There has been an upwelling of bearish sentiment lately, justifiably so. Rents are dropping, unemployment is rising, and foreclosures are increasing: macroeconomic forces are working against the market. So it makes me wonder, “Could it really get that bad?”
Asking Price: $599,900
Address: 8 Safeguard Place, Irvine, CA 92602
{book7}
Holiday Road — Lindsey Buckingham
Jack be nible, Jack be quick
Take a ride on a West Coast kick
Two years ago, I wondered How Bad Could Bad Get? So far I have noted that I Was Wrong, It’s Worse than my original Predictions for the Irvine Housing Market. Since then, even the professional economists have been jumping on the bearish bandwagon.
Our little bear rally is being precipitated by artificial government stimulus and a lack of inventory due to the artificial constraint on supply from the foreclosure moratorium. Notice the key word “artificial” was used twice to describe how both the supply and the demand is being manipulated. These manipulations will both end and fail, but probably not before bringing a new round of knife catchers into the market over the next couple of months.
Ignoring the short term manipulations and returning to the long-term relationship between prices and fundamental valuations, it is apparent that prices must still fall. The only real question is by how much, and when will it stop. The chart below is from my worst-case scenario two years ago. The question of the day is, “Could it really get that bad?”
Market Decline Extreme Spreadsheet
Asking Price: $599,900
Income Requirement: $149,975
Downpayment Needed: $119,980
Monthly Equity Burn: $5,000
Purchase Price: $810,000
Purchase Date: 4/25/2006
Address: 8 Safeguard Place, Irvine, CA 92602
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,000 |
| $/Sq. Ft.: | $300 |
| Lot Size: | 5,000
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Craftsman |
| Year Built: | 1998 |
| Stories: | 2 |
| Area: | West Irvine |
| County: | Orange |
| MLS#: | S570821 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
Irvine. A cook’s delight, beautifully renovated kitchen, cherry
cabinets, slab granite countertops, stainless steel appliances.
Upgraded tile flooring, plantation shutters, crown moulding. Main floor
bedroom, and bathroom. Fabulous corner lot, large backyard with a
gazebo. Large secondary bedrooms, nice storage. Master suite is large,
with 2 closets. Nice inside tract location.
This property was purchased on 4/25/2006 for $810,000. The owners used a $648,000 first mortgage, a $121,500 second mortgage, and a $40,500 downpayment. If this property sells for its current asking price, and if a 6% commission is paid, the total loss on the property will be $246,094. Another day, another quarter million dollar loss in Irvine.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
{book6}
I found out long ago
It’s a long way down the Holiday Road
Holiday Road
Holiday Road
Jack be nible, Jack be quick
Take a ride on a West Coast kick
Holiday Road
Holiday Road
Holiday Road
Holiday Road
I’ve come back long ago
Long way down the Holiday Road
Holiday Road
Holiday Road
Holiday Road
Holiday Road
Holiday Road — Lindsey Buckingham
So I read in another housing blog that the litigation costs of foreclosure are huge, and that banks may potentially lose 1/4 of the sale price of a home for lawyer fees. Are these losses accounted for in your “banks will lose …” for each home?
Litigation costs on most foreclosures is not very high because most foreclosures are not litigated. The mortgage document signed by each borrower gives the lender the right to force a sale of a property at auction for the repayment of debts without a court order. That is why there is a separate mortgage document apart from the bank note.
If the lender believes they will not get the full amount of their mortgage note back (very likely now), and if they believe the borrower has capacity to pay the difference (most are insolvent anyway), then the lender can go through a judicial foreclosure and obtain a deficiency judgment. This is considerably more expensive than a non-judicial foreclosure, but the lender will not do this unless they believe they will recover the attorney’s fees plus the shortfall on the mortgage.
All that aside, the actual lender losses I document are almost always larger than what I show. Most often there is a year or more of missed payments, service fees while REO, and transaction costs paid to the realtor in the final sale (which I do account for). The total loss each day probably is 25% larger than what I document, but I have no way of measuring the other amounts with the data I have.
And don’t forget dead landscaping, damage to the home from sitting empty, vandalism, and theft.
Well, those costs are typically factored into a lower sale price. The banks usually don’t fix anything (although that’s starting to change), other than health and safety problems (mold for instance).
In California we do not use mortgages; we use trust deeds. Mortgages must go through a judicial foreclosure (legal fees), trust deeds do not(legal fees much lower).
If the other blogger was referring to states where house prices are lower, and mortgages force a judicial foreclosure, 1/4 the sale price could be burned up in legal costs.
I would really like to see your graph with the actual declines plotted as well.
Especially as now that the original projection is 2 years old we can see the where house price declines are tracking and can get a better idea of when they may bottom.
Also, there is a difference in your numbers for April 2009 in the two projections that you have published. It shows $380K in the graph from today, and $540K in the graph from “I Was Wrong, It’s Worse.” I don’t mean to nitpick or to to try to prove you wrong, i just want to see how well your forecasts are standing up to the test of time.
The actual declines have been somewhere between these two graphs. Plus, I had a bad data point to start both graphs back in 2007, so there is some amount of distortion there.
In the more conservative graph, I show median prices bottoming near $425,000. In the doomsday scenario, I show the median bottoming at about $265,000. The actual is tracking to an amount somewhere in between. If I were to guess today, it looks like the market will bottom in the $350,000 to $375,000 range for a median home price in Irvine.
In the doomsday scenario, I show the median bottoming at about $265,000
I’m assuming a “doomsday scenario” is equal to The Great Depression.
How do we define a depression … 20%+ unemployment? … 10%+ contraction in GDP? What the heck is a depression? JMHO – What ever your definition is, I don’t think we’re out of the “doomsday scenario”.
It is not over … the Dow will likely retrench new lows sometime this summer as the news takes another step down. Most of the smart traders know this.
I don’t believe the lot is EXACTLY 5,000 square feet and the house is EXACTLY 2,000 square feet.
Particularly with the unusual shape of a corner lot. If it where the lot next door, it might be a 50×100 rectangle, but this one isn’t.
Maybe they are using the special Realtor measurements?
I don’t like this style of home. It’s a tall square, with a built-in garage. The builders use it because the cost per sq ft is less expensive, and the footprint is small.
However, this home is somewhat distinguished in that it has 4 bedrooms and 2000 square feet, it’s not attached, it’s not directly next to the freeway, and it has a backyard with real grass. It’s also priced under 600k.
This will undoubtedly be a growing trend as more and more sellers price their homes to meet a borrowers ability to finance. Resetting the bar, and creating a greater incentive for better class homes to do the same, as we move deeper into this debacle.
A possible explanation of shadow inventory from Calculated Risk:
Some foreclosed homes too damaged to sell
In many parts of Michigan, Ohio, central Florida, and Calfornia’s central valley, bulldozing will make sense. I don’t see this being a likely course of action in much of Orange County.
Instead, here is what I think is happening with really damaged homes in places where plans and permits take a long time and cost a lot. Banks have huge foreclosure backlogs, so do the foreclosure rehab companies. They start with the homes they can actually get to sale quickly, at a low loss to the mortgage face value. Next in line are homes with little or no damage, but with bigger discounts to mortgage face value.
Last in line are homes with massive losses to the mortgage value which will take serious money to fix. The banks not only will have to take losses, they have an additional decision. Do they themselves want to supervise construction loans and permits, or sell it at an even bigger discount? Being overwhelmed, you would think they would just sell and take the loss. I’ll bet that isn’t what’s happening. I’ll bet they just aren’t getting to it, because that’s more work and involves taking a bigger loss.
I wouldn’t be at all surprised if a number of banks are waiting for yet another federal program to pay for repairing such homes. It would provide stimulus to construction workers and might reduce banks’ losses. Because of the politics, I don’t think that the Federal govt will pay to bulldoze many homes.
“I wouldn’t be at all surprised if a number of banks are waiting for yet another federal program to pay for repairing such homes. It would provide stimulus to construction workers and might reduce banks’ losses.”
I think this is very likely to happen. It makes both the banking and homebuilding industries happy.
The problem with really trashed homes in fringe markets or those seeing out-migration will need to be dealt with at some point. There will be vacant and deteriorating homes in many markets.
The bulldozer idea serves nobody. In most instances, the underlying lot has little or no value, so the bank is taking a 100% loss to flatten the home. They will ignore that reality as long as they possibly can.
Some cities may want these homes bulldozed as opposed to them turning into crack houses or fire traps or whatever. I suspect a fair number of houses in bad neighborhoods here in Riverside (Casa Blanca, Eastside) will never be legally occupied again, since houses in better neighborhoods are available for cheap (less than $100k in some cases). I’ve seen houses in Eastside priced at $50k sitting with no takers.
Obviously, nowhere in Irvine would qualify for this type of situation, but in inner cities, exurbs, and rural areas throughout the country, there are plenty of these.
There is some financing available for selected distressed properties through the Fannie Mae Home Path Renovation Mortgage. I saw one of those tags on a home not long ago.
http://www.fanniemae.com/homepath/financing/index.jhtml
This is very true; at least in my neck of the woods (Houston, Texas). I was in the market for a home (I’m not investing) and was looking at foreclosures almost exclusively. Many of the houses I looked at were severly damaged; one to the point of needing to be bulldozed. One new one had been stripped of the A/C condenser, the oven-range combo. and the top level of cabinets in the kitchen. I had jumped through all the hoops to buy this one and then they told me it was a cash only sale. I was hopping mad! I finally ended up buying a severly distressed property in the area where I wanted to live. The listing real estate company tried to pull a fast one by telling me they had received multiple bids and was I sure I had submitted my best one. If I hadn’t been using one of my friends as a buyer’s agent I’d have dropped the bid by ten-thousand…
Not a bad property. Drove by this one on my way home…
I doubt the bank will let this one go for the current asking price.
this is a short sale, the listed price is intended to start a bidding war. If you go as far as submitting a bid, the listing agent will tell you “I have 2 offers above asking price, so if you want to have a chance, you’ll have to come in at ??? above asking” That’s how they inflate the final price. From what I’ve seen selling in West Irvine, one just sold for $615K, 1900sq.feet on Brookhollow, this will go for at least $630K, probably higher. People will pay that just to get into the public school district that rivals most private schools in Orange County.
Remember this is Tustin Unified School District, but then again, so is West Irvine.
You can get the same school district by renting at a much lower monthly payment. that’s what I’m doing at least.
Odds are another waste of time. Short sale simple does not go through for one reason or another.
Lack of inventory is being effected by people not selling because they are upside down.
I am sure people are not listing if they can’t make the payments because they are so upside down they don’t even want to try. Wait until the marshall shows up and live rent free.
http://www.msnbc.msn.com/id/30235263/
right on the front page of MSNBC. Just walk away.
Is it true that people who short sale will not be taxed on the amount they borrowed but did not pay back? TIA
This post should answer all your questions:
The Financial Implications of Short-Sales and Foreclosures
3. THE CANCELLATION OF DEBT RULE:
Both the IRS and California tax you for the amount of debt that is CANCELLED in any given tax year. Debt is cancelled only when a lender has given up on its right to collect the debt or they are barred by law from collecting the debt (think PURCHASE MONEY & ONE ACTION rules). HOWEVER, if the debt cancelled was a “Purchase Money” loan (see above) the debt cancelled is treated as a sale of your residence, subject to normal homeowner exclusions. This is because the loan is deemed to be non-recourse and therefore nothing has been cancelled.
From a female point of view…I love that kitchen!
If emotions are involved,the kitchen will probably sell the house.
I have the same kitchen and it is a bitch to have more than one person cooking in it. My house, in Indiana, is of brighter colors than this cave.
Astute Observation by Sue in Irvine
2009-04-17 07:17 AM
From a female point of view…I love that kitchen!
If emotions are involved,the kitchen will probably sell the house.
“Emotional” (read: EGO) buying is what got us in this mess.
You are not your title, degree, job, or kitchen (with cherry (real not veneer) cabinets and granite countertop)
‘You’re not your job. You’re not how much money you have in the bank. You’re not the car you drive. You’re not the contents of your wallet. You’re not your fucking khakis. You’re the all-singing, all-dancing crap of the world.’
-Fight Club-
So what’s so wrong about appreciating a beautiful kitchen? My kitchen is circa 1985, with painted cabinets and formica countertops. And can someone please tell me what the message from the other guy means? The one with the F word.
Hey Sue,
There is nothing wrong with a beautiful kitchen. It’s the smartest place of the house to improve. The quote above is from a movie, SteveforReal reminded me of it with what he was saying. It was sarcasm. The movie is called Fight Club. It’s a guy flick.
Fight Club may think it is a guy flick, but most females I know adore it. Brad Pitt shirtless, Puhlease MORE!!!!
Hi Sue,
Fight Club is a great movie that came out around 2000. Brad Pitt, Edward Norton.
Great movie, unless of course anything with the F word puts you off.
I like the kitchen too — but I don’t like it $600K worth.
There have been virtually zero new listings in my target neighborhood in Santa Clarita. My question is; do the banks have the capacity to sit on these FC homes and leak them onto the market one at a time? If they do they could actually get away with keeping prices elevated since people are still scrambling over the scraps the banks are allowing to fall off their table.
In my mind there has to be a tipping point where banks have to much REO inventory and have to start a mass dump onto the market, but I’m not sure what the event is that leads to the tipping point.
IR
For those of us investors (gamblers) this sucker rally was so predictable. I see so many rubbing their hands together and buying recalling what it “USED” to be worth.
I am amazed that they just don’t see it. but human nature never varies.
This trademark action is so typical of the equity markets.
There will be capitulation and there will be blood in the street.
As IR, i too believed it would be bad , but never as bad as this. I am meeting new investor buying like all get out, guaranteeing their financial destruction in the comming years.
In response the the question, “Could it really get that bad?”, to paraphrase Weird Al, “Even Worse”
Which data source did you use for your starting median value? DQ?
Given how long ago you made the forecast, this is actually pretty good. My current estimates are that the bottom will be a little lower than your worst case.
I love the ‘used to be worth’ term. My company’s stock used to be worth $100/share, now around $20 (not bad by tech or now bank standards). I’ll sell a whole lot for $50 – half off! 🙂
From 1999 to today this home, at its list price, is at 7%/yr appreciation. If you drop that to 3%, you end up with around $400k, or around 50% off peak. It may sell now for 25% off previous, but is there anything to keep it from falling further?
Tustinboy is dead on. This is a really nice house. I was in it yesterday and after seeing it, wanted to make an offer. Good neighborhood, good schools, corner lot, excellent upgrades (including the kitchen). It’s been on the market since Monday and the listing agent has 7 offers already. $599,900 is the low end of a range that’s stated “599,900 to 629,900”. It’ll sell at the high end of that if the bank doesn’t dither. Recently sold comps are between $620,000 and $660,000 for similar size homes. If my family’s situation is any indication (high one hundreds income, good size down payment saved) the demand in Irvine is huge at this price range. There’s not much else out there. Blogs like this one are holding us back, but there are more people out there who don’t read it than do.
The people who do not read this blog are very likely to become knife catchers. The buying populace thinks today’s prices are a bargain because they are less expensive than the WTF prices of two years ago.
IMO, this is a $450,000 property. The fact that it will probably go for $630,000 today says something about the kool aid still in the market.
Ya, most of us on this blog and others like it look into the future so much, we get shock when people live in the now and remember the past. This house is diffidently worth it’s 2001 sale price. It will be worth that much in a couple of years. Then maybe I’ll buy a couple more.
Even those of us who do read this and other blogs are buying. I’ve been in the bear camp since 2004 and I close escrow today. There are rocking areas in Irvine that are becoming very affordable in my humble knife-catching opinion.
Congratulations!
Some buyers will always be in the market, and if you have a downpayment, a fixed rate mortgage, stable income, and six months worth of savings, today’s mortgage rates are very attractive.
And if you’re buying a home as a place to live, with the idea of one day paying off the loan, then it’s always a good time to buy.
This site if filled with gloom and doom, but my wife and I came from the frugal world, refinanced our mortgage to shorten the term, and paid off the balance early. People scoffed, and for a few years were downright rude because our money was just sitting there in our house, doing nothing, but we ignored them.
We were interested when prices rose, dropped, stagnated, skyrocketed, then plummeted, but it’s really immaterial now.
The good news is that if property values drop, your mortgage payment will stay the same, but your property taxes can decrease!
Wow, praising a knife-catcher…interesting. Must be a realtor – no one else would do something like that. I won’t rain on his parade – he obviously can read, and if he’s read this blog for long, there are plenty of sound reasons for not buying right now. But PLENTY of us have all of your “criteria” yet think it’s a foolish time to buy. As for your “criteria about buying for the log term, can anyone really know or even hazard to guess what they’ll be doing in 30 (or 40) years? No one can really “know” they will be paying off a loan of that size and time frame. I don’t know why anyone would scoff at you owning your home outright- – from what I remember, I think maybe 30-40 percent of all homes in the US are paid off. It’s the equivalent of renting as far as the mortgage deduction is concerned, but better than renting in many ways. I completely admire those folks who can pay cash for a house, or have paid off their debt. THAT is worth applauding! But I am really concerned for anyone buying right now – -even with the so-called “criteria” (stable job, cash reserves, etc.) you mention – there is no good news in the economy, and it is going to be getting much worse before it gets better. Just check back with most of those folks who bought in 2008-2009 in another two to three years and ask them how it feels to be under water. I can’t imagine they will be as chipper as you are about this purchase.
‘And if you’re buying a home as a place to live, with the idea of one day paying off the loan, then it’s always a good time to buy.’
You folks are nutz. The debt mentality has so utterly and completely saturated the public’s minds (or lack thereof)… Eh, I won’t waste my time. I will note, though, that the herdthink stampede continues unabated, though in a slightly different direction. Blogs have done wonders for groupthink and sounds-good truisms.
God Bless You and Have A Nice Day.
The banks are starting to rally up in the stock market, Goldman even announced profit. The question is, how can they be profitable when foreclosure is keep rising? They have a lot of these mortgage securities. Something is not right…
Something is never right.
The world is run by accountants and lawyers. Does anyone really understand credit default swaps, special purpose entities, off balance sheet transactions?
No one understood how Enron made money, thats because they didn’t. All these financial institutions are using the same accounting practices that Enron used.
It’s all a scam, and it will all get buried under layers and layers bailout money and all the crooks who perpitrated it all will sail away with bags full or our money.
It is totally a scam. Goldman and Wells are both liars. See this article for the accounting trickery that Goldman pulled.
http://jessescrossroadscafe.blogspot.com/2009/04/goldman-sachs-buried-13-billion-dollar.html
Because interest rates are zero.
I would love to be optimistic.
It’s my nature.
But when I see California unemployment at 11.2%, retail sales declining in double digits in Orange County, tens of thousands of jobs lost in finance, real estate, and related services in the OC, and further job losses cascading through retail and local government, I have to ask where people get the income to make payments.
Orange County’s doing far better than most of California. Irvine’s diversity and the value place on education by the immigrant community push values up, but the housing market depends on what’s happening at the margins, and housing prices are going to be based on the people who can come up with large downpayments and have verifiable incomes.
But where do the incomes come from to justify the payments when the artificial constraints on foreclosed supply go away?
Astute Observation by fencewalker
2009-04-17 09:13 AM
Even those of us who do read this and other blogs are buying. I’ve been in the bear camp since 2004 and I close escrow today. There are rocking areas in Irvine that are becoming very affordable in my humble knife-catching opinion.
————————————-
Thats a great sentiment, yet at some point fundamentals cannot be ignored. Credit allowed may to turn a blind eye for years. The tightening of credit has brough Michigan (detroit0, Ohio , Indiana, and Philly to a halt. And it happens OVERNIGHT. Reality is a mother. Credit is gone and so is the economy and the middle class.
I believe (i am sure actually) that IR, even with his most recent revision, is still underestimating this carnage.
Many here do not understand how leveraged other Americans/US small businesses are because they would never live on credit. When the lynchpin of your/your business’ positive net worth is an asset(s) that you suddenly cannot find buyers for you are in dire straits.
The list of individuals/business I know of who are “waiting this storm out” grows daily. I KNOW of people who considered themselves millionaires numerous times over 2 years ago – who now just have the debt and assets that are in freefall. These people are dumbfounded and in shock.
I would argue that “bear” is not a strong enough term.
One does not read Roubini, Thornberg and a slew of other economists for years without being aware of the fundamentals driving this recession. But I also now believe it has become very “in vogue” to be a market bear. I realize our economy has more work to do to emerge from this recession. However, I did not wish to wait until the masses are feeling better about the economy and housing to make my purchase. I chose to buy while there is still fear. I’m not a flipper/investor. Mine is a long-term purchase.
IR, when you say “the market will bottom in the $350,000 to $375,000 range for a median home price in Irvine” , what would that mean in terms of price/sqft? I always hear the media use the term median home price but that isn’t as valuable a metric in my opinion
It isn’t a particularly telling statistic. The only thing it does measure is the amounts being used to complete transactions. It says nothing about the quality of what is obtained. IMO, a median home in Irvine is a small 3/2, less than 2,000 SF or a large 2/2 condo. Today’s featured property is an above median home. I base that on the overall product mix in Irvine which has a much higher percentage of attached product than most people realize.
IR,
In looking over your excel sheet, please explain the calculations and underlying assumptions.
Officially many companies are not having pay cuts, but with less benefits such as less matching 401k, higher insurance copay, no to low bonus, COL, promotions. That is an effective pay cut. It may not show on the CPI to labor stats., but people need to adjust their spending (I’m not saying they will adjust their spending).
Was in Costa Mesa mall on Friday. Good foot traffic for a Friday, but fair to good discounts but not much people carrying purchases. Looked like mostly middle age women shoppers with their mothers. Looks like retail is hurting and some people are adjusting their spending.
Housing cost needs to come into reality with people’s income. Banks are using new rules to claim paper profit on paper gain using the new rules. Those profits will become real loss. Some real profit has been made from Fed zero interest and loaning it at CC rates of 15% to 20%. Are they properly discounting the CC debt for defaults? How long can banks hold FC property and non-preforming loans and claim a “profit?” Looks like a bear trap.
IMHO and Observations.
On the sales slide show, the dog seems to be a ham in the pictures.
this is the key to it all—-
http://www.slate.com/id/2216238/
Thanks,
That was impressive.
Wow. Scary.
The federal government is now offering a $8,000 tax credit for all first-time home buyers.*
Am I eligible?
If you have not owned a home in the past three years, you may qualify. If you or your spouse owned a home more than three years ago, you are still considered first-time homebuyers and may qualify for the tax credit.
Details of the $8,000 Federal Tax Credit:
Your tax credit does not have to be repaid.
Your tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
Your credit is available for the home you purchase on or after January 1, 2009 and before December 1, 2009.
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
This is IN ADDITION TO the $10,000 California tax credit for home buyers who purchase a newly built home that has never been occupied.** Combined, consumers may qualify for $18,000 in tax credits.
Combine these tax credits with the lowest interest rates on record and now is a great time to buy a home!
To learn more about the new tax credits and find your next home, please click here.
Call First Team Real Estate today at (888) 246-9557 or email us at clientservices@firstteam.com and we?ll show you how to take advantage of this $18,000 tax credit on your next home purch
A single person would make too much to qualify for the Federal credit if they could afford to buy this home. A married couple might be able to swing it, but only within a very narrow income range (basically, they would have to make almost exactly $150k a year). This is not a new home, so the state credit does not apply.
Try to at least personalize your spam to the home listed. ^_^
sorry about the first team info at the bottom I inadvertently copied it from the info I collected–I do not work in RE–I am a stock trader–
What is happening is the lower end is attacting buyers because of what I just posted the CA tax credit and lower interest rates. So those homes and incomes that fall into this range will sell. Remember at one time very few homes were even under a million. So those who are waiting will buy.
The first post I sent was the job losses this is the key to future drops in pricing. We continue to lose jobs houses will continue to default.
The higher end is still in total bubble mentality expecting more than double their purchase price. Looking at many yesterday those folks still think this sector will find buyers willing to pay.
That market will surely fall with continue job losses and that sector gets no governement hand out or low interest rate boworrowing over 500k is at 8% last I looked.
That market will continue to drop.
The mid range to lower end pricing will find families that want Irvine schools and will pay.
Right now we are in a inflection point and this indeed is difficult for traders. Half of my group is bear and half are bull now.
So who is right? You can make points on both sides of the coin. One thing is for sure fighting the fed they have the odds to win.
Saying that if you have a secure job, have extra cash, find a good buy know you can pay the loan you might as well look if you must have Irvine.
End of summer would be better but inventory might be less? Difficult to say for the mid to low range.
The higher end has a lot more time to fall. Those folks are still praying for the WTF price.
Just my opinion folks–
opps should of run spell check===
Consumer spending in the US make up 70% of GDP. Which means no shopping = no GDP.
We are taking the same steps as Japan (keeping Zombie banks alive). But unlike Japan we cannot hope the rest of the world will bail us out. Japan’s GDP is 40% based on exports (why they keep their currency devalued). We run a trade deficit.
Hence expect the return of Apple Annie and bread lines. The country is DYSFUNCTIONAL, because you can’t cater to the whims of MULTINATIONAL corporations and have a localized domestic stimulus. The globalized companies have much different needs than the US.
There is a big difference between Japan and USA–The gov. of Japan waited way too long to pump the system; confidence was lost and they saved all their income and still do. American’s are spenders very few save and our gov. did the right thing and pumped this mess.
http://en.wikipedia.org/wiki/Early_2000s_recession
what many don’t realize is our gov. did the right thing—
It’s not Apple Annie anymore – it’s Hot Dogs
Dogged Pursuit: Professionals Find New Livelihood Selling Frankfurters
As Gloom Spreads, Carts Sprout All Over; The Guajardo Family’s Stand in Texas
http://online.wsj.com/article/SB123923554488403239.html
Just came back from a trip.
Based upon what we saw in Seattle and San Francisco it’s no longer apple pie, Chevrolet and/or hot dogs… It’s sushi and Honda. ;-D
“American’s are spenders very few save and our gov. did the right thing and pumped this mess.”
Japan waited too long to correct the actions the US govt is currently embarked on. So I’m not sure what your point is.
As for spending, no more HELOCS and reduced credit will keep that in line. US citizens didn’t save because their home were their savings account.
We’ll wish we were Japan before this is all over.
The Keynesian Explanation and Solution
“In Keynesian macroeconomic theory, business cycle fluctuations are caused by aggregate demand collapsing. Consumption is regarded as relatively stable, so the weakening in aggregate demand is due to the declining investment. Keynes did not precisely explain why investment collapsed; instead he attributed it to “animal spirits” in the business community. If the 1980s asset bubble is ignored, and Japan’s stock market is viewed between 1989 and 1992, a massive withdrawal of confidence occurred in the business community and investment collapsed, causing the Nikkei index to fall more than 60 percent. Because the investment decline is not attributed to something specific in Keynesian theory, the theory is difficult to refute. Nevertheless, in Japan, there has been a recession that has not corrected itself following a drop in investment.”
this is the difference instead of allowing confidennce to collaspe our gov. starting with Bush because of Ben Bernanke stimulus was added fast and furious to prevent Japan here in USA–
This is the lesson learned about the only part of Japan we did not repeat. This is why the dems sent stimulus money to the people and continue to do so.
Dunno about that
Japan plans emergency share purchases
http://www.ft.com/cms/s/0/fbea8ad4-2b09-11de-8415-00144feabdc0.html?nclick_check=1
The Monetarist Explanation and Solution
The Monetarist School, like the Keynesian, has no trouble finding a cause for Japan’s recession. Monetarists blame recessions on a contraction in the money supply or a slowdown in the growth rate. In 1987 the discount rate was lowered to 2.5 percent to stimulate domestic demand. An asset price bubble followed. To stop the bubble, the discount rate was raised five times, to 6 percent during 1989 and 1990, slowing lending, and the bubble burst. Since the monetary contraction, Japan’s economy has been in a recession. Monetarists can argue that the BOJ contracted the monetary expansion too quickly and caused the economic slowdown, much like Milton Friedman’s story in the Great Contraction regarding America’s Great Depression.
We have done the opposite increased our Money supply big time–
http://socialistworld.net/eng/2008/10/09worlda.html
quite a few of good articles to read on this topic
http://www.sjsu.edu/faculty/watkins/depmon.htm
“The decrease in the money supply led to the deflation that raised the real interest rate to extraordinary levels. Those high real interest rates collapsed investment purchases leading to the declines in production and employment; i.e., the Depression.
Thus the blame for the Great Depression lies firmly with the failures of the Federal Reserve. This is a blame not only because the Fed did not take counter measures to forestall the economic decline but also that the Fed’s actions precipitated the decline in the money supply.
Once the Depression was developed the money supply was increased but that did not end the Depression. Once a balloon is punctured it is not easy to re-inflate it. “
Japan boasts a second highest GDP in the world. Her citizens also enjoy one of the highest per-capita income. What is the talk about the recession in Japan again?
You mean the one that started in 1986 and finally ‘bottomed’ in 2003 only to hit new lows in 2008?
Just a question IR, in your graph, aren’t we talking about Option ARM reCASTS, rather than reSETS, since we’re talking about the point where the payment is forced to the principle, rather than referring to any underlying interest rate change.
Hi IR,
I don’t think your graph takes into account the effect of the echo boomer generation. It’s larger than the baby boomer generation, and they’re just now reaching the age where they’re showing up in homebuying stats.
For instance, the Cincinnati MLS shows us that the average sold home price is down from $190K in June ’08 to about $132K in Feb ’09. That’s the effect of the first time homebuyers (more than likely echo boomers), who are responding to the triple incentive of tax breaks, low interest rates and low home prices.
My belief is that the echo boomers will fuel a demand for housing not seen since the 50s… and that might just be starting now. Particularly those who want to buy a Cincinnati home.
What do you think?