Next Shoe Drops in May….

[LA_Renter]

Lets look at the the last downturn in CA when nominal home prices actually fell. The primary reason for that was massive job loss as a result of the Defense/Aerospace downturn. Home prices fell because people had no income to meet the mortgage and had to sell and actually for that matter leave. That increased the liquidity of RE and actual home prices fell. If people can make their mortgage payment they will stay in their home and sales volume will fall and while home prices remain flat. That is actually very bad for RE employment. Rather than debate will home prices fall and by how much, I think the true debate is what will kick people out of their homes. Right now we are seeing a huge wave of foreclosures really hitting the bottom of the market first thats increasing liquidity and that is where we are seeing actual price drops. What we need to determine is how high up the food chain will the mortgage problems go. What I see is ARM resets to foreclosure is equal to aerospace/defense job loss. One thing to remember for people that bought pre 2003 is the rise of the HELOC. Also it does appear there is a greater possibility of recession on the horizon.

So how many people will lose their homes to bad mortgages (including HELOCS)? how far up the food chain does this go? How many people are at maximum pain with their reset and will put their property on the market? and the big question how many additional homes will go on the market in the event of a recession?? Another question to ask, how tight will credit become when we hit the true brunt of the foreclosure storm?

Unfortunately we are still very early in the game. IMO the answer to many of those questions don’t look to promising right now.

[latesummer2008]

Bingo JWM! Global Issues are driving the MACRO picture right now. And guess what, EVERYONE is now looking at the U.S. Housing Sector. More specifically, areas that INFLATED the most are at greatest risk. Can you say SOUTHERN CALIFORNIA? Better yet, Can you say SAN DIEGO? WESTSIDE of LA? etc.. JWM makes some very interesting observations incorporatingthe BIG PICTURE. We are in a Global Economy now, and the U.S. is showing weakness. The housing numbers for APRIL will be AWFUL. But, R.E. Shills will try to find a way to spin them . The ONLY numbers which matter are measured YOY……….(Year over Year). MONTHLY numbers don’t mean SQUAT. Median numbers don’t mean SQUAT. The best numbers really, are PRICE/SQ FT, measured YEAR OVER YEAR. But they won’t show you that. Even those can be questionable. Houses actually depreciate each year, ITS THE LAND which GOES UP or DOWN.

Sorry guys, #@&%$?# hits the fan this summer….Even worse the following summer

http://westsideremeltdown.blogspot.com

[Bugs]

I maintain that defense job losses of the last bust were the trigger, not the cause of the last bust. The last bust occurred because the trend had overextended and had to correct. Had it not been defense jobs it would have eventually been another factor. The trigger for the bust of the early 80s wasn’t jobs, it was financing and taxes. The root cause of a bust is that portion of the expansion that is unwarranted present in the boom that precedes it.

We’re not having a bust here because of subprimes and RE job losses – those are just the trigger. We’re having the correction because these prices are way out of line relative to the overall population, employment and wage trends.

I think it’s a huge mistake to think that 2003 is the cutoff date for overvalued loans and foreclosure activity. For one thing, the “parity” level is farther back in the trend at the beginning of 2002 or so. For another, there have always been a lot more refinance transactions than sales; on the order of 3:1 (or more) in many areas. Many of those borrowers were smart enough not to tap the ATM, but there are enough of them who weren’t that disciplined to dwarf the number of at-risk 2003+ buyers.

These borrowers go all the way up the economic spectrum into the $2,000,000 ranges.

One other thing to bear in mind is that in addition to the occupations directly tied to the RE business, there are a lot of buyers in the middle and higher price ranges who are business owners, and whose fortunes rise and fall based on the general economic conditions. For now they are doing okay, which might contribute to the stability of some of these market segments. However, in a general downturn these guys are even more prone to reversals of fortune than most; and when they go down they take their employees with them.

You can’t call RE the economic engine of this last boom without calling it’s demise the “trigger” of the downturn.

[temeculaguy]

JWM, I didn’t say or at least I didn’t mean to imply that were in a historicaly comparable time, we are not. I only pointed out that historicaly the down cycle takes as long or longer than the up. I do reserve the right to be wrong because the upswing was so crazy all historical models are moot. I am ready for it, I want it to happen, if homes cost 100k tomorrow I would be elated, but I just don’t think that’s going to happen. It’s just the method they are traded and used they have never had the volitility of other assets and the method slows things. I am not in the R/E industry and I am here to get as much insight as I can to time the market this time. I was unlucky in 1992 and lucky in 1997, here in 2007/2008 I want to combine some wisdom into the equation so I don’t have to entirely base things on luck. It is as if the summer averaged 150 degrees and we are trying to figure out what winter will bring. Some say it will be colder than normal because hot summers normally bring cold winters, some say hotter than normal because the temperature has shifted. Whatever happens, there has never been a 150 degree average in summer so all I am convinced of is come winter, I would real suprised if it was “normal” winter.

And Wiley, I have not seen any info on the Japanese bust but I will look into it.

[latesummer2008]

ARMs Reset & Credit Crunch will have a serious affect on April Home Sales that report in May. Then, the dominoes really begin to fall. I expect inventory ballooning by the time summer officially arrives. Sellers will begin slashing prices, MSM stokes the flames and FORECLOSURE becomes the hot topic of summer parties.
Unfortunately, many sellers refuse to accept reality because of speculation or their retirement hopes evaporating. Those days are OVER. Our economy has been artificially inflated due to asset bubbles since 1996. Housing, Stocks, Housing, Stocks. We now have Housing Credit Cards (MEWs & HELOCS) and you can RENT a house from a Used House Salesmen for NO MONEY DOWN, NO ASSETS and NO JOB. Please….
I suppose every 9 years or so, they’re more suckers to be had. Unfortunately, guess who eventually picks up the tab? That’s right. This time around, people may not forget as easily, because it will be MEMORABLE.

Time to pull your head out the sand folks……..

http://westsideremeltdown.blogspot.com

[latesummer2008]

How Many Problem Loans are out there? That is the key question. Is it just entry level buyers who were stretched in 2005-2006 or will it reached all the way up the housing food chain? That is my guess. I believe entry level buyers are the first and hardest hit, while more affluent homeowners (homedebtors) have longer staying power. But how long and how much do they stand to lose? Will they be quicker to exit?

We shall see….

http://westsideremeltdown.blogspot.com

[DCRogers]

Southern California is known for boom-and-bust cycles, and most see boom, followed by a slight drop, followed by years of no nominal gains (thus, a yearly shave by inflation… rougher when inflation could be high single digits).

What sets this bust apart is the must-sell caused by ARM resets. If the initial drop is big enough, many homeowners will be underwater, and not able to refinance. So, the size of the initial drop (the period we are in) has a multiplicative effect on the ultimate number of people who will be squashed by the reset.

I think it’s a close call, but reports of fraud make me think the capital markets will be pissed off enough to cut off funding, making refinancing a bitch, and pushing enough homeowners to the brink to give a double-dip drop pattern, rather than the more typical years-of-flat.

Painful as that may be, I agree that more affordable housing would be a long-term blessing for the area, and worth the short-term pain. (Due anguish to those who will lose their homes [though I don’t buy most of the “I didn’t know…” crowd… more like they didn’t want to know].) A bailout would screw us twice: once with our tax money, and once again by keeping homes unaffordable. No pain, no gain, baby.

[latesummer2008]

Yes, TsunARMi is coming with all the resets just beginning in April. I wonder how many will be felt here in Southern California? And, how many people don’t even realize what their adjustments will be? Can you say “REAL ESTATE FRAUD” I’m hearing more and more stories about how supposedly, even the mortgage broker didn’t understand all the terms because of them buried so deep in the “DOCs”. Especially here in California, which is the most lenient state in the country, when it comes to selling home mortgages.

Sheeeeeeittt…..

http://westsideremeltdown.blogspot.com

[latesummer2008]

April Drop in Home Sales could rock the housing market any day now. Last months figure was -8.4% The biggest drop since 1989, just before the last housing bust. Any guesses on what the number might be?

http://westsideremeltdown.blogspot.com

[Anonymous]

Just had another one of my friends call me and say that his mortgage payment is jumping from $2600 to $4000 this month!
All I could say to him was “You Idiot”. I told him that he couldnt afford a $560,000 home on $15 an hour in the first place and then to pull money out of it just adds fuel to the fire! May is going to be another great month to buy a big bag of popcorn and soda and watch the fire works in the front row! Can you say “Mega Disaster”!!!!!!!!!!

[kev374]

Another catalyst is gas prices. The prices here just blow my mind $3.50/gallon for regular in Irvine. Compare that to $2.75/gallon/regular in Austin, Texas.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Been to Austin, It’s OK in a Cowboy town kind of way, Just not my cup ot tea so to speak. The College in Austin is a big Plus though.

Reminds me of Sacramento with cowboys.

[latesummer2008]

Perfect Storm is Brewing here in Southern California. Housing Collapse, Inflation, and Job Losses. This could make the early 90s look like peanuts. Just wait until the money starts leaving and were left with a thoroughly depleted infrastructure. Then who could, and would make payments of $4000 a month for a marginal piece of property, knowing it’s dropping in value???????

The gig is up….

http://westsideremeltdown.blogspot.com

[sdrealtor]

deleted

[kev374]

Check out the stat reported by this article:

http://www.dailynews.com/search/ci_5789169

The median-priced Valley home in this year’s first quarter is nearly four times more expensive than a decade ago.

That is a mindblowing statistic, median price was $158,000 in 1997, now it is $606,000!!!

[Author]

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