28 thoughts on “IHB News 3-13-2010”

1. Freetrader March 13, 2010 at 5:38 pm

   Chinese people may have a fixation on the number eight but no Chinese person I know would pay MORE (what $150k more than the place is really worth?) for a place just because some genius strung a bunch of eights in the price. It is probably true that you could get a bit more for a house with an address like 888 8th Street, but the price, of course, isn’t a property attribute. I’d be willing to bet that the owners aren’t even Asian — they are just trying to see if they can find a sucker who happens to be Asian.
   1. . March 13, 2010 at 8:12 pm

      Why do you think the place is worth $150 less than the asking price? That’s a nice sized lot and it looks like a lot of remodel work has been done.

      Actually, Redfin has it listed as accepting back-up offers after 11 days so I guess someone else disagrees.
      1. Planet Reality March 13, 2010 at 8:25 pm

         I bet the winning bid was over asking. What does this rent for $3500 a month? Cost of ownership is $3480 a month.
         1. wheresthebeef March 13, 2010 at 11:32 pm

            You are probably right about the property selling at or above list price. Does it make it right?

            If we used IR’s calculations: the bigger picture is that some buyer (sucker) just signed himself up to write a check for $4800 every month for the next 30 years to call this place home. That is pure insanity. I know Irvine and OC are special and different, but there is a limit of kool aid these intoxicated buyers can consume…and we are approaching that very closely.
            1. Planet Reality March 14, 2010 at 3:52 am

               Why does it have to be right or wrong, black or white. Some people like to include tax benefits when determining rental parity. If this rents for $3500-$3800 a month and cost of ownership is $3480 then the buyers got rental parity.

               You don’t have to include a tax benefit, rental parity can be whatever you want.

               According to you these buyers with $200k cash and $200k incomes need a lobotomy. Maybe they are OK buying in Irvine at or below rental parity.
            2. wheresthebeef March 14, 2010 at 4:47 am

               My, my, my…you sure are defensive. I’ve noticed that about most of your posts. You obviously bought recently and are justifying your purchase.

               The 200K down 200K income buyers you referenced would be much better off renting currently. Remember, they do not have to rent a property comparable to what they hope to purchase in the future. They can rent for $2000/month and bank the extra money and save themselves another 100K to 200K lost equity after we take the next leg down.

               But I forgot this is Irvine, and things are different here. We’ll see how the current crop of buyers fares in the next few years. My guess is not too well. No one likes losing equity and the economic conditions are precarious to say the least.
            3. Planet Reality March 14, 2010 at 5:23 am

               You found my post defensive? That’s hilarious it was as even keel as it comes. You may choose to analyze rental parity however you like, I don’t care. I imagine many people like to consider the tax benefit, you are free to do as you please.

               You should write a book on wealth management so that you can educate all of the fools making over $200k per year with hundreds of thousand in the bank buying houses at or below rental parity.

               Your first chapter should focus on the social and financial benefits renting a $2000 apartment.
            4. wheresthebeef March 14, 2010 at 10:00 am

               Planet Reality = exposed homedebtor…hopefully you aren’t upsidedown. I love how you poke fun at the social benefits of renting an apartment. I’m renting an apartment due to all the retards who had no business buying who drove up real estate prices. And now our smart government has finally realized that a housing collapse could cripple the entire economy and will do whatever it takes to prop prices up.

               Regarding wealth management books, there have been too many written. We always hear the same garbage about real estate…it always goes up and buy now or be priced out forever. Buying a house makes sense in different ways for different. You think rental parity, I look at the bigger picture. What if you need to sell your house in a few years at a 15% loss…how is rental parity going to benefit you?
            5. Planet Reality March 14, 2010 at 5:56 pm

               Your personal attacks on me are incorrect. I don’t have any debt on my balance sheet, other than the debt I own which pays me interest. Do you have any debt?

               I’ll try to keep this positive and upbeat for you on what will be a beautiful Sunday.

               Buying a house is always risky. Should you choose to buy do you think you will ever avoid this? The family who bought this house at or below rental parity could choose to rent this house should the need arise. What would cause such a need, losing a job? Do you know how many years of cash reserves they have? I don’t. Do you think you will avoid the risk of losing a job or equity when you buy? That’s the beauty of rental parity which is what this blog was founded on and what made the fundamental analysis so great.
            6. wheresthebeef March 15, 2010 at 1:20 am

               To answer your question, zero debt currently and big pile of money in the bank.

               So according to your post, the family could rent out their house if the need arises. And what would they do then? Probably rent a place (and probably on the cheap.) Uh oh, they just went from Irvine McMansion livng into cheap rental living. And like you already said, they will be social outcasts in this society. Obviously we have different views and different vested interests in this game. I personally hope real estate prices crash and burn…you obvioulsy don’t since you would be losing money.

               Enought bickering. I’m taking my beach cruiser down to Naja’s to meet some friends, drink beer and listen to live music. Enjoy your Sunday also.
            7. matt138 March 15, 2010 at 7:08 am

               Big pile of money in the bank – to me, that seems riskier than having it in real estate. You have the potential to lose big (I am assuming you have your money is US dollars).

               You understand the effects of all the abracadabra currently happening – it will be inflationary to say the least and a run on the dollar is a serious possibility. I’d personally rather own a big pile of something else – at least a sound currency.

               Real estate downside may prove to be less than that of the dollar.
            8. Eat that! March 15, 2010 at 8:26 am

               They aren’t making $200K and they don’t have $200K in the bank. We are back to faking all of it again. These aren’t first time buyers (probably) they are move up buyers using the first time buyer credit (indirectly) to sell their old home which has the tax payer providing the carryover equity in the form of keep home values artificially high. There just aren’t enough people making that much money in the OC to support prices like this but there are enough fools at the lower end to over pay to make something like this possible.
            9. lowrydr310 March 15, 2010 at 5:33 pm

               Wheresthebeef, you’re an Iron Maiden fan, AND you live in Redondo?

               I miss Naja’s – yet another reason to return to the south bay. Hopefully things will work out for me in the next few months.
            10. wheresthebeef March 15, 2010 at 6:38 pm

                Gotta love Naja’s…it was packed yesterday. I think they are second to the Yard House for number of beers on tap.

                Let me know if you make it up here and we’ll drink a few.
         2. tlc8386 March 15, 2010 at 6:53 am

            I rent one very similar just west of this home and it’s great to rent but the nose level on Yale is much to be desired.

            I rent it for 3k a month with a larger pool/spa but it’s 2200 sq. feet.

            Two car garage–but almost identical–fyi
      2. Freetrader March 14, 2010 at 9:27 am

         Well, some idiots bought those condos in the North Korea towers for $1 million plus at one point, so disagreeing with me is not necessarily a sure sign of intelligence.

         For a nice sized house in Northwood — I would think that at current comps (if one is willing to pay them) it might be worth between $750k or even $800k, so $150k underpricing may be a little much. Still, to ME it looks like a house that should be around $730k, and I probably have some basis for that. Still, it is called a housing “market”, so please feel free to buy it yourself.
2. tonyE March 13, 2010 at 11:44 pm

   The new US Constitution, as understood by Pelosi:

   “We the American Corporations
   In order to maximize profit,
   establish a high ROI,
   insure a captive marketplace,
   provide for cheap labor costs,
   promote general corporate welfare,
   and secure the blessings of Profits to ourselves and our Posterity,
   do ordain and establish these Articles of Incorporation and Constitution for the United States of America Inc,
   An entity incorporated under the laws of the state of Delaware.”
3. newbie2008 March 14, 2010 at 8:02 am

   tonyE
   Remember to include her relatives in the your next poem and to include her special socialism where profits are privatized and loss socialized for the too big to fail banks. Best govt that Goldman Sachs could buy.

   Most think that the Federal Reserve Bank (Feds) is a branch of the USA government. As Thomas Jefferson warned and tried to prevent, it’s not a branch of the govt. Govt does not control the Federal Reserve Bank. The Feds control the US govt. It’s time that the people wake up.

   Ron Paul will never get a true audit of the Fed. Reserve Bank. He not even authorized to know who own it.
   1. Phillip March 14, 2010 at 9:58 pm

      Wow, how astute–because everyone knows that Republicans are never about privatizing profits and socializing losses.

      And regarding Ron Paul, have fun supporting a racist nutball conspiracy theorist.

      This is an amazing housing blog. Unfortunately, when commenters bring in their moronic political musings, it’s an irritating distraction from the informative conversations that generally take place here.
      1. newbie2008 March 15, 2010 at 5:02 am

         Phillip,
         As I wrote many times, the difference between a Democrat and a Republican is one is spelled with a D and the other with a R. Best govt that Goldman Sach can buy. GW Bush’s great grandfather was the author of the creation of the Fed under Wilson.
      2. matt138 March 15, 2010 at 7:21 am

         Phillip, as the economy worsens and Ron Paul’s economic ideas start to make greater sense, I hope you reevaluate your position on him.

         Could you post some links regarding his racist views? From what I gather, he doesn’t seem like a racist. Anyone care to show me otherwise?

         He seems like a rational, fiscally responsible person (something we desperately need) so to call him a racist nutball conspiracy theorist tells me you lack understanding of economics, gov/t overspending, and the effects of inflation on the american people.
4. johnsmith March 14, 2010 at 11:00 am

   Went to see this house, the pictures are really deceiving. It may look nice in the pictures, but the house is really showing its age. The renovations must have been done 5-10 yrs ago, there are rotting doors and siding. It’s right next door to a house that has been completely remodeled, that one is nice, this one is not. I wouldn’t want to be the “lucky” owner of this house, even if it were priced 150k less and the address was 888 ramada.
   1. Freetrader March 14, 2010 at 7:35 pm

      Note also that Zillow, not known for ridiculously underpricing homes based on comps, values this house at $790k. Nary an “8” in that price, I’m afraid.

      Interesting history on this house — note that it was sold in 1993 for $400k and then resold in 1995 for $258k. A 35% price decline in two years. I’d love to hear from the guy who sold in 1995.
5. Joe R March 14, 2010 at 8:38 pm

   There is an economic reality that was
   stated in the example of chicken
   farming. There are two ways to make
   a profit off chickens. One is to have
   a huge, efficient chicken farm with
   huge numbers of chickens in their
   little cages, etc. The other is to
   keep chickens in a coop and let them
   go out and scratch up a living.
   Anything else will lose you money.

   In a previous IHB post, our host posted
   a graph with three scenarios for
   the market getting itself out of a
   bubble labeled ice, fire and
   armageddon. I like that graph, and I
   think that in reality, the graph shows
   what has been happening in working
   class, middle class and upper class
   neighborhoods.

   Rent parity has a strong effect on
   working class neighborhoods, where
   people live from paycheck to paycheck.
   If a bubble develops in such a situation,
   it will snap back with a vengeance when
   the house buy/rent ratio gets too far
   out of whack. If you throw in no
   money down purchase subsidies and
   impossible interest resets, you get
   armageddon! Those areas always have
   a relatively big supply of rentals
   to owner occupied housing.

   The middle class areas have relatively
   fewer rentals, and the owners generally
   make bigger downpayments. However, in
   a recession, there will be job loss,
   and if there is a double income loss,
   you will also get armageddon. Since
   there are proportionally fewer bad
   family situations in middle class
   areas compared to working class areas (unemployment statistics bear this out),
   you get the fire scenario in the
   middle class areas.

   In wealthy areas, people are more
   likely to be in an independent position,
   with many more discretionary resources.
   You will have proportionally more
   people who can buy for cash. There are
   fewer local people who can afford to
   get into a wealthy area, and a lot of
   wannabes who will try their hardest to
   do so. In the bursting of the housing
   bubble, it is the wannabes who are
   getting foreclosed in wealthy areas.
   The actual wealthy people though are
   in a much better position to wait out
   the temporary drop we see in the ice
   scenario. Although the local pool of
   potential buyers is much smaller for
   wealthy areas, you must consider that
   many wealthy neighborhoods in major
   urban/suburban areas are internationally
   famous. Wealthy buyers in other parts
   of our country,and also those from
   abroad, will see the drop in prices in
   the ice scenario as an impetus to buy
   in now as a hedge against the big
   inflation many fear will come as a
   result of the current Federal spending
   spree. This post is discussing
   Chinese numerology as a real estate
   marketing tool. I think we all know
   that foreign money (especially from
   newly wealthy Chinese) is moving into
   the upscale neighborhoods in SoCal. This
   rather than anything the Fed is cooking
   up is the real reason why the ice
   scenario is playing out in rich areas.

   Remember, the Fed can set the rate it
   loans money to banks at, but it can’t
   set the rate that T-bills auction off
   at!

   Joe R.
   1. Planet Reality March 14, 2010 at 9:59 pm

      Don’t forget that mortgage rates in Japan have been at 2% and lower.

      Do you think the US government has the capability to do the same? I’ll laugh at anyone who comes back with the standard way that mortgage rates are set. I’m not saying this will or should happen, I am simply pointing out another obvious scenario.
   2. newbie2008 March 15, 2010 at 4:58 am

      Joe,
      There’s a bigger way to make money in chicken farming or at least cattle. Control the major regional stock yard and processing plant. Sell short on cattle, stop processing the beef and let the cattle back up into the stock yards. Since the rancher already paid for the transportation to the stock yards, the ranchers are in for a world of hurt. This worked well in the 1990’s to drive many ranchers out of business. The money involved in speculation was greater than the underlying product.

      There more than two ways to make a buck.

      The Feds are influencing the T-bill rate by buying the notes. PRC cut the amount of purchases, so the Feds bought to keep the appearance of full subscription. How long they can keep it up is unknown. Most of the activity of the Feds and ownership information are exempt from the Freedom of Information Act.

      The govt is keeping mortgage interest rates down through FHA and GSE lending. Without pumping money into housing and backing the notes, the private investor will demand higher rates.
      1. Joe R March 15, 2010 at 7:34 am

         What I meant was two ways
         to make money off raising chickens.
         In the context the word “raising”
         was understood if not stated.

         Speculators don’t raise any
         chickens. Just as housing
         speculators don’t build any houses.
6. Joe R. March 14, 2010 at 10:40 pm

   Sure, Planet, the Federal government
   could require that all lenders making
   loans through Fannie or Freddie (which
   means just about all lenders) charge 2%
   fixed rate interest, and then have the
   Fed provide money loanable at that
   rate to the agencies.

   But when they go to the credit market
   to float treasuries, the market could
   say no sir, we won’t buy T-bills at that
   ridiculous rate. You’ll just have to
   take what we offer or else just print
   the money! So the T-Bill market goes
   kablooey!

   Joe R

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