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Allan from Fallbrook
ParticipantWhile I don’t think there will be one epochal event that triggers the landslide, I do believe that a credit squeeze (if not outright crunch) is rapidly approaching. Given the “angst” in the markets right now, this would be a heavy blow to handle.
Not trying to reach here, but the problems that Blackstone, KKR, US Foodservice, et al are having regarding floating loans are indicative of a definite “mood” shift among investors.
I also believe you have to look at the housing bubble as one of three concurrent bubbles: Housing, stocks and credit. For a time, we were literally awash in liquidity. It financed everything from the housing run-up to LBOs and helped push stock prices as well.
While I don’t think there will be one single event that triggers a meltdown, I do believe the potential for one is out there. I keep thinking about LTCM’s collapse and how narrowly disaster was averted following. This feels a whole helluva lot bigger.
ParticipantI was talking with a buddy of mine in the SF/Bay Area and he was telling me about four parcels of land in the Los Altos Hills area (near Palo Alto). There are three 14,000sf lots and one 16,000sf lot. They are priced at $2MM each. That’s right: Each. For just the land.
If you look at properties in the Marin County area, you are still finding houses priced in the $900/sf to $1,200/sf range.
While it appears that this insanity is starting to unwind, there are still parts of California where it appears that pricing is not only stickier than imagined, but it is holding steady.
As ScruffyDog opined elsewhere on the blog, LA Metro is still solid. While I agree that LA is probably lagging San Diego by about a year, pricing variations are still puzzling.
ParticipantI was talking with a buddy of mine in the SF/Bay Area and he was telling me about four parcels of land in the Los Altos Hills area (near Palo Alto). There are three 14,000sf lots and one 16,000sf lot. They are priced at $2MM each. That’s right: Each. For just the land.
If you look at properties in the Marin County area, you are still finding houses priced in the $900/sf to $1,200/sf range.
While it appears that this insanity is starting to unwind, there are still parts of California where it appears that pricing is not only stickier than imagined, but it is holding steady.
As ScruffyDog opined elsewhere on the blog, LA Metro is still solid. While I agree that LA is probably lagging San Diego by about a year, pricing variations are still puzzling.
ParticipantI read a real good article today juxtaposing the LBO frenzy of the 1980s with the nonsense happening in the CDO/CDS markets. The essence of the article was the massive creation of unserviceable debt, the enrichment of a few key players and the lasting fallout following the crash.
Another article talked about the faltering stock price of Blackstone following their IPO and that investors are suddenly more wary than they were even a few months before.
It appears we are on the cusp of a credit squeeze, if not an outright credit crunch. Bernanke is doing his level best to stay away from rate hikes, but at some point it appears that interest rates will rise again. Combined with upcoming rate resets this summer and next, this might be the final nail in the coffin.
I am certainly not an alarmist, but admittedly bearish by nature, and this all has the hallmarks of a true blowout. NODs, NOTs and foreclosures are all up by several hundred percent and I don’t think we have even seen the worst yet.
ParticipantI read a real good article today juxtaposing the LBO frenzy of the 1980s with the nonsense happening in the CDO/CDS markets. The essence of the article was the massive creation of unserviceable debt, the enrichment of a few key players and the lasting fallout following the crash.
Another article talked about the faltering stock price of Blackstone following their IPO and that investors are suddenly more wary than they were even a few months before.
It appears we are on the cusp of a credit squeeze, if not an outright credit crunch. Bernanke is doing his level best to stay away from rate hikes, but at some point it appears that interest rates will rise again. Combined with upcoming rate resets this summer and next, this might be the final nail in the coffin.
I am certainly not an alarmist, but admittedly bearish by nature, and this all has the hallmarks of a true blowout. NODs, NOTs and foreclosures are all up by several hundred percent and I don’t think we have even seen the worst yet.
ParticipantRustico: I don’t have experience with publicly traded institutions, but I have to believe between SOX (Sarbanes Oxley Act) and banking regulations and compliance guidelines that there is going to be significant pressure to move sub- and non-performing assets (houses) and loans off the books.
If a company is forced between a write down (sale at a loss) or a write off (complete liquidation), they will universally choose the former.
I mentioned the Wall Street expression, “Don’t panic, but if you panic, panic first” in another thread/posting here, and I believe that it definitely applies here. These banks have to know that other institutions are facing the same situation they are and, if forced to move expeditiously to clear the books, they will and do their level best to mitigate losses by moving first and fast.
The other key difference between banks and homeowners trying to sell is that at some point, the bank will take the hit because they have to – no matter how painful in the short-term. Homeowners are more driven by emotion and thus will try to hold off and sell dear.
Just my $.02.
ParticipantRustico: I don’t have experience with publicly traded institutions, but I have to believe between SOX (Sarbanes Oxley Act) and banking regulations and compliance guidelines that there is going to be significant pressure to move sub- and non-performing assets (houses) and loans off the books.
If a company is forced between a write down (sale at a loss) or a write off (complete liquidation), they will universally choose the former.
I mentioned the Wall Street expression, “Don’t panic, but if you panic, panic first” in another thread/posting here, and I believe that it definitely applies here. These banks have to know that other institutions are facing the same situation they are and, if forced to move expeditiously to clear the books, they will and do their level best to mitigate losses by moving first and fast.
The other key difference between banks and homeowners trying to sell is that at some point, the bank will take the hit because they have to – no matter how painful in the short-term. Homeowners are more driven by emotion and thus will try to hold off and sell dear.
Just my $.02.
ParticipantRustico: I would think that as we approach year end, there will be some pressure on the banks to clear REO properties off the books.
Non-performing assets generally create a fair amount of drag on the financial statements (speaking as an accountant now) and, given the amount of foreclosures out there right now, I have to believe we are talking about a significant amount of inventory.
I spoke with a friend who is in banking and he told me that there is a huge amount of concern throughout banking in SoCal about the amount of houses that have gone back to the banks. He also said that beyond that, there was the fear at what a wholesale “dump” of REO properties would do to pricing and values.
ParticipantRustico: I would think that as we approach year end, there will be some pressure on the banks to clear REO properties off the books.
Non-performing assets generally create a fair amount of drag on the financial statements (speaking as an accountant now) and, given the amount of foreclosures out there right now, I have to believe we are talking about a significant amount of inventory.
I spoke with a friend who is in banking and he told me that there is a huge amount of concern throughout banking in SoCal about the amount of houses that have gone back to the banks. He also said that beyond that, there was the fear at what a wholesale “dump” of REO properties would do to pricing and values.
ParticipantRustico: I live in Fallbrook, and it appears that the metrics for North SD County are clearly different from Central SD. Still, at $500/sf in a declining market, something has to give at some point.
I agree that prices must come down, it’s simple Econ 101 in the end.
Up here, there are now sign toppers appearing that say “Short Sale” or “Foreclosure” (I have one of the latter in my neighborhood and it is weird seeing that, to say the least) on quite a few signs. The signs that have been on the market longest nearly all sport “Reduced Price” toppers now.
All that being said, prices remain stickier than I would have thought. In your opinion, is there going to be some point where it just blows and pricing plummets, or will it be more gradual? Just curious.
ParticipantRustico: I live in Fallbrook, and it appears that the metrics for North SD County are clearly different from Central SD. Still, at $500/sf in a declining market, something has to give at some point.
I agree that prices must come down, it’s simple Econ 101 in the end.
Up here, there are now sign toppers appearing that say “Short Sale” or “Foreclosure” (I have one of the latter in my neighborhood and it is weird seeing that, to say the least) on quite a few signs. The signs that have been on the market longest nearly all sport “Reduced Price” toppers now.
All that being said, prices remain stickier than I would have thought. In your opinion, is there going to be some point where it just blows and pricing plummets, or will it be more gradual? Just curious.
ParticipantSDR and Rustico: Is my math faulty or does this calc out to over $500/sf? I am reading a 600sf home for $329k, right? And it is a short sale? Is it just me or is that pretty pricey?
ParticipantSDR and Rustico: Is my math faulty or does this calc out to over $500/sf? I am reading a 600sf home for $329k, right? And it is a short sale? Is it just me or is that pretty pricey?
ParticipantHLS: Hey from a fellow Fallbrook resident!
I don’t think of America as an empire in the conventional (Roman, British, etc) sense of the word. While we certainly qualify from a military standpoint, our real influence has always been economic (at least since the end of WWII).
I also don’t think China is going to buy us. I remember the dominant thinking in the 1980s when Japan, Inc. reigned supreme and Japanese businesses were buying everything from Rockefeller Center to Pebble Beach. As it turns out, easy money financed that buying junket and the Japanese are still paying for it to this day.
The Chinese have a whole set of their own problems, the least of which is a heavily overheated economy. Their current political infrastructure stands at complete odds with a dynamic market economy, and at some point the free market entrepreneurs are going to run smack into the more doctrinaire hard line communists with some fairly unpleasant results.
I think we (America) are in for a rude and long overdue wake up call as regards fiscal responsibility and restraint. There have been quite a few clarion calls as far as the bottom falling out, but it never has. I think a fairly tough recession would really clean out the pipes and I don’t say that lightly or flippantly. It would come with a lot of pain and loss, but at this point it is necessary.
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