Comments on : Getcher Predictions Here

Just curious, but who would put 20% down on a 2 mi...

2007-09-07T10:03:00.000-07:00

Just curious, but who would put 20% down on a 2 million dollar home anyway? You'd be way over the 1.1 million interest deduction cap. Unless you've got a high end tax plan (in which case you probably don't have anything to worry about) it doesn't make alot of sense. THat house is above your means and you should A) find another house or B) post reasons on a blog explaining that house is only worth 1.5 million.

I'm the same Anon 5:34. Wanted to say something ab...

2007-09-07T08:08:00.000-07:00

I'm the same Anon 5:34. Wanted to say something about the Fed cutting the discount rate. That's a joke.

Most people don't have a clue in a carload when it comes to what the Federal Reserve really does. They don't set interest rates, other than for federal funds and direct lending to banks, both of which are the shortest of short-term rates.

Long-term rates are set in the market, and in the case of mortgages they exist in relation to the 10-year Treasury. This is because the average house turns over in 7 years, which just happens to be the duration (average maturity of coupons + principal) of a 10-year bond.

Treasurys are the default-free rate, and mortgages take a spread over that. I think the big news one of these days is going to be widening spreads between Treasurys are mortgages. Not just jumbos but agencys (i.e., Fannie Mae and Freddie Mac paper). This will happen as two things sink in: First, that agencys are not federallly guaranteed, and second, that there was rampant fraudulent underwriting in conforming loans.

Think it's tough now with a 6.5% fixed 30-year conforming loan? Wait until it's 9% (including a 250 b.p. spread over Treasurys). Ka-blooey!

And guess what? There won't be one single thing the Federal Reserve will be able to do about it. Nothing, zilch, nada!

The downturn in the housing market and the mortgag...

2007-09-06T21:45:00.000-07:00

The downturn in the housing market and the mortgage crisis which exacerbates this trend has already left the station -- the only reasonable question to ask is how far it will descend.

"Numbers" are great -- in analyzing that which has already occurred! Before these quantitative changes occur, there are often large-scale qualitative shifts in both the economic reality and its perception, until it gets to a critical mass, or to use Malcolm Gladwell's coinage, a "Tipping Point".

And there are indeed large-scale shifts in the economic reality underway, which add a huge undertow to any conjectures when juxtaposing current data to 2006, 2005, 2004...

All of these qualitative changes are robust, even unprecedented... the essential wiping out of a sector of the mortgage industry -- with profound repercussions; drops in the overall median prices of US homes, scheduled terminations of hundreds of billions of ARMs in the presence of falling prices creating great difficulty in getting lenders to accept less than pristine borrowers for a reset... which will have widespread influence, including in MB.

Will the now anticipated (or perhaps not as of today) Fed discount rate cut make a substantial difference? Perhaps, but we know that the entire lending paradigm has shifted to a far more conservative stance than even six months ago. Will a 25 or even an optimistic 50 basis point cut really make multimillion dollar homes all of a sudden more affordable? Not likely! The bottleneck is with conservative underwriting -- now asking for around 30% down on non-conforming loans driven by the inability of institutions to find money to lend -- without imposing these far stricter standards. (I just heard through a friend at CW that Countrywide is going to be cutting 15,000 jobs in the next few weeks.)

The days of using HELOCs... to pull cheap money out of houses are over -- the moneylenders are coming to collect a pound of flesh in return! A couple thousand years ago, a very fine Gentleman turned the tables of moneylenders over to make a point. His lesson it seems to me, still escapes many of us.

As Anon 5:34 ("Yoda") stated with prescience: "There is nothing like a popping bubble to deflate pretenses, not just of individuals but of neighborhoods."

Anon 5:48, I wasn't talking about investment banke...

2007-09-06T18:11:00.000-07:00

Anon 5:48, I wasn't talking about investment bankers and lawyers when I wrote about formerly middle class people living in their cars. That said, I think we're going to be finding out just how overextended a lot of those successful professionals really are. I used to be one of them, and I can tell you that hubris runs very, very deep in that crowd.

I'm an old fart. Old enough to remember when California real estate was merely ridiculous, not in another galaxy. I doubt Manhattan Beach will ever come fully back to earth, but it's going to get closer to earth. Quite a bit closer, I think.

Oh, right, Anon 5:34, I can just see all those inv...

2007-09-06T17:48:00.000-07:00

Oh, right, Anon 5:34, I can just see all those investment bankers and lawyers who live here in Manhattan Beach (not to mention people like Lamar Odom and Luke Walton and virtually all of the LA Kings) sleeping in their cars.

We need to take up a collection to help you buy a clue. This blog site is called Manhattan Beach Confidential, just in case you're unable to comprehend the title at the top.

The biggest thing to understand about the real est...

2007-09-06T17:34:00.000-07:00

The biggest thing to understand about the real estate market is that there is no real estate market. There are thousands of real estate markets. While it's true that certain macroeconomic forces bear on all of those markets, they so so in a highly uneven fashion, which makes precise predictions foolish.

I think it's better to look at generalities. Which have the added advantage of being a lot more fun. My list:

1. The higher they go, the farther they fall.

2. Marginal neighborhoods drop off the tree first. Of course the Inland Empire and Stockton were going to lead it off. They always have, and always will.

3. There is nothing like a popping bubble to deflate pretenses, not just of individuals but of neighborhoods.

4. The tsunami will be ARM resets, and that one is baked in the cake.

5. Millions of Americans literally have no memory of what it was like in the 1970s, especially, say, in the Rust Belt. Yes, kids, things can get really bad. Formerly middle class people were living in their cars. It's going to happen again.

CONSENSUS, CONSENSUS, CONSENSUS!!!!

Boy, it...

2007-09-05T11:38:00.000-07:00

CONSENSUS, CONSENSUS, CONSENSUS!!!!

Boy, it's great to hear that word. Since the masses are you usually wrong, that makes me feel better about the market. hehehehe. Rather than aiming for a consensus, aim for your butthole.

So contrarian, what is this "conventional knowledg...

2007-09-05T11:03:00.000-07:00

So contrarian, what is this "conventional knowledge" of what you speak? Half the people here are calling for a drop, have the people are suggesting "things are different" in Manhattan Beach....does not seem to be a consensus.

Perhaps all the realtors express different opinions when no a public blog...don't want to scare the masses? So is there consensus "behind closed doors"?

Maybe you are referring to buying Az and Fl real estate? I know someone with 6 houses in Az who says he is never selling, and that things are fine (he may be right about the first part). So no consensus there either. I do hear builders there have cut prices 30-50%.....is it a good time for you to buy???

I think there is no clear consensus about anything.

Anon 7:38: Rarely is conventional wisdom embraced ...

2007-09-05T07:58:00.000-07:00

Anon 7:38: Rarely is conventional wisdom embraced with your degree of certaintly.

To Anon 7:38, what are you referring to when you q...

2007-09-04T21:39:00.000-07:00

To Anon 7:38, what are you referring to when you quote a 10-15% drop in same home sales in the South Bay? Please refer to the statistics in my post under MB Market Update for 8/31/07. Your figures are not even close, probably imagined. Take a Prozac and calm down, will you?

http://www.latimes.com/news/opinion/la-oe-ferguson...

2007-09-04T21:27:00.000-07:00

http://www.latimes.com/news/opinion/la-oe-ferguson3sep03,0,6122609.column?coll=la-opinion-columnists

From the Los Angeles Times

Real crises aren't fixed overnight
The fallout from the mortgage meltdown and Iraq war will play out over years, not days.

Niall Ferguson

September 3, 2007

It is extremely hard to know how big a crisis is while it is actually unfolding. Retrospectively, we tend to think of crises -- whether financial or geopolitical -- as one-day wonders: Think of "Black Monday," the stock market crash of Oct. 19, 1987, or 9/11, the terrorist attacks of six years ago. This notion of short, sharp shocks fits in well with our human inclination to live for the moment. Perhaps it is also a symptom of our era's chronic attention-deficit disorder.

Yet the really big crises in history unfolded over months and years, not mere days. In these protracted sequences of events, there were many gloomy nights, but also many false dawns. Because hope springs eternal, people tended to attach more importance to the latter, mistaking them for real dawns and blinding themselves to the underlying downward drift.

To illustrate the point, think of the 1997-98 Asian financial crisis, which started July 2, 1997, with the speculative assault on the Thai baht, but was not really over until after the bailout of Long Term Capital Management (Sept. 23, 1998) and the Fed's three successive interest rate cuts of Sept. 29, Oct. 15 and Nov. 17. In total, that crisis may be said to have lasted 503 days.

What, I wonder, will we see in the next 500 days? The consensus view at the moment is that aggregate losses resulting from the crisis in the U.S. sub-prime mortgage market could amount to $100 billion to $200 billion. What nobody knows yet is exactly who has been hit hardest by these losses. In the coming weeks, we are likely to see a dash for the exits as investors try to redeem money from suspect hedge funds. That in turn could add to the pressure on the banks that act as the hedge funds' prime brokers.

As the shock waves spread through the financial system, jobs are already being shed. And it's worth remembering how much more important financial services are today than they were 20 years ago. Meanwhile, American homeowners are experiencing something that has happened in only a handful of years since the 1960s: Average house prices are actually declining.

The combination of tighter borrowing conditions, job losses in finance and housing and a growing mood of pessimism among consumers could prove to be a more toxic cocktail than many investors want to believe.

As someone said before, ergo, because everyone bel...

2007-09-04T19:42:00.000-07:00

As someone said before, ergo, because everyone believes that the Sun will rise tomorrow, then as a contrarian, the proposition you hold to is that it will certainly not rise tomorrow, with a conviction directly proportion in the negative to the conventional conviction!

This is certainly high logic beyond the purview of the customary constraints of metaphysics and logic! ;-)

The error in this logic is the notion that conventional wisdom is always wrong -- which is plainly false!

In any case, more power to you!

Contrarian, I have formerly restrained from being ...

2007-09-04T19:38:00.000-07:00

Contrarian, I have formerly restrained from being rude, but you truly are an idiot.

You have absolutely no conception what contrarian means.

"contrarians" look for out of favor investments with hidden value.

With an arguable 10-15% drop (based on same home sales) in South Bay, that ain't real estate in Manhattan Beach.

Anyways, you may want to read some books, or "google" what contrarian means.

Otherwise, I could suggest some other out of favor investments (Florida or Az real estate, or any home builder).

Hell, I have some ISO stock options that I never excersized....that would be a good "contrarian" play right now. Especially since they are bankrupt....everyone knows they are worthless....except perhaps you?

The overwhelming consensus of opinion seems to be ...

2007-09-04T18:18:00.000-07:00

The overwhelming consensus of opinion seems to be that the downturn will take years to run its course. This leads me to believe that the downturn will be relatively brief.

I guess sarcasm doesn't come across clearly in pri...

2007-09-04T15:32:00.000-07:00

I guess sarcasm doesn't come across clearly in print. BTW, since when do the poor constitute a race?

Anon 1:55, if you were capable of reading and unde...

2007-09-04T15:15:00.000-07:00

Anon 1:55, if you were capable of reading and understanding my comment without inserting your own bias, you would see that I said no such thing as you can break even selling in two years. In fact, I said it would be a toss-up if you sold 5 years from now. For the past 10 years, the breakeven point in prime locations was 12 months or less (where have you been?) If you can't understand my position, I will try and type more slowly just for your benefit.

Anonymous 10:35: It used to be standard advice th...

2007-09-04T13:55:00.000-07:00

Anonymous 10:35: It used to be standard advice that it is hard to break even in a 5-year time frame, and to seriously consider renting if your time frame for ownership is less than 5 years.....heck, this is what my own realtor's have told me in the past.

With the current uncertainty, suggesting breaking even in two years sounds like extremely irresponsible advice.

Let's say for argument's sake, that we pick a 20% ...

2007-09-04T13:49:00.000-07:00

Let's say for argument's sake, that we pick a 20% drop in price of homes by 2009 - a median value amongst robust predictions.

Let's do the arithmetic about how this translate to buying now vs. waiting two years:

On a typical 2.5 M home, a 20% drop is an outright savings of 500K (that is 5x the median income in MB), plus the additional savings of decreased property taxes by 1/5, which is payable indefinitely; translates to a savings of approx 65K in 10 years.

Mind you, money in the bank continues to earn interest in the meantime -- which has to be at least 20% of the total cost at 400K and 4% interest -- standard for tax fee munis, that is 32K in two years!

As many have stated, it is not possible to time the peak and trough of markets with any accuracy -- but we know with about as much certainty as the Sun will rise tomorrow that we are being hurled with increasing momentum into a down market for sometime to come, measured in YEARS, not days, weeks or months.

Extend this out to four years (typical of the periodicity of a downswing) and it's conceivable to put a 2x operator to this simple calculation!

The financial imperative here is clear: If you can, WAIT, rent/lease for now and save a bundle!

I got the Shiller paper and inserted a quote in th...

2007-09-04T12:55:00.000-07:00

I got the Shiller paper and inserted a quote in the story; also provided a link for readers to download the paper.

In my mind, that's a toss-up. It's too difficult ...

2007-09-04T10:35:00.000-07:00

In my mind, that's a toss-up. It's too difficult (at least for me) to make a prediction about home prices five years from now. And, remember, there may be reasons unrelated to just the investment aspect that also come into play here. Regardless, I would think it unwise to buy now if you are planning to sell in just 2-3 years because of transaction costs (but if you can get a good deal in an A+ location, who knows?).

And those that may have a shorter time horizon.......

2007-09-04T09:46:00.000-07:00

And those that may have a shorter time horizon....say less than five years.

Anon 3:13, get some sleep (posting at 3:13 in the ...

2007-09-04T08:46:00.000-07:00

Anon 3:13, get some sleep (posting at 3:13 in the morning?). You just made the precise argument for buying instead of renting, i.e., you can't time the market but if you buy a home and live in it for an extended period of time, you will do very well when it comes time to sell. The only ones who really need to be able to read the real estate tea leaves are the speculators (short-term investors and builders) and those who are buying more house than they can truly afford.

Manhattan Beach owners may think of themselves as ...

2007-09-04T03:13:00.000-07:00

Manhattan Beach owners may think of themselves as potentially shielded from substantial declines (30%) plus, but consider this.

San Marino is one of the top communities in Southern California: great public schools, very high personal income, beautiful old housing stock, etc.

Back in the housing slump of the 1990s, I knew a family that bought a four bedroom, 3500 square foot house in one of the prime neighborhoods in town. Paid over $1 million for it in 1989.

Went to refinance in 1995 to redo the kitchen, etc. Appraised value then was $650,000.

Now eventually they sold the house at the height of the last boom for for more than $1.8 million, but for a few years there things were pretty bad...

You can hardly compare Palms to Lawndale. I love ...

2007-09-04T00:42:00.000-07:00

You can hardly compare Palms to Lawndale. I love MB, but to think that it has any relation to the situation in Malibu or Laguna is just not true. These places are secluded from the "help." Pat, your commenst strike me as slightly racist. Not comfortable with your thought process at all.

If prices keep going up, that's great for me. However, the reality is that we're in store for a significant cut. I'll still be ahead of the game. But I wonder about the folks that have bought in the last 5-6 years.

Good point. Even in just the last 10 years there h...

2007-09-03T23:01:00.000-07:00

Good point. Even in just the last 10 years there has been a fundamental value shift in MB that can't be ignored. Property values in MB have until recently lagged behind their true value. Not sure I get the proximity to Hawthorne or Lawndale argument, have you ever been to Palms or even SM by the 10?