[North County Jim]

If I’m not mistaken, Jim the Realtor only tracks a limted number of zip codes in Carlsbad, Oceanside and Vista. Hence his numbers do not apply to the wider area of north County.

I also agree with sdduuude that his writing makes it difficult to decipher what he’s trying to say. At a glance, he appears to be saying the median sales price is greater than the median listing price. This should make buyers more enthusiastic?

See if you can get some clarification from him. Otherwise, it doesn’t appear to be a relevant data point.

[North County Jim]

Before we get going with any kind of dialogue, you should reread my previous posts and the conclusions you are drawing from them.

1. Nowhere do I state that the unwinding of the RE bubble will not cause a recession. I stated clearly that the unwinding would cause residual damage to the overall economy.

2. While I believe the bubble is confined to selected markets, nowhere did I aver that the fallout would be limited geographically. Again, I thought I made it clear there would be damage to the overall economy.

3. I also clearly did not state or imply that the S&L crisis or telecom/tech crash did not lead to recession. The tech crash clearly did cause a mild recession while the S&L crisis was a factor in the recession of the early 90’s.

From my perspective, our differences regarding the fallout from the popping of the RE bubble are a matter of degree. I believe it will be very ugly and painful for many. The probability of a recession will increase as lenders and overleveraged consumers repair their balance sheets.

If I’m reading you correctly, you’re expecting a lot worse than that. I just can’t bring myself to be that pessimistic.

[North County Jim]

I’m not saying the future is all bright and rosy. I just don’t buy into the type of doom and gloom that you have continually espoused here. Are there many economic problems to solve here? Of course. Are they unsolvable? No. Will the solutions be painful? Sure.

Another point I’d like to make.

The unwinding of the housing bubble in selected markets will cause residual damage to the economy. So did the unwinding of the tech/telecom bubble earlier this decade. Just as many software engineers lost their jobs then, many real estate related jobs will also be lost. Please explain why a housing bubble confined to selected markets on the east and west coasts will cause significantly more economic damage than a major stock index losing 75% of its value.

No doubt there will be severe economic distress for those that bit off more than they could chew during this mania. We’ll read about a lot of these people just as we read about daytraders who lost it all as well as the Enron and WorldCom employees who lost all of their retirement savings.

Nationally, I think the damage will be commensurate with the pop of the telecom bubble or the S&L crisis of the early 1990’s. To be sure, these were painful events but fell well short of inducing a critical loss of confidence in the US economy.

Yes, all excesses correct. That doesn’t necessarily translate into economic armaggedon.

[North County Jim]

While I won’t disagree with your conclusion regarding hard or soft landings, I think your premise about the resiliency of the American economy vs. the Chinese economy is quite a stretch.

Because of the nature of their political system, I think it’s fair to say there is a certain lack of transparency concerning their economy. I don’t think it’s implausible that the damage to their economy from a real estate crash is greater than they may have led people to believe.

I also don’t believe that a high savings rate is the panacea you seem to think it is. A high savings rate did not prevent Japan from experiencing a 15-year deflationary spiral.

Like you, I’m certainly bearish on SD real estate but unlike you, I don’t see this bubble as the precursor to a repeat of the 1930’s.

[North County Jim]

I don’t think anyone could underestimate the need for economic education in this country. So much bad s*** could be avoided.

Since this a real estate related blog, I must correct Powayseller. Half the people are smarter than the median, not average.

[North County Jim]

Are the numbers you’re citing county-wide numbers or specific to an area?

[North County Jim]

Barnaby,

You nailed it. I remember watching AG on CNBC during one of his visits to Capitol Hill. During Q&A (not sure if Senate or House), he mentioned that lenders (banks) bore all of the interest rate risk with the large number of fixed rate loans. He thought it would be a good idea for that risk to be spread out more and talked about ARMs as the mechanism for making it occur.

I wish I had specifics on his testimony. I perused the Fed’s web site and they didn’t include the Q&A portion as part of the online archive.

When I heard this, I knew rates were going up and he wanted the banks to spread the pain.

Does anyone else have a recollection of this and some specifics?

[North County Jim]

Thanks duuude!

[North County Jim]

I’m not saying it’s a good bet. I’m just saying that it’s a better bet than the one your friends are making.

For example, on a $400,000 30 year fixed rate loan at 6%, your payment would be about $2,400. Your payment would be about the same on a $350,000 loan at 7.25%.

For the same property, I’d prefer the latter situation to the former. I have the ability to refinance much earlier in the cycle than I would on the 6% loan.

[North County Jim]

Even if their assumption is correct, wouldn’t you rather have the same payment at a higher interest rate? This would increase your chances of refinancing at a lower rate down the road.

[North County Jim]

You’re right Dougie, it does include the land but he’s not saying the price of the land is going up. Let’s parse it again with an eye toward change and rate of change. Remember, the context of the quote is about affordable housing.

In addition to astronomical land prices, soaring builder insurance costs and accelerating governmental exactions, this price-shaving strategy also faces the headwind of sharply rising construction costs…

Let’s face it, land costs have been astronomical in So. Cal. for a while. He’s saying nothing about them becoming more astronomical. It’s a static term in this context.

For all of his other costs, he makes it abundantly clear that they are rising very quickly. If the land prices were also rising, I think he would have been more explicit in saying so.

[North County Jim]

Poway Seller,

I don’t think he’s including land price appreciation into his increase in construction costs.

In addition to astronomical land prices, soaring builder insurance costs and accelerating governmental exactions, this price-shaving strategy also faces the headwind of sharply rising construction costs due to the China effect, Hurricane Katrina and other macro-economic factors.

I think he’s clearly separating the land cost from the construction cost. Certainly the price of building materials is up due to increased demand. The same is true of the skilled labor needed. For his number of 40%, you need ~18% per year increases. I don’t think that’s unrealistic in today’s building environment.

Have you tried to hire a contractor lately?

[North County Jim]

We would fall into category 2.

[North County Jim]

I think you’ll find that just about every rental house you look at the landlord will be cash-flow negative unless the owner has owned the place at least four years.

During our search, we could obtain sales data for all but two (the county website keeps them for two years). Running generous numbers, none of the recently purchased houses were anywhere close to cash-flow positive.

One potential landlord even told me what his monthly outlay was on the place. Even with rental income, he was bleeding $1,500/month.

If you have a lease, the landlord cannot sell the house out from under you. If he’s foreclosed, I would think your lease would complicate matters.

Any legal opinions on this?

[North County Jim]

Of course Alan Gin is a shill masquerading as an academic. He’s faculty for the Burnham-Moores Center for Real Estate at USD. This center is endowed by developers.

He knows where his bread is buttered.

Gotta love the hedge regarding gas prices. It’s not going to be any of the fundamentals discussed here that bring housing down. Look out for those pesky gas prices.

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