Wednesday, August 06, 2008

Chronicle Chart

The SF Chronicle's chart of our "immune" housing market:

The important columns to look at are the percent change in sales and price/ft^2.

This is just a "flesh wound" from the subprime bullet (that wasn't even aimed at us) and the resultant disintegration in the financial markets. What will this chart look like when the real problem, Alt-A loans, etc., soon begins to blow up I wonder?


Lisa said...

Marinite, I am so happy to see the new posts!! Athena also posted some new stuff on her Sonoma blog, so the North Bay is in full bubble swing.

Sales are off the cliff in most Marin towns. Surprising, since everyone knows how wealthy we are in this county -);

The AltA and Prime resets just aren't sinking in yet, I think because it hits too close to home. IndiMac was largely an AltA lender, and Fannie & Freddie are Prime and AltA, but most reports continue to label this the Subprime Crisis.

Absolutely, once those resets kick in, that's when the Marin market gets seriously ugly. Think of all those piggyback loans, impossible to sell or re-finance with little to no equity or inability to document income. Couldn't happen to a nicer bunch, if you ask me.

sf jack said...

Apparently, the "flesh wound" is going to become a nasty infection.

The recast schedule for many Alt-A's are only beginning.


"Faber Report

Banks struggle with pay-option arms, with CNBC's David Faber."


sf jack said...

I believe this is the story Lisa referred to above...


Housing Lenders Fear Bigger Wave of Loan Defaults

By VIKAS BAJAJ - The New York Times
Published: August 4, 2008

"The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.

While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are 'alt-A' loans, many of which were made to people with good credit scores without proof of their income or assets.

'Subprime was the tip of the iceberg,' said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. 'Prime will be far bigger in its impact.'"


sf jack said...

Well, looking above (again), perhaps Lisa mentioned this article in another blog somewhere!

Lisa said...

Athena posted the NYT story over on her Sonoma Bubble Blog.

I was shocked to see that article, front & center on Page 1. They flat out called it a much bigger wave than the Subprime resets, and Subprime practically took down the financial system. "Tip of the iceberg" is basically what they said about Subprime.

But until people see the resets happening in their own nice, upper middle class, special neighborhoods, people don't seem to grasp what's coming.

mountainwatcher said...

So are you folks thinking I shouldn't buy now?

Matthew said...

I'm sure I'm not alone in having been ignored, snickered at and occasionally outright bashed by friends and colleagues on all things related to housing, especially in the area of advice on the buy or not to buy question.

As a result, anytime the subject comes up, I usually keep quiet and simply say that it's still much too early for my liking, but that they should all do their own DD as I'm already very well read and studied on the subject. It's really amazing how little research some people do before making a big purchase such as a home. On that, I have to hand it to the RE Machine, because they've done a bang up job brainwashing the masses and instilling fear on runaway home prices... all, a bunch of baloney and all coming unraveled now..

Problem is, good families and people are being ripped apart financially as a result of their greed, ignornance and, oh yes, out and out fraud.

Matthew said...

Yes, love the "subprime problem" that we've got in housing thing..

Seems that particular NAR memo on appropriate MSM soundbites has been well read and digested by the masses.. Check that, I don't buy that Paulson or anyone else in the mortgage, investing or RE business (or related businesses) thinks this is a subprime problem, but that's the term and explanation they've figured will keep the sheeple happy, so that's what is used.. Hell, even the President uses it as the prime problem in housing.

Again, what a flippin joke... However, I have no other expectations from the people who were responsible for this mess or sat complacently and/or profited handsomely while this mess was forming..

These pending ALT-A resets are coming along with big increases already in unemployment with more pending layoffs from state/fed government due to massive budget shortages. All real good news for the consumer and housing..

Lisa said...

A note on a comment heard at an Open House here in San Anselmo next door neighbors went to look at a couple of Open Houses nearby. One was listed at $1.1M. The realtor flat out said the "challenge" these days is that basically no one can get financing for that level of purchase.

Meaning "basically no one" has the documentable income and savings to genuinely afford a $1.1M house.

I told my neighbor that the GSE's are getting out of the AltA business by the end of this year, and what that meant (e.g. Prime only, full documentation, down payment, debt to income ratios, the works) and even he agreed the market will tank.

I am starting to think that 2009 is when Marin gets seriously slaughtered.

mountainwatcher said...

I've got one for the POS blog.
18 Janes St. Mill Valley.

You have to see this one.

It was open on Wednesday with no agent around.
I walked around the rotting, mildew and mold ridden mess with horror.

I picked up the fact sheet to see the price.....
They said it needed some TLC or you could tear it down and build your dream house.


Matthew said...

The writing has been on the wall for quite some time, but some are slow to read it. When the GSE's get out of the ALT-A lending business later this year, I would expect a quick 10-15% haircut off the top in pricey/bubbly places like Marin. That, by the way, is in addition to the haircut we've already gotten to date.

I read an interesting article a while ago at the start of this bubble where the author said that the high cost of housing was very risky, but not nearly as risky as the direction of prices. His contention was that high prices are okay, so long as they continue going up as nobody has the means to pay off mortgages any longer excpet when selling the home. So, the high cost of the home, although risky, is not a problem in an appreciating market. However, he was quick to add that the downside risk and subsequent pain would be much worse, especially when fear crept into the equation.

Those same people who bought homes that were way overpriced can't pay them off when selling them because the market is tanking. In other words, a pozi scheme that kept on working because the hyped market kept on appreciating.... Well, i all worked just dandy until it didn't and now the sh__ is hitting the fan and the NAR/CAR are having a hissy fit about it.

I think we've got some fear in Marin market but no panic yet. No worries, the panic is coming, especially when things like the GSE's start clamping down tighter and stop buying all these risky ALT-A mortgages on overpriced homes.

2000 prices here we come..

marine_explorer said...

...I walked around the rotting, mildew and mold ridden mess with horror.

Half the homes I toured in Marin were in some sort of similar decay. I guess it's part of the "Marin ambiance"? An aging population seems to treat their homes as cash cows, which without any effort on their own, will appreciate ad infintum. I attribute it to the popular Marin hobby of buying properties, neglecting proper maintenance, while expecting high monthlies and eventual sales. It's probably also the aging population which simply doesn't care about the state of the house in 20 years.

Lisa said...

"When the GSE's get out of the ALT-A lending business later this year, I would expect a quick 10-15% haircut off the top in pricey/bubbly places like Marin."

It will be interesting to see how fast prices drop first half of 2009. I'm guessing sales will slow to an absolute trickle without AltA funny money. And if the GSE's won't back AltA, no one else will either....there will be absolutely no secondary market for these loans.

So, we're left with prime borrowers only...down payments and debt to income ratios and documentable incomes and no car payment or credit card debt. Hmmm.....

I wonder if next year we see foreclosures really steam roll across Marin...when folks realize there is NO ONE to take their house off their hands for anywhere near what they paid for it during the bubble years.

Matthew said...

"I wonder if next year we see foreclosures really steam roll across Marin...when folks realize there is NO ONE to take their house off their hands for anywhere near what they paid for it during the bubble years."

I sure as heck hope so... I'm still amazed at some of the prices being gotten for some homes in Novato. I havn't been looking too closely though, but I still scratch my head and wonder what some of these new FB's could be thinking in taking the plunge now. What's the rush ?

I know a nice couple that thought they got a steal 4 months ago buying a distressed home in Hamilton only to see their newest neighbor get a $50K better steal this past month on a similar home. Think that scenario is not gonna repeat itself again, over and over, for the next 20+ months ?

That "V" recovery that the NAR/CAR are hoping for is as big a farce and bunch of BS as the bubble was. Those clowns will need to explain how the averaged wage earner is going to be able to qualify for a home loan to get the housing fraud and price appeciation machine started again. Ain't gonna happen - probably not in my lifetime anyhow. And those peak 2005 prices that we saw are the highest we'll ever see in our lifetimes on those homes. That is of course unless the average wage increases 3fold before I kick the bucket... very doubtful.

sf jack said...

"Those clowns will need to explain how the averaged wage earner is going to be able to qualify for a home loan to get the housing fraud and price appeciation machine started again."


This reminds me of something I looked at earlier this summer.

Perhaps there really are a lot of wealthy part-time residents who live in some of the "fabulous" local enclaves in Marin... but these are the median family incomes in the following towns in the southern part of Marin:

Mill Valley $113,538
Sausalito $92,478
Corte Madera $94,587
Larkspur $89,887
Greenbrae (see below; San Rafael)
Kentfield $103,533
Ross (2000 census, different source $102,015)
San Anselmo $94,747
Fairfax $74,502
San Rafael (94904 - Greenbrae) $103,533
San Rafael (94903) $86,050
San Rafael (94901) $72,268



I realize these may be from the 2000 census (could not find their source) and incomes have gained considerably since then?

I kind of doubt that, for I recall looking at IRS data for AGI's for tonier zips in SF and other areas, and it showed income after 2000 dropped (no more tech stock bubble), in some cases near double digit percentages, and have recovered somewhat since then.

In any case, even if they were 20% higher than these figures, which may be a stretch, do these incomes seem like the kind that can support median house prices near $1 million?

Without funny money financing?

Hmmm... ... maybe? Maybe not.

And are many of these families in Marin making wage earner money just those sitting on lots of $$$ and the income is from trust funds or the "fruits" of dotcom clownism and the like?

How many families are there like this?

I do wonder if there are "enough."

Of course, we all know what Marin realtors would like us to believe.


Also, check this out, the 25 highest earning towns in America... it appears not one is in Marin (though stats below this link seem to show Belvedere/Tiburon should belong in this group):


"The median income for a household in the city was $130,796, and the
median income for a family was $185,590. The per capita income for the city was $113,595. About 2.9% of families and 5.7% of the population were below the poverty line, including 4.3% of those under age 18 and 4.5% of those age 65 or over."


Lisa said...

Median Income San Anselmo $94,747

A 2 bedroom starter house in this town is around $700K, or about 7x the median way is this sustainable without funny financing.

marine_explorer said...

" these incomes seem like the kind that can support median house prices near $1 million? "

Hmm...without getting too specific, I don't consider those median wages anywhere near what a sane adult needs to cover a "respectable" home in Marin, which is to say--not on the verge of falling down. Obviously, I'm not talking about a Bel-Tib crib, nor a crack-fiend hovel on the Canal.

Back when we were looking, $1M covered only the basics. Then comes the mandatory "deferred maintenance surcharge" to fix the hidden dry rot and the obligatory "happy spouse upgrades". It never stops with a "simple" home purchase, does it?

If you recall, it's only recent history where a $1M+ home was a staggering sum, the abode of celebrities and executives. So, what happened? Do people really earn a proportionally higher income now? I would suggest that lifestyle expectations have changed more than actual incomes, and the banks were all too willing to fuel this social trend. When this trend reverses itself, I'll expect those clawing after "the good life" will become insufferable whiners.

Matthew said...

Prices = 6, 7, 8 + times median income.. yes, yes, yes.... in there doth lie our problems... correction, in there doth lie the RE machine's problems..

What was the ratio in 96 - 97 ? What about 90 - 91 ? What will they be in 2011 - 2012 ?

Looser or tighter lending standards ? More fraud or no more fraud ? More bankruptcies and foreclosures or fewer ? More full employment or more underemployment or unemployment ? More government jobs or fewer ?

Decisions, decisions, decisions..

marine_explorer said...

In retrospect, I was a bit of an *ss to say that about the Canal district. Objectively put, at the peak some real problem areas had prices which would strain many a professional's finances.

mountainwatcher said...

Be afraid, be very, very afraid!

marine_explorer said...


LOL...very clever metaphor for crushing mortgage debt!

fortunateone said...

I guess some people haven't heard that real estate is in a correction...DOWNWARD!

Sean Penn has put his house on Sir Francis Drake in Ross up for sale at $15 Million. Just three years ago he was trying to get $10 mil. (It didn't sell then)

Good Luck!

marine_explorer said...

Sean Penn has put his house on Sir Francis Drake in Ross up for sale at $15 Million

Really? Gack. I've seen that place numerous times on passing by...and never imagined that price--it's right on SFD. Of course, even a moldy c.1900 shack carries a $1M tag in Ross.

From the beginning, I never saw Penn fitting in sleepyuppity Ross.

Unknown said...

Someone really decided to put on their thinking cap, great going! It’s fantastic to see people really writing about the important things.