Welcome to the USSA?

I'm glad to see that some people get it. This sounds a lot like the earliest rantings of this blog:

Comment by Vmaxer 2007-03-31 11:14:44

So many in this country preach to the rest of the world about our free market economy. If we really beleive in free market forces, then we have to allow market forces to cleanse the housing market of mispriced assets.

I would like to see talk in the MSM about debt to income being the real determinant of affordability. This point never seems to get made. If prices are allowed to correct to a point where debt to income levels are reasonable, we will see stability return to the housing market. Most discussion seems to center on how to artificially prop up already overinflated prices. Interference tends to make the problem worse and drag out the pain.

Or how about high housing prices actually being a drag on the economy. High prices mean large mortgage payments, which translates into less money available to homeowners to spend on other good and services. Lower prices for housing can actually be good long term for the economy. It frees up more of peoples earnings to be spent in the economy instead of paying interest on mortgage loans. It also make the country more competitive internationally, a lower cost of living translates into a more competive workforce. My point being, high housing prices aren’t necessarily a good thing, there are negatives also.

And then

Comment by kerk93
2007-03-31 11:56:28

Exactly. The USA would be the USSA (United Socialist States of America). The Fed and Congress, through their monetary and tax policies respectively, have determined through central planning the production of goods. In this case, it has been housing.

And I would also add, IMO, that what we need for the housing market to return to a state of being a true free-market is to also remove all those things (scroll down to the "Role of Government" section) that make it not a free-market:

• GSEs
• HUD
• Tax breaks
• Tax controls
• Mortgage assistance
• Interest rate manipulation
• "300 government programs designed to make housing affordable"
• etc

I think this housing situation and the political reaction to it is analogous to the situation of a drug addict -- the only way to avoid the pains of withdrawal is to keep taking the drug that he knows is ruining his health and quality of life; he may feel better in the short term but he would be much better off by quitting outright the drug habit. Not doing so is guaranteed to result in catastrophic failure.

Moral Hazard

While discussing the ramifications of the proposed mortgage bail-outs, SF Mechanist said:

Comment by SF Mechanist
2007-03-31 11:38:59
It’s getting about time that “Moral Hazard” becomes a commonly understood term.

According to Wikipedia:

In economic theory, the term moral hazard refers to the possibility that the redistribution of risk (such as insurance which transfers risk from the insured to the insurer) changes people's behaviour. For example, a person whose automobile is insured against theft may be less vigilant in locking the vehicle than an individual who is not insured...
In economics and ethical theory, the term moral hazard may be used for any situation where a person or organization does not bear the full adverse consequences of its actions...

Rescue operations carried out by governments, central banks, or consortiums of financial institutions can encourage risky lending, if lenders know that in case of serious problems they will not have to take losses. Similarly, if governments know that inability to pay creditors will lead to yet more loans (to prop up finances), then they are less likely to have sound financial policies...

Moral hazard can also refer to questionable lending practices by creditors. In the context of international debt, Jubilee USA argues that the IMF and other international creditors create a "moral hazard" when they "lend irresponsibly in the full knowledge that they will not be held accountable for pushing bad loans. Instead, impoverished countries bear all consequences of ill-advised loans and their repayment." The concept of moral hazard is also closely linked with the concept of odious debt...

In the financial sector, moral hazard has been cited as a potential issue in lending when those with the best knowledge of the risks pass these risks on to third parties, as in the mortgage loan market when securitizing pools of mortgage loans. In the 'traditional' mortgage market, banks and other lenders retained the risk of lending to customers, who were frequently already customers of the same institution. In mortgage securitization, banks 'sell' the loans to investors, and may lose the incentive to maintain the same risk/reward profile and quality standards. This same moral hazard can occur in any lending market where risks are transferred to third parties after origination...

See also

• Perverse incentive, unintended consequence
• Free rider problem, principal-agent problem
• Adverse selection
• Feedback
• Odious debt
• Information asymmetry

Tell your elected officials and local news papers what you think about this. Here's a letter you can use as a draft as well as Congressional contact info; here's another one.

Rubber-Stamping in Merry 'Ol Marin

"Internet-based mortgage companies call all the time," says Curt Thor, a Marin appraiser for more than 20 years. "They're fishing for appraisers. They tell me what the number is and ask me if I can match it." [Thanks Athena]

This cannot be right. Nope. No way. We all know how "special" Marin is. Improprieties like this just don't happen here. We're too damn special for these sorts of shenanigans. We don't need to play games like this because, well, you know, everyone wants to live here and all. And so Marin real estate agents and realtors, unlike those everywhere else, are honest because they have no reason to play dirty games and of course they only have your best interests in mind.

John Philipp, an appraiser based in Sonoma County, says that he's experienced similar "dialing for appraisals" when mortgage brokers routinely call and ask him to complete a "comp check" before offering the appraisal assignment.

Sonoma too? But, but... they're special too. That's wine country! We're in God's country and God goes to Sonoma to drink the wine, pisses over in...where...I don't know...anywhere else. We all know this; it's accepted dogma. But the point is that Sonoma is special too (just not as special as us).

But seriously folks... do you know of any "questionable" activities by the professional RE crowd here in Marin or in its surrounding vassal states? If so, please share. And please, no names.

20 Statements That Make Me Puke

I found this on my hard drive the other day. I don't recall where I found it originally. But since I have nothing better to post at the moment...:

1. It’s not a house it’s a home.


2. Buy now or you’ll be priced out forever.


3. Renting is just throwing your money away.


4. You have to live somewhere.


5. They’re not making any more of it.


6. Real estate never goes down.


7. You’re just kidding yourself if you’re waiting for prices to fall.


8. Never a better time to buy! [either during a decline or boom]


9. I think you have a deep-seated fear of commitment.


10. Never try to time the market (when it’s falling).


11. It’s different this time.


12. _(insert location)_ is so desirable, people will want to live here no matter how expensive it gets.


13. Boomers/immigrants/rich people will keep prices permanently high.


14. Prices have achieved a permanently high plateau/new paradigm/soft landing.


15. _(insert location)_ is land-locked.


16. If you’re waiting for the perfect time to buy, you’ll be waiting forever.


17. You can’t lose in real estate – it’s a no-brainer.


18. Real estate’s seasonal; after _(insert holiday)_ things will return to normal.


19. The last housing drop was caused by _(insert unique, non-repeatable event: 9-11, collapse of Soviet Union, earthquake, hurricane, etc.)_; it’ll NEVER happen again.


20. STOP LOW-BALLING! STOP!! I REALLY MEAN IT!!!

* * *

Oh, yeah. And take a stand on the bail-out proposals and get vocal about it. Get loud. Get mean. Go find your rep's contact info here, then write to them...and to Dodd and Clinton too. Democracy still works. We voted out the GOP because we were pissed off and we can nip this oh-I-am-such-a-victim bail-out crap in the bud too. Stop talking about personal responsibility and start taking it. Don't like this blog's letter? Well, Patrick.net has one too for your consideration.

Hudson on Housing and Our Neo-Feudal Society

Click here to listen to a podcast of Michael Hudson speaking on real estate and the housing bubble. Very good stuff, lots of myth debunking, a needed reality check...but lengthy.

ARM Resets and NODs

Below (warning: PDF; a lot of great info though) is the reset schedule for various flavors of ARMs for the next few years:


And the following is a graph of Notices of Default (NODs) issued for Marin and some other counties for comparison (I've normalized the data to the mean of the approximately linear part of the curve -- October, 2004 to February, 2006):

Consider that there is some delay between when an ARM resets and when a borrower is late in making a payment and thus when a NOD is issued. To the extent that the NODs in the second graph are due to ARM resets (and surely people default for other reasons than just ARM resets), the spike in NODs in the second graph result from the resets shown in the first bar or so of the first graph.

To me the first chart clearly indicates that we are at the earliest beginnings of the first wave of two resets. The second chart indicates that even though a small number of resets have taken place so far (according to the first chart), the rate-of-change in NODs is going exponential.

What will this chart of NODs look like around the times of the reset peaks? And what impact will the elimination of "toxic" loans (err, pardon me, of course I mean "affordability products") and other tightening of lending standards have on the selling of property? And why isn't Marin immune?

So let me get this straight: The subprime and Alt-A mortgage meltdown is decreasing demand. Inventory in Marin is about 28% above this time last year so supply is increasing. Now what did my Econ 101 professor have to say about the ratio of supply vs. demand?

And finally, these quotes are juicy in light of the above:

"You can educate them (borrowers) to do the right thing, but it’s up to them to make the right choice" [says Downard, a loan officer for 17 years].

“People who bought homes in the 1980s and 1990s started refinancing their equity out in the 2000s, so we can’t assume that foreclosures will only affect people who bought their homes in the last couple of years,” said Schahrzad Berkland, who publishes the California Housing Forecast in San Diego. “And a lot of adjustable-rate mortgages were taken out by prime borrowers, so we can’t assume that the more qualified borrowers will be immune to losing their homes.”

“For people to think that we could go back to traditional lending standards and have prices remain where they are now is just crazy," said Peter Schiff, head of Euro Pacific Capital in Newport Beach. "Real estate will have to go back to 2000 levels. And a lot of people who just bought a home will find that instead of having an asset, they have a liability.”

Imagine that... a home as a liability. Who would have thought that?

Oh, and why not throw this one in while I'm at it: over time your primary residence is not that great of an investment.

Now they tell us. Sheesh!

Wiki Letter of Opposition to RE Bail-Outs

While I have been cowering in my anti-terrorist shelter for the last few weeks I am sure most of you have learned from other more worthy sources that Senators Clinton and Dodd have proposed bail-outs (and here) for subprime lenders, banks, and defaulting borrowers (here is a summary of the pros and cons of such a bail-out if you are so inclined).

I suppose most property owners are in favor of this potential legislation as it would be indirectly in their self-interest. And I am certain the fact that the 70% of the nation that consists of property owners and who are also, presumably, voters is not lost on Senators Clinton and Dodd, both presidential hopefuls.

However, unlike my property owning brethren, I am absolutely furious about these potential bail-outs. Not surprised, mind you, as we were all predicting this eventuality over a year ago here on this blog and elsewhere. But I am still angered by it nonetheless.

All we can do is write to our elected representatives and express our objection to this proposed bail-out. Since so many people these days don't bother with writing letters to their representatives, I created a wiki (if you don't know what a wiki is, here is a definition) for this blog where we can collaborate on a letter of opposition; I've already written the bare-bones first draft that I hope people will edit into a killer letter. I called the wiki the Marin Real Estate Bubble Wiki; it is also linked to in the right-hand margin of this blog, near the top.

If you want to contribute to the letter, send me an email stating your desire. You will get an emailed "invite" from me with simple instructions on what to do to join. If you contribute, we can create one heckuva letter.

The cool thing is that anyone can view the wiki letter. Anyone can copy-and-paste it into an email or word processor, edit it, print it, and send it off. This way people who want to send a letter but don't want to be bothered with writing one can use ours as a basis.

Here's a list of senators with their contact info. Copy the letter, personalize it, and send it to these people who work for us.

I've experimented with wikis before and have been quite satisfied with the results. Here is a letter that was a collaborative wiki project and that turned out rather well I think.

And if you are in favor of the bail-outs? Well, you're out of luck. Write your own damn letter.

Waiting for Mr. Market to Catch Up to Their Marin Wishing Prices

I first blogged this Inverness POS on the Marin POS blog back in November of 2005. It should come as absolutely no surprise (except, perhaps, to the most delusional of the we're-so-special-everyone-wants-to-live-here Marin RE bulls) that this "cottage" is still on the market. Yes folks, it seems that a converted boat garage on approximately 1.75 acres, all but 0.1 acre of which floods each winter and where there is a haphazardly constructed dike to keep the water out of the premises, does not appeal at Marin's going rate. So the real Days on Market statistic is what, like 450 days? Plus or minus? I'm sure the "official" DOM has been reset multiple times to try and make it look fresh.

But anyway, the other day I drove past it and lo, there it was still with the "for sale" sign out front. The heirs have stubbornly not given up (bless their greedy little black hearts) but the listing agent(s) seems to have given up as can be seen in this pic:

Just look at that "for sale" sign. It's in tatters. Apparently, the listing agent doesn't care any more. Here's a close-up:


This POS started its market life at $790,000. It was later dropped to $659,000. It is now at...actually, I don't know! Does anyone have any info on this one?

* * *

While searching for the current wishing price of the above Inverness POS I happened to notice (surprise, surprise) that no one seems to have fallen for this Forest Knolls winner either:

I originally blogged it in February, 2006 and at that time the wishing price was $449,000; it is now offered at $399,000. This must be a hot property because the listing now says it has been on the market for only 6 days.

A Letter to a Terrorist

# Begin uncharacteristically foul language #

Dear Anonymous Marin Real Estate Terrorist:

I realize that you are scared shitless. I can only assume that you are leveraged to the gills with debt and after failing to off-load your Marin crack-house POS(s) last year to someone more gullible than yourself you are afraid that you will be unable to do so again this year. Perhaps you have finally realized that the reason why the county median/average has been hovering around the 0% point is because, like local agents are saying, only the nicest houses in the nicest locations are selling for asking or above. Everything else, and presumably your shitboxes, are not really moving and are losing value. Or perhaps the sub-prime meltdown and the weakening Alt-A market, the fact that most first-time buyers in California (and especially the Bay Area) are now essentially locked out of the market, etc., is preventing you from finding a greater fool. Or is it just that your ARM has blown up and you can't escape gracefully from your life-crushing debt load? Too bad.

I don't blame you for being a wee bit upset. But your anger is misguided; I am only the messenger. If you want someone to blame, look in the mirror. No one twisted your arm into paying crazy-stupid prices for houses. Substituting RE mythology and sales pitches for independent and critical thought was your choice. You can blame the enablers and the messengers all you want but in the end it was all your choice.

I've given your message considerable and due thought. I've weighed the pros and cons. I've considered the probable and imagined consequences. I've listened to what people have written to me in response to my reaction to your email. And to quote someone who probably came before your time, at least judging by your immature and crazed outburst, "frankly my dear, I don't give a damn". As you seem to be only marginally literate, the above letter is likely beyond your fifth-grade level of comprehension. So for your benefit, the following is my reply to you with a picture:

# End uncharacteristically foul language #

My apologies to anyone who was offended by this post (other than its intended recipient of course).