure if your new "consulting" practice will ever sprout beyond a moonlighting gig, the experience is invaluable. It's how we learn. If we want to 'break out' these tools are among the most basic.

While it is true that "the service" is looking long and hard at Schedule C, I wouldn't let that stop anyone from pursuing their dreams. If you can't show a profit after several years you CAN always claim it as a hobby.

I don't advocate doing anything that won't stand up to the scrutiny of an audit but the fear of one shouldn't stop you from growing and learning. We all have friends that are in a constant "start-up" phase or are "idea junkies". You can fill out a "C" yourself, it's not that big a deal.

theotherside,

DUDE! You have so TOTALLY CONVINCED ME! What, like with my concern that I save in 529s for my kids and fully contribute to retirement programs and that I keep 6 months reserve of cash around on top of the cash saved for a house downpayment, I now see it dude - TOTALLY OLD SCHOOL!

Damn, man, what I need now is to get a peni$ extender so I can keep up with these COOL CATS who have PULLED $500K OUT OF THIN AIR! So what if I have to risk my entire equity on an obviously peaked investment, I am TOO RISK ADVERSE! I need to PAY A LOT MORE THAN WHAT IS REASONABLE!

For the record, 401Ks, 529s and IRAs are all fully invested in the stock market. Yes, most of cash downpayment makes a stinking 5% pre-tax, but that's better than any paper equity in a house has done over the past year. Are you ready to roll the dice again DUDE! RISK! PARTY ON!

theotherside,

Ok, thanks for the great article - seriously, it is very interesting. If you really want a rebuttal to your world view, read the whole thing. ;-)

Summary:
Their simplistic model can't account for the recent surge. They look to two main explanation:

"This time its different - A" - Subprime mortgages have shot through the roof. 60% of these mortgages are due to reset over the next two years

"This time its different - B" - Second home purchases as investment. 20% in San Diego and Sacramento. What happens when the stock market / cash become preferred investments?

I look forward to combing it through in more detail later. Cheers.

FRIFY,

Exactly. Overall the paper was very bearish. "The Other" simply gleaned what few positive observations there were to be had and inadvertantly made a bearish case. Weren't the "Smith's" the nut jobs that bought a 1.3 mil place in July 2005 in LA? Or am I thinking of the wrong nut jobs?

Nice work "The Other"!

DinOR,

Maybe theotherside is a Stealth Bear. ;-)