WOT 2-16-2008

Goodbye Housing Bubble



There are several terms unique to bubble blogs. The following is a list of some of the more common terms compiled from a list provided on Patrick.net:

Housing Bubble Glossary

· Schadenfreude – Feeling joy in the misfortune of another. The introduction is an examination of this phenomenon in bubble blogs.

· Real-Estate-Industrial-Complex (REIC): Variant of Eisenhower’s Military-Industrial Complex, referring to the collection of related industries dependent upon residential real estate transactions such as building, lending and sales.

· Homedebtor – A homeowner who is overextended with a mortgage they cannot afford often due to their own desires for more home or more spending money.

· Serial Refinancer – A Homedebtor relying on mortgage refinancing to maintain artificially low debt service payments or fuel a lifestyle of consumption.

· Loanowner or Loanership – Terms used to convey the reality of home ownership for overextended homedebtors who are in essence renting from the lender. A related expression is “Equity is fantasy and debt is real.”

· NEOs – Negative Equity “Owners” – Homedebtors who owe the bank more than what their property is worth. It is similar to REO or Real Estate Owned, the acronym used by lenders to describe a property they have acquired through foreclosure.

· Sheeple/Sheople – Derogatory term for the vast, clueless, herd-following instincts of the general public. Sheeple are easily manipulated by the fallacies promoted by the real estate industrial complex and often end up slaughtered by the market.

· Knife Catcher – A buyer during the decline attempting to time the bottom and catch a price reversal. Since prices generally decline for long periods in a real estate slump, there are many buyers who buy too early and pay too much thus causing financial injury.

· Alligator: Term popularized by Robert Kiyosaki. Refers to any unsuccessful investment that “eats” far more income than it generates. During the bubble the cost of ownership for residential real estate far exceeded any income or savings from rent making all bubble purchases alligators.

· Flip – a Property purchased to resell quickly for a profit. Flippers are derided for bidding up house prices and preventing normal families from purchasing houses for reasonable prices while often adding no value to the property.

· Pergraniteel™: Pergo fake wood floors, granite countertops, and steel appliances. It is an amalgamation of flipper’s most popular home improvements when improvements were made at all.

· Wishing price – An unrealistic price a seller establishes for their property on the market due to need or greed. A house for sale at a wishing price does not sell, and it often results in the seller chasing the market down and selling for far less than they would have if they had priced the house properly initially.

· Floplord – A speculator who cannot sell his flip for either the wishing-price (greed,) or enough to cover the existing mortgage (need,) so finds himself in the position of becoming an unintentional landlord.

· Bagholder – A homeowner unable or unwilling to sell a property that is declining in value.

· Jingle Mail – Term coined by early bubble prognosticator Bill Fleckenstein, referring to homeowners who have “mailed in the keys because they can’t make the payments and no longer have any equity in their homes.”

· Liar Loans – Also known as stated-income loans. A type of loan used when a borrower could not qualify for a loan based on their real income.

· Suicide loan – Also known as Option ARM or Negative Amortization loan. A type of loan where the principal grows with each payment.

· MEW – Mortgage Equity Withdrawal – Any form of increased property debt. This can result from direct cash borrowing through refinancing or home equity lines of credit (HELOC,) or it can result from loan terms with negative amortization. MEW fueled a great deal of consumer spending during the housing bubble.

· Liberated Equity – An Orwellian industry-friendly euphemism for MEW originally coined by CAR Vice President and Chief Economist, Leslie Appleton-Young.

· Kool Aid – A reference to the pathological beliefs of people who believed the rally in house prices would continue forever.

· MIRAGE (Moneyed Immigrants, Rich Ancestors, Generous Expatriates): Acronym to lampoon the bulls’ argument that housing demand is being supported by cash-rich immigrants, wealthy parents and transplants from other states.

· ILLUSION (Irrational Lending Lax Underwriting Speculative Investing Ownership Nonsense): Acronym to describe what drove housing demand during the bubble rally.

· CHUMPS (Cunning Hard-eyed Ultra-savvy Market ProfessionalS): Acronym to lampoon the bulls’ argument that most recent buyers who used exotic loan products are market-savvy professionals who fully understand the downside risks and are financially prepared for them.

91 thoughts on “WOT 2-16-2008

  1. FairEconomist

    I expect prices to drop to 2002 during the crash and then decline further to 2001 as the economy recovers.

  2. NanoWest

    We need definitions for:

    Gourmet Kitchen —-

    Romantic Fireplace ——

    This one won’t last ——-

    Price Reduced ——

  3. Siobhan

    Great list, Great blog!
    OneLook should link to this post 🙂

    p.s. Here in SE Michigan, low-end SFH/condos have returned to 1994 prices! No buyers or bottom in sight. We’re still under snow…a flood of inventory expected with the spring thaws…

  4. lawyerliz

    Oh, I thought that kool aid was a reference to a drug spiked drink, not the Jones disaster.

    I also think I heard the term jingle mail when there were all those foreclosures of neg am mtges in the 80s. But I’m not sure. People certainly talked about mailing the keys back.

  5. buster

    Does having the term “Schadenfreude” apply make me a bad person? I kind of sounds like it would. I prefer to the term “vindicated.” All during the bubble my friends badgered me with, “get a bigger place ’cause you’ll never afford it later” whilst we remained firmly put in our 1,200sf SFR in The Willows. Even the wife got on me to move or pull some money out.

    I tell myself I’m not really a bad person for enjoying this slaughter — I’m just enjoying being vindicated by the market.

    PS – Don’t tell anyone, but it really is Schadenfreude.

  6. NoWow!way

    Here’s how to pronounce it:

    schadenfreude SHOD-n-froy-duh, noun:
    A malicious satisfaction obtained from the misfortunes of others.

  7. ipoplaya

    I think early 2002 / late 2001 prices are where we should bottom out. A median home price in the $350-400K range…

  8. NoWow!way

    I’m losing it a little. But, what does WTF stand for?

    What the F*ck!

    (as in – that is just unf*cking believable!)

  9. George8

    I voted for 2001 rollback in nominal dollar term which will occur in 2010-11. This is about 1998 roll back in real dollar term.

  10. FairEconomist

    “Gourmet Kitchen” – You can at least boil water here. And we really need to sell the house.

    “Romantic Fireplace” – There’s someplace in the house you can light a fire without burning it down. Oh, and we really need to sell the house.

    “This one won’t last” – One more month and the bank forecloses. We really need to sell the house.

    “Price reduced” – Turns out there is no greater fool than us, at least for this house. Oh, and we really need to sell the house.

  11. FairEconomist

    My estimate was not adjusted for inflation. If you adjust for inflation, knock off another year.

  12. zoiks

    js, it’s not a reference to Jim Jones, it’s a reference to the Merry Pranksters. They used to drink LSD-laced Kool Aid (TM) in the 60’s and enjoy collective hallucinations.

    The Jim Jones Kool Aid experience didn’t provide any cool hallucinations, it just killed the followers.’ argu

  13. cierra

    I see “FB” mentioned all over and I still don’t know what it means. Please add FB to your list of explanations.

  14. irvinesinglemom

    F*@cked Buyer. The website by this name, “anotherf@*ckedbuyer” was my first entry into the world of bubble blogs several years ago.

  15. tonye

    I voted for actual 03 prices. Although with inflation I think it will be 02.

    This is of course for the older Irvine Villages where we have historical data to back up prices.

    The new developments were WTF and WTH priced to begin with. I think the way to measure those will be in percentage terms from the First Phase selling prices. In that case, I think we might be looking at anywheres from 20 to 40% off the First Phase price. That’s where they were to begin with -way above current stock.

  16. SavedbyGrace

    This is great. Thanks for putting it together.

    My favorites:
    – Pergraniteel™
    – MIRAGE


  17. ex-tangelo

    A 2001 price of $360k adjusted for inflation would be the equivalent of $429k in 2007.

    Or, a nominal price of $360 in 2007 is equivalent to $310k in 2001.

    So, when predicting the “bottom”, are we talking about nominal or inflation-adjusted home values?

  18. ex-tangelo

    Wow, I assumed “Drinking the Kool-Aid” was a universal American idiom. But I guess if you grew up with political figures on your side of the political divide getting assassinated every couple of years you’d be a little more sensitive to certain evocative phrases.


  19. No More Suckers!!!

    This comes via OC Real Estate Tracker — You’ve gotta see this to believe it, inc. the photo: Hysterical!!!!!

    Thursday, February 14, 2008
    “Misqualified and unreasonable buyers”
    The title of this post may have struck you as odd. After all, “misqualified” isn’t even an actual word. Yet, this and more can be found on what we would generously describe as an all-over-the-place listing description for a Laguna Hills house that’s been on the market for more than a year without a sale.

    Who do you think the agent blames for the fact that this house hasn’t sold? The sellers for being unmotivated? Their own self for somehow failing to market the property to the best of their abilities? Or to those nutty buyers out there who just won’t see things their way?

    Well, we kind of blew the doors off that mystery already, but it’s pretty entertaining nonetheless…

    25621 West Califia, Laguna Hills, 92653
    Asking price: $499,900
    Asking price/ sq ft: $362
    Income requirement: $124,975
    Purchase price: $219,500
    Purchase date: 6/1/1989
    Size: 3 beds, 2 baths, 1,380 sq ft (built in 1969)
    MLS: S472764 (387 days on Redfin)
    ZipRealty price tracker: Price Reduced: 05/16/07 — $604,999 to $594,900
    Price Reduced: 07/06/07 — $594,900 to $584,900
    Price Reduced: 07/26/07 — $584,900 to $574,900
    Price Reduced: 08/09/07 — $574,900 to $564,900
    Price Reduced: 08/23/07 — $564,900 to $554,900
    Price Reduced: 09/07/07 — $554,900 to $544,900
    Price Reduced: 09/11/07 — $544,900 to $499,900
    2006 property tax: $3,151
    Type: Single Family Residence
    Stories: One Level
    Lot size: 5,000 sq ft
    From listing: We are***cheapest sfr with a nice yard***on ocean side of #5 frwy, app.5-7 blocks away!!! No association fees****look at this price for this great home!!!!!!!Not a short sale, agents read remarks at bottom!!!!Shows great,1500 sq.Ft.With family room addition. To be sold as is. Seller is not to fix or give credit. Clean ready to move-in,single story house with 2 fireplaces plus family room addition(app.12x 12 feet)with franklin stove,fresh paint inside.Near new fence.Most appliances are (less than) 3yrs old.White blinds. Sprinklers front and rear.Central air. Walk to park,shopping,public tennis courts. Great freeway access. Note: we are on the market for a long time due to a misqualified and an unreasonable buyers, causing us a long loss of time.

    The bold above is our emphasis. At first, we were skittish about this place, considering it’s languished on the market. We figured there must be something wrong with it, but now that we know some ridiculous buyers were yanking the seller and their agents’ chains, all doubt is disappeared. It’s the buyers’ fault!

    Were you surprised the media was spared the blame this time?

    “Near new fence” means nothing. Does that mean that it’s located close to the new fence neighbor Bob put up last year? This picture also clearly shows that yes, there is a sink.

    Let’s assume it wasn’t a mistake to include the last part with the public comments in the description. Can you imagine what it might say in the hidden agent remarks section?

    The price hasn’t been adjusted since September, but we see the glorious listing description only came to be in late December. This is what it said before:

    Look At This Price For This Great Home!!!!!!!!!!!!!!!,Not A Short Sale, Agents Read Remarks At Bottom!!!!shows Great,1500 Sq.Ft.With Family Room Addition. To Be Sold As Is. Seller Is Not To Fix Or Give Credit. Clean Ready To Move-In,Single Story House With Fireplace Plus Family Room Addition(app.12X 12 Feet)with Franklin Stove,Fresh Paint Inside.Near New Fence.Most Appliances Are…

    Perhaps the scariest part of this whole situation is the current description is the result of several (and by several we mean 10+) revisions. Yep, it took serious editing and re-writing to come up with the treasure we’ve shared today.

  20. mike in irvine

    I will be happy if prices reach 2002 levels, i recently made an offer for a westpark sfr at 2004 price (about 11% below list), needless to say it was rejected outright, no counter offer nothing. My bid for the next house i like will be at the 2002/3 range. I can rent while i wait. Thanks to this site NO more WTF prices

  21. Laura Louzader

    That’s why the reference to Jim Jones is so apt- “drinking the koolaid” has killed real estate buyers of the past 5 years.

    I always assumed that the allusion was to Jim Jone’s cult of toxin-drinkers, for it is usually used by the speaker in describing people who have bought into a pernicious line of convoluted reasoning to justify a self-destructive move.

  22. mike in irvine

    I dont know, i am new to this. This was the first house that i ever made an offer for. I can wait for the sanity to return.

  23. Laura Louzader

    It’s really not so much joy at the misfortunes of others, as for the fact that soon, in 2009 or 2010, I will be able to have my pick of truly nice places in Chicago that are in my price range.

    There is a wave of foreclosures cascading through downtown luxury hirise condos here in Chicago, that will of course further depress prices in less valuable neighborhoods, as prices downtown descend to levels now advertised in much less desirable neighborhoods.

    Better yet, Miami condo prices will be so low I will be able afford a really sweet winter home in a luxury condo. I love Miami, but not at $535-$1300 a square ft. Have you heard that Bank United has “blacklisted” 191 luxury condo developments in Miami, including beauties like 900 Biscayne Bay? Now THAT’S incredible. The bank says that it will not finance places in these developments until the true value can be established.

    That means you must pay CASH, since no other bank will want to finance these, either. They have been effectively redlined, and there will be a “domino” effect across the city,depressing prices everywhere.

  24. NoWow!way

    tonye is right. Next time you make your low ball offers, make sure you ask the agent point blank if the offer was submitted to the owner. I believe they are OBLIGATED to bring all offers. But as has been pointed out here again and again, the level of competence of these dummies is constantly in question. If an incompetent doesnt even know how to negotiate a counter-offer, then they’d just “lose” your bid instead of doing the right thing and bringing it to the owner.

    Put their feet to the fire! Make them accountable! You’re the boss, Mike.

    My guess is that real estate is going to get very interesting in about a year. After the failure of the spring market which is typically a good time to buy/sell real estate…. into the holiday season. All the atm/housing cash unavailable and multiple mortgages being juggled and time running out with more and more inventory on the market. I am calling for a noticible capitulation by spring, when it comes to prices.

    Absolutely nothing around here is moving right now.

  25. Lost Cause

    11% discount is a very reasonable offer in this environment. (10% is realastic, but I would go 20%) There has to be room for give and take (about 3 counter offers) — so you are dealing with a very incompetant realtor. Move on.

  26. mike in irvine

    To be honest i was very skeptical of even making the 11% discount offer, realistically i would have purchased it at 10% below. I feel that 20% might sound insulting to the seller, but i agree that it is a realistic and a sane price. I follow this site and http://www.ipoplaya.com. I saw some properties being sold at 5-7%. I will remember the advise going forward (change realtor and ask if the seller actually saw the offer).

  27. CapitalismWorks

    The discount on the offer should reflect the price of the the unit. For some places in Ladera Ranch the discount should be closer to 50%. Though you will never get anyone to accept. If you want to buy now you are going to have to settle for single digit discounts, again depending on how the place is priced.

  28. alan

    Estimates of the bottom at this point are pure speculation, like guessing who will win the superbowl.

    A major factor to consider in making your pick is thinking about where the economy will be two years from now. My feeling in reading these posts (that’s you iPoop) is that the posters still are in deNile (that river in Egypt) about the storm of recession. The bottom prices listed above seem tell me that the posters think that other than real-estate, the economy two years from now will not be that much different than it is today.

    I take a drastically more pessimistic view. I’ve seen recessions before and they are not pretty.

    Just keep looking at the headlines kids.. CA legistlature votes to only cut spending $2Bil and borrow $12Bil to close a $14Bil hole. The %^^$ will hit the fan sometime, you can’t put it off forever. OC doesn’t have the great anchor high wage employer (google) to fall back on and was very dependent on the real-estate-industrial-complex for jobs.

    My prediction is 99 prices and lower!!! (and more U-hauls leaving than comming again as people move to lower cost areas)

  29. lawyerliz

    My honest broker buddy was asked to participate in flipping fraud in the Jade, one of the blacklisted ones. She indignantly refused. Some of them are being investigated by the state atty’s office. The flippers that is.

    I was reading the Miami Review and it described one person who had managed to get a loan of 40%. Not $40% down, but 60% down. It’s not just bankUnited, which happens to be where I bank, but a bunch of them.

    There are so many highrise apts for sale, you will probably be able to get your pick in a year or so for practically nothing.

  30. alan

    Buying and the economy in Feb of 08 will not be the same as Feb of 10. Just wait for the county budget to be sliced 10%, layoff’s to kick in and we will be in for a rough ride.

  31. ipoplaya

    Wish the long bond market thought like you do Alan. Bond investors don’t appear to be betting on much of recession at all… I used to believe in recession storm too and my investments are suffering for it.

  32. Politically Lost

    Love this blog.

    Just thought I’d drop some slang vocabulary that I picked up in the car business. Many of the guys I worked with selling cars all dreamed of making it big being a broker or agent, many others were guys that were getting out of the real estate market and were then selling cars. Real estate and car sales it’s an incestuous thing. Anyway, here’s some car slang:

    1. “Buried” term universally used in the car biz to describe an individual who owns more on their car than it’s worth. Anyone who puts zero down on a car and finances the entire purchase price including taxes is automatically buried and will take at least three years of payments to come close to being able to get out of the car without having to cover the difference. Used in a sentence, “that guy is so buried we’d need a backhoe to get him out of his car.” I personally witnessed one individual that was 17,500 dollars upsidedown in a well used suburban.

    2. “On a string” term used to describe when an individual buyer has believed that they have bought a car. Management has decided to allow buyer to take car home before a loan is approved. This is to maximize numbers for the month to make sales numbers look good. Usually done at the end of the month. At the beginning of the next month the loan is either approved (at some exorbitant rate) or we have to call and get the car back and explain that they weren’t approved. People get testy about that for some reason.

    3. “Roach” someone with bad credit.

    4. “Leg” The difference between the payment that the sales person told you was for the car you’re looking at and the actual payment. This gap is used in the dealership’s favor is so they can sell you useless things in the finance office “without raising your payment.”

    5. “Selling air” That’s the useless stuff in the finance office.

    6. “Mouse House” Used to refer to extremely “sub-prime” lenders. Twenty percent interest in these slaughter houses is not uncommon.

    7. “Lay Down” a person that doesn’t know how to negotiate off the asking price.

    There are of course many more but, that’s enough for now. Enjoy.

    Again love the blog!

  33. Hmmmmm

    What the term when the crooks, I mean dealers, take your car on a trade in, give you the new car and call back two weeks later saying you weren’t approved for the loan and you can’t keep the car, but we sold your trade in already and you owe us for mileage and usage on the car you can’t buy anymore…….

  34. NoWow!way

    There are substantial layoffs being looked at by local school districts because of the budget shortfalls. Capo is looking to layoff 300 teachers. Other districts will find themselves looking at the same “solutions”.

    Many most likely won’t be giving any kind of cost of living increases for two years going forward.

  35. IrvineRenter


    I think you are reading too much into a small sample set. You started watching escrows during the slowest time of the year in what has been the slowest year ever recorded. Your baseline for comparison is an unusual circumstance. Any escrows would look like a lot compared to what we were observing in December of 2007. To interpret a brief period of increased activity off a historic low and think this signifies even the smallest degree of bullishness is myopic. We may very well see a brief bear rally with a few month-over-month increases in the median and increased sales. This does nothing to alleviate the unprecedented set of bearish circumstances surrounding the market. Any price movement or velocity this spring will get crushed by an ever increasing inventory with a high percentage of must-sell REOs.

  36. ipoplaya

    I hope you’re right IR. It’s downright discouraging to see homes moving at this increased pace. Probably more of an emotional reaction by me as my buying horizon is quite short and I’d prefer to pull the trigger closer to the bottom vs. in a bear market real estate rally.

    While I started officially tracking only a couple of months ago, I’ve been watching escrow activity closely since July. In my opinion, this is by far, maybe by 2-3 times, the most buying activity I’ve seen in my search spec. Many homes are getting into escrow quickly as well, with no need or opportunity for price discounting…

  37. ipoplaya

    My wife has heard the same thing. Lucky for us she teaches in a shortage area so the chances she’d get laid-off is next to nil…

  38. tonye

    We’re going into the peak RE market time. This is the time to move on if you want to be in place for the kids to get into the new schools.

    So you should expect some traffic, particularly on the homes that are popping low. Some folks may have figured out that rates and prices are low enough that they can make the payments comfortably. And the speculators should be out of the game en masse so this should be a more rational buyer’s game.

    The schools are, btw, one of the factors that will help Irvine homes – not those in the TUSD though. The IUSD has a very strong and favorable name recognition.

    I’m curious what the numbers will look like in the Inland Empire, though. And also up in Yorba Linda. Back in 90 YL got hit big because it was pretty new and highly overpriced.

  39. awgee

    “How far will prices roll back in Irvine?”
    In terms of what? Dollars? I do not have a clue. What will a dollar be worth by the time the real estate market bottoms? Again, I do not have a clue. What will the credit market look like? I dunno.
    The only thing I know is that blood will run in the streets before the bottom is in.

  40. Lost Cause

    Well, if you make an offer at 10% off, you can expect to settle at 5% off, which is just too little given the current situation. I would try to get 10%. But 20% off — yes, that could be an insult. I think you can’t really go below 10-15%. Check the paper to see what people are really paying. I think they are loaded with foreclosures — banks buying back houses at inflated prices.

    It just blows my mind that you did not even get a counter offer. People must still think it is 2004. Wow. Maybe you should make another in a few weeks: -15%? Tee hee.

  41. Politically Lost

    In general it’s called “Heat”. When the trade gets sold before the loan is approved it’s a major fuck-up for everyone. The salesperson losses the commission. The used car manager has to pay from their own pocket to fix everything back to the way it was. I’ve been involved in two “roll backs” like this. The first was when the buyer quit his job two days after he was approved and the bank found out. The second was when a obesely pregnant woman was sold a car on the first of the month a the finance manager “forgot” about the deal and we didn’t figure it out until the following month. She also had just quit her job, because she had just given birth.

    Both of the trade-ins were barely running piles o’ crap and we’re wholesaled out and trucked off to god knows where.

    I’ve never heard of charging for mileage and usage but I truly enjoy the barbaric stones it takes to say that to someone. I’m also pretty sure that it’s illegal. Also, the DMV would hit a dealer pretty hard for it if they were told about it.

  42. George8

    I think IPO is getting trapped into a bull trap. I believe what is going on is just dead cat bounce.

    Long bond yield is high just indicates expected inflation is high – not recession proof.

    We are just in the first leg of a long corrected decline.

  43. NoWow!way

    Interest rates were very attractive up until just this past week.

    Maybe fence sitters were interested in getting a good fixed rate combined with some perceived “deals”.

    Just the huge volume of unsold stuff and added inventory each month is an indicator that this is not going to play out to the upside. There’s just too much out there. The best deals to brand new buyers are often the brand new homes in the area that are offering big discounts and very nice upgrades so that they can unload their properties.

    Do what you need to do, but I don’t see any problems at all at lowballing people who are trying to sell. Make sure you get a written counter offer – even if it is a refusal. Who cares if people “get offended”. This is a buyers market and if they want to play hard to get, fine.

    I agree that getting into a home soon is important for families with school aged children. But the hassle of missing the first few months of a new school by putting in a bid in say, August will be to the buyer’s advantage.

  44. CK

    I still vote for $450k as median at the bottom. And I have to admit that I voted for 2002 twice (once on my home computer, once on my laptop). Since the voting is so close between 2002 and everything before 2000, I figure full disclosure is in order.

  45. Kirk

    Jim Jones was smeared by the liberal elite. He did not poison people with Kool Aid. He poisoned them with Flavoraid.

  46. George8

    Offer at 11% below asking price certainly should be taken as serious offer in this market.

    You did nothing wrong.

    The seller just missed what could have been a nice selling opportunity.

  47. tonye

    I dunno about that. I moved a lot during intermediate and High School and it really sucked big time. Moving to three High Schools in one year really, truly sucks.

    Yes, buying during the off season gets you the cheapest price, just like taking vacation while school in on. However, for some of us with kids that’s not really a good option.

    However, I’m not the one moving. Mr. IPO might want to reconsider trying to buy a house during this time if he really wants a good price…. besides… the market has little upside right now, so unless he feels comfortable with the house and is ready to get a 30 year fixed, then he should hold off for a few months at the very least.

  48. Trooper

    Mike in Irvine,

    If you figure out that your realtard didn’t present the offer, visit our Forum section and name him under the crappy realtor thread.

  49. Lost Cause

    You left out that 40% of the former buyers were speculators who already owned another home. That should make it easier to buy a house, right? Except, they drove up the prices, which have not come down yet. Maybe that is why houses are not selling?

    Prices will continue to fall regardless, without speculator participation.

  50. alan

    Bull trap… good point..

    In golf we have the sucker pin.. that’s when the pin is placed right over the sandtrap… the smart play is to the center of the green and try the long put but suckers shoot straight for the pin.

  51. Laura Louzader

    You’re the greatest, Kirk. Glad to see you back in parody mode.

    When you’re not in that mode, your comments are some of the most intelligent and informed on this blog.

  52. Laura Louzader

    I hope like anything that you are correct in this, Kirk.

    I would LOVE to buy at 1997-98 prices.

    If the rest of the country will sink to that level, then what is your forecast for Miami condo prices now that Bank United has pulled their financing completely and won’t write mortgages for anything on any terms in 191 Miami luxury condos?

  53. Laura Louzader

    Well, Lawyerliz, that is my thought exactly. I’m so obsessed with saving for a place here and a place in Miami I am making a pair of hose last two months and buying clothes in consignment shops.

    It’s way worth doing without a car and new clothes to get a 50% discount on 900 Biscayne Bay.

  54. lawyerliz

    My son was allowed to take an expensive truck home some years ago when he was in the army. I went off like a volcano? Do you want to stay in the army, to pay this off, when you say you want to get out and go to school? Do you want to be a slave? Etc.

    He took the truck back.. He still drives his paid for junky car. He got out and finished college and graduated summa cum laude with 150 credits.

    He might have taken the truck back anyway. Car dealerships in particular prey on young army guys, who have no expenses, and can qualify for the loans.

  55. Boston2TheBay

    Price Reduced – Either
    “This is how much we need to not bring a check to the closing table” or
    “This is how much we need to supplement the liquid cash we have available to get a seat at the closing table”

    97/98 adjusted for inflation would set up a situation very similar to Japan. I’ve spent a lot of time there (business and pleasure), and have researched purchasing property if I ever moved there. Most people don’t buy! It’s not tax advantaged, and it’s only now becoming a better deal than renting, nearly 20 years after the peak. You can get a nice house walking dist to the beach in an upscale town like Kamakura (1 hr train ride to Tokyo) for ~$400K. How about 35 year fixed 2%? Still more supply than demand. The scars over there run deep. Many people liquified their rapidly rising equity in the 80s to play the stockmarket, and lost on both bets. Japan calls the 90s “The Lost Decade”. Will 2008-2018 be our Lost Decade?

  56. tonye

    I think that part of the world is a different issue. The Big 3 have shot themselves on the foot so much that the have created their own economic Perfect Storm.

  57. No_Such_Reality

    I’m voting for 2000. One simple reason, 2001 saw a 20% gain from 2000. Every year after that saw 20%+ gains. That’s just not sustainable.

    More importantly, last night I was surfing looking for a new place. I look around outside of Irvine. I checked probably a dozen different neighborhoods in decent areas, near friends of mine, near places I’ve lived before etc. Every single small mile square area I looked at had sellers that were upside down from the last purchase $150,000. $200,000. Every area had a Wishing Price seller too, that wishing price wasn’t a wish IMHO. It was desperation, the wishing price match or was a within commission of their previous purchase price.

    It was quite depressing for me. I have friends in those neighborhoods. They’re nice neighborhoods. Most people don’t handle $150,000 losses easily, it’s very disruptive.

    I don’t see the “out” for the market. Every place I checked has places queued to take $100K+ losses. That’s not good for a neighborhood. Once they take the loss, then the next wave is exposed.

  58. ipoplaya

    If you take the ’82 OC median of $129K and inflate it by 4% per year you get a 2008 median of $360K. If you do the same to the ’95 median, you get $349K. If you do the same with the 1987 median, you get $370K.

    Long-term trend would suggest a 2008 median of around $350-375K which in nominal dollars would be equivalent to 2001… As the government appears determined to prolong this correction, bottom might actually be 2002 prices but that wouldn’t be until 2011-2012.

  59. Siobhan

    Agreed. The loss of jobs from the slow demise of the Big Three has been huge. I was just sharing so all of the patient renters there could dream BIG 🙂

    Our housing prices still bubbled up with flippers and refi-mania everywhere around here. The overbuilding was rampant and tempered our bubble with oversupply–now much of it sits unsold. REOs are the only things moving at 50% or more off 2005 prices. Short sale listings for 20% off are now WTF© prices! If there are any qualified buyers left, they are LOL© at 40% off prices…and waiting it out.

    In the meantime, unsold inventory multiplies with lots more being held-back, unoccupied properties abound. Plenty of owners waiting for “when the housing market turns around…” to sell either their primary residence or second-homes–or both! Inventory is expected to soar with the beginning of the spring-selling season compounded by March ARM resets and the dumping of all of the new builds. Prices are freefalling.

  60. Lost Cause

    Oh yeah, 38% of all the houses on the market are REO, so let’s add that supply while we are at it.

    (Demand – 40%)/(Supply + 38%) = Price.

  61. Kirk

    It might not seem like such a bargain since it won’t be 1997 prices in nominal dollars. Keep in mind that nominal prices will likely bottom out and move sideways to get to 1997 prices in real dollars. You can see this with the last bubble. Prices were almost bottomed in nominal terms in 1995. They had a slight decline in nominal prices to 1997. But, the decline in real terms was significant due to inflation. Although, the best time to buy was probably 1994. It probably would have been worth it to take some hit on nominal prices because of the savings in rent. I’m just eyeballing this one though. Plus I’m only looking at LA/OC.

    I haven’t looked at any regional data outside of LA/OC. I’ve got no clue what’s going on in Miami.

    This thing is collapsing faster than I thought it would. I originally thought we’d bottom at 2002/early 2003 nominal prices. Now I think it might go back even further. I can’t wait to see where we are 6 months from now.

    My thoughts are that this thing is going to overcorrect, because most buyers will have been taken out of the market due to the black mark on their credit scores. I don’t buy into this “since everyone is walking away a default won’t matter” BS. It will matter. They won’t be buying for years. By the time these people can buy again, the bottom will have come and gone.

  62. alan

    when i looked at the revenue, it didn’t list property taxes, just income and sales taxes as the major revenue sources.

  63. zornundo

    Gotta love the pergraniteel!

    It’s so funny watching My House is Worth What? and the homeowners getting zipped a little because they were lacking one of the essential ingredients in the pergraniteel triple-threat.

  64. george8

    This is an amazing story. You do not want to miss it.

    Delinquent Homoaner Defaults on Mrotgouge; Wipes Out His Own CDO

    Two years ago when Jimmy Doofman purchased his new De La La Estates home at 1419 Blasienna Circle for $500,000 he felt sure it would appreciate quickly, enabling him to flip it for a nice profit.

    He wasn’t worried when neighbors began complaining about the slow ream estate market, because he didn’t have to sell; he was in good financial shape. In fact he could have paid all cash for his new home but instead left that money invested and took out a no-money-down 1% A.R.M. teaser mrotgouge.

    His financial advisor found a high-yield CDO and parked all his cash in that.

    Jimmy made the house payments every month despite hearing that prices were falling, until finally the house across the street sold in a foreclosure sale for only $300,000. Then he decided to walk away from his mrotgouge, which was due to adjust to a higher interest rate. He stopped making payments, and waited for the eviction notice.

    “I thought, why keep paying on that thing when it’s a loser?” Jimmy explained. “I didn’t care if my credit got ruined, I figured I’d just use some of my savings to buy another house somewhere else.”

    But when he called his financial advisor to check on his account, he was shocked to discover he couldn’t pull out any money — his CDO had become worthless. Turns out it was backed by a house at…..you guessed it…..1419 Blasienna Circle.

  65. Smurf

    what, no definition for “gorgeous turnkey” ! ;^)

    any way, both the Jim Jones and the LSD-laced kool-aid definitions apply.
    The Jim Jones one is for homedebtors/loanowners = deadly,
    the LSD one is for NAR + Wall St, they were hallucinating, they”re hoping to get bailed out….

  66. Laura Louzader

    Detroit and other auto-industry-dominated burgs in Michigan won’t begin to recover until the domestic auto industry totally, completely, and forever fails.

    Then, the denizens of Michigan can start the task of rebuilding their economy on a different platform. Those civic leaders of Detroit, Flint, and other failing Michigan towns, who have vision and grit, need to stump for a total revamping of the tax system and regulations of their towns, to make life possible for new industries and businesses, instead of continuing to prop up these dying companies with corporate welfare.

    The trouble with the continued well-intended efforts of civic leaders and politicians to keep this dinosaur industry and the old-money heirs to auto fortunes, afloat, is that as long as the Big 3 limp along, people will continue to fasten their hopes on them even though they long ago ceased to be competitive and are all cesspools of mismanagement and poor vision, trying desperately to pretend that it is still 1965. The Big 3 are victims of their own former success, and so are all the denizens of Michigan who believe that all we need is to rebuild these sclerotic, visionless old companies, for the Michigan economy to hum again.

  67. skek

    …11% below list isn’t even that far off base. Most listing agents I’ve talked to expect to give 5-10% off the list price.

  68. skek

    I call BS — you absolutely can offer 20% less. Who says there is a rule about how much you can offer? Agents are listing the houses high so that they can “give” you 10% and make you feel like you got a deal. Offer what you think is a fair price and build in a cushion for future price declines. You might have to justify the offer to the sellers, but in this market where some sellers are begging to see any offer at all, they are lucky to get an 80% offer on their house. Go for it.

  69. tony

    You should also read Jack Kerouac’s On The Road.

    Its’ the precursor to The Electric Kool Aid Acid Test.

    Kerouac introduced Jack Cassidy et. al. I believe he wrote the entire book in three days in a single roll…. under the influence of fine amphetamines. A stream of conciousness book, it also foreshadowed Hunter S. Thompson’s Gonzo Journalism style.

    Good stuff…

    And remember, you can tell the FBI men by their shiny shoes… ( first chapter…) 😉

Comments are closed.