patrick.net

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.

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

Me neither.

But if I have to say something, technology is more of a problem than an answer.

IS... problem?

(You can always tell these Eastern Europeans!) :)

Just some faux-rich dude freaking out that his Malibu beach house is “losing real estate”.

Rising sea level is mostly a coastal problem and most "blue" states are along the coasts. The left really know how to motivate their constituents. :)

There are going to be some drastic changes in society this century. Every way you look there is some kind of crisis around the corner.

Every way you look there is some kind of crisis around the corner.

Maybe.

When in history did you see a period free of crisis?

Peter P,

I'm more about WASTE! My father (I imagine a LOT of our fathers) always said, "You could run a mirror image of America just with what's wasted!"

Why use two paper towels if w/ a little effort you can get by with one? Change your oil every 3,000 miles? (I don't think so) Turn you fridge down during the winter months. I know you won't budge on A/C but in OREGON!? You're kidding right?

Let's start with the basics.

Peter P,

What was so incredible about the... FAILED development on the Oregon Coast was that a former Gov. (Mark Hatfield) bought a home in that ill-conceived nightmare of a development. All the other owners thought "We're Saved" (the taxpayers will bail us out!)

But John Kitzhaber stood his ground. AFAIK it's now a sand dune (which is what it was meant to be)

DinOR, with stagflation in the bag, Free Market is going to teach us a lesson on wastage.

We just need to have better relationship with Nature. Building homes on sand dunes is just asking for it. :)

"When in history did you see a period free of crisis?"

dunno. This is the only period in history I have lived in.

Well it's all about "the view" now isn't it! That's what realtors need when they ask triple what a home w/out said "view" would sell for!

At the same time, I agree w/ Fuzzy. If reasonable alternatives are being dangled in your face like a lifeline, for goodness sake, grab it. I happen to think (and I know this won't be popular here) but the U.S in the near future will re-discover agriculture. As water becomes more scarce and food prices drive higher we may find that it becomes one of our most valuable exports.

Yes, the view.... I think realtors need to be informed that the view is actually sort of bad... Freddie Mac Chief Executive Officer Richard Syron had some rather astounding things to say in early March, including “HOME PRICE DROPS ARE ‘ONLY’ ONE THIRD DONE”, and the “US IS IN WORST HOUSING MARKET IN A CENTURY.” Perhaps the strength of the overall economy can help to alleviate the housing crunch… but the Fed’s Bernanke has made it clear that the economy is in perilous shape, plagued by a continuing plunge in the housing market, rising job losses, rising energy prices and a paralysis in credit markets as banks and financial institutions sell off even high-quality mortgage-related securities at fire-sale prices. For those who like comprehension, here is a ton of data to help verify these statements:

1) During the 2007 calendar year alone, house prices dropped 9% nationwide with Miami/Ft. Lauderdale decreasing the most at 18% (from Case Schiller data - the most reliable housing index). Home sales are down 65 per cent from their peak in 2005, and vacant year-round homes now number about 2.2 million; an increase of 800,000 since peak – at 2.8%, it is the highest ever on record. It is estimated that a slide of 25 percent in home prices would wipe out about $5 trillion in household wealth alone. It is hard to say how much capital will be lost at the bottom, but if $7 trillion was lost in the dot.com bust, most economists – including those at the Fed expect to see a figure more than that, and Goldman is predicting $1.3 trillion in financial sector losses alone.

2) Nationwide, Merrill is predicting another 30% housing price drop in addition to the 12+% that prices have already dropped from peak in mid-06 – and Moody’s just increased their estimate from 13% to 20% -- with their worst case estimate at the same 30% drop. Goldman is more optimistic -- predicting home prices will only drop by 15% from now. The housing price futures market, which is small, fluctuates between a 15% and 20% drop. 07 was a record price drop for a year and if predictions are accurate this will be 3x worse than the housing price drop of the early 90s – which maxed out at 13%. The anticipated decreases in Florida, Nevada and California should outpace the national average again in 08, and January 08’s price drop was the largest on record.

3) Foreclosures are at post WWII record numbers – particularly in California, Nevada and South Florida, which leads all other areas in the nation at the end of 07. Nationwide homes in foreclosure are at over 2% of all homes at year end – an increase of over 70% from the previous year. Despite Fed interventions, February 08 nationwide foreclosures increased 60% from year ago figures, again led by California (131% annual increase) – now “the walk-away state”, Florida (69%) and Nevada (68%). In Miami Dade County alone, 07 foreclosures averaged 2,200 a month, rising to 8,800 in the 4th quarter, and in January 08, Dade approached 3,500 foreclosures. In some courts in Dade, foreclosures proceedings are backed up 18 months. With-in the next 2 years, 1 in 4 homes in California will have ARM resets, and in South Florida, it is about 1 in 5, and foreclosures are anticipated to peak in the summer of 08.

Current foreclosure levels are nowhere near the nationwide 40% foreclosure rate during the depression, but with the nationwide housing debt being higher than equity for the first time since records were kept at the end of WWII, it could be a bit of a problem. BTW, the last time housing was this bad in South Florida was in the late 1920s, and it took more than 40 years for the prices to return to peak. That factored somewhat into the great depression, and the 40 year recovery soon met the first oil price shock, which helped to drop prices again.

4) The housing inventory is not a concern if you are looking to buy. The nationwide inventory of homes was at 4 months just 2 years ago and it just receded to 10 months. South Florida is at almost 40 months. Dade County had over 40,000 properties available for sale at the end of 07, with almost 2 in every 3 being a condo. This fact is also slowing condo sales due to concerns on who will pay the condo fee. Banks, FYI, are not bothering to pay condo fees after foreclosure, just ask management in Miami’s Carlisle’s condominium association, where 30 units are in foreclosure, and nearly 60 of the building’s 115 units aren’t paying maintenance fees. Nine of those fee-delinquent units are owned by major banks, all whom are breaking Florida state banking laws. Despite that, do not expect Bear Stearns or Citi -- with astoundingly weak debt to equity ratios, to pony-up their fees any time soon.

Part of the problem is that mortgage companies stopped using a 28% ceiling on house debt to gross income about 7 or 8 years ago. But according to the US Census Bureau, the median household income in 2006 was $48,200 or a monthly gross of $4,017, and the median sales price for existing homes as reported by the National Association of Realtors just last month was $201,100. Assuming no down payment, as was the case with approximately one-third of homebuyers a year ago, you’re looking at a monthly house payment of about $1,740 or 43% of monthly gross income. Please remember that this is real data for all the homes in the country, and a 28% ceiling on $4,017 gets you a home with a price tag of about $130,000, not $200,000. The take-away is to expect foreclosures and inventory to continue their climb as prices inch towards the basic fundamentals.

5) If you thought supply was a problem, consider how screwed the demand side is. Many people who never should have bought a home were able to do so with no-due diligence (liar) loans and “low doc” mortgages, where they lied about their incomes and picked up adjustable rate mortgages. They were called sub-prime for a reason. If you were going to sell in a year and a half and the house prices would sky-rocket in the new economy, then it is no problem. On the other hand if market prices dropped, then your ARM did you in… Plus you had other types of fraud with liar loans – it became easy to make up a person’s I’d, as no one was checking. This was apparently an epidemic in South Florida, California, and Vegas. So, if you found a house for sale at 100K, you’d pay-off an appraiser who says it is worth $300K. Pay the 100, pocket the 200 and never make a payment. When the bank comes after you, you don’t exist. (Exceptions are cases such as the nine year old girl in LA who did not realize she owned several homes.) If you are really, um, clever -- you will rent it out and make additional $ -- just be sure to use cash. This is not to mention the apparent thousands of cases where brokers allegedly misled buyers by not including taxes, etc. into the monthly payment figure.

The fraud started at the property level, but didn’t end until the accounting irregularities were recorded at firms such as New Century and allegedly helped to cover losses in 2005 and 2006 – and now New Century and their accountants at KPMG could be liable for millions. Florida edged Nevada for the distinction of the most fraudulent state with FBI statistics showing 46,700 sunshine state mortgage fraud reports in 2007, from 30% the year before and twice as many as in 2000. OK, so the FBI has nailed some of these jerks, but all this is to say that the banks have clamped down on providing loans, and have made it extremely difficult to get one in the foreseeable future.

Even a few Fed led infusions of say, $400bn into the multi-trillion mortgage market – of which 1/3 is supposedly, well, problematic, will probably not move banks to significant lending increases. Further, securities that are backed by Fannie and Freddie that were seen as safe, carry an implicit federal government guarantee, and now guarantee insurance up to 730K per home until 09, are becoming questionable, after a combined $6 billion loss of Freddie and Fannie in quarter 4 07. Many investors have stopped buying FNM and FRE securities – further reducing borrowers ability to get conventional loans. The result, according to Wholesale Access is that 30% to 40% of borrowers who could have qualified for a conventional mortgage a year ago can no longer do so – and those who can afford it, will pay more points, pay higher interest, and are required to put more money down. Those who were scavenger-buyers, looking to buy ARMs with less than 10% down… are shut-out.

6) Add the fact that several banks have blacklisted South Florida and parts of the West (Countrywide is still lending everywhere), and specific buildings with high vacancy rates (due to high maintenance fees), and it is even more difficult to find money to buy in distressed areas. On a related note, beginning in March 08, PMI Mortgage Insurance, the country's second-largest insurer, began requiring at least 10 percent down to insure loans for borrowers in distressed zip codes/buildings, even when lenders are willing to take smaller outlays per borrower.

7) Apparently, banks still make more money by a combination of allowing foreclosures, milking problem owners and by picking up the 20% PMI (general insurance), rather than working with a troubled borrower. Banks do offer short sales – where they work with owners to unload the home at a loss and the bank walks away with the loss differential. In doing so, they convince owners to continue payments (mostly interest), so owners can supposedly save their credit rating. Some owners will do stupid things like max out their credit card debt before caving in – at which point banks often put the house into foreclosure and in many cases sell the house rather quickly – sometimes at a higher price than what they had listed as the short sale. Many short sales fail, and there are accusations that the banks reject short sale offers so that they can collect more money from interest and make more from the sale. All that seems dubious, but it is possibly true in some cases, and the short answer is to not expect the banks to help reduce foreclosures anytime soon, or for govt. programs to have a major impact on upcoming foreclosures. The fact that approximately 1/3 of sub-prime borrowers in 2006 had a 2nd mortgage (for buying cars, televisions, medical services, etc.) is not helping, as two-tiered mortgages are extremely difficult to get a short sale, since the 2nd lender will often receive nothing and may veto the deal.

So as the Fed is trying to figure out how to avoid recession, the banks are not cooperating and are not refinancing at a lower principle, as requested by the Fed. In fact, banks have already begun to ask the govt. for bailouts. For instance, BoA’s confidential proposal to members of Congress in early March, asking that the government guarantees $739 billion moderate to high risk mortgages to save banks from potential losses… when more of their efforts should focus on refinancing foreclosures on the margin. The Fed is now responding with all sorts of interventions and perhaps these guarantees are next. This leads to the next point:

8) All this is why the Fed and DC have introduced programs to stimulate the economy. It will help – but will not be enough for many homeowners – and some people who can pay for homes and have realized that their home value has dropped to the point to where what is owed is more than the value of the home… are walking away. The number of these “upside down” homes where debt is higher than its value is at 9 million homes now and if the trend continues, as Paul Krugman predicts it will, it will reach 20 million by year end, although the walk-aways are a bigger issue in California, thanks to laxer laws. In addition, as the Fed drops interest rates, mortgage interest rates have risen, as bond investors, worried about inflation, have fueled a rush into Treasury bonds, and drove up long-term interest rates. Finally, Bloomberg recently reported that the value of triple A bonds has tanked to 60 cents to the dollar… and those are the portfolios with the highest values… Credit Suisse is predicting AAs will drop to 20 cents on the dollar! As some bank portfolios are performing below the average, it is no wonder banks are not paying off the association fees of foreclosed properties. As Bear Stearns languishes in part due to have almost $400 billion in debt with $12 billion in equity, it is mind-boggling to think that at Merrill Lynch, $1 trillion of debt is teetering on around $30 billion of equity.

9) OK, there are zip codes that have escaped the leveling… those with better schools and infrastructures, etc., hold up better than newer or speculative sprawl. While DC has dropped by 15.2% from its May 06 peak, some cities such as Salt Lake and Seattle are fairing better than others. Weston, just down the street from Ft. Lauderdale, has barely dropped at all, compared to the 20% price declines of its neighbor. So, in Newport, prices increased by 7% in 08, despite a 12% drop in Rhode Island, and Manhattan has not flinched – but NYC home prices have dropped 7% from peak in June 2006. Although the brunt of the 7% NYC drop is led by the outer boroughs, Manhattan has softened and is expected to turn down in 08 due to the fallout in the sub-prime and banking industries and of course the about to be Wall St. pummeling of bonuses and jobs (at the mostly lower title levels). Since August, the NYC financial industry has shed at least 20,000 finance jobs, and Bear Stearns is likely to lay-off at least ½ of its 14,000 staff, and Citigroup is in the process of cutting 10 percent of its I-bank force, or 6,000 people. Further, Lehman Brothers announced 1,400 layoffs in mid-March and The New York Post reported that Goldman cuts would rise to 20 percent, or 6,400 jobs.

This will have a ripple effect, as the finance industry was responsible for nearly a third of all wages earned in the city, and each Wall Street job supports three workers in other sectors. It is likely that this will be a bit worse than Manhattan’s 15% real estate drop through 1987-1993, when 100,000 financial sector jobs were lost over a six year period, as more than 25,000 NYC financial sector jobs are marked to be cut in the past half year and more are certainly to come. Add hedging from Euro/Asia investors – who believe the market will drop more, and who had purchased 20% of NYC property that was sold in 07, and the arrow will likely point down. This is despite the fact that the dollar may drop another 30% to 40% against most currencies in 08, even as consumer spending shrinks, thanks to the impending and current recession, Fed rates going down again to 1 or 2 point something or even a Japan-style ZIRP, zero-interest-rate policy (which failed to dent Japan’s 20 year housing decline and an associated 10 year recession), and the war(s) continuing. Anyway you cut it, expect things to be cheaper in a year in NYC real estate on all fronts and in the Northeast area… especially for foreigners.

10) Anything else? I need a 10th point… how about one last kick at Florida, where we have the half-backs – those who moved to FL from the north and due to astronomical hits in hurricane insurance and high rising taxes, left for the cheaper lands of places such as the Carolinas – which if in large numbers would further depress the FL market. I could not find hard data on this – only former Floridians who blogged, angrily, from their homes in Georgia, Greensborough, Costa Rica, etc. etc… and did I mention that places such as West Palm – with upcoming adjustments in ARMS at 24% of all mortgages, and Lauderdale -- at 22%, will continue to be hit with resets/increases?

All that said, and Richard may have a point. Although sales did increase in February from year ago data, it coincided with a continued and steep price drop. So, in order to learn how best to cope with all of this, it might be most useful to pour yourself a tall drink, and watch “It’s a Wonderful Life” at least a few times… and if you have any money left, maybe consider real estate in a couple of years…

but the U.S in the near future will re-discover agriculture

Yep, you can eat in Second Life but you will still be hungry. Facebook is completely inedible.

mike b,

Excellent post. You just KNEW the banks were going to play this way. Lip service and nothing more. Do I feel bad they got burned by a "9 year old"? Sure, but they should've checked. Thanks Mike!

It's really sad about agriculture in Santa Clara county. What was once the nation's premier orchard fruit producer has been paved over with tech shops that promise the moon and deliver wages that ensure sub-standard housing for professionals.

Almost no wine vineyards exist in SC co. anymore, yet even as recently as Nixon's trip to China he brought with him "home vineyards" cabs from Mirassou as a gift from the American people. These were out on Aborn Rd. which is now simply suburban sprawl. Even now Ridge Vineyards produces almost all of its wine from vineyards outside the county.

Right now major agribusiness can swing its clout and get subsidies, but looking forward the fiscal realities - along with international obligations - may put an end to this cozy deal. I wonder whether this change will cause a renaissance of the mid-size agribusiness companies (real family farms will never be more than a niche in the future).

We are already beginning the debate in my subdivisions HOA whether to amend the CC&Rs to permit raising chickens in our backyards. Will permission to raise a milk goat be far behind? ;)

Chicken co-op?

hey I have 2 comments stuck in mod. i used 2 separate comment entries with one link on each. Does that go to moderation? can anyone help...they are on topic and juicy.

Peter,

Here's some food porno for you....

www.snakeriverfarms.com/srf/default.asp

One of our bulls, Fukutsuru, is considered to be the top marbling bull in the United States. He is one of the anchors of our extreme quality oriented program and we treat him, and all his progeny with respect.

Ooh....

HK, I don't see any comment in moderation.

maybe i forgot to hit submit or sumthin..thanks for checking.