WOT 1-26-2007

Weekend Open Thread

From Calculated Risk.

It appears we are having a problem with defaults. The above chart is based on a percentage basis, so it is adjusted for the increase in housing units over time.

60 thoughts on “WOT 1-26-2007

  1. NoWow!way

    For A paper players only, the new loan restructuring and reduced interest rates are going to help this market a bit.

  2. ex-tangelo

    Thanks for the refrigerator recommendations from the open thread a while back. We’re looking at several models.

    I bought this device called a “kill-a-watt”, you plug you devices into it (and it into the wall), and it tells you how much energy you’re using on an annual basis.

    I’m looking for ways to cut down on electricity. I’m paying $0.22/kwh for electricity… PG&E charges $0.11 and $0.13 for the first 330 kwh a month, then the rate pops up to $0.22 and higher. With two little kids, we’re running the major kitchen appliances non-stop.

  3. NoWow!way

    Morgan Stanley’s west coast commercial office branches are closing and staff is laid off. That guy who moved out here from the east coast a year and a half to open those offices is saddled with a $3. + million dollar home/mortgage and no job.

    Hard to believe that just a year and a half earlier things seemed so rosy and sweet to so many businesses and individuals, alike.

  4. effenGEEK

    The Kill-a-Watt is a fun geek toy. I have one and I get a kick out of seeing just how much power stuff really does use.

  5. doug r

    What have you done already to cut back? Our place is almost all compact fluorescent bulbs and we try to buy energystar appliances, plus we keep the place cool in the winter and I have the thermostat set pretty low on the water heater.

  6. Bob

    I don’t think we are having a problem with defaults. What I think we have is a problem with people buying more home than they could afford. This is a direct result of a problem with advisors involved with the purchase of RE who care only about their commission and not about any fiduciary and moral obligation to their clients. Personally if someone wants to say they are a RE “Professional” or mortgage “Professional” I think the least they can do is act like a professional and tell those who cannot afford a home not to buy.

    Perhaps we need to call them all “Commission whores” but the media would likely call me another Don Imus for using that term….maybe instead we should just call them “Professionally challenged RE Advisors” — the NAPCR not the NAR

  7. IrvineRenter

    I have been giving some more thought to the “temporary” rise in the conforming limit, and I suspect this is a measure aimed at keeping Countrywide from going under. Countrywide has a lot of conforming jumbos on its balance sheet because nobody is willing to buy them. By temporarily allowing the GSEs to buy this paper, it will provide Countrywide with some desperately needed cash.

  8. lawyerliz

    The only bad thing about the IHB getting so big lately, is, I can’t keep up. Got food poisoning a couple of days ago, went back on line, and gosh, too many comments, so little time.

  9. lawyerliz

    I’m still weak, but managed to eat breakfast & keep it down. Thanks for your concern.

    I was feeling too bad to even call the restaurant and berate them, and for me that’s really weak.

  10. Stupid

    Actually, I thought the lastest spin is that mortgage problems are contained to the US (ie. only the crazy amercian’s have a RE problem). But that’s starting to crack (see article on Spain below)


    “Investors are concerned that the Spanish housing market will collapse as the U.S. market is doing now,” said Meyrick Chapman, a London-based rates strategist at UBS AG, Europe’s biggest bank.

  11. alan

    The problem with defaults is not just the number of people going into defauts.

    The problem is that inventory is already at record highs so that the market is unable to absorb the new inventory.

    Did you see Lasner’s latest post… Billionaire George Soros now predicts this down market will last at least 10 years, much longer than the downturn in the early 90’s because this bubble was so much bigger.

  12. tonye

    We got this gizmo a while back that uses “out of phase” power for AC motors. It’s supposed to use only 75% (or so) power. I put it in the freezer in the garage since fridges and freezers are essentially compressors ( motors ).

    Edison measures “power” not current, so this device draws current at 90% degrees ( or so ) from the AC, hence it saves power. Motors, after all, are current devices, not power.

    It won’t work on heaters and such since those are “power” devices and do not benefit from varying the phase of the current.

    There you go. Physics is Phun.

    My next thing is gonna be solar panel cells. A 3Kw set up runs about $19K after rebates and tax credits. And I want to get a 3Kw Honda generator as backup.

    You see… Irvine is a Third World country when it comes to Electricity. Edison mismanaged their reserve and maintenance monies in the late 90s as the parent company tried to be a “growth stock”. Then it got whacked by Enron. So the equipment is out of date and in bad needed of maintenance.

    In Irvine, with all of the new construction, our grid is simply overwhelmed. Last year we lost power FOUR TIMES. Once for 23 hours. Two years ago we lost power for 24 hours once too.

    I’ve told Edison that they better stop thinking that this is Guatemala and start doing something about their grid.

    And they want more money…

  13. tonye

    Yeah…. this was in the horizon a year ago. I think that RE is overvalued in most of Western Europe too and their Central Banks are going to have to lower their interest rates too.

    Only a matter of time.

    So, either you buy Euros short term and then dump them or go long term short on the Euro.

    Keep an eye on Spain because I think its’ the leading edge in Western Europe’s (heck the EU ) RE problems.

    There will be political discord as different parts of the EU go through the RE debacle through different timed phases, and I think this will put downward pressure on the Euro.

    Perhaps not a good time anymore to invest in international funds that deal with Euro?

  14. ex-tangelo

    What have we done to this 1950’s house … built in the era of “energy will be too cheap to meter”.

    The big thing we did was replace 13 warped aluminum-frame single-pane windows, two exterior doors, and a sliding glass door ($12,000). Before we did that we could feel breezes indoors with all the windows and doors closed.

    We replaced every possible incandescent bulb with 13 or 23 watt CFL except for the dimmable devices, I just ordered some supposedly dimmable CFLs which haven’t arrived yet. I also ordered a couple of LED bulbs, we’ll see how they work out.

    The insulation in the attic is some loose fill stuff I can’t identify. The DOE says the R-rating of that type is about 3.5; new fiberglass batts are rated up to 30. The guy across the street is doing this job now but the complication is our houses are wired with “knob n tube”, and in order to put in batts the wiring needs to be redone. Another complication is some types of loose fill from that era have asbestos. (Solvable, just more expensive)

    I’m not replacing the water heater, but I’m looking into solar thermal water heating. I’ve heard two things about adding wrapping thermal insulation on a water heater: Wrapping it is good even for insulated heaters; and wrapping already insulated heaters is useless.

    I’m partway through replacing the fiberglass insulation on the hot water pipes with new foam insulation, but I don’t notice much difference.

    I’ve changed the lawn and garden sprinklers to a drip system on timers.

  15. George8

    Did the default rates on HELOC ever come to the attention of the blog? For instance, the survival of ETrade may hinge greatly on the loss of its 12 billion home equity balance.

  16. Formerbanker

    From Housing Panic, regarding Fannie Mae’s mission statement:

    ‘HousingDoom noticed that Fannie has now changed their website’s About Us page to reflect their new focus, and Diana reported the change on her blog. So here it is, in all its corrupt glory:

    In 2005: “Our public mission, and our defining goal, is to help more families achieve the American Dream of homeownership. We do that by providing financial products and services that make it possible for low-, moderate-, and middle-income families to buy homes of their own.”

    In 2008: “We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Our job is to help those who house America.” ‘

    I seriously felt sick and queasy after reading this. I can’t vouch for what exact words were used in 2005, but the 2008 statement is absolutely from the Fannie Mae website.

    So now Fannie ups its limits on the maximum conforming/conventional loan size…to save some banks/financial companies that are not worth saving…to further exacerbate the cost to society and taxpayers who will ultimately pay for this! Government sponsored agency…yeah, right. I’m sure investors would be lining up to buy these loans without any implied guarantee from the federal government. Unbelievable. How stupid ARE we ? Hope the rating agencies get the guts to get real and say, gee, maybe we should not give AAA ratings to these pools of large size Fannie loans because they are no different credit wise than the other pools of crap we previously rated AAA!!!

  17. ex-tangelo

    Foreigners get a piece of the real estate pie

    As the U.S. dollar continues to shed value against foreign currencies, more and more foreigners are noticing these sweet deals. Real estate agents and developers report an increasing number of people from Canada, Asia and Europe, where some currencies have lapped the dollar, touring and buying San Francisco homes. Consequently, they have tweaked their sales pitches to target this active pool of investors in an otherwise sluggish market.

    The top five countries whose residents are buying U.S. real estate are, in order, Mexico, the United Kingdom, Canada, India and China, the Realtors’ report noted.


  18. irvinesinglemom

    A problem with foreclosures? Yeah right. You are all doom-and-gloomers. If it weren’t for you naysayers, all that pent-up demand out there would jump off the fence and buy all the inventory that’s built up because of YOU!


  19. Irvine Soul Brother

    Great, nerd talk!

    Hey, has anyone heard about the thing where you arrange to get a new kind of power meter and they charge you less at night (after 7pm), but more during the day? That way you can run the washer, etc at night and save the cash. I want that.

    Also, for cars, there is a thing like a kill a watt called a Scangauge that can plug into any car built after like 1999 and tell you all of the data like , mpg, trip mpg, lifetime mpg.

    How long before it becomes a mandate that solar cells must be allowed to be on houses? Tell me this!

  20. ex-tangelo

    the first is called “time of use” metering. I think you only have to ask your utility to bill you that way and they set you up.

  21. Irvine Soul Brother

    That would be great, although, I was hearing that you had to pay for some new meter, etc. Couldn’t find info on it for OC.

  22. tonye

    I dunno…. It’s buried in the back of the fridge. It’s green and white. I got it at Home Depot a while back.

  23. tonye

    See? California is ready to be retaken by the Viceroy of the King of Spain.

    Mexicans start to buy back what was theirs once.
    Then the US will complain that we can not trust “mexicans”
    So the King of Spain steps in a a fellow “old white dude” that can be trusted.
    Bingo… I get a phone call from the Consulate.

    Then we rename Irvine to San Irvino and we’re set.

    San Irvino. Capital of Alta California.

    Newport Beach: Puerto Nuevo.
    Long Beach: Playas Largas
    Huntington Beach: Playas del Gringo Muerto

    See? I wonder about the impact on TV.

    Desperate Housewives….”Amas de Casa Desperadas”? No…. How about “Sexo Gigante”?
    OC wives? Amas de case de OC? No.. How about “Sexo Plastico”?
    Baywatch?….. “Sexo y Silicona en la Playa”

    Univision is soooo easy to write for. Just make sure that the more “Sexo” and “Silocona” you put, the higher the rank of the Priest. I think Baywatch, aka “Sex y Silicona en la Playa” will rate a Bishop.

    Irvine Housing Blog? “Bloggo desde San Irvino”

    There you go. And Cuban Ceeegars will be legal. I just solved killed two birds with one shot.

    Muchas Gracias, don “BDSI”.

  24. tonye

    See the RE ad the other day on TV.

    “It’s a good time to buy”.
    “Homes appreciate 10% per year”.
    All that pretty music in the background and PC people with such happy faces.

    I think it was during American Idol.

    The ad was flat. I wonder how it made it to Hollywood. Surely Simon wouldn’t allow such crap.

    If it were me, this is the song I would have put in the background..

    Its a beautiful world we live in
    A sweet romantic place
    Beautiful people everywhere
    The way they show they care
    Makes me want to say
    Its a beautiful world
    For you
    Its a wonderful time to be here
    Its nice to be alive
    Wonderful people everywhere
    The way they comb their hair
    Makes me want to say
    Its a wonderful place
    For you
    Tell me what I say
    Boy n girl with the new clothes on
    You can shake it to me all night long
    Hey hey
    Its not for me

  25. Bob


    I am always willing to discuss why people think this downturn is temporary vs. the prevailing view on this and other blogs that the price run up was a false price spike.

    But what evidence do you have that it is just the negative press causing this problem. What changed in the last 4 years that allow the average house price as a multiple of the average income to go above the 50 year average by 3 standard deviations (in statistical terms an event with less than 0.1% proability of happening).

    If you have evidence of why a structural change occurred that would create and allow this I am all ears.

    The only thing I see that really changed was extremely lax underwriting standards. When I bought my first home, I had to jump through hoops to get the loans. When I re financed the first time, only a few hoops (e.g. prove cash reserves with 3 month bank statements).

    When I won a bid on a property in LA (ultimately I backed out) all I had to do is call my mortgage broker and voila I was approved.

    That is all I saw that really changed. Lax underwriting allowed way too many people to get into loans that their income would never ever support even at teaser rates. The only way these people could support the loans was if prices kept going up forever. Of course if RE went up by 10% per year for ever it would soon account for 25% of the total economy. Last time I checked, a new home only produces rent. It does not produce new goods and services, nor new ideas. It is ultimately a consumable. Economies must produced real goods and services to survive — building more houses well that creates more houses that sit empty. Not a thing upon which sustainable economies are based.

    So please, provide me with evidence of what changed and warrants a permanent and sustainable increase in house prices and debt levels (remember you have to have income to pay off debt). From your comment I would believe you feel “positive press” is what changed during the run up because it is the “negative press” that is causing the downturn. Yes I believe in the power of positive thinking but if I want to get in shap, I have to do more than read rosy press articles and books about how easy and good it is to get into shape. I actually have to do work and have discipline.

  26. irvinesinglemom

    Yeah, I have to admit I had a snarky moment and wanted to ferret out the newbies to this blog who don’t know who I am (a “pre-IR IHBer”) or who Truthi is (a nutcase on lasner’s blog).

    Sorry, Sunday morning snarkiness, stuck in the house with a homebody preschooler, daydreaming about doing something fun.

    Bob, sorry to play with you, appreciate your politeness but really, if you thought I was serious, you ought to have just let me have it! 🙂


  27. Laura Louzader

    EGADS!!! .22 a KwH???!!!! And I thought Chicago was bad at .0875.

    I’m personally doing everything I can to tweak the watt and reduce my carbon profile, in order to save costs, and because I am Peak Oil believer.

    To date, the most energy-efficient refrigerators I can locate are the 16.5 cu. ft. Sunfrost, that runs on around 200 KwH, and the Frigidaire top-freezer 16.5 cu. ft. Energy Star, which uses about 390KwH a year. The Sunfrost is a top-freezer that also comes in frig only and freezer only models, and it is extremly beautiful. Comes in a variety of finishes and will take your cabinet panels. But it is very costly, about $3200 for the stainless steel 16.5 cubic foot. If you want more capacity, you might want the seperate frig and freezer, to be placed side by side, for total usage of about 400KwH, for 33 cubic ft total capacity. The Frigidaire, of course, is much cheaper, under $1000.

    Forget the ultra-small refrigerators, for every single one I looked at including Avanti, SubZero, Marvel, and all the rest, used at least 330 KwH for 10 lousy cubic feet. This is no deal, even for a single person living alone.

    Since we are in steep depletion on natural gas, you might wish to look at electric options. It’s no more expensive what with the price of natural gas these days, and it’s much cleaner and safer. For the ultimate in efficiency, consider induction. It is the safest, cleanest, most energy-efficient way to cook there is. You get heat as the electro-magnetic field between the cookplate and container causes the container to heat up. Trouble is, you are limited on cookware- only ferrous cookware, like cast iron or steel, can be used. Your pretty copper cookware will just hang there. But in combo with a convection oven, it is unbeatable, though expensive- the cheapest induction cooktops by GE cost aboatu $1700.

    The halogen-under-glass cooktop is highly efficient, almost as much as gas. In combo with a convection oven, it is a good alternative to gas.

    If you have the dough, consider geothermal heat. This is very costly upfront, but will reduce your heat costs dramatically. You may or may not be able to install the pipes on your site, or get your condo board to go along with it, but if you mean business about reducing your energy costs now and in a future of vastly more expensive energy, you will consider giving up a second car for it.

    I’m working up a plan with a sales pitch for the condo board of the moderate-income building I plan to buy into, for geothermal heat to replace the gas boiler. I anticipate it will be a very hard sell, but by the time it is an easy sell because of stratospheric energy costs and constant spot shortages and brown-outs, the cost will be on the moon.

  28. Laura Louzader

    If I were a restaurant owner, I sure as hell wouldn’t want to poison a lawyer.

    Hope you are feeling better soon. Been there, know absolutely how miserable food poisoning is.

  29. irvinesinglemom

    There are a hundred fun things I’d like to do with my rugrat; the problem is that all he wants to do is stay home.

  30. alan

    If you have what I think you have, as I recall it was called the “green plug” and they made one version for the fridge and a different one for the washer/dryer. I bought the fridge one at Home Depot in 94 or 95 as I recall. Haven’t seen em in many years. The newer generation applainces are much more efficient so I wounder if they don’t have this type of technology built in.

  31. alan

    If you live in Chicago, why don’t you unplug the fridge in the winter and just leave the milk/butter on the porch?

  32. alan

    Univision would have to recast actors for “Amas de Casa Desperadas” all their actresses have to have minimum bra size of 39DDD.

  33. lawyerliz

    Shows what you know!! Bra sizes, for you males, only come in even numbers. Thus 34, 36, 38, 40, 42, etc.

    And once you get past double D, you go on to E etc. Those really big sizes are hard to find.

  34. Laura Louzader

    This whole country is about to become a Third World Country in terms of power generation unless we all wise up very quickly.

    Ever since dereg, excess capacity has disappeared. That’s the excess capacity you need in the middle of July when the whole country is 96 degrees with humidity at 69%.

    Dereg as it conceived and implemented is a massive disaster. Trouble is, the entities who own the power generation are still tightly regulated while the entities that trade the power back and forth are not.

    There are other problems that overshadow this, however, the principal among them being the increasingly tight fuel supplies.

    Are the utilities letting the grid get so frayed because they don’t plan on maintaining it into the future?

    Natural gas is in steep depletion, and you moreover get armies of NIMBYS rising up to oppose LNG terminals wherever they are proposed. More air pollution disasters are in the offing as the utilities across the country ramp up the coal-fired plants. Nuclear is the only answer at present for large-scale power generation, and we can hope that there are more large-scale solar plants built in the sunny Southwest.

    Keeping this country adequately supplied with power is going to be like putting together a student financial-aid package, further into the future. Conservation measures there, a solar plant there, tax credits for individual renewable power there, all to squeak by, at increasing expense.

  35. Laura Louzader

    I don’t trust my neighbors quite so much.

    Moreover, the stuff will freeze over, damaging some of the codiments.

    However, it’s overall a sound idea, if you have a porch space all to your self.

  36. Lost Cause

    You must be talking about the 40% of buyers who were investors. Investors usually line up for the opportunity to lose $10k/mo

  37. investusa

    good insight, however if the value is to low it will probably only have little effect on the troubled loans with Countrywide, it could have a small effect on therefi/purchase markets..

  38. tonye

    Ay! Univision uses METRIC sizes.

    Gee, I figure that you, of all people. so surrounded by Amigos from the Island, would know that.

  39. lawyerliz

    Aiyyeeeee. Then wouldn’t 39 centimeters be really tiny?
    Let me see, an inch is 2.54 cm? So thats 20 inches. Or less. Puleeeze.

  40. ex-tangelo

    Thanks Laura. $0.22 is the marginal rate after a baseline 330kwh a month. All my watts aren’t charged at that rate, just those over the baseline.

    Interesting idea on the geothermal, but drilling is really expensive and the Hayward fault is (tips over empty coffee cup) (reaches across Hayward Fault to pick up cup) very close. I don’t think piping would survive.

    Photovoltaic panels on the roof would be cost effective at $0.22/kwh, as long as I’m just trying to generate enough power to keep my PG&E-bought power under the baseline. Efficiency gains are more cost effective though, so I’m going to do what I can improve there. As soon as that Kill-a-Watt device arrives I’ll see what is the low-hanging fruit in energy hogginess around my home.

    I also signed up for PG&E’s “Climate Smart” carbon offset / renewable funding something or other. I’m doing it more as a ‘putting my money where my mouth is’ than in a belief than carbon offsets do anything.

  41. American-Screamer

    Who is exactly in command there? You or your toddler? Is the TV on? Turn it off.

    Hate to break it to that way but I have three kids under six. I make’m get dressed right after waking up, keep the shoes by the door, give’m a five minute warning before leaving (use a timer) and then it’s out the door or into the backyard. If it’s raining, go to the mall, early mornings aren’t crowded and just let them run around. A little exercise goes along way. Be firm, consistent and fair.

  42. djd

    “Edison measures “power” not current, so this device draws current at 90% degrees ( or so ) from the AC, hence it saves power.”

    Electricity meters measure real power (P).

    The distinction you should be drawing is between real power (P), reactive (i.e. 90 °) power (Q), and apparent power (|S|). The green device is an adaptive Power Factor Corrector, it is designed to make Q as low as possible. Reduction of Q reduces |S| thus lowering line loss – this is why utilities explicitly bill large customers for excessive Q/P ratios (since the utility has to deal with that Q).

    There are three problems with using such a device in a consumer setting. First, the savings on P from reduced line loss is small, since it only applies to the lines after the customer’s meter – line loss saved before that benefits the utility. Second, the control system in the device uses power continually (probably only a few watts, but since the savings is small, it’s important). Third, induction motors already have a fairly high power factor (> 80%) when run at rated load. (Resistive loads don’t need correction, and nonlinear loads like most power supplies, CFLs, etc. have low power factor mostly due to harmonics which the device doesn’t cancel.)

    The demo unit I saw for the device measured |S| not P, and used a mechanically unloaded motor as the powered device. In my view, either whoever designed that demo was incompetent, or it’s a deliberate attempt to mislead consumers.

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