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State of the Landing

By Randy H   2006 Sep 15, 8:29am   6 links   10,653 views   138 comments   watch (0)   quote      

The mainstream media has called the housing bubble. "Frothy" markets around the country have weakened. Inventory rising. Houses not selling. Here and there, isolated sad stories about mean, terrible buyers lowballing poor, innocent sellers.

Housing is definitely landing. Even stubborn perma-bulls of the worst ilk have acquiesced to a "cooling".

But this was a week of mixed signals. For every bearish sentiment, another fundamental appeared indicating the landing may not be as hard as some feared/wished. Rising incomes. Low rates. Easing inflation. Stronger dollar. Healthy equities. Below expected foreclosures and above expected refinancings.

Can enough worried owners sitting on ugly loans refinance into ultra-low rate, super-long term loans before prices drop below appraisal? Will this naturally sticky period have the unexpected consequence of allowing a significant portion of owners to dodge financial ruin?

It's possible to make good, logical arguments either way. What's your take?

--Randy H


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99   astrid     2006 Sep 17, 4:36am  ↑ like   ↓ dislike   quote    


I did a wikipedia search on pininfarina after you mentioned them yesterday. I didn't realize they were the major designer of ferraris though wikipedia did list Enzo. Now that you mentioned it, I do see the similarities. I really like the S2000 shape, it's very clean and shapely. Most roadsters in that price range are either too bulked up (Audi TT and 350Z) or too round (Miata, Toyota's Spyder, z4, etc).

100   astrid     2006 Sep 17, 4:55am  ↑ like   ↓ dislike   quote    


If you're making 40-50% more than you did in 2003, then good for you. As for using your personal experience as basis of argument, that's just bad scientific method. Many of my friends (now 25 to 30) went from being students to getting fairly good paying jobs in the same time period, should I use that dataset to justify whatever price hikes came in?

I must also comment on the sheer stupidity of you buying in 2002/2003. You admitted that your job was shaky and the overall job market was bad, that's not exactly the right time to launch into a major purchase on credit. So you lucked out so congrats, but even bad gamblers win sometimes.

101   astrid     2006 Sep 17, 5:00am  ↑ like   ↓ dislike   quote    


The gay and lesbian couples market has been around for a while, so I don't think there would be a particular rush to buy that changed the recent market. What I've seen more in my personal experience are young people getting more parental help to buy earlier and buying housing with their boyfriend/girlfriend, family or even friends.

102   Peter P   78/78 = 100% civil   2006 Sep 17, 5:02am  ↑ like   ↓ dislike   quote    

#1) end all welfare / hand-out programs accessed by illegals. Including birthing, medical, legal services, schooling, WIC, ADC, section 8, headstart, state disablity, social security.
#2) $50,000 fine, with the payment going directly to the Minute Men support fund, per alien to any employer with illegals employed.
#3) Send Mexico a bill for all of the costs they are responsible for. Dont give up the The Dog until payment is made.

We should just end most welfare for all.

I think employers should be fined AND sent to jail. 50K sounds fair.

Mexico will not pay for the bill, so #3 is out. We should not be anti-Mexico anyway. We should only go after people who broke laws.

103   Peter P   78/78 = 100% civil   2006 Sep 17, 5:03am  ↑ like   ↓ dislike   quote    

I must also comment on the sheer stupidity of you buying in 2002/2003. You admitted that your job was shaky and the overall job market was bad, that’s not exactly the right time to launch into a major purchase on credit. So you lucked out so congrats, but even bad gamblers win sometimes.

Sometimes I feel more stupid for being too cautious though.

104   Peter P   78/78 = 100% civil   2006 Sep 17, 5:05am  ↑ like   ↓ dislike   quote    

That’s all true, but you have to keep in mind that for most buyers, every dollar increase in price (at current levels) is a full dollar increase in the mortgage principal.

Worse, if price is higher and the saved downpayment is now less than 20%, interest rate is higher.

105   astrid     2006 Sep 17, 5:07am  ↑ like   ↓ dislike   quote    

I don't think the government should be funding vigilantes. Can we just use the money to pay down the humongous federal deficit instead?

106   Peter P   78/78 = 100% civil   2006 Sep 17, 5:12am  ↑ like   ↓ dislike   quote    

I don’t think the government should be funding vigilantes.

They are not vigilantes. They are just assistance to law enforcement. Like a neighborhood watch program.

Can we just use the money to pay down the humongous federal deficit instead?

For that there is a printer.

107   astrid     2006 Sep 17, 5:18am  ↑ like   ↓ dislike   quote    

Governments don't fund neighborhood watch programs either. Government funding of private sector pet projects just inject a lot of inefficiency and mal-incentives. If the minutemen want to do their thing (and I'm not completely convinced that vigilante groups are ever a good idea, since they're beyond the control of the government and hence the general citizenry), then let them do it with private funding and donated time.

"Can we just use the money to pay down the humongous federal deficit instead?

For that there is a printer. "

At the cost of high inflation and permanent loss of USD's reserve currency status. Belt tightening and living within our means is a better long run strategy.

108   Peter P   78/78 = 100% civil   2006 Sep 17, 5:19am  ↑ like   ↓ dislike   quote    

There is nothing to argue about income and buying power. It is all about what one wants to believe. It all comes down to pessimism and optimism.

109   Peter P   78/78 = 100% civil   2006 Sep 17, 5:22am  ↑ like   ↓ dislike   quote    

Governments don’t fund neighborhood watch programs either.

Fine. Just hire more border agents then.

110   Peter P   78/78 = 100% civil   2006 Sep 17, 5:23am  ↑ like   ↓ dislike   quote    

Belt tightening and living within our means is a better long run strategy.

You think that will happen? :)

111   astrid     2006 Sep 17, 5:34am  ↑ like   ↓ dislike   quote    

I still think its much better to cut off the demand. Patrolling several thousand miles of desert and ocean is a dubious and highly costly endeaver. Just heavily criminalize hiring of illegals, don't have amnesties and change the constitution to give citizenship only to children born here to 2 legal permanent residents and/or US citizens.

We don't want the illegal situation to turn into another war on drugs, working at the supply side doesn't do anything other than heighten the criminality and violence aspects, to the detriment of everybody.

112   astrid     2006 Sep 17, 5:35am  ↑ like   ↓ dislike   quote    

"Belt tightening and living within our means is a better long run strategy.

You think that will happen? "

Why do you think I want to move to Australia or Canada?

113   Randy H     2006 Sep 17, 6:15am  ↑ like   ↓ dislike   quote    


When did you buy, and when did you sell for your 10 year’s worth of equity gains? Not bad! I hope to hold for even longer, but i’m not there yet.

First off (I have said this before, but not for a while):

Having gained equity by owning a house for the past 10 years involved no real skills or merit. In order to have my home equity increase I didn't need to be a genius; just not an idiot.


What you're not considering in the whole big picture is "the next guy". Think of it like this: your income went up quite a bit. Good for you! You can afford that massively overpriced condo now, even though it's appreciated by 60-100% over 3-4 years. Congratulations.

But you're not going to stay there forever. Plug in all the numbers, and forecast what someone your age now in about 5 years will need to make in order to afford your condo given your expected 6% appreciation. Do you really, deep in your heart, think that there will be a lot of folks out there making that much money and willingly blowing over half of their monthly income on your condo?

In other words. Look forward past just you. Every buyer will someday become a seller, and in order to sell you'll need another buyer.

114   Peter P   78/78 = 100% civil   2006 Sep 17, 6:23am  ↑ like   ↓ dislike   quote    

Every buyer will someday become a seller, and in order to sell you’ll need another buyer.

Or you can liberate your equity before it is too late. Re-fi to voodoo. :)

Not financial advice.

115   Randy H     2006 Sep 17, 6:33am  ↑ like   ↓ dislike   quote    

Or you can liberate your equity before it is too late. Re-fi to voodoo.

Or you can just liberate it into a safe Vanguard fund of tax-exempt bonds & commercial paper.

Oh wait. Too late.

116   skibum     2006 Sep 17, 6:40am  ↑ like   ↓ dislike   quote    

I’m sure if you asked “Skibum” how his income growth is, and how’s he’s doing in general, he’ll say he’s doing well as well.

Maybe my income sucks, maybe it's great. Maybe I'm a pimple-faced 14-year old bored at home surfin' the net. No need to make assumptions, whaddup. Again, my point is, and you continue to do this with all of your posts, is don't conflate anecdotal evidence with statistically significant data.

117   astrid     2006 Sep 17, 6:54am  ↑ like   ↓ dislike   quote    

Ha Ha,

Neither do the Republicans. They're much more interested in building boogiemen like gay marriage and sex crazed lesbian abortionists to trot out every 2 years. Republicans are much more beholden to big agriculture and business owners, people who have every interest in seeing the continued flow of cheap illegal workers. Democrats, dispite their effort to woo Latino voters, have strongly embedded interests to discourage illegal immigration. Their traditional base of union workers and blacks are both quite hostile to any kind of immigration, especially illegal immigration that would compete with them for jobs and resources.

I think the Democrats are much more likely to effect real change in immigration policy than Republicans. The change will not be as drastic as is to my liking, but at least it won't be something as costly and pointless as building a big fence across the US-Mexico border.

118   Peter P   78/78 = 100% civil   2006 Sep 17, 6:55am  ↑ like   ↓ dislike   quote    

It is unfortunte to see that legal path to GREEN CARD (and then citizenship) is LONGER than Illegal/Amnesty…..

How about a site for ordinary citizens to report/expose illegal aliens. Is this legal?

119   Peter P   78/78 = 100% civil   2006 Sep 17, 6:57am  ↑ like   ↓ dislike   quote    

Can someone explain how the market can bear a soft landing?

Soft landing is what cats do.

120   Peter P   78/78 = 100% civil   2006 Sep 17, 7:05am  ↑ like   ↓ dislike   quote    

Republicans are much more beholden to big agriculture and business owners, people who have every interest in seeing the continued flow of cheap illegal workers.

But the only way to get business support for a crackdown is a sensible guest worker program.

The change will not be as drastic as is to my liking, but at least it won’t be something as costly and pointless as building a big fence across the US-Mexico border.

I think a moat full of stingrays may stop them.

121   Randy H     2006 Sep 17, 7:17am  ↑ like   ↓ dislike   quote    


and i decided to sell my car and buy a condo with 20% down.

So tell me, why is that so bad?

Click my name, go download my Bubblizer Excel spreadsheet. Punch in your data. Take a look at what you are implicitly expecting "the next guy" will need to make/pay in order for your purchase to simply break-even, net of inflation.

You can go on and on and on and on about qualitative factors and the fuzzier side of financial numbers. But, if your asset purchase price was TOO HIGH, then your decision will turn out bad (unless you love that condo enough to sit on it for a decade or longer).

You know, real-estate doesn't "always go up". (There's a nice HSBC study on my site that will give you hard RE data going back to the 50s. You can see lots of periods in the past when your purchase would have gotten you into deep water then too).

122   Peter P   78/78 = 100% civil   2006 Sep 17, 9:00am  ↑ like   ↓ dislike   quote    

New thread: Le meilleur des mondes possibles

123   skibum     2006 Sep 17, 9:51am  ↑ like   ↓ dislike   quote    

whaddup Says:

I’m just saying that i know my place, and realize that there are much wealthier, motivated, and desperate people out there than me.

I used to feel smug (for several months), that i was doing well and making a good salary until i realized i was probably in the bottom 25%. So, if a bottom 25% guy is getting a raise, and can afford to buy, then what can mid and top tier earners do?

Haven’t you ever wondered how someone could afford that new 2007 porsche 911 who looks 28 years old, or that $1.2 million condo as a single 30 year old etc? We are surprised b/c we think that b/c we can’t afford it, and we generally like to think of ourselves as good well off people, then we find it incredulous if someone younger can afford it.

You are truly the master of unsubstantiated anecdotes. You continue to justify today's prices with stories of this or that person with a certain car, house etc. That 28 year-old Porsche driver? I don't wonder how he/she can afford the car. I wonder how small his, er, ego must be.

124   astrid     2006 Sep 17, 10:03am  ↑ like   ↓ dislike   quote    


Did you even reading my original response to you, because you didn't seem to understand it. My point was precisely to criticize your lack of statistical rigour when you apply your antecdotal experience to market at large. I was demonstrating the flaws of your thinking process by taking it to the extreme. To create a statistically representative average, you need to calculate both the above average and the below average performers. You've used your experience and essentially cherrypicked the above average performers, and ignored all the people who did poorly between 2002 and 2006 (they do exist, especially in the 40+ group, lots of people lost good jobs and never found an equivalent replacement). What about the people who didn't survive the four rounds of layoff in your company, aren't you forgetting them in your sunny picture of job growth and prosperity?

As for the stupidity issue. Let's see: in 2002, BA real estate was already notoriously expensive due to the run up and the economy wasn't looking so hot. (macro stuff) Furthermore, you originally mentioned that your company was laying lots of people off and the overall job market was not very good. (household financial planning) But despite a significant risk of house prices going down (that's the macro stuff at work) and facing a prospect where you might be forced to sell (in case you lost a job and unable to buy locally), you went ahead and leveraged 80% of a home purchase. Have you thought about the downside of that condo purchase? Cuz it sounded like you only thought about the upside for everything, and gee golly that's stupid in my book.

PS - I'm not here to be nice, especially to someone who is borderline stealth trolling this post

125   astrid     2006 Sep 17, 10:05am  ↑ like   ↓ dislike   quote    

On the other hand, I'm also a dumbass

"in case you lost a job and unable to buy locally"

should read

in case you lost a job and unable to FIND A JOB locally

126   Peter P   78/78 = 100% civil   2006 Sep 17, 10:06am  ↑ like   ↓ dislike   quote    

It is even boring. Are we going to argue whether the sun will set tonight. The sun is so beautiful today that few should suspect that it will go down tonight.

127   Randy H     2006 Sep 17, 10:21am  ↑ like   ↓ dislike   quote    


I have no illusions about who can afford what, and how many are at what levels. I suggest you look into some of the data yourself. For example, you are nowhere even close to "the bottom 25%". That segment of the population is entirely dependent upon government subsidization in part or whole simply to subside. Your income puts you right around median regionally, and above median nationally.

You should reread SFWoman's posts two or three times until you get it. The problem is that the baseline has moved up too fast and beyond the reach of anyone on a normal working salary -- that is unless they use a bullshit suicide loan product.

My first Bay Area home when I moved here from Chicago was $365K, in Redwood City, in 1996. That price was pressing the limits for salaries of 20-somethings early in their careers for non-prime neighborhoods, even then. Only because we had no kids and both worked could we barely afford to get in. But we could, that's the point.

Today, that same home is supposedly worth $1.2M. C'mon. A little starter home, in a nice, cute old neighborhood, but with war zone schools and bordered on two sides by much rougher neighborhoods? And today you'd need to pony up $1.2M to purchase it?

If we moved here today, with the same jobs, inflation adjusted, we'd be nowhere near capable of buying that same house.

Oh, and by the way, those "young guys with million dollar condos" on a single income in the city are either trust fund babies or investment banker associates (or both). Those of us just a tad older have lived through a downturn in financial services before. Watch how many of them evaporate overnight when their IB firms stop hitting their 200% bonuses.

128   Peter P   78/78 = 100% civil   2006 Sep 17, 10:36am  ↑ like   ↓ dislike   quote    

Randy, I admire your patience.

129   skibum     2006 Sep 17, 10:56am  ↑ like   ↓ dislike   quote    

Can you believe it? Apparently there are honest appraisers out there (Gary Crabtree in this article):

But of course, being the MSM, the article has to have a happy RE ending written by this idiot reporter:

Booms typically have been followed by corrections -- but not busts.

The unanswered questions twisting in the wind: Where exactly are we in the current correction phase? And when do prices stabilize and move up again?

The answer is: the correction phase has barely begun, idiot. If by "prices stabilize" you mean when do prices correct back to historical norms, we haven't even started yet.

130   Randy H     2006 Sep 17, 11:36pm  ↑ like   ↓ dislike   quote    

I'd like to leave a note to all of the quiet readers out there who may have followed through this thread.

Whaddup is very likely a realtor(sm), someone else in the transaction chain, or perhaps just someone who bought at the peak and is trying to sooth her own nagging fears.

If you find yourself wanting to believe her "arguments", I implore you to reread the last couple dozen comments when I and some others challenged her statements. You'll quickly find that she was careful to never counter any hard specifics with anything tangible. She either ignored contradictory data or dismissed it with personal anecdotes.

I point this out because her reasoning is very similar to that used by realtors(sm) when working a client. It's a subtle sales job, but a very effective one. One that plays to your fears; fears that you're wrong, and you'll miss out forever in life by not getting over your "understandable but unfounded" reservations.

Just remember, the *when* of buying a home for everyone is largely coincidental. It's coincidental to when you were born, when you graduated college, left the service, got married, got divorced, had a kid, moved back from overseas, etc. What realtors and car salesmen do is work their way into your psyche such that you lose focus of the bigger picture and start thinking as if you are the center of the entire market. Take a step back, and ask yourself why you had reservations in the first place. Trust your instincts.

131   FRIFY     2006 Sep 18, 12:56am  ↑ like   ↓ dislike   quote    


If Whaddup is a Realtor, it makes sense that her income appreciated by 40-50% over the last three years. Personally, I've only gone up 20% over that timeline and I'm still below my 2000 bubble salary.

The realtors and the contractors are about to experience a 30-50% correction down in their salaries, so if they're really drinking their own kool-aid, they're going to be in a world of hurt soon.

132   skibum     2006 Sep 18, 2:33am  ↑ like   ↓ dislike   quote    


Your post is a tad paranoid government conspiracy-sounding, but there are interesting points in there. If indeed there will be a means test for health care coverage, this would presumably precipitate a vast number of oldsters to sell property to pay for healthcare, if indeed property assets are counted in one's total assets. There could be a landslide of properties for sale at that point, with only the small cadre of Gen-X'ers to buy. Talk about oversupply.

133   astrid     2006 Sep 18, 3:22am  ↑ like   ↓ dislike   quote    


I'm at about the same level of paranoia as you, so we can definitely talk. I see a lot of obvious dysfunction in this country (the "War on Drugs" - I think it started out as a well intentioned effort, but soon got taken over by people making money/political capital off of it) and would prefer to emigrate to a country with a slightly less dysfunctional government.

134   skibum     2006 Sep 18, 4:41am  ↑ like   ↓ dislike   quote    

Ahh, the evil reverse mortgage - it may or may not do the trick. How many of the boomers currently living in mega McMansions with vaulted ceilings, 40min drive to the town center and who knows how long to the doctor's office, empty-nesters will want to stay in their homes pulling equity slowly to pay for medical bills? I think most will prefer to cash out whole-hog and pay without a reverse mortgage as a "graduated payment scheme."

135   skibum     2006 Sep 18, 6:02am  ↑ like   ↓ dislike   quote    

guesr Says:

i think houses in the bay are selling for much less - though prices seem still high alot of trciks are being used to make the prices hoogh - i mean if i can buy a house for 500K and still get back 50k + plusother incentives + comission being shared. means i m getting a house @ 400K and forced to borrow 100k extra

Exactly. If you look at one of my linked articles earlier in this thread, some appraisers are on to these tactics and are factoring in incentives into the actual appraisal. If that happens to any large extent, comps will go down further.

136   Paul189     2006 Sep 18, 11:53am  ↑ like   ↓ dislike   quote    

Lots o' tricks out there - signs that go up and come down. Listings that come on and off and back on as just "listed"

I wasn't too sure how fast this thing would unfold. Recently, it seems to be gaining steam. The speed and number of properties listed and price reductions seems to be increasing at an increasing rate. I've even seen a few listings that hint at prices back to 2001 levels albeit in the less than prime locations or some negative feature but still those listings are what one might have observed five years ago.

137   B.A.C.A.H.     2006 Sep 18, 1:23pm  ↑ like   ↓ dislike   quote    

astrid Says:

"Why do you think I want to move to Australia or Canada?"

Please do. Please do move out. It is getting too crowded here for the priviledged immigrants who once they got theirs, want to keep other immigrants out of California.

138   Michael Holliday     2006 Sep 18, 11:15pm  ↑ like   ↓ dislike   quote    

Housing Starts Drop Sharply in August
Tuesday September 19, 8:39 am ET
Construction of New Homes Drops a Bigger-Than-Expected 6 Percent in August

WASHINGTON (AP) -- Construction of new homes dropped a bigger-than-expected 6 percent in August, the Commerce Department reported Tuesday. The department said that builders started work on 1.665 million units at a seasonally adjusted annual rate last month.

It was the fifth decline in the past six months and provided further evidence that the housing sector is slowing sharply after five record-breaking years.

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