very confused about mcamansion reality

[CardiffBaseball]

I don’t mean to defend Chicago, there is really no way I’d consider moving there. I just don’t think “the people” is why I choose to stay in California. The weather, the things to do, the weather, the topography, the sunshine (starting to sound like a broken record)…

I’d take almost any major midwestern city before Chicago, because it’s just too damn big and expensive. If I went back to Cleveland it’s more that “provincially speaking” I fit in a little better, lifestyle is a tad slower, and you don’t have to live so far out of town, to find an affordable but good community. There are some really expensive burbs near the city in greater Chicago.

[ibjames]

I would just like a house.. I’ll even take a townhome with a garage.. my wife and I make a little under $150 and can’t buy a house. What a joke. I’ll live in Clairemont, Linda Vista even.. something with a garage and you can maybe raise a kid in to where he has his own room and the computer isn’t in the living room. Pass the pipe, I must be smoking something. When I moved here with my wife we accepted the fact that any place we look at is going to be smaller and more expensive than anything we could get at home. Little did we know we would have to remove 2 bedrooms off of what we would like to buy in order to afford it.

BTW: I grew up in Milwaukee, WI. I hated Chicago. Urban sprawl, they use space to it’s fullest. Now people are moving out so they can have bigger places, facing huge commutes and traffic. No thanks.

And yes, you can get whatever fruit and other stuff you like. You may not have the “Organic” selection that you have here but you can get most fruits there. Things like Avocado and Pomegranate maybe not so easy.

One thing about SD that I notice is that since it’s full of relocatees that people ARE generally more open to acceptance. They may seem more well travelled because they came from the east coast or midwest to get here. Where in the Midwest not many are moving there, so many have been there all their lives.

I do notice that a trip to Mexico, Phoenix and Las Vegas is very normal here. Back at home a trip to Chicago was a big trip, even though it’s 1.5 hours away. Where else you going to go? MN? Go to mall of america?

Another huge thing SD has over Midwestern cities is culture. I tell you what, my wife is a sushi fanatic now. Never had it till we moved out here. I eat avocado on everything and even want my own tree/bush? so I can pick them. I eat pad thai and drunken noodles on a regular basis and can’t get enough. Being a people that love culture we were missing out on so much.

Sometimes I get down on the thought of being a renter, then I step outside, ride my bike to the beach, or think of the summers back home when you try to maximize your summer because it’s going to be over soon, and I remember why I came here.

I’ll stay a renter, I think things will work out in the end. Once things change in the financing industry for housing loans and the dust settles I think I’ll have a place I never thought I’d be able to get when I initially moved out here.

[SHILOH]

The bubble would not occur if lending standards were tighter when the feds lower rates.
How is it that financial insitutions, whether huge or small didn’t see the magnitude of the subprime fallout.
What this mess feels like is a grand experiment by Greenspan —and all of the others who are financially untouchable and manipulate big economic decisions via hype. This is like the build up of believing in tech because the sky was falling as we “reset” for the year 2000 and some ethereal disaster was impending. 2000 came and went —and with it all the doom hype.
If rates were to go below 5% and conservative lending practices were the standard, ie, documentation 20% down, fixed rate…then no bubble could happen. Flippers could not assume the amount of “risk,” already being over-financed elsewhere….and most people could afford some kind of starter home —-in some neighborhood, not paying $400K for a 40 year old ranch worth no more than $130K, if that.

[hipmatt]

What this boils down to is supply and demand. There are so many more homes available now in socal vs 10 years ago, that its insane, I don’t have the numbers, but I bet that in Riverside, Orange, and San Diego counties there are over twice as many existing homes now than there was in 1997. Has the population of these areas doubled as well? Ricks site here states that there are more new homes being built than there are people moving to these areas.

Now that the speculation is over, only first time home buyers can affect this market. Why? People moving up or down do nothing to change the inventory of homes available. They are also the only ones who can afford it as well. They are counting on the equity of their old home to get them a decent payment in a new home. Since they will be selling a home to buy a new one, the supply isn’t really decreasing. And then there are the first time home buyers, can they afford a home in socal with these current prices? How many people or even couples can afford $400k plus just to get into a starter home? Do they have a down payment? Doubt it. Lenders are going belly up, and lending standards have started to change, and they will continue to change for along time.

Lowering the interest rates can’t really help either. Rates are already insanely low, historically very low, America and Americans are maxed out with credit and debt, we have a negative savings rate, and a dollar which is loosing value to other world currencies. Investors need to fund our debt, and they soon will stop that as it will be a bad investment for them.

Many of the newer jobs that have been created within the last few years have been due to money put into the economy cash out refies, and easy credit as well, making our economy look stronger than it really is. As the big spending comes to an end, jobs will be lost, and profits will come down too. Cars sales will drop, construction will drop hard,lenders/agents/escrow will be affected, home improvement, granite, landscape, retail, pool installs, will all be hit hard. More and more people will not be able to buy homes, even at lower prices, and some who own, will be forced to sell, further increasing the amount of inventory. Some that have to refi due to rate resets, will finally get it that they couldn’t afford the home in the first place and either try to sell or just walk away. Short sales, repos, and other situations like these are already filling up the MLS, craigslist and the local papers.

So the supply of homes is going up and the demand is going down due to a lack of qualified buyers. The only way this can continue is if wages double or triple like the recent home prices.

[CAwireman]

Link to that UT article…. 

http://www.signonsandiego.com/news/business/20070215-9999-1b15housing.html

 

[CAwireman]

Quotes from the UT article:

"Archbold said the incentives, usually taken in the form of interest-rate buy-downs, may not last much longer. “It's not going to get any better than this,” he said." 

"As for the resale market, David Cabot, president of the San Diego Association of Realtors and a top executive with Prudential California Realty, said agents in his company and around the county were more optimistic about the coming year.

“I believe the bottom has been hit and should level out and should be going up a little bit,” Cabot said. “I don't know if that is accurate; we'll have to wait until June to see.”

It wasn't just real estate agents who were seeing an end to the downturn. Federal Reserve Chairman Ben Bernanke spoke before Congress yesterday about the “drag from housing” diminishing, while his predecessor, Alan Greenspan, told a Canadian audience that the “worst is behind us.”

So okay, let's get out there now and start buying property!

[poorgradstudent]

California’s year round produce is fantastic, there’s no denying that.

The deep dish Pizza here is pretty weak. Regents Pizza in UTC makes a decent pie, BJs is ok, but it’s not the same as a good Chicago/Milwaukee deep dish. Bronx Pizza in Hillcrest is the best New York style slice I’ve found.

As for culture, I laughed when I read the claim that San Diego has great culture. The museums here are pathetic considering the size of the city. And Californians can be VERY provincial. In particular, most native Californians can’t understand why anyone would live anywhere else (this even extends to NorCal/SoCal), and while they’ve usually been to Vegas and Mexico, there’s a lot of people here that have the annoying “fly-over” attitude about the Midwest that disgusts me in Northeasterners (New Yorkers and Bostoners in particular).

Then again, Minneapolis tends to thumb its nose at Omaha and Des Moines, so perhaps there’s provincialism everywhere.

[startingout]

Could these optimistic viewpoints from Ben and the Realtors (sounds like a band name!) be regarding the national housing outlook, rather than Southern California’s housing outlook? It seems at least somewhat believable that the worst may be over for the nation, but I find it laughable to think that SoCal’s current prices are sustainable.

Hipmatt, you hit the nail on the head.

[Duck]

I have to agree with you. Chicago has 10x the “culture” of San Diego. One of the top cities in the world for architecture, the Chicago Symphony is on the best in the world, the Art Institute, Millenim Park, Grant Park, the museums, Shedd Aquaraium, etc. The Chicago Mercantile exchange basically created the futures market and it’s probably the 2nd or 3rd biggest financial center in the world behind NY and maybe London.

San Deigo has nice weather and amenities. Let’s leave it at that

[ucodegen]

Those that blame Bernake or Greenspan for all of the problems with real-estate or all that ‘ails’ in this economy, basically have it wrong. CONCHO got things very close.

Basically, the federal reserve has three mechanisms to effect the economy.
1) Federal Reserve rate (underpinning interest rate).
2) Effective outstanding Loan to Deposits rate on banks.
3) Federal Reserve ‘printing presses’.

Thats basically it. Each of these has limitations and consequences in their actions. The Federal Reserve Chairman can not control how much congress wants to or will spend… but he has a partial responsibility with finding the money that they will spend (can’t deny them the purse strings).

Each of the above mechanisms can stimulate or hold back the economy. In addition, deficit spending by Congress can limit the Federal Reserve Chairman’s options (as hinted by CONCHO).

Method #1 (Federal Reserve Rate), this is considered an ‘underpinning’ interest rate because the US Gov. is consider to have 0% chance of default on its debt, therefore it is considered the risk free rate of return on capital. Any returns that have a higher risk of default or failure, will have a risk premium associated with it, increasing the effective interest rate. The risk premium is to offset the chance that you will not get any return or will loose part or all the capital (ie. short shale/foreclosure).

This Federal Reserve Rate is also around the rate that US. Treasuries return since a Treasury Bill is effective a loan to the US Government with the noted rate of return. When Congress is running a deficit, this rate can not be lowered below the indicated rate or return at which people will buy a Treasury Bill at (because the Treasuries will not sell and Congress would not get its deficit spending funded). One of the flies in the mix, is that foreign countries have historically been picking up US Treasuries as investments. While there is 0% risk of default, the chance that the US dollar will decline vs. foreign exchange currency will add an implied risk to the foreign investor and therefore they will demand a risk premium. An example would be: A treasury yielding 5%, but the dollar to foreign currency exchange rate changes by -7%, approximate net would be -2% return. Now take a look at the following links:
http://www.x-rates.com/
http://www.x-rates.com/d/CNY/USD/graph120.html
http://www.x-rates.com/d/EUR/USD/graph120.html

Method #2(Effective outstanding Loan to Deposits) Otherwise known as M2 (Money supply) adjusted by fractional reserve rate. If banks were originally having to hold 40% of deposits, and allowed to loan out 60% of deposited dollars, a change to holding 30% of deposits and loans on 70% of dollars would free up money for loans. This is in part why the banks were securitizing loans (bundling them as securities and selling the loan packages). The securitized loans no longer count against them on the fractional reserve rate. In addition caveat to some clauses it removes the bank from the risk of those loans failing. see:
http://en.wikipedia.org/wiki/Money_supply
http://en.wikipedia.org/wiki/Fractional_reserve_banking
http://en.wikipedia.org/wiki/Mortgage-backed_security
http://en.wikipedia.org/wiki/Image:Money-supply.png

NOTE: The banks really abused securitization of loans during the R.E. bubble by creating wholly owned subsidiaries to do this dirty work and are presently closing these subsidiaries (having them declare bankruptcy) to protect themselves from liability. Because it is a separate company, there is a corporate ‘veil’ between the bank and the wholly owned subsidiary, which also applies to liability. This veil would need to be pierced to go after those that are responsible for the bad loans. If the subsidiaries were created primarily to shield the owning company from liability, and most of the money was being transferred back up to the parent, there may be a good chance to pierce the corporate veil. The wholly owned subsidiary would not have been acting as a separate company in that instance. The suit to pierce that corporate veil may have to be instigated by the holders of the mortgage backed securities. The abuse of the securitization was also a large part of the cause of the drop in lending standards and the crazy prices. The lenders felt safe to lend money to those who they felt couldn’t handle it, because the lenders didn’t feel that they would be caught holding the bag (in a manner of speaking).

One side effect of adjusting fractional reserve rate downward (lower on-hand deposits), is an increased risk of bank failure should those loans go south. Adjusting this rate downward does not help Congress fund its deficit spending either.

Method #3This is firing up the printing presses, otherwise known as M0 (another money supply variable), and relates to the amount of physical currency and central bank accounts that can be exchanged for physical currency. A zero inflationary stance here would be that the growth in physical currency would match the growth of the population. Because of the leverage that fractional reserve rate gives on this figure, increases here can be highly inflationary.

Finally, deficit spending itself is also stimulative to the economy and can be quite inflationary.

Therefore, in reality, it is very unlikely that the Federal Reserve will lower rates. The part that is worrisome, is that with the amount of destruction of capital that the Real Estate deflation will cause, the economy will need to be stimulated again to keep it on its feet. With deficit spending presently occurring, this can not be done by lowering the Federal Reserve Rate. Because the banking industry has put themselves at risk due to their lending behavior, the stimulation can not be done through the fractional reserve rate (Method #2), therefore method #3 is left. To keep inflation at bay when increasing M0, reserve rates may need to be further increased… which has the possibility of worsening the R.E. situation.

As for csr_sd’s situation: I am in much of the same boat, except that I do have a significant investment ‘stash’. I look at the situation a different way. A home is also a ‘performing’ asset. It gives shelter etc at a cost. So does renting. I could use some of my investments to buy a house, but my expected return should be better than the return that I get from the investments. To those that claim that I would get a tax write-off by buying, you forget that at the $100K+ /year level and with investment returns, you are already banging against AMT.. which would limit your deduction for mortgage interest. (LTCG rate is 15%, floor on AMT is 26%, mortgage deductibility is only for interest).

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