patrick.net

The houses at the San Diego auction a couple of days sold for 30-50% less than prior sales or valuations. These were genuine values that I had researched. I believe this is now the new starting point for negotiations and valuations since last month we set an all time record for foreclosures. This was an auction attended by 1000 plus people. All of these potential buyers which represent the most serious buyers are now satisfied and now demand is reduced even more. This is the realization of something that many people said was absolutely impossible a year or two ago. These sale prices are now the new comparable values which are still slightly above the fundamental value but as I speculated in some scenarios, the rate of decline is sudden when the issue is forced. As soon as you remove the speculative valuation the market instantly adjusts. The mask is now off IMO.

IMO, banks are going to sense this a a panic cue. When they realize their foreclosure portfolios are a diminishing asset they are going to literally flood the market. Last weekend will go down in history as a major event in our real estate.

FAB, most of the people are not as math-challenged as you think. To many, "payment per month" is all important because it decides whether they have something or not.

If you can only afford ONLY $100 a month and you MUST get that thing NOW, you are going to choose $100 over 12 months instead of $101 over 2 months, right? ;)

April DQ numbers are out for SoCal:

http://dqnews.com/RRSCA0507.shtm

I am shocked and impressed by the new terminology used, especially coming from the usually bullish DQ folks. This passage from Marshall Prentice is quite a doozy:

"The drop-off in sales of more affordable homes was expected. That was the part of the market that was last in line for price and sales increases during the upside of the cycle. What we're in for now is the somewhat painful endgame of that cycle," said Marshall Prentice, DataQuick president.

"In addition to cyclical factors, there are other potential culprits behind the current lull: a buyer-seller standoff, the huge rush to buy during the frenzy (leaving less demand for today), tighter mortgage money, or something more ominous like a severe market correction.

This to a young girl who took home about 2K per month.

That is only 30% net. Gotta have it. :)

Remember, you can live in your car but you cannot drive your house.

Malcom,

I'd read the same article yesterday and I was flabbergasted! As I was reading your take on the auction I thought, well... it certainly isn't a positive development (for bulls) but I doubt this small sampling can be construed as "the new comps"?

Then I thought, these ARE the new comps! Can you imagine the shockwave that sent through the lenders? I mean we've been getting this brand of news out of FL for awhile, but San Diego? I guess that settles the debate between Rich Toscano and the perma-bulls in SD!

skibum,
Thanks for the DQ link. I think this was the hightlight for me -- DQ admits the median blows as an indicator of the current market direction (explained many times on the RE blogs, and now enshrined in their press release).

The median price paid for a Southland home was $505,000 last month, the same as the March record. It was up 6.1 percent from $476,000 for April last year. When adjusted for shifts in market mix (i.e. fewer lower-cost homes selling now), year-over-year price changes went negative in January and are roughly one percent below year-ago levels. They are about two percent below the peak in June last year.
WOW!

"No, the FB is not math challenged, just short sighted in his greed. "

I agree with your basic premise that many buyers in the last few years were just looking for instant gratification. The difference though between the guy who buys that DVD player on credit today is that DVD players haven't been increasing in price by leaps and bounds, such as RE has.

For some, the issue was not that they couldn't wait for true affordability, but rather they chose the lesser of two evils (pay outrageous price for home today or even more outrageous price for home tomorrow). Or so they thought at the time....remember, for many younger buyers, the BA bubble is all they have ever known. For years, they saw prices increasing by double-digits, and for those who wanted a home, not an investment, they rationalized that now is better than later, when they will be "priced out forever".

I do not however defend any FB who didn't do the basic math to discover how their payments would balloon over the years. There's just no excuse for that.

DinOR, I had the same cautious denial but I had been following this auction and was even going to attend it. You might remember I actually posted the link when I saw the commercial for it. IMO this was basically a market test for the lenders, that's why I am stunned because the one at a time auctions I had sat in recently were surprisingly strong.

These were 98 homes that were auctioned, last month there were 608 new foreclosures in San Diego. The classic tip of the iceberg. I just know this will hit the local news today or tomorrow, and I am already bracing for the collective heartbreak as everyone who bought in the last 2 years realizes their houses are worth a horrifying fraction of what they paid.

It is fun to be right, and I thought I would be gloating on this day, but the misery that this is going to bring really puts a damper on winning this argument with my circle of friends.

"the huge rush to buy during the frenzy (leaving less demand for today)"

That is as much their problem as anything. With or without mortgage money "drying up" the consumer has budgeted about as much of their take home income (and then some) for housing as is possible. The wheels were bound to come off.

There is nothing wrong with deferred gratification. One just needs to recognize that enjoyment has a time value too. It is all but balance. But what isn't anyway? :)

Indulgence is a good external motivator. Sometimes you just need to spoil yourself so that you will want to get more. (I blame my Taurus Ascendant for this.)

Delayed gratification on the sell side can backfire in bubbles.

Yep. No one can take away what has already been enjoyed. One must allow himself a reasonable lifestyle. Remember, money represents purchasing power. If it is never exercised, it is same as rubbish.

Yup, I used to caution my friends that there might be warning signs but if I were right I did not expect an orderly decline. Oh, my house is worth 3% less than last year but I can still sell.

Like you point out the wheels do come off as all of the variables seem to hit at once. A year of year decline, high foreclosures, and then the inevitable tightening of credit feeding more and more foreclosures to a market that is not even hungry.

Malcom,

Oh that's right! I remember now, a really glitzy web-site touting it as a "major event"! (Well it sure turned out to be a "major event" now didn't it?)

year over year - sorry

Another observation you made, can you imagine the conversations, the yelling the shouting, the firings that are going on in some of the lender offices right now. Can you imagine the anticipation of the LA and Riverside lenders right now, those auctions are coming up this and the following weekend.

"a market that is not even hungry"

Eat! EAT!!!

Nope, not another morsel. My guess is that most of the people in attendance were bottom feeders "looking for value" (not the momentum players) of the last several years. This could set LA and SD becoming one city back by... another 5 years!

Whoever they were, it was a well advertised event with all of the houses available for viewing. I would say with a reasonable amount of confidence that a good percentage of the buyers today were aware of the auction. They were also cooperating with buyer agents, this is undisputably the new fair market value.

These prices are about 5 year old prices in my onpinon, maybe 2001,2002 range. It will be interesting because one of the houses is near me. I'm not worried because my strategy is to hold, and I bought at the fundamental value so I see it as a chance to move up, but I expect to see a lot of sad faces.

I am most interested in what the one in San Olijo Hills sold for. That was a 900K house with a 500K opening bid.

With Riverside's sales down 45.1% and San Bernadino down 46.7% I wish them well over the next 2 weekends. Oh and I can WELL imagine the temper tantrums going on in office complexes all OVER the Southland!

Too bad most of it is misdirected.

Man, I don't buy the core inflation one bit. My expenses have risen considerably since January, that's for sure. :D

But then, I use gas a corn. And meat. Steaks are going up steadily. :(

What happened to the latest thread?

I think it was deleted, judging from the early responses.
I have to say it was weird and irrational.

I have to say it was weird and irrational.

Huh?

Talk of dreams and Tsunamis and disaster..
The author was implying he/she may be able to see the future :)

So? What's wrong with some entertainment? :)

Nothing. I didn't say it deserved deletion, just weird :)

I don't have anything against entertainment it's just that many people that post or even lurk here aren't self-employed so to have that kind of talk on your monitor at the wrong time could create a whole lot of explaining.

SoCalMtgGuy had to create an entirely new web address just so people could keep up to speed while at work!

Who wrote it?

What did I miss?

You missed a new thread that was weird and scattered, and difficult to respond to. Then, it disappeared.

What did I miss?

Malcolm said the SD market has become unstuck and all hell will soon break loose. Casey evidently can make around $1000/month from Haterz. I think you could fund your kids education from Second Lifers if you try to generate a bit more animosity.

astrid Says:

> FAB What’s a top 5 grad school?

I should have wrote “Business School” since that is what most of my friends talk about when we say “grad school”. It is amazing how many kids start at GSB, HBS, Wharton, Kellogg, and Sloan with liberal arts undergrad degrees and relatively low math skills…

This time it is different. The H1B quota is now back down at 65000/yr. I believe it was close to 200K/yr a few years earlier.

In fact, I heard that 60%+ of H1B hopefuls who applied *on the first day* for FY2008 was rejected. Will foreign students still want to study/work here?

The person (who shall remain nameless) that wrote that last thread asked that it be removed.

How could you have known that? I wonder. ;)

FAB,

Thanks. Though I do somewhat disagree on the substance. I took an investment finance class at Haas one summer and recalled it being relatively easy for this math near-illiterate.

My father has a physics Ph.D and we were talking about math and science last sunday. His view was that the average person does not need to know much math beyond basic geometry, algebra, and understand the basic concept of derivatives and trig. We agreed that the main missing piece from general education is basic understanding for statistics and logic, which is easy for even people of low math skills.

"I should have wrote “Business School” since that is what most of my friends talk about when we say “grad school”. "

I would never even think B School when I hear about grad school. For me it was physics...or math...or finally law.

The only problem in learning about statistics and probability is that it ruins the fun of gambling for the rest of your life....looks too much like homework problems!

His view was that the average person does not need to know much math beyond basic geometry, algebra, and understand the basic concept of derivatives and trig.

If everyone knows how to use the four-function calculator well (square root optional), the market will be more rational.

DennisN Says:

> The only problem in learning about statistics and
> probability is that it ruins the fun of gambling for
> the rest of your life….looks too much like homework
> problems!

I had a professor that called the lottery a “tax on stupid people that don’t understand statistics”…