Open Thread 12-27-2008

Party — Boston

Well you know I dont get off on workin day after day
I wanna have some fun while Im here
I play the game when its goin my way
And theres nothin like a party when its kickin into gear

As some of you may have noticed, we are planning another IHB party on January 7, from 6:30 – 10:00 at JT Schmids at the District. Everyone had a great time at the last gathering in November, and we hope to make these gatherings a regular occurrence. I will have books available if anyone is interested.

IHB Get Together 2

Baby, its a party as long as youre there
Its a party, party, party!

The IHB has grown into a large community and a successful website. It happened by accident rather than by design. Zovall wanted a successful website. I just wanted to write. Neither of us had a grand vision for creating a website visited by over 3000 people a day (well, perhaps Zovall did…) It is funny how things kind of “just happen.” The Irvine Housing Blog has a page rank of between 4 and 6 (the rankings are somewhat volatile), and an Alexa rating of around 50,000 (this puts us in the top 50,000 viewed websites on the internet).

I did not have a full appreciation of what we accomplished until I started to market the book. I have been exploring all the methods of internet promotion people use to peddle their products and promote themselves. Just getting a hundred people a day to visit a website is a difficult task, and some people (including myself) resort to paying for the traffic.

One of the more interesting methods of generating publicity I came across is article marketing. I did not realize there was this whole world of consultants and guru wannabes writing little articles being posted all over the web. One of the most popular of these sites is EzineArticles.com. It is one of the top 250 websites according to Alexa. It is full of articles written by people trying to direct traffic back to their websites. It is fascinating to explore just to see who these people are and what they are trying to accomplish.

Anyway, I got into the act myself. Since I already had 90,000 words put together for a book, and two years worth of blog posts to draw from, it was relatively easy to chunk almost 200 short articles to publish on these article websites. I hope tp accomplish two things: 1. Drive traffic to the Great Housing Bubble book sales site without paying for it, and find new readers for the IHB. If this marketing campaign is successful, we may see some new faces in the comments. I suspect many of these people will be real estate trolls. Most of the real estate articles on these article marketing websites are realtors trying to generate internet business. Needless to say, my point of view on the real estate market will stand in contrast to most of the articles these directories have posted. It will be interesting to see if any of these people follow the trail of breadcrumbs back to the IHB.

Below the fold is a list of all the little articles I wrote to distribute on these sites. These will go out to the rest of the article marketing websites over the next 6 months. I have them scheduled to go out one per day until they are all distributed.

{book}

Does anyone have any real estate news they would like to share?

  • In Financial Markets, the Herd is usually Wrong
    Financial
    markets are fickle monsters. Whichever way the herd moves the market
    will go the other direction. During the Great Housing Bubble rally,
    prices were pushed up the herd mentality. As prices r…

  • The Participation of Women in the Housing Bubble
    One
    of the unique characteristics of the Great Housing Bubble was the large
    increase in market participation among women, sometimes single women
    and sometimes as married women buying property on their…

  • Subprime Will Return, Alt-A is Dead
    Like
    a Phoenix rising from the ashes, Subprime lending will make a comeback.
    Lenders focus on the three Cs: Creditworthiness, Capacity, and
    Collateral. Creditworthiness is measured by one’s FICO score…

  • The High-End Suburbs Will Also Crash
    The
    course of a financial market, particularly the real estate market, is a
    long and winding road full of twists and turns and unexpected outcomes.
    It was certainly foreseeable that banks and builders…

  • The Loan Program for the Next Housing Bubble
    Lending
    during the Great Housing Bubble was too messy. There were too many loan
    programs. Since real estate always goes up, and since people want
    immediate access to this appreciation to spend it like…

  • Can You Still Make Money Flipping Houses?
    Speculation
    is a battle. The forces of greed and fear drive the financial markets,
    and the speculator attempts to profit from these moves. Speculation is
    not investment, although most do not understan…

  • Why Did We Have All Those Bailouts?
    It
    all starts in the housing market. Realtors peddle fantasies of
    unlimited wealth that leads to people wanting to overpay for houses.
    The desire for real estate at any cost provides an opportunity fo…

  • Housing Desire is Not Housing Demand
    The
    last line of defense for the housing bulls is the fallacy of pent-up
    demand. Belief in this fallacy relies on people’s inability to
    distinguish between desire and demand. Most people want a house….

  • Why Were People Buying Houses While Prices Were Dropping?
    There
    is a great deal of price volatility in California. There are
    significant periods of time where house prices will appreciate faster
    than incomes increase. This is purely the result of irrational …

  • Does Home Appreciation Make It Easier to Move Up?
    The
    conventional wisdom in California real estate is that you buy a home,
    and when it appreciates, you sell it and move up to a better home.
    There is some truth to this idea, but not in the way most p…

  • Moral Hazard and Housing Bailouts
    All
    bailout measures have embedded within them serious issues of moral
    hazard. Both lenders and borrowers were extremely foolish during the
    real estate bubble. To bail them out at the expense of the w…

  • Getting Out of a Real Estate Transaction
    Changing
    your mind on a stock purchase is relatively easy. Stocks are very
    liquid, and transaction costs are very low. However, changing your mind
    about a real estate transaction is not so easy. Real …

  • Market Solutions for Preventing the Next Housing Bubble
    There
    is one potential market-based solution that would require no government
    regulation or intervention that would prevent future bubbles from being
    created with borrowed capital: change the method o…

  • What Did Not Cause the Housing Bubble?
    To
    fully understand what caused the housing bubble, one needs to examine
    some of the purported causes that are not valid because these often
    lead to incorrect policy initiatives. Bad policy initiative…

  • Do We Really Need to Maximize Home Ownership Rates?
    There
    needs to be an open discussion of the goal of maximizing home
    ownership. Owning a home has become synonymous with the American Dream.
    Every Presidential administration has had the expansion of h…

  • Personal Problems Resulting From the Great Housing Bubble
    The
    economic problems caused by asset price bubbles often lead to personal
    problems in the wake of the deflating bubble. Statistics about
    unemployment, foreclosure and bankruptcy are impersonal. The e…

  • Take Advantage of a Buyer’s Market
    When
    the market turned up in the late 1990s the market shifted. During the
    last decline, the buyers had an advantage. During the bubble the
    advantage went to the sellers. The seller’s market went on f…

  • What Happens in a Foreclosure?
    Foreclosure
    is the forced sale of a property owned by the borrower in order to
    satisfy the debt(s) secured by the property. Foreclosure laws are
    complex, and they vary from state to state. There are n…

  • Lingering Problems from the Deflation of the Housing Bubble
    As
    with any illness, the recovery is often plagued by symptoms of the
    disease and unwanted side effects. The recovery from the Great Housing
    Bubble will be no exception. The main problems will be expe…

  • How Does a Decrease in Home Ownership Rates Impact Residential Real Estate Markets?
    There
    is a strong correspondence to the growth of the subprime lending
    industry and an increase in home ownership rates. This is a direct
    result of lending money to those borrowers previously excluded…

  • Only a Fool Believes Real Estate Prices Always Go Up
    In
    2007 and 2008, house prices declined nationally for the first time
    since the Great Depression. From 2002 to 2006, there was a massive
    Ponzi Scheme of ever-increasing debt that fueled the Great Hous…

  • Factors that Influence the Price Declines in Residential Real Estate Markets
    There
    are a number of factors that will influence the timing and the depth of
    the price decline. There are a number of psychological factors and
    technical factors in play….

  • Housing Market Speculation Was a Disaster
    Many
    people decided to speculate in residential real estate markets during
    the Great Housing Bubble. Most were amateurs that had no idea what they
    were buying or why prices were increasing. The only t…

  • Emergency Economic Stabilization Act of 2008 Did Not Work
    In
    early October 2008, the Congress passed and the President signed the
    Emergency Economic Stabilization Act of 2008. The purpose of the bill
    was “to restore liquidity and stability to the U.S. financ…

  • Housing and Economic Recovery Act of 2008 Did Not Work
    In
    late July 2008, Congress passed and the President signed the Housing
    and Economic Recovery Act of 2008 that included the following
    provisions: Federal Housing Finance Regulatory Reform Act of 2008,…

  • Hope Now? The Big Lies of the Housing Bubble
    The
    first of the numerous bailout programs was “Hope Now” introduced in
    October of 2007. As the name suggests, Hope Now was sold to the general
    public as a reason for them to hang on and continue maki…

  • Conspicuous Consumption – It’s a California Thing
    So
    what happens when you give poor people money? They spend it. The
    stories of people who won the lottery and managed to spend themselves
    into bankruptcy a few years later are classic examples of the …

  • The Despair Stage in a Financial Bubble
    There
    are many identifiable stages in a financial mania. These include:
    enthusiasm, greed, delusion, denial, fear, capitulation, and despair.
    From a perspective of market psychology, it is difficult t…

  • The Capitulation Stage in a Financial Bubble
    There
    are many identifiable stages in a financial mania. These include:
    enthusiasm, greed, delusion, denial, fear, capitulation, and despair.
    The transition from the fear stage to the capitulation sta…

  • The Fear Stage in a Financial Bubble
    There
    are many identifiable stages in a financial mania. These include:
    enthusiasm, greed, delusion, denial, fear, capitulation, and despair.
    The most important change in the market in the fear stage …

  • The Denial Stage in a Financial Bubble
    There
    are many identifiable stages in a financial mania. These include:
    enthusiasm, greed, delusion, denial, fear, capitulation, and despair.
    When the limit of affordability is reached and the pool of…

  • The Greed Stage in a Financial Bubble
    There
    are many identifiable stages in a financial mania. These include:
    enthusiasm, greed, delusion, denial, fear, capitulation, and despair.
    In the greed stage of a financial bubble, the bullish sent…

  • The Enthusiasm Stage in a Financial Bubble
    There
    are many identifiable stages in a financial mania. These include:
    enthusiasm, greed, delusion, denial, fear, capitulation, and despair.
    At the beginning of the enthusiasm stage of a financial bu…

  • Precipitating Factors in Financial Bubbles
    There
    is often a precipitating factor causing the initial price rally that
    pushes prices above their supported fundamental values. A bubble rally
    is usually kicked off by some exogenous event, but it …

  • Behavioral Finance Theory
    Behavioral
    Finance abandoned the quest of the efficient markets theory to find a
    rational, mathematical model to explain fluctuations in asset prices.
    Instead, behavioral finance looked to psychology …

  • Efficient Markets Theory
    The
    efficient markets theory is the idea that speculative asset prices
    always incorporate the best information about fundamental values and
    that prices change only because new information enters the m…

  • Housing Bubble Deflation – The Stages of Grief
    Markets
    are the collective actions of individuals, and the psychology of the
    markets can be broken down to the psychology of the individual
    participants who make it up. When price levels in a financia…

  • Floplords – Flippers Turned Landlords
    When
    house prices stopped their dizzying ascent in the Great Housing Bubble,
    many speculators found themselves with large monthly debt service costs
    and no income to offset expenses. Many chose to qui…

  • How Does Leverage and Debt Impact Returns on Residential Real Estate?
    As
    a speculative investment, residential real estate has the potential to
    make or lose vast sums of money due to the impact of financial leverage
    (debt). Houses are typically leveraged at 80% of their…

  • Housing Bubble Market Psychology
    Financial
    markets are driven by fear and greed: two basic human emotions.
    Rationality and careful analysis are not responsible for, or predictive
    of, current or future price levels in markets exhibiti…

  • When Will Housing Prices Stop Falling?
    House
    prices became very elevated relative to fundamentals of income and
    rent. Since these fundamentals underpin the housing market, prices will
    continue to fall until they come into alignment with hi…

  • One Hundred Percent Financing Ruined the Housing Market
    Once
    100% financing became widely available, it was enthusiastically
    embraced by all parties: the lenders suddenly had a huge source of new
    customers to generate high fees, the realtors and builders n…

  • Adjustable-Rate Mortgage Resets Deflated the Housing Bubble
    The
    loan reset issue is not confined to those who bought late in the bubble
    rally of the Great Housing Bubble. Many borrowers are homeowners who
    refinanced to take advantage of more favorable loan ter…

  • Subprime Foreclosures Burst the Housing Bubble
    The
    first sign of trouble for the housing market was the implosion of
    subprime in early 2007. Subprime borrowers stopped paying back the
    loans they were given due to loan resets and payment recasts. T…

  • The Credit Crunch Deflated the Housing Bubble
    Loan
    standards vary over time as the credit cycle loosens and tightens. Many
    borrowers in the bubble rally were qualified with low credit scores,
    very high combined-loan-to-values, high debt-to-income…

  • Reactions to the Housing Bubble Burst
    When
    a bubble in a financial market pops, it does not explode in spectacular
    fashion like a soap bubble; it is more comparable to a breached levee
    which releases water slowly at first. Once the financ…

  • The Affordability Limit in Residential Real Estate Markets
    Affordability
    is the ultimate limit of any asset bubble. If prices are so high that
    no buyer can afford them, there are no transactions and thereby no
    market. The fear of many buyers in a financial ma…

  • The Supply Curve in Residential Real Estate Bubbles
    The
    supply curve is the opposite of the demand curve: sellers will make
    very few units available at low prices, and sellers will make a great
    many available at higher prices. Wherever these two curves…

  • Affordability Measures in Residential Real Estate Markets
    Affordability
    is a measure of people’s ability to raise money to obtain real estate.
    It is often represented as an index that compares the cost to finance a
    median house price to the percentage of the…

  • The Guide to Pick-a-Pay Option ARM Loans
    The
    Option ARM is one of the most complicated loan programs ever developed.
    It was heralded as an innovation because it allowed people greater
    control over their monthly payments, and it provided grea…

  • Four Lies Believed During the Housing Bubble
    There
    are a number of fallacies about residential real estate that either
    affirm the belief in perpetually rising prices or minimize the fears of
    a price decline. These fallacies generally revolve aro…

  • Eighteen Common Lies Realtors Tell
    Realtors
    are agents of sellers, and it is not uncommon for them to exaggerate
    the income and appreciation potential of a given property to help sell
    it. It is a realtor’s job to obtain the highest pos…

  • Debt-To-Income Ratios and Residential Real Estate
    The
    cumulative impact of the decisions of buyers is represented in the
    debt-to-income ratios, how much each household pays to borrow versus
    how much they make. Comparing the trends in debt-to-income r…

  • Price-To-Rent Ratios as a Measure of Residential Real Estate Value
    Price-to-rent
    ratios represent the cost of a dwelling unit relative to the cost of a
    comparable dwelling unit. This ratio is also subject to the same
    variability exhibited by the price-to-income ratio…

  • Price-To-Income Ratios as a Measure of Residential Real Estate Value
    Price-to-income
    ratios represent the amount borrowed relative to the incomes of the
    borrower. There are many variables that impact house prices, and some
    of the variability in prices over time can be …

  • Price Measurements of Residential Real Estate Markets
    There
    is no perfect measure for any broad financial market activity, and real
    estate markets are one of the most difficult to measure accurately.
    There are a number of methods for measuring prices and…

  • Housing Bubble – How to Identify One
    Prices
    went up a large amount during the Great Housing Bubble, but what makes
    this price increase a bubble? To answer this question it is necessary
    to accurately measure price levels and review histor…

  • The Great Housing Bubble – Who is Responsible?
    Who
    is responsible for the Great Housing Bubble? It is one thing to
    identify who or what caused the bubble, but it is another to assign
    responsibility and blame. Borrowers, lenders, investors, and the…

  • Visualizing the Real Estate Bubble
    The
    Great Housing Bubble can be visualized with a simple thought
    experiment. Imagine a room with 100 people representing the pool of
    subprime borrowers. These are new entrants to the market. They were…

  • The CDO Market Solution for Future Housing Bubbles
    The
    solution to preventing future bubbles in the residential real estate
    market lies in the market for collateralized debt obligations and
    conforming loans insured by the government sponsored entities…

  • Residential Appraisals and Collateralized Debt Obligations
    There
    are three methods of appraising the resale value of residential real
    estate: the comparative-sales approach, the cost approach, and the
    income approach. The comparative-sales approach uses recen…

  • Credit Rating Agencies and the Secondary Mortgage Market
    Credit
    rating and analysis of collateralized debt obligations and all
    structured finance products are integral to the smooth function of the
    secondary market for mortgage loans. A credit rating agency…

  • The Housing Bubble was a Credit Bubble
    The
    Great Housing Bubble was not really about housing; it was about credit.
    Most financial bubbles are the result of an expansion of credit, and
    the Great Housing Bubble was no exception. Housing just…

  • Why did Freddie Mac and Fannie Mae Go Under?
    The
    Federal Home Loan Mortgage Corporation, also known as Freddie Mac, was
    created by Congress in 1970 to make possible a secondary mortgage
    market to provide greater liquidity to banks and other lend…

  • How to Value a Vacant Home Building Lot
    The
    market value of an individual lot is equal to the revenue it could
    generate when a residential housing unit is built on it minus the cost
    of creating that revenue (construction cost, marketing, pr…

  • Valuation of Lots and Raw Land
    The
    valuation of land used for residential housing is mysterious and often
    misunderstood. The valuation of lots and raw land requires a detailed
    knowledge of construction and marketing costs as well a…

  • The Inflation Premium for Residential Real Estate
    Residential
    housing does have a cash-saving value, if financed with a fixed rate
    mortgage. Over time, the growth in income and rents increases the cost
    of housing for renters. The inflation of housing…

  • Negotiating Skills Make a Big Difference in Home Sale Profits
    The
    negotiating abilities of buyers and sellers and the overall market
    environment greatly impact the profits from real estate. Sellers almost
    universally believe their properties are worth more than …

  • The Appropriate Discount Rate for Residential Real Estate Analysis
    The
    investment value of a property can only be measured against other
    investment opportunities available to an investor. If investors can
    earn 4.5% by investing in government treasuries, they will dem…

  • How Much Does a House Really Cost?
    When
    contemplating purchasing a home, one should examine all of the costs of
    ownership to budget properly for the expenses they will face. Most
    people simply focus on the payment, and soon after they …

  • Buy a Home as a Place to Live
    A
    house should not be viewed as an investment. When investments go bad,
    it causes financial hardship and anguish. When the bad financial
    investment is a family home it ruins everything. The joyous mem…

  • Everyone Wants To Live Here… Not!
    The
    Great Housing Bubble witnessed many foolish ideas and beliefs about
    real estate. Among the most foolish was the idea that prices went up
    because everyone wants to live wherever they are. When rati…

  • Have California House Prices Always Been Crazy?
    Volatility
    in real estate prices is not new to California. During the 1970s, real
    estate prices detached from typical valuations of three-times yearly
    income seen in the rest of the country. Once resi…

  • Should You Worry About the Opportunity Cost of a Housing Downpayment?
    The
    initial equity in a home is equal to a purchaser’s downpayment. If a
    buyer pays cash for a home, all equity is initial equity. There is an
    opportunity cost associated with downpayment money. This …

  • Where Is The Epicenter Of The Housing Bubble?
    The
    epicenter of the Great Housing Bubble is located in Irvine, California.
    One of the primary causes of the bubble was the lowering of lending
    standards and the extension of credit to people who coul…

  • Fifteen Common Lies Realtors Tell
    Realtors
    are agents of sellers. It is their job to obtain the highest possible
    sale price for a piece of real estate. The most common ploy realtors
    use it to attempt to create a sense of urgency in a …

  • If You Are Underwater but Can Afford the Mortgage Payment You Should Hang On
    Anyone
    that can manage their payments should consider trying to hold on, even
    if the house value has dropped well below their purchase price. There
    are still a great many overextended homeowners and s…

  • The Pent-Up-Demand Meme Is Complete Nonsense
    The
    realtor spin about “pent up demand” is complete nonsense. There is
    probably a lot of pent up desire for housing, but demand is measured in
    dollars, and there is a major lack of demand with the abs…

  • Regulating the National Association of Realtors Would Help Prevent the Next Housing Bubble
    The
    sales tactics of the National Association of Realtors should be
    examined and potentially come under the same restrictions as securities
    brokers through the Securities and Exchange Commission. Real…

  • Regulating Loan Amounts Would Help Prevent the Next Housing Bubble
    The
    parameters of the forming limitations on the debt-to-income ratio and
    combined-loan-to-value are essential to prevent bubbles in the housing
    market and to prevent the banking system from becoming …

  • Strict Loan Documentation Standards Will Help Prevent the Next Housing Bubble
    One
    of the most egregious practices of the Great Housing Bubble was the
    fabrication of income by borrowers that was facilitated and promoted by
    originating lenders. Stated-income loan programs were wi…

  • Regulatory Solutions to Prevent the Next Housing Bubble
    The
    regulatory solution proposed herein is simple, yet far reaching. It
    comes in two parts, the first is to limit the amount lenders can loan
    to borrowers with a rather unique enforcement mechanism, a…

  • Changing Appraisal Methods would Prevent the Next Housing Bubble
    Investor
    confidence in the market for CDOs and all mortgages was shaken during
    the decline of the Great Housing Bubble, and rightly so. Investors were
    losing huge sums, and nobody clearly understood w…

  • Housing Bubble Economic Problems – Have We Seen the Worst?
    The
    foremost problem resulting from the deflation of the Great Housing
    Bubble was the imperilment of our banking and financial system. The
    bailouts emanating from Congress have mostly focused on keepi…

  • Housing Bubble Causes – Why Did It Happen?
    The
    Great Housing Bubble was caused by an expansion of credit that enabled
    irrational exuberance and wild speculation. The expansion of credit
    came in the form of relaxed loan underwriting terms inclu…

  • Future Housing Bubbles – Should We Prevent Them?
    The
    deflation of housing bubbles is very financially and emotionally
    painful, and if possible, housing bubbles should be avoided. The pain
    of the deflation of a housing bubble cannot be avoided by try…

  • In a Buyer’s Market the First Offer is the Best Offer
    The
    most counter-intuitive part of buying in a buyer’s market is to make
    the first offer the best offer. Ordinarily sellers, or more accurately
    the seller’s realtor, try to create a sense of urgency t…

  • Distressed Sellers – Should They Attempt a Short Sale?
    A
    short sale is a property closing where the proceeds from the closing do
    not satisfy the outstanding debt on the property. The lender must agree
    to accept less money at the closing table for the clos…

  • What to Do When the Sale Price of a Home Does Not Pay Off a Mortgage
    Once
    a price decline gets underway many buyers who were late to the price
    rally find they are in a property worth less than they paid for it. As
    prices continue to fall, many find themselves “underwat…

  • Buying and Selling Real Estate during a Decline
    Residential
    real estate markets generally move very slowly and trend in a single
    direction for long periods of time. Once these markets reach an
    inflection point, the direction of price movement chang…

  • The Housing Bubble – What Buyers Need to Know
    During
    the decline of house prices in the deflation of the Great Housing
    Bubble, price levels will fall to fundamental valuations of historic
    levels of appreciation, price-to-rent ratios, and price-to…

  • Foreclosures and Residential Real Estate Markets
    The
    number of foreclosures will affect both the timing and the severity of
    the deflation of the Great Housing Bubble. It is foreclosures that
    drive prices lower quickly. Foreclosures control the timin…

  • Unemployment and Residential Real Estate Markets
    Prior
    to the Great Housing Bubble, house price declines had only been
    associated with economic downturns and increases in unemployment. As
    people lost jobs, they lost their ability to make house payme…

  • It Is Different This Time… Not!
    Each
    time the general public creates an asset bubble, they believe the rally
    in prices is justifiable by fundamentals. When proven methods of
    valuation demonstrate otherwise, people invent new ones wi…

  • Residential Real Estate Markets Crumble from the Bottom Up
    The
    real estate market can be visualized as a massive pyramid. There are
    very few multi-million dollar properties at the top of the pyramid, and
    a large number of relatively inexpensive entry-level pr…

  • Home Price Appreciation and Transaction Fees – Only the Realtors Get Rich
    Profiting
    from house price appreciation requires getting more money from the sale
    of a property than was originally paid for it and not having that
    profit cancelled out by moving costs, transaction fe…

  • Buy Now or Be Priced Out Forever… Not!
    When
    prices rise faster than their wages, people can obtain less real estate
    with their income. The natural fear under these circumstances is to buy
    whatever is available before there is nothing desir…

  • Flip That House… Not!
    During
    the Great Housing Bubble, many speculators tried to make money through
    trading houses. The vast majority of these traders were not
    professionals but amateurs who thought they could be professio…

  • They Aren’t Making Any More Land… Not!
    All
    market pricing is a function of supply and demand. One of the reasons
    many house price bubbles get started is due to a temporary shortage of
    housing units. This is a particular problem in Californ…

  • Inflation and Home Equity – What Is the Relationship?
    House
    prices historically have outpaced inflation by 0.7% nationally. In a
    normal market, this is the only appreciation homeowners obtain. This
    appreciation is caused by wage inflation translating int…

  • Lies Realtors Tell – Ten of Their Favorites
    Realtors
    are agents of sellers. It is their job to obtain the highest possible
    sale price for a piece of real estate. By law they cannot misrepresent
    any facts about the property, but when it comes t…

  • Renting Versus Owning Residential Real Estate
    Renting
    versus owning is both an intellectual, financial decision and an
    emotional decision. The financial decision is first and foremost an
    analysis of the comparative cost of renting versus owning. …

  • Housing Bubble – Why Should Anyone Care?
    Why
    should anyone care about financial bubbles in general and the housing
    bubble in particular? The first and most obvious reason is that the
    financial fallout is stressful. Many people lost a great d…

  • Real Estate Bubble Fallacies – Can You Identify Them?
    There
    are a number of fallacies about residential real estate that either
    affirm the belief in perpetually rising prices or minimize the fears of
    a price decline. These fallacies generally revolve aro…

  • Subprime Containment Theory Was a Lie
    Conventional
    wisdom (or market spin) was that the risk of default from subprime
    would not spill over into Alt-A and Prime loans. This argument was made
    because these two categories have historically h…

  • Home Equity – What is It?
    Many
    people who purchase real estate have no idea what equity is, what
    creates it, what destroys it, and what to do with it. People who
    purchase real estate use the phrase “building equity” to describ…

  • Unaffordable House Prices, Will It Last Forever?
    During
    the Great Housing Bubble, prices detached from their fundamental
    valuations and became very inflated. This price inflation created a
    situation where affordability dropped to record low levels i…

  • Interest Rate Resets on an Adjustable Rate Mortgages Are a Problem
    Many
    people took out adjustable rate mortgages during the Great Housing
    Bubble. After 25 years of steadily declining interest rates, people
    forgot about, or never knew about the risk of rising interes…

  • Real Estate Investment versus Real Estate Speculation – What is the Difference?
    Owner-occupied
    residential real estate is viewed by many people as a good investment.
    Realtors often use this idea as part of their sales pitch. This view is
    fallacious and it is one of the beliefs re…

  • Low Mortgage Interest Rates, It Is a Bad Time to Buy A House
    The
    fluctuation in mortgage interest rates has implications for when it the
    best time to buy and the best time to refinance a home mortgage. It is
    a popular misconception that low interest rates make …

  • Real Estate Only Goes Up… Not!
    The
    mantra of the National Association of Realtors is “real estate only
    goes up.” This economic fallacy fosters the belief in future price
    increases and the limited risk of buying real estate. In 200…

  • Higher Interest Rates and Residential Real Estate Markets – What Would Happen?
    A
    key factor impacting the fundamental value of housing and thereby the
    bottom is interest rates. Higher interest rates would devastate
    residential real estate markets. When interest rates go up, the …

  • Debt-to-Income Ratios Impact on Residential Real Estate Markets
    The
    debt-to-income ratio is a measure of how far buyers are “stretching” to
    buy real estate. Buyers have historically committed larger sums to
    purchase real estate when prices are rising in order to c…

  • Hyperinflation and the Housing Market
    The
    Federal Reserve under Ben Bernanke began aggressively lowering interest
    rates at the end of 2007 in response to the severe economic downturn
    caused by the collapse of house prices and the related …

  • Housing Market Bottom – Price-to-Income Ratio Estimates
    One
    method used to evaluation residential real estate prices is the
    price-to-income ratio. Since people borrow the vast majority of the
    funds necessary to purchase residential real estate, and this bo…

  • Housing Market Bottom – Price-to-Rent Ratio Estimates
    Comparative
    rent is the primary method of evaluating the fundamental value of any
    property. The price-to-rent ratio links the cost of ownership with the
    cost of rental. This link is direct because pos…

  • Housing Market Bottom – Price Action Estimates
    Most
    market participants focus on price action. The price-to-price feedback
    mechanism largely responsible for bubble market behavior gathers its
    strength from an awareness of market pricing, and the w…

  • House Prices Fall – How Low Will They Go?
    Despite
    the difficulty in market forecasting, many who have examined the
    residential real estate market point to continued declines through 2009
    and beyond. The most likely scenario has resale residen…

  • Future House Prices are Dependent upon Future Loan Terms
    Every
    homebuyer operating in the deflation of the Great Housing Bubble needs
    to consider what loan terms will be available in the future. At some
    point, most buyers become sellers. The future buyer wi…

  • Housing Bubbles as Cultural Pathology
    What
    is a Cultural Pathology? There are certain beliefs if widely held and
    acted upon by a group of people leads inevitably to collective
    suffering and personal destruction. The housing bubble was a f…

  • Housing Bailouts are False Hopes
    One
    of the more interesting phenomena observed during the bubble was the
    perpetuation of denial with rumors of homeowner bailouts. The bailout
    rumors were false hopes provided by the government to all…

  • Fundamental House Value, What Are Houses Really Worth?
    The
    fundamental value of all housing prices is equivalent rents. Rents
    define the fundamental value of real estate because rental is a direct
    proxy for ownership; both rental and ownership provide for…

  • Flip That House – Houses Were Traded Like Commodities
    Commodities
    are items of value and uniform quality produced in large quantities and
    sold in an open market. Although every residential real estate property
    is unique, these properties became uniformly…

  • Fundamental House Value, What Are Houses Really Worth?
    The
    fundamental value of all housing prices is equivalent rents. Rents
    define the fundamental value of real estate because rental is a direct
    proxy for ownership; both rental and ownership provide for…

27 thoughts on “Open Thread 12-27-2008

  1. Joe/RI

    Hey IR, I live in Rhode Island but frequent your blog regularly because what is going on your coast is relevant to what is happening over here. I have directed many people to your site and will continue to do so as I believe it is one the few sources of knowledge and truth regarding the housing bubble, not to mention the shock and awe value I get out of some of the reads. Perhaps a future evolution of your product could include regional property analysis to broaden the appeal of the website?
    Keep up the good work.
    Happy Holidays!

  2. IrvineRenter

    Advice for renters if landlord faces foreclosure

    “This is becoming an all too familiar scenario for thousands of renters nationwide who have become the unintended victims of foreclosures. Banks are booting good tenants onto the streets with little to no notice after seizing a property from a delinquent owner, ignoring tenant leases.

    In the most troubling cases, some families are forced into shelters for temporary housing because they have little savings to cover moving costs, first month’s rent and a security deposit at another apartment.

    Fannie Mae this month pledged to change that with its new renter policy starting in January. The plan will allow renters living in foreclosed properties to sign new leases with Fannie while the property is up for sale, or give the tenants money to relocate. Fannie has yet to establish the length of the leases, and the amount of move-out assistance will vary by state and property.”

  3. ockurt

    Article from the LA Times today…

    Home prices expected to fall further in 2009

    Growing unemployment, more declines in consumer spending and a particularly long and deep recession are expected to depress demand, economists say, with falling rents adding to the downward spiral.

    Peter Y. Hong
    December 27, 2008

    Real estate experts who were troubled by a 10% drop in median home prices near the end of last year from the previous year probably were stunned by the 35% drop in values since then.

    But that may be overshadowed by what they now worry lies ahead.

    Growing unemployment, more declines in consumer spending and a particularly long and deep recession are expected to batter home prices even further next year, they said.

    “As unemployment keeps rising, demand for housing softens. It will probably get worse before it gets better,” said Delores A. Conway, director of USC’s Casden Real Estate Economics Forecast.

    And the ripple effect is pushing rents down, which in turn could put greater pressure on home prices and exacerbate the downward spiral.

    Overbuilding in some areas and hard economic times have driven apartment vacancies up, and that is causing rents to stagnate or fall, Conway said.

    In downtown Los Angeles, for instance, apartment rents were about the same in the third quarter this year as they were in the same period a year ago, halting the rise in rents in previous years, Conway said. In Hollywood, apartment rents fell 2% in the third quarter compared with a year ago, she said.

    Data on single-family home rentals are less complete, but real estate agents in areas with numerous foreclosures say rents for houses are falling as the supply of vacant houses for rent exceeds demand.

    Those falling rents could offset any boost to home sales from currently low interest rates and prices, economists said. For those able to qualify for mortgages and willing to buy a home, terms have become quite favorable.

    At the end of November, Southern California’s median home sales price had fallen to $285,000, from $435,000 in November 2007. If median prices were to continue falling at that pace, they would be below $200,000 a year from now.

    But even bearish forecasters don’t expect so severe a decline. More likely, prices in Southern California will settle in late 2009 at a level roughly 55% below their peak, said Christopher Thornberg, a Los Angeles economist.

    That would amount to a price near $230,000, a level at which home prices would be roughly in line with incomes by historical norms.

    The rapid drop in home prices this year has helped to bring previously inflated prices closer to normal levels. About 20% of Los Angeles-area residents could afford to buy a median-priced home at the end of September, according to a National Assn. of Home Builders index. A year before, only 2% could make such a purchase, based on area income levels.

    The typical monthly payment for such a home in November would be just over $1,300, according to the real estate information service MDA DataQuick. That’s down from $2,049 a year earlier. Adjusted for inflation, the $1,300 monthly payment would be 37% below the typical payment in 1989, the peak of the previous real estate cycle, DataQuick reported.

    Increased government intervention also may help to shore up home prices in 2009. One of the more aggressive measures would be a proposal to allow bankruptcy judges to order lenders to reduce principal and payments on troubled mortgages.

    Supporters, including former U.S. Treasury Secretary Lawrence H. Summers, now a top economic advisor to President-elect Barack Obama, say such an expansion of bankruptcy powers would be a powerful tool to slow the flood of foreclosures.

    UCLA economist Edward E. Leamer said further government action to stop foreclosures was essential for putting the brakes on falling home values.

    “When you’re sick you need medicine for the disease, not the symptoms,” he said.

    In housing, the disease is the deterioration of neighborhoods and home values as houses are foreclosed, abandoned and sold at greatly reduced prices, said Leamer, director of the UCLA Anderson Forecast.

    He proposes creating a government agency to manage foreclosed or distressed houses as rentals for several years to keep the homes occupied until they recover some of their lost value.

    “We need to eliminate vacancies and bring about their orderly sale,” rather than allow lenders to get rid of empty houses at fire-sale prices.

    1. MalibuRenter

      “The rapid drop in home prices this year has helped to bring previously inflated prices closer to normal levels. About 20% of Los Angeles-area residents could afford to buy a median-priced home at the end of September, according to a National Assn. of Home Builders index. A year before, only 2% could make such a purchase, based on area income levels.”

      Yes, we definitely have to help keep prices unaffordable. No way we should let affordability get up to levels in the high 40s like it was through much of the 1990s.

      And we should never ever have homes be as affordable as in many large expanding areas elsewhere in the US. No way we should have 60-70% of families able to afford homes. That would be uncalifornian.

      /snark off

  4. Chuck

    Funny how this fact based analysis is in direct opposition to the statements made by Tom Iovenitti (the President of Coldwell banker in OC) in the glossy real estate magazine included in the LA Times. This guy’s weekly bullish statements are always disguised as analysis, but they seem to always ignore what the real economists are saying. Is it just me or does anyone else feel that his statements border on being criminally negligent?

    1. Chuck

      I meant to include Tom Iovenitti’s quotes from this morning:
      “…Orange County home prices have nearly hit their low and may be on the rise again as early as next summer” and “the window of opportunity for those who want to take advantage of an unprecedented buyer’s market may not be open for much longer.”

      A little self serving?

      1. No_Such_Reality

        nearly hit their low” meaning they haven’t.

        may be one the rise” or may not.

        may not be open” or may.

    2. graphrix

      I do feel the same as you. I have been collecting some of his best “articles” or puff pieces for months. I plan on making copies of them and send them to him, the DRE, CAR, a few politicians and the SEC, and then I will do a blog post about it and to highlight just how wrong he was and is.

  5. Mooser

    By this coming summer, the real estate market will be just as healthy as ever! There’s always a slowdown in the winter. After all, would you want to be sued because a potential home0buyer slipped on icy steps and broke their patella, or tibula rasa, or some other limb?
    It’s just a temporary slowdown.

    1. MalibuRenter

      The volume of transactions doesn’t tell you much about the price.

      There is a modest seasonality of both price and volume, but the price seasonality is being overwhelmed by the overall plunge.

  6. Mooser

    If anybody should be sued, it’s Irvine Renter, for being a wet blanket! A person could freeze to death, wrapped in one of those things!

    Even the anti-spam word submittal brings us a harbinger of better times! Give me my harbinger with everything on it!

    1. norma

      There is no harbinger … What really urkes me is that although I sold my home 18 months ago and told my realtor (and I thought friend) about these blogs and the information available, he no longer talks to me. Also, my former neighbors, who I wish well, put me off; they seem to be very jealous. I warned them, why are they mad at me???

      1. DAve

        If you want harbinger you hafta grind up some bulls first

        *Everybody likes it but nobody wants to see how it’s made*

  7. Food

    Remember this one, 22 Honey Locust?

    https://www.irvinehousingblog.com/blog/comments/columbus-lost/

    Yes, being only a few tens of feet away from major power lines, this baby was also built on top of dirt contaminated with very permeable tricholoroethylene.

    http://en.wikipedia.org/wiki/Trichloroethylene

    Yet, after several months held as REO, it was sold to some knife-catcher recently for $20k over the bank’s asking price of $880k. Maybe IPO or others could shed some light on the reasoning behind this seemingly irrational move.

    http://www.redfin.com/CA/Irvine/22-Honey-Locust-92606/home/7201191

  8. Alan Boyar

    Not real estate news… This weekend I’ve been slogging thru the book “the black swan” which I heard about on the forums. It’s about our inablity to account for the unpredictable.. e.g. the turkey who thinks humans are great because he is fed for 1000 days who doesn’t know what’s going to happen on day 1,001 (Thanksgiving) and how to avoid being that turkey. (Borrowed from the library of course)

    The reason I’m bringing this up is that the Pakistani ambassador was on TV the other night saying that Pakistan and India will not go to war because they are both democracies and modern democracies do no fight. I’m thinking I should send him a copy. Just because something hasn’t happened before is exactly why we should be worried that it could happen.

    Cheers…

  9. NanoWest

    I am in Guanzhou, china today….guess what, the orange county register real estate blog is blocked from view.

  10. MalibuRenter

    Have you considered asking for a column? Either online or in one of the papers? They are actually quite starved for content, and many of them have been laying off writers.

    You could probably get a few hundred per article. Newspapers like people who aren’t fulltime employees. If you don’t need a desk, an office, a health plan, or retirement arrangements, you might get the OC Register or the LA Times to bite. If you just want to annoy the Times, then you would write for LA Weekly or the Daily News.

  11. MalibuRenter

    Real estate news to share?

    Driving down Ventura Blvd in the San Fernando Valley yesterday, there were tons of for rent signs. Both retail and office space available. Several times the vacancy rate of a few months ago.

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