How Will History Judge This Man?

...Alan Greenspan is either depraved or a fool and, of the two, I am not sure which I feel worse about as describing the man who was at the helm of the monetary bobsled during the longest stretch of paper credit expansion the world has ever seen.

Let’s play ‘connect the dots’:

1. In December 2002, private bankers warned Greenspan that consumers were taking on worrisome amounts of debt and that an unsustainable, interest rate driven housing bubble was fueling this behavior (page 22 of this linked document [PDF]).

2. In July of 2003 Greenspan lowered interest rates to one-percent (as in 0%, or one-point-oh), an emergency rate, and held it there for over a year (see chart below).

3. In February of 2004 Greenspan advised Americans that they’d be better off with adjustable rate mortgages (ARMs) than they would with fixed rate mortgages.

4. In October of 2005, the new bankruptcy law, largely written by private banking lobbyists and insiders, was passed.

Here’s how those data points look when plotted out on a chart of short-term interest rates:

To summarize; (1) Mr. Greenspan was warned that he was igniting an unsustainable asset bubble, (2) he threw more gasoline on the fire, (3) he then advised consumers to switch to ARMs right before what he knew (for certain) would be a protracted period of rising interest rates, and then (4) kept mum while bankers worked feverishly to pass bankruptcy legislation that was indisputably banking-friendly but a consumer nightmare.

Now here’s the interesting part about the story. To consumers, Adjustable Rate Mortgages (ARMs) are good or bad depending on whether interest rates are rising or falling. When interest rates fall the ARM adjusts down with them. The reverse is true when rates are rising...

But when we refer to the four data points in the chart above, we observe that Mr. Greenspan advised consumers to take advantage of ARMs right before the onset of what he knew would be a multi-year rate hiking campaign. Obviously he advised people to do the exact opposite of what they should have done.

Source.

More on Habitat for Humanity Tiburon Project

There's been more written in the IJ about the Habitat for Humanity project in Tiburon that I blogged earlier. I found the following revealing quotes in the print edition of the IJ (Jan 25, 2007, pp. B1-2).

// Begin sarcasm //

The first quote that I want to pull from the article shows to the rest of the world how we wealthy, white Marinites now deal with our non-Caucasian residents here in Marin. You see, we like to keep them in specific areas where we can keep an eye on them and as far away from where we Caucasians want to live as possible (i.e., the nice areas). These areas are where we Marinites will allow property values to be weak and where it is ok to build affordable housing. And for you socio-psychologists out there, this is how we can pretend to be "doing our part" and ignore our guilt. It wasn't always so, but it is now.

But Patri [principal planner for the Marin County Community Development Agency] said it has been exceedingly difficult to find any place to squeeze in low-cost housing [in Marin] outside of the predominantly African American enclave of Marin City and the largely Latino neighborhood of San Rafael known as the Canal area.

// End sarcasm //

And then a couple of counter-points were made against some of the claims in the original argument made by the Tiburon residents fighting against the Habitat project:

"The argument that affordable housing lowers property values is a specious argument," Kilbridge [executive director of Habitat for Humanity's San Francisco chapter] said. "It doesn't hold water."

What a surprise. After all, by their own admission many of the residents who are fighting this project obtained their houses in the 50s and 60s and are making $50-60K annual income. In other words, they couldn't afford their own houses if they had to buy them today yet they have no objections being Tiburon residents themselves. If low income folks such as themselves are acceptable residents, then why do they think that other such folk would be bad for the community? Why do they think introducing new residents, who are financially like themselves, would automatically cause property values to fall, crime to increase, etc?

And then...

He [Kilbridge] said it is "a shame" that residents would raise $100,000 in an attempt to keep less fortunate families out of their neighborhood. "Do you know how many nails that could buy?" Kilbridge asked. "To us that's a lot of money that could be of such incredible use to the community."

Not to mention that $100,000 could be used to remedy the traffic and other problems in that neighborhood used by the Tiburon residents to fight against the Habitat project. Or is it that they don't really want to fix the problems; they would rather use them when needed to keep out other people? More of the "if we don't improve our infrastructure, people won't move to Marin" line of reasoning which has been thoroughly discredited by the test of time.

Finally:

"The idea that everybody is entitled to an affordable house wherever they want one is not valid," Duane [one of the Tiburon residents who is fighting against the Habitat project] said. "I would like to live in Cannes."

First off, no one has mentioned or implied a sense of entitlement. Entitlement is not the issue here but I can understand how one would want to make the issue about entitlement as that is an issue that is easier to fight. And secondly, yes, without doubt Duane could not afford a house in Cannes today. Yet nor could he afford his own Tiburon house if he had to buy it today. Another specious argument.

It seems to me that the arguments against this project are more about property values and Marin's systemic white-flight fear than anything else.

Well, don't despair. The following letter-to-the-editor in the IJ gives hope; as long as there are still people like this in Marin, all is not lost:

Neighbors cheer Habitat plans

This letter is in regard to Habitat for Humanity's proposed four small family homes in the Eagle Rock area near where we live. These homes might house people who educate our children, protect our neighborhoods and keep our local economy going.

Residents have voiced their opinion that four small homes are going to cause more traffic and safety issues than 6,000- to 7,000-square-foot houses would.

This NIMBY (not in my back yard) opinion is mistaken.

The probability of lower-income families having more than two cars each is unlikely, based upon Mill Valley demographics in the 2000 census. Building larger homes for higher-income families will likely bring in more than the average two cars, plus those of their landscapers, house cleaners, nannies, etc. This is what will generate more traffic. The $100,000 that neighbors hope to raise to fight Habitat for Humanity would be better utilized in improving the neighborhood by putting in sidewalks and stop signs.

Our family has lived here in the same [Mill Valley] house since it was completed in 1950. Our grown children are all productive members of their communities. Our income is about half of the $56,000 maximum required by Habitat for potential buyers. Does this mean we have to move out because we might lower the home values of the neighborhood?

Let's give three cheers for Habitat for Humanity and bring this area back to the family oriented area it once was.

Notices of Default Up in Marin

The Mess That Greenspan Made blog has the scoop on the disturbing rise in foreclosure activity in California. Marin's notices of default have basically doubled. (I thought that couldn't happen in Marin. Weren't we supposed to be immune or some such? Something about wealthy folks and how financially savvy we are all supposed to be.)

The Marin IJ had this to say:

The number of mortgage default notices nearly doubled in Marin County in the fourth quarter of last year, mirroring an escalation in foreclosure activity throughout California, according to data released Wednesday.

Marin had 101 default notices during the quarter, up from 51 in the last quarter of 2005, according to DataQuick Information Systems, a La Jolla-based research firm.

The numbers continue an upward trend in the county, which had 89 default notices in the third quarter of last year, up from 56 in the previous third quarter of 2005...

Across the nine-county Bay Area, fourth-quarter default notices rose 134 percent between 2005 and 2006, from 2,292 to 5,362. Contra Costa County led the pack at 179 percent, followed by Napa County at 164 percent and Solano County at 163 percent.

"Several factors are at play here," said Marshall Prentice, president of DataQuick. "The numbers last year and the year before were very low because of strong sales and appreciation. Also, most defaults occur a year or two after the loan was made, so we're in a period where the loan pool is at risk."

Keep in mind that around 70-80% of all loans made in Marin and the Bay Area at large in 2006 were likely of the "exotic" type (and don't forget about the "85% are liars loans" post).

Ok, so notices of default have doubled in Marin and yet the massive number of crazy loans from 2006 haven't even begun to reset yet. How much worse is it going to get?

But no worries, right? I mean DataQuick is fond of saying:

"Indicators of market distress are still at a moderate level. Financing with adjustable-rate mortgages is flat. Foreclosure activity is rising but is still in the normal range."

Do you believe them?

Here's one reason why not to be so quick to believe DataQuick -- apparently, DataQuick includes foreclosures as sales when they calculate their stats for public consumption and they say they are not going to change what they admit is an error. Athena, over at the excellent Sonoma Housing Bubble blog, has the scoop.

And if that wasn't bad enough, nationally (so including markets that have not participated in the specu-frenzy), existing house sales this past year were the lowest that they have been in the last 24 years! And yet David Lereah says we’ve hit the bottom. I wonder if future historians will mark this point in time as the pinnacle of maximum denial.

Anyway, I guess it is high-time to resurrect this appropriately updated picture, first published on this blog:

SF Chronicle Chart of Marin Price Per Square Foot

Here's a chart of Marin's December, 2006 results from the SF Chronicle care of DataQuick:

What I find interesting about the above chart is that they are showing the percent change in the price per square foot. Many rows where there is a positive percent change in the median sale price has a corresponding negative percent change in the price per square foot slot.

Is this indicative of how prices can drop while at the same time the median price in the county goes up a little or stays basically flat -- people are buying more house or a better house for the same amount of money?

Of Bubbles Past

It looks like that post I made back in September of 2005 has been making the rounds... the one chronicling news headlines from the last real estate bubble for comparison to the current one. Cool. Anyway, I thought I'd post it again since there may be new readers who would appreciate it.

Marin SFR Prices Drop -5% YOY in December, 2006

UPDATE: Vision RE's results are now in. They are worth checking out. I inserted them into the original post.

* * *

I've been waiting for Vision RE to post their results for December and so that's why I've been holding off on this post. Well, still nothing. I'll update this post as soon as their data comes in.

* * *

Here is my summary of the results for December, 2006 for Marin:

DataQuick's compilation of everything that sold in December shows that Marin prices were up a whole 3.1% whereas sales dropped -13.4% compared to December, 2005:

Here is the same data as above except plotted and compared to past months' data:

The Marin IJ pays for DataQuick's data and so they get to see how specific categories of properties are performing. According to the ever-bullish IJ, Marin's SFRs lost 5% of their value compared to what they were worth a year ago even though the actual number of sales in December, 2006 was essentially unchanged from December, 2005:

From the IJ article (emphasis mine):

The median price of a single-family home in Marin slipped to $855,000 in December, down 5 percent from the previous year and about 8 percent from November...

The December decline was the steepest in the nine-county Bay Area, where prices remained lodged in a generally flat pattern...

I thought that couldn't happen in Marin. Anyway...

Here are Vision RE's results for December, 2006 -- median price for Marin down -6.9% and the average price down -17.7% (both year-over-year) yet sales activity was barely different from December, 2005. But before you wet your pants, keep in mind that theirs is a sampling of Marin:

Home sales in Marin County last year declined for the second year in a row: dropping 16.6% from 2005. Home sales were at their lowest level since 2001. Condo sales also fell for the second year in a row: down 23.6%.

The median price for single-family homes declined for the first time since before we've been keeping track: 1995...

...Marin County home sales were down, year-over-year, every month in 2006: usually by double-digits. The good news is the year-over-year losses turned into single-digits for the last two months of the year.

The median price for condos ended the year at $500,000, the low for the year. Condo sales were up 4.4% in December from November, down 13% year-over-year.

Below is a chart showing the percentage of SFRs currently on the market that are advertising "price reduced". (To those of you who are new to this and similar charts: the way I have been collecting this data is to do a search over all of Marin for any type of detached SFR whose asking price falls within the range of $100K and $10 mill.)

As the following graph shows, the percentage of houses advertising "price reduced" has dropped in line with the steep decline in the number of houses listed during this slow time of the year. Interestingly, the percentage showing "price reduced" appears likely to be significantly higher than it was in December, 2005.

Below is a chart showing Marin foreclosure activity according to RealtyTrac. I don't have much to say about this data yet as I still do not have much of a feel for how this sort of data changes with time. However, I think the increase in the number of properties in auction and the number reverting to bank ownership is disturbing.

Liz McCarthy (a Marin real estate agent) had this to say about December's results:

Although there are considerably less homes [sic] on the market this month as compared to last month, there are still more than the previous December (898 compared to 622 in December 2005), the percentage of homes in contract went up slightly (very slightly). My feeling is that many of the homes that did not sell have been pulled from the market, anticipating the slower months during the holiday season, or to possibly restart the Days on Market [DOM] clock for that house trying to regenerate interest.

So according to Ms. McCarthy the inventory of houses on the market in December, 2006 was 44% higher than it was in December, 2005 while at the same time the percentage of houses that actually went in contract was essentially unchanged.

Finally, I'll close with a recent quote from economist Christopher Thornberg in the SF Chronicle about December, 2006's Bay Area real estate results:

While many in the real estate industry say that the downturn in the housing market is over, economist Christopher Thornberg disagrees. ‘I’m hearing all this nonsense about a soft landing and rebounding in 2007, and that’s just incorrect,’ he said. ‘It just doesn’t work that way — housing cycles when they pop take years to clear out of the system, not months.’

Oh, the Humanity!

I found this article in the Marin IJ. Apparently, some Tiburon residents are so concerned with their property values and their entrenched NIMBYist ways that they do not want to allow Habitat for Humanity to build a meager four "affordable" houses for lower income folks. Well, what can we expect? After all, "affordable housing" and "Tiburon" are mutually exclusive concepts and to try to simultaneously hold them in mind is sure to cause a brain infarction.

What follows is my blow-by-blow of the article. For a good laugh, read the entire article yourself.



We're too good for you; we're snobs. You should go build these houses in some "armpit" area of the state:

"This is not a Habitat for Humanity area," said Bill Roberts, who has lived in his Eagle Rock Road home for more than 40 years. "Habitat for Humanity is to bring the neighborhood up, not to bring the neighborhood down."

In fact, all of us in Marin are NIMBYist snobs:

They would be the first Habitat homes in the county. The organization closed its Marin affiliate in the 1990s because it couldn't get community support to build affordable houses in Marin.

It's all about our precious property values:

Roberts, a 53-year-old writer [and who has over 40 years of equity built up in his house; so what small percentage of house value does he stand to lose and why is that so precious?], said he and some 70 other neighbors in the area are working to raise about $100,000 for attorneys' fees to fight the project. They fear reduced property values and parking and increased traffic.

We're hypocrites; this is what we were planning to do after all -- why else would we care about our property values:

"They'll get into it for about $250,000 and then, in 15 years, they will sell it on the open market," he said. "Sounds like a great retirement plan. I would like one. I would like to buy a house, keep it for 15 years, pay it off and sell it."

You see, you've got us all wrong; we're humanitarians. We are only concerned about the children. It's not the money we care about. And yes, argument by slippery slope is common practice for us. Of course, we could just fix the problem, but then people would want to move here. Can't have that. I mean, just look how effective such a strategy has been for Marin as a whole:

"This is a very dangerous place, and no one will ever know it unless you live here," he said. "It's a problem now, and all this is going to do is create more traffic and more problems. Those four homes will go to families with three kids. That's 12 kids playing in the street. I don't want that to happen to anybody else, getting hit by a car."

And did I mention that it's not about the property values:

Other neighbors expressed concern over property values.

It's a New Listing...Not!

BusinessWeek is putting the spotlight on one of the more common and blatant real estate agent deceptions -- manipulations of the Days on Market (DOM) statistic. I've often wondered how it can be here in Marin that agents can claim DOM statistics between 50 and 80 (recently) when there are so many examples of Marin houses languishing on the market for much longer than that. From recent memory, there's this one of course (my favorite). And this one. And there was Agassi's house, but that was probably exceptional because of the price tag. Oh, and this one. And others. In fact, many of the houses on the Marin POS blog still have not sold so there are a bunch of examples.

In fairness, it seems to me to be rather hard to know for sure when one can say with certainty when a house should be considered first put on the market. For example, a seller might put the house on the market in January with no real intention to sell; just "testing the waters". It "languishes" for six months. Then, oops, a job transfer and it's put on the market for real in August. If it's now September, has the house been on the market for nine months or just one? I'd say just one. But what about houses like this one which have clearly been on the market, off and on, for over a year but with its DOM statistic resetting to make it look fresh?

That's why buyers desperately need something akin to the MLS-2, or what Patrick.net is doing.

Anyway, here are some excerpts from the article. If buyers know what tricks to look for, then they will be better prepared at the bargaining table:

Real estate agent Ross Simone wasn't attracting any potential buyers for a house in Mechanicsville, Md., that had sat on the market for months, so last November he took action. He pulled the house out of the regional database of active listings and then immediately reinserted it, changing the property ID number used to track properties over time. The result: The house appeared to be hitting the market for the first time.

Fresh listings attract attention and can fetch higher prices because buyers are less likely to make lowball offers.

Real estate is largely self-regulated.

What's perhaps more surprising is that in some regions, the local MLS does nothing to prohibit relisting a house in a way that makes it appear new on the market.

When many homes in an area are re-listed as new, it skews the "average days on market" statistic, making the market look healthier than it really is. For sellers, refreshing a listing can also disguise the fact that the previous listing was at a higher price. Buyers often regard a price cut as a sign of weakness.

...the practice of relisting houses to give them a new debut is a symptom of an imbalance in market knowledge.

Is this wrong? Many MLS organizations think so.

I say we need to even the playing field. The balance of power needs to be just that...balanced...balanced between buyer and seller. As it is now, the system is rigged in favor of the seller. We can demand honest DOM statistics. We can demand the removal of the real estate agent commission (which biases the buyer's agent to seek the higher sale price which is the exact opposite of what a buyer's agent should be striving for). We can remove all of the officially sanctioned interference (scroll down to the section entitled "The Role of Government") in what should be a free market.

It could happen. But people have to stand up and make it happen.

What I've Been Up To

So, as you are probably aware, I have not posted for over a month. Some people have even sent concerned email. Well, I've just been really busy at my new job (which has been a lot of fun for me). And I was in jury duty for a month which didn't help. I was at risk of spending too much time on this blog and not enough time with my family. I made my choice. I'll still be posting, but as this is the slow season I decided to slow down too.

And I haven't really been keeping up all that well with the bubble news. There is still a bubble, right? Anyway, below (previous to this post) are some posts that I started and never finished...first drafts if you will.

* * *

But in general, this is how things look to me:

If you go to the Sacramento Land(ing) blog, it is clear that central and lake county markets are getting hammered. If you go to Athena's Sonoma blog, Sonoma is starting to get creamed. Marin has been weakening significantly and there is a lot of market stress here. This is in line with expectations: areas further away from employment centers fail first, the bubble collapses inward. Give it time and it will all play out.

One of my co-worker friends is trying to sell his father's house in Bel Marin Keys. He has been having a terrible time selling it. One buyer has made an offer about 15% below their already reduced asking price. It's their only offer. The house was originally listed "in the high $800Ks" and is now listed in the low $600s. My co-worker seller friend is doing the dishonest thing and trying to get that buyer to up his offer by inventing non-existent buyers saying these other buyers are "offering more than you, are you sure you don't want to increase your offer." IOW, trying to create a phantom bidding war. Apparently, the Marin real estate agent on the seller's side is cool with this sort of dishonest practice. Well, what do you expect from real estate middle men, salesmen?

Get rid of real estate agents I say. They are no longer needed. An internet connection and a car is all you need. Then, when it comes time to make an offer and do the paper work, then pay some money... to a lawyer familiar with contract law. Why pay bookoo dollars to a real estate agent who received almost no training, whose educational requirements are minimal, where dishonesty is structurally encouraged? For example.

Oh, and my co-worker friend mentioned that his real estate agent has been urging him to sell that Bel Marin Keys house ASAP because 'Marin is expected to be hit by a wave of foreclosoures'. Not sure if I believe that yet. We'll see.

* * *

To that end, check out the latest attempts to disintermediate real estate agents:

1. Partick.Net has created a site where people can leave uncensored comments about specific addresses they have visited.
2. MLS-2 -- a free alternative to the Bay Area MLS. Unfortunately Marin is not covered (yet). Give it time.

Power to the People!

Some Preliminary December, 2006 Data

Kelley Eling, a Marin real estate agent, sent me the following data which applies to December, 2006. All I did was add the row entitled "Marin Average" and the columns entitled "Percent Change Between Original and Final Price" and "% Sold Below Original Asking Price". Other than those, this is Ms. Eling's original data. Sorry about her using averages; I've tried to explain to her several times why averages are so misleading especially here in Marin where we have a small number of houses on the market and a wide disparity in sale prices.

(Click on the image for a larger view)

Cliché Housing Luxe is Losing its Luster

Finally. All this trendy crap that has been invading houses to pump up prices is being seen for what it is. Mariners could learn a lot from this. I know people who have torn out some of this crap because of the hastle. And the fading bamboo floors thing is for real; I've seen that too.

Knowing what is really hot, vs. what used to be hot but has gone cold, is key to understanding the real estate market today, real estate agents say. "When people have more choices, they become pickier," said Melinda Estridge, a real estate agent (in) Bethesda.

Will those gleaming stainless appliances help sell your home? How about that spiral staircase? Spiral staircases, are definitely out, the agents said. Some relatively new features, things that were hot just a few years ago, are starting to feel dated, or are actually inciting a negative backlash at least among some buyers.

Stainless steel kitchen appliances, not too long ago a must for any kitchen that wanted to be considered luxe, are beginning to get mixed reviews. The real estate agents gave them a thumbs-down, saying that many buyers were irritated by the need to wipe down the steel all the time to conceal fingerprints. Real estate broker Mark Nash acknowledges that builders say they help sell houses, but said some buyers who own them have gotten irritated by the upkeep.

Glass-front cabinets lose their appeal to some neatness-challenged homeowners who have trouble keeping their dishes arrayed in tidy rows.

Some real estate agents say vessel-style sinks, the sleek bowl-shaped, above-counter bathroom sinks, are falling from fashion because they, too, are hard to keep clean. Jane Fairweather, an agent in Bethesda, and many of the real estate agents surveyed, aren’t too keen these days on those cool-looking bowl-style sinks. Water can splash out on the floor, leaving the owner mopping up over and over, particularly during parties when they are getting a lot of use. Several of Fairweather’s clients have ripped out their vessel sinks and replaced them with standard cabinets. “These fancy sinks are great, wonderful, but when it comes to utility, where do you put the toilet paper and the things you don’t want people to see?," said Mark Gude, an agent in Northwest Washington, who specializes in the D.C. market. "Bowl sinks are on the way out. Shaving in them is not fun — the gunk, the soap scum, gets everywhere.”

Fairweather (said) bamboo, with its variegated honey tones and unique grain patterns — is losing popularity in single-family houses. The problem? They just aren’t as durable as some other kinds of floors.” “People see them as a wonderful new thing, but their day-to-day utility is less than hardwood," Fairweather said. "They’re not as sturdy, they’re much softer than hardwoods, and if you’re raising children, they’re not so good.” Ginger Harden, a real estate agent in Vienna, said a buyer who was purchasing an almost-new condo in Reston loved the beautiful bamboo floors. When the transaction closed and the seller’s furniture was removed, though, it became apparent that the flooring had faded with exposure to the sun. “You could see where every piece of furniture had been,’ Harden said. “It was a negative to my buyer.”

“I’m hearing people say, ‘I’m tired of it," Nash said." They say: ‘I don’t have time to polish it. I have kids. I have dogs. It’s too high maintenance.’” "You want something that in 10 years will still be desirable," Thompson said. "There are some trendy things that are kind of cool, but look at the houses that were built in the 1980s and 1990s — people think they need to redo the whole thing now."

Speculative Manias and Bubbles and What's to Come

A market bubble is a uniquely man-made fiasco driven by two of humanity's constant attendants to catastrophe throughout the ages: stupidity and greed.

Speculative markets are belief systems of convenience with six main ingredients:

1. Extremes of popular, positive investor sentiment–the general belief that the price of a stock, house, or commodity can only go up, such as gold in 1980, tech stocks in 1999, and housing in 2005.
2. Valid Core Beliefs that are based on fact, such as the value of the Internet during the Internet bubble or of a home to a middle class household, that drive early adopters into the market.
3. Invalid Apocryphal Beliefs that are later invented by those who are benefiting the most from the bubble, such as investment banks and venture capital firms during the Internet bubble, but readily accepted by everyone else who is also benefiting–notably owners of capital and politicians including government regulators–to explain extreme price increases that go far beyond the level justified by the Core Beliefs.
4. A well developed system of sales, marketing and distribution, that includes the mainstream press, and employs an army of analysts, consultants, lawyers, accountants, and so on, all of whom adopt first the Core Beliefs and later buy into the Apocryphal Beliefs.
5. A duration that exceeds the warnings of early bubble spotters by months or years.
6. A re-distribution of wealth in the usual direction, from suckers to exploiters of the human desire to get rich quick.

Financial manias are millions of people working together to clear-cut a market for short term gain. In spite of warnings, participants persist in a process guaranteed to cause harm to themselves long term because they are making so much damn money right now. But make no mistake, speculative manias are not a zero sum game.

After they inevitably end these manias leave two flavors of damage in their wake, one psychological but very real and the other operational, the result of a political reflex that re-enforces and gives life to negative market psychology. Losses create an indelible connection in the minds of participants and witnesses alike between the present and the future of the market in question. They associate the market where the speculation fun and agony occurred in the past with a certaintly of losing money in the future. The market falls ill from fear, anger, and shame. Politicians, always eager to boost their careers as can-do guys, satisfy the urge of market participants to see that someone is punished for not only the frauds and abuses that attend every mania, but even their own foolishness and greed. This takes the form of regulation that is intended to prevent a repeat sheering of the same sheep by the same sheep husbands. Heavy handed regulation, such as Sarbanes-Oxley, results. Fear of losing money in the market becomes a hard reality.

Think of the market for IPOs of technology companies on the NASDAQ, for example, where requirement for lock-up–the time that must go by between the time a company goes public and the investors get to take off with the moolah–was extended to a full year, well beyond the time when even the most fleeceable believer might overlook all the possible futures for a newly public company with no future. Bye-bye tech IPO market. In the future, expect stringent new rules on dealers in sub-prime loans, and–finally–some enforcement of existing ones. In the collective punishment phase of a post bubble period, regulators tend to go overboard, executing their duties with flourish and drama. The most extreme example followed the collapse of the South Sea bubble in the early 1700's. Subsequently, the issuance of private securities was made illegal for 100 years. After the regulators get hold of it, the market hibernates until the next generation of politicians shows up to "discover" it and its potential anew.

August 2002: Warns of Housing Bubble
Signs of a housing bubble were obvious by August 2002, chief among them prices rising faster than incomes and the insistence of participants that prices only go up. The shocker was the Fed and banking regulators allowing it to go on and on. What could they have done? Enforce the law, for starters. In the past the Fed has been activist in squashing speculation in real estate, and with good reason. In regions of the US where housing speculation boomed in the past, such as Houston in the 1980s, the bust left lasting damage; the housing market, economy, and banking system got hammered. The Fed believes that insurance in the form of credit default derivatives will save the lenders. It's possible, but unlikely. By allowing the housing bubble to grow to absurd proportions, the Fed abdicated its banking system oversight responsibility in favor of its role as steward of the economy. Over the next couple of years they will lose on both counts, as I will explain later.

January 2004: How Housing Bubble will End
Housing bubbles end in a predictable way. The most common criticism I've received recently over this housing bubble end forecast and the two below are that they are "old," by which I assume a fair number of readers like their forecasts delivered after the event versus beforehand.

January 2005: Housing Bubble Correction
Housing bubbles collapse predictably. The timing is hard to get right. Five to seven years corrections are typical for a normal real estate boom-bust cycle. As this speculative bubble was abnormal, reverting to the mean will take longer. I estimate ten to 15 years.

June 2005: Housing Bubble Top
Nothing helps a watcher of man-made market disasters pick out a top like the expression of high spirits by market participants at the zenith of a speculative market. Today I can still see the high water mark on the walls of the main ballroom of the Ritz-Carlton on the top of Nob Hill left there by a party put on by the Red Herring in San Francisco in 1999. Booze parties commonly held at Florida condo sales events marked the top of the real estate bubble.

2007 Forecast.......A housing bubble bust is death by a thousand cuts. Home owners only realize how much poorer they are than they thought they were when they either try to sell or extract equity. They bum out one by one, and the aggregate negative wealth effect therefor tends to lag a whole year behind actual median home price declines.....

"A housing bubble bust is death by a thousand cuts"...excellent!

You can read the rest here.

Affordable Housing is a Right, Not a Choice

MARIN'S HOUSING CRISIS

Affordable units needed

Your Dec. 19 article discussed the Association of Bay Area Governments' (ABAG) housing needs allocation process and requirements for Bay Area cities and counties. There is a bigger need in Marin County than housing, and that is affordable housing.

As one of the largest transitional housing programs in Marin, the Marin Continuum of Housing and Services struggles daily with the problem that individuals and families leave transitional housing after 24 months without being able to find housing where they have lived and worked.

Almost all of the housing stock in Marin is out of reach of the people who work here. Those who were fortunate to have bought their homes long ago would not be able to afford their own homes today. Marin is not planning for housing for those who need it, our nurses and teachers, our retail employees, our parents as they grow older, our young people, and people with special needs.

People who are low- and very low-income are forced to live outside the county, double up in small single-family housing, or remain homeless. We need better options.

Housing affordability is not a choice - it is a right. Marin County must ensure that those who work and wish to reside in this county are able to do so.

ABAG oversees regional housing and growth demands on behalf of the state. In Marin, we need a unified local governing body to coordinate these issues among the cities and county, including ensuring the production of affordable housing.

Andrea Bizzell, executive director,

Marin Continuum of Housing and Services, Novato

This letter was found in the Marin IJ of all places.

The problem with affordable housing projects as they currently stand is that no one wants to be labeled a second class citizen which is exactly what typical affordable housing units are like (second only to renting of course). And given your typical Marin resident’s obsession with status and appearance, such discrimination is pronounced.

These days I am of the mind that the best solution is for housing prices to crash, plain and simple; the faster it happens the better; we'd be better off in the end. Those who bought their house to live in shouldn’t care; those who bought what they could afford shouldn’t care; the only ones who should care are the people (the majority?) who are speculating in one form or another. Get the pain out of the way early, then start afresh. Then, no more regarding houses as investments, as ATMs, as retirement funds. And wouldn’t it be great if it was mandatory for people to pay 20% of the sale price as a down payment? And wouldn’t it be great if we made paying off a mortgage a desired outcome? Like maybe if you pay off the loan then no more property tax. (And why do we even pay a tax on our houses year after year? We don't for anything else. Why not just have a one-time sales tax (like everything else), and assess a broad-based tax on all residents (owners and "squatters" alike) to pay for all the things that property tax currently pays for?) In fact, wouldn’t it be great if there were no home loans at all? Then houses would be priced based on what people can really afford? I guess what I am saying is to return to the good old American style of capitalism -- a free market model for housing without all the mucking around by local, state, and federal governments.

Radical and not going to happen, I know. Just dreaming. It is the new year and time for making wishes.