Today is Your Day

As anticipated a couple of years back, Fannie Mae and Freddie Mac have finally failed, are getting bailed out, and we are one big step closer to nationalizing the mortgage market; from here on out, you and I will be supporting the U.S. mortgage market. Welcome to what will likely be revealed to be the (second) largest public bailout in the history of the world (this might have been bigger)!

To those of you who argued that there was no housing bubble, that it was a New Paradigm, that property prices are justified because of blah, blah, blah bogus, mythical, because-my-realtor-said-so, wishful thinking sorts of reasons: your collective work has come to fruition. Aren't you proud to have contributed to it all? Aren't you happy to have been able to ignore all common sense, logic, and data to the contrary so as to so willingly and blindly pay such a patently stupid, ridiculous price for a house? Today is your day! Celebrate.

Generations to come will remember us all as the most callous, profligate, spoiled, narcissistic, and self-entitled generation in the history of America (or maybe even all of mankind). When thinking of their ancestors, your children, your grand children, and your great grand children will look back at you in their dusty old genealogy books and photo albums with hatred and disgust for strapping them with your crushing debt.

But you will be dead; so what do you care? Right?

Update 09/09/08: Here is what Jimmy Rogers had to say about the Fannie & Freddie bailout:

"America is more communist than China is right now. You can see that this [the F&F bailout] is welfare of the rich, it is socialism for the rich... it's just bailing out financial institutions."

You can hear him yourself by watching this video.

July, 2008 Results

According to DataQuick Marin prices are down -13.2% this past July, year-over-year:


The following graphic, also from DataQuick, shows that Bay Area prices are down almost to the peak of the last, normal, housing cycle (2003-04 timeframe) from which the recent housing bubble launched prices to the stratosphere. So it seems reasonable to wager that we have much further to fall:


The SF Chronicle had this (and this) to say:

The percentage of households able to buy an entry-level residence in the state reached 48 percent during the second quarter, double the level from a year ago, according to the California Association of Realtors. The Bay Area remains the least affordable part of the state, but 32 percent of its households can now afford a first home, up from 18 percent during the second quarter of 2007, the report said.

Now is that affordability calculation based on the one using your new method (which is now invalid given that it depends on the existence of the loose lending standards which got us into this mess, almost nothing down, non-fixed rate loans; refer to item 14 in the linked-to post) or the traditional method?

Andrew LePage, an MDA DataQuick analyst, said he thinks the bottom is not imminent - and is unlikely to usher in a quick turnaround. "Recent history suggests you could be looking at at least two or three years of price stagnation," he said. "It’s looking like the bottom will feel more like a bog than something you just bounce off of."

"The bottom is not imminent"? Now there's a change of tune.

I know I should not give that hack, Leslie "over my dead body" Appleton-Young, any of my attention, but:

"People are off the sidelines, stepping in, trying to gauge the bottom of the market and feeling that, even if this isn’t quite the bottom, it’s looking great," said the group’s chief economist Leslie Appleton-Young. "They’re able to get into something they never thought was possible a year or two ago."

Sorry Leslie, at the moment those "knife catchers" are mostly in places like Napa where people are buying the discounted houses thus solidifying the new (lower) price structure:

Sonoma County’s summer home sales surge continued in July as buyers snapped up discounted properties shed by lenders and financially strapped homeowners.

And I hate to do it, but here is what the Marin IJ had to say (after weeding out their attempts at happy-talk and feel-good journalism):

In Marin, foreclosure resales were 11 percent of total sales. Valerie Castellana, an agent in Greenbrae and past president of the Marin Association of Realtors, said sellers need to be "really astute in their pricing strategy these days."

Yes, in other words sellers need to substantially lower prices if they hope to sell sooner rather than later.

Buyers remain anxious. "They want to make sure they’re not overpaying," she said. "Many of them are holding off because of that anxiety level."

Smart buyers.

He said such buyers are facing a more restricted market for home loans. "We’re in a knee-jerk reaction from where we were before," Hickman said. "The pendulum has gone back 180 degrees. It’s extremely difficult to get money right now."

I beg to differ. Lending is returning to what it was prior to the bubble and where it should be. We are not even close to where it was at the start of the last, normal, housing cycle. So the pendulum has swung only about 90 degrees; we have another 90 or so to go.

There is no way in hell anyone (other than sellers, of course) should want lending standards and practices to return to the way they were during the bubble. This is exactly the sort of false hope people like Hickman are trying to instill and is akin to the fear mongoring ("buy now or be priced out forever", etc) his industry routinely engaged in during the run-up. The fact is, Mr. and Mrs. Marin Seller, the only way bubble-level pricing can be maintained is to return to bubble-era lending practices. Of course, there are other ways to support your wishing prices, such as buyers suddenly getting a mass windfall, 300% raises, etc., but I wouldn't count on it.

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?

Conflicts of Interest

I saw this Glenn Beck video posted over at the Housing Panic blog (kudos). Very funny.

Takeaway message:

"If you want honest advice about your home, don't listen to the people who are trying to make a living selling them."

Lawrence Yun, Leslie Appleton-Young, David Lereah, and all you Marin six-percenters, take note.

Of course, the irony of all this is that people like me, who have spoken out against the biases and the inherent conflicts of interest in the real estate industry and who have tried to make the case that a real estate bust was likely, had to rely on data that came, for the most part, from the real estate industry (the "REIC") itself. This is sad for two reasons: 1) It indicates how much we need an unbiased, third-party source of real estate information; and 2) The "REIC's" own data, spun and massaged as it was by realtors and agents, still made the case for a real estate bust.

"Honey-poo, Why Is the Kitchen Glowing?"

Granite countertops were all the rage and the latest brain dead, "must have", keep-up-with-the-Joneses housing accouterment here in Marin (and pretty much everywhere else in bubble markets). Well, it seems that if you are shopping for a trendy Marin house you would be wise to bring your Geiger counter with you.

Thanks to a reader for sending me this link.

Case-Shiller Index for May, 2008

Here's the latest on the Case-Shiller Index.

Line up all those lying real estate "economists", realtors, and agents who said it couldn't happen here, it's different this time, a permanently high plateau, etc., and just cover them in tar and feathers and parade them around their neighborhoods (metaphorically speaking, of course). All they managed to do was to line their pockets with another 6% and screw a lot of people.

Where I've Been and Some Quick Thoughts

Some people are wondering where I've been. I've been traveling. No internet. No laptop. No cell phone. So I have had little information regarding all things housing bubble.

Looking at recent past news, it seems prices in Marin went up ever so slightly (5.8%) back in May -- I bet the local housing bulls and the Marin real estate industry wet their collective pants over that. Too bad prices lost -12% the following month in June. No doubt the worthless Marin IJ made excuses.

I was not at all surprised to see the latest panic bail-out of Fannie Mae and Freddie Mac. No surprise there that these two GSEs went or, at the very least, were on the brink of insolvency. This bail-out represents the pinnacle of my disgust with the US government. Yes, letting the bubble self-correct would be painful. But it would not be disastrous; it would, in the medium to long term, be healthy. All the government has done is to prolong the inevitable and thereby, in the end, make it worse than it would otherwise be. But that will be a problem for another administration.

Oh, and runs on banks, here in the US. And more to come. We haven't seen those in a long while.

But really, this has been playing out as expected. And thanks to the ineptitude of the US government and its inability to identify and address the causes of the housing bubble (not to mention its refusal to take responsibility for its own role in this mess along with its systematic dismantling of what little of a free-market we have in housing) it's just going to take longer than it otherwise would.

I leave you with Ron Paul's comments on the recent bail-out and the changes now entered into law:



Does it really matter? And does anybody remember how many times we had to suffer through the imbecilic "it's different this time" mantra spewed by the real estate industry?