Irvine Housing Blog

In tGHB you list mortgage rates as: base-rate + inflation-expectateion + risk premium.  Is Bernanke really going to raise rates with double-digit unemployment?  I’m sure he will be reminded of the dual mandate of the fed.  Let’s say it’s inflation expectations that actually happen (if expectations aren’t met then rates would go back down).  General inflation would impact home prices too, wouldn’t it?  I would not assume 1-1 impact, and wouldn’t apply it to bubble areas where there is still a large price-rent instability.  You could have nationwide home prices increasing while local prices in still bubbly areas decreasing.

A lot of the mortgage rate increase will be linked to general inflation that will push home prices up, in a national sense.  I think that impact will be much less than the impact of foreclosures.  I also think there are two scenarios for the tax credit: [1] housing market and general economy strengthen, lessening need for credit (not what I predict) [2] housing market further deteriorates, combined with still double-digit unemp, and the credit is extended again.

How much of an incentive is the tax credit compared against the massive investment opportunity of real estate (double-digit yearly appreciation) combined with exotic low-payment financing (general conditions in the bubble)?  Wouldn’t anyone who would have been a first time homebuyer would have been pulled more strongly by the bubble than an 8k tax credit?

If the local economy does well, housing prices will go up.

so you have to ask your self.

Are you tired of this recession yet ???

If Obama initiates payment to the banks for principal reductions, the foreclosures will diminish.  In the past that sounded like a big “IF” to me, now, not so much.

Article in OC Register Dec 26 predicts 0% price gain this year. Interesting that there is no mention of the landslide of prime jumbo loan resets that will occur in 2010 and 2011. These are surely very much a part of the OC bubble.
Article link is:
http://lansner.freedomblogging.com/2009/12/26/flat-pricing-eyed-for-oc-homes-in-2010/48265/

Happy New Year everyone!  Happy new decade too! 

I have a observations to make-

America just experienced it’s first lost decade.  It’s sad but it’s true.

When the year 2000 started, the dow industrial average was about 11,500, today it’s 1,000 points less.

When we started the year 2000, unemployment was at a minimum, today we have 10% unemployment with another 7% underemployment.

When the year 2000 began America ran an economic surplus.  Today we borrow about 10% of the gross domestic product in order “to meet our needs”.

When the credit crunch calamity began, the key issue was financial institutions being “Too Big To Fail”.  Today many of these same institutions are significantly bigger!

When this calamity begun, many top economists said it was a result of ultra-cheap interest rates, today the Fed loans money at 0%.  Free money ... yipee!

When the prior decade begun, we had Greenspan the “Maestro”, today we have Bernanke, Time “Man of the Year”.

On a final note, let’s all hope this decade is better than the prior one.

What happen in 1992-97 was much much different than what is happing now, in 1992 much of the SoCal’s best industries packed up left and took their best people with them.

That did not happen this time…

This recession started with a finance bubble burst, and it will end when with a finance cure.

We have made it to 2010!  It sort of feels like we just came out of the first loop on The Viper over at your Magic Mountain.

I agree with you that Bernanke’s switch to fixed rate is a very good indicator that rates are about as low as they can possibly get.  The question is now how long are we going to be leaving them there.  Do you really think they are going to stop buying MBS this year?  I don’t.

Anyone else completely appalled at Bernanke’s disgraceful passing blame and pointing fingers at ‘regulators’ while saying low interest rates had no role in the bubble?

This guy is a first class lowlife DI_K.  Their job is to oversee the financial system and keep things stable.  They could have easily snuffed out the bubble by raising interest rates when demand for credit started sky rocketing in 2002.  One would think that increased demand for credit would cause higher interest rates - not in our world where it just makes borrowing even cheaper.

Oh if only those greedy lenders had policed themselves better!  Those bad boys! Tsk Tsk Tsk!

The central bank pours a bunch of alcohol into the punchbowl at an AA meeting and then blames the drunks for going out and crashing while saying ‘if only they had exercised better judgement’.

This pinhead is so clueless and detached from the real world up in his ivory tower where money is just created from nothing.  I propose that we drop him onto a deserted island with a bunch of hungry jackals and helicopter drop a steak from up in the air down to him; I think he might ‘get it’ then.

Sorry for the typo’s in the last post,

But adding another note, although there has been some outbound domestic migration from SoCal in the last 5 years, there has been a dramatic immigration boom from Asia during that same period and it just seems to be increasing.

Socal’s population is still increasing very fast both from birth/death rates and from immigration.

The U.S.A in 2007 had the largest baby boom ever (EVER!!!)
  Much bigger than even the baby boom years on the 50’s and early 60’s.
.
So I would expect to see house hold formation to spike dramatically soon,

  Just my opinions

Lee In Irvine summed it up perfectly.

In this land of the free and worship at the altar of ‘personal responsibility’ and ‘accountability’ - if I give a gun to someone who then goes and commits a crime, the law shall hold me partially liable for the crime due to my act of facilitating it whether or not I had any knowledge of what the firearm was going to be used for.

Not in the world of central banking where you stupidly and ignorantly facilitate the destruction of a country’s economy and then get made man of the year by some magazine run by airheads and bimbos who probably don’t know anything about banking to begin with.

Accountability is only for the little people.

In response to jonrent who stated that ‘if a local economy <B>does well<B> then house prices will go up’ - my question is:

WHY?

WHY will they go up, jonrent?

They can only go up with increases in personal income.  Suppose that McDonalds adds 1 million new Hamburger Rotation Engineers to it’s workforce which results in a decrease in the national unemployment statistics.  Well our economy is now doing much much better!  Look at the numbers!

Are all these newly employed folk now suddenly in the market to buy 500K houses?

NO.

Looks like house prices are just going to have to fall to what all these newly employed peasants can finance on their new lower incomes.

Doesn’t this contradict your economic manifesto?

In Socal, there is many more people working than can afford a home, it’s a numbers game.

Then more people working, the more there will be of the people who can afford it.

Supply/Demand simple as that,

Get on the freeway Monday morning in L.A.

Do you really think people are leaving SoCal ???

Awgee -

I do not see the Government writing a blank check to cover principal reductions.  They clearly understand the moral hazard there that would ignite a house debtor ‘Where is my reduction?’ nuke with every debtor in the country demanding their ‘fair share’ of the giveaway.

Their overall goal is to keep the peasants paying their debts and keeping busy with their makework jobs.  The last thing they want is to tell everybody that quitting your makework job defaulting is a faster equity builder than standing around 8 hours a day making milkshakes.

No, they are not that foolish.  They are going to continue this policy of pretending to care about debtors while the banks slowly and quietly foreclose and the mainstream media reports the official government statistics and reports as FACT without any independent or substantial analysis.  The losses will slowly be paid off by taxpayers.

I sort of think of it like when the bank charges you a 39.00 late fee and you respond by paying 1.00 per month for the next 39 months to make sure they get it VERY SLOWLY.

This is exactly what they are doing to taxpayers - distributing their money to banks VERY SLOWLY while the folks are busy checking football scores and the banks are pretending that their junk ‘assets’ are worth more than they really are.

Public manipulation at it’s finest.

Which gets back to my first question,

Are you tired of this recession yet !!

jonrent -

The freeways are busy here too in one of the worst real estate markets in the country!  I daily sit in long lines of cars backed up at freeway transitions.

How can prices in PHX still be falling when I can clearly see traffic on freeways?  We all know that increased freeway traffic means increasing personal incomes!

I am also seeing lots of people ordering 13.00 Chimichanga’s in the restaurants.  And the 3.00 happy hour drinks have never been more THE Rage.

Certainly liar loans and ARMs are the next thing to return based upon the evidence presented.

jonrent -

Your rhetorical question about being tired of the recession is ridiculous and indicates that your are of the opinion that if we would all sit around and engage in synchronized magical thinking, prayer, etc then all of our wildest dreams would come true and we could all retire to live in our fairy tale fantasies.

Grow up.  WELCOME TO REAL LIFE.

IR,

Awesome song, though I’d tweak the lyrics for those who got away without paying the piper:

“The bubble’s over
It’s time to move to L.A.
Though you’ve never been thrifty
You’re driving an E350 away.

You played it real well-
The masquerade.
The bank will short sell
and nobody must be paid.”

What’s your definition of low/mid/high end, in term of price?

“jonrent: Are you tired of this recession yet ???”

I am tired of Newton’s law of gravity.
Should we vote here to overturn the law?

Well, end of this bubble is just the beginning of another. History repeats itself but it’s slightly different every time.

late 1980’s:  Expected peace dividends with fall of communism.

1990’s huge reduction in military spending and with base closure, especially in CA.

mid 1990’s ecomony “going well” and with internet phony accounting (trading advertising space on web as real income while losing 100’s million).  Bailout of Mex. Hedge funds (FOB) and property insurances.  Creation of Enron and laws to favor Enron. 

2000 - 2001 internet bubble burst (blame it on the Bush administration instead of vapor income.  Enron implodes.  401k and pensions loss big time. 

9/11 Bailout of airlines, finances and insurances to hid the vapor income and stop the US financial system from collapsing.  Made bubble for housing and expansion of federal powers (now this should be blame partially on Bush for the expansion of the bubbles).

IHB noted Subway sandwich artist received an approximately a half million condo loan but later defaults.  So much for the inability of a hamburger rotation engineer to get a half million dollar loan.  Note:  $25,000 to get a 3.5% down FHA loan less $8,000 tax credit = $17,000 net cost.  Taken in 2 roommates at $600 each per month.  Stop paying mortgage. Collect 14 month rent.  So truely no money down and 14 months of free rent on taxpayers’ dime.  Anthing over 14 months is profit.  Win-Win.  Banks, realtor, appriaser, mortgage companies get fees/commissions off the top, banks remove liabilities from their books, “Home owners” gets free housing and possible profit.  Taxpayers get ....

Most American confuse the Dow and S&P index as indicators of how the US ecomony is doing.  Record unemployment but record increases in the stock market.  With govt control of the money supply, bailouts, MS and Main Street are disconnected. 

I agree with IrvineRenter that the high end will be dropping and the medium sale price may be increasing a bit.  Just change in the mixture of house selling from lower end in 2009 to higher end in 2010.  This trend will be reflecting the trend in the loans due.  Subprime in 2006 to 2008.  Delayings in FC for 2008/09.  Higher end house loans due in 2009 to 2012. 

But will commerical RE loans peak at the same time?  will modified and FHAed loans be called at the same time?  Better teach your children to work hard, so they can pay off the the federal debt.

My first post ever.  IR, I love the blog and read it everyday.  Thanks for all the hard work you put into it.

You made the statement that “more sales will occur at the high end.”  This makes sense to me given that sales thus far have been concentrated on the low end, but where will these high end sales come from, given the dearth of move-up buyers?

Gemina13 -

It’s the old ‘think pothatively’ stroke.  Oh those Negative Nancy’s are just so consumed with anger, low self esteem, depression, etc, etc.

If you maintain neutrality and do not join the lemmings on the march off the cliff then you must be some weird creepy social pariah who just can’t function in society.

Recall how Peter Schiff was nicknamed ‘Dr Doom’ by all those fools on television who are now eating crow.

The bulls always pull it out of their playbook.  Accuse the sober individuals of being chicken little the sky is falling and telling the sheeple to ‘not worry’ about anything.

Just drink the Kool Aid - don’t worry about it.

This is why we cannot let others think for us.

Hate to change the subject, but “heads up”  Check out your banks, since the FDIC went broke they are raising the banks’ premiums, and guess what folks, that’s right they are passing it on to us, the savers.  No more free stuff for us! Oh, btw I heard Texas was a good place to relocate to, you can carry a gun there!!!!

Not saying the economy or housing will go up, just saying if the local economy (in SoCal) does improve.

I would expect the local housing market to improve as well.

And Yes I am very tired of this recession, and would not mind seeing companies start to hire again. (but yes I think that would mean higher home prices).

Anyway good luck.

jonrent -

Your belief is irrelevant.  Many people believe non-sensical things.

If you show up here and make a statement that I disagree with then I am going to ask you to explain WHY you believe.

I say that prices cannot increases with mortgage hustlers or government goosing the monthly payments for debtors (aka Financial Innovation). 

The other way is inflation and rising incomes.

You state that prices will go up when the economy improves.  Why?  Are you saying that inflation will make us all billionaires?  Will liar loans make a fashionable comeback? 

WHY johnrent Tell me WHY - This is not faithbased blogging here.

Because in Socal it is a numbers game.

for every 5 people employed some sales guy’s going to get a big bonus or commission, some manager is going to get a raise, some business owner is going to make his first million

Etc…

And yes there is not enough single family homes in socal for everyone who wants one and never will be (at least in coastal Socal).

Some myths are based in reality that maybe hidden from sight at the moment.

I guess we will have to wait and see.

You relate: “How high will interest rates go in 2010? Morgan Stanley thinks they could hit 7.5% in 2010. That would be an unmitigated disaster for the housing market.”

Morgan Stanley consistently has good analysis; perhaps 7.5% is too high for 2010; nevertheless I see interest rates going easily and quickly to 8%, as you suggest in your charts and prices falling to the 1990 and 1993 levels; the price drop coming mostly from the shadow inventory hitting the market, and stupendous levels of unemployment and underemployment which we have now and will continue to have.

The shadown inventory is such a terrible thing; it comes largely because so many people stated their income falsely on their Alt-A and Option Arms loans; maybe they were thinking of lottery income, or their Aunt’s gift income, or their third job income.

A terrible social collapse is coming, with the State of California, Arizona, Florida, Nevada, and others declaring bankruptcy.

There will be social unrest and martial law will be declared. Those with gold coins, and gold at BullionVault.com will have some spending money.

Unfortunately, nine out of ten people will never have insight into the “financialized” mortgage backed securities industry, and the awesomely leveraged CDOs issued by the banks as well as the ponzi scheme that came out of subprime, Alt-A and Option Arms loans.

There will only be a handful of people who have insight into our national trajedy, these being those who read blogs like yours and DrHousingBubble.

Can’t fight the Fed.

As long as we blame “greedy bankers”, we’ve learned nothing.

Prices will continue to go nowhere as long as Uncle Sam is propping this pig up.  Do you think that thinking is going to change anytime soon?

MBS expiring.  Pah!  So did the homebuyer credits.  Guess what?  Extended.  They’ll keep extending or call it something different, squeezing the balloon on either end.

I’m fortunate to live in an area that’s at least priced in line with incomes (near the Viper coaster in zip 91354).  But even as a loanowner, I know that values can only go down in the long run—but only once the fed stops meddling.

Call it “child worshipping” AZDavid (if/when you have kids of school age, would love to hear how your thinking may change on this), but we ended up pulling the trigger in Q2 2009.  Kids in school, tired of getting bounced between rentals, wife wants a place to build a nest.

The policies aren’t going to change at least until the next election.  That’s three years of more waiting (plus additional time for some sort of change) that would have put more strain on our household. 

My advice to those on the fence: find an area that is corrected for incomes (hint: not Irvine) and aggressively hunt down a good deal.  City-data.com has a ton of data, and there’s a great site for LA county called lalife.com that we used to narrow down our patch (haven’t seen something quite like it for OC yet).  Waiting for Irvine values to finally be in-line with incomes is a fool’s errand in the short run.

There is no bankruptcy code for states.  CA has technically been bankrupt a number of times (and if thoroughly audited, I’m sure it is now).