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FRED
09-05-07, 02:28 PM
This piece was originally posted to the AlwaysOn Network, January 20, 2005. It was re-published on iTulip.com March 2006. We are re-publishing it on the forums Sept. 5 in order for members to comment on it.

Fifteen Years to Revert to the Mean

January 20, 2005

"If there is a real shift downward in housing demand, it would have a dramatic impact across the entire economy," said John Benjamin, a professor of finance and real estate at American University.

Millions of Americans have become dependent upon rising home values to support home-equity loans and mortgage refinancings, which can be used to pay for cars, remodeling projects, clothes and more.

"We live in a consumption economy that is financed by debt," which in turn largely rests upon our home foundations, Benjamin said.

The labor market, too, depends upon feeding the hunger for housing.

Since the beginning of the economic recovery in November 2001, employment in housing and housing-related industries has accounted for 43% of the increase in private-sector payrolls, according to Asha Bangalore, an economist for Northern Trust Corp.

- Experts ask: Is there a housing bubble? (http://www.jsonline.com/homes/buy/jun05/330733.asp)
Housing bubbles don't collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years. Given the extreme and unprecedented nature of the current housing bubble, I expect a ten- to fifteen-year downturn to follow this boom. The government will step in with all manner of supports and bailouts along the way, similar to those that created the bubble in the first place, so the exact trajectory of the decline is impossible to predict. Here I estimate how and over what time period the decline may occur.


http://www.itulip.com/BLShousingpricesvsemployment.jpg

Chart 1: Correlation of Housing Prices to Employment


Chart 1 above shows that housing prices are strongly correlated to the unemployment rate. Housing prices fall as unemployment rises, and vice versa. Given that 43% of all jobs created since 2001 are housing (bubble)-related, a decline in housing-related payrolls can be expected to reinforce housing price declines in the bust part of the cycle. The rate of home equity extraction is a good proxy for the housing market itself. Home equity extraction tends to rise in line with property values and declines on the way down; no home owner wants to borrow against a deflating asset, and no bank wants to secure a loan against one either.


http://www.itulip.com/homeequityextraction.jpg

Chart 2: Home Equity Extraction - Past and Predicted


We'll use home equity extraction as our yardstick to project the bust. Thanks to my friend Paul Kasriel (http://www.safehaven.com/article-3227.htm) at Northern Trust for the original of Chart 2, which shows home equity extraction from 1950 until 2005. I have modified it to show a possible trajectory of home equity extraction decline in seven steps, A through G, from now until 2020. While I'm fairly confident in the length of the entire process, the length and timing of each step is subject to a wide range of error.

Step A: You are here. Whether the rate of home equity extraction implodes from here (as shown) or decreases more gradually is a matter of debate, although in past boom-bust cycles, the bust rate of decline has been significantly more rapid than the boom rate of growth. What is not debatable is whether the rate of home equity extraction will revert to the mean rate of about zero, from the current rate of more than $250 billion annually. It will.

In fact, the rate of home equity extraction will tend to overshoot the mean to reach an extreme negative rate of equity extraction (building equity) that's twice the rate of positive extraction that occurred during the boom phase. This relationship occurred in the previous two cycles, which bottomed in 1982 and 1995, respectively. This implies negative equity extraction of minus $500 billion per year at the cycle trough. Chart 2 shows a more optimistic prediction of negative $250 billion occurring between 2015 and 2020. This more prosaic estimate accounts for government efforts to mitigate the impact and minimize the overshoot, by offering specialized loans, making direct purchases of securitized mortgage debt, and so on.

Step B: As housing prices begin to decline, sales will continue, though more slowly and less frequently. Old habits die slowly. One year into the decline, housing speculators will have left the market, but home owners will generally still believe that prices will either resume their rise or at least flatten out, not continue to decline. Remember the first year of the stock market bubble decline, when most people hung in there until they'd lost all of their money? The first lesson of behavioral finance is that the most common mistake made by market participants is to hang on too long and fail to cut losses.

While home owners at this stage will borrow less against their houses, and loans will be more difficult to come by, the average home owner will still make frequent trips to Home Depot or hire contractors to make home repairs and improvements, believing they'll "get their money back" in an increase in the value of their home at least equal to the cost of fixing it. Some home owners will put their home up for sale—if they purchased early enough in the boom so that they can still realize a profit, even selling at five to twenty percent below the peak price.

Step C: After prices have declined for two years, large numbers of buyers who purchased near the top of the market will begin to feel the psychological effects of being underwater on their mortgage. They will be less inclined to borrow money, or to spend money fixing up their home, as home improvement value increases will be swallowed up by general market price declines. There will still be profits to be made by those who bought very early in the previous boom cycle, but fewer people will have this option.

As transaction volumes continue to fall, demand for housing-related employment will decline too. The first signs of labor market distress will start to show up, as more and more of that 43% of the private sector who found jobs in the housing industry are no longer needed. Coincidentally, major employers—such as the U.S. auto industry—will be going through major restructuring, adding to pressures on housing prices in some areas. Some home owners will need to sell at a loss in order to move to regions of the country where the labor picture is better, and will do this if they have enough equity and are not paying cash out of pocket to cover their remaining mortgage obligations. These sales will further depress home prices.

Step D: Three years into the decline, marginal home buyers will learn what owning a home really costs, versus renting when housing prices are declining and jobs are more scarce. Rent is a fixed cost, whereas home ownership presents many variable costs, including increased interest payments on ARMs (http://www.palmbeachpost.com/business/content/business/epaper/2005/05/16/c1bz_armed_0516.html), and rising tax, insurance, and energy costs. Also, upkeep for the average home typically costs five to ten percent of the price of the home, annually. As prices fall, homeowners will have less access to home equity loans. Many will not be able to afford repair and maintenance expenses. Homes in some neighborhoods—and in some cases, entire neighborhoods—will begin to look neglected, further depressing prices.

Step E: Five years into the downturn, rising unemployment will begin to more seriously affect the market, as indicated in Chart 1. As unemployment rises, homeowners will leave housing bust regions to move to areas where there are more jobs. Many houses will be sold at a loss, or even abandoned, as the market price falls below the loan value. Given the choice between paying cash out of pocket to sell their home or leaving the keys with the bank, many home owners will make the latter choice.

Step F: Ten years into the downturn, real estate will be widely regarded as a terrible, "can't win" investment. McMansions (http://www.tracypress.com/local/2005-06-07-homes.html) will be subdivided for rental as multi-family homes.

Step G: Ten to fifteen years after the start of the decline in housing values, prices will bottom out, setting the stage for the next boom. Time to buy.

FRED
09-05-07, 02:32 PM
Received this today...


About two and half years ago I referenced this article on a thread dealing with how severe and how protracted a down cycle in residential real estate could be.

Since I can't find my original post, I've taken the liberty of finding the article online. Here is the scenario, first offered back in January of 2005. (http://boards.fool.com/Message.asp?mid=25868899)

zoog
09-05-07, 03:08 PM
This piece was originally posted to the AlwaysOn Network, January 20, 2005. It was re-published on iTulip.com March 2006. We are re-publishing it on the forums Sept. 5 in order for members to comment on it.

I'll focus on how things are locally here in Portland, Oregon. A combination of steps B and C.

As of June and July (the latest numbers I have), overall metro prices are still going up, or at least have gone flat. August may be the first sign of a downturn for us. The YOY% has been going down since spring of 2006. I expect it to hit zero by the end of this year (using the median and average numbers published by the local MLS), or possibly even September (using the Case/Shiller index).

A couple charts I maintain to illustrate this:

http://img514.imageshack.us/img514/8773/chartpdxmonthlypct0600yt9.jpg (http://imageshack.us)
http://img204.imageshack.us/img204/204/chartpdxmonthlyyoy0600tj4.jpg (http://imageshack.us)

Summer of 2006, lines at the local Home Depot were unbearably long. On one occasion I waited half an hour to check out with some lumber. By spring of 2007, the crowds had subsided for the most part. This summer, it's been quiet most times I've been there. The home improvement frenzy has definitely ground to a near-halt.

Inventory has steadily gone up, sales have slowed down, but asking prices have remained pretty stable thus far. See Housingtracker.net (http://www.housingtracker.net/askingprices/Oregon/Portland-Vancouver-Beaverton/) for a chart of this. However, lots of "Priced Reduced" stickers, even in nice neighborhoods.

Unfortunately, zoog is trying to sell his house in the midst of this slowdown, and he is not having a happy time of it.:(:eek::o As far as my personal experience, my house has been on the market for about five weeks. We've had a few looks but no offers, and have taken $10,000 off our original asking price. I keep wondering how much the typical buyer in Portland is aware of what will happen to home prices, vs. what I know after I started reading the bubble blogs and iTulip. Because if they even get an inkling of the magnitude and length of decline that I expect, it will be panic at the disco.

c1ue
09-05-07, 03:27 PM
Zoog,

It is your money, and your house.

If you do subscribe to the iTulip message though - I would think you would be far more aggressive in chopping prices to lock in gains.

Selling a house now is absolutely a case of 'Prisoner's Dilemma'

zoog
09-05-07, 05:17 PM
Zoog,

It is your money, and your house.

If you do subscribe to the iTulip message though - I would think you would be far more aggressive in chopping prices to lock in gains.

Selling a house now is absolutely a case of 'Prisoner's Dilemma'

True. Also, "timing is everything". When I read EJ's housing bust predictions, as well as Robert Shiller's, it made sense to me. But I saw that Portland and Seattle were still going strong while California, Florida, Vegas, etc were starting to capitulate. I expected the local market to hold out longer. Actually, it has... but what I didn't count on was the sudden change in the mortgage market. In the matter of a couple weeks it went from subprime "containment" to the entire credit/debt system. I believe the word is... panic?

This is the essence of the housing crash as I see it. Sellers hold onto their prices because, by all indications, their prices seem "reasonable" compared to everyone else. But because the availability of mortgages has dropped significantly, so many potential buyers have been taken out of the market, and even those who are left cannot get as large of a mortgage any more. Prices will have to come down to a level where someone can get lending.

The struggle for someone like me is trying to figure out where that price-point is.

Being a charting kind of guy, I have laid out my predictions for the falling value of my home, along with what I still owe on the mortgage as I pay that down, plus agent fees, etc. The goal of course is to drop my price ahead of the value curve drop, while staying above what I must pay to clear the house. But how to put a value on peace of mind, getting out of the thing whether I make any profit or not.

Anyway, I don't want to keep rambling on about me me me, it is definitely not my style. I have found though that personal experiences in the markets are enlightening, like The Outback Oracle talking about his importing business seeing rising prices from China (http://www.itulip.com/forums/showthread.php?p=12684). Some front-lines reports from time to time are good to read.

c1ue
09-05-07, 07:38 PM
Zoog,

Understandable that it is not always easy to see that a personal investment field can be impacted - especially given some signs of exception.

While I am not a real estate professional, I have seen a lot of deals go through via my mother.

What you're going to have to do is find the right buyer.

The price itself is no longer really the issue, the issue is whether you can find a buyer that wants your house for something other than a $/square foot.

This could be due to location, architecture, school system, mortgage note carry, whatever.

Look at all possible differentiation points, highlight those which could yield desire in a buyer, prioritize, then start shaking down the area and agents to find the buyer.

For example: if affordability is the most attractive, then having an assumable mortgage and/or willingness to carry a note is very powerful.

If school system, then there are ways to find out of district students; students desiring entry are more difficult but still possible.

If location, then appropriate signage plus stress on secondary differentiation is probably the best bet.

It will probably be necessary to go the extra mile unless you get lucky.

Best of fortune!

zoog
09-05-07, 07:51 PM
Thanks for the advice, c1ue.

jk
09-05-07, 08:57 PM
zoog,

i appreciate your report "from the front." i especially appreciate your observation about mortgage availability. having read about this stuff for some time, i expected housing to turn down, turnover to slow, etc. but i never conceived of the possibility of mortgage availability shifting as much as it appears to have done in so short a time. it makes me think more about ej's piece about the myth of the slow crash.

re your situation, the only other thought i would add is to re-examine your motivation for selling. this might lead to a decision to stay or at least clarification of exactly how motivated you are to sell.

zoog
09-05-07, 10:43 PM
zoog,

i appreciate your report "from the front." i especially appreciate your observation about mortgage availability. having read about this stuff for some time, i expected housing to turn down, turnover to slow, etc. but i never conceived of the possibility of mortgage availability shifting as much as it appears to have done in so short a time. it makes me think more about ej's piece about the myth of the slow crash.

re your situation, the only other thought i would add is to re-examine your motivation for selling. this might lead to a decision to stay or at least clarification of exactly how motivated you are to sell.

Exactly what has happened to me, jk. I looked at past housing bubbles and said, ok, they take a few years to go up, a few years to go down... as long as you're paying attention and you didn't buy right at the peak, should have ample time to sell and get out. I failed to factor in the possibility of the mortgage tap being turned off so quickly. Myth of the slow crash indeed!

Staying in the house is certainly an option. It's a complicated calculation / guessing game / self-analysis to determine a point at which you abandon trying to sell, and, to borrow from EJ's Antispin today, tie yourself to the mast and ride out the storm. Just not sure I want to stay in this particular boat for another X-many years.

I hope others chime in about their local markets, I find it interesting. According to the Case/Shiller numbers, as of June the biggest drops from peak are Detroit (-13.76%), Tampa (-7.86%), San Diego (-7.30%), Washington DC (-6.99%), Phoenix (-6.55%), Miami (-5.69%), and Las Vegas (-5.50%).

Jim Nickerson
10-06-07, 12:43 PM
From Alan Abelson's Barron's column 10/8/07

http://online.barrons.com/article/SB119162700618150771.html?mod=9_0031_b_this_weeks_ magazine_columns



Go Figure<DATEANDTIMESTAMPWITHBR />

ARE YOU FAMILIAR WITH THE NEW calculus? We fervently hope that you are, for anyone who isn't will have the gravest difficulty in making sense-much less dollars-out of the stock market's sudden and astonishing metamorphosis. No, we don't mean the new math. Compared with the new calculus that's strictly circa Paleolithic, when folks did their sums by counting on their hairy fingers and toes. The new calculus is at a far remove from anything so mundane as simple addition and subtraction-it literally provides another dimension.

Perhaps the best way to explain it is by example. In the old arithmetic, two minus three is minus-one. In the new calculus, two minus three is plus-five. The difference is that the new calculus involves exercising the power of imagination, which enables you to hopscotch the ostensibly alarming integers to arrive at their true values.

Thus, the detonator of last Monday's explosive stock market rally that sent the Dow soaring to new historic highs and Nasdaq to fresh six-year peaks was the admission by Citigroup and UBS they would take write-downs of $5.9 billion and $3.4 billion, respectively, to atone for having lent neither wisely nor well.

In the old days-say, two weeks ago-such a dire disclosure would have touched off a stampede by the investing hordes for the exits, trampling scores of unwary widows and orphans in the crush. But, instead, the revolting revelations were seized on as reason to pile into not only shares of the offending banks and their troubled ilk, but such tattered merchandise as chip makers and-we kid you not-home builders!

What turned the market from a swamp of warty toads into a pristine lake filled with wondrous creatures was the sweeping application of the new calculus. That the banks chose to make public confession of the horrendous errors of their ways, Wall Street reckoned with eyes agleam, meant they were confident that the worst of the subprime fiasco and the credit crunch were over, the formidable pile of leveraged-buyout loans gone sour was no big deal, and, from here on, it was all blue skies.

It took only enough time to say "buy" for the new calculus to further refine and enhance this cheery computation. Analysts were quick to suggest that by owning up to their massive write downs, Citigroup, UBS, Deutsche Bank and kindred lenders were not only expressing their confidence that the bad patch that had pretty much scared the world witless (granted, given the state of wits in the world, that doesn't take too much doing) was history, but that they had slyly reserved comfortably more than actually needed to cover the charges, and the significant difference would inevitably steal back into earnings, probably sooner rather than later.

Reluctant as we are to point it out, these reassuring murmurs not infrequently came from the very people who were blindsided by the subprime collapse and the havoc it wreaked on the credit markets the globe over. Which does, Sigh!, raise a scintilla of doubt about the perspicacity of their current analyses. At the same time, in their rush to optimism, these happy campers choose to ignore the unpleasant truth that the very things prompting those write downs also happened to be the stuff that fueled much of the banks' reported growth in recent years, and its melancholy absence won't, we're afraid, be made up by reserving a bit more than they should have.

As it happens, that rather spoilsport conclusion is shared (great minds and all that) by Richard Bove of Punk Ziegel. "The growth in mortgage debt was so pronounced," he observes, "that debt on residential buildings, in aggregate, is the largest debt category in the world, topping $10 trillion. The growth in this debt increased profits all along the financial chain. Origination fees were increased, sales and securitization fees went up, and the profits associated with structured financial products are believed to have soared. This growth is gone."

Moreover, he reminds us, in that era so recently come to an inglorious end, financial engineering ran amok. Banks and their Wall Street co-conspirators, using traditional loan products as the base, merrily churned out that wonderful and occasionally lethal brood of CMBSs, CLOs, CDOs, CDSs and the like. These carried notably plump profit margins and grew like Topsy to where today, something like $1.8 trillion are outstanding. "This growth," he warns, "may also be gone."

Then there's this: The key presumption that underlies the new calculus seems to us essentially bonkers. The worst isn't over; on the contrary we haven't truly begun to feel the full effects of the demise of subprime mortgages, the damage visited on the global credit markets and the unchecked disaster that is housing.

On this last score, Goldman Sachs stresses that the "vicious cycle" in housing-falling prices feed into rising defaults; lenders respond by scaling back; the borrowing squeeze crimps homeownership, and the resulting drop in prices feeds back into yet lower prices-still has a lot further to run. Goldman envisions a cumulative price decline of 15% this year and next, with home prices in some regional markets tumbling an awesome 30%.

The full impact on the economy and the consumer of the crumbling housing market is destined to become painfully visible as the months wear on. Coupled with the surging inflation in food, energy and just about every other existential necessity, plain as the nose on their faces to everyone except the sages at the Federal Reserve and their chirpy claque in Washington and Wall Street, it's eroding confidence and otherwise affecting the public psyche and taking a toll on corporate profits.

Thomson Financial reported last week that the early returns show third-quarter earnings of the companies in the Standard & Poor's 500 index are running 2.2% behind last year's comparable results, and the final tally is likely to show a pretty feeble 1.7% rise. In the same quarter in "06, in case you're wondering, profits were up a resounding 20%.

Lest we be accused of denying mention of anything positive, we duly note that the analytical prognosticators are predicting a smart 11.3% gain in S&P 500 earnings in the fourth quarter. Obviously, the poor souls must be addicted to the new calculus.

Contemptuous
10-07-07, 12:08 AM
Zoog -

Very sorry to hear of your travails.

Do you have a smaller mortgage and a good bit of equity? If you end up staying there and you can scrape up some discretionary income to cover additional payments, if it were possible to pull 100K - 150K out of it and put it into gold bullion, you'd very likely triple (or at very least double) that investment in the next decade, which would take a fair bit of the sting out of remaining parked in a home against your will. Portland sounds to me like a damn fine town to be parked, if you have to be parked somewhere.

Depends how convinced you are that gold is headed inevitably for a massive blow off at much higher levels than it is priced today.

I read here of other 'carry trades" involving homes (with bonds), but I see that as a much less fortunate combination than hedging your home's potential decline by owning a really significant chunk of gold.

Scenario is - inflation eats at the net present value of your outstanding mortgage, and effectively shrinks it - (possibly a lot!). Inflation will also for some of the future years deflate property values so those two effects are largely a wash. But what will be rising against all assets is gold, and if housing is deflating, gold will be rising particularly strongly against homes. Seems to me if you could peel a significant portion of your home's equity into gold metal, you could end up in a quite decent position regardless.

One thing you could do in that scenario is decide you and your family are "going spartan", and figure out some square footage to rent out as a studio apartment (a garage?). The income from that might pay a chunk of your added debt service from taking 150K out of the house and parking it in gold.

Just a thought.

I met a man today at my local Costco who was a San Diegan, but who fifteen years ago picked up his young family and moved to southern Argentina. For six hundred thousand USD, he bought thirty square miles of prime vineyards. He was presenting a superb Argentine Malbec red wine at Costco. The Malbec wine was very damn good! He told me even during the worst of the Argentine hyperinflation, his property never went down more than 25% in USD. The guy was weatherbeaten and burned by years in the sun. He was wearing one of those sweatstained flat brimmed gaucho hats, and he was quite obviously a guy who spent his life working the land.

It was interesting to have the owner of a large "estancia" who has 100 men on his payroll, but looks like just another farmhand himself, then show up at Costco to tell people he makes a realy good red wine!

Argentina saw a far worse hyperinflation than the US will probably face, and it was by no means a disaster for the value of his property. This beat up looking farmer and his property are apparently now worth north of twenty million USD.

I am in San Diego, and I read all these breathless articles about catastrophe about to strike this local market. Yes, there are a good deal more houses for sale citywide, but as I drive around neighborhoods, (not the teeming condo developments which do have forests of for sale signs), I notice it's not exactly a "bloodbath" in the single famly home market, and we are supposed to be one of the worse city markets in the US.

Frankly, the "housing implosion" going on down here is a huge yawn. Not a whole lot of blood in the streets that I can see, with or without the credit crunch. I sold a home in a very central area two years ago. I've not exactly made any huge killing in stocks or gold, or anything else. Meanwhile I get the sense the people and homes I've been watching can hardly be described as "losing their shirts".

If I owned a home with a couple of hundred K equity in this market, and I could jigger my income versus mortgage payments to handle it, I'd peel out a big fat chunk of equity and put it into gold metal. I am fairly convinced it's going to do extraordinarily well. Those with even just a tiny scrap of vision looking forwards will suggest it's now inevitable that gold will move in a larger way. If you were able to park 100K or 150K in gold and silver and stomach the volatility, you might even manage to pay off your remaining mortgage with the profits from that in a decade's time.

I know a lot of people on this website are hesitant to peer into the future and see gold climbing well north of two thousand dollars an ounce in the next five to ten years. All I can say to them is if that is their view with all the data we now have at hand, they are looking at the present markets like pinched accountants, who are much more adept at looking in the rear view mirror, than they ever are at looking forwards.

Best of luck to you Zoog.

Be bold and look at other things in the future beyond merely the nominal price of homes slipping down ten or fifteen percent in the next three years. Why is that such a huge deal? If you have other assets to hedge, or you can pull some assets to hedge out of what you've got, you could do quite well indeed with a big hedge in gold, and find you owned that home free and clear in 10 - 15 years anyway. Stranger things have been known to happen. :rolleyes:

Much of the feeling of tearing need to get out property now stems from peer pressure. Everyone (especially in these online bearish communities - and despite iTulip's objections at being labeled "bearish" I suggest they are one) is now beginning to shift into that mindset, and it exerts a pull on our thinking just as much as the anxiety to get into real estate exerted a pull three or four years ago. Tune out the nervous chatter, and crunch some cautious numbers on gold hedging.

metalman
10-07-07, 01:11 AM
I know a lot of people on this website are hesitant to peer into the future and see gold climbing well north of two thousand dollars an ounce in the next five to ten years. All I can say to them is if that is their view with all the data we now have at hand, they are looking at the present markets like pinched accountants, who are much more adept at looking in the rear view mirror, than they ever are at looking forwards.

besides this guy, that is...

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Contemptuous
10-07-07, 01:18 AM
Metalman -

Yeah, OK, I'll give you that much. Besides "that guy". :rolleyes:

GRG55
10-07-07, 04:16 AM
Zoog -

Very sorry to hear of your travails...

...I am in San Diego, and I read all these breathless articles about catastrophe about to strike this local market. Yes, there are a good deal more houses for sale citywide, but as I drive around neighborhoods, (not the teeming condo developments which do have forests of for sale signs), I notice it's not exactly a "bloodbath" in the single famly home market, and we are supposed to be one of the worse city markets in the US.

Frankly, the "housing implosion" going on down here is a huge yawn...

Best of luck to you Zoog.

Be bold and look at other things in the future beyond merely the nominal price of homes slipping down ten or fifteen percent in the next three years...

zoog: Not intending to trivialize your situation by any means, but some of Lukester's notes are worth highlighting - it's all perspective I suppose.

Take it from someone who (currently) lives in the middle of the world's biggest sand box, there's lot's worse places to have to wait out a housing slump than Portland (or San Diego or any number of other west coast locales). You two are living in the midst of some of the most naturally beautiful territory on earth. Yes, I know the severe housing bust in Astoria a hundred years ago still weighs heavily on the minds of Oregonian homowners, but I'm sure there must be some counselling available for those still having nightmares about it :).

Just imagine if you were stuck in Stockton, or waiting for the next hurricane to hit your illiquid piece of swamp in Florida... :eek:

GRG55
10-07-07, 04:20 AM
besides this guy, that is...



Good one! :D

FRED
10-07-07, 11:38 AM
I am in San Diego, and I read all these breathless articles about catastrophe about to strike this local market. Yes, there are a good deal more houses for sale citywide, but as I drive around neighborhoods, (not the teeming condo developments which do have forests of for sale signs), I notice it's not exactly a "bloodbath" in the single famly home market, and we are supposed to be one of the worse city markets in the US.

Frankly, the "housing implosion" going on down here is a huge yawn. Not a whole lot of blood in the streets that I can see, with or without the credit crunch. I sold a home in a very central area two years ago. I've not exactly made any huge killing in stocks or gold, or anything else. Meanwhile I get the sense the people and homes I've been watching can hardly be described as "losing their shirts".

Don't forget the point of iTulip's Jan 2005 projection of housing. The housing market correction is minimally a 5 to seven year process. It started mid 2005 so we're only slightly more than two years into it. You're taking the psychological temperature too early. See how folks feel about real estate starting in three years. Also, as the projection notes, the degree of price correct depends on the local employment picture. If the Clinton II administration cuts a similar deal with Bernanke as Clinton I cut with Greenpsan, trading off military spending cuts for low interest rates, what do you suppose will happen to San Diego housing prices?

Contemptuous
10-07-07, 12:37 PM
Fred -

That event would probably be a wash for San Diego. A) Military spending cuts weaken the military components of San Diego county (and these are substantial) and B) low interest rates goose the local housing market.

Either way Fred, I must confess to having become fairly cynical that San Diego median home prices will experience a reduction in prices greater than $120K at the deepest correction down from 2005 housing peak prices. I'd greatly appreciate being wrong however.

When the median home price at the peak was around $600K, you can see how a $120K drawdown peak to trough is not a hugely compelling or an imperative reason for long term home owners to sell their primary residence (uness you share Charles Mackay's vision).

Long term homeowners property taxes alone are so low out here that selling and attempting to buy back in at the trough of this housing correction would jack their new property tax basis cost high enough that the difference in that tax alone is the equivalent of 100K in debt service costs. Where's the huge advantage?

I happen to think, and it's entirely within the iTulip framework where housing sees a long term deflationary trend n the midst of massive inflation in other hedge assets, that at some point real property in the US will once again catch a bid when the inflationary bonfires are really roaring. This is the counterintuitive notion that few would believe, because "ride the real estate train to riches" was so heavily oversubscribed as an idea in recent years that the present severe correction is thought to have driven a stake through it's heart.

I think there's a time window in the coming inflagtionary storm when real estate will once again do it's leveraged thingy and rack up some quite impressive further gains. But then I sold early (back in late 2004) and spent the next two years gnashing my teeth as all the "ride the real estate train to riches" guys kept riding the real estate train to real riches! Bah! Humbug! :mad:

zoog
10-07-07, 01:00 PM
Thanks all for your comments, encouragement, and suggestions. I think last time I posted on this thread I was in a particular funk about my situation. I now feel more positive. Traffic has picked up, I've had five looks this week and a couple more today. There is also an investor who buys houses to rent who has driven by a couple times, and now wants to see the inside of the house.

The investor is probably my best bet, as this is a street of low-income apartment buildings, duplexes, and other rentals. There is only one other resident homeowner on the block. If there was a tough situation to sell in a slowing market, this would be it. Yet I am now pretty confident that I will not have to ride this out.


...if it were possible to pull 100K - 150K out of it and put it into gold bullion...

Heh, if only there were $100K of equity to pull out... I only bought the house a couple years ago (ah... I was young and dumb then), and well under the median then and now. However, barring any dramatic drop in selling price, I should walk away with a chunk of change, as the home has gone up 25-30% in fictitious value. After paying off debts and putting some in savings, the rest will go into investments such as the yellow clinky-clink.:cool:


I am in San Diego, and I read all these breathless articles about catastrophe about to strike this local market. Yes, there are a good deal more houses for sale citywide, but as I drive around neighborhoods, (not the teeming condo developments which do have forests of for sale signs), I notice it's not exactly a "bloodbath" in the single famly home market, and we are supposed to be one of the worse city markets in the US.

Frankly, the "housing implosion" going on down here is a huge yawn.


Don't forget the point of iTulip's Jan 2005 projection of housing. The housing market correction is minimally a 5 to seven year process. It started mid 2005 so we're only slightly more than two years into it. You're taking the psychological temperature too early. See how folks feel about real estate starting in three years.

When I stumbled onto iTulip late last year and read the housing bubble projections, and along the same time was looking at Robert Shiller's as well, I reasoned that I would have plenty of time to get out of this house if I wanted to. I also realized I could probably stay throughout the whole thing and not go underwater. But paying interest on a depreciating asset, combined with a growing dislike for my particular street (terribly "classicist" of me, I know), plus seeing the potential for gains in the next few years in gold and other investments caused me to decide at length to sell the house.

But then the credit crunch came down in July/August, and that really scared me. I was worried that would make prices plunge more rapidly, especially down here near the bottom end. Well, I'm sure it has had an effect, but it does not yet appear to be as bad as I was thinking a few weeks ago. I often have to remind myself that this housing crash moves in slow motion. I'm sure it can appear boring if you're on the sidelines, even in San Diego.:)


Take it from someone who (currently) lives in the middle of the world's biggest sand box, there's lot's worse places to have to wait out a housing slump than Portland (or San Diego or any number of other west coast locales). You two are living in the midst of some of the most naturally beautiful territory on earth.

This is quite true. In fact, it's so desirable here that Portland house prices are going up FOREVER!!!!

Ahem. Sorry, I was channeling VancouverGoinUp there for a sec.:eek::rolleyes:

If Vancouver BC has its land limitations, we have our Urban Growth Boundary, which has at least restrained the mega-subdivision build-outs seen in so many parts of the country, and filled in gaps in our historical neighborhoods. (Unfortunately I don't personally feel like the gaps have been filled in an attractive manner, but it still beats unregulated suburban sprawl.) Oh we still have suburban sprawl, it's just not as bad as it could have been. This makes for a relatively compact metropolitan area, so you can soon get out of the city and into all that natural beauty.

To close, here is the Portland inventory chart I put together recently. You can see that the seasonal peaks of new listings keep rising (red line) while the peaks of closed keep falling (green line).

http://img338.imageshack.us/img338/7479/pdxinventory08xl2.jpg (http://img338.imageshack.us/my.php?image=pdxinventory08xl2.jpg)

zoog
10-17-07, 12:28 AM
The YOY% has been going down since spring of 2006. I expect it to hit zero by the end of this year (using the median and average numbers published by the local MLS), or possibly even September (using the Case/Shiller index).

The September numbers are out, and it appears that Portland has peaked. September median and average took about a 6% dive from August, though YOY is still positive for both (2.9% and 0.45%). I've updated my charts, and added one for inventory. I do not know what our all-time high is for months of inventory, but according to the report, the 8.6 months in September is the highest since January 2000, when it was 10.1.

http://img89.imageshack.us/img89/489/pdxmon09gw7.jpg (http://imageshack.us)

http://img340.imageshack.us/img340/4257/pdxpct09hk0.jpg (http://imageshack.us)

http://img524.imageshack.us/img524/4139/pdxyoy09vf6.jpg (http://imageshack.us)

http://img137.imageshack.us/img137/2302/pdxinv09bi2.jpg (http://imageshack.us)

GRG55
10-17-07, 01:50 AM
The September numbers are out, and it appears that Portland has peaked. September median and average took about a 6% dive from August, though YOY is still positive for both (2.9% and 0.45%). I've updated my charts, and added one for inventory. I do not know what our all-time high is for months of inventory, but according to the report, the 8.6 months in September is the highest since January 2000, when it was 10.1.

http://img89.imageshack.us/img89/489/pdxmon09gw7.jpg (http://imageshack.us)

http://img340.imageshack.us/img340/4257/pdxpct09hk0.jpg (http://imageshack.us)

http://img524.imageshack.us/img524/4139/pdxyoy09vf6.jpg (http://imageshack.us)

http://img137.imageshack.us/img137/2302/pdxinv09bi2.jpg (http://imageshack.us)

These charts show some remarkably sharp trend reversals across the board! :eek:

By the way zoog, you've got a knack for laying out great charts that are easy to interpret.

FRED
11-29-07, 01:32 AM
The number of homeowners receiving foreclosure notices each month now almost equals the number of home sales across the state, said Tim Warren, chief executive of the Warren Group, publisher of Banker & Tradesman. (http://news.bostonherald.com/business/real_estate/view.bg?articleid=1047506)

santafe2
11-30-07, 03:12 AM
Hello all. First post here, nice site with more original thought than the usual cut and paste net world. I hope we can learn from each other. You can find me on investorshub.com if you want a background on my point of view. If that's more time than you want to invest, you could get a good sense of how I value things by knowing I measure the value of things in their relationship to precious metals and I measure inflation by watching M2 as it relates to US GDP growth. Both have served me well.

That said, I'm not all that negative regarding the housing issue. There will be too many people that jumped into a new sub-division as the market was peaking but many of these families will soldier it out and currency inflation will make them whole, (sort of), over time. Not all homes purchased in 2005-2006 will prove to be horrible investments.

Examples: If you bought a Mac-mansion in way-west Las Vegas where only lizards lived 5 years ago, you should find a matchbook, light your hair on fire and run down the street screaming. If you bought a fixer-upper in an old school, classic neighborhood and you're under water, start fixing and you'll be fine. The Fed is busy inflating but it won't be enough to inflate a truly horrible decision, only good decisions, badly timed.

If you're a real estate gambler you better change your name and move to Mexico but if you have some foresight and you're a real estate investor who understands the pain of seeing the future while it's prologue, start making a list of what you want to buy.

Jim Nickerson
03-09-08, 02:36 PM
Prieur du Plessis http://www.investmentpostcards.com:80/ 3/9/08



John Authers (Financial Times): What are the markets telling us?
“Let us apply the logic of extremes. Jean-Claude Trichet on Thursday pushed the euro to new unimagined highs against the dollar as he declined to talk down the single currency. He appears set on a starkly divergent path from the Federal Reserve, which is committed to cutting rates to aid growth.

“Meanwhile, commodity prices stayed near record levels, suggesting extreme concern about inflation. And the price of buying insurance against default on the credit market showed that fears for the health of the financial sector, particularly in the US, is at extreme levels.

“Now, let us put the messages from different markets together. The S&P financials was at a new low on Thursday, in dollars. But measure this index in euros and the scale of the collapse in the world’s confidence in the US financial system becomes more apparent. This index has now fallen more than half – 53% – since it peaked in euro terms as long ago as 2001.

“What if gold, close to $1,000 per ounce, is the only true global currency? If we believe that, then it says something interesting about the price of US houses – another asset that can claim to be a store of value.

“In gold terms, US houses have never been as expensive as they were at the beginning of the 1970s when the median house cost more than 700oz gold, according to Tim Lee, of Pi Economics. But they nearly regained that peak in 2001. Their decline since then – even as their prices in dollar terms have gone through the roof – has been precipitous. A US house would now cost you only 220oz of gold. Over history, this price has tended to revert to an mean of about 350oz.

“So, if disparate markets are put together, the US financial industry has lost more than half its value and US housing more than two-thirds of its value since 2001.

“Either the US is on course for disaster or the moves on these markets are overdone.”


So which is it? Disaster or the price of gold is too high?

KenD
03-12-09, 07:07 AM
Prieur du Plessis http://www.investmentpostcards.com:80/ 3/9/08

So which is it? Disaster or the price of gold is too high?

First off, I want to thank everyone here for the education I have received over the last several months that I have been lurking here and reading everything.

Admittedly, I don't pretend to be an expert but I have a few ideas that I would like to throw out and see what you all think.

In 1962, my father, then five years out of college, purchased his second house for what amounts to one year's salary after taxes. During that time, as you may recall, most American families were single income, so the price he paid was for his salary alone.

It is my understanding that median family income in the US for 2007 was roughly $50K with 95% of the American households below $75K - yet the median price of homes is somewhere in the $250K range. In other words, by my crude calculations, we have gone from a 1 to 1 net income to mortgage value ratio to a 5 to 1 mortgage ratio while at the same time we have gone from a single household income to dual income, further skewing this ratio. For the life of me I can't see the Case-Shiller Index as accurately representing this.

Now, this all ties back to the post I am responding to (and I realize this might sound like heresy here) but I cannot see how the price of gold shines any light on this pricing relationship either.

Thanks for your indulgence and I look forward to any responses I might receive.

Rajiv
03-12-09, 07:27 AM
You will find this thread of interest

Ricardo's Law - The Great Tax Clawback Scam (http://www.itulip.com/forums/showthread.php?t=4026)

jtabeb
03-12-09, 09:47 AM
First off, I want to thank everyone here for the education I have received over the last several months that I have been lurking here and reading everything.

Admittedly, I don't pretend to be an expert but I have a few ideas that I would like to throw out and see what you all think.

In 1962, my father, then five years out of college, purchased his second house for what amounts to one year's salary after taxes. During that time, as you may recall, most American families were single income, so the price he paid was for his salary alone.

It is my understanding that median family income in the US for 2007 was roughly $50K with 95% of the American households below $75K - yet the median price of homes is somewhere in the $250K range. In other words, by my crude calculations, we have gone from a 1 to 1 net income to mortgage value ratio to a 5 to 1 mortgage ratio while at the same time we have gone from a single household income to dual income, further skewing this ratio. For the life of me I can't see the Case-Shiller Index as accurately representing this.

Now, this all ties back to the post I am responding to (and I realize this might sound like heresy here) but I cannot see how the price of gold shines any light on this pricing relationship either.

Thanks for your indulgence and I look forward to any responses I might receive.


Very Simple, deflation of purchaseing power due to deflation of real wages. (or, unequal rates of inflation in wages vs home prices)

metalman
03-12-09, 09:54 AM
First off, I want to thank everyone here for the education I have received over the last several months that I have been lurking here and reading everything.

Admittedly, I don't pretend to be an expert but I have a few ideas that I would like to throw out and see what you all think.

In 1962, my father, then five years out of college, purchased his second house for what amounts to one year's salary after taxes. During that time, as you may recall, most American families were single income, so the price he paid was for his salary alone.

It is my understanding that median family income in the US for 2007 was roughly $50K with 95% of the American households below $75K - yet the median price of homes is somewhere in the $250K range. In other words, by my crude calculations, we have gone from a 1 to 1 net income to mortgage value ratio to a 5 to 1 mortgage ratio while at the same time we have gone from a single household income to dual income, further skewing this ratio. For the life of me I can't see the Case-Shiller Index as accurately representing this.

Now, this all ties back to the post I am responding to (and I realize this might sound like heresy here) but I cannot see how the price of gold shines any light on this pricing relationship either.

Thanks for your indulgence and I look forward to any responses I might receive.

not heresy. the price of houses in the usa is a result of gov't policy. see 'the next bubble'... tax policy and monetary policy.

the dollar price of gold is a factor of both usa and global monetary policy.

the two may only become relevant to each other some day if the monetary system finishes breaking down and gold becomes the unit of currency of debt that the house sit on.

KenD
03-12-09, 12:22 PM
Very Simple, deflation of purchaseing power due to deflation of real wages. (or, unequal rates of inflation in wages vs home prices)

Yes, I get that.

How do we fix this without creating the wholesale slaughter of hundreds of thousands of families, financially speaking?

Or can we?

KenD
03-12-09, 12:28 PM
the two may only become relevant to each other some day if the monetary system finishes breaking down and gold becomes the unit of currency of debt that the house sit on.

I don't see that scenario as a likely outcome - there is simply too much at stake for the status quo to allow this to happen.

The other issue is that gold is a resource that is used, as with electronics, which translates into an ever-declining pool of gold. For my way of thinking this makes gold an unstable resource to base monetary value on.

But like I said, I'm an amateur, I don't even take my own advice. ;)

metalman
05-04-09, 03:43 PM
Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.

By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?

So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.

The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent).

A system like this will make the financial markets work as smoothly as the local fruit market.

clearly remember similar arguments when the nasdaq was 5000... > 80% above where it is today, nine years later.

jtabeb
05-04-09, 10:43 PM
Received this today...

I know, I know, but none of us buy "real" houses, we buy "nominal" ones.

As an interested party (hopefully there are others) could you guys do something with nominal price bottom projections. That would really be helpful to those of us that sat through the housing bubble and are now trying to determine how much more carnage we have to go through before prices are "nominally" attractive vs income. For us would-be owners, that is the heart of the issue, and something that you could serve the community very well with.

Nominal Housing bottom guess based on C/S top 20 metros? Can I get a second?

Please Fred, Bart, EJ, Finster, give it a go.

Thanks

(and thanks too, to the unnamed contributer for their inputs as well);)

BiscayneSunrise
02-08-10, 03:56 PM
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSmlkGHASRZ8&pos=4


Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% (Update1)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Jody Shenn

Feb. 8 (Bloomberg) -- U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate almost tripled in 2009, Fitch said.

Soured debt across loans backing so-called non-agency securities ballooned last year amid new defaults caused by slumps in home prices and employment, and as the federal government pushed loan servicers to consider debt modifications and states moved to slow foreclosures, reducing property liquidations after borrowers stopped paying.

The share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates -- or the amount of loans turning delinquent -- rose from a year ago, according to the statement.

Jumbo home loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.

jimmygu3
02-08-10, 04:30 PM
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSmlkGHASRZ8&pos=4


Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% (Update1)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Jody Shenn

Feb. 8 (Bloomberg) -- U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” according to Fitch Ratings.

“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said today in a statement. The rate almost tripled in 2009, Fitch said.

Soured debt across loans backing so-called non-agency securities ballooned last year amid new defaults caused by slumps in home prices and employment, and as the federal government pushed loan servicers to consider debt modifications and states moved to slow foreclosures, reducing property liquidations after borrowers stopped paying.

The share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates -- or the amount of loans turning delinquent -- rose from a year ago, according to the statement.

Jumbo home loans are larger than government-supported mortgage companies Fannie Mae or Freddie Mac can finance. Their limits now range from $417,000 in most places to as much as $729,750 in high-cost areas.

Jumbos have really been hung out to dry. In a mortgage market that is almost completely government (agency) funded, jumbos get stuck with higher LTV and much higher interest rates because the mortgages can't be resold to the agencies. In my area, where the $417k limit is probably also the median mortgage amount, the homes below $550k sell really well, while the more expensive ones sit on the market, the buyers unable to get financing.

I think they should remove the limit entirely and allow Fannie to buy mortgages with <80% LTV based on a thorough, conservative appraisal. Why are they refi'ing underwater loans at 125% LTV, while people with actual savings, income and good credit can't get financing with 20% down?

-Jimmy

centsless
02-12-10, 03:53 AM
http://www.bloomberg.com/apps/news?pid=20601087&sid=aSmlkGHASRZ8&pos=4

Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6%

Took me two years to sell a deep waterfront even while pricing it at least 10% below comps. During that time rents I collected dropped from $3500 to $2500/mth and the taxing authority was slow to reduce their assessment, even though I took them to kangaroo kourt. I got all of two offers the entire time (only the second one came with a deposit) and that just $50k below the "best" offer. All told, I finally sold 48% below peak bubble (4.81% annual return, not horrible for a depression sale, I suppose). Yet that before jumbo trouble in paradise.

I just did a survey of the area, about a year since. I picked eight at random from realtor.com. These properties have about 25% more waterfront than the one I sold and they include one with an ICW (Intracoastal Waterway) view (mine was on a turning basin), one point ICW property and one inside point (ie. at least 150 feet of waterfront for point lots). The houses were both new and teardowns (in this area a teardown is perfectly liveable but often replaced upon sale).

When I sold, there was only one preforeclosure in our area. Now there are 7 distressed properties in the immediate area of about 200 homes and plenty more in the surrounding areas along the ICW, particularly north of me where there's at least 50 on the water within just 50 blocks. There was only a scattering there when I sold.

What I found of today's prices: The askings now are about 23% less than my sold for. Assuming they get 10% on average under their asking, they'd sell at 30% less than I got per square foot, just one year hence.

Here's one of the stunners. This house is on a point lot in the Sanctuary, a gated, guarded Boca Raton waterfront community with cameras even on their canals. http://tinyurl.com/y9yrxg3

Asking $2,495,000 for 8,551 sq ft with about 190 feet of dockage just one canal over from the ICW. That's $291/sq ft of house. Even while watching the crash. Even being in the crash. I never would have thought those homes would crash harder than mine.

To give you a better idea of that area, this house http://tinyurl.com/yf5klcf on the canal next to the previous one was asking $23 and change when mine was for sale (for, yikes, considerably less).

Meanwhile, if I though I was losing my ass when I got only $350/sq ft for my dump, then this guy must think he's losing his large instestine (3.85% annual return). (Note: county shows a 2007 value--our market popped right after Wilma put our lights out in 2005--of $3,750,000 and sillyzillow thinks it peaked at $5.23mm).

I'll note also that many if not most of the homes which were for sale when I first tried selling 3 years ago are still waiting for their buyers. So much for paradise. Life was better before the bubble.

If you want to have fun with watching the jumbo mortgaged homes crash, I've been amusing myself with realtytrac and some of the pricier Fort Lauderdale waterfronts, particularly Harbor Beach in 33316 (as I've a landlocked house not there but north of downtown I'm considering selling). About a year ago there was hardly a single distressed home there. But as of this writing there are 23 affluent yet distressed homes. Paradise lost.

BiscayneSunrise
02-13-10, 12:58 PM
centsless,

Paradise Lost, indeed. A friend of mine calls the area from Harbour Beach, through Rio Vista, Colee Hammock and parts of Victoria Park up to Sunrise Blvd. the "Golden Square". Same thing with Coral Ridge and parts of Boca. It was areas like that where one could have expected to have some immunity from any downturn. Given the great crash, owning a high end home in S Florida, especially waterfront, is a pretty big liability.


I know the Sanctuary. They even have gates and guards posted at the entrance to their canals which I didn't think you could do since the ICW is federal water. I guess the Sanctuary was supposed to have a double meaning. Not so. Perhaps, just the opposite.

I saw the link you posted. $17M Wow. In my mind, there are only 2 or 3 neighborhoods in Boca worth spending money on, Royal Palm, Spanish River Estates, Sun & Surf,at the high end, and at the medium range, Camino Gardens or Riviera.

A brief look out at Weston shows a neighborhood I am familiar with in Weston Hills Country Club priced between 550 & 700K. At the peak, these homes were going for $1.4M. I even heard of a home in the Windmill Ranches section of Weston is now going for 650K, down from $6M!!!. That is second hand info from a realtor friend. I have not confirmed that, though. An awful lot of people out there are in serious straits now.

I know a few people who bought a year ago thinking there were getting great deals and they are starting to get a sinking feeling.

centsless
02-15-10, 01:06 AM
To $650k from $6m. I had no ideal so much value could be destroyed so quickly. What an expensive lesson this has been. Of course I'd have preferred such lesson earlier in life, when I had more time to make up for my past centslessness.

As to the Sanctuary, actually the canals are not gated, that's just rumor. They did have cameras mounted at one time, however (probably still do), &, of course, the underwater mine field, I believe.

Two other homes there asking more than $10m. Here's one of the others. http://tinyurl.com/y9x5f34

There's a few places in town where you can spend that kind of cash like on Lake Boca http://tinyurl.com/ya2dfsw (http://tinyurl.com/ya2dfsw) where I drove with my cousin yesterday on our way back from the garlic festival at Old School Square in Delray. I think there was one house on the lake which was not for sale. I decided all the others must have been friends of Madeoff.

And then of course there's always Highland Beach, the promised land, where you can pick up one of these on the cheap http://tinyurl.com/ye2h7df

It's all quite insane; completely beyond my limited comprehension.

CanuckinTX
02-15-10, 04:50 PM
This thread reminds me of a conversation with a friend this past week. His dad is going out to Vegas to buy up a condo which was "worth around $1m" and now is going for $250k. He figures he can buy it cheap and flip it in few years. (My guess is it's one of those City Center condos)

I didn't have the energy or desire to tell him those days are gone. Instead I asked what the monthly condo fee was and he said $900. I think he realized when he said it how outrageous that sounded. Then he offered up that his dad can only lease it out 50% of the time. Again, I didn't say anything but I'm sure he could see from my face how nuts I thought it all was.

Some fools still think this is all a bad dream and the buying opportunity of a lifetime.

BiscayneSunrise
02-15-10, 06:12 PM
This thread reminds me of a conversation with a friend this past week. His dad is going out to Vegas to buy up a condo which was "worth around $1m" and now is going for $250k. He figures he can buy it cheap and flip it in few years. (My guess is it's one of those City Center condos)

I didn't have the energy or desire to tell him those days are gone. Instead I asked what the monthly condo fee was and he said $900. I think he realized when he said it how outrageous that sounded. Then he offered up that his dad can only lease it out 50% of the time. Again, I didn't say anything but I'm sure he could see from my face how nuts I thought it all was.

Some fools still think this is all a bad dream and the buying opportunity of a lifetime.

And that is why the market is still trending down. Every time someone mentions the low prices (relative to the top) I ask them to factor in association fees, property tax and insurance. All of a sudden the deals look much less enticing.

Now that the mindset is shifting back to home ownership as a place to live only and as an expense not an investment, housing prices will take an inverse relationship to taxes and insurance, kind of like a bond. The higher the taxes, the lower the property value.

BiscayneSunrise
02-20-10, 06:45 AM
To $650k from $6m. I had no ideal so much value could be destroyed so quickly.

It's all quite insane; completely beyond my limited comprehension.

I was able to confirm that pricing with a second realtor friend who concentrates on that area of Weston. It was, indeed, listed at 6.5M during the peak. Part of the reason for the dramatically lower price is that the house has been abandoned and needs quite a bit of cosmetic work. I am going to try to find a link for the listing.

For those unfamiliar with Weston and Windmill Ranches, it is a planned city of around 50,000 in the far western suburbs of Broward County, Florida (Fort Lauderdale) It was designed to attract affluent residents from Miami seeking to escape the hustle of Dade County. It was built on Everglades swamp land. Each neighborhood is gated and highly insular. It is popular with local professional athletes, corporate transferees from out of town and wealth South Americans seeking to protect themselves from thuggish Marxist dictators. It's nickname is "Weston-zuela".

For most of the residents, it is the quintessential town of McMansions way out in the exurbs with people over extended in order to have the "good life". Property values there are down about 50% on average. many Weston residents I know moved there to have a safer environment for their kids and better schools. Now they are empty nesters and are can't move back to the beach or downtown areas.

http://www.westonfl.org/

centsless
02-26-10, 02:18 AM
For those unfamiliar with Weston and Windmill Ranches... It is popular with local professional athletes, corporate transferees from out of town and wealth South Americans seeking to protect themselves from thuggish Marxist dictators. It's nickname is "Weston-zuela".

Here's Marino's

http://southflorida.blockshopper.com/news/story/310042172-Dan_Marino_asking_13_5M_for_Weston_estate

Looks like he bought the vacant acreage for $370,000 in 1994 & built a 16,680 sq ft home in 1997. County appraises the property at $5.4mm.

And his neighbor's listing http://www.realtor.com/realestateandhomes-detail/3410-Stallion-Ln_Weston_FL_33331_1109927100?mp=1 which is about 7,000 feet larger for $3+mm less. I guess this one would have more bang for the buck.

Very few resales here as it is a new area. Found this one http://www.realtor.com/realestateandhomes-detail/3325-Bridle-Path-Ln_Weston_FL_33331_1116316015?mp=1 asking $2.1mm. Last sold in 1999 for $1.26mm.

Here's another http://www.realtor.com/realestateandhomes-detail/2735-Paddock-Rd_Weston_FL_33331_1114553199?mp=1 which sold in 2004 for 1.4mm and in 1997 for $842,500. So the asking price of $2.5mm seems quite the premium to live next to where Marino used to live, assuming, of course, that Dan sells for more than twice the county's appraisal.

BiscayneSunrise
02-26-10, 07:10 AM
Thanks for the listings. Even though those listings don't specify, I believe they are all in Windmill Ranches. Heartbreakingly beautiful and even more heart breaking to hear the personal stories of people out there in Weston. So many people want to move from there but no buyers. Sad.

Had a conversation yesterday with a friend whose partner specialized in high end water front property. First, in the Hamptons, then here in south Florida. There were two takeaways:

1) At the extreme low end of crummy little condos in western Broward prices have come up from the bottom. From $20,000 to $30,000. Remember, at the peak these were going for about $150K. What is interesting is that banks are letting them go and starting the minimum bid extremely low to get a buyers frenzy going at auction. Same as how taking a reserve off when bidding stalls to stimulate more bids; bidders know the asset will sell and don't want to lose out. If they start the min. bid too high, bidders just don't bother.

2) There is virtually no retail business at the high end here right now. Buyers smell blood and are either putting in bids where they believe prices will eventually bottom or are just waiting for the market to come to them. Banks are still holding tens of thousands of foreclosed properties back here south Florida.

centsless
02-26-10, 10:32 AM
Ya, that's Windmill. Realtor.com shows nothing sold there recently. The 1/2 mil $ & under smaller houses on smaller lots across Post Road are fetching about $150/sq ft of house and the swampland upon which they are built, apparently, is free.

As to nothing selling? Not shocked. Here's some listings on vacant waterfront land there (waterfront not meaning boating canals but drainage, just to keep that in perspective).

Here's an ~1.5 acre-lot asking ~$1.5mm http://www.realtor.com/realestateandhomes-detail/2745-Windmill-Ranch-Rd_Weston_FL_33331_1114799741?mp=1

and here's 3.5 asking 3.1, but there are some demolition costs http://www.realtor.com/realestateandhomes-detail/Weston_FL_33331_1112872323?mp=1

So lets say they sell for $1mm per acre just for a nice round number.

As Marino paid $370k for 4.3 acres in 1994 and with the land now selling at the above price, that's an annualized return of 16.56% in the middle of the Great Recession. Very nice if you can get it. Since he's asking $13.5mm for the entire weekend Superbowl getaway, that leaves $9.2mm for the house or a construction cost of $551/sq ft for someone to replicate that on land untouched by fame. Even if you could justify $400/sq ft for gold plated toilets, who's gonna want to pay a 30% premium for fame?

Realtors are very good with selling prestige when prices are on the rise and idiots are looking for one extra thing that they can spend money on. This house is one block closer to the beach, that house has 10 ft more waterfront, the typical blah blah blah$. But those days are not these. In these days in this market, location location location doesn't mean crap crap crap.

Now here's the only recent sales in Dan's subdivision as shown in Zillow.

Sold 06/09/2009: $1,850,000
3465 Windmill Ranch Rd, Weston, FL 33331 (http://itulip.com/homedetails/3465-Windmill-Ranch-Rd-Weston-FL-33331/43145505_zpid/)

A 7337-sq-ft house which sold for $1.3mm in 1999 & $1.81mm in Feb 2005 (which was pretty much right before our bubble peak as everything shut down after Wilma put our lights out.)

Sold 05/04/2009: $3,900,000
2760 Paddock Rd, Weston, FL 33331 (http://itulip.com/homedetails/2760-Paddock-Rd-Weston-FL-33331/43145553_zpid/)

This is a 13,826 sq ft waterfront house built in 2009. The property sold for $1,625,000 in 2005 and for $930,000 in 2001. Even at that bubble price for the land and assuming they'd get the very same price for it today (according to the above example), that leaves the price for the property minus the land at $164/sq ft of house with two sides on water in the same subdivision and just blocks away from Marino who's asking $551/sq ft of house (plus a nice profit on that land).

BiscayneSunrise
07-09-10, 04:36 PM
http://www.nytimes.com/2010/07/09/business/economy/09rich.html?src=me&ref=general


LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

http://graphics8.nytimes.com/images/2010/07/09/business/RICH/RICH-articleInline.jpg


A home in foreclosure in Los Altos, Calif., a city where the median home price is $1.5 million.

Peter DaSilva for The New York Times


The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities


he CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.
Multimedia



The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

BiscayneSunrise
08-29-11, 05:02 PM
Given the very strong likelihood of less federal subsidies for housing, prices will drift further down.


Redwood: Government support of mortgage market 'not sustainable
by JON PRIOR

http://www.housingwire.com/2011/08/11/redwood-government-support-of-mortgage-market-not-sustainable

Thursday, August 11th, 2011, 5:45 pm
Redwood Trust (RWT: 12.41 +2.82%), the only issuer of a private-label, mortgage-backed security since the financial meltdown in 2008, said the housing industry is benefiting from the government's continued support of the market — for now.

Through Fannie Mae, Freddie Mac and Ginnie Mae, the government finances more than 95% of the mortgages currently being written in the U.S. When Congress comes back from recess in September, it will have a chance to begin unwinding its lifeline. The conforming loan limits, or the maximum amount of a loan that can be guaranteed by Fannie, Freddie or insured by the Federal Housing Administration, expires Oct. 1.

Already the industry is pushing its support of a bill in the House and another in the Senate to extend these limits. Other reforms remain on the distant horizon, including the reform of Fannie and Freddie.

In its second-quarter earnings report, Redwood said as long as these conditions persist, opportunities for private investors to fund more loans remains "subdued." Even more, Redwood said, the government support cannot continue much longer.

"Many real estate agents, homebuilders and banks appear to benefit from such a status quo. Our strategic outlook, however, is that over time the current outsized role of government support for the $9.6 trillion residential mortgage market is simply not sustainable, especially in light of the painfully heated debates throughout 2011 over raising the $14.3 trillion federal debt ceiling," Redwood said.

Since the financial collapse in 2008, Redwood closed on the only RMBS deal in 2010, issued another in March 2011 and early this year said they planned to issue two more by the end of the year.

"We believe it is probable that the loan-limit reduction occurs as scheduled," Redwood said. "However, we expect pro-status quo forces to continue advocating against this reduction up to the point it is scheduled to occur, perpetuating an element of uncertainty to the existing timeline for reform."

Indeed, both the National Association of Realtors and the Mortgage Bankers Association, two of the most influential trade groups in the industry, recently threw their weight behind extending the loan limits. They claim the still struggling market continues to rely on such support.

Redwood admitted "a steady stream of bad news" from recent economic trends, the looming debt ceiling fight, the crisis in Europe and the end of the Federal Reserve's second quantitative easing program all turned investors away from riskier bets in MBS.

Still, Redwood said eventually the private market will have to make a come back again.

"As the government eventually and gradually withdraws support for mortgage financing, we believe private capital (outside of banks) will be called upon to step in and fill the void," Redwood said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

Milton Kuo
08-29-11, 07:48 PM
Given the very strong likelihood of less federal subsidies for housing, prices will drift further down.


As much as I would like to believe that the government and the Federal Reserve will give up on trying to reflate housing prices, this seems like wishful thinking to me. You have the following forces all desperately trying to reflate the housing bubble:


The Federal Reserve, which is keeping rates low to lower mortgage rates (which tend to inflate housing prices)
Christine Lagarde of the IMF is talking about the U.S. need to arrest housing price declines
The Obama administration is talking about doing something to allow people to refinance at the current low rates. Evidently, these people cannot currently refinance either due to being underwater on their mortgages or being lousy credit risks. If these refis occur, it is in all likelihood that the mortgages will be guaranteed by the government.
The NAR and other private interests will continue lobbying Congress to throw more good money after bad in the housing market.
The FHA continues to make very large loans ($600,000+) when it is supposed to be a lending program for financially disadvantaged people.

Housing prices will decline, I'm relatively certain. However, it's just going to take longer for things to hit bottom with all the false demand being generated.