[LA_Renter]

This was on the front page of the LA times this morning. The thing that comes to my mind is the timing of the article in the face of a rapidly deteriorating California housing market. This definitely plays into, they are not making any more land meme.

“Other demographers argue that the huge population increase the state predicts will occur only if officials complete major improvements to roads and other public infrastructure. Without that investment, they say, some Californians would flee the state.

If the finance department’s calculations hold, California’s population will rise from 34.1 million in 2000 to 59.5 million at the mid-century point, about the same number of people as Italy has today.

And its projected growth rate in those 50 years will outstrip the national rate — nearly 75% compared with less than 50% projected by the federal government. That could translate to increased political clout in Washington, D.C.

Southern California’s population is projected to grow at a rate of more than 60%, according to the new state figures, reaching 31.6 million by mid-century. That’s an increase of 12.1 million over just seven counties.

L.A. County alone will top 13 million by 2050, an increase of almost 3.5 million residents. And Riverside County — long among the fastest-growing in the state — will triple in population to 4.7 million by mid-century.

Riverside County will add 3.1 million people, according to the new state figures, eclipsing Orange and San Diego to become the second most populous in the state. With less expensive housing than the coast, Riverside County has grown by more than 472,000 residents since 2000, according to state estimates.

But many residents face agonizingly long commutes to work in other areas. And Monday, the state’s growth projections raised some concerns in the Inland Empire.

Registered nurse Fifi Bo moved from Los Angeles to Corona nine years ago so she could buy a house and avoid urban congestion. But she’d consider moving even farther east now that Riverside County is grappling with its own crowding problems.

“But where am I going? People used to move to Victorville, but [housing prices in] Victorville already got high,” the 36-year-old said as she fretted about traffic and smog and public services stretched thin. “We don’t know where to go. Maybe Arizona.”

This article barely touched on the fact that we are already seeing a net domestic out migration, housing sales have slowed to a trickle and look at the U-Haul rates leaving the state verses coming in.

I could be wrong but my gut tells me this article was designed to put fear in potential buyers heart that if you don’t buy now you will be priced out forever, look at the population growth heading your way.

I remember hearing Chris Thornberg say in one of his lectures that the housing shortage of California is very misunderstood. There is a shortage of multi-tenet housing in the state, this is an immigration issue, these people could not afford a home in Birmingham Alabama much less Los Angeles CA. Right now there is no shortage of bubble priced SFR’s in So Cal in fact there appears to be an over supply.

[LA_Renter]

Now that I think about it that line of reasoning reminds me of the Nasdaq implosion. (special note: I know the difference between a stock market correction and a housing correction). During the darkest days of that crash you still had the tech investors hanging on to the “New Metrics” of stock valuations. You still had people jumping from start up to start up in search of options only to find shells of companies with no more venture capital. They were still preaching the Gospel of the “New Economy” all the way to bottom. Patient Renter this rationalization is tortured at best especially in the face current market realities.

[LA_Renter]

Now that I think about it that line of reasoning reminds me of the Nasdaq implosion. (special note: I know the difference between a stock market correction and a housing correction). During the darkest days of that crash you still had the tech investors hanging on to the “New Metrics” of stock valuations. You still had people jumping from start up to start up in search of options only to find shells of companies with no more venture capital. They were still preaching the Gospel of the “New Economy” all the way to bottom. Patient Renter this rationalization is tortured at best especially in the face current market realities.

[LA_Renter]

I ain’t buying it either. This smacks of the “New Paradigm” of lending that right now is unfolding as a colossal failure.

[LA_Renter]

I ain’t buying it either. This smacks of the “New Paradigm” of lending that right now is unfolding as a colossal failure.

[LA_Renter]

From Barons via Big Picture

“After modest reflection, any disinterested observer can’t help but find that accompanying table quite alARMing. It’s from a recent MacroMavens report, the handiwork of the incomparable Stephanie Pomboy, whose rants and raves we’ve had the pleasure of occasionally sharing with you. What its blood-curdling numbers depict is that the woes of mortgage lenders are not, as so widely believed, confined to the beleaguered subprime contingent, but are casting a much larger and chillier shadow.

More specifically, the table shows all too clearly that an astounding percentage of adjustable-rate mortgages already are underwater, and it estimates how much equity would be wiped out if home values decline by 5%, 10% and 15% and translates the corresponding losses into dollars.

As Stephanie comments: “Based on the share of ARMs in some state of negative equity at the end of last year and the decline in home prices so far in 2007, a stunning $693 billion in mortgage loans are already in the red. Assuming lenders are able to recover 70% of those assets — which seems optimistic given the massive amount of housing inventory yet to be unwound — that means mortgage lenders are already grappling with $210 billion in outright losses.”

And that, she points out, is merely the direct hit. Thanks to what she nicely dubs the “divine miracle of leverage,” the total financial exposure to these claims is many multiples of that. To which we say, ugh!

What’s more, Stephanie notes, these horrendous losses are coming at a time when the financial sector is “uniquely unprepared to withstand them.” Commercial banks, she points out, have let their loan-loss provisions sink to 20-year lows while increasing their exposure to real estate to record highs. Mortgages, she reckons, account for a tidy 55% of total bank loans — and that doesn’t include the trillion dollars worth of mortgage-backed securities on bank balance sheets.

So much for the myth that banks have cleverly “offloaded” their real estate risk.

Chart is on this link

http://bigpicture.typepad.com/comments/2007/07/underwater-arms.html

[LA_Renter]

From Barons via Big Picture

“After modest reflection, any disinterested observer can’t help but find that accompanying table quite alARMing. It’s from a recent MacroMavens report, the handiwork of the incomparable Stephanie Pomboy, whose rants and raves we’ve had the pleasure of occasionally sharing with you. What its blood-curdling numbers depict is that the woes of mortgage lenders are not, as so widely believed, confined to the beleaguered subprime contingent, but are casting a much larger and chillier shadow.

More specifically, the table shows all too clearly that an astounding percentage of adjustable-rate mortgages already are underwater, and it estimates how much equity would be wiped out if home values decline by 5%, 10% and 15% and translates the corresponding losses into dollars.

As Stephanie comments: “Based on the share of ARMs in some state of negative equity at the end of last year and the decline in home prices so far in 2007, a stunning $693 billion in mortgage loans are already in the red. Assuming lenders are able to recover 70% of those assets — which seems optimistic given the massive amount of housing inventory yet to be unwound — that means mortgage lenders are already grappling with $210 billion in outright losses.”

And that, she points out, is merely the direct hit. Thanks to what she nicely dubs the “divine miracle of leverage,” the total financial exposure to these claims is many multiples of that. To which we say, ugh!

What’s more, Stephanie notes, these horrendous losses are coming at a time when the financial sector is “uniquely unprepared to withstand them.” Commercial banks, she points out, have let their loan-loss provisions sink to 20-year lows while increasing their exposure to real estate to record highs. Mortgages, she reckons, account for a tidy 55% of total bank loans — and that doesn’t include the trillion dollars worth of mortgage-backed securities on bank balance sheets.

So much for the myth that banks have cleverly “offloaded” their real estate risk.

Chart is on this link

http://bigpicture.typepad.com/comments/2007/07/underwater-arms.html

[LA_Renter]

4plexowner, I have to admit it has been difficult rapping my mind around this whole investment banking situation but the Adams Family analogy above gave me a much deeper understanding which could say something about me. I do think we are going to see some fireworks in the offing.

[LA_Renter]

4plexowner, I have to admit it has been difficult rapping my mind around this whole investment banking situation but the Adams Family analogy above gave me a much deeper understanding which could say something about me. I do think we are going to see some fireworks in the offing.

[LA_Renter]

The OC is looking like the San Fernando Valley in unit sales

“O.C. housing suffers slowest-selling start since ’95
For the month of May, DataQuick reports this morning that 2,675 homes sold or 29 percent below a year ago. It’s the slowest-selling May in the 20 years DataQuick has tracked the market.”

http://blogs.ocregister.com/lansner/archives/2007/06/oc_housing_suffer.html#comments

Yes the almighty OC home sales are plummeting too!!

[LA_Renter]

The OC is looking like the San Fernando Valley in unit sales

“O.C. housing suffers slowest-selling start since ’95
For the month of May, DataQuick reports this morning that 2,675 homes sold or 29 percent below a year ago. It’s the slowest-selling May in the 20 years DataQuick has tracked the market.”

http://blogs.ocregister.com/lansner/archives/2007/06/oc_housing_suffer.html#comments

Yes the almighty OC home sales are plummeting too!!

[LA_Renter]

“Yes, yes sales are down but so what?”

Does anybody else find it amazing how entrenched the “RE prices do not Fall” meme is with the general public? It’s almost like magical thinking on a very large scale. I run across this all the time, I feel like I am talking to people that have been hypnotized by the NAR.

Scruffy, Sales are down a whole bunch, I mean unit sales are falling below the worst levels of the last downturn in the early 90’s as I have shown using the San Fernando Valley as an example. Now to address your argument; at the peak of the current market people and economist were saying that actual home sales would not fall that much unless unemployment returned to the 90s levels or worse. As long as people have jobs they will continue to buy houses, Yet we are looking at sales transactions plummet across the entire state of California. So, yes home sales can fall with the current rate of unemployment, in fact they can fall further than anytime in this states history. Now go out on a limb with me here. If actual home sales can fall with the current rate of employment then wouldn’t it be possible that home prices can fall with the current rate of employment. I know it’s a stretch. I mean i had to agonize over this but i figured that home sales signifies demand in relation to price and supply and much to my surprise the conclusion that i came up with is that unless demand increases, like if we all win lotto at the same time, then something will have to happen to price. Maybe you can help me with my thinking here.

[LA_Renter]

“Yes, yes sales are down but so what?”

Does anybody else find it amazing how entrenched the “RE prices do not Fall” meme is with the general public? It’s almost like magical thinking on a very large scale. I run across this all the time, I feel like I am talking to people that have been hypnotized by the NAR.

Scruffy, Sales are down a whole bunch, I mean unit sales are falling below the worst levels of the last downturn in the early 90’s as I have shown using the San Fernando Valley as an example. Now to address your argument; at the peak of the current market people and economist were saying that actual home sales would not fall that much unless unemployment returned to the 90s levels or worse. As long as people have jobs they will continue to buy houses, Yet we are looking at sales transactions plummet across the entire state of California. So, yes home sales can fall with the current rate of unemployment, in fact they can fall further than anytime in this states history. Now go out on a limb with me here. If actual home sales can fall with the current rate of employment then wouldn’t it be possible that home prices can fall with the current rate of employment. I know it’s a stretch. I mean i had to agonize over this but i figured that home sales signifies demand in relation to price and supply and much to my surprise the conclusion that i came up with is that unless demand increases, like if we all win lotto at the same time, then something will have to happen to price. Maybe you can help me with my thinking here.

[LA_Renter]

I just wanted to add a comment to this;

“That if the contents of each tranch (probably mispelled) within each fund were studied, the investors would find that they are really not holding what they thought they were holding.”

That fact that this is being discussed on blogs and chat boards all over the place pretty much indicates that the Jeanie is out of the bottle. I mean if I know that these subprime contents are trash then I would assume the major players also know this. A major re-pricing of these portfolios is inevitable at this point.

[LA_Renter]

I just wanted to add a comment to this;

“That if the contents of each tranch (probably mispelled) within each fund were studied, the investors would find that they are really not holding what they thought they were holding.”

That fact that this is being discussed on blogs and chat boards all over the place pretty much indicates that the Jeanie is out of the bottle. I mean if I know that these subprime contents are trash then I would assume the major players also know this. A major re-pricing of these portfolios is inevitable at this point.

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