patrick.net

Brand Says:
The only Gellar I want to picture in leather pants is Sarah Michelle.

You forgot to add, "leather pants optional." :evil:

NV,
Okay. I can buy the Danville "I used to wok at 7-11 and now I am just a seriel re-fi person to make my income" since some homes there were $500-$600k before 'the doubling'. But PA has always been pricey as heck. Are we seeing VC money that dried up 6 months ago slapping these people around?
This level of distress is just not jiving with my instricts. Unless fraud was way worse, the job front is much worse, or people just do not understand how much risk they were (and are taking) with speculation.

Hrm.
Negative Amrotization threshold triggers? Since the fall in prices was faster than expected maybe we are seeing two things: 1( banks pull back on HELOCs and 2) Re-index and fully ammortize neg-am loans?

Duke,

I have started looking at East Bay after I noticed some big price drops in Dublin. Just RE porn.

Here is a nice San Ramon schadendreude for you.
http://www.zillow.com/HomeDetails.htm?zprop=68040384

Purchased for 1.02M, now on sale for 869K. I would be shocked it it actually sells at that price. Even the idiotic Zestimate says the value has dropped from 1.06M to 872K. So it's likely much worse than that. Based on propertyshark's loan information, this will be a short sale.

Point is people have stretched too thin. Not everyone who bought an expensive house had a matching income. Some may have bought in Palo Alto thinking it's a sure win - "you can always sell it for a profit" type of thinking.

The BA is special. We don't face foreclose for "tiny" amounts like 500K. We like getting foreclosed for 1M.

I too am very perplexed by this information - if it's accurate. I'm leaning towards StuckInBA's explanation:

Point is people have stretched too thin. Not everyone who bought an expensive house had a matching income. Some may have bought in Palo Alto thinking it’s a sure win - “you can always sell it for a profit” type of thinking.

StuckInBA,

I think you're missing the point here? Whether or not they had an income to 'match' just the fact they were willing to become debt slaves (however temporary) should be sufficient to guarantee profitability.

(I'm sure it's in the Constitution somewhere) look it up.

What is UP w/ the IMF? Why aren't they in their usual nod-off mode? Why are they making announcements, selling gold and trimming budgets? Why now?

Just thought I should point it out...

The 74 listings on Trulia include 13 times

Cambridge Avenue, Palo Alto CA 94306
$1,680,467

StuckInBA,

Great house. I looked it up and what shocked me was the property tax of $16k -- nearly $1350 per month. A little back of the envelope calculation shows that income required for a 30 yr mortgage at original purchase would require about 7500/mo with 0 down and 6300/mo with 20% down. To put those into perspective -- annual income of 300K or 250K -- or 2.5s to 3x the median income in San Ramon in 2005. A comparably sized house rents for $2800-3500 and a 2BR apartment (admittedly an inferior substitute) rents for 1500-1800.

I don't know San Ramon so I have no way of knowing if this is a "median" house but if it is, under traditional guidelines (20% down, 30% piti to gross), a "median" house in San Ramon should sell for around $480k. Less than half of the orginal selling price -- and with nearly $100k down.

It all comes back to affordability. So whether we talk about PA or San Ramon or Des Moines, house prices, over the long term, need to reflect what families can reasonably afford to pay.

I was using the map function to check out the NOD/foreclosure homes in Palo Alto, and as I have expected they are mostly located in very marginal areas either in the apartment blocks or next to El Camino, 101.

I know of at least a couple of first generation Chinese immigrants from mainland China who stretched all they can to get into such neighborhoods because it is Palo Alto, $200K household income stretching for a $1.2M shack. Relatives back home will admire them to death. Never mind the leaking 1000 sft Eichler on a slab, never mind the apartment blocks right across the street, their audience only know Stanford University and Palo Alto. I've even got one of them bragging to me that Steve Job lives nearby (huh, in South Palo Alto next to 101??) and his kids are going to school in Palo Alto High. Jobs grew up in Los Altos and went to Homestead himself, if a very discerning person like himself were to send his kids to public high school, there's no doubt in my mind that would be Gunn High.

So perhaps the foreclosure listing is a bit off, but I won't be surprised at all that there will be very substantial number of foreclosure in the more undesirable pockets of Palo Alto because recent buyers really stretched to the max to get in for the PA brand name. When price tumbles in a year or two, they will start to ask themselves, what am I doing in this tiny eichler next to apartment blocks paying $8K a month?

Oh, almost forgot to mention. Both examples I know bought into South PA using 3/1 ARM or I/O loan which are about to reset. Very interesting times.

I think marginal Palo Alto is most at risk, more so than Cupertino or Mountain View, because you lose the bragging right.

Human beings are crazy animals. We pay the most for vanity. We will even die for vanity. Almost every single one I know who bought into marginal Palo Alto is stretching real hard so as to put Palo Alto on their address. No kidding, because I can hardly imagine why any sane person would want to struggle that hard for that kind of environment at that kind of price except for the brand name?

At least with other fortress cities, there are some kind of price performance for schools, lots or whatever rationality going on. With marginal Palo Alto, the city name itself says it all. Long-time residents take notice, sell while you can. Price it below $1.5M, but definitely higher than $1.3M, that is a sweet spot that these wage slaves can stretch the most for.

Point is people have stretched too thin. Not everyone who bought an expensive house had a matching income.
The former incarnation of my company had an "executive" who was a serial 2 year homesitter. This probably worked extremely well for him over the past decade, and I'm sure he employed leverage to maximize his gains. No doubt his last project will change hands at a valuation that the bank may find less than satisfying...

I think marginal Palo Alto is most at risk, more so than Cupertino or Mountain View, because you lose the bragging right.

That would be my guess as well...people putting themselves on a financial limb to live in the "right" zip code. That's certainly the case up in Marin county where people who could actually afford to live in Novato, didn't want to "slum" like that, so they IO'd their way into Tiburon.

DinOR :

That IMF forecast was a bit too frank for me as well. I am not too familiar with the vested interests that might play a role in IMF forecasts. Anyone care to comment on that ?

EBGuy,

Nice term, "serial 2 year homesitter". I wish I'd have come up with that (and a lot sooner) as you can really get into trouble even describing an anonymous 3rd party as a flipper. Through 2006 (2007 in Portland) people didn't see any connection. Especially since most S2YH's didn't even bother with improvements.

StuckInBA,

I didn't get it either. I thought they just did an annual report with sparse comments. What was with the "to the billion" projection on write-offs too? Just seemed out of character?

Right on topic -

http://realtytimes.com/rtmcrcond5/California~Dublin~joanbudne

One group of housing that is doing well in Dublin, sadly, is foreclosed and short sales. Of all sales in Dublin, this group represented 41% of sales in March and 39% in February. They are going to cause others to adjust their prices to be competitive.

So nearly half the sales in Dublin were of foreclosed properties / short sales. Is Dublin the next Tracy ? One thing I want to take credit for is predicting the itinerary of the bust. It's traveling west on 580 and has now going both north and south on 680. It is also coming on 101 north and has cracked San Jose completely.

I did a long drive from Pleasanton to Walnut Creek last summer to check out each neighborhood because I've never seen that part of the Bay Area.

Danville and Alamo are definitely highlights of that area, and western Pleasanton in the rain shadow foothills is very nice too. I didn't even bother to get off the freeway to check out Dublin, it is just a very depressing sight. Houses at different stages of construction lining up back to back on postage-size lots, covering the bald, treeless hills (to be exact, should be dirt mounds) to no end. I won't even be surprised if you tell me that the entire Dublin goes into foreclosure.

Dublin is built on a pile of dirt with barely any vegetation except for the familiar annual brown grass that carpet the Stanford hills of 280.

Having poo-poo'd Dublin so much, I'd say that it is still much better than Tracy, because it is sandwiched by nice neighborhoods, and is geographically much closer to the heart of job centers.

On top of that, Dublin has two major Chinese grocery chains, so that will definitely help uphold the value a bit because grocery demand for most ethnicities is quite inelastic.

OMG this is a funny quote from http://marketplace.publicradio.org/display/web/2008/04/04/ghost_town_usa/?ref=patrick.net.

"Sinclair: We would do it if the equity was there, but in a case where we're already so behind... Imagine that for five years, say, we're gonna pay four grand a month and then we're just gonna be back up at what we bought the house for. We feel like we're throwing away money."

I think it is an ironic turn of events when home owners are complaining that they are throwing money away. I thought only renters did that. Patrick can use this on his site to counter the 'renting is just throwing money away' argument.

This seems to be using realtytrac data. Maybe an interesting way to gain perspective on the data forward. I like this tool.

Hotpad graphical representation of bay area foreclosures map overlay

Thanks Malcom! I added that quote, because it's great:

http://patrick.net/housing/crash3.html#throwing

Stuck and DinOr,
Ifanything, I think the IMF is STILL under-estimating. One of the things I like about this group is that they don't feel the same need to 'defend against negative psychology' like many central banks must.
Yes, read that as 'Lie to you so the sheeple won't start a run-on-the-bank'

Today is another one of those *very* scary days.

Malcom,

Thanks for sharing that link. Given the Sinclairs are just outside of the Foreclosure Capital of Amerika their comments are probably ahead of the curve.

Funny how quickly they got over the guilt of "squatting" in their own home? Funny how just being able to eat out or affording a baby sitter allowed them to forget all about the stress and embarrassment?

I don't know how much "scrimping and saving" they did exactly but as many here suspected these people are VERY dialed into what their options are and very tuned in to what their options might become! I thought it was really funny when Mrs. Sinclair said they really couldn't even afford the loan at 4.25% (as it originally was!) It'd be funny if it wasn't so sick. Doesn't look good for the banks.

Agreed Duke relative to IMF comments, I was about to say the same thing. I often feel many here do not yet understanding how serious and real the coming meltdown is likely to be.

My read on the IMF docs is a reflection of absolute panic now amongst the central banks, who will not publically state facts that might potentially hurt their interests. The crisis of confidence is here, we are on the cusp of major upsets and radical change in the current financial system.

DinOR, you might remember I used to be very judgemental of people who default but I have to agree that in a survival situation personal virtues kind of go by the wayside. If I were a friend of theirs and they asked my advice I don't know that I would tell them to do anything differently.

The key is, will there be decoupling?

If there won't be any decoupling, US will actually come out of the mess much faster than the rest of the world because of the vast resources we have. If there is some extent of decoupling, not good news for us.

The best way to ensure that there is NO decoupling is to let the economy slide as fast as possible. The faster we slide, the more the rest of the world have to share the burden whether they like it or not. It won't be the Americans that lose the most in a worldwide coupling situation. I am just afraid that the stupid politicians will drag this out and make worldwide decoupling possible, at which point, all of us on this blog will need to seek other alternatives in terms of choice of abode.

The key is, will there be decoupling?

If that means wheels flying out of their hubs, yes.

BTW, that hotpad link a few posts back maps blood in streets, showing shades of red relative to map coordinates of percentages foreclosures. Dark red are areas in early trouble, other areas one can see holding.

So though the datasets used from realtytrac might not be entirely accurate, likely they will remain consistent. It will be fun and scary to watch the dynamic of blood circulation as the crash worsens. If one likes scary movies of course. Minimum age 17 here please.

Back n WaMu land. . .
Rmember that Countrywide tapped 13billion in credit and burned through it unimaginably quickly.
My guess is TPG is cleverly investing in the company that will suck in WaMu. Why buy Wells stock if you can get it cheaper by buying WaMu?

I often feel many here do not yet understanding how serious and real the coming meltdown is likely to be.

Let me relate that to the East Bay discussion we are having. Here is a very nice house in Pleasanton.

http://www.realtor.com/realestate/pleasanton-ca-94566-1087418957/

Here is the description from ZipRealty
Bring any reasonable offers, seller is highly motivated.

Now these highly motivated sellers - how are they pricing the home ? Let's see.

Price Reduced: 02/19/08 -- $1,024,888 to $988,888
Price Reduced: 04/07/08 -- $988,888 to $949,999
On Market: 236 days

So they had it on the market for 200 days before reducing the price the first time. The thing is even after the 100K reduction in wishing price, it is still overpriced by at least 150K if not by 200K.

In this worker-bee school-fetish area 30 miles away from main job centers, any house over 800K is in serious trouble. (Please don't tell me about the 3 employers near Pleasanton. I already know, and they cannot hold up the entire east bay.)

Malcom,

Just about anyone that was in retail securities during the Nasdaq meltdown got behind on their payments. (If they're being honest) I (within the bounds of securities regs.) took side jobs and did away with virtually any and all luxuries. It was a tough road back.

I think you're right in more ways than one. Lenders have totally sculpted these borrowers behaviors to the point where they think EVERYTHING is "optional".

Pick-a-payment?

Pick *not to-make-a-payment!

I'm not convinced that this was as much about affordability as it was about being under water? I think this is what Bernanke/Paulsen are most afraid of. It's almost as if people now think it's perfectly acceptable to discontinue your obligations simply b/c it's not appreciating in the manner it was being portrayed to you or even that you imagined in your own mind.

OO

I could use some help in understanding decoupling. Are we talking about refusal to accept USD currency for trade? Ceasing of trade? Are not holdings of financial institutions and products *owned* across borders, is decoupling even theoretically possible without asset seizure forfeiture?

What would decoupling practically look like? Certainly is would be fractured and arbitrary, with new alliances of necessity arising. But would that world order change be bad for us?

As I see it, we would become like South Africa. Resource rich and very self sufficient. Build everything ourselves because nobody wants to deal with us. We continue to extract overseas energy and oil at gunpoint. I guess nobody would be buying our Cisco switches, coca cola, and tampons but is that a bad thing for US middle class? But you disagree?

Fed worries about Deep Recession.

We need to worry 2 steps deeper. What would that be?

I think this is what Bernanke/Paulsen are most afraid of

I sure hope that this is what they are afraid of, I'm not sure I give them that much credit. All efforts to stabilize declining home prices are failing, of course. Upside down homeowner walkaways will only accelerate.

What scares me is there is a complete lack of any positive information or propaganda coming from them. Some time ago they were talking about US manufacturing gains vis a vis USD decline as a economy savior. I haven't heard this or anything else from them for a long time now.

I'd guess they are currently busy working on Armageddon disaster contingency plans right now. That's what I'd be doing. What could these kids be up to, anyone have any ideas? Nationalization of all banking institutions is obvious, but beyond that anything? Restriction of capital transfer / flight? Asset freezes? What might they do? What tools do they have?

Do we turns guns on OPEC puppet leaders and *demand* massive drops in oil prices? Direct oil market interference?

Do we turns guns on OPEC puppet leaders and *demand* massive drops in oil prices? Direct oil market interference?

Will Russia allow that?

OFEC is the best counter-balance!

In my opinion, the peak food risks and arguments are slightly exaggerated. Sure, more people to feed these days. Sure, climate change is disrupting agriculture all over the place. Sure, fossil aquifers are drying up (including in the US, I might add).

However, much of the current rise of staple prices is due to speculators with nowhere else to deploy capital, simple pure inflation, as well as increases in upscale consumption (meat and fish).

There are many technology fixes to increase third world agricultural production, with few barriers to widespread adoption. I'm not convinced of the OFEC arguments here, not yet.

“We are the Saudi Arabia of food” is unquestionably a nice sound bite, but one must look much deeper for truth.

I have little doubt that our institutions will allow a great many people to starve before solutions are implemented. We will not be teaching anyone to fish, we will be selling them fish sticks. The rape and pillage will continue. Tragedy ensues.

Measure our current world civilization by the number of people who will starve to death over the coming decade, and the number sold into explicit slavery. I'm afraid a new dark age approaches. It may take a hundred years, but the march towards it continues unabated.

NVR,

right now many countries that *may* have the potential to challenge the US' position in the world are heavily dependent on us for trade, directly or indirectly, because we have been the growth engine of the world for the last 6-7 years, through hollowing ourselves out of course.

Now, if we go into recession slowly, that will give these countries time to forge alliance among themselves and trade among themselves, making us irrelevant. The best way to stop this is to plunge everyone into recession at the same time, because we are heading that way ourselves for sure, we might as well deter some potential competitors along the way. With or without a fast recession of the US, the rest of world is already scheming to be much less reliant on us.

Slow recession or depression is very detrimental to the US. We will still bleed slowly to the Middle East and indirectly to Russia. We will still buy junk from China propping up their employment while giving them time to readjust their trading focus with Europe. It will give Euro more time to assume the status of USD. If we succumb to a cold swiftly the world will catch pneumonia. If we struggle with a pneumonia through on-and-off antibiotics, the world may only catch cold.

The US has a large underclass. The only reasons why we can keep them watching American Idol and chewing chips are because we have a large enough piece of land so that we can sweep them under the rug, and most importantly, we occupy a much larger-than-proportional share of the world's resources so that even the underclass of America can watch TV and drink pops all day.

Now you take that larger-than-proportional share of resources away from America, the social system either needs a serious overhaul, or we are in trouble. The way that the system is set up today, we need our empire status to maintain the nice status quo lifestyle for everyone, including yours and mine.

The next step is straight from the New Deal Script.

Fed governement buys distressed mortgages and then starts to tell everyone to tell everyone else, "Hey, don't hurt your neighbor. Pay your mortgage."
Right now it just seems like big banks, foreign investors, etc are the people getting hurt by 'just walking away.' Never mind the fact that pension funds and municipalities are amongts the biggest losers (as holders of the increasingly worthless MBS).

No, I suspect the Federal govenement will make this a tax payer issue and then use the bully pull-pit and good 'ol peer pressure to get them mortgages performing again. Just think about how many people might walk over to "Mr. I-now-eat-out-and-hire-babysitters" and ask him tro try a little harder to pay his mortgage seeing how he CAN afford to pay, he just doesn't WANT to pay.