patrick.net

Fuzzy
I think you're approaching the crux of the matter. Like it or not we're all in this together. With the exception of very "gutsy" and knowledgeable investors like OO, if the idiots are really of a large enough number, we're all screwed due to the resulting policies. It's just a matter of degrees. Just like I can't be a winner if the US loses a war, I also can't be a winner if the US loses a financial "war". I can only hope the loss is smaller than projected.

PeterP may find a way to profit though ;-)

"Perhaps we should get a beer at Marin Brewing Company."

Yeah--that would be cool sometime...maybe we can get Jack "Bob" Ross in on it and revisit the "old bubble days" LOL.

Presently, I'm living in the S.Bay until my relocation plans go through.

Presently, I’m living in the S.Bay until my relocation plans go through.

There is the Los Gatos Brewing Company. :)

Fuzzy says:

The couple bought 2 years ago with no intention to flip. They have already lost half of their investment.

If they bought the house with a mortgage they could afford, why would the fall in house price matter? In fact, the fall in paper value may lower the property tax. What is it that makes a "huge financial hole they will most likely spend the rest of their careers working out of?"

If they are not forced to sell in the next several years or facing a mortgage reset, they have the same housing expenses they would face if the home maintained its paper value.

HeadSet,

yeah! Geez, why are people so upset about housing dropping 40% anyways? :)

I guess this couple can forget about "trading up" any time soon?

That must be a real kick in the teeth, "What do you mean you don't have any down payment!"

Well uh.. we "did". :(

The couple bought 2 years ago with no intention to flip. They have already lost half of their investment.
I know a couple of Bay Aryans like this. It is not pretty. Their only saving grace is they bought conservatively -- around here that means one decent income plus the other spouse working part time. So a 2/1 with kids sharing a room. You are spot on, DinOR. Try moving up the "property ladder" with a whetstone around your neck. They'll survive, but folks like them are the true casualties in my book... No sympathy JBRs, you'll get to buy in at the bottom of cycle. :-)

It's really not the end of the world for them, but bottom line? They lost a decent amount of.... something. Freedom, perhaps?

It will certainly affect the rest of their lives and the decisions they make.

My point was not to start a pity party for them or people like them. It was to point out that not all homeowners are free-dicking FB's.

Oh, and that Suze Orman might be a step up from our last Fed Chairman.

EBGuy,

Headset is right, as long as they're perfectly content w/ where they are it shouldn't be an issue. I would qualify that though by saying "in a normal environment". If your family bought in some far-flung bedroom community b/c it "was what you could afford" (due to the INSANE bubble) with the understanding that you'd move closer... well then you could be screwed.

With $4 gas Ben Jones estimates bad things for those dev's.

$4 gas is the new $1 gas.

DinOR,
Easy for you to say, your kids have moved out. Imagine them back home, sharing a room. Would you be content? :-)
I mean, like I said, these folks were "conservative", so if the other spouse goes to work full time (when the kids enter school...), they'll be able to move. Still, not a fun setback.

This is beyond hilarious.

CHARLOTTE (AP)--Wachovia Corp. (WB) is considering ending its infamous Pick-A- Payment mortgage loans in 17 California counties that have been hit hard by falling home prices and rising foreclosures.

A spokesman for the Charlotte-based bank said Wednesday that the move is being considered, but no decisions have been made.

Note : They are considering to end the infamous program. We cannot even joke about closing the barn door etc. Because they are not closing it yet. They are only looking at the open door and thinking, "Maybe, maybe that open door ... hmmmm ...".

The really odd thing is, lots of homeowners do NOT have medical insurance (or insufficient medical insurance).

I heard about this from a loan officer at BOA when I was chitchatting about refinancing. He was trying to sell me HELOC to make his monthly quota. His sales pitch was actually to pay for medical expense. So I asked him why any employed person with medical insurance would need a HELOC for medical expense? His answer was quite startling, he said that in fact many of his clients do NOT have sufficient coverage like PPO for their medical expenses so HELOC is a fall back plan. Many employers are obviously offering some sort of capped coverage plans (HMO?) that doesn't handle a bit out of ordinary situations.

About a few months ago when I was at my GP for annual checkup, I overheard his admin going after a patient for an unpaid bill, and the patient was insured, because the admin said, your insurance has already paid xxx, but you still owe us yyy for over 2 months now.

Conservative folks buying at the wrong time still get slaughtered. Fate has no mercy on them. The lesson is, one must buy in the best area (not the best house) he can afford.

I have a college friend who fell exactly in the same trap. She got married in 96 and bought right at the top of the last Hong Kong real estate bubble. Contrary to conventional wisdom of buying in the best areas possible, she was discouraged by the lack of choices in good areas and went for some newly developed satellite town where she could get much bigger room, albeit still at a very inflated price. Does that sound familiar to those who bought in Tracy at the top?

Then came the burst of the bubble. Everything tanked in Hong Kong, but her area tanked much more than the prime "fortress". It tanked so much that it became the magnet for low-income families and icon for poverty and crime in the media. Her unit is still hovering at 1/4 of its peak value, nominally, after 11 years while the prime area has already exceeded the 97 peak nominal price. Therefore, given the bigger gap between her area and the more desirable pockets, she has completely lost her hope to trade up.

About 4 years ago, she went through a bitter divorce, and the very untimely home purchase definitely had its part.

I'd say, for those who bought outside the "fortress" at the top of the bubble, it is very likely that they will never see their money back for the rest of their life. In the end, location matters, and timing matters too.

and timing matters too.

I thought you said you were bad at timing... ;)

BTW, I won't consider Cupertino and parts of Palo Alto as good areas. The school premium has been fully-baked into the prices and further influx of new residents will only dilute that premium. Also, if we really towards a school voucher system the importance of school districts will further diminish.

Good areas have lots of big tress and no riff-raff.

Most Asians still don't get it. If they want more opportunities for their kids, they should network and make money. That is the only way to ensure "unfair" advantages for their offsprings right from the beginning.

Of course, any motivated kid with sufficient luck can always build that edge themselves with or without parental help. See, the world is fair after all. ;)

Location is not about the name of the city, it is just about... uh location.

Anything along the western foothill west of 280 or 85 is considered good area, be it western Redwood City (now Emerald Hill I believe), or western Palo Alto. There's location first, and then there is city incorporation, and then there are schools.

The exceptions to this rule perhaps include a few pockets on East Bay which again are in the foothills. When I first came here, my father-in-law, who has been here for almost 5 decades, told me, "if you follow the foothills up and down the peninsula and the valley, you can't go wrong." I have found this statement to be generally accurate.

Yes, I agree. Foothill means trees. Riff-raff people do not usually accumulate up in the hills.

There may be feral people though. :)

There is the Los Gatos Brewing Company.

I prefer the Tied House in SJ. Better beer and fewer yuppies.

Tablerock Brewery here in Boise is also really good. www.tablerockbrewpub.com

If they bought the house with a mortgage they could afford, why would the fall in house price matter?

I bought my house for cash here in Boise two years ago for $272K. It's now worth maybe $250K. Who cares. I paid cash and expect to live in it until they cart me off to the old folks home.

Feral people. You mean the homeless?

With feral cats it's considered humane to catch, sterilize, and release.

Feral people. You mean the homeless?

Hmm... more like Deliverance. :)

More like Deliverance? That's why 20% of Idahoans have concealed carry permits.

I like this post at the NRO....

http://corner.nationalreview.com/post/?q=ZWU1OGIzNmQ4ZGVmZmM2NDMxNTJkYWRjODZhN2Q5MDg=

"Whenever you hear the word "bipartisan," be sure to check for your wallet."

Super-SIV anyone? Banks and investment houses are moving their impaired assets off the balance sheet AGAIN!

http://www.ft.com/cms/s/0/7f7dc986-00dd-11dd-a0c5-000077b07658.html

Who thinks it will work this time?

Why do American Asians compete so fiercely with each other for the lowest markets? All I see are retail like furniture, convenience stores, swap meet stalls...etc. Even in our open culture Asians seem to only be able to streamline a market or to invest in a market. I may not be seeing everything but it just doesn't seem like Asians build large businesses in innovation from the ground up here. Is it a cultural thing or am I just wrong?

We're looking at home now in which the owner bought in 1998 for $450K, with a $350K mortgage. Not too bad, a normal, fixed mortgage as best I can tell.

They just kept refi'ing cash out and taking on revolver after revolver until they put it up for sale in 2006 for $1.5mm (in Novato for crying out loud). Well, it's still for sale after dropping price by $300K. But they're stuck. They owe $1.2mm and change in debt.

Oops.

My question is: did these people work? Or have they just been living large off their house for the past decade? WTF?

Did they refi to remodel or rebuild the house? I actually have several neighbors who refi'd over $500K to either rebuild or remodel the house, which is also partially the reason why a house bought for $450K in 1988 is asking for $1.5M 10 years later.

Man, remodel in the Bay Area is expensive. It runs $200-400 per sf, almost as much as rebuild. The average remodeling bill I heard is at least $100K. If they refi'd to remodel or rebuild (hence increasing the value of their home), then it is fine I guess.

Or have they just been living large off their house for the past decade?

It is on the house. :)

Anybody who watched the Bernanke testimony should now have no doubt in their mind that Ben is going to do everything possible to keep the housing price where it is, come hell or high water.

Monetary inflation here we come, oops, I meant stagflation. Unless Ben starts distributing $16K per household, not $1.6K, and on a regular basis, he is not going to see his housing price holding their value.

Part of the equity loss was credit bandits getting huge and/or multiple helocs up to or beyond true value of the home then skipping town.

A local guy paid 2.2m in 2001 (non bubble year) then heloced 1m on top in 05 and walked away, now for sale as reo at 3m ...wheres the money? wheres the bandit? no where to be found. very nice of GWB to pass the 'dont 1099 me bro' law to bail this guy out thats 1m tax free, money for nuthing and chicks for free! truly the land of opportunity here. hard work apparently IS for chumps. why rob a bank when you can just ask them for money and they rain it down on you all you want w/no consequence?(used to anyway)

Everyone was convinced that real estate would always appreciate. That's true ... except when it doesn't. Will the lesson be learned in other areas? The stock market is crazy. It's an emotional roller coaster, and people have their entire nest egg in it many times. The real lesson is that people need to realize that money is not wealth. Wealth is things you can touch -- gold, land, water -- but equity isn't something you can touch. It can vanish. Cash isn't wealth either. It can be devalued too.

...but are willing to manage their own interest rate risks...

Huh? How are you supposed to do that? Buy swaps? What percentage of the population even knows what a swap is, much less how to purchase them?

I knew Greenspan was smoking crack at the time, we all did, here at least. At that point, I think he was just openly shilling for the banks.

wow, I hate to admit it but it's a pleasure watching the smug FB's in my neighborhood eat crow and commit to doing their stupid grunt labor well into their 70's. They deserve to suffer for being so f-ing cocky about all their house wealth and taking credit for the rise in value. I'm sitting back loving every minute of this. I dance around my cheap rental every night just thinking about it. Let it crash, let it crash hard!

At that point, I think he was just openly shilling for the banks.

Well, we agree on something :-) I have about had it with these "His highness was innocent, his remarks have been taken out of context and he was only postulating" type of apologies. But I am also tired of saying the same thing over and over again. But "shilling for banks" is quite apt.

We’re looking at home now in which the owner bought in 1998 for $450K, with a $350K mortgage... They just kept refi’ing cash out and taking on revolver after revolver until they put it up for sale in 2006 for $1.5mm (in Novato for crying out loud). Well, it’s still for sale after dropping price by $300K.
Hey don't do this to us... I used up my 5 free Property Shark reports trying to figure out which home you're looking at. Oh well, there is some pretty nice RE porn in that range.

Huh? How are you supposed to do that? Buy swaps? What percentage of the population even knows what a swap is, much less how to purchase them?

I actually tried to see if this is possible for a retail trader (using exchanged-traded bond and swap futures). My conclusion was that the hedge would probably create more risks than the ARM payment shock itself.

It would be ironic to go broke hedging.

I hesitate to defend Greenspan for a variety of reasons, but in the interests of balance.

One clearly might pose a defendable argument that lower payment schedule over the initial several years of an adjustable rate mortgage works out to a buyer’s advantage under conditions of a short (several year) stay in a property and in appreciating, even mildly, market. So some percentage of consumers clearly did benefit from these products.

Of course, most here understand that this argument fails in respect to the larger macro effects of bubble run up caused by these very same ARM products.

How much an effect did the largely *hidden* frauds of no doc etal contribute to flawed economic analysis hitting Greenspans desk?

He did an amazing job of providing stability and confidence in his leadership on Wall Street and capital hill. Almost superhuman. What are the metrics under which one judges his performance?

This said, personally I give him a thumbs down but largely due to his role in extraneous factors including a general distaste for the casino aspects of Wall Street, the thievery of fractional banking system, and the general ineffectiveness of our democratic leadership with respect to massive regulatory failure.

I really like the helpful advice in that Bankrate story on today's news page...

Solutions to a frozen HELOC

• Appeal the lender's decision.
• Search for other lenders who may offer HELOCs.
• Amass emergency cash reserves.
• Reduce spending on luxury items.

Justme,

Ah yes. Just as I wrote. It is inevitable that people will spin these units off and chose not to engage in amrket that burned them so badly. With the new implicit backing of the governemnt, whomever buys these spun-off units will likely do pretty well. Lets see, who would that be? Ex-CountyWide execs perhaps?
In any event, your pension funds, municipalites, foreign investors, etc are all backing away from securitized debt backed by US real estate. With the recognized price inflation, and the recognized effort by the US governemnt to curtail the drop (or at the very least the pace of the drop) it will be, umm, never before we see mortgages spreads as low as we have seen in the last few years.
The government is going to have to get into the mortgage business becasue they are setting the price of housing and they have chased everyone else away from the market.
As for unfairness. Yes. In the age-old parable of the grasshoper and the ant, the government is now guaranteeing we should all be grasshopers, because they will rain mana down on everyone should times get lean.