[carlislematthew]

Thanks for posting that – very interesting reading.

They do have some local figures for CA, where in fact it seems that there are less people with negative (or little) equity than other areas in the country due to the large amount that bought pre-2003 and experienced massive increases.

The author argues and concludes that there is not a problem for the lending business or nationally economy as a whole because the amount of risky (teaser, or high rate) adjustable loans that also have minimal equity is fairly small as a percentage of the overall financing of residential housing.

He doesn’t extend the analysis to say “how many foreclosures is enough to drive down prices in an area?”. I imagine that he’ll leave that to other real-estate folks to analyze – he seems like a numbers guy and the analysis is on the amount of default loss that may be incurred, and not on the subsequent effect on the housing market.

I thoroughly recommend reading this. Lots of interesting facts and figures…

[carlislematthew]

“The Great Greenspan Gotcha”
“The Conundrum Crash”
“The Bubble Burst (and I have soap in my eyes)”

[carlislematthew]

Lawyers? 😉

[carlislematthew]

If it is indeed the case that he was predicting an imminent crash 3 years ago (according the previous post, at least) then we was NOT a smart man three years ago.

My comment was tongue in cheek and the implication is that someone is smart when they agree with you, and a fool when they don’t.

In addition, I was not debating with you regarding the end of the bubble and if it is possible to predict the end – I happen to agree with you. I was, however, making a comment in reply to a post that stated that the author predicting an *imminent* crash 3 years ago.

[carlislematthew]

I agree. I didn’t say they were being realistic – people are irrational beings. Some landlords would rather have a property sit empty for 6 months than rent it for $200 a month less, but instead rent it immediately. The math just doesn’t justify that, but we’re dealing with people here…

[carlislematthew]

I agree. I didn’t say they were being realistic – people are irrational beings. Some landlords would rather have a property sit empty for 6 months than rent it for $200 a month less, but instead rent it immediately. The math just doesn’t justify that, but we’re dealing with people here…

[carlislematthew]

His timing may have been a bit off, but the price differentials were massively off! I bought a house in 2003 and sold last summer, in Seattle. Even with Seattle prices, I made a lot of money. I ignored the acedemics because they weren’t the ones controlling prices, people were.

The problem with acedemics, and some economists, is that they pay too much attention to the fundamentals. Yes, fundamentals are important and they will bite you, and bite you hard. But people are important too.

In 2003 the prices were going up, and the vast majority of people (not economists or acedemics) were expecting the price to go up more. So they bought, and so did I. In mid-2005 onwards, the prices were going up still, but the expecatations had changed because people were changing their opinion – they were starting to believe that prices could no longer go up. I remember a study that said the the occurrence of the word “bubble” as it related to real-estate in the major press peaked in June of 2005. If enough people (the market movers) believe that prices have peaked, prices have peaked.

I believe, and I’m not alone, that it is the expectation of future gains that drives substantial price increases. It wasn’t interest rates, although that helped, and it wasn’t the lack of land. Fundamentals be damned, well at least until all the negative-amortization loans reset… 😉

[carlislematthew]

“The young people of today think of nothing but themselves. They have no reverence for parents or old age. They are impatient of all restraint. They talk as if they alone knew everything and what passes for wisdom with us is foolishness with them. As for girls, they are forward, immodest and unwomanly in speech, behaviour and dress.”

I believe that Socrates or Plato said this. As you get older, and sometimes more responsible, the irresponsibility of your past seems to fade somewhat.

[carlislematthew]

Well, they’re not going to hit 65 and then sell it all in one day. They’ll be more likely to transfer their assets slowly into lower risk funds. That’s one theory at least… And besides, we can’t complain that boomers don’t have enough in retirement stocks AND refer to a “massive” selloff, both at the same time.

Also, you’re assuming that these people will even *think* about risk. Just take a look at what people of retirement age did during the .bomb Nasdaq crash. They were busy buying tech stocks because “prices can only go up”, just like housing can only go up! 😉

[carlislematthew]

Not crazy, their interest rate is adjusting, and so they’re passing the costs along! 🙂

[carlislematthew]

Ahh, but he wasn’t a smart man three years ago. He is now though. 🙂

[carlislematthew]

“Affordability” ignores existing equity and only applies to first time buyers.

As an example, let’s say someone bought a house in 2000 for $300K. They put a bit of money down, had a regular mortgage (how old fashioned), and now they owe $250K. They sold in 2005 for $600K and bought another house for $800K. Their new loan amount is 550K, assuming they didn’t get stupid and take it all out in HELOCs (BIG assumption!!!!).

Sure, first time buyers were stretching too, but they are not the “median buyer” and so the “media house value” shouldn’t apply to them. That’s my opinion anyway…

Ultimately, affordability for first time buyers will catch up to the market. How long that takes, I have no idea! Could take 2 years, could take 20 years! Maybe all the baby boomers will have no buyers to sell their houses to when they all retire and expect to cash in their House-01K?

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