Does the Fed Know What Is About to Happen?

Yes, this article is written by someone who invests in precious metals. But the article is an informative read nonetheless. It explains the current, highly leveraged situation that the US financial system finds itself in vis-à-vis the housing/credit bubbles and the possible dire consequences if the system is tipped too far off balance. I'd be interested to hear what our local experts here on this blog have to say.

I almost feel sorry for Bernanke as Greenspan steps down today (here's a fitting send-off).

Here are some quotes to whet your appetite (they don't do the article justice, you'll just have to read it):

Thus, what started out as a simple home mortgage, has been transmogrified in to something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on precisely these instruments as sources of funds.

If too great a portion of FF [Fannie and Freddie] mortgages were to go into default and cease to pay interest or principal, FF would not have sufficient cash to pay the holders of its bonds. If the situation were to become too great FF would default on its bonds. So, whereas before one had one economic catastrophe - the default of some mortgages – because of the way the housing market is structured, this produces a second catastrophe – the default of FF’s bonds which are at least 10 times greater than that of any corporation in the U.S. Such a default would put an end to the U.S. financial system, right then and there.

As such, a total in excess of $12 trillion is laden on to the homes and attached to to the incomes of America's homeowners. And then there is credit card debt, car lease debt, cell phone contract debt, bank loan debts, margin debt, etc! Nothing, absolutely nothing, must stand in the way of consumers fulfilling their financial obligations - and they absolutely must not default on their mortgages. Cheap money must prevail. Not dirt cheap like before but still very cheap by historical standards. Cheap money is necessary to keep the real estate bubble in force because consumer spending increases 0.62% for every 10% gain in the housing market (more than twice that of a 10% gain in the stock market).

Regretfully, though, this FF house of cards is on the verge of collapse. Bond prices have fallen and interest rates are approaching 5%. The ramifications are dire.

The Fed is between the proverbial 'rock and a hard place'. They engineered low interest rates in the first place, both to keep the financial markets going, and in large measure to keep the housing bubble afloat. They are now in the final stages of raising interest rates to prop up the collapsing US dollar and to forestall rampant inflation. Were they to initiate one quarter percent increase too many it would destroy the interest rate environment that is essential to keeping the housing bubble alive; to keeping consumers spending at a high level thereby keeping the economy growing; to keeping corporate sales and profits high thereby keeping the stock market healthy. Have they gone too far already? The bubble seems to be loosing air slowly at this point but what will the impact be of the next increase? The impact of one too many rate increases on such a chronically debt-ridden and maladjusted economy must not be over estimated.

But rest assured the Fed will do absolutely everything in its power to prevent the puncturing of the housing bubble!... Indeed, the Fed are so concerned about this happening they are flooding the economy with almost limitless liquidity. There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is that the Fed's actions mean they know what is about to happen.

Open Access to Data

This story is running like wild fire all over the blogosphere, and rightfully so; it's outrageous. Apparently, after years of sharing their real estate data during the boom, the Santa Barbara Association of Realtors is refusing to share their data now (4th paragraph from the top of the article). Gee, I wonder why? Might it have something to do with a collapsing real estate market in a locale that is also claimed to be immune to a market bust? I guess we won't know until later, when the data is stale.

I know from my own personal experience how hard it is to get good real estate data...the kind of data that would result in some very interesting and informative charts. This data is jealously guarded by the real estate industry; if you control the information, then you can control the market. I've asked for such data time and time again from Marin realtors and have been denied. Most of the time I just want to recalculate the officially reported statistics to see if they have been fudged or not. Sometimes I want to get insight into the market that is otherwise difficult to get.

I strongly encourage you to write the Santa Barbara Association of Realtors and share your thoughts with them.

A Quote

So I was re-reading some of Shiller's book Irrational Exuberance today. I was interested in the chapter (chapter 11 - "Investor Learning and Unlearning") where he discusses the possibility that the stock market has only recently become a rational market due to the general investing public having recently learned some "facts" about the market. For example, leading up to the pop of the stock market bull run of the late 90's people had learned such "facts" as "stocks always outperform other investments, such as bonds", "the stock market always quickly recovers after a major decline", etc., and that the reason for the huge price movements and their expected future continuation was because the market had become rational.

He concludes the chapter with this:

A similar process of investor "learning" appears also to have been going on in connection with other markets besides just the stock market. People have been "learning" that investments in homes are really not risky, that homes are the "best" investment. The perception that the public has just learned some important facts lends support to massive market price increases by encouraging the belief that these increases may be permanent.

The sense that we are all suddenly learning important facts and have arrived at a new enlightenment about investment has appeared so many times in history that it may be regarded as a predictable component of irrational exuberance. We must consider how to deal with the change in thinking that leads people to think we have entered a new enlightenment, changes that, through their effects on market prices, impinge on all our lives.

We have to consider what we as individuals and as a society should be doing to offset some of the ill effects of this exuberance.

pp. 202-3

The next section is appropriately entitled "A Call to Action".

Hopelessly

Someone commented on another blog that all of the young couples he knows have given up hoping that they will ever be able to purchase a "starter home". Then there are the stories of all of the young couples who leave their communities and families, move out of state, just so that they can buy an affordable house so that they can raise a family. And then there are all the folks who "cash out" and move out of state. I have met such folks and you probably have too.

Apologists argue that house prices are justified, "they aren't making any more land", "the economy is strong", "people are earning more". Bah!

The fact of the matter is that affordability has dropped so much that only people who currently own a house can now afford to "buy" another one; the "buy-up" chain is broken. This appears to be true in Marin.

Personally, I don't need to buy a house but I deeply sympathise with all those folks who want to because at one time, not terribly long ago, I was standing in their shoes. I don't pretend to be a journalist. I speak my mind and express what's in my heart. And I sometimes make (admittedly) politically incorrect comments here on this blog because I think them to be at the very least closer to the truth than what you will get in the mainstream media. And what do I get in return? What is my reward? Abuse. Abuse from the Marin IJ, abuse from readers with vested interests, and abuse from a society that punishes those who think for themselves and who refuse to both unquestioningly tow the line and become one with the herd. And I'm sick of it.

The fact of the matter is that something is wrong here; something is broken. The American Dream is fading fast; it might have already died. Shame on all of you who callously claim 'if you can't afford to live here then move somewhere where it is cheaper; if you don't make the kind of money you need to buy here then you are just a loser'. We (young and old, rich and poor, working class and trust babies, etc.) ARE the community and we all have the right to live near our families and in the communities that we consider to be home. The fact that this is increasingly difficult for most and impossible for some implies to me that something is terribly wrong and needs to be fixed.

Like I said before in a previous post, I don't give a rat's ass about speculative bubbles in the stock market, etc. because people don't live in stocks and people typically won't take on life-altering amounts of debt to buy stocks. Ah, but houses are another matter altogether. People need homes. Families need homes. Society needs healthy communities; healthy communities need extended families, a working class, affordable housing. Communities today are fragmenting and families are being driven apart. This cannot be good.

I'm done arguing that there is a housing bubble here in Marin and elsewhere; it is a fact IMO and the mainstream media is finally coming to terms with it which means the public will soon be coming to terms with it. At this point, claims to the contrary are nothing more than denial and cognitive dissonance. Either the bubble will burst and prices will return to healthy levels or it won't. If it doesn't, if our collective greed prevents it, if our spineless Fed and owned elected officials fail to deal with it in real terms, then this country is screwed on many levels.

When the "dust settles", when the housing bubble bursts as I and others believe it must, I hope we finally learn our lesson this time. And I hope We the People wake up and take action.

Am I full of it? Then please, set me straight.

* * *

PS - For the heck of it I put together a list of the non-quantitative things that indicate to me that there is a housing bubble (as opposed to what I was doing, compiling statistics and making charts). It's an on-going project of course. In order that this post have some value (this IS a web log after all) I thought I'd share it. Maybe you have items you want to add:

• People buying property sight-unseen.
• Flippers greedily snapping up multiple condos at a time.
• Real estate is referred to as a "can't lose" investment.
• Young couples who are so frightened that they will be left behind.
• People with no savings and/or no income are considered some of the best candidates to get mortgage loans.
• Where essentially all first-time buyers are forced to get an interest-only, no money down loan ("toxic" loan) because affordability is at an all-time low.
• There is a complete disconnect between house prices and rents.
• Agents and builders alike making their outrageous proclamations about an ever-rising market.
• The over use of platitudes like "it's different this time", "they aren't making any more land", "real estate only goes up", etc.
• Fear mongering -- "buy now before you are priced out."
• "New Era" thinking -- "it's different this time".
• When houses are doubling and tripling in price in three short years and yet there has been no corresponding change in fundamentals. Salaries and wages have not increased significantly. The population has not increased sufficiently. There is no increased demand other than the speculative demand itself (a classic speculative mania feedback loop).
• When the people who jumped on the bandwagon during the .com era and became web designers thinking they'd get rich quick, who then jumped on and became day-traders thinking they'd get rich quick, and who have recently jumped on and become realtors thinking they'd get rich quick. (If you want to know what the next bubble will be I think all you have to do is figure out what the recent wannabe realtors are jumping into next.)
• The rise of real estate investing/flipping clubs, web sites, TV shows, akin to the stock day-trading clubs and investing programs.
• Frenzy. Bidding wars, multiple rounds of bidding, and properties selling within just hours. People camping at properties so as to be the first to bid. Housing lotteries.
• People using ARMs (actually, forced to use) when interest rates could only go up in the future.
• Talk about how in the future the only way anyone would be able to buy a house is if they already own a house.
• When the median income needed to buy the median priced CA house is in the neighborhood of $250,000/year (depending on locale; assuming 20% down, 30 year fixed) and yet the actual median income is far less than half that amount.
• When three years ago you could buy a "starter home" with your salary at that time but today, when you are making more, you can no longer afford to buy that same "starter home".
• Buyers had to write letters to the seller, include photos of their kids, etc., make promises to feed the local wild life.
• Buyers who do not occupy their recent purchase and are willing to rent it at a loss.
• When my idiot relative boasted about being an RE genius when if fact he just lucked into buying at a good time and couldn't afford to move anywhere else.

Pop?

It looks like the bubbles (or are they balloons now?) are beginning to pop as reviewed here, here, and here over at The Housing Bubble 2 blog. We'll know better in the Spring. Is the Bay Area immune? If the real estate world falls apart around us will it have no effect on us? I seriously doubt it, but what do I know? Japan has a scarcity of land too but that didn't stop their bubble from busting.

Cutting Off the Nose to Spite the Face (Again)

This is off-topic (but not completely) but as a long time Marin resident, someone who has seen Marin's decisions and had to live with them for decades, this really gets my dander up: There has been talk in the Marin IJ (via letters to the editor) about whether Marin should again consider building BART stations so as to ease the horrendous traffic congestion that we have to live with here in Marin.

This letter, written by Ellen Laferty of San Anselmo, argues that most of the traffic in Marin is due to people driving through Marin on their way to San Francisco from Sonoma and Napa counties and other more northerly locales. (That is true. But we Marin residents still have to suffer it.) So her "solution" is that Marin shouldn't build BART stations. Rather, pass the buck and require the Port of Sonoma to build a ferry station. That's a good idea too. In fact, both should be done in my opinion.

But what really chaps my hide is that typical Marin inward looking, selfish, narcissistic, not-in-my-backyard BS. I'm sorry, but if BART stations had been built in Marin way back when we were first contemplating the issue decades ago, we would not be in the mess that we find ourselves in today or at least it wouldn't be as bad.

Here is my theory regarding the real reason why Marin refuses to build commuter trains (and why this post is not totally off-topic): it's because by doing so south Marin property values would drop -- why pay the premium to live in south Marin to avoid the grid-lock between the Hwys 101/37 merge and the I-580 interchange when you can ride a BART train to the city instead?

Do you agree with that theory or am I full of shister? Post your thoughts.

CAR Report

Everyone stay calm, click your heels together three times, and then repeat after me "there is no real estate bubble".

According to the California Association of Realtors:

The median price of an existing home in California in December increased 15.6 percent and sales decreased 17.6 percent compared with the same period a year ago, the California Association of REALTORS® (C.A.R.) reported today.

“Sales fell last month compared with December 2004’s record-setting pace, prompted by consumers’ concerns about rising interest rates,” said C.A.R. President Vince Malta. “The last few months of 2005 marked the first time since mid-2004 that the fixed-rate mortgage was above 6 percent on a sustained basis and the adjustable-rate mortgage was above 5 percent for three months in a row.

“Consumers also were rattled by both the spike in energy costs and the hurricanes late last year,” he said. “Looking ahead, we expect those concerns to impact transactions completed in January as well.”

Closed escrow sales of existing, single-family detached homes in California totaled 531,910 in December at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity decreased 17.6 percent from the 645,860 sales pace recorded in December 2004.

Bad News Bears

Check out this sampler of the news that's out today...it's all bad:

Has the Las Vegas high-rise boom gone bust?

Trade deficit, housing prices worry Comerica economist

Colorado near the top in property foreclosure rate

Appreciation stagnates in many markets

Ameriquest admits pressuring appraisers to inflate values of borrowers' houses

Buying a home on 50 Year Loan Plan?

Condo investments - how to lose a lot of money very quickly

Experts can see clouds forming over home sales

Housing still on bubble — be patient

Foreclosure sixfold increase seen in decade: Sherriff Sales

The Myth of the Housing Shortage

Recent Home Buyers 25% Underwater Overnight

Mortgage default rate shooting up

December home sales slowed, median price fell in Bay Area

Downtown Boston condo sales fall

Home investors, flippers may fade away

Signs Point to Drop in Home Values

An "Incestuous Market"

You just gotta love the way the Marin IJ continues to pump (or should that be "pimp"?) the bubble with laughing gas (their article is really a rehashing of this article):

Sales of homes in the $1-million-plus category shot through the roof in Marin in 2005, becoming almost commonplace.

In 1987, $1 million could buy an eight-bedroom house. Today, $1 million is seen as an entry-level price in many parts of the county.

It really makes me sick what the cheapening of the dollar and ultra-relaxed lending standards have done. So when every house costs a million dollars, no one is wealthy (unless they move to some place cheap...hence "the exodus" of a few posts back).

It's almost as if there are two currencies in this country -- one for houses and one for everything else. House prices have skyrocketed to absurd levels, but the cost of everything else has hardly increased (with a few exceptions of course) and income is barely up; a million dollars is not a lot of money in the housing market but it's still a lot of money in the market for everything else; a dollar is almost worthless in the housing market, but in the market for everything else a dollar is still a dollar.

Step back for a minute, forget that you are a beneficiary of this state of affairs, open your mind, and look at this situation will you? There is something wrong with this picture. No?

The IJ even hints that many of the sales in Marin were from people moving from less desirable areas of Marin (like Greenbrae) to more desirable areas (like Ross), not folks coming in from outside of the county. So you know these sorts of folks in general haven't seen the required 250% increase in their income.

As has been pointed out many months ago by many others, the majority of people who can pay these exorbitant prices seem to be people who already have a house (I am excluding "trustafarians", "trust babies", etc.); the housing market seems to have become an "incestuous market". So people who don't already own a house cannot buy anymore?! So every person who comes of age as of today will be unable to buy a "starter house" because you have to have a house to buy a house? So, has house ownership now reached or is on the threshold of reaching its maximum number of market participants? What kind of market excludes new entrants? There is no way a market can sustain such a disjointed state of affairs. Robert Shiller (and probably many other economists) discusses this exact phenomena in his book Irrational Exuberance (he calls these people "asset fanatics" if I remember correctly) and he shows that in all of recorded financial history there has never once been an instance of this state of affairs that didn't end very badly.

But then again, maybe it is different this time.

If the asset that these "asset fanatics" were bidding up was something innocuous like tulips, stocks, gold coins, beanie babies, whatever, then I wouldn't give a rat's ass about it. But houses are needed and a bit more personal than tulips, stocks, etc. and houses make up a big part of our community. So I really won't feel terribly sorry for people who knowingly bought into this insanity and ultimately get burned for it. Personally, I think a steep, sharp decline would be easier on everyone but it looks like we are in for a long, slow, excruciating decline. I'm sorry to say that people get what they deserve. But maybe the bulls are right and this will continue on indefinitely and then in three years the entry level house will be at two million dollars, then three...

"These aren't the droids you're looking for... move along..."

"The Dumbest Reason to Buy is When Prices Are Going Up"

I originally found this article posted on today's Housing Bubble 2 blog. I try not to post articles that other blogs are posting unless the article makes some really good points (at least in my opinion) and is applicable to Marin. This article is just such a one as it addresses the meaning of value in the RE market and investor psychology.

First some quotes from the article:

Warren Buffett said: "For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for someone else....The dumbest reason in the world to buy a stock is because it's going up."

Personally, I would say, "The dumbest reason to buy anything is because the price is going up." Yet that's what people do when they invest. They generally don't buy high-priced things when they shop.

For example, if Safeway had a sale -- 25% off everything in the store -- the supermarket would be swamped. Yet, when the stock market or real estate market has big discounts (often called a crash or a burst bubble), that same shopper runs away from an asset sale. Instead, they wait until prices are high and other fools are bidding them up further to finally buy.

I estimate that 90% of all investors invest for price movement, not value. If prices begin to escalate, as they did in real estate from 2000 to 2004, amateurs turn pro and begin buying real estate to flip...

Most stock market investors do the same thing. In investor language, flipping is known as "the greater fool theory of investing" -- you're buying something not to own, but in the hope of selling it to someone who's a greater fool than you.

But such rumors [of an impending decline in housing prices] only affect those investors who, as Buffett says, "take their cues from price action rather than from values." During such periods of high prices and volatility, it's even more important to pay attention to value, more than price.

The fact that the author of this Yahoo article, Robert Kiyosaki, was a very recent housing cheerleader might lead you to dismiss him as a hypocrite. That may be true and you may be right, but I think what he has to say now is relevant (if not too late).

I think a lot of people have been buying houses because they see their friends and neighbors making a lot of money (at least on paper) by buying and selling property or read volumes of articles about folks making money from property. People are not asking themselves "Gee, is this house really worth the price?" Instead, they are thinking to themselves "It doesn't matter what the price of this house is relative to its value; all that matters is if I can pay the monthly mortgage because the selling price is only going to go up and I can flip it in a week, month, year, whatever, for a small fortune". That is typical investor (not owner-to-live-in) psychology.

The sad thing is even if someone is only buying a house "just to live in" the chances are they are still speculating whether they know it or not. They are speculators because of the fact that they are willing to pay an exorbitant price for a house not because they think the price accurately reflects its value, but because they see other people making a lot of money when they sell and they have heard, with recent (and I'd wager temporary) confirmation from the market, that "housing only goes up." The fact that history says otherwise is irrelevant to them.

Now you say "Hey, Marinite, isn't this obvious? What rock have you been living under?" And I say, it is obvious and has been for some time but it is clearly not obvious to a lot of recent buyers. The typical house buyer probably does not think of himself as a housing speculator per se. But depending on what the thought process was that led to the decision to pay an inflated price for a house (as opposed to just renting an equivalent house), I argue that they probably are speculating. If so, that means the recent "official" estimate that roughly 40% of recent California house buyers are speculators probably greatly underestimates the true percentage.

It doesn't matter that current lending standard are so loose that even a [insert some low wage job here] can get a loan for a half a million dollars with a small monthly payment (at least for a while). The majority of people are still buying with the expectation of making a small fortune by selling sooner rather than later.

Housing prices are very likely to correct. Not all at once, not overnight. Rather, housing prices will likely erode over the course of quite a few years. There will be some minor up ticks in prices (i.e., "dead cat bounces") along the way down and some people will jump in at those points thinking the bottom has been reached just like they recently did as the NASDAQ crashed. But the true bottom won't be reached for quite some time I think. Some people are calling for the bottom in five years; others predict it will come in ten years or even more. I don't know when the bottom will be reached, but given that your typical house owner sells (for whatever reason) on average every five years or so, this means a lot of folks are going to be "under water" or else be trapped in their mortgage for like the next 25 years.

"But that's just the way markets are. Sometimes you win, sometimes you lose." I say "wrong". This is going to be a bigger problem than it would otherwise have been because of the generalized speculative environment that we find ourselves living in today. First it was the dot com bubble and on the heels of its spectacular decline came the housing mania. And is it a coincidence that casinos are on the comeback? What's next? What's the next speculative mania that we have to suffer?

Up to now we have had to endure a seemingly endless stream of articles and stories about the "shrewdness" of average people who reaped huge rewards due to their financial "acumen" for having bought a house and the resultant lavish vacations, plasma TVs, new SUVs, their vacation house in [name some glorious vacation locale], etc. If it were true, that's great. But these endless upbeat articles have helped to further the housing myth and the speculative thought process. Are we to soon have to suffer endless articles and stories about the sad tales of the financial misfortunes of these formally shrewd Americans as well as their resultant law suits?

One thing seems certain, if you buy a house now or do so in the immediate future you have to ask yourself "Can I stay in this house for the next 20 years or so or can I afford to take the capital loss?" People are going to be rudely reminded that the mortgage debt is real and the price is a matter of opinion; what matters most is the balance on the loan and not the monthly payment if for no other reason than the life of the loan is almost certainly longer than the life of a speculative frenzy.

A Local Bear

The Home Owner’s Economist is a web site maintained by a local Marin realtor with a decidedly bearish outlook. How rare! Here is what they have to say about real estate (among other things):

According to the California Association of REALTORS® (C.A.R.), the percentage of households in California who can afford to buy a median-priced home is at 14%, which compares to 19% a year ago. Is this a bubble. Well, Yeah! If you’re holding residential investment property, all we can say is: WHY?

Quite astonishing to realize that well under 20% of average households can not afford to buy a medium priced California home. Does this mean that house prices are inflated or merely “appreciated”? Does this mean there is a housing bubble, or, merely that there is “good value” in homes? Does this mean – well you get the picture.

We’ve maintained for a year that the day will come that the only buyers left will be high school seniors who hope to get a job in June. It appears that the federal regulatory agencies have pushed down some tighter regs on lenders. Perhaps, their tightening will require that high school senior to also have to promise that they’ll get married and the oncoming spouse will have to promise that they also will try to get a job after graduation, foregoing babies, new cars, rock and roll concerts and the like. They will agree to make music at home, but, not too much. Won't be able to afford the expense of darling little ones.

According to the Commerce Department, the rate of construction of new housing units slowed 8.9% in December following a 3.4% rise in November. In 2005 about 2.065 million housing units were started. This was second only to 1972's record of 2.357 million starts. Annualized, December's starts only amount to 1.933 million units. This is not up, and likely to continue decreasing. Yet, yet, yet, longish bonds being down, the 30 year Fixed rate came in at 6.2%, which will embolden buyers who are already out of high school. Residential investors should find these people who are looking for a “good deal,” and give them a “great” one. Quick!!!

And some prudent advice -- protect yourself and your family by reducing positions in over-valued assets (e.g., houses, assuming you can find a high school grad):

Wonderful Opportunity
That is so if investor’s learn to act for themselves, for their best interest; BEFORE they are liquidated by GeoPolitical events by others, for other’s best interests. If calamitous events occur, Greenspan can and will say, “I told you so.” And, he’ll be correct. What he will not say is that simultaneous with his obscure warnings he (arguably single-handedly, with a cheering crowd daring him on) created the liquidity, the easy, the funny money, the Credit Bubble, that Wall Street put to work inflating all assets, as they naturally would do. There ought to be a law. And, there may well one day be one – when it’s too late.

Self-preservation is the way to protect families. The Wonderful Opportunity alluded to above will come when "... blood is running in the streets." This is the History of Civilization. Don’t go all angry or weepy on us. Protect your family. Take Action to reduce positions in over-valued assets. Keep your powder dry in the gold room, and re-enter markets when they've cooled.

Poof!

A -25% drop in value of houses overnight. It's not relevant for Marin, but I thought I'd share it anyway. If I was a recent buyer of these houses and had a realtor telling me how "housing never goes down", "they aren't making any more land", "everyone wants to live here", and I was convinced that an "exotic" loan was ok because of these reasons, I'd be really pissed but ultimately I would only have myself to blame.

California Exodus Leaves Me With a Lot of Questions and a Bad Feeling In My Gut

Thanks to this housing bubble, Californians are leaving the state in droves. Why? There are two main reasons: 1) huge profits are hard to resist, and 2) lack of affordable housing. For many of those who resist moving, the feeling is that of being trapped.

Trapped? Just take a relative of mine (please). He bought a Marin house 10 years ago and has an average income. Although he has a large paper gain, he is smart enough not to go into further debt by doing a cash-out refi and so that paper gain is pretty much useless. But to where can he move? All of his friends and family are here. If he sold the house he'd have to live somewhere and most of the places he would seriously consider moving to are also affected by the housing bubble so he'd be facing a higher property tax just to live in a house of similar quality to the one he'd be selling. Nor does he want to move some place where there is resentment against Californians. Plus, he now has to think about schooling for his new, young child. Schooling here isn't very good (well, public schools here are a bit above the state average but California is like second from the bottom when comparing nationally) so he is trapped into the local public school system as he cannot afford private school.

But anyway, is this exodus a good thing or a bad thing? Or is it just normal social change? I don't know. I do know that I don't feel good about it; somehow it doesn't seem right and it is hard for me to believe that it will end well. I mean, all through human history natural disasters, wars, etc. cause huge population migrations, but real estate bubbles? Am I the only one who feels this way? What does it mean for the state? What does it mean for Marin? Does anyone even care? How do you feel about it? Post your thoughts.

Given all the people who are leaving, who are buying their houses and on what terms? Sure, some are being wise and rent their California houses while they "try out" their new state. But I am sure most sell their houses. But to whom? It's been suggested on other blogs that a lot of such purchases are by illegal immigrants who purchase with no money down, IO loans, etc. Is this an over generalization or is there some truth to it? If it's accurate to any degree, then it would seem to suggest that market stability is even more dependent on continued price appreciation than what we've been led to believe before.

Here are two articles that discuss the exodus. The first:

The gap between the number of people hiring United Van Lines to move them out of California vs. those moving into the Golden State widened again in 2005, reaching 55.7 percent outbound, the household goods carrier announced this week.

The most significant trends identified by United's annual migration study, based on business booked by the largest U.S. household mover, saw many people moving to new homes in the Southeast and West, apart from California. At the same time, Midwest and Northeastern states experienced an increase in residents leaving.

While San Joaquin County is seeing its population grow as Bay Area residents enter the region seeking relatively affordable housing, when it comes to interstate moves, the majority do seem to be heading out of California.

"It was about a 2 to 1 outbound traffic," he said. "In fact, there were a couple months this summer where it peaked out as a 3-to-1 imbalance."

"Of these moves that are outbound from California, 70 percent of our moves are going to eight states: Washington, Oregon, Nevada, Arizona, New Mexico, Texas, Idaho and Colorado," he said.

"People are cashing in on the values of their homes, moving to states close to California but may have different income tax policies or just a different way of life," he said.

The state is in no danger of losing population, due to high rates of immigration from foreign countries as well as natural growth, he said.

The second:

Go east. Go north. This is the rallying cry for a growing number of Californians who are packing up and moving out. A decade ago, a distressed economy drove people out of the state. Today, it's soaring house prices. Some simply can't afford a home. Others own homes and are taking advantage of the strong real estate market to cash out and move to nicer homes in Nevada, Arizona, Texas, Washington, Oregon and beyond.

A survey by the Public Policy Institute of California in 2004 found that a quarter of Californians said the cost of housing was forcing them to seriously consider moving to another part of the state or away from California. The numbers were higher for renters (37 percent) and people younger than 35 (31 percent).

The California Association of Realtors' annual survey of its members shows that in the last two years more Californians selling their homes intended to move to other states. In 2005, 31 percent of sellers were planning to go out of state, compared with only 20 percent from 2001 to 2003, the survey found.

Data compiled by Moody's Economy.com using Census Bureau and IRS numbers show that in 2004 half a million people left California for other states while fewer than 400,000 came to California from other states, a net deficit of more than 100,000 that has been growing since 2001.

Californians are changing the real estate landscapes in the communities they're moving to. Many are buying homes for themselves, but many others are investors who are buying houses to resell quickly or renting them out until they appreciate, Realtors in Houston and Phoenix said.

Keitaro Matsuda, senior economist for Union Bank of California, said as investors and families leave California in search of better real estate bargains, the competition for housing is sharply pushing up prices in states throughout the West, starting with those closest to California.

Sandra Harris, 44, is moving back into an apartment because she can't keep up with the mortgage payments on her Riverside home, which she has lived in for three years. She said she plans to put her house on the market soon and is strongly considering moving to Phoenix because she can get a condo for less than $200,000 there. "The toughest part is I have friends here, but I can't afford to stay," said Harris, who designs and sells boutique items.

Roxanna Moreno, a single mother, spent two years looking to buy a house in Moreno Valley on her wages of $16.50 an hour as a health services assistant for Riverside County. All she could find at $200,000 and less were old houses needing substantial repairs. Then she saw pictures of a house that her uncle and aunt from Los Angeles were buying in a new subdivision under development near Dallas, Texas. She immediately changed her plans.

One consequence of this migration out of the state and the out-of-control cost of housing is that there are fewer children; so schools have to be closed and/or consolidated. People are thinking to themselves that if housing costs so very much then surely the schools would be very good. You might even think that the public infrastructure would be very good. The thinking goes something like this: 'I am spending a million dollars for a pretty crappy house compared to what I can get pretty much anywhere else in the country. So there must be something tangible that I am getting in return'. But it's just not so:

The San Francisco public schools have a math problem: Students outperform those of all other large, urban districts in the state, but children are leaving -- in droves.

So it doesn't take an honor student to see that if San Francisco's enrollment continues to plummet, there will be more wrenching decisions like the ones reached Thursday night when the Board of Education agreed to close or move 14 schools.

The district of 56,578 students has been losing up to 1,000 students per year for five years, the school board says, and the trend is expected to continue.

"With the housing prices what they are, I would hope for public schools with a better reputation than those in S.F. seem to have," wrote one person.

"S.F. schools are an embarrassment," responded another.

"(We) felt that if we stayed in the city, we would have to send our kids to private schools, and we could not afford to do that. S.F. schools feel very 'inner city' in a negative way," wrote a third.

In all, 70 percent of the respondents said housing prices caused them to leave the city.

"We were most concerned that if we were locked into San Francisco with a mortgage, then if we got a school that was too far away or we didn't like the way it was run, we'd be trapped," Samaras said.

More December Results for Marin

Here are some more results about December sales in Marin care of my "favorite" rag the Marin IJ. The IJ reports that December's median sales price for SFH in Marin dropped from $920,000 to $900,000. Yet West Bay RE claims the December median is $960,000 and that it went up! Who is right? How can the facts be so confused not just in degree but also in direction? I think this just goes to show that realtor data cannot be trusted to be accurate; they will bias things in their favor. Am I too cynical? Maybe. I continue to wait for the Marin Assessor's Office data to be published but that will take them months. Can we even trust the Marin Assessor's Office?

Some choice quotes:

Marin's median single-family home price dipped to $900,000 in December, down from $920,000 in November, as the housing market continued a decline in sales, a real estate information firm reported Thursday.

Single-family home sales in Marin eased to 198 in December from 241 in November - a 17.2 percent drop from December 2004, when 239 single-family homes were sold, according to La Jolla-based DataQuick information Systems.

Across the Bay Area, single-family home sales for December were at 6,125, down 16.4 percent from December 2004, when 7,328 homes were sold.

But everything is ok; we are just getting back to normal say the "experts" with their commission-based agenda:

"It's the leveling off that we've been talking about," said Kathy Schlegel, president of the Marin Association of Realtors. "It's the normalization of the market - it's healthy and more balanced."

"The big news is that there's no bubble bursting," Schlegel added. "There may be a little bit of air being let out - but no bursting."

And this from my "buddy", Jack McLaughlin:

"My question is what's going to happen in March?" said McLaughlin, a partner with Vision Real Estate Group in Corte Madera. "We expect things to be quiet right now - but the last few years, things have been jumping in the spring.

"Is that going to happen again this year?" he said.

"I think this is sort of the bottom of the correction," McLaughlin said. "I think we've got the makings of a strong market - usually after the Super Bowl things pick up."

Yeah, right, whatever you say Jack. Frankly, I think this bust has just begun; we've got a hell of a downward ride ahead of us. But what do I know? I can't see the future any better than these guys. But I think my inflammatory comment about their "commission-based agendas" was spot on. Maybe they didn't like it, but it is true nonetheless. As reviewed by this blogger, property is dropping in price all over the Bay Area, not just Marin. Sonoma is getting hammered. I don't know what is going to happen in the Spring any more than you do or any more than these so-called "experts" do, but it isn't looking too good for the Bay Area that is for sure. I suspect there will be increased activity in the Spring but if there is a gain it will not be anything to write home about if you know what I mean.

Power to the People

This blogger supports the Open MLS Initiative. It's about time we put the power back into the hands of We The People. It would make more transparent the selling history of any address and thereby help reduce realtor shenanigans and general misuse of the MLS. Thanks to the reader who sent me this article.

SAN FRANCISCO, Dec. 21 /PRNewswire/ -- A ballot initiative filed with the California Attorney General seeks to establish a California-wide residential multiple listing service open to the public and realty agents alike.

If established, the open MLS would likely serve over 170,000 users, making it America's largest, three times the size of the nation's second largest MLS.

The initiative's proponent, David Barry, also announced the sponsorship of a competition for open MLS operator. Bidding opened immediately on Dec. 21, 2005, and closes 21 days later at noon, Jan. 11, 2006, Pacific Time. The competition seeks a firm to own and operate the open MLS on a paid basis.

To qualify for the ballot, initiative supporters need 373,700 signatures, usually obtained through signature firms at $1.50 to $2 per signature, putting the qualifying cost close to $1 million.

Wealthy bidders might find the expense worthwhile. Since MLS system costs run $7 per user per month or less, even a low-bid offer of $20 could achieve gross profits of over $25 million per year in California. If the open MLS expanded to the nation, as planned, gross profits could exceed $100 million per year.

The initiative guarantees the public free access to all sale and rental listings, along with the right to freely download the entire MLS with no copyright restrictions.

The initiative cites the low productivity of the real estate industry (averaging only five homes sold per agent yearly) and high, uncompetitive commission rates, themes described in Nine Pillars of the Citadel, authored by David Barry, posted at barryfirm.com.

Read the article to get the contact information.

And if you are as mad as me (and other bloggers) about this housing bubble, how it came to be, the distortions it has wrought, and how it is affecting our communities, then write a letter to your representatives and tell them what you think; it's your Constitutional right and as such a very rare and precious thing on this Earth, so exercise it. Here are some addresses:

109th Congress
And here

25 Years of Appreciation in California

(Click on the graph for a larger view.)

Check out this graph. I found it here. It shows housing price appreciation over the last 25 years. I ask you, what better picture of the California housing bubble than this? And realtors actually expect us to believe that those curves will level out rising at the rate of inflation into the future. Ha!

Sales Results for December, 2005 for Marin County

Below are some results of single family house (SFH) sales for December, 2005 in Marin. Percent sales of SFHs are down about -19% as compared to this time last year. The average price is up 11% since November. Condo prices showed a year-over-year loss in price of a little more than 2%.

First, this is what West Bay Real Estate has to say:

Home sales in Marin County fell 8.3% from the month before, and were off 18.8% compared to December 2004. The median price for single-family homes gained 2.7% to $960,000 from November. The year-over-year appreciation was 9.7%, the third time in the past four months year-over-year appreciation has been in single-digits. The average home price gained 11% to $1,338,698, an annual increase of 24.9%.

The median price for condos fell 6.3% to $506,000, a year-over-year loss of 2.2%. That hasn't happened since December 2002. Sales fell 13.6%, and were off 20.3% compared to last December.

Here is a plot of percent sales of SFHs over the course of the year. The red line is the best-fitting (least squares) trend line:

(Click on the graph for a larger view.)

What do we make of the fact that percent sales are falling on a year-over-year basis yet the average price is up so much?

Take a look at the next graph that shows the number of houses sold grouped into sales price bins of $200,000 intervals (so $400,000 on the abscissa means the number of houses that sold in the price range $200,000 to $400,000, $1,000,000 means the number of houses that sold in the price range $800,000 to $1,000,000, etc.):

(Click on the graph for a larger view.)

It's a little hard to see in this graph, but quite a few houses priced in the more extreme price range (say, greater than $4,000,000) sold last month; some for well over $7,000,000. Compare these results with those of October and November of 2005. These extreme values ("outliers" in statistical parlance) significantly affect the average (by shifting the average closer to the outliers) and affect the median by a little. If just the two houses that sold above $7,000,000 in December are removed from the sample (so as to be comparable to the October and November analyses), then the average sales price in December for Marin is $1,073,893 which is down from November's $1,206,201 figure -- in other words a one month loss in SFH sales price of -11%.

Bye-Bye, Bubble?

This article in the The Atlantic Monthly (you need to be a subscriber to read the article) argues that mainstream media reporting on the housing bubble is fading away because it is not popping with the rapidity of the .com bubble. True enough. But the writer is (probably knowingly) committing a grave fallacy: the time scale of a housing market is much different than that of a stock market if for no other reason than it takes a lot of time to sell a house as compared to a stock. Compound that difference in time scales with the fact that it takes numerous transactions spread over time to define a trend and it is easy to understand this difference in the two markets. Although the investor psychology during any speculative mania is the same, in the stock market a bubble pop is measured in days and weeks or months; in real estate it is measured in years. Expecting the housing market to bust over a few days or a few months is ridiculous. So this article makes a straw man argument and then tears it down.

Some choice quotes:

Something terrible is happening in the media...The real estate bubble is fading away.

Yes, the story of soaring home values that has lit up our lives for the last several years, and produced an incalculable number of breathless headlines and anecdotal leads about Joe and Jane Homeowner; the epic journalistic narrative that lent so much tension and drama to everyday existence (Is there really a bubble? Is it in my ZIP code? Can I make money from it?); the pop-culture phenomenon that launched a zillion identical kitchen renovations with stainless-steel appliances and granite countertops; the boom that filled the Friday lifestyle sections of The Wall Street Journal and The New York Times with display ads for swank "estate properties" that you might actually be able to afford next year if prices on your street keep rising insanely—is dying.

For a bubble story to stay alive, it must either be expanding rapidly, or bursting suddenly and wreaking havoc across the landscape. The tech bubble was a classic of the genre: It grew and grew in the late '90s, sucking in more and more gullible people, and then in a very short time, beginning in March 2000, it just blew, and countless investors lost their shirts. By bursting spectacularly, the tech bubble confirmed itself as a true bubble and became legend.

The media turned real estate into a new kind of socially acceptable pornography.

The problem with the housing bubble is, it's not expanding wildly any more, yet it's not exactly bursting, either. It's being unpredictable and confusing.

But the article ends on a good note [ ;) ]:

This week, I was cruising the real estate blogs (yes, there are scads) when I came across a good one called Marin Real Estate Bubble, "A Place for Residents of Marin County, Calif., and Others to Express Their Views Regarding the Real Estate Bubble." The blog had a new posting about a survey in which 67 percent of Americans said they "believe there really is a real estate bubble," as if it were Santa Claus. And so it was.

I'm pleased that a classy journal like the The Atlantic Monthly would mention this humble blog. But I am sorry that they equate this housing bubble with a mythical character.

Monetary Myopia

There's an excellent article in The Economist; I highly recommend reading it. There is so much quotable material that if I did so, this post would be too large; I'll just quote some of the more poignant remarks.

On Mr Greenspan's watch, America has also experienced the biggest stockmarket and housing bubbles in history. Presiding over one bubble could be seen as bad luck; presiding over two smacks of carelessness.

The Greenspan era will not end on January 31st. Instead, his legacy will linger in the shape of the biggest economic imbalances in American history: a negative household saving rate and a record current-account deficit (see chart 1). Until these imbalances unwind—a process that could prove painful—it is too soon to applaud Mr Greenspan's record.

The Economist's long-running quarrel with Mr Greenspan is that he chose not to restrain the stockmarket bubble in the late 1990s or to curb today's housing bubble. He has declared himself vindicated in not pricking the equity bubble with higher interest rates, but instead to let it burst and then cut rates sharply to “mop up” the damage.

Asset-price inflation can be as harmful as conventional inflation. A sudden collapse in share or house prices can trigger a deep downturn.

From a risk-management perspective, the case for acting against the housing bubble is even greater than for the stockmarket bubble. A housing bubble has bigger wealth effects on consumer spending, so a collapse in house prices would cause more economic harm than one in share prices. Such a bubble is more likely to create financial instability because people borrow more to buy homes. And raising interest rates is a more powerful tool against rising house prices than share prices.

In December Mr Greenspan was made a Freeman of the City of London. One of the traditional perks of this honour is that he can be drunk and disorderly without fear of arrest. The snag is that his policies have also encouraged drunk and disorderly asset markets and intoxicated consumers. When the party ends, Mr Greenspan will not be there to clean up the mess. But end it surely will.

Marin Market Ratings

Below is a graphical representation of market ratings (e.g., "Strong Sellers", "Balanced", "Extreme Buyers", etc.) for Marin County for the period spanning October, 2004 to January, 2006. I found the data here. To make this bar chart, I arbitrarily assigned an ordinal to each rating as follows:

1 = Extreme Buyers Market
2 = Strong Buyers Market
3 = Buyers Market
4 = Balanced Market
5 = Sellers Market
6 = Strong Sellers Market
7 = Extreme Sellers Market

So, the shorter the bars in the following graph, the more of a buyers market it is; the higher the bars, the more of a sellers market it is.

This time last year Marin was a "Strong Sellers Market". Today Marin is a "Strong Buyers Market".

It is worth taking a closer look at her data. Basically, the "cheapest" houses are in the "Sellers Market" or "Balanced Market" range; anything priced at a million dollars or more is in one of the "Buyers Market" categories. As interest rates rise and/or "exotic" loans become harder to obtain I should think we would see the low end price range convert to one of the "Buyers" categories. But as it stands now, if you want to be in one of the "Sellers Market" categories then you have to lower your price.

And you gotta love the spin this realtor tries to put on her data.

"Liar, Liar Pants on Fire" Loans

Here is an article about mortgage fraud vis-à-vis stated income loans. It seems it is ok to commit mortgage fraud as long as everyone is making money. I wonder how prevalent stated income loans are in Marin. Any Marin mortgage brokers lurking on this blog who are willing to post their thoughts on this topic (anonymously, of course)? In any event, it will be interesting to see what comes to the surface after the you-know-what hits the fan.

Some choice quotes:

While the big scams grab headlines, industry insiders caution that the bulk of the fraud infesting the real estate industry could well be a lot more subtle.

Stated-income mortgages do not require a borrower to provide proof of their income to a lender. Instead, a borrower "states" how much they earn on their application. Some local brokers said these loans seem almost designed with fraud in mind. They now refer to these loans as "liar's loans," because, they said, the freedom plays into the hands of unscrupulous mortgage brokers and borrowers.

Brokers and other industry insiders admitted such loans have made fraudulent income inflations a very common occurrence in the mortgage industry.

Sam Jarman, manager of Charter Mortgage in San Diego, made a conservative estimate that 25 percent of stated-income loans are fraudulent. However, he said such a figure was impossible to verify, because nobody seems to know how widespread the problem of inflated-income mortgage fraud has become.

Certainly, the FBI thinks such fraud is a problem.

Swecker attributed this fraud to inadequate oversight of the industry, particularly mortgage brokers.

A Housing Bear

I'm sorry about not being able to post much lately.

I found this article which does a nice job of factually summarizing the housing bear point of view for those of you who are so inclined to entertain it. Most of the points made in the article apply more or less equally to Marin since despite Marin's inward-looking nature, and dare I say "narcissism", we are nevertheless a part of the rest of the economic world. At the very least it should generate a lively discussion.

Some other points to consider: The author makes a case for why the Fed will continue with rate hikes but failed to mention that not doing so also risks further weakening the dollar. Also, while reading the article this graph would probably be better to refer to instead of the one the author uses which is for San Diego. Further, it is worth keeping in mind that the difference in rates between ARMs and longer-term loans is narrowing (as can be seen here) and I don't think moving to 40-, 50-, or 60-year loans will do much good for the reasons explained here.

A Home Boom Busts

Which housing market do you think these statements are referring to?

"a doubling of prices in the previous three years"

"a run-up fueled by massive speculation"

"at least 30% to 40% of homes sold were bought by speculators"

"Ordinary people had no option but to follow the trend; worrying that prices would be even more unaffordable tomorrow, many of them borrowed from relatives and banks to buy as soon as possible."

People sleeping in lines over night for the chance to buy a property.

"[so-and-so] believed she was raking in hundreds of dollars a day for doing nothing, as property prices in the city kept soaring."

Sounds familiar, right? Is it Florida? Boston? San Diego, San Francisco? Wrong, wrong, wrong, and wrong. It's Shanghai, China (and here). Their housing bubble is not described as being in "a soft landing", a "hiss/leak" or whatever, but rather as "popping".

Now, to be fair and unlike other eager-beaver bubble bloggers who are reporting on this article, I am not going to draw any strict comparisons between China's housing bubble and ours. Why? Because of the fact that the Chinese government seems to have deliberately tried to pop their bubble:

Banks were ordered to raise their best rate on home loans to 5.5% from 5%. Home buyers were required to make down payments of at least 30%, up from 20%. A 5.5% capital gains tax on home sellers' profits was imposed. Beijing also levied a 5% tax on the sale price of homes sold before two years of ownership.

We have yet to see any concerted effort (of comparable magnitude to that of China's) on the part of our elected and appointed officials to reign in our housing bubbles as it seems as if our leaders want our bubbles to go on for as long as possible and then collapse of their own weight and then, after the damage has been done, get credit for "fixing" the problems. That way our leaders don't get blamed for having caused the pain of the popping even though intervening early would reduce the suffering the American public would experience as compared to waiting for the whole thing to blow on its own.

What interests me about this article is what is happening to the people in Shanghai as a result of the implosion of their bubble; it's only just begun for them and I think it is something we will eventually have to "look forward" to ourselves.

But it's not just speculators who have bailed out of the market. A lot of potential Shanghai buyers have been scared off by numerous reports of sinking home prices and desperate action by some owners.

A Taiwanese man had jumped from the 33rd floor of an apartment tower about 15 miles northeast of downtown. Many people suspect that he killed himself because he was drowning in debt after his home investments went sour.

"Even a 1% drop in prices is a lot of money for us."

People losing their life savings.

The financial sector will be crippled by the real estate fallout

Regret with having got caught up in the housing frenzy

A New Blog

There is a new blog on the block that will likely prove interesting. It's called "America's Most Over-Valued Real Estate Markets". Check it out. Here is what the blogger has to say about the Bay Area:

San Francisco started enjoying a bubble before most cities. Things took off in the mid-1990s and got a little out of hand with the internet bubble. Prices calmed down after the dot.coms exploded, but accelerated after the Fed started to cut interest rates. Over the last year or so, prices have been increasing almost vertically. However, San Francisco has been through it before. The 1980s bubble finally burst in 1989, and prices fell for about five straight years.

And I enjoyed one of his articles on a companion blog which summarizes the work of Hyman Minsky who identified seven stages of a financial bubble all of which sound too familiar.

Bay Area is 50% IO in 2005

Just a quick note: A reader brought to my attention this article in the SF Chronicle. Most of it is the typically bland and not very informative stuff. Until this that is:

Roughly 80 percent of home purchases in the Bay Area were financed using adjustable-rate mortgages...

San Francisco mortgage research firm Loanperformance.com found a whopping 50 percent of buyers in the Bay Area this year used interest-only loans, compared with 45 percent of borrowers statewide and 31 percent nationwide.

Piggington Does the Bay Area

Remember when I said that the SoCal housing market is not all that different from that of the Bay Area vis-à-vis the housing bubble and the lambasting I got for that comment? Well, Professor Piggington has done the comparison so see for yourself. It's nice to have corroborating analysis.

This suggests that Bay Area home prices have risen not on structural fundamentals such as population or income growth, but on more ephemeral factors such as optimism, over-ownership, speculation, and E-Z credit.

Top RE Salesmen in CYA Mode Again

I need a break from the crud I am having to deal with. So...

Well, David Lereah and David Seiders are still heavily in CYA mode (what ever happened to 'housing never goes down', 'it's different this time', 'houses are different from stocks, people live in houses', 'if you paid off your mortgage you're unsophisticated', 'not bubbles, just balloons'?):

"It's difficult to follow the strongest year ever," said David Lereah, chief economist for the National Association of Realtors trade group, which has about 1.2 million members. "The boom is obviously winding down. That's what we're all saying and observing." Existing-home sales should drop about 4 percent to 5 percent this year, compared to the 2005 levels, Lereah said, and new-home sales should drop about 5 percent to 6 percent year-over-year.

Price drops are possible in some "very, very hot metro markets," he added, though "it's very difficult to know which markets they will be right now." Nationwide, though, Lereah expects home-price appreciation to be up about 6.1 percent this year, compared to a rise of 13 percent in 2005.

Lereah said, "Investor activity is by far ... the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory." Speculators who bought properties to flip quickly may be left at a loss, as interest rates are rising and the market is in transition from a seller's market to a buyer's market.

David Seiders, chief economist for the National Association of Home Builders trade group, said, "I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us," he said, adding that it's a "major uncertainty" where investors would put their money if they pulled it out of the real estate market.

"All of us will be observing keenly," Lereah said. In March 2005, the Realtor trade group released a study that showed a high level of investor activity in the housing market: 23 percent of all homes purchased in 2004 were for investment, and another 13 percent were vacation homes.

What about all those people who "bought" houses to live in with "toxic" loans or did cash-out refis? Aren't they speculating too, betting on future greater-than-inflation price appreciation? And what happens when these marginal buyers are forced to add their houses to the existing inventory?

November Results for Marin

Thanks for the support. Yes, it is a serious emergency and it will keep me pre-occupied for some time.

So, I really have little time to blog or even think about Marin RE as I said in my previous post, but I received an email notification from West Bay Realty that I would be remiss to not pass along to you:

November's results for Marin County are out and they don't look good (not very surprising given all that has been posted here on this blog of late). SFH sales are off nearly -30% compared to this time last year. The median price of a SFH fell somewhat and year-over-year appreciation is now in the single digits but the average price increased (maybe someone could do a bar chart and verify that there are some high-end outliers). I would guess that only the nicer houses are selling and people are finding that they can now get more for their money; I suspect it will only get better for buyers.

Condo sales rose 38% from last month (that's not too surprising given how far off they were in October) but they are still down more than -20% compared to this time last year. West Bay RE describes the rise in condo sales as "soared" so I suppose to be fair that means the -20% sales figure should be described as "tanked".

I look forward to confirmation/adjustment of these data from the Marin Assessor's Office.

Watch out for the "dead cat bounce".

From West Bay RE:

Home sales in Marin County fell 24.1% from the month before, and were off 29.2% compared to November 2004. Along with falling sales came rising Days on Market. The time it took to put a home under contract increased seventeen days to 65.

The median price for single-family homes fell 1.3% from October to $935,000. The year-over-year appreciation was 4.8%. The average home price, on the other hand, gained 7.1% to $1,209,845, an annual increase of 11.3%.

The median price for condos rose 0.1% to $540,000, an annual gain of 10.7%. Sales soared, rising 38.1%% from the month before, but off 20.5% from last November.

Stuff Happens

There has been a family emergency and so I am neither inclined nor free to post very much. I will resume posting when I can.

Marinite