patrick.net

@MP,

See my above post. And btw, the 1 month Treasury rate is NOT the same as the Fed funds rate --it's currently BELOW the Fed funds rate (3.34 vs. 3.5%) as I already noted.

The 2/10yr split as a commonly accepted measure of yield curve slope still stands (if you're still willing to take that bet).

Think about it guys. You guys are betting that the short end will be higher than the long end. The short end is the 1M or FED FUNDS RATE and the long end is the 10-YR BOND b/c there is no more 30-yr bond!!

There are still bonds "out there" with maturity beyond 2015 and they behave like 20+ year bonds, what about those?

How about that, we bet whether Bloomberg or Reuters will have declared "US yield curve inverted" by the end of the year?

How about that, we bet whether Bloomberg or Reuters will have declared “US yield curve inverted” by the end of the year?

Forget it, Peter. Whatever measure you use, MP will find a way to weasel out of it. But he's NOT a cherry-picker, no sir, he's "in finance for goodness sakes!" :lol:

What you haven’t covered (or I’ve missed) is an opinion on land prices and their behavior within the property bubble. Should they behave similarly?

I'd like to adress the original (land~bubble?) topic within my small scope of experience. In fact, this is what brought me to the whole subject in the first place.

Earlier this year, I was looking for waterfront land to purchase, with the intention to buy now, build later. I do realize the "cash flow" aspect wasn't there, but my strategy was to find some land on Puget Sound just outside developed areas (cheaper), keep it long-term, and eventually build a home. I thought, given my knowledge of living on Puget Sound before, my current experience, and some knowledge of local geology, I'd be able to pick a good tract.
Well, doing some research, I find it's a bit more complicated than that, with zoning, easements, and proposed taxation/restriction on waterfront dev in WA. I also found that every piece of land has a markedly different composition, in terms of road/utility access, grading, ground stability, flood history--not mention: usable space. Yet, while the investors mostly flock to waterfront condos for "cash flow", I've also read of people buying land, and sometimes sight-unseen. (they're going to get burned). To me, land actually seems a lot riskier and less profitable in the short-term because there's so much work involved to buy land, develop and "flip" for a huge return.
The exception I've seen is land in new developments, or empty waterfront land adjacent to recent growth. There, I've seen as much as $500-800K per half-acre, and they're dropping McMansions on those. So, if someone buys that land for $500K, spends another $750K to build a home (too low?), then sells for what? $2M?--that's pretty typical $ for a 3000sqft waterfront home in Bellevue. Bainbridge waterfront is less.
So, that's not as good of a margin compared to a recently "flipped" property in Los Altos:
Sold 10/03 for $1M, house raised, "brand new french villa"(their words) built, price: $2.7M. Apparently it's off market, so I'll assume sold.

My "educated guess" there are mini-bubbles in land where people think they can either buy/sit, then turn quick or: develop and sell for a premium, such as tourist areas, waterfront/coastal, new commuter areas. Even there, the risk seems high.

My “educated guess” there are mini-bubbles in land where people think they can either buy/sit, then turn quick or: develop and sell for a premium, such as tourist areas, waterfront/coastal, new commuter areas. Even there, the risk seems high.

Risk is high whenever there is high level of speculation. When expectation turns into disappointment, value plummets.

Kurt,

Las Vegas is going through major land selling these days, as well....actually, just outside of LV in a town called Pahrump. From what I can tell it is not that developed but the hope is that people who don't want to pay the "high" (?) prices in LV proper will buy in Pahrump and build. Henderson may have started out that way, and who's to say that Pahrump won't turn out the same. But it IS a big thing right now. Oh! And the other *big* thing that seems to get a lot of mention in the ads has to do with water rights and utilities. Check out the ads in craigslist...some have pictures....some don't (buying sight unseen?):

tinyurl.com/dchjd

tinyurl.com/dr4xu

About Pahrump here > tinyurl.com/78zlk

I'm not sure what kind of services and other infrastructure that have in the area, but I believe it's pretty sparse right now.

In a case like this, do you think people will buy because of the proximity to LV and because of Henderson's growth history? Henderson began as 13 sq miles and is now 94; incorporated in 1953. I suspect that anyone who buys here would be a speculator or you don't mind the 1 hour drive to LV to work.

But they do have a nice web site. :-)

BayQT~

has anyone menitoned the relevance of the Proposition 13? as far as land valuation is concerned, property taxes are the main variable as the contribute most to the cost liability. Fact is that CA has moved to practically eliminate property taxes. this makes infrastructure scarcer and thus reduces supply of useable land.

Shmend Rick,
See previous thread "NIMBY Laws and California Housing Prices" July 27th, 2005

I am EXTREMELY anti-Prop. 13 for exactly the reason you mentioned (reduces housing supply by dis-incentivizing cities from zoning adequate amounts of residential development), plus it arbitrarily and massively shifts the tax burden from older to younger homebuyers.

yes but the governor is sooo charming!

But he is at least a "republican" who is at least openly pro-business and pro-rich. At the very least, he labels himself correctly.

Many self-proclaimed "rich" liberals in this state are basically hypocrites.

(Not an accusation)

I try to keep politics out of my discussions because 'emotional' doesn't even begin to describe how people get on that topic. But I had to mention that when I lived in LA and worked in the televison industry, political affilitations were very much about whatever was in vogue. If someone thought a director/producer had a bias, then they would take on whatever bias they thought would get them work. Tough to have a political discussion with someone who doesn't have any real opinions.

Las Vegas is going through major land selling these days, as well….actually, just outside of LV in a town called Pahrump. From what I can tell it is not that developed but the hope is that people who don’t want to pay the “high” (?) prices in LV proper will buy in Pahrump and build.

Thanks for the info--fascinating! Those res. Pahrump land prices have me scratching my head; they're actually higher than many residential tracts (street+utilities) along Puget Sound (WA). I can't imagine what LV is priced at. And this is hot, blistering desert--go figure. My picture of Parhump is a "wild-west" town with poor infrastructure; maybe that's changing. I'm sure your money will go further in WA or OR, and the weather won't kill you.

Btw, Pahrump is the home of Art Bell, that nutty conspiracy-talk show host who considers himself a real "survivor". I have to wonder if others moving to Pahrump consider themselves "survivors"? Perhaps it's a good outlook to have there.

I have to wonder if others moving to Pahrump consider themselves “survivors”? Perhaps it’s a good outlook to have there.

You'd better believe it. It's spittin' distance from Death Valley. I think you can see some of the tumbleweed in one of the pics (ad) I referenced.

I'm definitely not interested in buying land there. I have family in LV (10 years) so they keep posted on everything.

BayQT~

HEPFinance

Very good info. Thank you for de-lurking in the interest of keeping the peace. :cool:

Many self-proclaimed “rich” liberals in this state are basically hypocrites
amen brother, amen

I third that. Makes me ill to hear a bunch of millionaire pseudo-"progressives" trying to tell me how GOOD things like Prop. 13 and UBL laws are for me. "It's all about the environment and helping old people." Yeah right --more like, "I got mine, so screw you and yours!"

@HEPFinance,

Sounds reasonable --the spread between the 1/10yr Treasury is now .30. With 2 more Fed rate hikes ahead, I'm willing to bet it will invert by year's end.

Sounds reasonable –the spread between the 1/10yr Treasury is now .30. With 2 more Fed rate hikes ahead, I’m willing to bet it will invert by year’s end.

I can bet the 1/10 too... which sushi restaurant?

Pop!

That link didn't work. Would you mind trying again?

BayQT~

Try this link too:

http://tinyurl.com/9fntu

More than a sushi dinner, if I win, i just want you guys to have an ‘Ode to Marina Prime’ forum posted, since u guys are webmasters. Sounds good?

No. I will not bet anything other than food. :(

‘Ode to Marina Prime’ forum

Just the thought of what could end up being posted frightens me. :shock:

But Peter - That would mean we’d have to get together. What if you are an axe murderer?? What if I’m an axe-murderer?

Sushi Groove on Hyde st. in Russian Hill is great. Butterfish sashimi!

You afraid of me attacking you in front of fellow sushi eaters?

I clicked on the nytimes link thinking it would be a sushi review... :(

if I win, i just want you guys to have an ‘Ode to Marina Prime’ forum

Well, we had a similar thread, titled "One for the Bulls" (July 27th, 2005), but a whole thread devoted to ONE poster (and an attention-hungry one at that) ?

I'll allow it only if MP holds the Bubble BBQ at HIS house. ;-)

No deal. The problem is that I now have sushi on my mind...

Yeah, that’s a great prize for the winner.. have people over at my house, with me providing the food, drinks, and cooking.

Actually I was thinking pot luck, where the guests provide all the food & drink --no effort on your part needed. I admit I'm just a little curious to see what $1.25 mil buys you in the Marina these days.

Anyways... isn't free sushi and the admission Peter & I were wrong payment enough (assuming we lose of course)?

I thought I'd interrupt the party briefly to share something I found while comparing homes on MLS against previous their previous sale price. This was local to Marin, but perhaps it means something in a larger sense.

In a more local sense, how far do you think house prices should drop in Marin to be more in line with the "fundamentals", such as wages, economy, intangibles, etc? Is there a way to reasonably calculate RE value, once we sweep away the effects of the bubble? Certainly time will tell...but in the meantime, I came across something interesting:

Taking current price listings on MLS for Marin (general cross-section of towns/RE segments), I then went to ditech.com and found the price the house sold for last. Then, I selected houses sold prior to the main bubble window (98 and before). Using median pricing stats from the county assessor, I then compared the previous sale price against the median that year, as a percentage of median. Then, I looked at the current price against the '05 median. What I found is that current prices/median are lower than pre-bubble/median. On average, current "values" are 25% lower against median than in pre-bubble years.
Is there a legitimate reason for this? If median prices reflect market fundamentals, then shouldn't current prices be higher? Or, does this suggest current RE is overvalued, throwing the median 'out of whack'?

(ignore the middle paragraph--it was meant for the Marin blog)

Is there a legitimate reason for this? If median prices reflect market fundamentals, then shouldn’t current prices be higher? Or, does this suggest current RE is overvalued, throwing the median ‘out of whack’?

Median prices are not useful information especially over longer term. They are too sensitive to cross-sectional shifts.

Welcome back TWIT!

MP, I am backing out of the bet since there is no sushi.

Median prices are not useful information especially over longer term. They are too sensitive to cross-sectional shifts.

Ok, that makes sense. Still, I find it strange, even when comparing housing in different towns/price points, they average 25% less. At this end, I'm just trying to build a model for reasonable valuation, since everything is out of whack. Any thoughts on that? One method I've taken is looking at pre-bubble home sales, taking those prices, and adding 5% annually (generous, imo). Comparing current prices to those rough estimates, I find current listings at 140-200% (of 5% annual growth). Any better methods/ideas please share--thanks!

I think the next topic should be : "Potluck? When and Where." :lol:

BayQT~

Don’t forget…as I mentioned before, the ditech site sometimes lists the “refinanced” amount, so it may indeed *not* be the last sales price. It may affect the outcome of what you are looking for.

Really? Hmmm...thanks! Well, maybe I can find some inside realtor angle to get accurate stats.

Really? Hmmm…thanks! Well, maybe I can find some inside realtor angle to get accurate stats.

Yes. I explained in a previous post but the jest of it is that I know the history of a couple different properties, including the sales price, and when they were refinanced. For both properties there is inconsistency. For one, it lists $0.00 for last sales price, and the refinance date for last sale date(property was purchased in 1988) For the other, last sale date and amount are correct....BUT, both of these properties were refinanced in 1999.

Note also that ditech has changed the format of that appraisal page....more simplified. Plus they have added a security system of sorts to "prevent unfair use".

BayQT~

Chan

The best way to deal with MP when he is in a 'mood' is to just ignore him. Insults don't bother him, in fact I think he likes the attention the insults bring. But being ignored is like kryptonite, it utterly destroys him.

chan: this is your warning

Regardless of your feelings about MP's (admittedly dubious) claims, please keep any criticism non-personal and civil. He hasn't gotten nasty or personal since the "incident", nor I do not want to see another flame war erupt which forces me to censor you both.

is it possible to short mortgage backed securities?

Yes, for the big guys like hedge funds there are many ways...

I do not know if there is a "retail" way to do it. I want to know myself.

what is the problem? regulation or the amount of capital needed?

Mostly capital and relationship with derivative/financial firms. You will to borrow MBS in order to short them... you need to find a lender. Also, you are responsible for the cashflow (interest payments) if you short a debt instrument.

Moreover, you need to carefully hedge away interest rate risks. otherwise, you bet against MBS will turn into a bet against interest rates. If you can do all this, and is well capitalized... aren't you a hedge fund already? ;)

(Not investment advice)

when were the hedge fund regulations introduced?

I thought hedge funds are mostly unregulated investment partnerships. I believe they are trying to regulate them a bit now.

is there already a hedge fund that shorts MBSs?

Hedge funds are private. They do not need to disclose their holdings/positions.

Bears/Bulls,

I think we have gotten stuck. Stuck, not being able to stay on topic....and stuck, giving attention to an individual who clearly (as SactoQT said) likes the attention...revels in it.

Suggestion: If this topic has gotten stale already, let's admit that and move on to another one. Harm's last post in the Lurker's Turn thread (see, Harm, I told you I was going back to read it. :-) ) recommended that we discuss "Appraisal Fraud". It's a good topic, and one that affects a lot of people in various situations, different communities, etc, and no one to protect them or look out for their interests. Ironically, the ones they trust are the very people who are sticking the knife in and turning it. It is rampant and many stories have turned up in the media.

So now that some of the deer have been caught in the headlights, how do you think that this will be corrected moving forward? The FBI is involved in many of these cases right now. Do you think that the government set down any new rules....perhaps the realty industry will initiate something to save face?

What do you think?

BayQT~

Jack,

Of course, I know that we get off topic and yes, the trolls will follow. But it would be a fresh start. That's all I was saying.

Has anyone actually LEARNED anything ?

I don't think I deserved that. I have been a positive contributor to the blog, and was just trying to help.

BayQT~

"I just find it funny that the redundancy and predictability doesn't have everyone fed up by now."

*DING*

It's going to be an amazing five days, watching housing prices in the bay area decline by 10% per day...

@peter re: golf, it goes. Some up, lots of down. re: party, sure. patrick knows my email. I'll bring the scotch. Scapa 14, if no one objects.

@sqt: Slammed. More posting later. Kinda bored of the bubble topic to be honest, and one reaches ones smugness quotient fairly quickly when reading threads here now. Hope things are good in sac.

Chewbacca,
prat