patrick.net

Doug H,

Who is the guy that does the impeccable Nagin impersonation on Imus' show? The guy has him down to "t". Freakin' hysterical.

Subdivision is Fun:

Or in the case of San Francisco, they would probably build large condo buildings. Just make 64% of them tiny studios and the rest large 2-3 bedrooms units.

But I'm sure the folks in charge are smart enough to have thought of this scheme.

Just make 64% of them tiny studios and the rest large 2-3 bedrooms units.

Better yet... tiny 2-3 bedroom units, designed in Tokyo, Japan. :)

Anyway, any anti-market policy cannot possibly be good.

palo alto renter Says:

> I have a few questions for the locals here,
> that I have not really seen addressed in
> any research or in MSM:

> What was the foreclosure mkt like here when
> we had the last bust? There was no such thing
> as a foreclosure here in the last ten years
> because if you owned the home for 30 minutes,
> you had equity. In 1990-1994, could you get a
> deal on an REO?

There were a lot less foreclosures in Northern California than in than Southern California in the early 90’s, but there were still quite a few. I was buying pools of bad commercial loans at the time and was getting faxes every week from most California Banks. The big banks like Home Savings had commercial only lists, but many of the smaller banks would send 10 page faxes listing all their bad loans (commercial and residential) that were REO or just went on the NOD list… My Uncle (the one with a urinal in his garage) made almost a couple million dollars on a two Hillsborough homes that he bought vacant from banks for half of the previous loan amounts. He rented the homes until 1999 and sold when they doubled in value (not having any idea that they would have doubled in value again by 2005)…

> Why so few FSBOs in the Bay Area?
> You see them everywhere,
> even in Tahoe. But rarely here.

I like to make fun of REALTORs tm as much as anyone else in the list, but like most other well educated intelligent people I’ll hire a broker (who may or may not be a REALTOR tm) to sell real estate for me. The more intelligent people are the more likely that are to 1. realize that they are not best person to perform every task and 2. that in the long run you are usually better off making money doing what you do best and paying an expert to do something that you know nothing about. In my neighborhood you don’t see a lot of people working on cars, hanging laundry from windows or trying to fix major appliances. If you drive through almost any trailer park in the US you will see a Camaro up on jackstands, laundry hanging from trees and windows and at least one major appliance taken apart that just “needs a little work” to get going. There are some nice parts of Tahoe, but there is still a large low IQ redneck population that saves money by buying retread tires, making their own anti-freeze window washer fluid and trying to save a few $ by selling their double wide (or A frame that they bought for $62K in 1997) without a broker…

In my neighborhood you don’t see a lot of people working on cars, hanging laundry from windows or trying to fix major appliances. If you drive through almost any trailer park in the US you will see a Camaro up on jackstands, laundry hanging from trees and windows and at least one major appliance taken apart that just “needs a little work” to get going.

Uh, is that really a consequence of their low IQ? or is it a consequence of them not having any money to spare?

Of course it is a consequence of some of them not having money to spare.
And probably some of them who may enjoy doing things for themselves. Doesn't mean they are "low IQ rednecks". Means they are different. Aren't Bay Area people self-described as being tolerant of, and respectful of, people who are different?

Whether or not it was intention of the writer, referring to such people as "low IQ" is an example of "liberal bigotry" that has come to dominance in the Bay Area. Maybe not expressed with the designer Hummer that has sprayed on mud for appearances, but just as hip and arrogant.

There's more of them types that were referred to with such derision in the USA than there are of the hip and cool who look down on them. (And, lest you think we can become the People's Republic of California, think again: the "low-IQ redneck" population of the Central Valley and Inland Empire (including "low IQ and redneck" people of color) is growing a whole lot faster than in the hip and cool coastal counties).

Such attitudes play right into the hands of those who are stoking a backlash by reference to Nancy Pelosi and her "San Francisco values".

Uh, is that really a consequence of their low IQ? or is it a consequence of them not having any money to spare?

It can be a function of their regional culture somewhat too. Although, I do very strongly agree with FAB's logic. Where I grew up, if you didn't participate in many of those behaviors you were ostracized. Most middle class people tried to do as much themselves as possible. A lot of this had to do with the fact our parents were children of the Depression/War, and our grandparents were parents of the Depression/War. A lot had to do with rural midwestern values vis-a-vis "decadence".

It didn't matter if you were a doctor, lawyer or busy business owner. When people got whiff you had maids and thew out old refrigerators you'd hear a lot more whispering behind your back in church on sundays.

So quite a bit has nothing to do with low-IQ; it has to do with a need to conform. To be successful is fine, but you'd better not show it in any way. "Who do you think you are? Too good to open your own hood?"

Of course I'm guilty of saying that successful people generally need to leave the rural midwest in order to succeed. (They can return later, but they seldom can become successful there initially). Maybe it's because they're too busy trying to replace their own fan belts.

Thought you would enjoy this nugget from the 2004 elections in Berkeley (given all the rabid enthusiasm for affordable housing here).

I have been following with dismay and some amusement the “affordable penthouse saga,” written by my District 5 Council race opponent, developer Laurie Capitelli, and some other affordable housing fanatics on our Zoning Adjustment Board. The story goes like this: While we ordinary middle-class folks pay through the nose to live in Berkeley, poor people are entitled to luxury ownership accommodations at the expense of taxpayers and a lower-density livable Berkeley. My opponent Capitelli and some other affordable housing fanatics on the Zoning Adjustment Board insist that some number of the “penthouse” condominium units in the unpopular and dense proposed nine-story new downtown Seagate project should be allocated to poor people, since to do otherwise would be to “segregate” them amongst the less-than-elite occupants of the downstairs units.
I am not making this up! You read all about it recently right here in the Planet.... I will not support subsidized penthouses for anyone.
Barbara Gilbert City Council candidate, District 5

Despite all the recent reports of sub-prime lenders going belly-up (Sebring Capital, Ownit, MLN, etc.), I'm still getting option-ARM spam at work. Latest fax advertising 0.25% payment locked for 5 years up to $1,000,000 loan. Monthly payment: $208.33.

Conclusion: Punchbowl has not been taken away yet. In fact, it's now approaching 200-proof and being offered to the town drunk.

HARM,

208.33 per month for 5 years ? Wow.

Take the offer. It's the biggest no-brainer in the history of mankind !

This article starts off positively...
For all the talk of a housing slowdown, almost 97 percent of people who sold Bay Area homes in November got more than they paid for their properties and almost half at least doubled their money, according to a new report.
And then gets interesting....
Cagan says economists and others are also interested in the percentage of homes sold at a loss, meaning the most recent price is less than the prior sales price. Most homeowners are extremely reluctant to sell at a loss, and an increase in this number would be an ominous sign for the housing market and the economy.

In Southern California, homes sold at a loss ranged from 1 percent in Los Angeles County to 6.2 percent in San Diego County. The condo market in San Diego County is even worse, with 10.8 percent of units being sold at a loss in November.
...
In 1992, almost 24 percent of Southern California homes and condos were sold at a loss, according to figures from Dataquick.
...
Long term, in the Bay Area and Southern California, housing appreciates only 3.5 percentage points a year over the rate of inflation, he says.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2007/01/04/BUGDBNCBRC1.DTL&type=business

The current system by which real estate is bought and sold through “agents” is a textbook example of “The Agency Problem” (aka “principal-agent problem”).

Randy H,

Thanks for the link and info. If we were to maintain some kind of real estate agency system, one glaring problem I see that would need changing based on the "agency problem" you referenced is a complete lack of performance evaluation and/or incentive structure from the principal in the equation. Realtors get their 6% (split x ways) no matter how long it takes to sell a home, how much they sell in an absolute sense and relative to comps, how easy they make the transaction process for the seller, etc. etc. They see this 6% as some god-given privilege.

Person :

The reference to the "biggest no-brainer etc" is to an ad about mortgage/refi I hear every day on KCBS (a local radio news channel).

RE: affordable housing units in new developments, the possibility of developers "gaming the system" by building tiny units to sell cheaply depends on whether the BMR rules are based solely on price or on price per sq foot. Based on price per sq ft, a 400sf studio would need to sell for less that $300K to be "below market" compared to a 1200sf "loft" going for $900K in the same building. Of course, I'm discounting factors like ppsf is usually increased for smaller units, and floor location matters tremendously in high rise units the city (put all the BMR units on the 1st and 2nd floor of a high rise, looking at the dumpsters across the street).

@person & StuckinBA,

Y'know, I'm actually considering it. If some asian central bank is willing to underwrite a million-dollar suicide loan with a 5-year lock @$208/month, why not? I'd get a nice place to live for 5 years, virtually rent-free.

In CA, new mortgages are no-recourse, basically meaning the lender can't garnish/sue you for the balance owed, unless you refi (or HELOC). So, as long as I don't refi or pull money from the place, I could just mail the keys back in January, 2012, virtually without consequence. My FICO would take a hit, but so what? Lenders don't seem to care anymore and it's not like I'm planning on buying "for real" anytime soon.

Come to think of it, I could even just hire a straw buyer --some illegal or homeless person, like those crooks in St. Petersburg did. That way, I still get the nice, almost-free place to live in for 5 years and just move out. The straw buyer's credit takes the hit and I walk away completely unscathed.

Whadd'ya all think? Is it a plan?

HARM,

Since no one has executed the plan you mention, it definitely sounds like a novel financial breakthrough idea. You can have it and eat it too ! If everyone else gets the wind then it will send house prices to sky and it might form a housing bubble. But you are early in the game, so buy it, rent it out for a positive cash flow, write a book about taunting renters how they are missing on the RE boom, and then move all the money overseas.

Five years should be enough to achieve all that.

palo alto renter,

I bought my home in the last downturn in South Bay. There were of course foreclosures but in the better neighborhoods, far less than you'd expect from an Bay Area "average" number. There was a sharp divide among properties on east bay and those on the west, which held their value much better, but still they were down about 20-25% in neighborhoods like Los Altos, Palo Alto, Menlo Park. In fact Palo Alto was down the most just from the impression of shopping around because it had a bigger ratio of recent owners compared to the other ones, since it is the trendiest of them all. However, don't expect massive foreclosure to happen in any decent neighborhoods, that I didn't see.

I came from an ARM-only culture. 30-yr fixed is a rather innovative product only available in the US. Oz just started to have 10-yr fixed, and UK has only 15-yr fixed the last time I checked. The bottomline is, if you are used to ARM, you are psychologically prepared for it. People build in some cushion when they sign on a loan, the loan officers are also a lot more cautious in assessing the loan to income ratio. The problem of the US is, people are treating ARM as if it were fixed, that's why it is exotic.

Hong Kong, Singapore, and Japan all have clean, well-planned government housing that is not infested with crime. In fact, 85% of Singapore's population live in the government housing.

In Hong Kong, it's about 50%.

I checked out one of the listings mailed to me (BTW, 4 new today as well.)

MLS 700313

Asking price 890K for a 1100 sqft home. That's 800 per sqft. From DQ weekly reports the Cupertino median per sqft rate is less than 600. Zillow says the comps average around 611 per sqft. So this is about 30% over current market conditions.

I do not know what special enhancements are done to this one, but it is next to freeway 85. So this seems to me like worse than denial.

... but they don't have an ownership society. People there don't even own cars.

I don't know why they hate Freedom(TM).

Such attitudes play right into the hands of those who are stoking a backlash by reference to Nancy Pelosi and her “San Francisco values”.

I always thought those references were to highlight the Jesus-hating, homosexuality mandating aspects of SF. Not the elitism.

But in my experience, “no credit” is much worse than “horrible credit”, so go fig.

Isn't it for just seven years? Or is that just BK?

A friend's dad declared BK. Even before the seven years was up, he started getting credit card offers from MBNA and/or CapOne.

OO,

I've never thought of standard, full-doc ARMs as being inherently risky or necessarily bad. In times of historically high interest rates (early 1980s), they are preferable to FRMs, as rates can drop substantially. Today --with rates hovering near half-century lows and FRM/ARM spreads almost nonexistent-- I see little advantage to getting one over a FRM.

Last time I checked, ANY fully amortizing, full-doc mortgage could be considered "exotic" in CA. We've gone from qualifying people for 1-year 1% teaser NAAVLPs to 5-year 0.25% Super-NAAVLPs. What's next? $0-payment loans? Oops --looks like someone beat me to it! http://www.12modef.com/

@Person,

To you I say:

“If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
–J. Paul Getty

Oh, and I almost forgot one of my all-time favorites:

“…when I hear someone boasting about their FICO it makes about as much sense as a slave bragging about his healthy teeth and strong back! For what? So you’ll fetch a higher price at the auction?”
–DinOR

@Person,

Hey, don't get angry with me now --I've been carrying the "responsible borrower's" torch here for almost 2 years. Search the archives, and you'll find dozens of threads authored by me excoriating the REIC, Fed and crooks and liars of all stripes for encouraging this mess. I was just playing Devil's advocate to point out how insane the lending situation is.

The longer the Fed & FCBs keep the monopoly money party going, it's hard to keep coming up with reasons NOT to become an overleveraged FB. I mean, why go on being thrifty and responsible, paying your bills on time, living below your means and all, when the system goes on lavishly rewarding recklessness, irresponsibility and immediate gratification?

I mean, seriously, if you honestly believed this madness could continue for another 10 years, wouldn't you go out and get an NAAVLP right now? Why wouldn't you, if there were basically no downside or personal consequences? Not saying this will happen, just viewing things from "theotherside" for a change ;-) .

"just viewing things from "theotherside" for a change" LMAO!

Let me take a quick step back here. If you are in your 20's or 30's and have a great FICO score, Hey! If you've got it, flaunt it! I think it's great. There is a time in our lives when we're young and healthy and loading up on debt "can" make sense. I've worked w/both of our daughters to put them in the best possible place where this is concerned.

But think about it, we all have friends in their late 30's thru their 50's STILL bragging about their credit scores like some senior that nailed the prom queen for crissakes. Yeah dude, that was a really great story (when we were freshman in college!)

People in their 40's and beyond should be talking about their "equity" *not* their ability (or willingness) to get further into debt! More and more of their income should be coming from their investments (not their W-2).

My whole approach since my early/mid 30's has been toward that end. Your prime earning years "should" be ear marked for solidifying your financial picture, not jeopardizing it by feeding debt that may (or may not) pan out.

Person,

I'll bet if we ask HARM real nice he can re-post one of the greatest bubble pieces of all time! HARM, is it time to show Person the "There is NO Housing Bubble" link? I think he's ready for it.

excoriating

Jeebus H. Christ remind me not to play scrabble with you ;)

DinOR, my man, you got it!:

No Bubble, My Bad :-(
Bay Area Bubble Bloggers Admit Defeat, Throw in the Towel

People in their 40’s and beyond should be talking about their “equity” *not* their ability (or willingness) to get further into debt! More and more of their income should be coming from their investments (not their W-2).

Lurkers reading this blog, please take a note of the above quote by DinOR. You will not get such financial advice from RE agents or even you friends who have purchased homes recently. You are getting it here, free of cost.

My conservative rule of thumb is this. If you are over 40, you should not check if you can afford the house with a 30yr fixed. You should check if you can afford with a 15yr fixed !

@Mr. X,

Based on your little "fable", I'd say you're quite the talented "wordsmith" yourself, but thanks. :-)

I do some CC interest rate arbitrage on the side. That extra few hundred a month is not a lot, but it's better than nothing. At least it pays for diapers & formula for the month. The high FICO helps to get the big credit lines.

Whenever I see the score flaunting though, I'm always like, hey buddy, your FICO is over 700. You'll get the best rates possible, so who cares whether it's 720 or 850. Take a chill pill already.

X,

Fyi, I loved the part about Patrick sustaining himself with "the bitter tears shed by over-extended boomers". Reminds me of that South Parkepisode where Cartman murders the parents of some boy who cheated him, then licks away the kid's tears to savor his "sweet victory". Classic.

I do some CC interest rate arbitrage on the side. That extra few hundred a month is not a lot, but it’s better than nothing.

Huh? How does that work?

More and more of their income should be coming from their investments (not their W-2).

Like dividends? Or...?

I do some CC interest rate arbitrage on the side. That extra few hundred a month is not a lot, but it’s better than nothing.

Huh? How does that work?

eburbed,

My guess is MtView is transferring a large balance from one CC to another, to take advantage of initial no-interest offers for new customers, and investing that money in something paying substantially more than 0%.

My guess is MtView is transferring a large balance from one CC to another, to take advantage of initial no-interest offers for new customers, and investing that money in something paying substantially more than 0%.

Ah. Yeah that. I had friends who did that after college - until they realized that that would hurt their credit score.

I was thinking that maybe Mr. MtView was actually borrowing cash from his CC to invest. That'd be pretty hardcore.

You can arbitrage debt anytime you can get a loan for less than your personal discount rate, which should be the risk-free CD rate or higher.

It only works if you have good credit. And only if you don't do it too much so as to hurt your credit (although all that means is your credit goes down temporarily, assuming you pay off the loans, and you have to stop arb'ing due to rates you can get).

Say you're going to buy something for $10K. You have $10K cash to buy it. But some CCard company will give you 0% interest for 3 months teaser to buy it. Take the CCard offer, put your cash into a 3m CD, then pay it off before you accrue CCard interest.

More substantial, you can arb the automakers financing. We did this with my wife's new Audi last year. We were going to pay cash, but they gave us a 3-year 0.9% loan. We took loan, and have the cash in a tax exempt Vanguard muni that allows no-penalty monthly withdraws set up to auto-pay the loan. We're clearing about 8.5% give or take after taxes risk free. And risk free is the primary requirement of an arbitrage play.