[Allan from Fallbrook]

JWM: We bought our house here in Fallbrook for $425k. That represented the single largest purchase I had ever made in my life. I literally lost sleep thinking about possible market reverses, whatever. Then as things really started to jump (the run-up in housing), I went from thinking that I must have been some kind of genius to really sensing that something was waaaaaaay outta whack.

I had arguments with people during ’03, ’04 and into ’05 about the SD market and why it was not only different this time (all the usual RE propaganda), but that the SD market somehow had the ability to defy gravity apparently in perpetuity. Having grown up in the SF/Bay Area, I know that certain markets (like San Francisco city) have remained resilient regardless of external factors.

After a while, you start thinking that maybe YOU are the idiot and everyone else is right. But, I remember having had the same feelings during the NASDAQ/dot.com run-up as well. Listening to some twenty-something CEO of kozmo.com, or webvan, or eToys going on and on about the “New Economy” and realizing that the emperor really wasn’t wearing any clothes.

The NASDAQ implosion erased $4Tn. How big a bust is this one?

[Allan from Fallbrook]

JWM: We bought our house here in Fallbrook for $425k. That represented the single largest purchase I had ever made in my life. I literally lost sleep thinking about possible market reverses, whatever. Then as things really started to jump (the run-up in housing), I went from thinking that I must have been some kind of genius to really sensing that something was waaaaaaay outta whack.

I had arguments with people during ’03, ’04 and into ’05 about the SD market and why it was not only different this time (all the usual RE propaganda), but that the SD market somehow had the ability to defy gravity apparently in perpetuity. Having grown up in the SF/Bay Area, I know that certain markets (like San Francisco city) have remained resilient regardless of external factors.

After a while, you start thinking that maybe YOU are the idiot and everyone else is right. But, I remember having had the same feelings during the NASDAQ/dot.com run-up as well. Listening to some twenty-something CEO of kozmo.com, or webvan, or eToys going on and on about the “New Economy” and realizing that the emperor really wasn’t wearing any clothes.

The NASDAQ implosion erased $4Tn. How big a bust is this one?

[Allan from Fallbrook]

Rustico: Thanks for the compliments. On the topic of building, we have a new custom built home going up right down the road from where I am and I keep musing about who would build in this market.

There are a trio of custom built homes on Mission Road (the main drag in Fallbrook) that have been sitting unsold for the better part of a year and a half. As I stated in an earlier post, there are literally thickets of “For Sale” signs in and around certain developments and neighborhoods in Fallbrook and Bonsall.

A friend of mine that works for Lockton (another big insurance broker) in LA said that the big builders (Pulte, Lennar, KB, etc) will continue to build houses on those pieces of land that they couldn’t unload or walk away from their option on. Developed land is apparently a better bet for them than empty lots.

I used to live in East County, by the way. When I had my motorcycle, I used to ride through Jamul all the time. There was this great little dive called The Green Tomato in Boulevard that made the best guacamole I think I have ever had. The Harley crowd loved that place, and I don’t think I was very welcome there with my BMW K100.

[Allan from Fallbrook]

Rustico: Thanks for the compliments. On the topic of building, we have a new custom built home going up right down the road from where I am and I keep musing about who would build in this market.

There are a trio of custom built homes on Mission Road (the main drag in Fallbrook) that have been sitting unsold for the better part of a year and a half. As I stated in an earlier post, there are literally thickets of “For Sale” signs in and around certain developments and neighborhoods in Fallbrook and Bonsall.

A friend of mine that works for Lockton (another big insurance broker) in LA said that the big builders (Pulte, Lennar, KB, etc) will continue to build houses on those pieces of land that they couldn’t unload or walk away from their option on. Developed land is apparently a better bet for them than empty lots.

I used to live in East County, by the way. When I had my motorcycle, I used to ride through Jamul all the time. There was this great little dive called The Green Tomato in Boulevard that made the best guacamole I think I have ever had. The Harley crowd loved that place, and I don’t think I was very welcome there with my BMW K100.

[Allan from Fallbrook]

Rustico: Thanks for the compliments. On the topic of building, we have a new custom built home going up right down the road from where I am and I keep musing about who would build in this market.

There are a trio of custom built homes on Mission Road (the main drag in Fallbrook) that have been sitting unsold for the better part of a year and a half. As I stated in an earlier post, there are literally thickets of “For Sale” signs in and around certain developments and neighborhoods in Fallbrook and Bonsall.

A friend of mine that works for Lockton (another big insurance broker) in LA said that the big builders (Pulte, Lennar, KB, etc) will continue to build houses on those pieces of land that they couldn’t unload or walk away from their option on. Developed land is apparently a better bet for them than empty lots.

I used to live in East County, by the way. When I had my motorcycle, I used to ride through Jamul all the time. There was this great little dive called The Green Tomato in Boulevard that made the best guacamole I think I have ever had. The Harley crowd loved that place, and I don’t think I was very welcome there with my BMW K100.

[Allan from Fallbrook]

dm investor: I agree completely. If I remember correctly, I read an article that says that consumer spending accounts for nearly 70% of the economy. Wow. If so, and since housing and consumer spending are inextricably linked by the availability of easy cash and credit, then the resultant “turning off of the spigot” is going to create one helluva hole.

A friend of mine went furniture shopping in this mall off of the 215 in Murrieta. He said that virtually all of the stores were deserted and he nearly got assaulted by an eager salesperson in the Wickes store. Every one of the stores was in “Let’s Make A Deal” mode and he claims he cut a deal on a living room set that was about 40% off list. Again, anecdotal, but, if true, it is telling.

I have another friend in banking who is getting inundated on a daily basis with email notifications from his bank and other banks about repo vehicles up for sale.

[Allan from Fallbrook]

dm investor: I agree completely. If I remember correctly, I read an article that says that consumer spending accounts for nearly 70% of the economy. Wow. If so, and since housing and consumer spending are inextricably linked by the availability of easy cash and credit, then the resultant “turning off of the spigot” is going to create one helluva hole.

A friend of mine went furniture shopping in this mall off of the 215 in Murrieta. He said that virtually all of the stores were deserted and he nearly got assaulted by an eager salesperson in the Wickes store. Every one of the stores was in “Let’s Make A Deal” mode and he claims he cut a deal on a living room set that was about 40% off list. Again, anecdotal, but, if true, it is telling.

I have another friend in banking who is getting inundated on a daily basis with email notifications from his bank and other banks about repo vehicles up for sale.

[Allan from Fallbrook]

JWM: While I’m self-employed now, my background is corporate accounting with a very large insurance brokerage (Willis Corroon PLC). When I was there, they were British owned and had been in business roughly 400 years (no lie). They were bought up in recent years by KKR and renamed Willis.

I offer this background because I come from a conservative discipline (accounting) and a conservative industry (surety/insurance). While I don’t profess to be an expert in finance issues, or credit or the stock market, I used to work with quite a few people from those industries and stay in contact with them to this day. By and large, every one of them is either “concerned” (on the optimistic end) or “worried as hell” (pessimistic). These are MBAs from good B-schools, accountants with Big 4 backgrounds and attorneys.

In insurance we referred to shifting liability as “passing a burning match”. This resembles a lit stick of dynamite and those in the know, both industry insiders and pundits are beginning to ring the bell – loudly.

I agree about events scaring the hell out of you. Same here and mainly because that gut instinct that tells you when things are bad, bad wrong is going off – loudly.

[Allan from Fallbrook]

JWM: While I’m self-employed now, my background is corporate accounting with a very large insurance brokerage (Willis Corroon PLC). When I was there, they were British owned and had been in business roughly 400 years (no lie). They were bought up in recent years by KKR and renamed Willis.

I offer this background because I come from a conservative discipline (accounting) and a conservative industry (surety/insurance). While I don’t profess to be an expert in finance issues, or credit or the stock market, I used to work with quite a few people from those industries and stay in contact with them to this day. By and large, every one of them is either “concerned” (on the optimistic end) or “worried as hell” (pessimistic). These are MBAs from good B-schools, accountants with Big 4 backgrounds and attorneys.

In insurance we referred to shifting liability as “passing a burning match”. This resembles a lit stick of dynamite and those in the know, both industry insiders and pundits are beginning to ring the bell – loudly.

I agree about events scaring the hell out of you. Same here and mainly because that gut instinct that tells you when things are bad, bad wrong is going off – loudly.

[Allan from Fallbrook]

Bugs: I don’t know how to put this, since it amounts to pure speculation on my part, but I have the sense that things here (Fallbrook, Bonsall, etc) are more desperate than the numbers would indicate.

I coach football here, and I think that kids are always a good barometer of what is going on at home. More and more, I have been hearing about vacations put off, purchases not made and “toys” (RVs, boats, etc) for sale. In the grocery store, I watch more and more people buying groceries with credit cards. Like I said, this is probably nothing more than idle speculation, but I get the definite sense that the buoyant mood of a few years past is gone.

You see a lot more short sales, a lot more “Reduced Price” sign toppers and a lot more “For Sale” signs sitting on the market for a lot longer.

While things are definitely worse in Temecula/Murrieta/Menifee, it looks like the pain is spreading here too. I don’t think the problem is “contained” solely to sub-prime or even Alt-A borrowers. I think it is pointing to an appetite for debt across all income classes and I think the party is about to come to an end.

[Allan from Fallbrook]

Bugs: I don’t know how to put this, since it amounts to pure speculation on my part, but I have the sense that things here (Fallbrook, Bonsall, etc) are more desperate than the numbers would indicate.

I coach football here, and I think that kids are always a good barometer of what is going on at home. More and more, I have been hearing about vacations put off, purchases not made and “toys” (RVs, boats, etc) for sale. In the grocery store, I watch more and more people buying groceries with credit cards. Like I said, this is probably nothing more than idle speculation, but I get the definite sense that the buoyant mood of a few years past is gone.

You see a lot more short sales, a lot more “Reduced Price” sign toppers and a lot more “For Sale” signs sitting on the market for a lot longer.

While things are definitely worse in Temecula/Murrieta/Menifee, it looks like the pain is spreading here too. I don’t think the problem is “contained” solely to sub-prime or even Alt-A borrowers. I think it is pointing to an appetite for debt across all income classes and I think the party is about to come to an end.

[Allan from Fallbrook]

LA_Renter: Don’t think you are. Wrong, that is. While someone of us are perceived as being overly bearish, the sobering words from a variety of sources, including Bear Stearns, would indicate that we are in for a bumpy ride.

I think the worst is yet to happen, especially when the valuation models used for CDOs, CDSs and other derivative instruments are tested in the real world. Leverage is averaging somewhere between 10x and 20x, and paraphrasing the old saying: “Leverage in reverse is a female dog”.

One thing that really strikes me when people compare this bust to the one endured during the 1990s is that the median price for a home now is probably three times higher than back then. A much greater distance to fall, especially when you have little to no equity cushion. The banks carrying these loans are going to get hit very hard when they begin the process of clearing their REO portfolios.

[Allan from Fallbrook]

LA_Renter: Don’t think you are. Wrong, that is. While someone of us are perceived as being overly bearish, the sobering words from a variety of sources, including Bear Stearns, would indicate that we are in for a bumpy ride.

I think the worst is yet to happen, especially when the valuation models used for CDOs, CDSs and other derivative instruments are tested in the real world. Leverage is averaging somewhere between 10x and 20x, and paraphrasing the old saying: “Leverage in reverse is a female dog”.

One thing that really strikes me when people compare this bust to the one endured during the 1990s is that the median price for a home now is probably three times higher than back then. A much greater distance to fall, especially when you have little to no equity cushion. The banks carrying these loans are going to get hit very hard when they begin the process of clearing their REO portfolios.

[Allan from Fallbrook]

I live in Fallbrook. We have a 3,250sf custom on 1.19ac that we purchased in 2003 for $425k. During the height of the boom, it went as high as $810k (I had it appraised just for the heck of it), before settling back down into the low $600s recently.

If this guy thinks he is going to get $850k for a 1,900sf house in this market, he is clearly out of his tree.

BTW, Bugs, Morro Hills is a very tony neighborhood (it abuts Bonsall and Rolling Hills Estates), so you should factor that in when comparing homes in the Fallbrook area. “In town” carries less cachet than the outlying areas (like Morro Hills), or Bonsall. Just my $.02.

[Allan from Fallbrook]

I live in Fallbrook. We have a 3,250sf custom on 1.19ac that we purchased in 2003 for $425k. During the height of the boom, it went as high as $810k (I had it appraised just for the heck of it), before settling back down into the low $600s recently.

If this guy thinks he is going to get $850k for a 1,900sf house in this market, he is clearly out of his tree.

BTW, Bugs, Morro Hills is a very tony neighborhood (it abuts Bonsall and Rolling Hills Estates), so you should factor that in when comparing homes in the Fallbrook area. “In town” carries less cachet than the outlying areas (like Morro Hills), or Bonsall. Just my $.02.

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