[powayseller]

Thanks for the clip. I will listen to it first thing tomorrow.

[powayseller]

Very interesting… one question – you noted that the 5 homes selling above list price, no value range, had an increased price because of seller concessions. Could you run such a check for the 23 value ranges? Perhaps if you remove the value of the concessions, the 23 listed with a value range really sold for the low end of the range?

It just makes sense that it would. Why would a buyer offer more than the bottom end of the range? My two offers were the exact bottom number of the range.

[powayseller]

I agree, you are a real asset. Can you share any insights on the financial situation of the typical San Diegan, if there is such a thing?

Regarding the idea that certain people can afford adjusting ARMs because they are in entry level jobs with rapid advancement in pay: isn’t that true for some people? What percentage? Or do most graduates carry debt now?

What types of loans do rich people take out? How would you know if someone cheated on their stated income application, or does it matter if you know?

What role did appraisers play in all this? I know there are good ones, like Bugs and Steve Beebo, but did you see any appraisal fraud?

Do you know of mortgage officers who upped the applicant’s income, just to make the loan work?

[powayseller]

Steve Beebo – very interesting. Thanks so much for sharing that. To what do you attribute Seller #1 selling for more in 2006?

[powayseller]

If this guy is a whistleblower, he would either report this first to some government or legal agencies, or post his name. Mysterious announcements of wrongdoing could be bogus, so until this guy establishes some credibility, I am skeptical of this post. While this stuff is certainly possible, did it really happen?

[powayseller]

mephisto, people like you, who are choosing to get an I/O loan, are the ones these products were originally made for. The problem is that 80% of San Diego mortgages last year were some kind of unconventional loan, many made with stated income. Most of these, I would say over 75% of these loans, were made to stretch into a house, because the buyer thought his house would keep appreciating. Why am I so sure? Because the median family income in San Diego is $51K/year. Since the median house is $500K, that is a multiplier of 10! The usual multiplier is 3-3.5.

When I bought a house in 1987, and in 1997, the general rule was we could get a mortgage for 3-3.5x income.

Now people are qualified on the basis of teaser rates, not the fully adjusted rate, and they can *state* their income. This easy lending has led to escalating home prices, as more and more people rushed in to buy homes.

The housing bubble got so much bigger this time due to this exotic lending. For this reason, you see home prices weakening nationwide. I don’t know if we have ever had nationwide home price declines and overbuilding since the depression.

So while there may be a few people here and there sitting around with cash, they are not the median San Diegan.

We cannot plan the future of the housing market around 2% of the population.

I do like your argument though, mephisto. It would make sense if there were indeed many people like you describe. But the data just doesn’t support it. If you look at credit, MEW, and wages, the picture paints a wage earner whose income is stagnant and who makes ends meet with credit.

The banker associations and government agencies are concerned about the effect of $2 trillion of mortgages resetting over the next 2 years.

Whether 1% of the population, the wealthy, can still pay cash for a mansion in Rancho Santa Fe, does not affect any of this one bit. The wealthy are in a different league, and their housing market in the +$3 mil category march to a different drummer. Stock market gains, option grants, all that kind of stuff.

To understand where the market is going, we have to look at the masses. The economy leading indicator is wages, and the wages of the masses is what is causing this all to unwind.

Just out of curiosity, how did your friends come across their riches? And to round out this discussion, for anyone reading this,
1) how many people told you they have money sitting in the bank to buy a house, and
2) how many do you know who already own a home, so they would not buy regardless of how much money they have saved
3) how many people have adjusting loans without an adjusting income to match (but they will *never* tell you; I bet not even your dearest friends would confess to such a shameful thing)

I’ll go first: I know only 1 other family with cash ready to buy and know several renters who are undecided about what to do; I could name 100 people who own; and I have no clue how many of my acquaintances have ARMs. I talk to a lot of people, since I am kind of a social butterfly, and my experience is very different from mephisto’s, both anecdotally and in the stuff I read every day.

But I am fascinated to hear more about your view, mephisto, that a large group of people sits ready with cash to bail out a housing decline. Please ask those people why they would buy while prices are dropping. Why wouldn’t they wait until prices *stopped* dropping, just to be safe?

[powayseller]

Lindi, it seems like others are also upset that BP didn’t keep its pipeline better maintained.

Oil’s aging pipelines
What took BP so long to realize its Alaskan pipelines were corroding? A ‘warning’ to the rest of the industry.

[powayseller]

Roubini writes some things I had not read before. For example, he debunks the myth that commodities will keep going up. In a global slowdown, demand for commodities will decline, so the prices will drop. I think commodity prices will drop back to their 2000 levels. Oil will drop too, but not as much.

Roubini also mentions which currencies will appreciate, and warns that international equities (as Peter Schiff recommends) will fall.

His company studies the Flow of Funds reports, and he met with China’s bank and treasury officials, so he has a good insider view. He believes the Chinese will revalue the renminbi later this year, to avoid the tariffs that they might get otherwise. One quick 5% revaluation.

There are many housing bears who believe China will take over global growth when the US slows. He has a list of reasons why that cannot happen. I have espoused that view for many months, but now here is Dr. Roubini saying it too. Perhaps he will be more convincing than I was.

There are many here who are in cash, but in dollars. He says the US dollar will fall.

[powayseller]

The government promises 100% of pay at age 55? How can anybody afford to make those kinds of payments? Apparently, they were empty promises… how can these people even sleep at night. I would be one of those whistleblowers, exposing my government employer to the media and SEC. Is anyone following the San Diego pension mess? How did that ever get started? How can they make unfunded promises – isn’t that against GAAP?

[powayseller]

Yes, they quoted the LA Times article, but apparently your name was quoted as part of that. I thought it was exciting and well deserved!

[powayseller]

What percentage of the San Diego population meet the criteria for this group that you describe?

The median family income, according to the 2004 Census Bureau is $51K. My bet is that for every vulture with $500K saved up, there are 300,000 people below the median wage scared to death of their ARM, HELOC, and credit card payments going up.

Since you are into anecdotes too (like me), next time you go to the gas station, walk by all the pumps and see how many people filled up. Then, go to the mall and see how full it is, and how many people walk around without any shopping bags.

One more thought: the housing prices are set by the solds. In July, it was 2500 or so solds in San Diego that set the prices for the other hundreds of thousands of homes. The people who NEED to sell are setting the price for everyone.

Oh, and one last thought: after foreclosures really pick up, Fannie Mae underwriting guidelines tighten, and the FDIC puts rules in exotic financing, the tighter credit will make it harder to buy a home. Buyer fear will reduce sales even more. Who will even want to buy a home next year? As buyer fear increases, the buyer pool shrinks. Your vulture friends, like us here, will wait even longer – they will think “Hey, why buy now when prices are dropping so fast – let me wait until next quarter and see if they have stabilized”. Fear works in reverse of frenzy. On the way up, sales accelerate and on the way down they decelerate. There is not sucker’s rally as in stocks. Just fear that grows.

[powayseller]

Steve, isn’t months inventory more important than the inventory number? If we had 50,000 inventory, and 55,000 sales per year, prices would go through the roof. The problem is that sales keep falling at a greater rate every month. First, we were down 10% yoy, then 20%, etc. We were down almost 40% in July 06 over July 05.

Let’s assume inventory stays flat through the end of the year, and the downward accelerating sales trend continues; prices will drop a lot. Months inventory is the important metric from what I have learned. Do you disagree?

Rich, I still don’t understand monetizing mortgages. What is “pinning” the mortgages? Yes, the NASDAQ is still too high, although it has been back to its 1998 level for a couple years now. The P/E ratios are still too high. What do you think accounted for it not fully retrenching; rising consumer demand?

[powayseller]

Why can’t you sell before your ARM resets? – prepayment penalty?

[powayseller]

It could also be sparse data. If you have only a couple houses listed at 3 bedrooms, any change could just be noise. Maybe the more expensive house this month has better views, more upgrades, is newer, better location.

These are list prices, not sale prices. Sale prices are not completely accurate if they hide closing costs or other incentives.

I think San Diego Market Monitor and ocrenter’s lists are the most accurate, because they show the prices of the *same* house over time.

[powayseller]

Dr. Roubini explains why non-oil commodity prices will fall, the floating currencies of euro and yen and others will rise as the dollar falls, and that the Fed will pause today and ease in September or November. The slowdown in the rest of the world may be delayed by a quarter or two, but they will slow down too. China, Japan, Europe, emerging markets, Latin America are going to slow down.

He says foreign flight will be next, the dollar will tumble this fall as the temporary factors which held it up are unraveling, and there is a risk of a financial meltdown similar to the 1987 stock market crash and the LTCM fund collapse.

I think most didn’t read his comments, or this thread would have been a mile long. Please take the time to read it, because if what he says is true, there are some serious implications for rebalancing our portfolios by fall.

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