patrick.net

Jack, Kurt S, I am visiting the beautiful Marin county this weekend for our future home (rental or otherwise). Any suggestion for location and restaurant?

I like cool climate with water/mountain view and sushi. :)

Thanks.

Peter P:

The sushi places I frequent aren't much on views, but I know of a decent Thai place on Corte Madera creek: R'NOH THAI RESTAURANT. (415) 925-0599. 1000 MAGNOLIA AVE LARKSPUR, CA. There's an even better Thai restaurant in Larkspur Landing, but no views (sushi place there too). Possibly some waterfront sushi bars in Sausalito, but I'm never down there.
This place also has great views on mt. Tam:
http://tinyurl.com/7d2ks

What size of a place are you looking for? I can ask around...

Assuming a FIXED rate of about 6 per cent, $2,761. works out to a loan amount of a little more than 450K.

Yeah--that's what I gathered the principle was too, unless we're some crazy loan products are heavily in the mix. Who knows, but the number struck me as pretty low...

Jack, Kurt, thanks for the tips.

ern Marin–Sausalito, Mill Valley, Tiburon, Corte Madera, Larkspur, Greenbrae, all stay fairly cool and get some fog many nights and mornings, but also usually get quite a bit more sun throughout the day than SF, day in and day out.

And, if you get north of Ring Mountain/Tiburon Ridge you'll have A LOT more sunny day's per year! (south has much more fog--go figure it's more expensive).

Btw, I know of a couple waterfont properties that may possibly be for rent, if interested.

I would suggest meeting for blowfish, but I have to be in Haywierd this Saturday eve!

Maybe next time. :)

Btw, I know of a couple waterfont properties that may possibly be for rent, if interested.

Thanks Kurt. I am just taking a look at the area for now. Suddenly, water view is becoming a priority because I think it may improve Feng Shui.

FYI: One of the bloggers on Ben's site found the actual Realtor.com listing for Teresa Generas' 1931 Kensington bungalow: tinyurl.com/dvetf

Yes, but with a $0-down, 1% teaser NAAVLP, you can whittle that payment down to $3,056. And don't forget, it'll be worth 20% more next year!

BWAAAHAAAHAAAHAAA!!

New Math / Mortgage Lending Paradigm:

1. Bank lends out money to high risk borrower.

2. Bank sells mortgage paper to Fannie Mae, Freddie Mac or a mortgage REIT, thus divesting itself of any risk.

3. The GSE or REIT bundles mortgage paper into an MBS (Mortgage Backed Security) and then sell it to domestic (401K/mutual fund) or foreign investors (China, Japanese, Korean central banks, etc.). This divests them of any risk.

4. Borrower defaults, and current MBS-holder forecloses.

5. After absorbing all the costs associated with foreclosure, MBS holder sells property back to originating Bank at a deep discount.

6. Bank re-sells property for a healthy profit (again).

7. Repeat steps 1-6.

Looks like a good business plan to me (if you're a bank)!

Well... technically, it's only "stealing" if the wealth transfer is coerced. In this case, you have large institutional investors/central banks willingly accepting an incredibly low risk premium for a high risk product (residential MBSs).

The end result is the same, but you can't go to jail for it. Sweet deal, no?

The end result is the same, but you can’t go to jail for it. Sweet deal, no?

When this gets ugly someone will be going to jail to set an example. Lying in liar-loan applications, perhaps?

When this gets ugly someone will be going to jail to set an example.

Anything's possible, I suppose, but I can't image which group the media/public is going to manage to pin the blame on.

Greenspan? (soon-to-be) Retired.
Fannie Mae CEO Franklin Raines? Already fired.
Executives at major banks/S&Ls/sub-prime lenders? Possibly.
Home-builder CEOs? Politically protected (and arguably not at fault).
RE agents, brokers or appraisers? No one "made you" sign on the dotted line.
Flippers/speculators? Possibly, though after this Ponzi scheme collapses on them, going to jail may not seem so bad (free meals & a bed).

Ultimately, much of the blame really lies with a willfully ignorant and greedy public --people like Ms. Generas.

The one's who will go to jail will probably be the ones they can nail for appraisal/mortgage fraud. Stuff like that.

Anything’s possible, I suppose, but I can’t imagine which group the media/public is going to manage to pin the blame on.

I can venture a guess...they'll say "offshore investment", just to keep in the xenophobic spirit of the times.

Anything’s possible, I suppose, but I can’t imagine which group the media/public is going to manage to pin the blame on.

Most definitely people who say that real estate cannot go down. Realtors will have to take the heat.

I feel sorry for recent first-time homebuyers who stretched thin to get into overpriced $hitboxes because of misinformation and peer pressure.

The one’s who will go to jail will probably be the ones they can nail for appraisal/mortgage fraud. Stuff like that.

Cascade Scapegoating may become a real term.

Buyers blame agents, investors blame the banks. At some point, mortgage fraud will be blamed. Scapegoats will be burnt at the alter.

Veritas, I thought the effect of Katrina is being seen as increasingly local.

After the 1989 earthquake, the housing bubble was not extended at all.

Buyers blame agents, investors blame the banks. At some point, mortgage fraud will be blamed. Scapegoats will be burnt at the alter.

I think scapegoating is going to be the tool a lot of institutions use to try to bail themselves out.

I think scapegoating is going to be the tool a lot of institutions use to try to bail themselves out.

Yes, scapegoat or be scapegoated!

Yes, scapegoat or be scapegoated!

Exactly. Interesting times ahead I'm sure.

The only sound rationale I have heard is that building materials will be more scarce and labor localized. Beyond that…I think its panic buying.

If only this bubble has anything to do with the cost of construction...

Also look for Jobless claims in 2morrows report to be about 575,000 claims. Bank’s have prob’s bro!

I bet the market will rally if the jobless claims are higher than expected.

how can you diversify cash. let me ask this board for some info. i dont own a house in the usa.

but i got 401k money , also got cash in cds. but increasingly
i am worried about keeping everything i got in dollars?

which other currencies can hold up in the event of global banking melt down?. and is that currency solid enough?

On the subject of "denial", what's some of your personal experiences on sentiment towards RE? Have you friends/family become cautious--or do they expect continued gains--and the urgency to buy a house "or else"?

Here's a few choice quotes I've heard first hand in the last year:

A local RE investor, on hearing a friend rented a waterfront Tiburon home for $2K/mo:

"Are you serious?…that makes no sense, that area’s very desireable (sounding perplexed). I bet they owned it for a long time…that’s why the rent is so low”

This guy has the best quotes. Again, talking to a friend (his office is next to mine)

"How are my RE investments going?--oh fantastic! No, I don't think the bottom will drop out. (sounding defensive) RE in Marin is always a great deal--at any price. Marin RE has never gone down!"

Here's a Grubb+Ellis VP: (yes, he lives in Marin too)
"No, there's no "bubble" (rolls eyes)--especially in Marin. We might see some people defaulting on mortgages in a few years, but no deflation"

A family friend: (in Marin again)
"I've always made money on real estate--I don't plan to lose anything this time"

To us on buying a new home:
"House prices are normal for Marin; I just don't see them dropping--ever. You better buy now before you're priced out--forever

IMO, when people get this confident, so disconnected from a macro-perspective, they're almost begging for a wallet smackdown. Not to diss the "intangibles" but I'm guessing Marin will get hit as hard as any bubble area.

"I don’t plan to lose anything this time”

Lol. When does he plan on losing money? Too funny.

Hesses fan: If we have a global banking crisis the first wave of reaction will be foreign financial holdings rushing to the safety of United States Treasury notes. The 10 year notes would go up in value very fast.

In the late 1990s we had such a global financial panic (the Asian financial crisis). As it was beginning to develop I persuaded my board to allow me to overweight our asset allocation in Treasurys (by shifting more than 25% of our portfolio). Within a few months the rush of foreign buyers drove the prices way up (and the yields down. I then sold all of it at a nice profit, before the crowd moved on to more sophisticated plays.

"....Now the latest, because of hurricane Katrina the housing market will keep going up as there will be a shortage of building materials. Nice, go Goebbels go. "

Exactly, I heard the same nonsense from the NAR yesterday when they forecasted housing prices. You see, it's impossible to have a national housing bubble, but it's possible for prices to up nation wide due to Katrina according to the NAR.

"Have you friends/family become cautious–or do they expect continued gains–and the urgency to buy a house “or else”?"

Love those quotes, KurtS. Our friends and family are all very confident in the market still. One friend just bought a second home as an investment rental, and when I offered up the obvious cautions, he stated with great confidence that rents were going to rise--that demand would create pressure and cause them to catch up with housing prices. I didn't have the presence of mind to ask who the crazy people would be who'd want to pay 4K per month in rent. (I guess they're related to the people who're willing to pay current home prices!)

Other people we know seem to wish they could get involved in real estate investing (buying second homes), but feel like maybe the boat has passed them by in terms of prices. One mentioned going into some kind of group investment house flipping scheme.

Oh, and I know another person who recently bought their first investment property to renovate and flip this summer--to be completed this fall.

This all gives me a feeling that if suddenly this summer, nearly everyone is interested in real estate "investing," something's seriously out of wack.

House flipping = day trading in my book. Mania's create all kinds of crazy behavior and I am really reminded of what was going on in the tech market right before it collapsed.

Those numbers are pretty high.
It's interesting to note:
SF county by far lowest appreciation (well, Marin YOY was 14.6%...but everywhere else 17.9-25.7%)...but of course how much higher can it go??? (hmm...just realized some people probably don't see the relevance of absolute price vs. YoY price change....)

Also, the following correlation is fairly well represented: decreased YoY sales #'s = smaller YoY price increase (with Santa Clara county seemingly a noteworthy outlier).

"Well, it was named after Ponzi who started this scheme in the late 20’s if I recall, somewhere around there."

Careful about dating yourself there, Stanman....

When housing prices move how does the rents react.

One Bedroom apartment in Santa clara in 1997 rented for about $750 a month and in the year 2000 the same apartment rented for about $2100 and the same one in the year 2005 rents for $1050.

Whe the rents were going up the house prices started going up but at low pace compared to the rent. But the house prices continued to go up at a much higher pace when the rents started to have a free fall.

By the end of 2000 it was hard to find vacant apartment to rent but by 2003-2005 vacancy skyrocketed and you can find anywhere you want with good deals.

I do not have the statistics of the population growth during that period which can be shown graphically vs the renters becoming home owners, which might have an impact on rent Vs House prices.

What will be the outcome of the house prices going down on rents? Will be ever like the year 2000 in real terms where almost I feel the rents were higher than the mortgage (exaggerated).

Will the home ownership go up or down when the house prices start falling? Currently it is a record rate of 70%+

Should the above be a new topic :)?

I think in that time frame in santa clara county to which you're reffering...that there was actually negative population growth, by a significant amount...due to job losses. I believe that is primarily why rents plummeted, more so than because of the increased homeownership.

I cannot speak to your other questions.

NOW Kurt, all things being equal, even if the credit bubble hits Marin just as much as everywhere else, why wouldnt Marin have the same resiliency relative to other Bay Area markets that it has shown in the last two downturns?

I think it all hangs on how Marin is priced relative to long-term market conditions, and not pricing by current get rich/panic purchasing. To the degree that Marin provides value above outlying areas, there's the surchage. However, like I said--if Marin gains a perception of price/value, and other areas are seen as value/price--Marin could find itself in a less demand/more inventory scenario. And we know where that inevitably leads.

Personally, I like Marin, but the level of confidence here--while the market is doing really crazy things, suggests we might get surprised more than other areas. Just my take, and not a hit on anybody in particular. For the record, I don't consider the Bay Area any more resilient than say, San Diego, LA, Santa Barbara, due to the flat job market and rising exodus of workers. I may take a more pessimistic view, but we'll both see for ourselves! If I'm wrong, I'll certainly own up to it. :)

Here is proof of inventory doubling in one area - Sacramento - mentions this in the text:

http://www.sacbee.com/content/business/projects/boom/story/13543741p-14384014c.html

Hedge fund manager calls a housing top in '06:

http://tinyurl.com/cqu6s

“housing in California ONLY goes up”

I think when people make comments like that it's purely out of desperation. They've spent more than they can afford, and if it doesn't go up, they're screwed. So they keep saying ridiculous things like that to make themselves feel better.

What's even funnier about the article in the Sac Bee is the guy seems to think Rocklin is an upscale neighborhood that can't go down. Give me a break. If there is any area around here that is defined by the massive number of tract housing developments it has it's Rocklin. Rocklin also has more apartment complexes than I have ever seen. It amazes me that a house in Rocklin could go for $750,000 and people are thinking the market isn't going to go down. Utterly ridiculous.

Saw a particularly apt post from "'Collective Amnesia' And Real Estate Cycles" on Ben's site:

"...prior downturns actually reinforce current bullishness, because they have been followed by new higher highs in prices. They will convince themselves that if they just ride out the downturn, the next upturn will surely bail them out.

I want to read, "Real Estate isn't coming back this time" as a headline in Time Magazine.

He's basically predicting successive waves of selling in the crash by different groups that participated in the bull market run-up, as each group reaches its own "tipping point":

1. flippers/speculators
2. overstretched new owners
3. long time holders cashing in gains before they totally disappear
4. divorcees and unemployed
5. diehard bulls will sell right at the bottom (followed by "Real Estate isn't coming back this time" headline in Time magazine)

Does this ring true to you?