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(former)FormerSanDiegan
ParticipantI find it funny that a contributor who is estimating a 19-30% nominal decline in prices is considered bullish.
About a year ago I penciled out some projections based on reverting to the point where monthly rents and mortgage expenses were roughly equal, assuming 5-10% down and ignoring opportunity costs of the down payment. This is where the market was at the last bottom in 1996-1997.
This required some assumptions: interest rates, rent changes, etc. When I assumed rents increasing at inflation of about 3% and interest rates at 6.5 – 7% I came up with about a 19- 26% nominal decline for Central San Diego, depending on the parameters. This probably coincides with a 25-40% real decline depending on the inflation assumption and duration of the cycle.
Sure, there are a lot of variables that affect this: interest rates, inflation, local job distribution, etc.
Of course it didn’t factor in either : a) runaway inflation, b) spiraling deflation, or c) the fall of Western Civilization.
R.O. – I don’t think you are that far off. Just my opinion.
Participantjg – I’m not gonna predict where rates will be five years from now. It’s too hard to even predict what the GDP will be each quarter. But, the market is guessing that over the next 2-10 years rates will be the same or lower than they are now. Why else would one accept a lower interest rate on a 2, 5 or 10-year note than a 3 or 6 month T-bill ?
That said, the major issue for the second wave of ARMs is (as 4plexowner alluded to) whether or not at that point these folks are significantly under-water on their mortgages. A combination of higher rates and being underwater would likely make that second wave as devastating as the first. Other potential outcomes would be less devastating (lower rates and underwater, lower rates and above water, higher rates and above water).
I think we’ll have a pretty good idea in 24 months which way that second wave will head. For now, I’d consider all potential scenarios equally likely.
Participant4plexowner –
It’s possible that the effects of the second wave of ARM re-sets will be less than you suspect.
Consider that the second wave of ARM resets starts about 2-2.5 years from now and extends to about 5 years from now (… I think … I can’t find the chart right now). I believe that one potential outcome is that the effects of the first wave and the housing bust will have caused rates to drop by the time the second wave of ARM resets hit, giving relief to these folks. In some cases the adjustments may result in lower rates.
I think the second wave of ARM resets will have much less effect than the first. AT that point in time, it’ll be excess inventory hanging over more than ARM resets driving the market
Not saying that’s what will happen, just saying that it could be a consideration.
ParticipantIn other news …
More people in California die each year than any other state.
March 28, 2007 at 8:28 AM in reply to: Would you buy a home in Lancaster,CA now (if you only planned to be in it 2-4 yrs)? #48612Participantfritzmt –
I think you are getting good advice,including that from the USC Lusk Center.
Good luck to you and your family on your move.
Thank you for your service to this country.Participant“I was one of the first to explain why the median is wrong.” – powayseller.
No, not really. There once were two guys named Karl Case and Robert Shiller who studied this problem which was well-known at the time they created their index.
Here is their story…
“The CSIs were originally developed so that economists, financial institutions, rating agencies and others could study with precision the causes and consequences of home price changes on the U.S. economy. Until their development, the most widely used information on home price changes were indices based on the change of an area’s median home prices. Economists were frustrated with this approach, because indices based on median home prices in a particular geographic area can provide misleading indications of price changes as a result of shifts in the sampling of homes that comprise median measures from one month to another. Case and Shiller, building upon research pioneered by economists Martin J. Bailey, Richard F. Muth and Hugh O. Nourse, solved this problem by creating a repeat sales analysis in which only homes that sold at least twice over a period were covered and included in the index, thus creating an “apples to apples” analysis.”
So it turns out that this problem was even before the 1980’s solution developed by Case and Shiller.
In other news the Associated Press has reported that Al Gore did not invent the internet.
Anyway, someone has to have the passion and desire for limelight to point the press towards these issues. Even though I have problems with the quantitative elements of her opinions I commend her for bringing attention to these issues.
ParticipantI applaud her ability to draw attention. Making prognostications of 67% declines in the median price of San Diego homes or 53% drops in the stock market within 6 months are not intended to be accurate, they are intended to draw attention. Mission Accomplished !
Personally I am waiting to celebrate her genius and prognostication ability until the median price of a San Diego single family home drops to 180K or perhaps when the S&P 500 hits 600 later this spring, summer, fall or winter.
Here is a web link to her recent material … Something about a weightlifter and taking 50 years to get back to today’s prices.
March 27, 2007 at 3:11 PM in reply to: Great Reading: 34 % of homeowners are clueless about their mortgage #48558ParticipantBy the way, per the article it was a random-digit-dialed phone poll …
“This national random-digit-dialed phone study of 1,004 adults 18 or older was conducted for Bankrate by GfK Roper Public Affairs & Media. The surveys were conducted from March 17 through March 18, 2007. The sample was weighted by demographic factors including age, gender, race, education and census region to ensure reliable and accurate representation of adults in U.S. households. Results based on the entire sample of 1,004 adults are projectable to the entire adult population in the United States, with a sampling error of plus or minus 3 percentage points.”
Again how many financially savvy people answer random telephone polls ? How many were sober on Saint Patrick’s Day weekend ?
I suppose if the headline had read “34% of homeowners who answer random phone polls over Saint Patrick’s Day weekend are clueless about their mortgage” it would carry less punch.
March 27, 2007 at 3:04 PM in reply to: Great Reading: 34 % of homeowners are clueless about their mortgage #48557Participantthat is amazing! 34%!
I wonder how the survey was done?
How can someone not know what kind of mortgage they have? Talk about irresponsible!
Although I believe that the general public is too financially naive, 34% seems a bit high.
Perhaps the survey is biased towards those who are naive enough to respond to surveys with questions about their personal finances. Personally, if someone calls or mails me a survey with these types of questions I don’t respond, because I assume that they are either trying to sell me something or are trying to get personal info for nefarious purposes.
Does anyone here respond to surveys asking probing questions about your personal finances ? If so, please post how much money is in your bank account(s) ? Just so we can verify the accuracy please provide a routing number(s), account number(s), name of bank(s), your mothers’ maiden name, the last 4 digits of your SSN, you first and last name and date of birth, and the name of a pet when you were a child.
🙂ParticipantThere was a significant increase in mortgage rates … at the short end of the curve (e.g. 1 year-ARM, 3-year ARM, etc). The FED only exerts influence directly on very short term rates. Longer term rates (e.g. 30-year fixed) are set by the market, which responds to a variety of factors including anticipation of future inflation, direction of the economy, relative exchange rates, interest rate velocity, economic shocks, etc.
I’m no expert, but sometimes the market gets the opinion that the FED has tightened sufficiently (or too much) and this suppresses the longer term rates. For example, currently the market believes that the economy is slowing, that inflation is not a threat and demand for longer-term bonds suppresses their yield, relative to the short-term bonds.
If you can make sense out of the bond markets you can make a lot of money. But many times it appears to have a life of its own and follows its own rules.
ParticipantI am interested in shorting the market also, but I may only invest a portion of my money. My main goal is to speed up the “housing bubble” to pop faster and harder before the Gov’t bailing out. Bailing out will damage our economy more. So, I may be shorting real estate only!
The flippers inflated the housing market and it’s time for us to fight back. But we do it Legally with Real cash.
Happy renter – How will people shorting the real estate market hasten its decline ?
March 26, 2007 at 11:24 AM in reply to: Would you buy a home in Lancaster,CA now (if you only planned to be in it 2-4 yrs)? #48462ParticipantNo Way.
Three reasons:
1. I would never buy a house that I intended to own for less than 5 years.
2. I would not a buy a home now in Southern California
3. I would never buy a home in Lancaster.
ParticipantThe traffic on 5 continues to lighten; I’ve seen a real decrease in traffic on 5 North in the morning and 5 South in the evening ever since last summer.
A few more years of this and I’ll be ready to move back.
ParticipantGreat business model. Borrow money at 13% to support loans made at 7-10% to over-leveraged borrowers who are upside-down in their mortgages and are defaulting at increasing rates.
I think the only way to come out of it is to leverage these new funds into financial instruments that bet against housing such as puts on other sub-prime lenders or bets against home price increases on the CBOT.
Otherwise, they are simply brain dead and living on life support.
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