patrick.net

dry leaves carpeting the streets, the best weather the bay area has to offer. Ahh, what else...well everyone here knows that markets, for some reason, _just_don't_like_ october, and this october seems quite prime, doesn't it? In germany they have oktoberfest, here we have oktoberfukt...both are great reasons for drinking lots of beer.

I agree...golfed in so-east by in 90'ish temps...only to be really cold (yeah, like 65 deg) in the evening in SJ...(can you say weather-spoiled?). Forecasters new the sea breeze was gonna kick in some time today, they just didn't know what time. Note, however, that today was still september...not october ;) All in all, I think October sees some of the least foggy days in the year.

[hmmm...I think not the best kick-off for this topic...sorry!]

Preaching about the Housing Bubble is getting so boring now. It's like a religious zealot preaching about the end of the world. Let's see, how many times did they predict the end of the world and it never happened? Well, I have one paper that documents 149 times people predicted "the Rapture".

I'm hoping there really is a bubble and I believe the evidence is there, but these last days before the "House Bubble Rapture" is getting mighty boring.

I’m hoping there really is a bubble and I believe the evidence is there, but these last days before the “House Bubble Rapture” is getting mighty boring.

This sounds dangerously like blaspheme, John Boy. I have to warn you that you are putting your eternal soul at risk.

THE END IS NIEGH!

Chewbacca,
prat

What should we expect? Other than nice weather and fun stuff...

I expect October to lead to nothing less than full scale classic November.

Peter,

38 at shoreline on the back 9 this am. Tour tempo. Can't recommend it highly enough. How are things looking for you?

Cheers,
prat

38 at shoreline on the back 9 this am. Tour tempo. Can’t recommend it highly enough. How are things looking for you?

That is great! Back 9? It is twice as difficult as the front.

I found a huge flaw in my grip and takeaway. I will be going back to Tour Tempo soon.

Thanks for the insider information, Veritas.

The real screwed thing for these people, is that their skills don’t transfer to much except car sales.

Most do not even have skills in car sales. The perfect car salesman do not even talk like a car salesman.

Even the stalwarts tell me the Govt. will bail out the housing market if/when it falls.

They will bail out the banks, I think. The market in particular? They are not going to do that. Even if they try, the new bubble will be in something else.

"I found a huge flaw in my grip and takeaway. I will be going back to Tour Tempo soon."

Excellent. You up for Paly in the morning some week? A buddy and I hit the back 9 there before work sometimes...

Cheers,
prat

Hey guys,

let's think about some businesses to start.

I believe in a downturn, some of the high-end industries will evaporate, however, their functions won't. People will still demand the same kind of function, just a cheaper version of it.

Let's make it our time to shore up some real wealth if we set ourselves up for downtime. I believe with every demise there lies an opportunity.

I've got a question for those who are familiar with this.

Let's say if I am confident that USD will go down and we will enter into a high inflationary period, and I'd like to do something with my home. Can I take out home-equity loans and lock in a fixed rate (10 years or 20 years or whatever)? Does the bank care what I do with the money? Let's say I want to take out a 500K loan and immediately turn that 500K into Euro or gold or something, as long as I do my monthly payment, will the bank care?

Can home-equity loan lock in a long-term rate? Thanks.

Excellent. You up for Paly in the morning some week? A buddy and I hit the back 9 there before work sometimes…

I would love to play with you. Are you sure you can tolerate my game? My swing can be highly erratic at times...

Tour Tempo should help though. ;)

Last October I joined the dark side. Applied for a 0% interest (12 months) card and only made minimum payments. Instead I paid my HELOC down by 20,000. Wow. I racked up 10k on a credit card in no time without buying anything special!

Pete, this is why I usually say no to offers like this... the slippery slope can be very dangerous.

My neighbor has their house up for sale. They are beginning to get worried because no one shows up to the open houses. Their big problem is that they gave a non refundable 25k deposit on the house they want to move into. I think their deadline is dec. 1st. After that they lose the $25k.

25K is a rather small loss compared to a large debt liability...

“Finally, it is October. What should we expect this month?”

Um, Holloween? Ooooo, scary times.

Darkness will come one hour earlier every day, starting later this month. Another thing to worry about... ;)

You speak a lot more worldly than your age would indicate. I am impressed by your quick wit. What is your line of work? You ‘d excel in a creative field.

I am completely flattered.

BTW, I am a software engineer. I guess a little creativity is great but too much creativity can be disastrous in my line of work. ;)

Not only that, but he has a sense of money. And more than anything else, that will bring him great riches.

Thanks. But I can only talk... Scott, you have real knowledge about the market.

How do you like software engineering?

It is okay.

BTW, software engineering is kind of an oxymoron, IMHO. :^)
No offense intended.

None taken. It is kind of an oxymoron. How about financial engineering? ;)

Owneroccupier said,

"Let’s say if I am confident that USD will go down and we will enter into a high inflationary period, and I’d like to do something with my home. "
--------------------------------------------------

Funny, I tought we already had the inflation (i.e, credit expansion) via the housing bubble. Deflationary periods follow inflationary credit expansions.

The FED cannot create inflation via consumers credit much longer. We're tapped out and the banks don't give money away for free. And another thing, banks don't like to lose what's owed to them via hyper-inflation either.

To create money someone has to agree to be lent this money (unless it's the government like in the case of Katrina). Since the consumer is tapped out, the only inflation (by credit) can be through larger government deficits. In order for our debtors to take on these riskier US loans look for higher interest rates (this will kill the housing bubble with a head shot ... it's already slowly dying from clogged arteries).

So, do you think the FED policy will watch out for Joe Consumer's best interests or the banks and corporations?

Personally, I wouldn't count on inflation. The cycle of Inflation/Deflation/Consolidation makes much much more money for the elite.

Those poor trees…. ....and their iron bar-enclosed 1ft circle of dirt!

Perhaps some day nature will return the marina to it's former beauty...wetlands with herons, otters, and seals.

Jack, don't feed the troll! MassivePrick will get his soon enough.

This blog is great, a ton of the regular contributors post really prime comments, I've learned a great deal. I would say most of the comments are prime, the offer insight, and I've learned a great deal on new topics. However, some comments are not prime and should be deleted. Just my 0.005 euro. :)

However, some comments are not prime and should be deleted. Just my 0.005 euro.

Gone. But I bet you one devalued dollar that he will be back. We need MilitaryPolice.

I just visited a new construction shitbox array (aka new townhouses). Several observations:

1. There is no lottery
2. Deposit is now $15000 (with only a week of cooldown period)
3. Typical price to income ratio is 5 - 6

"Sunday Mercury News Front Page Headline

UNREAL ESTATE: HOW IT WILL END?"

Just read this...it's a rather strong article...beginning with the headline font size being larger than the "San Jose Mercury News" title font size. Then there's the fact that the headline reads: "HOW WILL IT END?", as opposed to "WILL IT END?"
The article is littered with statistics and (often) accompanying graphics (we all need pictures to get us to read the caption, right?).
The entire article and related "sub-articles" span ~3 pages (including (most of) the front page).

Here's an excerpt:
"While the [Santa Clara] valley overall lost 2,400 jobs over the past year, industries fed by real estate sales and home equity loans--including home building, remodeling, landscaping and building supply sales--added 1,500 jobs, according to state payroll."

Several paragraphs are devoted to the local economy's dependence on RE as a savior from the hollowness of the tech economy. It also details how an implosion might unfold:
"Among the first victims would be real estate brokers, mortgage lenders, title companies and banks.... Next to fall would be the remodeling construction trades and retail businesses that depend on home equity refinancing for their customers."

This is the 1st of a 3 part series ("The housing boom's paper wealth"), to be followed by "Meet the players in the housing market" and "How risky loans make housing more affordable" (Mon, Tues resp.).

I don't have a feel for how bullish/bearish the SJMN typically is regarding RE...but this one is shamelessly bearish...even the token bullish part of the article is rather...bearish:
"Not everyone believes that the boom is a bubble, including Kenneth Rosen, a widely cited UC-Berkeley real estate professor. But while not worried about a bubble, Rosen is concerned that so many people are taking on so much debt.
'Two years from now this could all unwind,' he said."

.............huh?

OT: I used bugmenot.com to access a SJMN article & the password given to me was "death2america". bugmenot????? LOL I couldn't do it so I clicked "try again" & it came up with something a bit more palatable. BTW, does anyone else use google as a spell check tool???

BTW, does anyone else use google as a spell check tool???

I do. Isn't that a very natural thing to do? It sure is quicker than firing up Microsoft Word.

Boo, hoo…..how will we ever be able to survive?

http://tinyurl.com/aduyo

Easy. Sell the Willow Glen house and buy a condo in the Marina. ;)

it’s a rather strong article…there’s the fact that the headline reads: “HOW WILL IT END?”, as opposed to “WILL IT END?”

Very interesting...the Mercury also published a few cautionary articles back when the dot-bomb was ticking. Just as now, they preceded the Chron in getting to the gist of the situation. Incidentally, the last time (they published) was on the cusp of a "bust" becoming a topic of conversation, about 3 months before the crash. This all feels very familiar; perhaps the tide is changing towards RE as an "investment'.

Barron's published an article on the unjustified valuation of REITs about 3 months ago. But there is no definitive article from WSJ / Barron's on when and how, not whether, the RE will pop yet.

As far as I remember, the timeline of dot bomb goes like this:
Economist published a feature article on dot bomb in late 99 (something around the fall quarter)
Barron's published in Dec on how much operating cashflow left
SJM published something in Jan, then April crash.

The market is about 3-4 months away from crash, but of course RE turns corner much slower. So I'd say a general 10% dip in price can be expected in about 6-12 months time frame.

What do you guys think will be the general nominal value drop in the Bay Area in the next 3-5 years?

15%? 25%? I am talking about in general, not particularly marginal, high crime districts.

I have a couple of friends who rushed in to buy new Central Valley development in early Mar 2005, I don't think they will come out in one piece.

What do you guys think will be the general nominal value drop in the Bay Area in the next 3-5 years?

My guess is 15% - 65% depending on location and property type.

Central Valley? Hmm...

(Not investment advice)

Well bearblogs been kind of slow...so I headed to the San Diego Creative Investors Association website:
http://www.websitetoolbox.com/tool/mb/sdcia
This site was mentioned on Ben's blog 1or2 weeks ago. There are some cautious bulls there now...some of which have either just recently gotten out or seem to be on the verge.
Then there's this guy: "I don't pay attention to these pencil headed doom and gloomers." LOL.
Anyways, here's a particular thread:
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=667207

Some (one) actually predicting 50% decline...others in 30-40% sentiment.
The bull population appears to be shrinking (soon to qualify for endangered species protection?).
Interesting reading nonetheless.

Some cool data I read elsewhere:

1967-73, stock market went up, US overall realty median price went up 123%.

1973-74, oil crisis, realty median price dropped 4.5% to 75% in the next 3 years, depending on the region, the overall drop is 18.2% throughout the US.

I think we can sit back and wait for a nice drop of around 20% drop in nominal value if history is a good guide.

What do you guys think will be the general nominal value drop in the Bay Area in the next 3-5 years?

15%? 25%? I am talking about in general, not particularly marginal, high crime districts.

Another wild card I'll throw in is the degree to whichspeculation has pushed up prices. I'm not just talking about investors sitting on properties (a large percentage), but also those who bought high because "RE can only go up". Taking the speculative fervor out of the picture, and inventory could really spike. Add to that--tightening of credit, and I could see that downward jolt Jack mentions--first in inventory, then market sentiment, then prices. This could all take some time.

Despite inventory rising already, I think we're only seeing the "tip o' iceberg" sofar. I recall 10-15% reductions seen in various CA markets. I''ll predict the reductions a little differently, in terms of hits to demand. To the degree an area/segment is overvalued, to that degree it faces a reduction. I think we could see reductions up to 50%--especially in outlying areas.

Huh, I posted this last night but it didn't show up (something to do with "in moderation"...maybe the links?).
Anyways, someone posted a link on ben's blog 1or2 weeks ago to the "San Diego Creative Investor's Association" website; seems to be a discussion forum for socal RE investors.
http://tinyurl.com/7vupn
It appears that the bear sentiment is growing amont the speculators, as in this topic discussion:
http://tinyurl.com/dntcy
Some are talking 30, 40, even 50% reductions.
(One noteworthy exception: "I don't pay attention to these pencil headed doom and gloomers." LOL!)
RE Bulls becoming an endangered species....

1973-74, oil crisis, realty median price dropped 4.5% to 75% in the next 3 years, depending on the region, the overall drop is 18.2% throughout the US.

This was the first stagflationary cycle I referred to on the last thread. It was accompanied by a much larger shock to oil prices (in % terms) than we have today, and the US consumed (demanded) 40% more oil per GDP then.

There is a great deal of controversy about whether or not we are poised for another bout of stagflation. On one hand, we're less dependent on foreign oil than we were in the 70s and early 80s. On the other hand, we have a far different economic structure in the post-manufacturing, globalized world economy.

More than all the cash rich investors could possibly buy! The interest rates will be higher due to inflation and there will be noone to lend money out!

I think there will be plenty of creditors begging to lend out money; it will be quite the opposite from what you propose. The problem will be demand-side: there will be few debtors able to consume more credit.

(My standard drumbeat here): When the bubble corrects it is very likely that the fundamentals will be such that _very few_ will be able to take advantage of the lower nominal RE prices. Only _very_ cash rich people will be in any position to plow extremeley valuable savings into RE during such high uncertainty. (1) Interest rates will be higher; perhaps much higher. (2) There will be inflation in the economy eroding your savings, however, income inflation is very sticky and will lag commodity, energy, and durables inflation. (3) If we hit stagflation, or even the hint thereof, then all bets are off and only the very rich will profit from the downturn in RE. Even then, only if they are in for the very-long-term (multiple decades, perhaps).

Inflation may rise, but I don’t worry about stagflation. Higher energy prices are a concern though.

Where will the job creation come from? That's the troubling question leading to conclusion about potential stagflation.

As to the 70s, there was a very significant net liquidation of RE equity, in aggregate. The "people [who] still bought homes" were almost exclusively confined to those with large cash reserves seeking a safe harbor from inflation, or normal people trading (usually down) to replace an existing primary residence. Also the 70s and early 80s were marked by a dramatic "burning of wealth", as many families consumed their accumulated or potential (inheritence) wealth just to survive.