[kev374]

nice watch! The last part looking down at the heights we have reached and the drop that is about to come is sobering. I only say sobering because this amount of drop will take the consumer and debt based economy to the cleaners. I really don’t see why there will not be a depression.

[kev374]

A too public servant family (teacher, police, firefighter,etc.) easily makes $130-$170K a year.

Not sure if you’re being facetious here. A friend of mine has been a firefighter for 15yrs and I know he only makes in the 80k range even though he is a veteran.

Also not all households are equally paired up, the 80k firefighter and the 60k teacher..yeah, if only life were that perfect. I know many people where the wife doesn’t work at all. In addition, considering the divorce rate in SoCal of almost 70%, over a span of 30yrs how many households are going to have that constant combined income?

You guys are taking ideal perfectionist cases and presenting it as reality. Ridiculous! In real life things are much different, a large majority of people cannot afford even a $400k house. Infact, a recent report stated that MOST people in SoCal cannot afford to repurchase their existing home at current price points!

[kev374]

A house hold income of $120-150k is not that much at all

Only 30% of OC *households* make over $100,000. Only 5% of all Americans make over $100,000. I think you need to revisit the statistics because you are way off.

[kev374]

cashman, interest rates have gone down but what about inflation in other fixed costs? Cost of energy? Cost of education, healthcare, insurance, transportation, childcare. These have skyrocketed in the past few years much higher than core inflation. Also the disparity between the incomes of the fewer and fewer upper strata with advanced degrees and the working class is increasing.

Also, most of the loans with high LTVs in the past few years are temporarily at low interest rates, when they reset they will skyrocket!

[kev374]

rough guide is that the median price should be 2.5 (on the low end) to 4 (on the high end) times median HH income. We are currently between 7.5 to 10 times here in SoCal depending on area.

I would be judicious towards a value of 4..perhaps buy if I were in it for the long term, but just wouldn’t buy anything over 4.

Currently median HH income hovers somewhere around $80-85k for South OC. 4 x 80-85k = $320-340k or so is the upper limit for median home price, so we’re at just under a 2X overvaluation.

*In my opinion*, South OC commands a median home price of $280-320k, nothing more! Even this price point requires STRONG income at reasonably conservative guidelines 35% DTI, 90% LTV.

[kev374]

RO, everything we say right now is obviously a hypothesis based on educated guesswork by looking at historic affordability metrics such as rent/mortgage and prices/income ratios. If we look at previous bust cycles we will see that the ratios have always reverted back to their base values of somewhere around 3-3.5.

Given the theory that history repeats itself we can argue that this time it will not be any different, the relationship between prices and income will revert back to somewhere around 3-3.5.

Inflation adjusted income growth has been nonexistant in the last 5 years. If people are not making more money how are they suddenly richer to pay more for their homes? Especially considering that some fixed costs like education and health care have been skyrocketing. It doesn’t make sense.

As for making assumptions that income growth will be stagnant or will even decline we can make this assumption due to the trend of the last few years. Companies are already aggressively cutting costs or moving jobs offshore, it’s in the news almost every day. Given the increasing availability of talent in Asia it doesn’t make much sense for companies to suddenly start paying MUCH more in the future for US workers.

Now increases in rents are dependent on income, if income cannot rise substantially then I don’t see how rents can go up either.

If you’re saying that by 2015 prices will come down 30% nominal then that is a 60% drop in inflation adjusted terms! (inflation at 4.3% for Orange County). My guestimate was a 40-50% drop in inflation adjusted terms.

[kev374]

the early 90s model cannot be applied to the current downtrend because this one has it’s own unique set of circumstances. The subprime and exotic loan meltdown is a HUGE factor in this decline and it was hardly present in the last bust. The price appreciation from 2003 onwards is purely due to exotic lending and a large majority of these homeowners will lose their homes when their exotic loan resets. Also we have a much higher percentage of cash-out refinancings in this cycle compared to the early 90s. This is another aggravating factor.

I subscribe to “the higher it goes the harder it falls” point of view. I think this downturn will also be the same timespan of 5-6 years but we will probably see a much sharper contraction earlier in the cycle due to the over leveraged post 2003 buyers foreclosing en masse.

Just my $0.02

[kev374]

it’s ridiculous that these deadbeats are blaming the lenders now. Yes, the lenders were predatory but aren’t all salesman like that to a certain extent? This woman most probably took cash out equity. Now, she did not have any problems spending all that money.. and now she is crying? For what? I don’t get it.

[kev374]

Here is one at $329/sqft in Lake Forest, undercutting the competition:

MLS: S479885

3bd/3ba 1500sqft for $495k. Sure seller will neg. some, perhaps for $475 🙂 mid 2004 sale price was $400,000 so we’re almost there 😉

There is such a wide variation in this neighborhood, some similar properties are listed as high as $650k!!! This proves that not all sellers have realized that this downturn is here to stay.

[kev374]

anyone can make predictions, doesn’t mean they are credible! Heck, Gary Watts predicts 15% for 2007 😛

[kev374]

Great job Rich!

[kev374]

Las Vegas is one of the top speculative markets set to crash and burn. Why would California investors go to Vegas which is widely known to be currently saturated with speculators trying to unload their inventories, that theory is just pure nonsense and hogwash. People are desperately trying to flee Vegas not get back in!!! I have a mortgage buddy in Vegas and he tells me that the market is DEAD!

[kev374]

I thought FDIC insurance is only $100k per account, why are you putting $250k in a single account???

[kev374]

yeah but that’s Detroit! Detroit was rated as one of the most dangerous cities in the country…it’s basically a dump!

[kev374]

Spoke to a friend who is a mortgage broker and he laughed with he read this. Supposedly Countrywide is a poster child for subprime lending! He said whenever he has (had) a subprime loan Countrywide is one of the top contenders for the loan!

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