patrick.net

Malcom,

My point was more directed toward "best utility" (regardless of profitability) I can use the Hope Diamond as a door stopper or paper weight but...! Having a 3,000 s/f clunker of a mansion occupied by (1) elderly gal (when a family of 6 could be living there?) just isn't my idea of best utility.

Oh. I'm seeing that a lot. On many of these homeshows you'll see an older couple buying a giant house just for them to live in.

I think almost by definition, a capitalist system fails the best utility test. I prefer private ownership over max utilization.

I won't get into my conjectures on local maxima versus dynamic maximization. That's for another day, perhaps....

“Oh my daughter will take over”. Really…? Your daughter is a physical therapist in Portland. She’s going to drive down and… oh forget it. There’s no talking to ‘em.

An example which hits even closer to home is my wife's parents. They have finally, at the end of their years, gone through a stubborn realization that none of their three kids want to move back to rural northwest Ohio. So they've sold their home, late grandma's home, and the other side's late grandpa's home; all of which came with many hundreds of acres of farmland (mostly beans).

Do you think my father-in-law sold the farm acreage? Of course not. He just sold the homes, begrudgingly. But he's still convinced that my wife will quit her executive finance job in San Francisco, move back to b.f.Ohio, and manage the bean farming (which hasn't been profitable since the 70s, but still is supported by subsidies).

Without consequence? He turned down at least one chance to sell a bunch of the land to a McMansion developer. He'll not live to see that opportunity again, and by the time that rolls around again none of his heirs will own that land, having probably disposed of over half of it just to pay the taxes on probate.

Randy H,

Glad to have you back posting, and congrats on the article. At least Leonhart seems to have a clue - the piece was a bit fluffy, but it definitely got the point across.

From our end, we continue to do lookee-loos at open houses, and even considered low-balling by an additional $150k a nice place that had already dropped its asking price by 150k: it would have been a 20% haircut, putting this particular house back to probably 2004 pricing. Held off, though.

Truth is, there's still not a whole lot of inventory in the "ultra" Fortress towns, and sellers still are shooting for the moon: price stickiness.

But he’s still convinced that my wife will quit her executive finance job in San Francisco, move back to b.f.Ohio, and manage the bean farming

From bean counting back to bean farming?

I think the Surfer X rant was just a little mis-guided rage. Isn't he the guy that bought a house recently at the peak of the market? That's gotta be frustrating. He probably bought it from a Boomer. That's gotta be a tough pill to swallow but good grief, what was that guy thinking? That's the problem with alot of Gen Xer's, they talk big but end up doing stupid sh!t. It's a lack of experience. Some make little mistakes and some F-- up big!

There will always be those few areas/locations where pricing isn't based on a fundamental, it is just based on who can pay the most.

Randy H,

I hear... ya'!

Over at Ben Jones' blog there's a great tribute to your seller in the NYT article to the tune of "Hotel California". It's the second article down "A Positive Thing In The Long Run For California" (about half way through the comments) Absolutely hysterical!

www.thehousingbubbleblog.com

Divert the “demolish houses” to “demolish bridges”

In the point of view of the politicos, this would be solving the wrong problem. You may be thinking of using capital expenditures to jump the economy, the politicos just want to keep house prices high. Demolishing houses would shore up remaining house prices, replacing briges would not.

I wish you guys would make up your minds! Now I have to move the damn charges again! :) Kidding.

It's "broken window economics" no matter how we slice it, but you're right good, safe bridges will have to take a back seat.

Thanks for the tip to Ben's blog. I don't post there very often. Maybe twice in 3 years. But I did try to leave a couple comments on that thread.

My question is: Do believe that the greenhouse effect is real, and if not, why not?

Given enough political will one can prove anything.

I think that old lady will eventually get her price. Continental 2.0 dollars ain't worth a Continental. We will just go in, drop a few gold coins and take ownership. :)

Randy, the financial stupidity of others is our gains in a zero-sum game. ;)

Oh I'm sure she will Peter.

.... She may be on oxygen... but she'll get her price!

Our local PDX blog just posted a thread on LAST year's "Street of Dreams" and 5 out of 6 are yet unsold. I actually visited one of them while it was being built. Maybe the (1) buyer was smart? He may have paid top dollar but check it out? He lives in a mansion, he's surrounded by mansions (yet has NO neighbors!)

Does it get any better than THAT!? I would cruise around on my riding lawn mower naked drinking a beer and play ding-dong-ditch with a lit bag-o-crap. A one-man obscenity wave!

If I am going to be blog historian I better sharpen my Googe-fu. Okay, it was the last entry I checked, but here is where the bad blood developed between Surfer-X and DennisN: http://patrick.net/wp/?p=480 .

I have to admit, FAB's childhood stories are pretty funny, while Jimbo's and Randy's are just depressing (which, I suppose, proves the point that they were really poor at one time or another and provides a good reality check for the rest of us). But still... FAB, another enforced child labor story, please! Oh this is gonna be ugly, Silent Gen landlords with paid off properties vs. FB first time landlords with no cash flow. Who gets the good tenants and who gets their place trashed?

If I ever go to a BA blog party (anybody know of any high end foreclosures where we can have a "no host" party) , I will give Randy's wife a copy of Wendell Berry's "The Gift of Good Land"; they will be homesteading in no time back on the family farm. :-)

They should call it 'street of BROKEN dreams'.

There are WAY TOO MANY 1.5m+ homes for sale. I mean how can there possibly be 500,000 people looking to buy one of those in the next 12 months, probably not even the next 12 years they cant sell them all.

I am not denying climate change. Nature is about changes. However, blaming “global warming” on CO2 emission is just weird.

Huh?

Peter, I disagree with you most of the time but just don't have the time to beat you down point by point. I cannot help myself at the global warming stuff. You would be served well to read and understand the science before making statements like above.

It is scientific fact that CO2 levels in the atmosphere are directly correlated to global mean temperatures. Undisputed, or at least 99.9999% of scientists concur.

Human civilization is currently conducting the largest experiment in history, the release of massive quantities of CO2 into the atmosphere. You would say there are no consequences or cascading effects from this experiment?

Hello Kitty,

Well, 'Street of Broken DEVELOPER Dreams' anyway! The client (who assumed I'd be impressed beyond belief) thought it was a great idea. The mortgage broker that stopped by used to be one of the equity traders at one of the discount houses in PDX.

We got to talking on the side (as the client was getting the 50 cent tour) and both agreed these places wouldn't sell. A winding (lane and half road) shared "bicycling enthusiasts" that dumps you out into SW PDX Strip Mall USA. Where dining establishments include Arby's, Subway and there's a Hollywood Video. Nothing says "upscale" quite like that!

Justme

Well done on WSJ, and my sentiments exactly.

What I find really scary is as the situation gets more desperate we might truly see this happening. Already there is talk of bulldozing the crack house foreclosure areas in places like Detroit. I don't believe it too far fetched to see this idea gain real traction.

Randy missed the point relative to inefficient use of capital, he forgets where we live. Of course it is inefficient, but much more so on the building out tract housing side than demolishing. Cheap to bulldoze, and great effect in reducing the Greenspan overhang of surplus housing. Would this facilitate a more rapid price floor and recovery? Of course.

What is the fastest way to work our way through all the inventory out there, and prop up existing housing prices? Solutions are not coming from Wall Street or sovereigns, nor regulation as the horses are already out.

Caterpillar may well be the answer! :-)

"It is scientific fact that CO2 levels in the atmosphere are directly correlated to global mean temperatures. Undisputed, or at least 99.9999% of scientists concur."

This is a scientific fact... and can be seen from the data collected from ice cores going back 60K+ years. I think they'll be able to see back 100K years when they collect more data by 2010.

One problem I have with that data is that is does not indicate which is the driver variable, and which is the driven variable. It is quite possible that increasing the thermal energy of the planet releases more CO2.

Either way though, it's clear we are f*cking with things we don't understand. We might just be speeding up the next ice age. That would be so beautifully ironic that it is the theory I subscribe to. What better way for the earth to stabalize itself than killing 80% of the humans who are f*cking it up?

Randy :

The NYT article is now also mentioned at Big Picture blog. Good stuff. NYT is definitely widely read, so the effect will be real.

Fuzzy

Thanks for making a clearer elaboration.

And further, I'd suggest it doesn't really matter which is driving and which is in the backseat. Most likely, the correlation is static meaning a change in either variable would effect a mirror change in the other.

The dissenters on climate change always fall back to the "we just don't understand the earth system, its too complex and you warmies suffer from terminal hubris and unsubstantiated claims and conclusions". Well, no actually. The scientific community understands very well exactly what it does and does not know, in a great many areas. Almost all would agree that there is much more not known than known at this point in time.

And I would agree, another ice age is well within the probablities to be a possibility.

A Chinese mortgage broker just posted on his blog that SF, Marin, San Mateo and Santa Clara officially joined the rank of "declining area" in the eyes of mortgage lenders.

To mitigate the risk of lending, 25% dp is now required for buying in the "fortress".

skibum,

if I were you, I would really hold off buying for at least 2 years, no matter what a bargain it looks like right now. The peak of Option ARM is 2009 (which allegedly will hit richer neighborhoods), and with more stringent lending rules coming out every few months, the risk is all on the downside.

After all, not everyone has a stable job like a yours. Many potential buyers will be starting to worry about their jobs soon.

The 25% dp is applied to those who need Jumbo loans ($417 and above), for conforming loan ($417k), 10% dp will do. But I doubt if you can find a $463K SFH anywhere in the fortress.

To mitigate the risk of lending, 25% dp is now required for buying in the “fortress”.

Excuse my French, but this means that the "Fortress is f*cked".

Calling PermaRenter : Is the dream of 30% dp still unrealistic ? :-)

GASP! Latest CA house price drop report. STUNNING.

Statewide, median sales prices fell by a stunning 26% from year-ago levels in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed’s interest rate-cutting campaign “will have little near-term direct effect on the housing market.”

Either way though, it’s clear we are f*cking with things we don’t understand.

My suggestion: let's just do what we do and wait for Nature's response. Earth always does what is best.

Well, no actually. The scientific community understands very well exactly what it does and does not know, in a great many areas.

Science is just another religion. It demands absolute faith on anti-faith.

with home prices dropping at a rate of nearly $3,000 a week

So, renting and waiting can earn $3,000/week tax free! Maybe people can sleep their way to a six digit income after all.

This is a scientific fact… and can be seen from the data collected from ice cores going back 60K+ years. I think they’ll be able to see back 100K years when they collect more data by 2010.

Human civilization is just a blip in the history of Nature.

I laugh whenever people say they want to save the world from "global warming." The world will be here regardless. It is very sturdy. All they want to save is some particular lifestyles, such as homeownership in beach and coastal areas.

Even IF "global warming" is real, a big IF, so what? There will be minor changes that we as a species must cope with. What doesn't kill us makes us stronger. What does kill us ends all discussions. Enough said.

oo,

Thanks for the advice. We've been in the lookee-loo phase for a long time. It's hard to time the market, but we're probably indeed going to hold off until 2009, at least. There are however, more and more tempting prices and homes.

To augment your comments, I'll pass on a few observations.

First, we've spoken with a couple of mortgage agents/brokers. Both relate that this is the slowest they've seen business for over 25 years. One's an agent at a real bank, the other is a mortgage broker.

Second, these same mortgage people say the bulk of the problems with getting people approved for loans is lack of enough down payment. If you are anything under about 25%dp, the rates are crazy, and in fact many lenders refuse to lend. The agent was particularly frank and remarked how lending standards have gone back to the way they were in 1990, except that even after you jump through all of the documentation hoops (pay stubs, W2s, tax returns, etc.), the banks are still turning lots of folks down if the LTV ratio is not up to snuff.

Third, in the towns we're observing ("prime" Fortress), houses still are selling, but clearly at a slower pace. The nicest houses have in fact had "multiple offers", but that's a rarity. Some of these deals have in fact fallen through, I suspect due to financing problems. The houses that do sell fastest seem to be in the $2m +/- $200k range. Houses in the "core" market of the Fortress, which I feel is currently $1m-$1.5m, are sitting much longer, unless they are in perfect condition.

My take on all this? The higher-end homes that are selling are probably selling with very, very low LTV ratios - ie, huge down payments or cash. The rest of the market has slowed remarkably, even in the "prime" Fortress.

I've always understood that the way you find yourself in a new ice age isn't so much glaciers running stop signs but more looking at your local mountain peaks?

Each year as spring arrives cooler temps allow for more of the snow pack to be retained from the previous year. Eventually even snow on the valley floor hasn't quite all melted by the time the next winter rolls around. Over centuries the growing season becomes to short and people have to migrate further south.

Could be worse! (We could be dodging meteors?)

"with home prices dropping at a rate of nearly $3,000 a week"

(Zillow THAT m@ther f*cker!) :(

Over centuries the growing season becomes to short and people have to migrate further south.

Overpopulation will be corrected one way or the other. Either people will kill each other fighting for food or they will merely starve. The conclusion is the same.

Science is no god. It is an anti-god. It can confound us as much as it can enlighten us.

"Even IF “global warming” is real, a big IF, so what? There will be minor changes that we as a species must cope with"

That's the point Peter... they might not be minor, as you say. And while environmentalist nuts care more about the earth than they do people, most people do not.

My concern over the issue is not for the earth's sake, it's for ours as a species. We could very well render the earth unlivable at a pace that is faster than our technology can keep up with. In other words, extinction. While philosophically, you might have no problem with extinction, I do. And it seems as a species, it would be pure survival instinct to respond to the knowledge we have.

My argument is as follows... why f*ck with something we don't understand when we don't have to? I believe it would be beneficial to all of us if we all just shut up and allow the green future cause to continue unabated, regardless if their premise turns out to be misguided.

Also, San Jose is making a big push for green energy companies. So it would be good for my local economy :)

"All they want to save is some particular lifestyles"

Exactly. Just some faux-rich dude freaking out that his Malibu beach house is "losing real estate". Gee, can I help by trucking in sand?

Back in the 90's we had a "development" (The Capes) that basically was built on a sand dune, start to wash out. Investors (people, sheesh) were up in arms b/c they were losing "their homes". You mean the "home" you spend three inebriated weekends a year at?

Anyway the Gov. told them to forget about doing damage control, he reasoned it only causes problems further down the coast. Compuer models showed he was right. Condemned. Sorry.

"faster than our technology can keep up with"

I don't happen to believe technology is problem (or the answer).

Yes, green-tech does look promising.

I think resource management will do better than clean technologies simply because it is essential to sustain life.

The water crisis is soon going to eclipse "global warming" as the problem of the century.