Heart of Foreclosure Darkness: Every County in Southern California is now Negative Year over Year.
Now let us take a look at the freshly released numbers:
|
County |
October 2006 Price |
October 2007 Price |
Percent Change |
|
|
$520,000 |
$500,000 |
-3.8% |
|
|
$625,000 |
$573,750 |
-8.2% |
|
|
$412,136 |
$350,000 |
-15.1% |
|
|
$365,000 |
$330,000 |
-9.6% |
|
|
$490,000 |
$460,000 |
-6.1% |
|
|
$590,000 |
$535,000 |
-9.3% |
|
SoCal |
$482,750 |
$444,000 |
-8.0% |
Now the fact that every county is now in negative territory should not come as a surprise to you if you’ve been following the market carefully and the mortgage shenanigans of gin and tonic debt cowboys. What is a shock is how quickly the prices are coming down and impacting the overall market. I did have some reservations that this market decline would be much slower but it turns out that yes, the wheels were greased with absurd mortgage products and now that we are returning to verified income loans and tighter standards, it seems not many people can qualify. And it isn’t for a lack of demand. People it seems would sign over their first born so long as they can have an Escalade and a 500 square foot box that fits their monthly budget (which of course it doesn’t with out credit crack). The only reason this is happening is because it is all about funding and income much to the chagrin of pro-housing pundits. It really is that simple. Home price doesn’t even matter at this point for many. What does it matter if someone drops the price of a home from $600,000 to $500,000 if your income is $75,000? Before, you would have creative unidentified flying mortgage objects coming at you such as 2/28s, Option ARMs, 3/27s, interest only, and other concoction of the mortgage elixir party. Of course this wasn’t going to last! Not one single report has shown an economic justification including local area incomes for why homes are valued at what they are. Care for some tulips? Yes, you can’t live in a tulip, but you can live in a leased place.
You notice how all pro-housing articles of this boom avoided the delicate topic of incomes? Of course incomes matter. That is what you’ll pay your home with! The problem that occurred in this decade is people interchanged credit with disposable income. Well guess what, that home equity loan you have, you still need to pay it. When the fun and excitement wears off on that $50,000 sleek gas-guzzling automobile, you still have to make payments for 5, 6, or sometimes 7 years. This is beyond the housing market. The scary thing is people would have kept spending into infinity if the debt burden wouldn’t have cracked the entire foundation. Wall Street is out at the top. Those that barely missed the top are scrambling for the exits. Now tell me what the person that bought a home for $400,000 in a new development that is now selling homes at $275,000 is going to do? You haven’t seen anything yet in terms of lawsuits. Mortgage fraud is a crime. Think states aren’t going to come down with the gauntlet?
So you say “so whatâ€, prices are down but we are nearing the bottom. Well as we have already discussed current prices are a lagging indicator and home sales are a leading indicator. Given that fall and winter are the slowest selling seasons, and March of 2008 will have the biggest one month of sub-prime resets, we are nowhere out of the woods yet. Take a look at the recently released sales numbers for October:
|
County |
Number Sold October 2006 |
Number Sold October 2007 |
Percent Change |
|
|
8,451 |
4,368 |
-48.3% |
|
|
2,929 |
1,700 |
-42.0% |
|
|
4,408 |
2,463 |
-44.1% |
|
|
3,547 |
1,603 |
-54.8% |
|
|
3,449 |
2,327 |
-32.5% |
|
|
961 |
538 |
-44% |
|
SoCal |
23,745 |
12,299 |
-45.3% |
Sales across the board from
County Percent Short Sale to Overall County Inventory
Los Angeles 5.59%
Orange County 2.80%
San Diego 8.78%
Riverside 11.19%
Ventura 3.41%
San Bernardino 6.54%
This number will only grow and keep in mind that not all of these sales will be approved or will find an adequate buyer. They may in fact go back to the bank as an REO and this is very expensive for institutions. If the national average for foreclosures cost banks about $50,000 per home, can you venture a guess for the cost of
So what is the silver lining to all this? Amazingly, I still get e-mails from people wanting to buy massively overpriced homes. There are the few exceptions where I talk to two very high paid professionals that any price won’t dent their bottom line. But this is a handful. There are 10,000,000 people in
I’ve read criticism of housing blogs on other sites touting that they are minimalist and fail to look at other issues. Well, what do you expect from a housing blog except issues that impact housing? Things such as politics and social issues get filtered through a housing lens on this site; you don’t expect to read on ESPN an article about global warming or ways to baste your turkey for Thanksgiving right? As usual, nothing is contained in a silo and we sometimes venture off into other topics but the main mission of many of the alternative sources of housing media is to provide a dissenting voice. I’ve received numerous e-mails of people running the numbers and deciding to wait out the market and thanking me that the house they wanted to buy is now $50,000 less. Or someone who sold at the top and is now sitting on a nice sum of cash. Even one year ago, the mainstream media was still cheerleading housing as a safe investment. Where else were people going to get investment information? Flip this House? Property Ladder? Fox News? This is what happens when you have people ignoring history and lack a basic understanding of economics trying to influence your financial decisions. Need we remind you of the psychology and power of groupthink?
Surely you remember all the late 2006 double-digit appreciation pundits for
The sky isn’t falling but prices are. Life will go on. We will survive this downturn just like every other historical bubble. Will this influence local business and politics? Absolutely. Be wise and prudent in the upcoming months. You can read this information and pause with fear or take action based on an educated premise based on economic fundamentals. It is official, this bubble is not different.
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28 Responses to “Heart of Foreclosure Darkness: Every County in Southern California is now Negative Year over Year.”
With the writer’s strike showing no sign of ending soon. All those productions shut down across LA county, that will put even more downward pressure on Los Angeles home prices. I hear that 400-500 thousand people make a living directly or indirectly from film and television production in LA county. Imagine a six month to a one year strike with no productions. How many “Real Homes of Genius” were purchased with the high-paid union production jobs. Now imagine not getting any money for a year. And we know how vain people are in production about having the best leased luxury vehicles and a home in the right neighborhood and making sure their children go to the “right” private school, etc., etc., etc. 2008 is going to a bumpy year in the housing market for Los Angeles. How will mayor Tony deal with the large loss of property taxes when these houses go into foreclosure and the massive reassessments that will be demanded. Someone said it very simply about why you can’t get a loan even if you have stellar credit: the banks don’t want to loan on an artifically overpriced asset that will lose value in the next few years.
You write: Quoting this horrible indicator of true market sentiment is equivalent to saying “hey the car is still in perfect condition†as it flies off the Grand Canyon. Well yes, technically it is still in perfect condition but the momentum will eventually lead to its final crash course destination.
Brilliant! I love it. This gives me both a great visual and better understanding. You know, you mention the lack of information regarding incomes versus selling prices. So true. In a quick think back, I don’t actually recall hearing median incomes ever being mentioned by any pundit. Well, except for Peter Schiff. And I still get the impression that the MSM treats him as the boy who cried wolf… even as he is proved correct daily. Man, sometimes I feel like our society, our news organizations, our government, our financial systems, our companies are only run by marketing and magical thinking. -Don’t trust your lying eyes and deflated wallet. Inflation is low, fundamentals are strong, everyone can get health care if they really need it, jobs are plentiful. Oh the price of milk and gas? Those don’t count for our official figures. Income versus price and rent versus price? Oh, we don’t mean those fundamentals. We mean the FUNdamentals as in housing never goes down! And it’s FUN to be a part of the Ownership Society. Here, just take on this time bomb loan and we own you… ooops I mean you can own this wonderful piece of property!
On a side note, I grew in LA. Hancock Park… not too far from Larchmont Villiage and Farmer’s Market. When I graduated UCSB in 92 I remember thinking I could never own a place out there. 600plus for a starter home. Like in every part of LA. Even the shadiest parts were out of reach. I started my professional career in San Francisco. I was further shocked. Not by my inability to afford a home, but our apartment neighbors. They were raking in over 200,000 a year in 94 and couldn’t even get into a fix-me-up in the crappiest part of the south city by the freeway. I was thinking if they can’t buy a place, who the hell can? Is everyone a Rockafeller? Where are all these people?!?
Dr:
Hang in there, the mainstream media is finally starting to catch up with us. I notice that NBC news in particular has been “born again hard†on the subject of the housing bubble/collapse. The other day they did a broadcast from my town (Detroit metro), with a long discussion of the housing market.
The CBS show “60 minutes†did a story last week about the trouble with the younger generation, the “everyone gets a trophy†generation. This is where a real worry comes in. An entire generation raised to believe that they are the world’s special little angel, that the law of cause and effect doesn’t exist; the idea that breathing air gives them the right to the best things in life.
I repeat myself (as always), but I think it is important that we treat the subprime market, and ANYONE associated with it like a venereal disease. Any company associated with subprime must be treated as suspect: be it the lender, the fund manager, the companies who invest in these funds, and even the people who stake their financial futures on any of these group.
Like the corner hooker who services a line of men with her $10 “happy endingâ€, the well is poison, anyone who drank from the well is poison. The solution is to isolate ourselves from these people and their poor judgment.
The bubble crash will be good news to a handful of businesses. The auto repair business will be OK (if no one buys new cars, they have to fix the old cars). Fast food will surge (because of the higher calories/$).
Some of us, as you know, have planned ahead for this storm, and will be able to ride it out. I am very thankful that I was raised in a VERY conservative house. Having been raised on the philosophy that “there’s no free lunch in lifeâ€, I was suspicious enough of the Vegas-mentality to avoid them like the plague they are.
The economic decline will more rapid as the US sinks into a heavy depression especially after the holidays with lack of jobs and housing collapse and increase oil prices. Enough is enough with Corporate America running the corruptive show we need leadership now! Remove all Senators and Congressman from the payroll without benefits after all they the very wealthy they are the least of those in need and all they provide is massive corruption looking out for themselves that’s why we state representatives, this will eliminate the corporate piranha’s the lobbyist, cap CEO pay to $250K max, 12% flat rate tax for those who earn less than $250K and 45% for beyond, cap lawsuits at $250K so we can have affordable private insurance and change laws so they can be written at the 6th grade level much like newspapers this is a start to a very corruptive government we have created that needs to be modified or otherwise overhauled and unfortunately we do not have a candidate that’s worth a damn to step up to the plate only time will tell when we will the next Pakistan we cant keep this up.
The biggest problem with California is that even if you get paid a “good” salary by national standards you can’t afford anything. The end result of this is either the prices come down or the young and talented will leave. I know so many people who moved out here with the notion that California is “paradise” only to leave a year or two later when the reality set in. Employers even use this as an excuse to not pay a decent wage, arguing that “everybody wants to live here”. Except not everyone does or can. A good friend of mine thought of moving out here only to find that the employers were offering less then he makes now. He stayed put; no reason to move to a place that is 2-3 times as expensive and not make as much. Other people I know have been offered multiples of what they made in SoCal to do the same work in other states. I left SoCal for the same reason, I knew that I would never “get ahead” if I stayed in San Diego. Moved away, got a position with higher standing in the same industry, and got paid more.
You saved my ass!
I shudder at the thought of owning some overpriced stucco in Pasedena ghetto that I made a low-ball offer on back in Decembner ’06. (Thank God the sellers turned me down!) What of my finances now ! if lo that fateful day, (with me riding high on the REIC koolaid) Google hadn’t popped up a Real Homes of Genius instead of the (another shack) listing I was looking for.
Thanks Dr. HB.
Great article and well written. A nearly 50 percent decline and a year worth of big resets to go. A mess deserved by all in the industry. Looks like the people who run our country are stupid as well as greedy.
Genius meets reality.
OK, so it may not be representative, but what single house really is? But it is priced $249,000, in Huntington Beach, not Huntington Park. Maybe not a true home of genius, but at least it shows how the bottom is becoming unlatched.
As an underwriter I screamed at the top of my lungs for the past 4 years that good credit doesn’t equal high income. What a relief to see someone saying the same thing: “The problem that occurred in this decade is people interchanged credit with disposable income.”
Hi! I work at CurrentForeclosures.com a foreclosures site. I guess it is understandable that in their wish to own a home, many people fell for the tempting offer of low interests notwithstanding their marginal income. When the interests changed, boom! people could no longer pay. When there are a lot of available housing units in the market but no takers, the market is surely affected.
@ Dr:
–
I watched the entire video.
–
Someone once said that a sure sign that a marriage is over is when one partner shows open contempt for the other. That being said, what does it show when the host of a TV program shows open contempt to their guests? It’s like the jocks verses the nerds all over again.
–
I’m not going to speak my entire mind, because there is far too little space for that. Twenty years ago, during my “Neitzsche Phaseâ€, I used to play dueling philosopher with a friend of mine (he was going through a “Kierkegaard Phaseâ€). Over a series of written debates, I would compose, pontificate, and generally debate the meaning of life as many teenagers do.
–
It’s been over 20 years since I’ve written a manifesto, but watching the video made me almost wish that I would again.
–
For the problems that we see: the mortgage mess, the dollar decline, the election scene, the war, the domestic economy – all of them are so solidly linked to the same root cause that you would could walk across a floor built by the law of cause and effect.
–
In a nutshell, the problems we are facing now can be directly traced to the relationship issues between the hippie generation and their parents.
There was a nice big house in a decent part of Pasadena going for 1.5 million. It’s now dropped in price 150k (but what’s 150k here or there?). I’ve made it an amusement of mine to watch that house drop in price, seeing how low it will go, as I pass by it on the way to my apartment.
It’s odd though, I would think this house would hold up a bit, but no, even the very high end market (presumably people that don’t need to depend on interest only or negative amortization loans!!) is falling.
@westside,
From some of the articles I’ve read, the writers strike has a larger impact because of the behind the scene folks that will get hurt (i.e., stage hands, construction, make up artist, etc). Isn’t the strike about royalties for online items? The trouble with this housing downturn is that it will collapse into itself; if you look at unemployment numbers things aren’t bad. But again, this is a lagging indicator.
@Debbie,
Totally agreed. If we look at the general numbers everything seems fine. Employment is healthy, inflation is low, and housing prices are through the roof. So the media would like us to believe. But people need only look at energy prices, housing costs, and wages and the majority of the public realize something is rotten in SoCal.
@malcolm
It is the case that there are more cases being reported. But I am now hearing this “we are near bottom†type of rhetoric. For example, on one of the main morning stations one of the anchors said, “when will the housing bad news stop?†Why didn’t I hear them say, “when will this housing bubble stop?†during the boom years? Folks like Peter Schiff who provide an alternative view are painted as a tinfoil hat wearing caricature. Watch this video: http://www.doctorhousingbubble.com/forum/viewtopic.php?t=93
I would like to get your views on this. Keep in mind the market got rocked the next day.
@chuck,
I still think that the last vestige of hope for many is the shopping months of November and December. Forget the fact of what Thanksgiving and Christmas really stand for; these holidays have been commercialized to another dimension. The hope is that we will have booming sales and all will be well with our consumer driven economy. The only problem is credit is running on fumes in every aspect; credit cards, mortgages, car loans, home equity lines, and every other IOU is suddenly coming to a screeching halt.
@Dave,
Good for you. You are right that many professionals who earn a supposedly good income are finding that the cost of living actually pulls them down here in SoCal. It is very expensive to live in many high priced metro areas. That is choice many people will make. The LA Times came out with a report awhile back showing that middle to upper middle class Californians were actually leaving the state in larger numbers than folks coming in. We will once again revisit the affordable housing issue. We do not have a housing shortage problem, we have an affordable housing problem.
@PWC,
Excellent. You’ll have more options in the next few years without people rejecting your offers. I know folks will argue that Pasadena is prime and will never go down. But running a simple query I’m seeing many places that are off 10 percent. In Pasadena that is a nice amount. Plus, Pasadena isn’t Rancho PV or Malibu so prices will come down.
@John keen,
Appreciate the comments. Like I’ve said before, we’ll know the big damage in Q1 of 2008. In fact, Q2 of 2008 will have a large number of resets as well. If the market doesn’t recover in the 1 to 2 year gap before the Option ARM implosion get ready for Japan style deflation.
Doctor:
Another informative and entertaining post – thank you! I keep telling my very novice (and naïve) realtor friend that this market will not recover until prices return to levels that meet economic fundamentals with respect to incomes.
Prior to the current housing bubble and debt orgy we find ourselves reeling from today, housing purchase prices were roughly 4 to 4.5 times the median income in Southern California, which was higher than the a majority of the rest of country because of our built-in sunshine tax. Even with the recent “correction†we have experienced, we are still a long way from the norms of affordability with purchases still going for at least 6x to 7x the median household income, depending on where you live in Southern California.
Do you think prices will ever come back to pre-bubble fundamentals with regards to price/income ratios? This would bring the median comfortably down into the low $400’s which seems so out of sight, even at this juncture. What are your thoughts on this region ever returning to economic normalcy?
Thanks again for all the sage advice and many doses of kool-aid antidote.
I’ve been watching the more expensive areas as well. I have found many listings in Malibu/Pacific Palisades that are going for 15% off. One house was going for 2 million is down to 1.5 million in 6 months! Granted it was/is overpriced, but finally the sellers are getting the picture.
Another good article Dr; thanks. I am selling my modest home here in Tucson. Just put it on the market for $280,000. I bought it 5 years ago for $175,000. Sounds like I am making money but the previous 2 houses I owned in Oklahoma (1984) and in New Mexico (1992) I lost on.
–
After reading your articles, I will drop the price until it sells. I suspect that after paying my realtor, some of the closing costs, and upgrades, I will walk away with a little and I will be happy. I bought the house for my family to live in and it served us well.
–
My realtor told me he just bought two houses from a Tucson developer in a new subdivsion for $208K when the comps were $250K. I sure am glad I am not one of his neighbors that paid full price. Young couples starting out in life don’t need such a burden placed upon them.
Here’s a question: when are the prices in the Bay Area going to start dropping at this rate??? It still seems like in places the prices are creeping up…
I had a small discussion with a part time realtor, and he seemed very excited about selling a home, and making some money with no consideration about the housing market. He knew that his clients, based on their income, would not qualify for a mortgaged. So he suggested having his brothers, sisters, cousin, grandparents, and who knows who to be co-owners and combine their income so they can qualify for a real home of genius. I was really irate to hear such a business strategy, which takes advantage of individuals who have no clue as to what they are getting themselves into. Having multiply owners would only create a conflict of interest, and start a new saga in this housing debacle.
(sigh)
Today’s market, along with rampant inflation and the bubblicious Fed, are why I am SO voting for Ron Paul. I just can’t take the idiocy any more!
If you’re sick of it, too: http://www.teaparty07.com
Throw the Fed overboard!
– MMAB
I have noticed this trend. Many people from the Midwest returning to their home states after a few years in LA. Quality of life and affordability are their top 1 and 2 reasons for leaving. Wages in SoCal have always been low for such an expensive area – mostly a result of many businesses being small businesses and the entertainment industry “everyone wants to work here” mentality. A friend bought a house in Van Nuys a year ago with a fixed rate and money down for close to 600K, both husband and wife are earners and professionals and they are barely making it and probably have lost all their equity already. 30 years ago, another friend grew up in a similar house in the same neighborhood, her father a mailman and mom stayed at home with the kids and that house was easily affordable for them.
Lost Cause, $249k seems like a reasonable price for HB, but if you read the listing, not only is it only 480 square feet (I’ve never seen a smaller place for sale – this is vastly smaller than my already tiny apartment), they are flagging that it has termites and is being sold as-is! Say hello to knock-down-and-rebuild, on that whopping 2500 square foot lot! Maybe not a bad place to put a bland steel building and park an RV though.
All:
Short sale report posted:
http://www.doctorhousingbubble.com/forum/viewtopic.php?p=289#289
19 consecutive weeks of increases. We should start a pool. And I’ll put a poll online in the discussion forum. How many consecutive weeks of increases will we have before the trend starts going down?
@Lost Cause and JimatLaw- buyer can’t even get FNMA loan on this because it’s smaller than 600 SF. No more subprime loans. This is a hard money or cash sale.
@Doc – is that like picking how many jelly beans there are in a jar? Does the winner get to dunk the Fed board members for the past 20 years in the carnival dunk tank? Over on another blog (OC Register Lansner), a commentor posted the comment that since Sept showed a slight blip, THAT was the bottom. Uhuh. There may be pauses or even slight reversals month over month, since cashout refinances of the Option ARM variety don’t follow the same mont-to-month bell curve distribution of sales – but data and increasingly pessimistic commentary from the leaders of major banks (Wells, BofA, et al) do point to a BIG jar of jelly beans.
How about – 42 – that’s my count.
I recently “stumbled” on TO this site and it made me feel a whole lot better about my “common sense” instincts because for the last year, I’ve been watching the news and even talking with friends and colleagues wondering if I had lost my mind. You see, it seems most “regular” people “seemingly” can’t see the forest through the trees (probably because they believe what they hear in the media) in that there is something very wrong in a market where “average” housing costs are 7-10 times “average” incomes. I’m in Loudoun County in Northern VA (the “DC metro area”) where “average” prices are falling like large hailstones (off over 30% from their peaks and over 20% just in the last 6 months – and still falling, and here also you hear on the news every day that we are “near the bottom.” A couple of examples; 1.) a brand new 3200 SQ FT home that sold for $602K in 2004, and appraised for $800K in early-2006, is currently on the market for $541K. 2.) another brand new 2500 SQ FT home 1 block over from the previous example sold for for $503K in 2004, appraised for $740K in early-2006, went on the market in April 2007 for $659K finally sold last week for $468K in a foreclosure sale. It’s rampant everywhere folks. My boss (who has ZERO financial or real estate background) told me recently that it’s all gonna be over in February – after the holidays (although he can’t point to any justifaction of that) and I told him he’s out of his mind!
DOCTOR, THANK YOU FOR THIS TERRIFIC “TRUTH TELLING” SITE AND FOR YOUR OUTSTANDING WRITING SKILLS AS WELL! YOUR ABILITY TO PUT THESE MATTERS INTO PERSPECTIVE WITH YOUR WONDERFUL HUMOR, EXAMPLES, ANALOGIES AND ANECDOTES ALSO MAKES FOR VERY EASY AND SATISFYING READING!!!
There’s many, many factors going around, each one bearing on the next, but there’s one in particular that never gets enough attention: the mainstream media’s coverage of real estate issues. Not surprising, of course, but I think it’s more than just another observation, it’s a very major part of the problem, and as discussed here. Newspapers in particular are in desperate need of ad income, so how much can they afford to offend the local RE industry? My local paper ran an article recently about a young couple buying a million dollar home — very positive on all fronts, how thrilled they were etc., like these were just average folks. It is this bizarre unreality that drives me nuts — as this blog mentions, there has been very little discussion of income relative to home prices, which seems like a real obvious oversight(!!) I see promises that real estate will eventually “trend upwards”. Well, how does that happen when it’s already grossly unaffordable, and liar loans are a thing of the past?
Speculation is the other major factor, and that hasn’t gotten enough attention either — I see a lot of focus on the human interest “sad-sack” stories, of those poor folks owing half a million or whatever, but not enough on the idiot amateur investor who scored a condo in Miami. And not enough either on how the tech stock mania carried over to the real estate mania — people who were addicted to getting rich quick.
I saw someone describe this whole phenomenon as “real estate evangelism” and in fact, there is a kind of “true believer” mindset to it, something that’s disturbing.
Southern Californian Housing Drown Fast!
At 10:40 11/17/07
A vital revised version of comment on A Real Case: Who cares about Average Price or Median Price! (II)
Sorry, my fellow agent. I made a big mistake. The unit #162 is a new listing with no pic shown. It is possible not the one mentioned in the article. So I don’t know they have an escrow, re-list as a new one, or …….
Here comes more competition: In the email, two new REOs come up in the complex;
20**2 EL TORO ROAD #162
LAKE FOREST, CA 92630
$237,500
20**2 EL TORO ROAD #219
LAKE FOREST, CA 92630
$247,900
How fast we have a very upset market here? At the moment, it shows 45% off its peak for a specific condo market in Orange county, CA.
It is possible to be oversimplied to make such a conclusion applied toward the regional situation since there is only very limited data. However, I am not going to spend my energy to do more complete study for I am not interested in the area.
[p.s. I confess there is a true reason. No free lunch. What’s in it for me? I am no longer an academic student or professor doing so- so useless studies in the Ivory Tower. I used to expect a pay check come in every month no matter what I did. Now, I am just a poor folk trying to “work for food” to feed my dog.]
In a normal market, 5 out 100 properties are on market for sale. Yes, 5% is a normal parameter. Just as LPR should be 5. No wonder everyone says “give me 5”!
We did create 19 times equity wealth in paper and theory than we should deserve in the past 4 years (95% divided by 5% is equal to 19). Be cautious that equity is not a cold hard cash! It is soft and flexible. Equity is NOT a realized gain. It is for us to fool a banker. How do we do it? By using accounting methods (see! there are possible scandal probes on GSI’s change of accounting methods in the press recently) or other ways to create a “good-looking” net asset worth (on paper) to confuse him/ her.
How do we value an equity? It depends. If the financial big VIP guys have missed in ACCURATELY evaluating it so many times in the past year, what can you expect it from me, a VSP ( very small patato or peanut)?
They said the loss would not be more than $10 billion 10 month ago. It was readjusted to $100 billion after credit crunch landed worldwide. And then step up and up. Now, a new number came out last week. A CNN report surprisingly said it could reach $2 trillion crunch (what it supposes to mean exactly?)Economist: $2 trillion lending crunch may be ahead. The episode made me drowsy.
What’s the big deal? $2 trillion is just 2.5% of our annual GMP, they said. To some guys, there is no big difference among million, billion, and trillion. Anyway it is easy for them just adding several “0” at the end, right?
How dummy I am! Sure it is the world “Alice in Wonderland”. It was, has been and will be. Forbe is reporting Citi’s delay of releasing its ABS huge loss in timely manner may do what Enron did. Different day, Same old sh*t? Here, we have 3 of 30 in the complex (maybe more). Gee! that’s 10%, double supply over demand. It hurts! Like double Scotch, I am going to be drown. Too much pressure for a “don’t wanter’ market. Expect the price dropping crazy and faster than you think for a rough drive!
Penny for what I thought? How low I wlll be pleased to buy? Just for your reference, it may go bellow $120K in this downhill drive very soon. What is the base for my projection?
Good question! Let me quote a Stock market jargon to give you one of my 2 answers very briefly: the past performance of housing value in the complex. Make sure you know “no quarantee for the future result”.
How about the other answer? That’s the real major market force. It is so powerful to dedicate or dictate the housing trend. It seems to me all the big ABS fat cats are ready to play the game. Because whoever runs in the front, he/ she will be the winner. The market sets the rules. I hope, they are smart to know what they talked about when they mentioned it in the news two days ago. It has been said in an unnoticeable way to the publics.
But, I don’t want to say it now (why? I am not a doom-sayer). Read news and explore the meaning of the message unveiled. Use your brain powder to interpret it as you carefully read the words in between. All you need is basic knowledge of Economics and your common sense. It won’t be so hard as to foresee the next crazy move FED’s Mr. B may take.
Be your own driver! Go learn fishing, not asking a fish.
I was raised in Los Angeles and nothing has hurt so much as this housing bubble. For the past years, I have been watching prices rise to crazy heights. I have been ridiculed by others for not taking the plunge and purchasing a home I could not afford. The truth is that I didnt want to feel panicked about money. I rent and sure our place is small but we can afford it. I could not stand being pressured by a realtor to put a bid on an over priced shack within hours of first viewing the property. I hope prices return to normal, but for all the temporary wealth that was amassed. Los Angeles still looks the same, if not worse. What happened to the money from property taxes on these inflated properties that were purchased? Where are the improvements to the Parks or at least clean up the streets!
I also read the real estate sections, and still do not see much of a price change. But I know that as Iong as I am not comfortable with the payment or the loan terms or the condition of the property, I am not going to buy it.
I don’t think we’re going to have visibility on the true extent of the impact from the peak in subprime resets until Q3 or Q4 2008 at the earliest. The reset peak occurs in Q1, but it should take probably 3-9 months for this phase of the slow-motion train wreck to play through. Defaults and foreclosures don’t happen immediately when the reset occurs…and some people will find creative new ways to limp along for a while longer before things collapse under their own weight. I’m already hearing crazy stories of people taking cash advances on credit cards to make house payments, since the minimum payments on a credit card are low enough to keep things going for some time (and in the process generating a wicked negative amortization situation pushing the debt mountain up even bugger and over into the next coming implosion in the consumer credit arena). Who knows, maybe Countrywide Medical Mortgage Corp will spring up and offer reverse mortgages on your organs when the reset occurs.
Those forecasting a bottom anytime in 2008 are quite likely deluding themselves. The only way I see that happening would require a significant economic shock to bring real fear into the market and accelerate price drops towards some equilibrium between median income and median mortgage payments using traditional or possibly even more stringent loan qualification criteria. Energy prices could be that catalyst, especially if Iran blows up (figuratively speaking) but even still, I don’t see it pushing the pace of correction up enough to see dry land any time in the coming year.
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