patrick.net

OT,

Just curious, has anyone else ever rifled through C/L for say... Baja Cal? It just struck me that while still greatly inflated in price you would be getting about 4 to 5 times the house than a similarly priced home virtually anywhere in the U.S?

Why!? (It's the SAME labor!) Were illegal laborers in THIS country paid THAT much better? What does the avg. tile guy get paid down there? Overall, the materials look (and claim) to be authentic vice the faux stuff used here? Why is it that million dollar homes there LOOK like million dollar homes yet $1 mil. homes HERE look like.... 400k homes?

The quality of the post articles at Patrick's site are very good. That ETrade article is eye openeing. It suggests that even prime borrowers may walk away from homes when they realize they are worth 60cents on the dollar.

Lets get back to some housing numbers:
Take a Mountain View home bought near peak for $1,000,000. Suppose 20% was brought in, so the note was $800k. Using Etrade model of 60% we wipe out $200k in equity and are still upside down by $200k.
That home selling for $600k would mean you need $120k down, and for the $480k note and 30%gross pay rule you need $140k annual income. Which is sustainable at about single earner techie ioncome. However, even $600k is sustainable only so long as job markets are willing to pay workers a 100% premium to stay in the bay area.

What does everyone here think? Mountain view returning to median of $600k seem likely or reasonable?

Duke Says:
That home selling for $600k would mean you need $120k down, and for the $480k note and 30%gross pay rule you need $140k annual income. Which is sustainable at about single earner techie income. ... What does everyone here think? Mountain view returning to median of $600k seem likely or reasonable?

The only thing you fail to take into account in your example is this - while the 140K annual gross income requirement _can_ be met by a single tech worker income, that schlub will be competing with a bunch of 200K dual income couples who will be willing to bid just that little bit more. And there is (still) enough stupidity going around for that to happen.

That is the main reason why I believe that a slow job market is the key. You first need to shake the belief that both incomes are secure in the near-term.

In the last real recession (back in the 90's, not the kid-stuff in 2003), even dual income families lived in fear of losing both incomes. If we get even half-way to that point, you will have a quick reversion to price levels that are consistent with single income.

Yeah the early 90s was a recession, but I'm old enough to remember the 70s, that was a Recession.

We're heading back towards that, at least. I think worse.

Duke,

So true. One "could" argue that ETrade really was out of their depth tinkering with mortgages but the bottom line is that Citadel bought the portfolio for 27 cents on the dollar.

We can further assert (b/c ETFC operates on such narrow margins) they simply didn't have the luxury of carrying toxic paper hence the fire sale? Whatever the case it's clear there is little appetite for these securities.

ex-sunnyvale-renter Says:
Yeah the early 90s was a recession, but I’m old enough to remember the 70s, that was a Recession.

Ha, the 70's? That was a joke compared to AD66, I was in Rome at the time. I first heard about the revolt in Judea when I was having a cup of fine Persian mead with my old friend Antonius... now THAT was a recession.

Anyways, I didn't mean to start a pissing contest about which recession was worse. I was just referring to the last time there was widespread anxiety about jobs in the Bay Area.

SP,

Yea - another of the articles today points to 15-20% drop in home prices, unless we get a recession. Coupled with job loss we could get the 30-40%.

I wonder how many are now weighing the vulnerability of their jobs?

SP,

I took your observation to mean that it was very sector specific. More to the point, dot com start-ups. Unless you were at a "pink-slip party" who cared?

Bap33,

Peter P's link about CO2 emission by humans (the human body) contains
lots of bogus calculations based on rectally extracted numbers. It is
too much work to dig out the errors from the flurry of undocumented
constants and equations, so I will present instead a simple argument to
prove my point. Feel free to dig into said web site yourself and find
out where the error is.

Here goes:

The quick and easy way to look at the CO2 emitted by cars versus humans
is to consider the power consumption of the two. CO2 emission is generally
proportional to the power (energy/time) consumption of the two systems
(car and human). Now,

human = 100W (watts)
car = 200kW (kilowatts)

That means there is a ratio of 2000 (200k/100=2000) between consumption
of cars and humans. If the average human burns oil corresponding to
30min/24hrs of driving per day, that is a factor of 48, or 50 for
simplicity. Hence the car uses 2000/50=40 times the energy/day of a
human. So the CO2 generated by human+car=41 and by human=1.
This means CO2 emissions are now 41X the amount of just the human!
I repeat, 41X! This not a small number!

The analysisis somewhat simplistic, but the point here is to see through all
the mumbo-jumbo and pseudo-science. It should be quite clear that a
statement that burning of fossile fuels is comparable to CO2 produced by
human bodies living and breathing is is just plain nonsense.

The upshot: CO2 emissions is all about the level consumption of fossile
energy.

IMHO I think the 70's recession was about a lot more than just economics? WE... were the 1st gen. slated to not do as well as our parents and it created a TREMENDOUS amount of apathy! (This is when everyone tried to get into the forest service but wound up at the post office).

There was a lot of resentment that (unlike our parents) we *wouldn't have a "job for life" and all of the bennies that went along w/ that. We can look at Japan's "outcasts" and more recent generations but "I" think the kids of the 70's were the first to engage in basically an economic boycott. I'm willing to bet a lot more "communes" were started in the 70's than the 60's "when only Jazz musicians were smoking marijuana"*

"Pencil-thin Mustache" (Jimmy Buffet, recorded IN.. the 70's actually)

What does everyone here think? Mountain view returning to median of $600k seem likely or reasonable?

Most people I know make at least $100k - and thus married couples are at least in the $150k+ range. (I honestly don't know anyone who doesn't work in tech.)

This is definitely going to keep Mountain View high. But South San Jose... hm.

I agree with SP. But, for the job market to come down, the Apple and Google share prices have to come down.

A whole bunch of the new web2.0 startups have to join the deadpool.

VC money will have to dry up. All corporate spending will have to freeze and reduce.

I remember how horrible the job market was in 2001-02. Seems like a very distant memory now.

I wonder if people will still talk about "global warming" in the coming recession.

Hmm, should I offset the CO2 produced by my hummer or should I put milk on the table?

I think most people in the 150 -200k income group probably have already bought a house - the question is did they over extend themselves to get into the most expensive house possible adn did they use no doc or arms? Also, South San Jose is falling already - I have seen a lot of price reductions and indications of short sales in the MLS for that area - I originally thought about buying in the Blossom Valley area - but seeing what is going on - boy am I glad that we didn't!

Peter P,

Now I know you didn't mean to imply any of the rampant fraud of the last few years could cause a recession...

Go ahead, take it back.

Right! That's something I often wonder about? I understand people being concerned about major issues but you know the Weatlh/ATM Effect has gotten out of control when people are "creating" issues. In the late 90's in PDX we pondered making 3rd sex bathroom facilities mandatory!

After the dot com bust it suddenly... ceased to be a burning issue.

There's a spike up in Freddie Mac (FRE) right now, presumably because the word is out that Bush will speak about his new it-is-not-a-housing-bailout-program tomorrow.

What is a 3rd-sex bathroom?

Hi, I am a reporter at the Washington Post working on a story about Paulson's bailout plan. I am looking for people -- in the D.C. region -- who think it isn't a good idea. If you are interested in being interviewed on this issue, please send me an email at merler@washpost.com. Thanks, Renae

There are legitimate ecological issues we should address. I believe clean, fresh water will become increasingly scarce. The implications are more dire than anything "global warming" will deliver.

Yet people are more worried about "climate change." Perhaps people are really worried about their SPECIAL homes in SPECIAL areas near SPECIAL coasts?

Peter P,

I have to call you on this. Since yesterday, your position on CO2 and climate change has changed.

It went from, essentially, "I don't believe in it because people exhale nearly as much CO2 as cars produce" to "I don't care because food on the table is more important" to "since we will have a water shortages anyway, who cares about CO2".

Even ignoring the incorrectness of the first position (as supported by your weblink),
it;s pretty obvious that you just really do not WANT to care about CO2 and global warming, and any excuse will do.

It is a real problem, and it is a problem when people just do not want to deal with it.

My position is largely intact: "global warming due to human activities" is an issue only when people think it is.

It is similar to "WMD in Iraq."

BTW, that weblink merely illustrated that data can easily be made to support one conclusion or another.

Do you know how strong the CONDITIONS (NOT arguments or evidence) of "global warming" are:

1. atmospheric temperature is rising
2. CO2 emission is the principal contributor to the rise in atmospheric temperature
3. Human activities (most the burning of fossil fuel) is the primary cause of CO2 emission
4. WE CAN TAKE STEP TO REVERSE (1)-(3)

If any of the above items is wrong, it is pointless to worry about "global warming."

I think (3) and (4) are particularly obnoxious.

rmerle,

Please contact Michelle @ www.michellemalkin.com. Not ONE of her regular posters seem to favor ANY form of bail-out! See in particular her recent thread:

Bad Medicine: Hillarycare for the housing market

Oh that's right, she and the WaPo aren't exactly on the best of terms. Perhaps... if the MSM was a l-i-t-t-l-e more ahead of the learning curve next time....

Peter P,

Our mayor at the time (Vera Katz) was... ahem, anyway the notion of the "3rd sex bathroom" was for those that were uncomfortable using either of the OTHER two sexes bathroom? Not to worry, it stopped when the margin calls started (kind of like now).

“3rd sex bathroom” was for those that were uncomfortable using either of the OTHER two sexes bathroom?

Isn't it called diaper?

Peter P Says:
I wonder if people will still talk about “global warming” in the coming recession.

Hmm, should I offset the CO2 produced by my hummer or should I put milk on the table?

Fair comment, and this is what bugs me about markets and the economy vs doing the right thing by the environment -- housing prices for the most basic housing get driven up to the limits of affordability, and beyond, so that no-one has any cash to do any green renovations or worry about these things. I guess many householders would rather do new floorboards and a pergraniteel kitchen than fit watertanks and solar water heating also. We get strongly conflicting messages from the media and from society itself -- you should conserve and be worried about water/recycling/climate/oil/Africa, but you should live the high life and glorify excess and waste and live for the moment and meeting one's own status and esteem needs...

@sriramgopalan

I remember how horrible the job market was in 2001-02. Seems like a very distant memory now.

I started my business during that period, it was a nerve-wracking experience and is still freshly-etched in my mind. If it happened again, we could hold out for five years under those conditions before needing to downsize, but it would still be rough. The only factor that saved my bacon back then were the few sales and marketing skills I had picked up to differentiate ourselves from the competition. The most important lesson I learned from that experience was the recessions were when customers truly revealed what they really valued out of your offerings. There is a silver lining to these recessions however: they build up enormous pent-up demand for services at the end of the cycle, so if you manage to hang on and survive just long enough to make it across that line, you'll find not only a lot of business with your existing customers, but also pick up the customers of your competitors who didn't make it.

Peter P,

LOL! Yeah, ya' know, I believe that's what they're called!

DS,

If you back to my earliest posts here I think you'll find even then I was at a loss to explain why the avg. American (or Aussie) guy would care about hardwood flooring? Shouldn't he be out in the garage... tinkering?

The first and most important function of a fridge is that it keep things... cold. After that, if it's not making noises you can't sleep through at night..?

We get strongly conflicting messages from the media and from society itself — you should conserve and be worried about water/recycling/climate/oil/Africa, but you should live the high life and glorify excess and waste and live for the moment and meeting one’s own status and esteem needs…

Only if all natural resources are properly commoditized we can count on the market to solve problems.

Remember, market fails because we fail it.

that's right, should be out back souping up the lawnmower or cleaning the dipstick on the chevy -- damn thing keeps getting oil on it...

nothing like a $4k fridge with a built-in TV and Internet connection to get back to basics -- wonder if al gore's got one?

Peter P Says:
Only if all natural resources are properly commoditized we can count on the market to solve problems.

Remember, market fails because we fail it.

yes, if only we could live up to the expectations of that noble market. i thought markets were meant to serve people, not the other way around?

we need some very serious people in the market, uninspired by the profit motive, to sit down and commoditise everything properly, and get people to stop buying those damn beanie babies...

and get people to stop buying those damn beanie babies…

Do they still?

IMO Global Warming is the latest racket to fleece Joe6P.

Yes its getting warming but its probably solar activity.

I'm really really impressed with how slick they are at making billions off global warming literally they are charging us (the taxpayers) for AIR! Carbon Credit trading, huge handouts to corporations to study it, etc.

Like Enron energy trading, the 'Carbon Credit Traders' actually produce nothing and only siphon off actual work and money from real workers. Quite a swindle.

Google "The Great Global Warming Swindle" and you will find lots of info.

There is ALWAYS multipe end of world memes floating around. It used to be only religious end of world. Then it was nuclear war and communism. Also in the 70's another Ice Age was coming, and CA was going to fall off into the ocean (a friend of mine moved out state in 77!).

Now its Terrorists and Global Warming they are using to fleece your wallet. You are NOT special enough to have the world end in your life time - the sun will burn out in 3 billion years, hard to raise money for that one huh.

Oh I also remember in 1987 they said by the year 2000 that 80% of the world population would have HIV. That one never happend either along with Y2k meltdown scares (y2k fleecing was OK since I made money off that artificial scare as a programmer, the rest I'm angry about! hehe)

Since it is either warming or cooling, we are always going towards either "global warming" or "new ice age."

Nice try.

Peter P Says:
and get people to stop buying those damn beanie babies…

Do they still?

they stopped...

I had a Y2K+7 scare on my ERP this year, the idiots had coded in a 'Julian date' field throughout the financials of 4 chars, starting in the 1980s, with 10,000 days on it. They thought (hoped, prayed) customers would have upgraded out of it, but lots still were still using the earlier version, including a certain entire Defence force. Never mind, they decided to charge their customers $100K-$1M to fix their own bug...

HelloKitty,

I agree, Carbon trading is a questionable practice. Basically, the worst polluters of CO2 are given a free pass because they have been bad, and then they even get paid for having been bad. A better method would be to penalize them up front and then remove the penalties as the emissions are reduced.

As I said in an earlier post, most government programs get corrupted into corporate welfare. What else is new.

HIV, Y2K and (let me add) SARS have all been exploited for profit. So has Terrorism, as you mentioned. But that should not stop us from trying to stop real problems. And these are all real problems. although by varying degree.

Nice to see an analyst that "gets it". Show me the LTV!
"The modern foundation of the lending market is about to be uprooted as FICO scores, the long trusted gauge for lenders in determining risk and price, will prove virtually meaningless in this credit cycle," wrote analyst Meredith Whitney in a research note.
"Today, as a higher percentage of people own homes and many of them have taken on 'too much house' or high LTV [loan-to-value] loans, things are different," Whitney said Wednesday.
She added that many individuals previously considered "prime" customers who took on loans with LTV ratios of 80% and higher are performing closer to subprime loans.
"For those lenders overly weighted to FICO scores in underwriting, we expect the rudest awakening," Whitney wrote.
"We believe LTV analysis will prove far more predictive of not just loss frequency, but more importantly of loss severity," she said, noting that she believes investors have underestimated the severity of the current credit cycle, "as we expect losses to be far worse than in any period in U.S. history."

I agree, Carbon trading is a questionable practice.

Sigh...

IF "global warming" is real, carbon trading is our only hope.