patrick.net

I am young, married, about to start having kids and am in NEED of a home

Hold off having children until you can afford them. If you are young, you can wait a few years until you save up some more downpayment or move to someplace where houses are cheaper. No one is forcing you to start a family now.

GC is a woman Says:
That’s a disturbing image. Why did you post it?

What are you talking about? The Ramen outfit?

SP

Or you could raise kids in apartments.

I think people who know they like kids really should have them earlier rather than later. Having kids in your twenties or early thirties still gives you some years of asset accumulation after the kids left the house. It also forces the family into more frugal habits early on.

Plus, grandkids before you get too old to play with them. I thought it was universally understood that the reason to have kids is to have grandchildren. Kids are work. Grandkids are fun.

http://www.mercurynews.com/ci_5900084

MORTGAGE DELINQUENCIES RISING SHARPLY; EAST SIDE OF SAN JOSE IS A TROUBLE SPO

lunarpark,

It gets difficult to delve into these articles objectively. The stories become drearily alike. A few paragraphs in and you find "the weenie". Sarah Portales' realtor was ALSO her mortgage broker (getting paid on both ends of the transaction!). Gosh, I wonder if that might cloud my judgement?

She is paying $3500 a month? It boggles the mind. I don't care what her mortgage broker told her -- sometimes, you have to be the one to say "I can't afford this." Because Suzanne will ALWAYS say "You can do this." That's what salespeople do.

"on San Jose's East Side, which is 56 percent Hispanic and has a median household income of $65,015 - lower than Santa Clara County's median household income of $83,568"

These incomes are shockingly, bafflingly low. I guess, if nothing else, this just continues to prove that most homeowners did not buy recently. How could they?

But the coup de grâce is this one:

"Now she's fighting depression at the thought of moving into a rental unit and praying for a good outcome."

Rather than raising her kids in East San Jose, watching every dollar, she could be renting a house in Saratoga. Life could be much, much worse.

DinOR Says:
It gets difficult to delve into these articles objectively. The stories become drearily alike. A few paragraphs in and you find “the weenie”.

The other fun thing about these articles is to play one of the following games:
1. Where is "The Other Hand" - the American MSM always likes to take no stand on most issues, and stretches itselt to great lengths to cover both sides of everything.
2. Spot The Spin - particularly rampant in most REIC stories, where facts are used in much the same way as a drunkard uses a lamppost - for support rather than illumination. (not my own line, borrowed it from somewhere else)

SP

"Her monthly payments are $3,500 and her income is slightly less than that."

and then...

"I was ignorant; I didn't know how it all worked," said Portales, 48

Okay, step one, mortgage payment should be less than your income.

I've seen this reported about 500 times already but it still boggles the mind. Can people really be that stupid and that bad at math?

(The answer is yes. The other day, my boyfriend told me his second grade teacher denied the existence of negative numbers. LOL)

"for support rather than illumination" LOL!

I also found myself a little shocked that there is such a huge part of CA's population that at 48 years old... are just NOW discovering the benefits of home ownership? I don't want to seem judgmental but it wasn't a priority for Sarah until 2005.

At that point she should have been looking for a modest townhouse, beefing up her retirement accounts or resign herself to being a lifetime renter. I know that sounds cold but thousands of native born Americans retire to Mexico (or elsewhere) every year!

Like many in retail securities I've had to seriously modify what I thought my retirement picture would look like. Major revisions. I'll be working longer, likely have a smaller "critical mass" and have downsized our expectations in ways I can't even begin to describe. That's life in the big city. Really, I'm "o.k" with it.

Her house has bars on the windows...the indicia of a bad neighborhood.

When I sold my Cambrian Park house in April 2006, the buyer was a Mexican national (legal immigrant) represented by a buyer's agent who also was his loan broker. This appears a common situation among brokers who represent minority purchasers. My own seller's agent ranted to me in private how much he dispised these vultures. But then again I sold for more than the asking price in under a week.

It would be interesting to see what the comps on my block are now.

Dude, what lit a fire under the DOW today?

I don't know if the FB loan situations are based on bad math, ignorance, or stupidity. I would cite the willingness of so many people to trade future security for gratification today.

Consider the fellow who pays $18/week for 10 weeks at the Easy Credit Store to buy a DVD player that he could buy at Walmart for less than $100. He isn't too stupid to see he is paying double, he just wants the DVD player today and not in the 5 weeks it would take him to save. A rationalization could be " I need to build a credit rating." This situation is not unlike the FB with the clown loan. The FB just wanted the big show-off home today (or HELOC for toys), with little regard to his finances tommorow. FB rationalized it as "always goes up" or "cheaper dollars" or my favorite "put the equity to work."

Notice that for decades we have had extended term car loans, car leases, department store easy credit, and low minimum payments on revolving charges. All were designed to take money from the "f*** the future, I want it NOW!" crowd. This mentality has been with us for a while, but was excluded from the home buying arena by lending provisions. "Nothing down, Bankers Frown" was once a proverb. With the introduction of lax home lending standards, this "mentality" was able to extend itself into, and thus pork up, the housing market.

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

DennisN,

This conflict of interest is common enough in the upper income ranges as well (but it's almost a given where minorities are concerned). I didn't notice the bars on the windows but at $589,000 it sure looks smallish?

I don't wish bad on this person but with a 10 y.o son, an 83 y.o mother (and no mention of a husband) virtually ANY alternative would have been preferable.

It's not my intent to make this a racial/cultural issue... b/c for me it's strictly economics, but I can't for the life of me understand why a solid percentage of people that in essence *were priced out don't make a bee line south the minute they're retirement eligible? If they have "little America's" south of the border what would be so wrong with with returning to the country of your birth when you retire? At least you wouldn't have to get roomies to make ends meet and work until you drop.

FAB,

What's a top 5 grad school?

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?