patrick.net

Unfortunately, for the two lost posters on here, the analogy of a pendulum and housing prices is not quite accurate. If you reach out and stop a pendulum, it loses all of its energy (momentum)

Lost? What I'm suggesting is that the policy enacted to contain the housing correction did not have the effect of reaching out and actually stopping the pendulum. Now, just to belabor the analogy - I don't envision the printing press as a great wind machine creating a draft strong enough to actually slow things down to the point of total stasis as the other poster suggests.

I should have stated that they temporarily stanched the bleeding or temporarily dammed the flood. The basic point remains that no force great enough has been implemented (or even could be) to prevent the historical trajectory of every other asset bubble of this magnitude, which is over-correction! Goddamn...

It’ll take many years to work through all the problem loans and housing excess, but unlike 2008 and 2009 when things were falling apart fast, it’ll be work through in an environment that is managable.

How do you propose we will work through this? What will be the driver? Inflating another asset bubble? Perhaps a bond bubble? What about the small business owner? How about unemployment, and the idea that it could take up to ten years before it reaches pre-recession levels? That's also assuming we don't have a bust cycle before then.

We are a consumer nation with an economy that thrives on serial financial bubbles. We had a rare opportunity to regroup post-meltdown...to implement a little shock doctrine in a more reformative and productive manner than it is usually deployed...and we blew that chance. Now we're in for a big fat hangover of debt liquidation and further downsizing for the foreseeable future.

Jamie Dimon of JPM puts it best, the economy goes when the bank goes, when the bank tanks, the economy tanks.

How can you seriously quote that guy as any kind of sage? Besides, is that dynamic really one to rejoice? Wall Street now controls Washington instead of the other way around. As David Stockman - Director of the Office of Management and Budget in the Reagan Administration recently stated in a NYTimes Op-ED, Wall St. owns Washington: "its unproductive trading is extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives." Same old same old.

2009/2010 buyers are the strongest of the banks portfolio due to incredibly high lending standard and serve as the new base.

Define 'incredibly high lending standards.' Do you refer to 3.5 down and a credit score of 580? Or perhaps you refer to the new thousand dollar down loans? I guess that does seem incredibly high in contrast to the NINA loans from 2006.

We’re not going to have any net loss of jobs, banks and business’ are positioning themselves for the next five years, not worried about hunkering up.

Yeah, when you own DC and can mark-to-fantasy, anything's possible. The smaller community banks are less fortunate. Witness: http://www.ritholtz.com/blog/2010/08/fdic-bank-failures-july-31-2010/

Of course, something like this is ripe for disagreement.

It was just a tad bit hopium-tinged...

Have you ever seen a riot start? Or a group of people go crazy? How about during the bubble years of housing, how many times did you hear "You have to buy! you have to buy! it's awesome!"??

When people go crazy, they need a small break to re-evaluate the situation. Once that happens, people start to think rationally. Once they have time to put in corrective measures to block their own problems, they'll feel more comfortable.

*THAT* is what the government did. Stopped everything, gave people time to breath and think.

It gave companies times to implement more safe guards and create new contingency plans, etc.

The selling momentum is gone. There are now investors lining up for houses, WAITING for them to drop, hoping and praying they drop because they've now got credit lined up, moved their wealth into cash where they can buy, etc. If they are there WAITING, it isn't going to happen. There is now a reinforced bottom, and there are feeders there that will gobble anything up if it moves. Because of those investors, momentum to sell will never build up.

pkennedy says

Have you ever seen a riot start? Or a group of people go crazy? How about during the bubble years of housing, how many times did you hear “You have to buy! you have to buy! it’s awesome!”??
When people go crazy, they need a small break to re-evaluate the situation. Once that happens, people start to think rationally. Once they have time to put in corrective measures to block their own problems, they’ll feel more comfortable.
*THAT* is what the government did. Stopped everything, gave people time to breath and think.
It gave companies times to implement more safe guards and create new contingency plans, etc.
The selling momentum is gone. There are now investors lining up for houses, WAITING for them to drop, hoping and praying they drop because they’ve now got credit lined up, moved their wealth into cash where they can buy, etc. If they are there WAITING, it isn’t going to happen. There is now a reinforced bottom, and there are feeders there that will gobble anything up if it moves. Because of those investors, momentum to sell will never build up.

Except in west Oakland

@riobertoaribas
Where are the big banks failing?
Where are the banks without money to lend?
Where are the companies with no plans of action? Like pre bubble bursting, no one was prepared. Do you see them around now?
What companies have been reporting massive lay offs like in 2008?
What companies are reporting horrendous numbers that aren't sustainable? What companies haven't balanced their budgets?
How many people do you know now that say "I'm ready to buy..... just waiting for X to happen" vs 2008 bubble crash?

We're way better off now. There might be issues with housing, but there aren't enough issues to create the momentum required to create another free fall. We need many many many problems to hit us all at once to create that, but many have solved. THAT is what is different.

IF prices started to drop again, there would be lines of investors ready to buy things up, and home buyers sitting on the side lines waiting to buy up anything value priced.

thunderlips11 says

Simchaland, sorry man, but I disagree about the rich going down with the rest of us.

I didn't say that our elite aristocracy would crash with the rest of us. Of course they'll keep all the spoils of this class war they have been waging against the rest of us no matter what happens.

I did say our "rich country" will eventually run out of money. By that I mean that we could easily become a 3rd. World country. We're already "depaving" roads because of lack of funds. We continue to cut and gut our education system (which is already gutted and very broken) so that we continue to churn out masses of ignorant fools who are easy to control with endless propaganda and who won't be able to compete with the rest of the world for 21st Century jobs. We'll always have the very very super rich elite aristocracy. What will be different once we (the rest of us) are "tapped out" due to our love for cheap crap from overseas, we will see the rest of us join the peasants in the other 3rd. World countries making the gap between rich and poor larger and living conditions for the rest of us (the working and not working poor) similar to the living conditions of Sierra Leone.

@thunderlips11
I didn't say it was picking up, I said it had stopped falling. We are way better off now, because corporations, banks, the government and consumers understand what kind of market we're in. They'll behave accordingly. The government knows it can't cut the deficit now, so it won't try. Corporations know this isn't the time to spend large and higher expecting rapid growth next year. People know that they need to save more now, for an emergency. In 2008, this wasn't know. Not until the crash did people start changing their behavior.

@robertoaribas
I didn't say investors were willing to pay todays prices. I said they're lined up and waiting for THEIR prices. Some want pennies on the dollar, some want 10% off, some want 5% off. Whatever they want off, they're sitting on the side lines waiting. We stopped falling because investors bought enough to hold the housing where it is. If it tries to slip, the next batch will jump in and hold it. No more free fallings.

Hey all,

Recently discovered patrick.net and have been devouring the articles and conversations as a lurker, just wanted to add my relatively-naive two cents.

My wife and I are currently waiting to close on our first house. We've rented together for 11 years and found a place for sale that we love ... closer to work for both of us, close to the schools we targeted for our little girl, end of a cul-de-sac, backs to open space, nice sized lot, new roof, new windows, clean inspections, etc.

I do understand the "it's not the right time to buy yet" side of stuff (or at least I think i do) and we did have some of that "we can't wait to own our own place" thing going on, but we also felt that we had done well saving all of this time and thought the timing was right for us.

The bottom line for us was finding the place that we could see ourselves staying for a long time that felt like home. We're not in the house yet, so I can't say 100%, but it sure does feel right at this point. I guess time will tell if we made a bad decision, but right now, we are very happy with it and are excited to get through the process, move in, and make the place ours.

Thanks all for contributing the interesting theories and explanations ... much of it is above my head, but I am learning a lot here.

That's all, just wanted to add one more little note from a life-long renter that recently went to the other side.

We don't need tariffs, this isn't a tariff situation. You're talking about "cotton" quotas. We're talking about a currency imbalance which would require a tariff right across the board for all chinese goods. All that would happen is they would move to thailand. We would then need a tariff there. Then to the next place, then the next, then the next..... If we apply a tariff on every country, we're essentially just readjusting the currency. A tariff is to protect one market, readjusting the currency protects everything -- which is essentially what we need.

Indian IT workers are getting close to costing as much as American counter parts. Not quite there yet, but getting very close, unless you're Intel and hiring 20,000 and economies of scale work for you. For 30-40 workers, you'll end up paying about the same.

Chinese manufacturing isn't supposed to be that far off american markets either. I haven't really looked at the specifics, but once all is said and done, it probably wouldn't require much inflation to bring them up to par with manufactures here. The chinese need to get big enough to service themselves, and then I'm pretty sure their wages will go up and they will see that they need a better exchange rate on their side to do business over here.

I'm guessing that you think if we tariff all lowly paid countries, that we'll instantly close all the loop holes and that no one will think to look for others, or abuse other systems in importing?

A tariff system on everything isn't going to work. Cutting countries out of that equation isn't going to work well either.

When IT went to India, we needed more management here to manage those workers. So people here did get new jobs, new management jobs that wouldn't have existed. Regardless, the point is that things are already balancing out. When you open up the entire worlds work force to free trade it's going to take quiet a while to balance things out. To think that only 5-7 years ago, you could hire Indians for next to nothing, and now we're paying them similar wages? Thats a huge balance that shifted very fast.

It worked out well for us (we lived for around 18 months rent-free due to the bankruptcy and delays in the eventual foreclosure.
But, we had to move, and it’s hard to find a place to rent when you’ve got 3 kids and a dog.

Its also hard finding a place when you sit on your arse for 18 mos rent free doing nothing to secure your future. I assume your Republican values went out the door when you realized you could get a freebie just like everyone else heh?

pkennedy says

I’m guessing that you think if we tariff all lowly paid countries, that we’ll instantly close all the loop holes and that no one will think to look for others, or abuse other systems in importing?
A tariff system on everything isn’t going to work. Cutting countries out of that equation isn’t going to work well either.
When IT went to India, we needed more management here to manage those workers. So people here did get new jobs, new management jobs that wouldn’t have existed. Regardless, the point is that things are already balancing out. When you open up the entire worlds work force to free trade it’s going to take quiet a while to balance things out. To think that only 5-7 years ago, you could hire Indians for next to nothing, and now we’re paying them similar wages? Thats a huge balance that shifted very fast.

And how would you blonde eyed, blue haired crooks know what a "Indian" is making?

Dey Tuk Our Jurbs!

@john
When renting, depending on the landlord, you could end up with something broken for a very long time, and/or patched up 50 times before it's ever replaced. When owning you get it done under your control. There are always landlords who are great, but the ones who survive and flourish are the ones who figure out how to do things as economical as possible!

Generally owners are less transient and more vested in seeing their neighborhood taken care of as a whole.

This is a BALANCE SHEET Recession, I just listened to awesome interview on Bloomberg (Aug 21st 2010) I hope some if not all of you give a listen, I really found it one of the best I have heard in awhile. Link here,
http://media.bloomberg.com/bb/avfile/News/First_Word/v8YrmQNUbHXI.mp3

Homes are great places to dump extra money. The renovation trap begins right away, even if you move into a brand new house, you have to "upgrade." I went from owning to renting, and my monthly expenses dropped by 50%. It is not just the extra money that I saved by paying less rent than my two monthly payment. Certain utilities were included, and of course, so was the property tax. I am not sure that "color" is a good enough reason to start paying double again, because it would be my money going into buying the paint. I am growing fond of white.

cvoc13,

SInce you think oil will become so dear, I hope you are a renter in Brentwood, and not a mortgagee.

Thomas,

Some people told me when that happens it won't matter so much because the Bay Area will already be thriving on "The Next Big Thing" that Silicon Valley comes up with. Some have put as much faith into the Coming of The Next Big Thing as fundamentalist religious put into the Coming of Christ.

I am more skeptical about it.

Next Big thing ? In terms of the IT ... Doubtful. SV has done its thing. Thats over now.

If you want to consider the next big thing, try growing hemp genetically changed without THC content which could be used for cheaper paper substitute (Pulp), cheaper and much more cleaner and eaily replenished bio fuels, and of course cheaper fabrics. This can be done almost anywhere domestically and would create its own new industry.

The "Big Needs" which require cheaper substitute is where you will find the "Next Big Thing". This is the lesson you can draw from SV success.

Thomas,
the "Big Thing" for tech in what became the Silicon Valley region was for a very long time defense. Had nothing to do with cost reduction/enabling deflation. If anything it was the opposite, probably the reason my then-colleagues for a time referred to the venue of their lifelong employment (or at least at the time they had faith it would be lifelong) as "the lazy-L".

You could lower the prices of all the TECH equipment in, that is SUCH a fractional part of ones budget as you don't buy a laptop everyday, or every month, once or twice every couple of years, (Durable equipment) if you are meaning that because the costs go down on tech. that will cause the companies to make less profit, and therefore pay less etc... the profit margin will still be high. BA prices are going lower over the next 20 years (much like Japan, and no one thought it would happen there either) I think the stock market will be making new lows in the next two years (sometime in that time span)

As to if I am a renter or mortgage holder, I used to be a mortgage holder (twice, I have been a home owner since 1982) Back in 2008 I downsized from 3000 Sq. Ft. to 740 Sq. Ft. apartment and I love it when compared to the hour drive each way, and the taxes, unexpected repairs (even though I bought new home) Fuel jumped up and my fuel bill went sky ward. Now that I rent 7 miles from work, quality of life went way way up, costs way way down, and I see a new trend of both wanting to make a smaller carbon foot print and or need to use less, (as costs will be high to use any and all resources, fuel, food, raw materials) are all going higher. So between the want, and need to use less, go smaller, and live more responsible as a population. Loans are going and should be HARD TO get, I would love to see 50% req. and 7 year max that way we could work to live and not work just to have a house, and in fact two working to have just to have a house.

Oh.

Weird, I thought your profile was Brentwood. Sorry for the mistake.

It did, thank you helped me realize I had not updated it... No need to apologize, I don't want to be that GUY that is slamming anyone, I want to have a spirited well thought out dialog, I really feel for many reasons, that our Ca. BA in-particular is OVER PRICED and headed MUCH LOWER I want to talk about it, I live eat and breath economics (as a laymen) but I get off on the thought pattern it makes us think like.

cvoc,

Some inlaws of mine relocated to a townhome settlement there, the breadwinner works as a staff at UCB. I really like their location because it is easy bicycle distance to the BART. Of course they overpaid for it in 2008 but that is a different story.

They drive to the BART but since it is such a short distance could easily handle peak oil gasoline prices.

If you ever wanna get together at the Starbucks in "The Shops" where sometimes I go during seemingly endless weekend afternoon visits sitting around the living room listening to inlaws "catch up" about others who I don't know who/what they are talking about, gimmee a yell.

Wow, this topic has been all over the place.

At the end of the day, the pro-housing arguments are predicated on the recession ending and the economy (jobs, wages, etc) continuing to recover. IMO this is not a sure thing. We could quite likely see a return to negative GDP this year. People are still getting behind on their mortgages, banks are still failing (118 so far this year), unemployment claims are edging back up - all signs that the last few quarters of growth was pure govt papering. Now that the support is being withdrawn the downturn is resuming. And I believe the Dems are going to get trounced this Fall so the possibility of more stimulus is diminishing by the day.

Instead of pendulums and dams, my analogy would be a boulder and a hill. The govt stopped the boulder halfway down the hill but the potential energy is still there. If there is sufficient strength in the economy it could be moved back up the hill but I don't see from where that energy would come. Most likely the govt support will continue wither and the boulder to continue it's move down the hill.

So that's the reason I'm not buying yet.

I like the analogy of the Bolder being on the hill, rather apt... Nicely done. With tomorrows data (existing housing sales likely to be down 16% consensus is 12.9-13.2 Bloomberg) I think its going to come in worse then that, 25% is my personal GUESS with revised GDP at .5 consensus is 1.4 I think jobless claims on friday.

I am thinking 535,000 and that will bring the stock market way way down, on any giving day this week if not all week.

But bottom line this weeks data is going to confirm what many of us have been saying all of last few months of 09 and all of 2010 and we have a lot more to go through. While none of us want that to be the case, when you stop and think about it, almost has to be. Unemployment headed higher, foreclosures, banks, etc... we are in a deep deep de-leveraging hole, that should take about 5-7 years total, and we are in year 2 of 7 and very few of these bulls will be super surprised to see where housing pricing in the BA for example so much lower, and destine to stay that way.

sybrib - we can hope. But as i recall also, the founder the Pet Rock, who came from Los Gatos did very well. Couple of guys from Santa Cruz made the first Wine Coolers, bright idea.

Pet Rock.. well he made a cool million on that ...