patrick.net

For those of you in CA this is a death knell. Only a fool thinks the government can continue to supoprt $700K house prices in CA despite a collapse elsewhere in the country. 30% COL and other trumped up price support in CA cannot be very far lived as the country continues down the hole of irresponsible spending and outright govbezzlement.
$88,976 versus $387,700 (http://www.neighborhoodlink.com/zip/94105)
So, possible 436% overpriced.

What people fail to realize is we are still in a market with tons of fluffy cash. People have cash in their accounts. Cash in their 401K. Credit cards with credit available. As the bleed out of the middle class continues then this cash is the green blood. Then the ability for people to over-pay for housing continues to diminish. This is why housing is continuing to fall. How many of us are in situations where we cannot sustain our current housing costs if we suffer a large medical bill, a pay reduction, or a layoff? The average is about the average middle class person. These are the people being bled out. So, the market with no mortgages may be coming. If you are insightful then you realize a market in which the government underwrites most of the mortgages is really not a free market and not a market with mortgages.... it is a social experiment where money is transferred from some groups (those holding cash or buying treasuries) to other groups via bailouts and mortgages on priced-mulitplied houses.

In 2007 I suggested the gubbermint might eat up the housing mess. I betted against it and lost my shorts; but, now we will near the time where the market adjusts. I do not believe even the US government teamed up with the world elites can game economics. The laws of economics are laws. Housing is headed way down in inflation adjusted terms.

Anyways, its a controlled collapse of housing prices. Ongoing.

Some have a vested interest in CA, others outside of CA like North Carolina have no interest in keeping CA home prices inflated well beyond their normal historical trend line. And certainly will not foot the bill as tax payers. Its unthinkable others should subsidize the greed of a few primadonna.
CA home prices, especialy in Bay Area, will continue to correct regardless of the vested interest.

Cook County sheriff is stopping the enforcement of evictions until foreclosures are proven. http://www.maxbankruptcybootcamp.com/cook-county-sheriff-plans-to-halt-foreclosure-evictions-again

Such places exist, in NW PA or other former factory towns. They have very cheap houses, and the reason they are so cheap is the area has high unemployment and low paying jobs. There is no industry, commercial districts or tourist attractions around. They are far from the interstates, so even a reasonable commute is out of the question. This is why they are so cheap and while we think what bargains they are, nice houses for under 50k, small houses for 15k, you have to realize that these people are making minimum wages at best. So you sell your 600k house in California or Northern New Jersey, move there and get yourself a really nice place for 50k, and pocket the 550k. Unless your really good at investing, start a mail order business or can telecommute to work, you can forget about getting another well paying job. In 5 or 10 years you will burn through your savings and be in the same situation as the locals. You children will have no future to look forward to living in the area, they will have to move away to get good jobs.

The only reason there is any upturn in Case-Shiller is government intervention. In order to keep the upturn going, they will have to intervene forever, or hope that job creation starts again. Neither will happen....at least not anytime soon.

To me, a market with no mortgage means there will be walls built for the housing for the poor, middle and rich that it would be hopeless to penetrate. The rich will collect rent from the poor to fund the houses only the rich people lives in.

You can't put the mortgage genie back in the bottle, the only real question is how the industry will revolve.

SF ace says

To me, a market with no mortgage means there will be walls built for the housing for the poor, middle and rich that it would be hopeless to penetrate. The rich will collect rent from the poor to fund the houses only the rich people lives in.

I think that's how it works. Or maybe the rich will build the tenament houses and the government buy them for the poor. That's how it works now. Poor=no mortgage or gov housing. Middle class=mortgage. Rich=Receiving end.

Just go south of the border and you'll see what a housing market with no mortgages looks like.

I've no doubt there are areas like this in the US, but the are very much at the margins, and will continue to be.

Anyway, the working poor, etc. don't have to get mortgages. Only their landlords do.

People just seem a lot better at tuning out the music here than elsewhere. One of my friends tried to make an argument that housing prices here are done moving because the contractor market is booming next to out of state.

I kindly pointed out that here granite counters and new bathrooms in the atrocious boxes made in the 60s and 70s, means the property is being prepped for the market. A market where nothing seems to have sold at all for 2 years, even when banks get tired of waiting and force a short sale or auction. Also, the bay area does far better job hiding foreclosures when the banks are frozen under a mountain of them. I've seen soo many burned out people who admit their well past squatting at this point, but there is no public record of their foreclosure at all.

What I'm trying to say is; yes the bay area commands higher prices from higher incomes. I've lived here all my life, my parents and extended family, friends and dozens of other associates live our high mortgage life and do it as well as they can with their well over six figure income.

But the thing is it feels fake as heck and our ability to support larger mortgages means we push it to the limit, people here have no savings because they do everything to blow ever cent they make and them some.

It just going to end up crashing down that much harder, exactly the same as it did in the rest of the country, but with a far bigger thug from the greater altitude. Sure the stealtors and idiot owners will keep their self fulfilling price prophecy going for a few more years, but they will run out of credit eventually and we all burn down.

The problem, and I do NOT know how many times I have to repeat MHO of getting off the gold standard was the fuel to this explosion of financial mess across sectors. Pricing (not value of property because these insane numbers since 1975 forward are not value,) has gone out of wack at least since 1979, and being off the gold standard for the dollar, has created this current mess that is now being faced. One must remember a house is to live in not trade and flip like a casino game, the old saying holds true, "a fool and their money are soon parted." Greed took over, not only in real estate, therefore today althought those who purchased a 700K dump they cannot sell now for 300K won't want to admit, one must face the facts that a rollback to times when things simply made sense is the pain all must endure today because it IS again IMHO way worse than you think economically, there is no alternative.

TechGromit says

Such places exist, in NW PA or other former factory towns. They have very cheap houses, and the reason they are so cheap is the area has high unemployment and low paying jobs. There is no industry, commercial districts or tourist attractions around. They are far from the interstates, so even a reasonable commute is out of the question. This is why they are so cheap and while we think what bargains they are, nice houses for under 50k, small houses for 15k, you have to realize that these people are making minimum wages at best. So you sell your 600k house in California or Northern New Jersey, move there and get yourself a really nice place for 50k, and pocket the 550k. Unless your really good at investing, start a mail order business or can telecommute to work, you can forget about getting another well paying job. In 5 or 10 years you will burn through your savings and be in the same situation as the locals. You children will have no future to look forward to living in the area, they will have to move away to get good jobs.

Makes me wonder how bearmarket is doing.... Probably living his dream out in Oil City, PA.

Case Shiller is a 3 month average. Let's see what it looks like once it moves out of the summer buying season and the government tax credit. The report being released this week will include July and August I believe.

Think about this... Islamic Law [Sharia] doesn't allow interest to be charged on loans; period. Before you all get your panties in a bunch, think about it. Done? Well it's possible! And the model has been developed successfully, in a big commercial way in Ireland. I can't recall bank's name, but the principle behind the construct is that in order to borrow funds from the banks, interest free; the customer must first be a saver at the bank! Novel Idea! This would throw a 800 pound Gorilla "wrench" into our wonderfully functioning banking system. Food for thought... Junk.

It starts elsewhere and finds its way to the USA. http://ferfal.blogspot.com/2010/10/skills-and-making-money-after-collapse.html Check out the photo and this video http://www.youtube.com/watch?v=6FWt05yCO1M&feature=related Argentina was once the shining example of a wealthy nation.

tmgbooks.com says

I am very familiar with a no-mortgage society as I have in-laws in Mexico and live twelve miles from the Mexican border. There the process is as follows: Save up to by the lot; save up to put a fence around the lot and put two big dogs on the property; buy building material as money allows then pour the foundation and build the walls using hand-fired bricks that sell for ten cents each. Then you put a roof on it and move in. My brother-in-law followed this plan exactly and it took him three years to build a 900 sqft house for his family of five.

No mortgage, no banks, and would not be a bad way to go even in some parts of this country. So, certainly, people can make do without a mortgage market like we have here but that does not mean it is the best-case scenario!

No it's very far from ideal. A typical modern home in the US represents several man-years of labor that went into everything from the mining and timber, all the way to to the guys that painted it. It's is not possible for everybody to save that much money. Literally. You can save up some cash, but a typical cash money supply if a nation is only about 1 months worth of GDP, so it's literally not possible for the nation as a whole to save years worth of GDP in cash. Saving large amounts requires lending it to somebody. And if home buyers aren't borrowing then who is?

Not only that, but many people start businesses or get an education with a home loan. Can't do that if you don't have a mortgage market.

Well developed credit markets are one of the key reasons why the US is prosperous, and places like Mexico remain in the dumps.

People that think everything should be paid for in cash, and everybody should just "save up" for what their homes, educations, etc. are clueless as to how money works. It's not possible to "save up" unless somebody else is borrowing that money for something.

A market without mortgages existed to a certain extent in the early 80's when bank mortgages went to 17% or so. Seller finance became the norm for a while. Of course as soon as interest rates dropped, many borrowers refinanced and paid the high interest rate Seller Note off. I can visualize a situation where there are chains of seller notes as people move up or down, taking a note to sell a house and giving a note to buy one. It wouldn't be long where a secondary market would spring up, to buy seller notes at a discount, and for seller note servicing agencies to set up to collect the payments. Inconvenient, yeah, doable, sure.

junk says

Think about this… Islamic Law [Sharia] doesn’t allow interest to be charged on loans; period. Before you all get your panties in a bunch, think about it. Done? Well it’s possible! And the model has been developed successfully, in a big commercial way in Ireland. I can’t recall bank’s name, but the principle behind the construct is that in order to borrow funds from the banks, interest free; the customer must first be a saver at the bank! Novel Idea! This would throw a 800 pound Gorilla “wrench” into our wonderfully functioning banking system. Food for thought… Junk.

Islamic finance is a joke. You want to buy a car for $20K, but a bank can't lend you money at interest.

But a merchant can buy the car for $20K, sell it to you for $25K, taking a $5000K profit. He just takes his $25K in payments over 5 years.

And just like that, $5000 interest payments becomes a Islamic finance sanctioned business profit.

MarkInSF says

Islamic finance is a joke.

There are odd consequences to it. I'm not sure it's a "joke" but it is different. Example where I used to live they built a new mosque down the street. But they didn't build it all at once, they built it in chunks as they got the money for it.

Didn't Jesus throw the money changers out of a temple?

I think the advantages of financing are exaggerated. Maybe they do make things easier to "have it now" but you end up owing your soul to the company store. I can see the point of financing for BIG projects, however it has always seemed idiotic to me to finance a car for example. I bought first "beater" cheap and saved money for a better one while I drove it. I have always paid cash for cars.

I think borrowing is bad for buying consumables, but good for investing in things that make or save enough money.

So buying a luxury car on credit is bad, because you may end up paying twice as much over the course of the loan. But -- buying a taxicab for your taxi business on credit is probably good if you don't have the cash on hand, because it will be a working asset and make money. Depends on the exact numbers involved.

Housing is the same: bad to borrow for consumption and just pay twice as much over the course of the loan, but good if it's cheaper to own than to rent, in effect making money. Problem is, most people don't do that rent vs buy calculation, they just borrow as much as they possibly can, at all times.

pkowen says

How about let’s say, Huntsville AL. Redstone Arsenal means built in jobs for the foreseeable. Plus NASA and multiple high tech firms. A quick search of http://ValleyMLS.com for houses $0 to $75,000 finds 1,045 results. 210 within the City limits. Some as cheap as $21,000. So, I guess it’s a depressed area? Nope, ssorry, it’s growing - Population change since 2000: +13.5%

AZccording to the city data you provided, Huntsville, AL is actually above average for Alabama. About a 1/3 of the population is black and the unemployment rate is 16%, so I can't help to wonder what kind of neighborhood those cheap houses are. Also a growing population does not translate into a affluent population.

Or how about Pensacola, FL? There’s a Naval Air base for built in employment and strong beach oriented tourism. 692 houses below $75k on http://PensacolaMLS.com.

Unfortunately one large employer isn't enough to lift the area out of poverty. Lets just say there are 2,000 good paying civilian jobs at the base. Chances are only a small percentage of the workers are from Pensacola, FL, so 2,000 employees spread over a dozen towns really don't amount to a significant impact to the area's economy. Tourist is a plus, but it can be highly season employment. You should see the unemployment rate for Cape May County, NJ, an area highly dependent on tourism. The unemployment rate spikes to almost 20% every winter and drops to around 7.5% in the summer. I've never seen another area with such drastic seasonal changes.

http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&idim=county:PS340210&dl=en&hl=en&q=unemployment+rates+cape+may+nj

EastCoastBubbleBoy says

Makes me wonder how bearmarket is doing…. Probably living his dream out in Oil City, PA.

His abrupt disappearance and the fact he was selling drug equipment (scales I think) makes me wonder if he wasn't into something else and is now enjoying free room and board curiosity of the state department of corrections.

commonsense says

The problem, and I do NOT know how many times I have to repeat MHO of getting off the gold standard

Patrick covered this above. Credit as capital is good. Credit into consumption or speculation is bad. The US was on the gold standard in the 20s but still got itself in one helluva jam.

Credit abuse is the problem, not fiat.

PolishKnight says

Has anyone noticed how K-mart is bringing back “layaway?” I think it’s a silly idea: Why pay 5 dollars from the privilege of giving Kmart money to buy something sitting in a backroom? Why not just save the money on your own and wait for a sale and buy it then? Layaway was an idea back in the old days before credit cards but I suspect this resurgance of the concept is driven by them seeking to market to immigrants.

I think it's pure genius, immigrates make money why not spend it in our store? More 5% of the sales this holiday season are expected to be layway sales.

TechGromit says

pkowen says

How about let’s say, Huntsville AL. Redstone Arsenal means built in jobs for the foreseeable. Plus NASA and multiple high tech firms. A quick search of http://ValleyMLS.com for houses $0 to $75,000 finds 1,045 results. 210 within the City limits. Some as cheap as $21,000. So, I guess it’s a depressed area? Nope, ssorry, it’s growing - Population change since 2000: +13.5%

AZccording to the city data you provided, Huntsville, AL is actually above average for Alabama. About a 1/3 of the population is black and the unemployment rate is 16%, so I can’t help to wonder what kind of neighborhood those cheap houses are. Also a growing population does not translate into a affluent population.

Yes, it's above average for AL and the cheap houses aren't the best n'hoods. I can tell you the worst areas are much better in terms of safety/crime than significant parts of the bay area. How does that change the overall point that unlike the bay area, houses are aligned to incomes, the real costs are much cheaper while the area is not 'depressed and having a great exodus'?

pkowen says

How does that change the overall point that unlike the bay area, houses are aligned to incomes, the real costs are much cheaper while the area is not ‘depressed and having a great exodus’?

Hmm point taken. I guess I didnt completely read your original post. So living in the state of California, you should be making 176k a year to support a 467k median price house, to bring you in line with Alabama's median income of 42k for median priced homes of 121k.

I don't know whats a desireable or an undesireable area in CA, but for Redwood, CA you would have to be making 315k a year to support 840k homes to bring you in line with AL.

Actaully I think Alabama isn't the best example for doing this kind of comparision for were I live in NJ I should be making 109k to support 285k houses and just exceed that benchmark, for NJ the number jumps to 137k for 365k houses. (more expensive North Jersey homes raise the numbers).

TechGromit says

pkowen says

How does that change the overall point that unlike the bay area, houses are aligned to incomes, the real costs are much cheaper while the area is not ‘depressed and having a great exodus’?

Hmm point taken. I guess I didnt completely read your original post. So living in the state of California, you should be making 176k a year to support a 467k median price house, to bring you in line with Alabama’s median income of 42k for median priced homes of 121k.
I don’t know whats a desireable or an undesireable area in CA, but for Redwood, CA you would have to be making 315k a year to support 840k homes to bring you in line with AL.
Actaully I think Alabama isn’t the best example for doing this kind of comparision for were I live in NJ I should be making 109k to support 285k houses and just exceed that benchmark, for NJ the number jumps to 137k for 365k houses. (more expensive North Jersey homes raise the numbers).

Thanks for some acknowledgment - So we're back to the point I have made repeatedly: maybe it's not "the same" everywhere but it can't be radically different without some hint that it's a bubble/out of whack/unsustainable. If income to house price ratio in AL is 2.5x or 3x, how can it be 10x or 12x in CA? I have heard the arguments about foreign cash, stock options, family 'loans' etc etc and it all sounds like a huge rationalization to me. I'll grant some areas are more expensive than others. I am not compelled by arguments that rationalize 10x versus 2-3x.

By the way, when I did live in AL, my numbers were roughly what you use as an example for NJ. Actually made under $100k and bought a great house for $235k. I lived well without being 'house poor' nor overly flush. It worked about as it should. I may move back that way at some point, it's a better lifestyle.

MarkInSF says

junk says

Think about this… Islamic Law [Sharia] doesn’t allow interest to be charged on loans; period. Before you all get your panties in a bunch, think about it. Done? Well it’s possible! And the model has been developed successfully, in a big commercial way in Ireland. I can’t recall bank’s name, but the principle behind the construct is that in order to borrow funds from the banks, interest free; the customer must first be a saver at the bank! Novel Idea! This would throw a 800 pound Gorilla “wrench” into our wonderfully functioning banking system. Food for thought… Junk.

Islamic finance is a joke. You want to buy a car for $20K, but a bank can’t lend you money at interest.
But a merchant can buy the car for $20K, sell it to you for $25K, taking a $5000K profit. He just takes his $25K in payments over 5 years.
And just like that, $5000 interest payments becomes a Islamic finance sanctioned business profit.

The purpose of the comment, was that after you read it, even if only for a few seconds, you had to think about it before you could reply. And, yes the western response is always the same... WTF, that makes no sense. My response was exactly the same when I heard of Islamic Finance Law a few years ago. Debate runs far and deep on the subject, and this is not the time or place for it's merits or detractors. But the foundation is based upon the premise that the value is all in when the item is purchased. The value comes from the society, the onus is to build, make create things, and the effort is rewarded to the creator; manufacturer in the payment.

In the example of MarkInSF regarding 5K to the seller; that's fine, it's the same thing going on with 0% financing deal now. But, for example a house is sold under Islamic Law, why should a bank be entitled to a 5 fold gain for holding a mortgage for 30 years, when the builder, the creator of the property only benefited by 15-20% beyond what his cost were? The more you think about it, the more you see the benefits. Granted, from a westerner's perspective, it's very difficult to grasp, at first. But, by comparing a few examples, you can get your head around the tremendous value added society it creates. I cringe to use Dubai, as an example, as they have stumbled with this finance approach, but the recovery is swift. The US can't even begin to mutter the same. By the way, I live on the east coast, am American, non Muslim, but I found the concept truly intriguing. Junk

One day I thought I would see if I could find the house my grandparents lived in in Buffalo on Zillow. The last time I visited was in the 60's and it was a vibrant Polish community. I typed in the address and there was nothing. Houses were selling for $1 and many of the lots were empty. It used to be in the heart of the city but now it almost looks rural. I can imagine there was a time when people there sat around saying: "What can happen here? We're on Lake Erie! We have a huge industrial base! We're close to the border with Canada! Boom times ahead!"

I don't know what they paid for the house in 1910 but I do know it sold for about $7,000 in 1977 and obviously lost even that value since now it's an empty lot. Strange things can and do happen. Buffalo, Detroit, all the Rust Belt cities used to be vibrant communities and magnets for investment. I'm worried about not only the US economy but California's economy as well. I hope we will never see the sort of decline that happened in Buffalo but I can envision a very different economy here. Yes, we do have tourism - but can anyone remember when a honeymoon visit to Niagra Falls was everyone's dream? Who would have thought?

Techgromit, I honestly don't "get" layaway. I can see it's usefulness only in the case of a super sale that is not likely to be repeated that the buyer wants to lock in a price (such as black friday). Otherwise, why bother? Why not just put away the money on your own and wait for the next sale?

Related to this, I feel awful about the "rent-a-center" ads and the way they're targeted towards the working poor. I DVR froze one of the ads and read it in detail. It was a Hulk Hogan ad about how someone could get a flat screen 40 inch TV for "just" $49 a week. I read the fine print and a contract was required for several months at the end of it, the consumer would have paid $1800 for a TV that was "estimated" in value at $800 dollars!!!!

So the poor working class schmuck that signed on the dotted line would wind up paying more than twice as much for a TV than if he had just waited for 4 months and bought in cash. Is the 4 months of getting the TV on "credit" worth $1000 dollars?!?!

No wonder they were able to afford the "Hulk."

PolishKnight says

Techgromit, I honestly don’t “get” layaway. I can see it’s usefulness only in the case of a super sale that is not likely to be repeated that the buyer wants to lock in a price (such as black friday). Otherwise, why bother? Why not just put away the money on your own and wait for the next sale?

Personally I would never use Layaway, but the number of people using Layaway are growing in this tight credit market, so yes, it's pure genius to offer the service. Personally I don't see the point of texting, but enough do it. The phone companies would be morons not to offer a product or service people are willing to pay for. At a 3,000% markup (it cost less than 1/2 cent for the phone company to sent a text, but charge 20 cents a message), they are raking in the dough.

thomas.wong1986 says

Some have a vested interest in CA, others outside of CA like North Carolina have no interest in keeping CA home prices inflated well beyond their normal historical trend line. And certainly will not foot the bill as tax payers. Its unthinkable others should subsidize the greed of a few primadonna.

CA home prices, especialy in Bay Area, will continue to correct regardless of the vested interest.

That's a useful graph.
Where did you get it from?

Vicente says

I bought first “beater” cheap and saved money for a better one while I drove it. I have always paid cash for cars.

Right, but when you were "saving", unless you were keeping cash in a mattress, what you were really doing was lending money to a bank, which was lending that money to somebody else that was buying a car on credit. ] Or a house. Or getting an education, or expanding their business.

It would not have been possible for you to save to buy a car unless somebody else was willing to borrow that money you didn't want to spend at the moment, so that they could buy something.

I don't think I'm exaggerating the advantages of finance at all. Prosperous societies scarcely can exist without it. It's like fire though. It can be be of great benefit, but it can also burn your village down, and if you don't keep a close eye on those in charge of handling the fire, that's probably exactly what will happen.

junk says

Think about this… Islamic Law [Sharia] doesn’t allow interest to be charged on loans; period. Before you all get your panties in a bunch, think about it. Done? Well it’s possible! And the model has been developed successfully, in a big commercial way in Ireland. I can’t recall bank’s name, but the principle behind the construct is that in order to borrow funds from the banks, interest free; the customer must first be a saver at the bank! Novel Idea! This would throw a 800 pound Gorilla “wrench” into our wonderfully functioning banking system. Food for thought… Junk.

When you think of Islam and Banking, the first example that comes to mind is BCCI :-). Just because sharia abolishes interest does not mean their banksters are any less crooked than ours.

And having experienced life in Sharia-land, please let me tell you that abolishing interest does not mean you get loans for free. Borrowers are _still_ charged a 'fee' that is just like interest, but isn't called that. It is just less easy to understand, so in most cases you would have been better off with a fixed rate of interest, actually.

junk says

In the example of MarkInSF regarding 5K to the seller; that’s fine, it’s the same thing going on with 0% financing deal now. But, for example a house is sold under Islamic Law, why should a bank be entitled to a 5 fold gain for holding a mortgage for 30 years, when the builder, the creator of the property only benefited by 15-20% beyond what his cost were?

Finance can definitely get too big and powerful, IMO, and be used in unethical ways. I think that's where we're at now.

One thing I do like about Islamic finance is their preference for equity investment. (Rather than having to pay back a loan on a specific schedule, the investor is more of a partner, they share of profits and losses) a financial system is much less fragile in this kind of setup. Nassim Taleb of "Black Swan" fame, (who's name means student in Arabic I think, but as far as I know is not a practicing muslim) has been pushing for a more equity based financial system.

Here's a nice one... $6,777 for a house. Talk about Bailout. Why not just offer the housing gamblers to relocate them to Union, SC!
http://columbia.craigslist.org/reo/2086198314.html

And another:
http://columbia.craigslist.org/reo/2087320363.html

Blahdy, Blah. I guess the 25% working poor are in a different market than the rest of the USA. Had 3 folks who wanted to buy it to move their fams from small spots (apt, shared house, trailer) but none could come up with the $4621.61 to pay the back taxes. Offered at $20K with ~$5K down and $350/month for 5 years.

Had several "investors" interested. Two close to closing at $10K. The net back taxes come to around $8K. So, maybe not even worth selling. Just rip out the central HVAC ( less than 5yrs old), water heater, new wirign and panel box (upgraded in 2005-2006 from 1947 wiring), and much more.

There are many "Markets with No Mortgages". Government doesn't care about these people. If government did then instead of subsidizing $700,000 houses it would buy the tenants a bus ticket and let them move into these $10,000 houses. (1262 sq ft, 3 BR/2BA, etc).