patrick.net

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?

In talking to him yesterday I had to suppress my shock in learning that the annual interest on his mortgage is over $300,000.

:shock:

"The big question in a lot of people’s mind hinges around whether we get more inflation or deflation going forward. What happens to asset prices depends largely on that. Inflation can keep asset prices up even as the economy goes down the tubes. Deflation would mean a sharp fall in asset prices. So far we’ve been having a combination of the two, with inflation in the cost of things people need (fuel, food) and deflation in the cost of things people want (imported toys and gadgets).

The current Fed seems determined to keep the status quo going at the expense of the country’s long term health, as the manufacturing sector shrinks and debt burdens rise. How long they can get away with this is beyond my knowledge. Greenspan’s successor might come in next year and restore some discipline to the banking sector, or he may just keep propping the markets up until they finally crumble under their own weight (as did the tech bubble). My guess is that he’ll keep inflating for many years more, keeping asset values up, even as living standards decline, because that is the path of least resistance."

Indeed. I would also add overpriced "investment" housing to the list of non-essential things people "want", which will soon be experiencing deflation. As Peter often says, "inflation is no longer a single variable". You can have a condition of rising costs for "things people need" (fuel, food, healthcare, etc.), declining costs for non-essential goods (RE, imported gadgets, etc.) and stagnant or falling real wages.

In a word: Stagflation.

."..but you dont want to be a victim of “need-based predicting” either, right?...My guess is that “perception of too-high prices” will not stop someone from finding out that they can get a shorter commute (or any other intangible) for the same money– for very long. "

Yeah--good point Jack! Since we don't actually need a new place, there's no overwhelming pressure to conform my thought process to my desires. I'm not wishing "doom on Marin", but rather contrasting the attitudes I've experienced with a hopefully objective (albeit outsider's) take on life here. Since Marin strkes me as somewhat provincial, I'll venture to say an outsider's perspective could be more accurate than the local consensus--at least in guessing how a homebuyer from the outside may view Marin RE.

Marin seems to have an identity unto itself, and understandably: long-term residents have a strong, heartfelt connection to this place (as I do for Seattle). Needs-based expectation can go both ways, you know. ;) That said, and since we're often discussing the "intangibles" of Marin, I thought I'd summarize the pros/cons of this place.

I realize this is a bit of a tangent, but perhaps it can serve as a gauge for "intangibles" in other areas. And, to the degree this offends, take it "tongue in cheek" ;)

Pros
•Fresh air, nice scenery, wildlife, water + mountain views
•Great recreational opportunities (for above reasons)
•Quaint, peaceful setting (mostly), much like some other outlying urban towns w/character
•Decent schools for the most part (some just ok scores)
•Culture: some art galleries, Marin Symphony, a few playhouses
•Some nice restaurants (but really no more than anywhere else)
•Crime rate fairly low. Yet, about the same as Cupertino, Sunnyvale, Los Altos, etc.
•Well, it's Marin! (this "intangible" I just don't get) ;)

Cons. Huh...in Marin?
•Houses in Marin aren't that spectacular for their price, even judged by the rest of the BA. Quite a few in fact where built for the so-called "working class"; they're old, small and unremarkable. Presently, there's a lot of dumpy, poorly maintained little homes being sold for close to $1M. Only a small percentage of home I'd call "distinctive," unless we're talking about ueMoney buys less here presently than other BA towns.
•Infrastructure: the roads here a in pretty poor shape, there's too many overhead lines for my liking, traffic is really bad in certain areas (much worse than the peninsula).
•appearance: Despite some "charm", a lot of areas look downright seedy/shoddy. Whether I'm in Sausalito, Mill Valley, San Anselmo, or San Rafael--some areas look unclean, unkempt, ready to crumble.
Don't get me started about Ross. Sure, there's some big homes, but it's just a small town--with little else to offer: I don't see the reason for prices here. Laughable place--I much prefer your town of Fairfax!
•culture/lack of culture: I'm ambivalent here. There's a few things to do in Marin, but there's actually much, much, much more to do in Berkeley or SF. Art, music, whatever.
•prices/selection: Groceries and gas are expensive in Marin--and for no discernable reason. As an example of selection, we're hard pressed to find any good home furnishings here; we have to travel to Berkeley or SF for that. If the incomes are so high here, it's certainly not reflected by convenience.

I sense this is spinning off into a rant, so I'll stop.
Jack, to soften the inpact of above, I'll say this: I still love Marin (but mostly because we have the good fortune to own a place, in a lovely spot)

Since then, it’s been in and out of escrow three times and is listed at $950,000 to $975,000

Can someone explain this sentence to me…

Someone made an offer, got accepted, went into contract, but the transaction fell through, the house was relisted at a new price... repeat these three times.

Usually, a transaction falls through because some of the contingencies are not satified. One common example is failure to secure financing because the house does not appraise.

Yes, it "helps" people engage in bidding wars, like if they still exist in SD at all!

Soon enough...

“They need to buy. We have an extraordinary inventory, excellent interest rates, 60% lower prices than just a few years ago. What are they waiting for?”

In talking to him yesterday I had to suppress my shock in learning that the annual interest on his mortgage is over $300,000.

Holy ____! What's the principal on that--$20M+?

Yes, that $300k/year annual interest is hard to believe on a government salary.

Don't worry. One can pay his mortgage by taking out a home-equity loan.

Holy ____! What’s the principal on that–$20M+?

If he pays 6% interest, the principal would be 5M.

If he pays 4% interest, the principal would be 7.5M

Ouch! 50K to 100K of property tax a year!

I'd like to know what kind of "government job" pays enough to buy a $5-7 million house?? The President of the United States only earns $400,000 a year in salary.

I’d like to know what kind of “government job” pays enough to buy a $5-7 million house??

Above or below table?

I am very aware that on this blog, I am perceived as a homeowner who doesnt want his home’s price to slip, and who is all “rah-rah” for Marin County intangibles, and therefore in total denial and unable to see the obvious.

No, you are actually very objective even without considering the fact that you are a homeowner.