39 thoughts on “Open Thread 2-21-2009”

1. no frog speak February 21, 2009 at 4:33 pm

   I’m coming to the conclusion that things will not normalize (ie, consumer funk disappears, retail picks up, and life goes on without -On-The-Brink subtitles on every news report) until we get an interest rate of 5% to 8%.
   1. maliburenter February 21, 2009 at 11:46 pm

      I don’t understand the 5-8% part. That’s where interest rates have been the past several years.
   2. Walter February 23, 2009 at 2:57 am

      I would say that things will not normalize until this chart gets back to its long term average:
      http://www.businessinsider.com/the-housing-chart-thats-worth-1000-words-2009-2
      1. Bitter Renter February 27, 2009 at 8:49 am

         Thanks for the link. There was a different (I think) chart that IR posted here awhile back comparing prices to fundamentals over the past three bubbles, but I couldn’t find it to show my Dad, so I’m glad to have this one to show him.
2. granite February 21, 2009 at 6:19 pm

   A coworker’s husband is losing his engineering manager’s job at Boeing. They sold their house in Irvine in 2002 and moved up to a 3400 sq ft mansion in Yorba Linda. After trying to sell the house they decided to refinance and lower the payments, since they made a big down payment.

   Their strategy is to “hang on” the next couple years until the economy recovers. How many other people are “hanging on” in Irvine?
   1. Perspective February 21, 2009 at 7:02 pm

      I think that will be a common goal – “Let’s just get through this recession over the next couple years and go from there.”

      That coworker’s husband is going go have to evaluate the family’s earning potential. If they can “hang on” for a couple years, AND if their earning potential will be close to its pre-recession level after the recession, then “hanging on” may be the best idea.
   2. Texas Triffid Ranch February 21, 2009 at 11:07 pm

      Honestly, that’s a great strategy…if they’re planning to stay there for at least ten years. Taking a look at the housing market here in Dallas, I’ve become more and more convinced that IrvineRenter is absolutely right about the market in general. If your friends are holding out until the market gets better because they ultimately want to move to something smaller when they retire, that’s fine. I’m just seeing a lot of bozos who bought at the height of the boom who are holding because they expect that the market will bounce back within a few months. That just ain’t gonna happen.
   3. samuroo February 22, 2009 at 1:26 am

      I have friends that want to sell their house and I have friends that need to sell their house (re-locating or moving up), yet none of them are trying to sell their house because they’re all hoping the market will recover by summer.
      I don’t understand this at all. I’ve forwarded them articles (mostly from IHB). I’m sure they’re watching Redfin. One of them actually did list their condo in Woodbury, but at $400+ sq/ft! I don’t understand how people can list their properties at such ridiculous prices. Are they that ignorant or is it their agent or what?
3. Walter February 21, 2009 at 8:48 pm

   I don’t get the feeling Irvine is in overshoot pricing levels yet. But in places like Santa Ana, there are properties at levels that make a good comparison with renting.

   Also, what happens if interest rates go up? Then prices will need to adjust down. So it sounds like he is sees the ending, but there are a few pages of the story to get through first.

   It was nice to read what seemed to be a fair and balanced article about housing in the press.
   1. Idrnkurmlk February 21, 2009 at 8:56 pm

      I’m calling 1980 prices. The banking system is changing for good.expext to see lending become more local.
      1. maliburenter February 21, 2009 at 10:54 pm

         1980 nominal pricing? That sounds a bit too low to me. I think mid 2009 = 2002, 2010 = 1997 prices. That’s still a huge chunk off of current prices, and about a 26% decline in LA/OC during 2009.
         1. Walter February 22, 2009 at 1:28 am

            I hope you are right. At that pace I can finally look at buying in 2010.
      2. Dave February 24, 2009 at 5:01 am

         That sounds about right.

         I’ve been saying $140/sf at the bottom… not trolling. I actually believe it.
4. Lee in Irvine February 21, 2009 at 9:03 pm

   Now that pooling, transferring and hedging securitized debt is no longer in fad, I wonder just how severe this collapse is gonna be.

   Wall Street ain’t bringing Ponzi scheme lending back people. At least not to the same extent that created this mess.
   1. Jeorge February 22, 2009 at 8:23 pm

      Oh I don’t know about that. If they can get away with it, they sure as hell will do it.
5. george8 February 21, 2009 at 9:20 pm

   For most people, be patient is the way to go. For some, however, assertive decision to take the “stop loss” might be the way instead- just cut the pain short and start healing.
6. h February 21, 2009 at 10:19 pm

   Here’s a kind of cool video explaining the whole housing crisis–I found it quite interesting. It is perhaps a little off in a couple of points, but on the whole is good. (Not my site, not my video)

   http://www.clusterflock.org/2009/02/crisis-of-credit.html
7. newbie2008 February 22, 2009 at 12:17 am

   I hate to see the housing situation called a crisis or Ponzi scheme. The crisis was to have the house at such high prices and going into huge debt. The dropping of price is to return to normalacy — the insane think they’re the sane ones and normalacy (i.e., living within ones means) is crazy.
   Ponzi scheme involve in reallarge tanglible investments (social security) on the schemers. Multi-level marketing (houses) just keeps marking up the price at each level. With Ponzi and Multi-level marketing the last people to the party pays for the bill.
   The govt., banks and RE are doing their best to keep up the multi-level marketing scheme or to create another housing scheme. They think housing debt should be >5 times income.
   Latest finanacial drain: C, WFC are great buys at $20-25 and $30-33. Pumped up and now the new buyers are left holding the bag at $4 and $17.
8. no_worries February 22, 2009 at 12:43 am

   Hey I saw this on another site:

   http://crisisofcredit.com/

   It’s obviously very simplistic, but I thought it might help to send to any friends/relatives who have been asking for a summary of what the hell happened.
9. Kelja February 22, 2009 at 1:25 am

   Just imagine having a big monthly nut on your house which is seriously underwater, maybe 20 – 30%. How many years are you going to ‘hang on’ waiting for it to appreciate to par?

   5 years? 10? 15?

   A $8,000 credit on the purchase of a house. Available to everyone? Yep, that’s going to stabilize the slide.
   1. maliburenter February 22, 2009 at 11:00 pm

      Unless you have owned your house for a long time and are near paying it off, home price appreciation is the most likely way the loan will no long be under water. Outside of the bubble areas, this sounds reasonable. TX, KY, NC for example. Those places might have homes worth 20% more in 5 years.

      Not LA/OC. The bottom is at least 30% further down. If you’re 20% underwater now, it probably will be something like 10-15 years until home price appreciation gets back to even 2008 levels. It might take 20-25 years to get back to 2006 levels. On time horizons that long, the loan amortization will actually be material. Depending on the initial interest rate, you will probably have amortized around 25-35% of the loan value in 15 years.
10. Sam February 22, 2009 at 3:22 am

    Hi,
    I am checking out the housing market in claremont / upland area and the demand for bank owned homes is crazy. Banks now are listing the properties very low like 390- 410k range and typically these homes go for 20-40k over listing price because the initial low price draws good crowd and they compete. recently a nice 2005 built home was listed by bank for 400 and it got almost 20 offers and was sold for 445K. this is crazy!! on weekends typically when you yo look at a property (bank owned / short sale) , there always are couple of other families, waiting or looking at the property. I dont get it, how come there is so much demand and this is upland, not a A list city like Irvine. Is it that banks have started the same game of approving anyone and everyone?
    1. Walter February 22, 2009 at 9:51 pm

       Remember that Fannie and Freddie are now under total government control and I am sure the they are doing all they can to make sure buyers qualify. While they are not giving out money like before, with a job, OK or better credit, and down payment, you should get a loan. Plus, some of these might qualify for a FHA loan, bringing the down to 3%.

       So no they are not approving anyone and everyone, but almost anyone and everyone. For conforming loans that is, jumbos, not so pretty right now.
    2. maliburenter February 22, 2009 at 11:01 pm

       “very low” in this market means 2001 prices, rather than 2004 asking prices (with 2002 or 2003 actual sales price).

       Do those equate to 2001 prices?
       1. Sam February 23, 2009 at 4:39 am

          they probably match the 2003 – early 2004 prices. 2001 prices were in 300s and we are not there yet.. but the response by so many buyers still amaze me. there is a new development built in 2005/06 where the homes were sold in 690-750K range (with 1.9% property tax rate) and now a lot of homes from this area are on market as bank owned homes and in the range 400-450K range. and these properties are getting multiple offers
11. Costero February 22, 2009 at 3:51 am

    IR,

    How difficult would be to know the real number of the potential future foreclosures in Irvine?

    You have access to the data, you know how to evaluate a household credit standing, I will call this the algorithm, there are some unknowns where we can use some assumptions (like household income, you can use low,mid,high) and then press “Go” button, and see what happens.

    This is similar to the “stress test” that the Fed is going to do to the Banks, you can do a stress test to the Irvine households and clasiffy the results in 3 categories: survivors, need more capital to survive, and foreclosure.

    I work in the data collection, organization and sharing business, we create, organize and sell data about almost anything: small business, cars, consumers, etc., it’s like big vacuum machine that sucks data, is organized, analyzed and sold. I don’t see this too difficult to do, it requires time but I’m sure there are people financially motivated to know this: RE investors, even the people in the goverment.

    Once that you have access to the data then you can use some well known engineering simulation techniques and then come with some hypothesis.

    I’m sure somebody is doing this already.

    You know who has been doing this? John Paulson, the hedge fund manager of Paulson & Co., Inc. he was monitoring mortgages since 2005, I don’t know where he got the data, but he succesfully positioned himself to short “subprime.
12. IrvineRenter February 22, 2009 at 7:47 am

    This was emailed to me from the Denver Craigslist:

    re: People! don’t let the paranoid, panicked scare ya (land of the fre

    I agree. I have never had excess money as I live paycheck to paycheck.

    I have always been poked fun of and treated like shit because I am just a renter, these homeowners would say. It’s my kind who bring down the neighborhood because I don’t pay property tax. Funny, my landlord does and it’s obviously part of my rent.

    I may be a renter, but my car is paid in full. Every item in my home has been paid for 100% in cold hard cash. I owe nothing to nobody. It’s all mine, except for the home I live in. If I can’t afford it, I save up for it or just don’t get it.

    There are three people on my street in foreclosure right now. They are the ones who have always thought I was scum for being just a renter.

    These are also the people who have 6 maxed out credit cards, 2 large gas guzzling SUV’s in their driveway, 52 inch TV’s, all the latest gadgets and gizmos, and they’re falling apart financially right now.

    I’m happy being just a renter. I know my cupboards are full of food, my children have clothes in their closets, and all my bills are paid.

    This economy hasn’t bothered me so far and it’s because I’m not a greedy instant gratification kind of person.

    To you homeowners who have always looked down on me? How do you like me now, assholes???
    1. Rocker February 22, 2009 at 8:42 am

       He he, I have the same face: “how do you like me now?” when I see some of my acquaintances which try to avoid the RE topic, now they are into the deep philisophy of “take the bad with the good, you know?!”…where are your pink colored glasses?
    2. granite February 22, 2009 at 5:41 pm

       This guy surely loved Rick Santelli’s rant on CNBC.

       https://www.youtube.com/watch?v=bEZB4taSEoA
    3. Walter February 22, 2009 at 10:01 pm

       You might really have the last laugh if the market overshoots and you buy at a price that makes owning cheaper then renting.
       1. maliburenter February 23, 2009 at 6:40 am

          You know, despite being a renter, having savings, and getting a positive return on my investments, I’m really not enjoying this. This coming from someone who might get his dream house for cash in a year or two.
13. Irvine Sucks February 22, 2009 at 10:44 am

    You guys are frog licking hypno cases!

    The last ten years of prosperity were an illusion created by debt. The debt was created here and sold abroad. That’s all gone now.

    Hence we have a glut of homes that SHOULD NEVER HAVE BEEN BUILT!!! And since most jobs created today are near minimum wage (yes I have to agree with the Republicans that 7.00 per hour is excessive), you’re unlikely to find new buyers.

    What does minimum wage working at Vons get you?
    How big is your card-board box???? One level or two? Coffee can commode??
14. Lisa February 22, 2009 at 11:49 am

    Why you lose money in u 401K?

    1. IMHO, Your 401k is wall St’s free ATM card.
    2. Your 401k provider does not provide any methods, you can only buy Long.
    3. After 1980-200 unprecedented S&P 1500% gain, a big correction is inevitable, but investment tool such as vanguard and fidelity give us is based on past 20 years (1980-2000) not for the future (and they ALL know this is wrong).
    4. They do this intentionally mostly is because the bonus system, in 8 years if market is up and their bonus is 10 million * 8 years. Who care this Go-Go mentality will eventually cause market bigger collapse. Had they provide hedge tools the market will be much more stable but they will get much less bonus.
    5. No matter this is March 2001 where Nasdaq is 5000 or Nov 2007 when the market is going for big correction (at least a lot of us in this web site predict this). Their web sites investment advice always the same. How can Dow 14000 and 7000, your portfolio is still the same?
    6. You lose money in 401K in last 12 years, and a trader in 401K company makes a few million or 10 million a year, is this reasonable? We lose money because they never give us a tool to hedge our risk.
    1. wheresthebeef February 22, 2009 at 9:52 pm

       I think people are finally wising up to what’s going on regarding Wall St. The sheeple have been told: you are losing money due to inflation if you are not in the stock market, historic annual rate of return for the stock market is 8%, the market has never been down over a ten year period. All these claims have went up in smoke lately.

       I have several co-workers who are dangerously close to retirement and their genius financial advisors have kept them in the market…losing 40% of their nest egg in the last year. Their retirement dreams will probably be postponed for sure.

       I went to a free investment lunch time seminar at the beginning of 08. I only went for the free lunch since I do my own investing and generally don’t trust other people with my money. The guy running the seminar was saying buying the S&P 500 when it dips below 1450 would be a gift…I think it was 770 the last time i looked. It just goes to show that you can be a “professional” financial manager and have no clue. Like RE agents, this guy could probably care less if you lose money as long as he is getting the fat commision for your trades. Sad indeed…
15. Irvine5 February 22, 2009 at 10:44 pm

    IMHO point 2 on your list is by far the most important. The problem with the whole 401(k) scheme is that it only allows bullish investments. This is worse than dumb money, absurdly easy prey for the professional investors/private equity/hedge funds that have multiple strategies (bearish, range, volatility etc) at their disposal. Thank God and fate that the Bush admin did not get its ‘ownership society’ plan through in its proposed format, it would eventually have led to a new Bastille Day.
    1. tonyE February 25, 2009 at 5:08 am

       Not entirely true:

       (1) Most 401Ks provide a bond fund. I made 2% on my 401K last year. Plus with tax gains and employee matching I made very well last year.

       (2) Borrow as much as you can from your 401K and invest it elsewhere. You guarantee yourself a rate of return into your 401K. Now if you do this as a hedge (we did) put the money into CDs… the ones we bought in Jan 08 are yielding 5.5%. If you do this for pure investment, you can use it to go short… You know who reading this made good money on it.

       Either way, the true value of 401Ks is the tax deferment and the matching from your employer. And if your employer doesn’t offer safe returns, well then email HR and complain big time…. Or quit and transfer the money to a self directed IRA>
16. newbie2008 February 23, 2009 at 5:19 am

    After opening the link on house cost to income in SoCal, IMHO Beacon is offering spiked KoolAid. I see local cost to income normalizing in the agricultural area in the state, but not to fully as investment property due to high repair (hot summers and cold winters) and high vacancy cost. Give another 10 to 20% and it will have bottomed.
    The coastal areas and resort areas are still way out of line with current income and way out of line if a full recession hits.

    IMHO, the last score as started 10 years of cooked corporate books for the internet and a hyped economy based on inflated housing prices and cooked CPI. Lots of overseas investments were sucked into the USA. Lots of average Joe Does money into the hyped stock market by the discontinuation of company pensions and stock backed 401k/403k/Roths and IRAs.
17. Chris February 23, 2009 at 11:20 am

    “It is only a matter of time before house prices crash too.”

    I thought it already did 🙂

    I still see Irvine overall asking price level to be similar to 2004 level. That to me is not a crash but a correction.

    However, I think Irvine is due for a 1997 wake-up call.
    1. nowwaat February 25, 2009 at 12:30 am

       Is this wishful thinking?

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