Irvine Housing Blog

I disagree with the assessment that the props did nothing good, and that the gov’t should have just let prices fall where they would.  The system we had, sans gov’t intervention, was unstable.  Unstable systems don’t just go right back to steady-state after a shock.  Consider if Case-Shiller, on its way back to the black trend line you show, fell another 30% to 80.  They’d be 20% off the trend and we’d have nearly everyone underwater, few able to sell, and even more strategic default and squatting.  Is that the better path?  What would the cost of that have been?  Is that cost more or less than what was spent to slow the decline?

When people talk about residential construction having led the country out of past recessions and expecting it to do the same today, they are showing how blind they were to the past 5 years.  Construction is slow because there is oversupply in many places, and enough supply everywhere else.  It is really going to take improving employment and new household formation to spur residential construction, and those are going to be slow coming.

If you look at the second CR chart’s sets of Bars for Washington DC and New York, you get a feel for why TPTB may THINK the measures taken have resolved the RE problem. 

In their OWN RE locations prices HAVE been recovering, albeit slowly, until a couple of months ago.

What the US may see now is an absence of action due to Congressional changeover, during a Winter of Pricing Discontent.  That might yield some pretty passionate rhetoric if there’s no 2011 spring bounce, but I don’t know (since I’m speculating from FAAAAAR away) if the political dynamic is there for even more extreme price manipulation.

(And in case you didn’t know, everything you have seen in the US so far is chicken feed compared to the measures that have been used in Australia to keep RE prices high and ever-rising over the last 25 years.)

For $1m that is a horrible kitchen design.

Seems the koolaid is still strong in Des Moines..

“My primary concern is being able to afford the home with one salary,” said Jess Mart, a 21-year-old hairdresser. “I’m single and I would have to rely on other people renting a room from me to pay the mortgage.”

http://money.cnn.com/2010/12/02/real_estate/home_buying_angst/index.htm

So help me, at 21 I was thinking about travelling the world barefoot if necessary, and loading up with a 30 yr mtg was the LAST thing I would do.  What has happened to kids these days.

Regarding your High End Ponzi Borrowing paragraph, here’s the abstract from a Chicago Fed paper published a few days ago (my **)

“Complex mortgages became a popular borrowing instrument during the bullish housing
market of the early 2000s but vanished rapidly during the subsequent downturn.
These non-traditional loans (interest only, negative amortization, and teaser mortgages)
enable households to postpone loan repayment compared to traditional mortgages and
hence relax borrowing constraints. At the same time, they increase household leverage
and heighten dependence on mortgage refinancing to escape changes in contract terms.
**We document that complex mortgages were chosen by prime borrowers with high income
levels seeking to purchase expensive houses relative to their incomes.** Borrowers with
complex mortgages experience substantially higher ex post default rates than borrowers
with traditional mortgages with similar characteristics.”

The paper is ‘Complex Mortgages’ at
http://chicagofed.org/digital_assets/publications/working_papers/2010/wp2010_17.pdf

Even just looking at the figures is interesting, eg see the last gasp suckers being drawn in by 2005 (p48 of 57) & what happens next on the following graphs.

I caught a similar story last night to todays’:
http://lansner.ocregister.com/2010/12/01/high-end-homesellers-cut-prices-sharply/90828/

It mentions one interesting thing: it points out the difference in how low end housing has already dropped significantly in pricing and high end pricing is only starting to decline in a similar way.  Keep it coming please!

I think the tax credit expiring might cause only a short term drop in pricing, at least in part.  That is, imagine if a 1,200 people want to buy a house this year in a given city, 100 each month.  Let’s say that 50 of those who wanted to buy in each of the last six months of the year rushed to buy earlier than they had planned to get the tax credit.  Let’s also say that during the first six months 25 people a month who had no plans to buy bought due to the tax credit.  So, sales were 175 for the first six months and 50 for the next six months.  Obviously, prices would fall significantly.

But if demand was still stable at 100 a month, prices next year would rise (although not as much as when sales were 175 a month).  That is, after the tax credit expired, prices would fall fast but eventually partially recover, as people who are buying eventually weren’t even thinking about buying when the tax credit existed.

That is, the tax credit pushed forward demand in the short term, and probably created some demand out of thin air, but that effect will eventually fade.

Now, a lot of this is determined by supply.  If supply was consistant throughtout the process at a level above 100 houses a month, prices would continue to fall even after the tax credit effect’s fade (just at a slower pace).  And prices would probably never climb back as high as when the tax credit was pumping up demand.

The mortgage interest deduction is being discussed daily on CNBC. I know the talking heads need topics, and the Debt Commission’s report is out now, but there appears to be a general willingness to at least debate the issue.  Is it no longer a sacred cow?

I support ending it, but I think in all fairness it should be phased-out over a number of years.  Some people made decisions to purchase/finance homes by running the numbers and calculating the tax “benefit” of owning.

TurboTax is a wonderful tool.  You can run alternative scenarios to see how your taxes are affected.  e.g. For the 2009 tax year, we would have paid over $20k more in income tax (IRS+FTB) if the mortgage interest were not deductible.

We’ve been taught that buyers and sellers determine markets ... they do, but only part of it ... Most asset prices are only worth what a bank is willing to loan a third party to pay.

Has anybody noticed what’s going on with commodities—especially groceries?  Inflation comes in two parts: 1) Too many dollars, AND 2) the anticipation of sellers facing future price increases.  JMHO ~ In the case of housing, we still have deflation because the banks are deleveraging and not loaning money due to fear and insolvency.  In the case of commodities, we have the anticipation of higher cost (BUT NO PROOF) Bubble?  Despite all the Feds attempts to print money, we still don’t have enough dollars to support current asset prices.  As they throw more money at the problem, they lose more credibility.

One thing is certain, and this is probably pissing the FOMC off more than anything, employees have NO Leverage with wages.  If anything, they’ll take a pay decrease or a demotion or accept less benefits.  We have no cost push inflation people, and we have double digit real unemployment.  This applies much more pressure on real estate in places like The OC, where our home prices are almost 3 times the national average, but our incomes are at a lower multiple that the national income average.

Okay, off my soap box now.

nestled on quiet cul de sac

I just threw up in my mouth.

I’m looking for a property in a non-quiet cul de sac. In addition, I would prefer that it not be nestled. Am I too much of a niche buyer? Is this like trying to find a non-balsamic vinaigrette, or a bottle of high-fat milk?

WOW!

“This is why I am dumbfounded that the masters of the universe did not fix the house problem price problem by replacing 30 year loans with 40 year loans.”

They have.  And more.

Go read the forums at Loansafe.org where people talk about their WONDERFUL loan modifications.

There are a TON of 40 year mortgages, balloon payments etc.

The sheeple were initially given enough rope to hang themselves with their neg-AM loans. Now their masters are letting them breath…barely.

You write: “I doubt the upcoming price declines will approach the depth of the previous drop, but it interesting that the decline is picking up speed and it now rivals the rate of decline from three years ago.”

I reply: Yes it is significant that the decline is picking up speed.

And why, just why do you believe that believe there are limits to the depth of drop?

I perceive of things globally.

On November 4, 2010, traders reacted to the Fed announcement of QE 2 of money printing operations, and Mrs Merkel’s call for a sovereign debt default mechanism, by calling the Interest rate on the US 30 Year US Government Note, $TYX, higher, and selling World Corporate Bonds, BWX, and International Corporate Bonds, PICB.

Since November 5, 2010, a global debt deflationary bear market has been underway. Accumulated currency losses inflicted by the currency traders are as follows: Euro, FXE, 5.7%, New Zealand Dollar, BNZ, 5.4%, Swedish Krona, FXS, 4.3%, Australian Dollar, FXA, 3.9%, British Pound Sterling, FXB, 3.7%, Russian Ruble, XRU, 3.6%, Swiss Franc, FXF, 3.0%.

Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”

Today’s rise in stocks was simply a rally in a debt deflationary bear market, that is a currency deflationary bear market. Stocks will be going down again. The most deflationary of all bear market ETF, Direxion Daily Emerging Markets Bear 3X Shares, EDZ, has turned up November 4, 2010, as is seen in this Stockcharts.com chart of EDZ. The bear, not the bull, is in charge of the markets. The bear is termed a “global currency war” by the currency traders, as they have introduced competitive currency deflation, that is competitive currency deflation, on rising interest rates globally.

I believe that out of soon coming financial market place crash, a Sovereign, a leader like Herman van Rompuy, as well as a Seignior, an old English word meaning top dog banker who takes a cut, a minister such Olli Rehn, or Jean-Claude Trichet, will arise to establish strong economic governance to deal with sovereign crisis, both in Europe as well as worldwide, as the currency traders sell off the major currencies, DBV, as well as the emerging market currencies, CEW in a global currency war against the world central bankers. The Seignior will establish fiscal sovereignty, unified banking of globally, a common Eurozone Treasury, both credit and fiscal seigniorage, and enforce austerity resulting in internal devaluation.

When the financial market crashes, and that is imminent, there will be practically no, repeat no bottom in real estate prices.

Finding any renters for those houses in Vegas IR?  Enquiring minds want to know.

Please don’t feed the troll(s). All it gets you are comment threads like today’s.

Thanks in advance,
-Darth

Tampa homes are in the same boat as CA… although I think you guys have it worse… at least as long as we don’t get any more hurricanes

Property History for 8 INDIGO
Date Event Price Appreciation Source  
Aug 16, 2010 Listed $1,049,000 — CARETS #S629131  
Mar 21, 2003 Sold (Public Records)  $1,550,500 31.9%/yr Public Records  
Apr 29, 1999 Sold (Public Records)  $528,000 — Public Records

From 1999 to 2003 the house when up from $528K to 1,55 million—284% !  Did the medium income in that neighorhood go up even 50% ?