Wednesday, July 05, 2006

She's Gonna Pop

The Northern New Jersey Real Estate Bubble blog has the goods on this Wall Street Journal article:
WSJ: How is the housing market?

Mr. Heebner [a manager of the CGM Realty Fund]: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.

WSJ: What has you so concerned?

Mr. Heebner: I'm worried that more people will default on their mortgages. Risky mortgages such as interest-only and pay-option adjustable-rate mortgages require no principal amortization and in some cases payment of only a fraction of the interest due, have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic. When housing is going up rapidly and you can buy far more than your income can support, some people are eager to make big profits by extending themselves financially.

As housing prices fall more people will be under water, and these people are just going to walk away from their homes. They are going to say, 'I'm outta here.' You're going to see increasing foreclosures over the next several years. As [home] prices come down, it will create a difficult environment for home builders.
Remember, approximately 70-80% of all recent home loans in the Bay Area were some form of ARM.

And if you "owners" out there are having trouble keeping up with your payments, and since many of you can no longer afford to have children anyway, you can always take this route:
Cortney Henderson is one of the faces of America's housing affordability crisis. She never could have qualified for a mortgage here — where the median home price is $607,000 — had she not had the $27,000 she made as an egg donor...

Henderson's story points up the extremes to which some Americans are now willing to go to buy a home in some of the most overheated markets.

9 Comments:

Blogger Lisa said...

Did anyone read the fluff piece in the SF Chronicle this morning, the one about interest rates starting to pinch but nothing serious - not like anyone is going to go bankrupt. Considering we all had front row seats for the tech bubble bursting, I cannot believe the level of denial about housing just a few years later.

Jul 5, 2006, 2:34:00 PM  
Blogger marin_explorer said...

"we all had front row seats for the tech bubble bursting"

--and I bet a few were of us were on the stage, so I'm also surprised by the disconnect with the dot-com bust. Yet, the Bay Area has been fueled by its own gold-rush boosterism over the years--overestimating its successes, while downplaying the risks. Once again, people got very self-referential and rushed into real estate, assuming the local economy can support any price whatsoever. I think they'll be proved wrong, and this round of foolishness may actually hurt the BA economy long-term.

Yes, I've read the "fluff" by Kelly Zito and others at the Chron, and can only conclude the paper has a hand in RE money (or advertising). Admittedly, I'm a little cynical about "journalistic standards".

Jul 5, 2006, 3:13:00 PM  
Blogger hemorrhoidforhousing said...

I always thought the role of the press was to distribute the news not spread manure. But I was wrong when I gave George Bush the benefit of the doubt in 2002, I guess I need to revisit my view of the press.....

Jul 5, 2006, 3:21:00 PM  
Blogger moonvalley said...

We went to a barbeque over this past weekend, one that was attended by a few of those well known RE Flippers up our way. One pair we met was telling us about his great house they bought down Mexico way. Right on the beach, vistas, waves, totally charming. He mumbled to himself that he wanted to sell, "just a matter of time he said, just a matter of time".
She chirped about how great it was and insisted we come and visit. She described all the cute eccentrics that lived in their little beach community, how we were gonna love this one and that one. I thought, cynic that I am that it was mighty weird, we hardly know these people and here they are inviting us down to their beach house. Well, she e-mailed me the addy...turns out it's a rental!
300 bucks a night. Trying to hustle customers at a casual barbeque. Yep, "it's just a matter of time"

Jul 5, 2006, 5:13:00 PM  
Blogger Marinite said...

MV -

Despicable.

I read somewhere that some huge percentage (80%?) of folks who buy houses to live in in some other country find that they tire of it after a year or so. What I read was with regards to Costa Rica and Mexico if I remember correctly. I've always wondered if that statistic is at all accurate.

Jul 5, 2006, 8:57:00 PM  
Blogger fredtobik said...

MV:

The real hint that they were full of it, would have been "own" a house in Mexico, which "foreigners" cannot do. They can rent the land that is it.

Unless you are a real native Californian, your ancestors came here to speculate, gold, tech, housing, entertainment etc...

Jul 5, 2006, 10:32:00 PM  
Blogger moonvalley said...

fredtobik :Absolutely, in fact I asked them how can you own land in mexico, you're not citizens there. They just avoided that one and told me about all the peole who are buying land there for "vineyards" which constitues farming supposedly , and said vineyards are actually being turned into spa, hotels, etc for the gringo contingent.
about the true "native californian" absolutely. My family came here in 1849, hoping to find gold and wound up selling meat.

Jul 6, 2006, 1:29:00 AM  
Blogger mountainwatcher said...

I'm still trying to figure out why the media sources aren't reporting this stuff.

It is every bit as exciting as the price escalation.

I hear very tempered reports, but with none of the "you are screwed, it's too late to buy" vigor.

Is it true that they emphasize bad news?

I hope they are not simply the lapdogs of the RE machine.

Jul 7, 2006, 1:48:00 AM  
Blogger Marinite said...

mountainwatcher -

Interesting question. I think there are two reasons: 1) Too many vested interests; 2)It is still too early to definitively say the RE is going down in a major or way or not.

Maybe 3) Not enough pain has been felt yet by "owners".

Jul 7, 2006, 9:39:00 AM  

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