Open Thread 10-11-2008

People still create interesting videos about the housing bubble.

They are not all accurate, but people are trying…

And of course, Mr. Mortgage, who is great.

47 thoughts on “Open Thread 10-11-2008

  1. AZDavidPhx

    Prices are back to 2003 levels in the San Diego and Boston metropolitan areas, and back to 2004 levels in Las Vegas, Los Angeles, San Francisco, Fort Lauderdale, Fla., and Minneapolis, according to First American CoreLogic, a data firm in Santa Ana, Calif.

    A sign is posted in front of a bank owned home that is for sale in Richmond, California.

    Stephanie and Jason Kirschenman thought they were being prudent when they agreed in late 2004 to buy a new four-bedroom home in Lodi, Calif., for $458,000. They put a substantial 20 percent down and chose a loan with a fixed interest rate for the first 10 years. Two years later, they took out a second mortgage to pay off some bills.

    At the time, the home was appraised for about $550,000. But a mortgage broker recently estimated its value at well below the $380,000 the family owes on it, says Ms. Kirschenman. “We were quite shocked,” she says.

    1. Dave

      You are incorrect. In _San Francsico_ proper, this is the situation (taken from

      “Above 280/Ocean Ave., there are still only 300 houses listed in the MLS and owners WILL NOT BUDGE ON THE PRICES. Cut the 300 in half if you want 3 legal bedrooms. Cut it in half again if you need to buy under $1M. SF owners know this and will not negotiate price!”

      Outside of 280/Ocean Avenue, there is very little SF proper, you’re off into Daly City and South San Francisco, and home prices in both places are holding up pretty well.

      “San Francisco” numbers are skewed by “Bay Area” cities like Antioch and Richmond, which are down 40-75% already.

      First hand, houses in Noe Valley, Castro, other desirable neighborhoods are selling very quickly, like, 2-3 weeks after listing.

      I do not know if this is a bubble in these neighborhoods. It may be a permanent price reset. For example, whoever owns 740 Church isn’t at all worried, they’re trying to rezoned to put in a pool on the neighboring empty lot, which is zoned multi-unit residential. Think about this: Instead of developing a vacant lot into something producing perhaps $150k+/yr revenue, they put in a pool.

      I would love to say that SF proper is suffering from bubble pricing. So far, I have seen no evidence.

      My hunch is that everyone that survived the .com collapse sunk their winnings^H^H^H^H^H^H^H earnings into real estate, and is prepared to wait this one out. Simplest explanation to me.

  2. mav

    not sure if this article was posted here already:

    “baby-boomer children grew up without psychological scars from the Depression. And the boomers’ children have come of age in an era of abundance, easy credit, and a taste for luxury. So it’s no wonder that the sudden need for thrift comes as an upsetting shock for many. Some are calling for a massive public education effort on the level of the anti-drunk-driving and anti-smoking campaigns that have been so successful. “We want to build a culture that’s more hospitable to thrift, so it’s not seen as odd but fostered and nudged along,”‘

    1. MalibuRenter

      I’m one of the kids of the boomers. I didn’t have any hard times, but I saved money, a lot of it.

      Why? Because I did actual financial analysis, with an emphasis on what could happen if things went wrong (e.g., job loss, investment crash).

      For most of my adult life I was heavily invested in stocks. Last year I became convinced they were overvalued by historic standards, and that the same giant pool of money that was providing cheap credit was leading to leveraged investment in equities. Hmm, where had I seen that before? Oh yeah, housing. After some calculations, I decided to get out and into very secure investments. Doing that avoided a 30-40% loss on my portfolio.

      I owe this blog, and Calculated Risk, a lot of gratitude. Not only did they help reinforce my belief that there was a housing bubble, it also led me to think differently about my investment portfolio. I avoided both buying a house for a few hundred thousand extra, and losing a ton of money on the stock market.

      1. Larrygg

        Same here, pulled all of my money out of the market Sept 2007 knowing all too well that this crash was imminent. How could it not? Look around at the insanity, luxury cars in every driveway and outdoor kitchens that no one could possibly need. No wonder the rest of the world hates us Yanks, Arrogant pretentious A-Holes! They were laughing at us until they realized we are also dragging them into the toilet.

      2. mav

        Amen, bring on deflation. Last time I checked food was still growing, the sun was still shining, the ocean waves still roaring…. For responsible people with large cash reserves and no debt at worst this will be a nice vacation. It’s all about perception. The end of American capitalism is not the end of the world.

        1. Jake

          I have most of my money in cash, but the next few years are not going to be a vacation — I can tell you that much. People are going to lose their jobs whether they were responsible or not. All of us — responsible or not — are going to be bailing out the irresponsible with our tax money. Or by increasing our debt load (which is just an irresponsible way of increasing our taxes).

          That’s why I’m pissed. I feel like being responsible has been a sucker’s game. The irresponsible institutions and individuals are screwing me over. Maybe I should have been irresponsible too.

        2. MalibuRenter

          The prices of assets and consumables might move in different directions. Wages and assets also might move differently.

          General inflation might produce both wages growth and a way out for homeowners who are hoping to pay off mortgages. However, investors might have a hard time maintaining portfolio value.
          A good economy would raise all three

        3. Anti-mav

          Mav, unless you live in a log cabin in the woods and grow your own food, you are truly a complete idiot.

          Tell the truth, you’re a California native, aren’t you?

    2. Jake

      We’re reaping what we’ve sown in an era where political leaders and economic gurus tell us to consume.

      The only way to keep stock prices going up is to GROW GROW GROW, and the only way to grow is to SPEND SPEND SPEND. Thrift doesn’t fit into this equation. In fact, frugality has become downright unpatriotic. Remember what W told us to do after 9/11? Go to a shopping mall.

      The stupidity of this culture of colossal consumption is now becoming obvious to everyone. Things are about to change. In a big way. Too bad it takes a major crisis to bring it about. But that’s humanity, I guess.

      1. MalibuRenter

        Part of rising stock values can be increasing profit margins.

        Thrift can work with stock growth too. If the money invested is going to increase the productivity of the economy, it can be a very good idea. There is also a collection of advisors, banks, clearinghouses, etc., that make money off of others investing.

    3. brea

      Looks like the media is just dragging out the same articles that we saw in the 90’s. What some call “psychological scars from the Depression”, other would call a “healthy dose of self-preservation”. IMO, there is just too many generalizations made about the different generations. In every generation, we can find spenders and savers.

      If I was running the place, we would be teaching personal finance in high school. And if I got to write the course materials, there would be a lot of kids going home and telling their parents that they are over-extended on their debt. It would probably be as controversial as sex ed.

    4. Tejano

      Dad was a child of the Great Depression graduating from high school in 1935 with no family wealth. He never borrowed money and along with Mom was frugal almost to a fault. The old man didn’t even have a credit card until he was in his 80’s.
      Before he passed away this year, he had sold his house and left us 2 million in cash. Thanks Dad!

    1. Jake

      That’s one frickin’ huge helicopter. I like the fountain, although that water is suspiciously yellow. The sculpture’s classy but a little too garish for my taste.

  3. granite

    From Mr. Mortgage

    “…the people with 750 FICO scores who are now $300,000 underwater have an even bigger propensity to walk away…”

    That sounds like an acceleration to me.

    1. brea

      After all the recent headlines, there has to be people making plans. Stay or walk? I would think you would right about the acceleration to the bottom. But, what will move the option ARM people out before their resets in 2011? Can we see a bottom before 2012? Many still expect the bottom in 2009.

  4. Larrygg

    We are on the cusp of the next “Great Depression”. It wont be like the last one with bread lines and homeless people everywhere but it will be a period of people having to live within their means and giving up the notion that we are all rich. The export of what were high paying manufacturing jobs to third world countries will make earning a decent wage in the USA daunting. We all watched the good paying jobs head overseas but we didn’t care since we could just pull out another $50K from our house to pay for that vacation or buy that new flat screen TV. Face it, the days of paying someone a hundred bucks an hour to watch you do situps is over. The average Joe will have to budget their meager paychecks and days of just taking out the plastic to pay for it all are over. As far as the folks who leveraged more money than they should have for their house? They’ll just have to hang in there for the next 5 to 10 years until inflation catches up to them. In the mean time they will have to get use to eating mac’n cheese and sloppy joes. Welcome to the Great Depression!

    1. WaitingToBuyByAndBy

      Presumably, dual-income families are more financially stable than single-income families, such that if 1 in 4 Americans are left unemployed by a corporate meltdown, odds of dual-income families with at least one breadwinner are better than for families with a single-breadwinner (who may become unemployed).

      So in high DIF areas (like Orange County) it might, as you say, simply be a case of pulling back and tightening the financial belt. However, I would suggest that although there are no bread lines and homeless people everywhere, that fact does not preclude it from happening.

      Remember, once one member of a dual-income family is left unemployed, you now have a single-income family, which is not as stable as a DIF.

      So the financial stability and resources of American families keeps them out of soup kitchens and shelters. If you look at the national personal savings rate, you will notice, America, in general, is not financially prepared to whether this storm.

      1. MalibuRenter

        Dual income families are on average far LESS stable. Here’s why.

        Look at a married couple family where only one works. Let’s say she is a real estate agent, or he is a mortgage broker. If the sole wage earner becomes unemployed, the other might get a job temporarily. Their budget was probably designed to accomodate one of them having a job. So if there is trouble and the other member of the couple ends up working, the budget isn’t terribly far off.

        Now, if you have a two income family with little savings, they are spending nearly their whole income from both jobs. Then, if one of them loses their job, the other person already has a job. The other person probably can’t double their income, even if they could take on a second job. One of the interesting things about this couple is that their way of spending intrudes on having children, even in good times.

        For the two income family, losing one income is quite likely to cause financial problems. In fact, two wage-earner families have more bankruptcies than single-earner families.

        There is an alternative, though not that many people do it. My wife and I can easily pay our bills based on either of our incomes. As you might imagine, after a few years you end up with quite a lot of savings following this strategy. How do you do this? In LA/OC, it’s pretty simple. If you both have decent jobs, don’t spend your money on pedicures, SUVs, travel at full price, eating out, clothes you won’t actually wear. And of course, don’t pay $5000 a month aftertax for a house you can rent for $3000.

        Paying an extra $2000 a month aftertax to be a homeowner is like needing an extra job paying about $35,000 year to stake your claim to homeownership. Oh, and from 2006 to 2008 you will have already blown about $10,000 a month due to the value of your house dropping. Expect the same through 2009.

        1. Food

          β€œDual income families are on average far LESS stable. β€œ

          My wife takes home (net) $5,000 a month. Month to month, she somehow manages to spend it all on what she cannot even point out and refuses to do so. Oh, I am paying all the rent. For sure without children, I would have ended this arrangement long ago. So, without contributing a single penny into the savings, she even has pounded my back to purchase a house. Her income does not benefit me any. We are stuck in higher tax bracket. We cannot even claim the child tax credit. Purchasing a house in Irvine or in southern Orange County requires the commitments of dual incomes. Thus, I am desperate. Is there anyone who has gone through this similar situation? Any suggestions, please?

      2. Dave

        Dual income households have been a frickin disaster.

        POOR people *have* to live in dual income households.

        Why the “Middle Class” bought into this idiocy has *always* mystified me, from the late ’60s when my mother decided she had to work too.

        I have no problem with every in a family working and earning money. I do have enormous difficulty understanding why a household would base it’s operations on anything more than a little less than full time employment by the most employable member of the household.

    2. idrnkurmlkshk

      I welcome a depression. Nothing depressing about it at all. Time to deflate, and get grounded.

      It’s survival of the fittest. Either you have value or you don’t. I won’t miss the useless job flippers, Gravy train chasers, con-artists who run into one profession to the next, chasing bubble after bubble.

      I love seeing how many of these “hacks” are flipping burgers now. ; )

  5. Dorkhead

    The liberal government will be buying houses back at bubble prices and reducing principle to current values. It’s only fair; we can’t have people living in the street while houses sit empty.

    The fiscally responsible people that have had the luxury to build up savings during the bubble HAVE to share in the solution to this national crisis.

    Don’t think you can jump to the front of the line by being productive and prudent. God created everyone equal…do you think you are better than everyone else??

    Obama 2008!

    1. MalibuRenter

      Here is the fault of this logic. Someone is currently living in a house they can’t afford. There are a large number of houses which they CAN afford, also sitting empty.

      Avoid the moral hazard, and some of the foreclosures, take the people who can’t afford the homes they are in and offer them the already-foreclosed, or soon-to-be-foreclosed homes.

      The banks are better off because they are able to keep the home being moved to from sitting empty for a long time and declining further in value. The person moving is better off because they can own a house, which would otherwise be quite difficult to do after a foreclosure.

      1. brea

        Maybe, as we move through this, we will see a time that the banks will be willing to sell their REO’s to borrowers with forclosures and bankruptcies. They will just be looking for the “good” forclosures/bankruptcies. As a landlord in the 90’s, it seemed hard to find anyone with good credit. The upside of renting to someone with a bankruptcy, was that they could not file again fot 7 yrs.

    2. idrnkurmlkshk

      You made a mistake, , it is McCain who wants to bail out the homeowners.

      But I like your sarcasm Dorkhead.

  6. nefron

    Well if doing things like paying cash for goods and eating mac n cheese is considered a “Great Depression” these days, I’d hate to see what Americans these days would consider the real Depression. The Apocalypse, I suppose. We are a miserable excuse for Americans, compared to what our parents’ generation achieved.

  7. Jake

    I agree. Most of these videos aren’t even close to being accurate. They seem to be blaming Fannie Mae and Freddie Mac, when anyone who reads this blog could tell you that the vast majority of the abuse has been outside the Fanniesphere. HELOC abuse, neg-am loans, option ARMS, zero-interest loans, liar loans, etc. All of this happened in so-called “prime” loans. Banks simply stopped doing due diligence and got greedy. Consumers went along for the ride.

    We are all subprime.

    1. Jake

      Oops, I meant zero-downpayment loans. Although zero interest loans — used widely in the auto industry — are yet another financial ponzi scheme.

  8. Chris

    It’s quite amazing to me to think that the current Irvine housing price can be held so steadily even after this week’s event in Wall Street. It’s interesting to note that there was this article on (I tried to paste it yesterday but this blog wouldn’t let me) which mentioned that home buyers are starting to withdraw their bids for houses due to this week’s event. It’ll probably take a few weeks for this to resonate across the entire RE market and so we should see some interesting October numbers.

    BTW, don’t get so smug about this unless you’re either 1) poor or 2) a short or 3) heavy in USD and gold…..all other investments that I can think of are down tremendously, including Treasury.

    Can you say “collateral damage”?

    1. Zeke

      If you’re holding treasuries, you’re not “tremendously down”. The only thing that can hurt the value of a U.S. treasury bill or bond is inflation or default by the U.S. government. Yields on treasuries have been buffeted by the recent financial crisis, but once you hold the bond, your yield to maturity is locked in. T-Bills and bonds are not like stocks.

      Of course you could argue that treasuries are an unsafe investment, because the dollar and the U.S. government aren’t safe investments. But that’s a whole ‘nother argument.

  9. WaitingToBuyByAndBy

    I just realized I haven’t heard any references to a house being a “Money Pit” in years.

    Do you recall the 1986 movie comedy “The Money Pit” with Tom Hanks and Shelly Long?

    The house in that movie was the definition of a money pit. With all of the home improvement that has gone on since the late 1990’s it would probably be difficult to find a home in such a state today.

    While mortgage equity withdrawal has been calculated and published, I don’t personally know of any national numbers that back up the notion Americans have been pouring money into their homes. My evidence is purely anecdotal (watching my mom pour a hundred thousand dollars into improvements on her home in Anaheim). Meanwhile, my mother-in-law has made striking improvements in her Moreno Valley home (although I’m not privy to those financial details). In both of those cases, the aim was not to sell for profit, but to live in a nice home. On the for profit side, this blog has certainly seen a large number of “pergraniteel” upgrades in local listings. (Would I be correct in assuming that word was coined here?)

    From another perspective, one might consider a house whose debt is greater than its current value to be a money pit.

    In time, a homeowner in both of these situations can recapture the investment by selling in the future at a higher price. The only pitfall with this plan is the possibility of being forced to sell before then.

    For current sellers then, there is irony in a lot of people having put a lot of money into their homes that were decent to begin with but now (thanks to deflating home prices) can find no way to get that money back out.

    In these cases the “American Home” has become “The Money Pit”.

  10. TurtleRidgeRenter

    We just signed a lease renewal for our IAC townhouse, and the rent stayed the same as last year.

    This rental community has seen a big shift this year: many more families with little kids. Two years ago it was all adults and college students.

  11. peasoup

    what’s ironic to me is that me and my husband are that couple pictured first. we bought in 2000 and sold in early 2007, not taking money out in between. thanks to blogs like this we aren’t buying any tie soon. thank you we now have the cash to last us through this mess.

  12. BigDaddy43536

    I got linked 2 this by Newsweek.

    Luv the site, caint beleive the prices you all pay in CA for housing!!!!

    I mean in Chattanooga 160K will by ANY house profiled on this site!!!!

    For 400 smackers I could have a house with all the fixins and maybe a pond.

    You guys should check it out here in Tennesee. I mean we have great weather too and some pretty hot babes.

    And no gangs or graffiti (like I saw in Santa Monica last year on vacation)!!

    Check it out dudes.

    Shaka bra

      1. Dave

        Hahaha! Dude, you just stay in Austin. Austin’s nice, lived there for years, drove yellow cab for Loyd Liveoak even.

        But Tennessee is *nice,* and Chattanooga is one of the nicest parts of the state.

        Only place I’ve been with more redheads than Tennessee is… Dublin.

  13. ochomehunter

    Anyone watched “The Money Masters”?
    I dont want to lose my job either, but “The Money Masters” predictions are coming true. The FED is going to take all of us into global depression soon via credit contraction. last 60 minutes of the 3.5 hr is worth watching

  14. Trooper

    Subject: An Idea

    To my fellow Americans…….
    > I’m against the $85,000,000,000.00 bailout of AIG.
    > Instead, I’m in favor of giving $85,000,000,000 to America in
    > a ‘We Deserve It Dividend.’
    > To make the math simple, let’s assume there are 200,000,000
    > bonafide U.S. Citizens 18+.
    > Our population is about 301,000,000 +/- counting every man, woman
    > and child. So 200,000,000 might be a fair stab at adults 18 and up..
    > So divide 200 million adults 18+ into $85 billon that equals $425,000.00.
    > My plan is to give $425,000 to every person 18+ as a
    > We Deserve It Dividend.
    > Of course, it would NOT be tax free.
    > So let’s assume a tax rate of 30%.
    > Every individual 18+ has to pay $127,500.00 in taxes.
    > That sends $25,500,000,000 right back to Uncle Sam.
    > But it means that every adult 18+ has $297,500.00 in their pocket.
    > A husband and wife has $595,000.00.
    > What would you do with $297,500.00 to $595,000.00 in your family?
    > Pay off your mortgage – housing crisis solved.
    > Repay college loans – what a great boost to new grads
    > Put away money for college – it’ll be there
    > Save in a bank – create money to loan to entrepreneurs.
    > Buy a new car – create jobs
    > Invest in the market – capital drives growth
    > Pay for your parent’s medical insurance – health care improves
    > Enable Deadbeat Dads to come clean – or else
    > Remember this is for every adult US Citizen 18+ including the folks
    > who lost their jobs at Lehman Brothers and every other company
    > that is cutting back. And of course, for those serving in our Armed Forces.
    > If we’re going to re-distribute wealth let’s really do it…instead of
    > trickling out
    > a puny $1000.00 ( “vote buy” ) economic incentive that is being proposed by
    > one of our candidates for President.
    > If we’re going to do an $85 billion bailout, let’s bail out every adult US
    > Citizen 18+!
    > As for AIG – liquidate it.
    > Sell off its parts.
    > Let American General go back to being American General.
    > Sell off the real estate.
    > Let the private sector bargain hunters cut it up and clean it up.
    > Here’s my rationale. We deserve it and AIG doesn’t.
    > Sure it’s a crazy idea that can “never work.”
    > But can you imagine the Coast-To-Coast Block Party!
    > How do you spell Economic Boom?
    > I trust my fellow adult Americans to know how to use the $85 Billion
    > We Deserve It Dividend more than I do the geniuses at AIG or in Washington
    > DC .
    > And remember, this plan only really costs $59.5 Billion because $25.5
    > Billion is returned
    > instantly in taxes to Uncle Sam.
    > Ahhh…I feel so much better getting that off my chest.
    > PS: Feel free to pass this along to your pals as it’s either good for a
    > laugh
    > or a tear or a very sobering thought on how to best use $85 Billion!!
    > And let’s not even think about the proposed $700 Billion!!

    1. wheresthebeef

      First time on this blog…this is awesome. Keep up the great work. When all is said and done, this could be a case study of exactly what went wrong regarding the real estate meltdown.

      In response to Trooper, check your math. I swear most people can’t do elementary school math anymore.

      85,000,000,000 divided by 200,000,000 = 425

      I don’t think $425 will clear up this whole mess. It might fill up the H2, get a latte and then buy a pair of jeans at South Coast Plaza. Just joking…I have great disdane for those people. Live within your means!!!!!!

      1. no_vaseline

        Trooper knows.

        She keeps posting it so see if anyone else is paying attention to the math.


  15. Chris

    Man I thought 8% loss on my investment asset was bad but looking at the current situation where people who are actually losing both investment asset (more than 30% down) and home equity (same), I’m glad I’m in my current situation.

    I can’t go cash completely because I’m going to quit my job soon and emigrate to another country and so I need passive income which cash won’t do it for me.

    Good luck folks…you’re gonna need it with unemployment % increasing. Hmmm….come to think of it, is there a security/ETF that tracks unemployment %? That’s definitely a growth ETF in the next several years πŸ™‚


    My margin account has been slashed!

    I have been wondering if this would happen but to actually see it is shocking. My currency trading account has had its margin slashed from 100:1 to 20:1! Without any notification which is obviously illegal.

    This takes my positions from an average leverage of 3% which is a very conservative play to 16% which is getting very dangerous.

    People that had higher leverage than me and are not paranoid enough to check their accounts on the opening of the currency markets will get margined out of even winning positions if they have high leverage and their positions temporarily move against them.

    Your brokers are in survival mode – beware!

  17. Laura Louzader

    Hey, kids, the coming depression will make the Great Depression look like a mild, short recession compared.

    We are nowhere near it yet.

    The current financial disaster, which will probably take another 3 years minum to play out, just happens to coincide with other nasty economic conditions that are now setting up.

    At the onset of the Great Depression, we were an underpopulated (130 Million pop.) country with vast untapped resources including huge untapped supplies of domestic oil. Additionally, we had millions of family farms, solid small towns, and gleaming, healthy cities stuffed with beautiful newer factories and well-ordered populations. Those were the days when people could sleep on the beach near my place and left their doors unlocked.

    Now, we have a population of 300 million, many of whom in no way have a stake in this country or care about it, badly deteriorated and depopulated midwestern and southern cities, almost no industrial capacity, and we’ve blown through our natural resources, especially oil. We have no long distance transport to speak of but fuel wasting airlines that are failing rapidly, and the trucking industry, which is also getting hammered by fuel prices. Our best farm land has been converted to bedroom exurbs stuffed with badly built 3000 sq ft houses no one is buying and that will be unlivable in another 10 years as 100-mile commutes become impossible for the non-rich. To top it off, we have a very disorderly and uncivil population that doesn’t think it ought to have to make the smallest sacrifice or adjustment to altered circumstances.

    And forget about starting the war to provide a shot of adrenalin to the economy. That doesn’t work when the patient is starving. We don’t have the wherewithal to mobilize for a REAL war, and we’d better not forget that.

    It is going to be really rough rebuilding our industrial network with relevant and innovative new industries, reclaiming our farm land, and in general getting the economy back on an honest footing based on producing real things, rather than using asset inflation, monetary manipulation, and debt creation as the drivers as we have done since 1982. But we’d better get to work at it,really soon and in earnest. Unfortunately, all the bailouts and other interventions are aimed at re-creating the conditions of 2005, and show that none of our leaders of either party are facing reality.

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