[Allan from Fallbrook]

HLS: 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.

[Allan from Fallbrook]

Davelj: Very thoughtful and well reasoned post. While I would agree with the overall assessment, I think you nailed the one important fact dead on: Given the amount of inventory due to be added in the next 2.5 years, there simply aren’t enough buyers at these prices to sustain the market.

Another thing to think about is this: Lending guidelines are tightening, as is credit and interest rates should follow (in spite of Bernanke’s yeoman efforts to stem that tide). When that little trifecta comes completely into play, the cost of funds and the ability to secure financing (especially for some of those nosebleed units) will be severely curtailed.

While I concur with your assessment of both San Diego and the new breed of affluent buyer that chooses to live here (even on an absentee basis), I would also argue that those buyers represent a small subset.

Speculation in downtown condos has been rife over the last few years and, combined with the other factors (excess inventory, tightening supply of money, etc), should cause a correction in pricing. How much? Who knows. But 6,000 fresh units in a struggling market can’t be good.

[Allan from Fallbrook]

Davelj: Very thoughtful and well reasoned post. While I would agree with the overall assessment, I think you nailed the one important fact dead on: Given the amount of inventory due to be added in the next 2.5 years, there simply aren’t enough buyers at these prices to sustain the market.

Another thing to think about is this: Lending guidelines are tightening, as is credit and interest rates should follow (in spite of Bernanke’s yeoman efforts to stem that tide). When that little trifecta comes completely into play, the cost of funds and the ability to secure financing (especially for some of those nosebleed units) will be severely curtailed.

While I concur with your assessment of both San Diego and the new breed of affluent buyer that chooses to live here (even on an absentee basis), I would also argue that those buyers represent a small subset.

Speculation in downtown condos has been rife over the last few years and, combined with the other factors (excess inventory, tightening supply of money, etc), should cause a correction in pricing. How much? Who knows. But 6,000 fresh units in a struggling market can’t be good.

[Allan from Fallbrook]

SD Realtor: While I would agree with your sentiment that there is not widespread victimization going on, I would also point out a slight flaw in your argument. You are predicating your argument on the fact that people are, by and large, educated and professional like yourself. If someone is knowledgeable and knows the right questions to ask, it is a very different proposition from someone who is not and does not.

A quick read on the sub-prime mess shows a whole lot of people who never thought twice about asking some fairly basic (and commonsensical) questions about something as significant as their mortgage. There is a level of basic financial fundamentals missing in this equation.

If a realtor or broker was looking to pull the wool over someone’s eyes regarding D.O.M. metrics, I would think that, unless the person was someone knowledgeable about the process, it would be fairly easy to do.

You also have to remember (going along with your “ask professionals the questions” assertion) that most people have a certain level of deference to someone they perceive as a professional and take quite a bit of information at face value, as a result.

[Allan from Fallbrook]

SD Realtor: While I would agree with your sentiment that there is not widespread victimization going on, I would also point out a slight flaw in your argument. You are predicating your argument on the fact that people are, by and large, educated and professional like yourself. If someone is knowledgeable and knows the right questions to ask, it is a very different proposition from someone who is not and does not.

A quick read on the sub-prime mess shows a whole lot of people who never thought twice about asking some fairly basic (and commonsensical) questions about something as significant as their mortgage. There is a level of basic financial fundamentals missing in this equation.

If a realtor or broker was looking to pull the wool over someone’s eyes regarding D.O.M. metrics, I would think that, unless the person was someone knowledgeable about the process, it would be fairly easy to do.

You also have to remember (going along with your “ask professionals the questions” assertion) that most people have a certain level of deference to someone they perceive as a professional and take quite a bit of information at face value, as a result.

[Allan from Fallbrook]

4spotentialbuyer: It would appear that the builders prices are going to be entirely driven by the necessity of offloading excess inventory.

There was a link detailing the various short sales and foreclosures in 4S Ranch, and it looked like there were quite a few units in there that were in extremis.

I would think Spring 2008 would be a good time, but, given the number of resets due to hit in June and beyond (2008), is there any harm in waiting till summer or fall? Just curious.

[Allan from Fallbrook]

4spotentialbuyer: It would appear that the builders prices are going to be entirely driven by the necessity of offloading excess inventory.

There was a link detailing the various short sales and foreclosures in 4S Ranch, and it looked like there were quite a few units in there that were in extremis.

I would think Spring 2008 would be a good time, but, given the number of resets due to hit in June and beyond (2008), is there any harm in waiting till summer or fall? Just curious.

[Allan from Fallbrook]

I know the commercial side of the development is being done by Sunroad Development, and they are locked in a lawsuit with the City of San Diego (and Mike Aguirre, specifically) regarding removing the top two floors of the Centrum 12 commercial building. There are supposed to be two additional office towers going in there as well, but those will only get built if commercial occupancy on the first tower exceeds a certain threshold (I think it’s 60% occupied). My understanding is that finding tenants on the commercial side has been tough for Sunroad.

Centrum is supposed to be a real showpiece development and was touted by the Transcript and the UT as “revitalizing” the old GenDyn Missile Park area.

[Allan from Fallbrook]

I know the commercial side of the development is being done by Sunroad Development, and they are locked in a lawsuit with the City of San Diego (and Mike Aguirre, specifically) regarding removing the top two floors of the Centrum 12 commercial building. There are supposed to be two additional office towers going in there as well, but those will only get built if commercial occupancy on the first tower exceeds a certain threshold (I think it’s 60% occupied). My understanding is that finding tenants on the commercial side has been tough for Sunroad.

Centrum is supposed to be a real showpiece development and was touted by the Transcript and the UT as “revitalizing” the old GenDyn Missile Park area.

[Allan from Fallbrook]

I think the sub-prime debacle is indicative of larger problems as far as excess liquidity goes. And I think the largest risk out there right now is a credit crunch brought on by suddenly risk averse investors.

There is supposedly a lawsuit ready to be filed tomorrow against BSAM (Bear Stearns Asset Management) for the losses sustained in the two sub-prime funds they managed. It certainly won’t end there, and more bad news is sure to come in this market, as well as MBS products supporting loans in the Alt-A market.

While there is definitely a focus on the housing market bubble here at Piggington’s, it is really a by-product of excess liquidity: cheap money that was easily available and pumped into an available asset class that was removed from the dot.com bust.

The wild thing is this: No one out there really has any idea how truly deep the risk runs. The derivatives market is nearly opaque from an oversight and valuation standpoint and, until the real bleeding begins, it’s anybody’s guess as to how bad this all can really get.

[Allan from Fallbrook]

I think the sub-prime debacle is indicative of larger problems as far as excess liquidity goes. And I think the largest risk out there right now is a credit crunch brought on by suddenly risk averse investors.

There is supposedly a lawsuit ready to be filed tomorrow against BSAM (Bear Stearns Asset Management) for the losses sustained in the two sub-prime funds they managed. It certainly won’t end there, and more bad news is sure to come in this market, as well as MBS products supporting loans in the Alt-A market.

While there is definitely a focus on the housing market bubble here at Piggington’s, it is really a by-product of excess liquidity: cheap money that was easily available and pumped into an available asset class that was removed from the dot.com bust.

The wild thing is this: No one out there really has any idea how truly deep the risk runs. The derivatives market is nearly opaque from an oversight and valuation standpoint and, until the real bleeding begins, it’s anybody’s guess as to how bad this all can really get.

[Allan from Fallbrook]

Wiley: Thanks for making the point that the Fed is not a government agency, nor are they following any governmental policies as regards monetary or credit policy. Neither Freddie nor Fannie are governmental agencies either, rather they are GSEs, but most people feel that the “full faith and credit” of the US Government are behind them.

Greenspan had a long run at his post, punctuated by some truly bad monetary policy decisions. It may be an arguable point to some, but looking at the events of 1997, 2000 and now, you can make the point that the air in those respective bubbles was pumped in by the Fed.

Bernanke now has the unenviable task of trying to simultaneously hold the line and avert disaster. He is not an idiot; to the contrary, he is a very bright individual. But, as was opined on this thread several times, he is doing his level best to keep parroting the script he has been given and, in so doing, comes across as something of an automaton.

If anyone were to sit down and really give the American people a primer on what this bubble is made of and the disastrous and reckless choices we have made from a monetary and credit vantage to prop up the illusion of a dynamic and growing economy, you would probably have a riot. On second thought, no, you wouldn’t. People really don’t care so long as they can keep the plastic hot and buy the newest Hummer, or RV, or boat or go to Paris for summer vacation.

Yep. P.T. Barnum was right.

[Allan from Fallbrook]

Wiley: Thanks for making the point that the Fed is not a government agency, nor are they following any governmental policies as regards monetary or credit policy. Neither Freddie nor Fannie are governmental agencies either, rather they are GSEs, but most people feel that the “full faith and credit” of the US Government are behind them.

Greenspan had a long run at his post, punctuated by some truly bad monetary policy decisions. It may be an arguable point to some, but looking at the events of 1997, 2000 and now, you can make the point that the air in those respective bubbles was pumped in by the Fed.

Bernanke now has the unenviable task of trying to simultaneously hold the line and avert disaster. He is not an idiot; to the contrary, he is a very bright individual. But, as was opined on this thread several times, he is doing his level best to keep parroting the script he has been given and, in so doing, comes across as something of an automaton.

If anyone were to sit down and really give the American people a primer on what this bubble is made of and the disastrous and reckless choices we have made from a monetary and credit vantage to prop up the illusion of a dynamic and growing economy, you would probably have a riot. On second thought, no, you wouldn’t. People really don’t care so long as they can keep the plastic hot and buy the newest Hummer, or RV, or boat or go to Paris for summer vacation.

Yep. P.T. Barnum was right.

[Allan from Fallbrook]

PatientRenter: Pithy and accurate, yourself. And, trenchant as well.

I do agree with your observations about both Bernanke and his (our?) predicament. Akin to Greenspan and his “irrational exuberance” mien, Big Ben knows the stakes and the downside of pursuing a rational, even-handed monetary and credit policy. You are correct also in the assertion that the American people have rarely, if ever, enjoyed the pain that accompanies the hard truth of economic realities.

So, let the party go on.

[Allan from Fallbrook]

PatientRenter: Pithy and accurate, yourself. And, trenchant as well.

I do agree with your observations about both Bernanke and his (our?) predicament. Akin to Greenspan and his “irrational exuberance” mien, Big Ben knows the stakes and the downside of pursuing a rational, even-handed monetary and credit policy. You are correct also in the assertion that the American people have rarely, if ever, enjoyed the pain that accompanies the hard truth of economic realities.

So, let the party go on.

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