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ParticipantYeah, that’ll keep prices from falling. All of those retiring boomers from Des Moines and Tulsa will be giving up their salaries, falling back on whatever tiny pensions and 401K they’ve got to move to SD and purchase $1M homes in Carmel Valley. They can use their SS payments to help with the property tax. I guess I’m doomed to be a bitter renter forever 🙁
February 21, 2007 at 2:32 PM in reply to: California Coastal Housing Market Will Not Collapse #45942ParticipantThe prices of the premium coastal properties are going way down, but guess what — you still won’t be able to afford them! Even in the disaster scenario of a 30% drop, that 3M home is now 2M. And of course it’s going to be harder to borrow money AND interest rates will probably be higher.
So big whoop, I’ll probably be looking for a place in Santucky even after the crash.
ParticipantIMHO, the market will return to stability when:
1) Most people look at their house as a nice place to live, an enjoyable consumer good, and a way to even save a bit of money in the long run, NOT as an “investment” or as a way to get rich.
2) Mortgage lending standards return to their historical norm.
3) Substantial down payments become a requirement for all but the most wealthy of purchasers.
ParticipantI believe in the bubble, but I also try to keep in mind that people really are incredibly motivated to buy homes.
Let’s see how motivated they are to buy homes once they realize that prices are falling.
ParticipantIf Helicopter Ben does what he promised, then we might see interest rates drop to under 5 percent.
If interest rates go to less than 5 percent, can he really be called “helicopter Ben” anymore? Didn’t he get that nickname because he threatened to crank up the printing press? That would be an inflationary scenario which would mean higher interest rates, not lower ones.
Besides, interest rates were NOT the driver in this bubble, it was reduced (actually, nonexistent) lending standards, nontraditional mortgage products and a complicit MBS market that flooded the housing market with weak hand buyers. This added an unsustainable and unnatural positive bias to the demand curve; with supply held relatively constant, prices went up. Once the bias is removed, prices will revert to their natural level.
Lowering interest rates probably isn’t going to have much of an effect at this point other than sending the US into bankruptcy even faster. Remember, the US needs to import billions of dollars every day just to stay afloat. The only way we can convince patsies, er I mean “investors” to keep buying our treasury instruments is by offering good interest rates. If they go much lower, the foreign capital will flee and the US will be doing a 1990s-style Argentinian tango.
ParticipantDoesn’t the new bankruptcy law mean that it will be harder for people to walk away from these mortgage obligations? Or was that just for credit cards?
ParticipantPsychology drives California Real Estate Period in my opinion.
That’s very true. And just as the psychology pushed prices higher than they should have gone, it will push them lower than they should go at the other end of the cycle. The conventional wisdom will change in the next few years. You’ve just got to be willing to wait for Joe McAverage and his fellow Duh-mericans to become as afraid of buying a house as they became of buying tech stocks after the internet bubble collapsed.
Participant1 Trillion or so in resets coming in 07. No, it has not even come close to reaching a bottom. The subprimes are collapsing at the rate of a couple per week…20 since December alone.
Thinking about the carnage on its way to the SD housing market brings to mind that great scene from “Ghostbusters”:
Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, “biblical”?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath-of-God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies. Rivers and seas boiling.
Dr. Egon Spengler: Forty years of darkness. Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave.
Dr. Peter Venkman: Human sacrifice, dogs and cats living together – mass hysteria.
I can hardly wait. I love a good disaster film as much as the next guy. And we’ve all got front-row seats!
ParticipantIt sounds like most on this board aren’t exposed to the executive job market.
Perhaps that’s because for every executive there are at least 100 people with regular jobs. Most people in basically any setting outside of a country club or corporate boardroom aren’t exposed to the executive job market.
ParticipantWhat’s different about the Bay Area? First off, it’s a hell of a lot nicer than San Diego.
What about San Jose? Santa Clara? Alameda? Oakland? South SF? I can think of some nasty places in the bay area. SF is a nice city, sure, also Sausalito/Tiburon, Santa Cruz. But of course La Jolla, RSF, and Encinitas here are really nice also.
Housing prices in the bay area will never fall because of all the high-tech jobs up there. Oh wait those are all in Bangalore now. Oh well, you’ve still got all those Google-zillionaires, what are there, 1000 of them? That should be enough to maintain high home prices in the bay area forever.
ParticipantIt will prevent the nominal values of the homes from falling, but what will that do to our savings?
They’re in interest-bearing accounts, right? Your savings will be rising right along with inflation, as depositors demand appropriate returns from banks based on the situation at hand. You’ll still be getting “ahead” of those with no cash even though you’ll probably lose a bit to inflation. In a rising-interest rate environment, short-term instruments are the best bet.
ParticipantA question to the gold bugs on this site — don’t you worry that if the dollar really collapses, the government will force you to turn over your gold to them? After all, they’ve done it before…
ParticipantAgain, the threshold question is why in the world would the purchasers and servicers of a loan want to own a property that is upside down?
They don’t want to of course, but remember that the majority of these loans have been securitized and aren’t owned by regular banks, which never would have loaned this money in the first place. No, once the defaults start showing up in greater numbers, those MBSes will be revealed as the toxic waste that they are and investors will rush for the exits. Prices of MBS shares will drop, yields will shoot sky-high, and the end result will be that the days of junk home loans are getting ready to come to an end. Without the securitized garbage loans that have allowed Joe McAverage to buy his $500K home in Temecula on a $60K takehome salary, the supply of potential homebuyers (which is already almost exhausted) is going to take a big hit. Also look out for pension fund crises as their MBS investments evaporate into thin air. This is going to cause tremendous heartache.
Real prices down 30% within 5 years, that’s my call.
ParticipantI agree with PerryChase that “fiscal responsibility” is generally lower in poor Americans than poor people from other country.
Again, I would recommend that anyone making that statement should spend some time in Latin America. I might agree that poor Africans and Chinese probably manage their money better, simply because they have almost no money to manage. But visit one of the many casinos in Lima and you’ll see that they’re full of stupid poor people throwing their meager savings into slot machines just like in our casinos here.
People are the same everywhere, you see more waste here only because America is very wealthy relative to most other places…
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