Is a property market crash truly imminent ?

[sdrealtor]

Just wondering how you managed to move for $2,000. I’d love to share how with my clients.

[sdduuuude]

If I understand you and powayseller correctly, 4plexowner is predicting a 40% to 60% drop in real prices, which translates to a smaller nominal (paper money) price reduction than powayseller. At 5% percent inflation (cuz I know you guys like that big inflation stuff) for 5 years you are looking at 36% drop in nominal prices.

Powayseller said 50% drop in nomial prices, which (using the same inflation figures) is a 60% drop in real value.

So I put powayseller farther out than even you.

Using the “revert to 1999 values” concept in another thread, I came up with 16-20% nominal, which is still a wild drop – twice that of the last crash.

Not sure how powayseller thinks this crash will be 5x worse than the last. The numbers just don’t support it, in my opinion.

I do think prices are off 3-5% though, and the fall is nearly a year old already, though it will be Summer 2007 before the general public realizes it. 6 more years and 15% to go.

[powayseller]

Movers…4 guys, 12 hours @ $125/hr, = $1550. Plus lunch and dinner for 4 guys and $200 tip. ACME Moving, Vista. I used them twice in 6 months. Responsible, hard working crew.

[LookoutBelow]

Oh my……..PowaySeller your the love of my mind’s life.

In all seriousness, your a VERY clear, well informed thinker and see things for what they really are. EVERYTHING said can be documented, verified and proven, its not PowaySeller’s speculation, its pure, cold unemotional facts.

THATS what smart investing is all about, not emotional hype, media slant or “personal feelings”.

Will you marry me PowaySeller ?

[Anonymous]

I moved for well under 2k,if it cost you more than that you are being irresonsible IMO. Movers were about $800 approx, and I did not take the low bid.

[Anonymous]

I love Fleckenstein, and think he is a genius. However, keep one thing in mind, he is a short seller primarily. All this means is that he tends to have a one-sided view on the downside of things. He was right in the 90’s but early, no problem. However, he has been wrong since then during the rally off the lows in 2002.

So just moderate his view somewhat IMO. He tends to be early. He had a big short position on INTEL which if he held it ultimately played out but took several years to do so.

[lostkitty]

Sdrealtor – If I remember correctly you said you had friends who attended. Surely you’ve already gotten the scoop from them. What is your take on the report? You said they seemed to do a 180 – could you elaborate?

[bmarum]

I’d just like to chime in on the ARM loan discussion. We too have an ARM, a ten-year one (resetting in 2014), and we will not be in any danger of foreclosure in the coming years. We had a 30-year fixed on the same house and refinanced into the ten-year ARM. At a purchase price of roughly 2.5 times income, we’re doing just fine. While I agree that there are certainly a number of people out there who used ARMs to get into houses that they couldn’t otherwise afford, there are also quite a few out there like me who selected an ARM for other reasons. I have plenty of friends that either purchased with an ARM or refinanced into an ARM despite the fact that they qualified for a 30-year fixed.

[powayseller]

Your compliments about my brain mean more to me than the looks I get in my bikini. Thanks so much!

[powayseller]

I need to talk with Cheryl Mason at the Labor Market Office to get the detail on the employment numbers. When I can get a hold of her, I will write up my report. Their weaknesses are that they completely omitted MEW and ARMs. I want to dig into their employment numbers, which they failed to do…

And thank you for your kind tone in your recent posts.

[powayseller]

Good, then you fall into the 20% of people who will not face foreclosure from getting an ARM.

[lendingbubblecontinues]

Appreciate the insight bmarum. I’m sure you’d agree, of course, that people who purchased anything for 2.5 times income are rare and, since you likely have high income(s), you are the exact type of people for whom ARM loans make sense.

The “average Joe” has absolutely NO business buying a home for 8-12 times income with a debt instrument (ARM) that enables him/her to “squeeze into” said home.

Nope…the ARM will be the death of this “house of cards”, and it will impact many people’s ability to borrow in the future, it will ruin many people’s credit, it will decimate many in the newer developments like 4S Ranch as they ALL drank the kool-aid and bought the biggest home they could “afford”, and, importantly, it will lead to lower comps and neighborhood instability and upheaval all over San Diego County.

[bmarum]

I don’t disagree that the ARM loans, along with many of the other exotic lending products, will be a substantial factor in the coming price declines. What I do disagree with is the notion that all, or nearly all, of the people who got ARMs in the last two years fall into the category of people who used an ARM to leverage themselves into a house they could not otherwise afford.

People who purchased at 2.5 times income are indeed rare. But, I don’t think 80% of people who got ARMs in 2004-2005 will go into foreclosure in the next couple of years. Perhaps 80% of first-time homebuyers who purchased with ARMs in the last two years will, but that’s an entirely different thing than simply taking the number of ARM loans written in 2004-2005 and saying x number of people are going to go into foreclosure. The latter ignores trade-up buyers (who probably had substantial cash to put down) and those who, like me, refinanced into an ARM despite qualifying for a more traditional loan product.

[lendingbubblecontinues]

I agree. The projections for foreclosure percentages are purely guesswork. Also, 80% seems like a really high number to me. I’m not even thinking about foreclosures at this point. Large numbers of short-sales seem more likely to me. Who knows…maybe the banks and government will conspire to keep everyone afloat with forebearance into the 2010s and 2020s? All I know is that housing prices MUST come down.

Anecdotally, nearly all of the thirty-forty somethings we know who have bought/traded-up in the last two to three years, have used the I/O NegAm type of loans just to qualify for their purchase. This, despite having substantial cash to put down, and multi-generational lows in borrowing rates. Certainly, some of these people are f&*ked, no?

[powayseller]

I welcome corrections to my 50% prediction. I got my prediction from the Bubble Primer chart, Per Capita Income/Median Price. This ratio is 64% over the historical average, and needs to fall by 50% to get back to the low point. (200% x 50% = 100%, the trough). If wages go up, the 50% figure will be smaller. But somehow, this ratio must normalize to 100%.

The price drop will be less than 50% if wages rise. Pretty unlikely, but possible.

The price drop will be greater than 50% if wages stay flat and the exotic loan fallout and job loss from RE related jobs feeds on itself, and becomes much worse than anyone expects.

The time to buy a house in SD will be when the front page of media is about the horrors of RE, and no one wants to buy property. This requires discipline and patience, but for me, who loves renting, I don’t care too much how long it takes.

[Author]

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