Friday, December 26, 2008

Sacramento Real Estate Market - December 2008 Water Cooler

Post off-topic links, observations, and stories about the Sacramento real estate market here. Please read the comment policy before posting.

91 comments:

Buying Time said...

You know things are bad when:

Instead of just thinking Friday....

You think "bank failure Friday".

Jacob said...

I was at the Galleria Mall and Best Buy on Black Friday, around 1PM. No trouble parking, no lines. At Best Buy there were only about 5 or so people in line. Granted, it was probably busier in the morning, but it is still usually a lot busier later on as well.

I expect the holiday sales numbers to be a disaster for retailers.

it also seems like every jeweler in the mall is going out of business.

Wadin' In said...

ForeclosuresToGo.com listed 236NODs last week. On an annual basis, that is about 12% of all homes in the county. One or two more years of this and 25% of all houses will be bank owned. A Keller Williams used house salesperson just told me their company is forecasting three more years of this, as people with 800 FICOs realize there is no reason to stay in thier upside down mortgages.

Whew....this could get ugly.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

Credit-card industry may cut $2 trillion lines: analyst

http://www.reuters.com/article/newsOne/idUSTRE4B01HI20081201

The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

...$2 Trillion is one load of dough to take out of the hands of the American consumer...If this Christmas doesn't destroy the retailer, cutting up the credit lines will.

I can't believe how many people actually use their credit cards to buy groceries. The standard answer is "but I get points that I can use for other things" Biggest scam ever...When 10,000 points (he equivalent of $10,000 spent) will get you an electric toothbrush with 2,000 points to spare, you gotta love the stupidity of the American shopper. Now the banks want to take away all those freebies and points you could be chalking up? What an outrage!

Seriously, this paints a really tough picture going forward if these lines are stripped away...

And just for good measure, I read that McDonalds is the 2nd largest merchant vendor for credit cards...I guess it's getting tough to find a couple of bucks to put down for two of McD's cheesburgers?

David said...

DD, get a cashback credit card and then you'll see the value to using it at McDs and the grocery store for even small purchases. As long as you pay off your balance each month, you win.

Deflationary Jane said...

DD,

I have a cash back CC at a crazy low rate. I do the same thing as David. It's paid off each month. Folks like us are called "deadbeats" in the credit world.

On a realted note: UCD had about 80 positions open a few weeks ago. Yesterday there were 4 - all asst directors and up and all with crazy salaries. I bet that's being well received >; )

Rich said...

DD- I don't get you here. I have a Costco AMEX. We use it for everything. And why not, if they're going to give us even 1% cash back, and it costs me nothing over the Costco membership. I pay it off every month. We never go over 1/3 of our limit, so if anything it helps our FICO. Now- if businesses passed on the CC charge to consumers, I'd be using cash. But since they usually don't, and the CC surcharge is now worked into all the pricing, we'd be dumb to not get a sliver of that pie back ourselves.

waiting_for_the_fall said...

Rich,
Businesses add the cc charge to what they sell.
If you use cash or a cc without cash back rewards, you're paying extra.
I think we'll all be using a cc for everything in the next 20 years. Paying with cash will be phased out.

Husmanen said...

Me too. I use an AMEX from Costco where I get a 5% rebate/cashback on fuel plus varying rate for everything else. They basically float me one month and I pay it off. Deadbeat sound like an appropriate name for me from the 'business'. But that is the rules of the game. When they change I will too.

Jacob said...

I am not sure deadbeat is a valid term since the cc companies get their fee for everything I buy.

Wadin' In said...

The commercial real estate meltdown is just starting in Sacramento. A client asked me to review a loan made by LaSalle on a 41,000 sq. ft. shopping center in the Sacramento suburbs. The loan is for $19,200,000. It was securitized and is in some CMBS investment pool. Yes, over $450/sq. ft. (and probably owned in part by CalPERS!) It is a disaster, entering the meltdown phase right now.

The property is probably worth about $200/sq. ft. The woman who built it in 2006 overspent lavishly, thinking appreciation would never end and the tenants could pay ever increasing rents for "high end" product. LaSalle was very happy to lend her the money, since they would sell the loan to the next greater fool.

25% of the tenants have vacated or entered into BK. The loan will go into default soon and the lender will foreclose and ultimately sell the place for about $8,000,000 on a good day ($200/sq. ft.). That leaves $11,200,000 to go up in smoke in only 18 months. Whew, the next shoe is starting to fall in California. I can show you 5 or 6 loans just like this in the Sacramento market. The industry lent about $800 billion of securitized financing in 2007. Does anyone know how that compares to residential loan volume in 2007? This may be worse than the early 1990s.

Diggin Deeper said...

I really didn't expect it would apply to many bloggers here. If you're looking to buy a home and you are saving up for a 20% downpayment, you're probably not going to defeat yourself by running up large balances on your credit cards.

The banks would not consider pulling some much risk out of the market if the abuses weren't rampant, out of control, or likely to escalate in the months ahead. A couple of $Trillion out of the hands of a job losing public, is a couple of $Trillion that cannot shower red ink on their balance sheets.

Cash back CC's are great and the Costco example is a good one. But for every example of someone who's a "deadbeat" to the credit system, you can be assured there are 1000's who've spent that $10,000, carry huge balances, and are simply giddy the day that toothbrush arrives in the mail.

The problem is that a rising percentage of these people will lose their jobs, be unable to pay their debts, and walk. This is another reason why the automakers are such big trouble. Their financing arms are not financing anymore...they've shifted from finance to repossession...

Wadin' In said...

The residential loan industry did about $3 trillion in 2006 and $2.5 trillion in 2007. So the residential loan portfolio is about 3 times larger than the commercial CMBS portfolio, which was $800 million in 2007. When you add all the other commercial lenders together, it might be $1 trillion for commercial.

Diggin Deeper said...

Shadowstat.com posted their jobless numbers last Friday...well over 700,000 jobs lost for November. They also updated their unemployment rate which includes those that are unemployed and not looking to over 16% unemployment rates...That's quite a bit different from the media/BLS version.

RV6Flyer said...

"...which was $800 million in 2007. When you add all the other commercial lenders together, it might be $1 trillion for commercial."

No, more like $2 trillian. A vast majority of the $5MM and less commercial loans never get securitized and are held on balance sheets of regional, community, and national banks. I had the industry numbers for 2007 a while back, I will see if I can find them again.

jmf said...

Majority of Modified Loans Fail Again, Regulator Says

http://www.bloomberg.com/apps/news?pid=20601087&sid=aZfUsedWrv5o&refer=home

Rich said...

"Majority of Modified Loans Fail Again, Regulator Says"

We really shouldn't be surprised. How many people declare bankruptcy more than once? How many keep the weight off after lipsuction/band/other major operation? How many people smoke after losing part of a lung to cancer?

Sometimes when life gives us lessons, we learn. More often it seems, we thank our lucky stars and go back to life as normal.

smf said...

No surprise about the modified loan failure rate.

These people have only three options:

1. Sell at a higher price.
2. Short sale.
3. Foreclose.

#1 is basically off the table.

#2 is questionable with the current environment.

Which leaves #3 behind as the majority 'solution' for the problem.

Bailouts work when you have a chance of getting paid back.

When you have little chance of payback, it is not a bailout.

It is akin to simply burning money. You get the same result at the end.

Cmyst said...

My landlord just told me that my rental house is going into foreclosure in February. I shouldn't be surprised, but I am -- we have been here nearly 3 years. The landlord has ties to the neighborhood, and they've owned this place for over 20 years. I felt that we'd lucked into a good, stable rental.
Makes me a bit worried about the job that I consider to be so stable and secure, as well.

45north said...

Sea Mist: My landlord just told me that my rental house is going into foreclosure in February.
at least he told you

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Rich said...

We looked at a house last week. Only sale on history was the original at 105K. It's now listed at short at 250. I asked our agent, who confirmed 4 HELOCs, most recently in '06 for 340K.

It is currently occupied by renters who walked away from their house last year when, as they claim, their mortgage trippled in a couple of months, dispite what the lender told them about their adjustable cap. I'm thinking neg-am paying the min, and the principle expanded to the point that a requirement to pay it down kicked in. I don't see any other way a mortgage can triple.

Husmanen said...

Cmyst... Does this mean that the your LL has not paid and the Auction will occur? Or they have just quit paying and the 90 days have begun? Or ?

I ask because your rental was purchased in 2005 with 20% down, but that 20% is now gone and our monthly cost does not come close to covering the loan. This is always in the back of my mind and I keep tabs on the notices via realtytrac.com. We were close a while ago, two doors down the house went back to the bank.

Husmanen said...

opps, I meant to say 'our' or 'my' rental was purchased in 2005....

Sorry

patient renter said...

Cmyst - Look on the brightside, your landlord could have just left you out to dry, collecting rent payments from you all the way up until D-day. It's great that they were at least courteous enough to tell you what's going on (which should be a given, but isn't exactly common nowadays).

Good luck finding a new place and post if you need input.

Cmyst said...

I'm guessing they stopped paying this month. The hitch here is that I actually pay a property management company the rent, so I have to keep paying the rent. And I am grateful that the landlord called to tell me what was happening. He was very apologetic, and I know it was not an easy call for him to make.
I'm kind of frustrated by the lack of decent, affordable rentals so far. HomePointe was supposed to get a shatload of foreclosures, but not many are anywhere I'd want to live.
Craigslist is full of dreamers and schemers.
Maybe more rentals will pop up after Christmas.
On the bright side, for those of you who thought I was jumping the gun by trying to buy a house, we aren't trying any more. We will need to spend the closing cost money on rental deposit and overlapping rent (to give us time to move), and we will have to sign another lease, so we're out of it for yet another year.

patient renter said...

Craigslist isn't all bad - some legit property management companies post there, though it is as you say, mostly a bunch of dreamers and schemers.

Be sure to get BT or some other to do some "checks" on any rentals you're looking at to make sure they're not underwater, in default, etc.

Husmanen said...

Cymst, so sorry to hear about your situation. I will try to learn from your experience as there is a good chance my situation will ultimately be no different.

Maybe someone can confirm, doesn't it take a long time after a bank has a home in pre-foreclosure (stop paying for >90 days). Then there is a date set for Auction and finally the home will become bank owned.

I have seen some homes go through this process in <6 months, that is after they are >90 days late. And others that linger for more than a year. Each situation and bank is unique.

This, of course, is no consolation as you will eventually have to move. But it could buy you some time. I have even heard about banks paying the renters to leave, without any damage that is.

brian said...

When is the Federal government going to put price controls on housing? Soon we will have a "home equity preservation" plan which the government will buy any home listing for less than 70% of the 2005 value. Why even bother with a market driven by supply and demand? The government is not letting poorly run companies fail so why let home prices fall. They should just buy homes w/ borrowed and printed money and be done w/ it.

patient renter said...

When is the Federal government going to put price controls on housing? Soon we will have a "home equity preservation" plan

Controlling prices is exactly what many of their current policies are intended to do. While not the directly stated goal, floating prices and thereby "preserving equity" is what the government is doing, which is exactly why taxpayers should be (and many are) outraged.

patient renter said...

Can anyone explain why it is that the Congressional committee overseeing the TARP is so concerned with how the TARP is or isn't helping homeowners? Am I missing something, or wasn't the TARP never intended to have anything to do with foreclosures/homeowners?

The chairman of this committee, Elizabeth Warren, is on Fresh Air this morning, and in the first minute of her interview she said so many wrong things I quickly lost track. Off the top of my head: She mentioned the Credit Suisse report that estimated 8 million mortgages will be in foreclosure, though instead of mortgages being in foreclosure she preferred to say that 8 million "families" will lose "their" homes. She went on to say that these "families" will most likely end up in apartments, living with relatives or on the street. Rental homes do not exist in the land of Elizabeth Warren.

Then she went on to build her case for a bailout, talking about the costs of foreclosure, that it costs investors a lot of money for a home to go into foreclosure. Nevermind the fact that investors are perfectly capable of granting concessions if they want to avoid these evil foreclosure costs without the government redistributing taxpayer money to compensate, but Liz didn't want to talk about that. Instead she continued on to say that the foreclosure process results in homes losing 40 to 50 percent of their values. Yes, that is what she said. It's not the bursting of an epic housing bubble that caused foreclosures to lose their value, it is somehow the process of foreclosure itself.

Then there was more, but I'm sure you get the idea. The chairman is a clueless shill.

patient renter said...

Nice little NYT article looking at Congressional ties to Wall Street and how those ties were used to pull for the bailout:

http://www.nytimes.com/2008/12/14/business/14schumer.html?pagewanted=1&hp

smf said...

Blurb from Ben Jones, that proves my long held point:

“‘The same speculators that were partly responsible for the housing bubble and its subsequent popping are the same ones that are trying to replicate the 2003 [through] 2006 period,’ says Anthony Sanders, a professor of finance at Arizona State University. ‘As the housing market seeks a bottom, speculators and some well-funded hedge funds are jumping in the market but finding that the bottom hasn’t been hit yet. Hence, they jump back out again.’”

“This type of scenario is playing out nationwide. Homeowners selling their properties after less than a year now represent 17.3 percent of total sales in the U.S., reports Zillow. This is higher than at any point during the housing boom.”

Oops!

paranoid renter said...

in good old roseville where it was nigh impossible to find a new single family home for < 400K, you can now buy a new single family starter home in westpark for ~250K. How the mighty have fallen...

however, you should go take a tour of one of those...it's pretty sorry. i think i'm gonna keep renting for a while.

going by what a lot of gloom and doom economists are saying, we should have some pretty interesting stuff happen by march.

paranoid renter said...

btw, the person in the office there told me that for people that are waiting for the bottom, they already missed it.

for me, that is sure sign that prices will continue to fall. back in 2004, a different realtor told me "what are you waiting for? are waiting for prices to go up another 100,000?".

Jacob said...

in good old roseville where it was nigh impossible to find a new single family home for < 400K, you can now buy a new single family starter home in westpark for ~250K. How the mighty have fallen...

I remember looking online in 04/05 and there was nothing in the 200-300 range. And rarely anything in the 300-400 range. No other criteria, not even an 800 ft2 townhome.

I always wondered who could afford to live there, and it turns out, not many people could.

We won't know the bottom until months after it has passed. Anyone calling a bottom is just guessing (or more likely praying)...

And the Alt-A shoe is starting to drop. Prime loans are next.

paranoid renter said...

i just think the policy makers are screwing those that behaved responsibly and lived within their means. they're coming up with all kinds of ponzi schemes to keep people in their homes to delay the bust from its worst...the net result is we stay in this limbo state for a lot longer and screw up other areas of the economy even more badly...

i'm gonna wait till march before i think of buying anything including real-estate. my guess is layoffs will accelerate through 2009 and that will cause further pressure on every area of the economy. obama's stimulus ain't going to be able to do jack sh*t given the magnitude of the problem.

paranoid renter said...

btw, i've asked this before but don't believe i got a response. anyone know why housing tracker and housing tracker 2 are no longer being updated?

Husmanen said...

After Cymst's story of her landlord informing her of an impending foreclosure I took a closer look at my neighborhood. Scarily a new house on my street came up, but the sq ft and the size did not match my rental.

After some digging, because I don't pay for the foreclosure service... yet, I found out it is my great next door neighbor that also rents. The NOD was filed in November and they have not been informed by the Property Manager or owner.

We talked and now an unknown is a known and they can act accordingly.

BTW, thanks PeonInChief for the reference and info on your blog from BT's blog. Tack så mycket!

Deflationary Jane said...

PR,

I'm doing the same thing - zero purchases other then food, shelter, etc.

In my extended family (really just a huge circle of friends), we always made our own presents and this year we decided to make a zero out of pocket season. So this year's "theme" is recycle. A friend pulled apart a thrift store wool sweater to make a scarf. I pulled some old canvas for new paintings. Some woodworkers are restoring found pieces or making things from deadwood (one is jaw-droppingly gorgeous). My non-artsy friend is breaking up her succulents for folks. I'm really happy I'm back home for this.

Another tradition for us was watching movies all xmas day. This year we're doing black and white. I'm bringing my Ed Wood collection >; )

patient renter said...

the person in the office there told me that for people that are waiting for the bottom, they already missed it.

Some people just have no shame. Lies and deceit..

Regarding Housing Tracker, someone mentioned that the stats it depended on are harder to get now.

paranoid renter said...

>>>
Regarding Housing Tracker, someone mentioned that the stats it depended on are harder to get now.
>>>

geez, what a surprise with all the improved transparency we're being promised.

Diggin Deeper said...

Our foreign friends are being just a frugal with their money this Christmas Season as the US consumer.

TIC report just released showed a net purchase of our debt by foreigners to be $1,5 Billion in October. The 4 month average for net foreign debt purchase is $20.4Billion and we need upwards of about $70-80B to "keep the dream alive". This trend must reverse or the bond bubble pops and a lot of people are going to lose a lot of "safe" money.

anon1137 said...

Re: yesterday's Fed action: D-E-S-P-E-R-A-T-I-O-N.

patient renter said...

Re: yesterday's Fed action: firing the last round.

The way in which we're doing all of the wrong things exactly as Japan did is astounding. That Einstein quote, doing the same thing expecting a different result, is endlessly relevant.

patient renter said...

Joke of the day:

The housing bailout intended to help 400,000 homeowners has only attracted 312 applications since its launch in October.

Anecdote of the day:

While having a sandwinch made at lunch I overheard a conversation between my (somewhat elderly) sandwinch maker and one of their co-workers.

sandwinch maker: So it looks like I'm buying a house
co-worker: Oh yea?
sandwinch maker: Yea, my cousin is having trouble with his place, the one my uncle gave him a few years back, and he needs to sell it. He owes more than it's worth.
co-worker: How much?
sandwinch maker: Well my uncle originally bought it back in '93 for $125k, but my cousin owes $375k on it. So he wants to sell it to me and told me to make an offer.
co-worker: How much are you going to offer?
sandwinch maker: 300k
co-worker: You're going to do a short sale?
sandwinch maker: Yea... What's a short sale?

--

It's interesting how new phrases like "short sale" have entered our every day language. It's also interesting that people are still attempting to buy homes beyond their incomes. Yet another reason why the bottom is nowhere near.

Rich said...

page 2 of "Fed rate cut sparks a rush of refinancing" on msnbc:

http://www.msnbc.msn.com/id/28286206/page/2/

"President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $850 billion over two years. Though they had not settled on a final figure, it was bound to be bigger than the $600 billion that Obama's team initially envisioned.

President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $1 trillion over two years. The figure is far bigger than the $600 billion that Obama's team initially envisioned."

So what is it, .85 T or 1.0T?

patient renter said...

"Fed rate cut sparks a rush of refinancing"

I think we're on our third "rush of refinancing" now.

So what is it, .85 T or 1.0T?

The numbers don't matter to me so much as what they mean. Is Obama and his economic advisory stupid, or really really stupid? Does he want to damage the economy bad, or really really bad?

The idea that debt based consumption helps anything except our debtors is silly.

anon1137 said...

The rush to refinance
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/12/19/MN6A14QO49.DTL

"This is unbelievable," said Dennis Duffy, principal with A Very Nice Mortgage Company in Oakland, recounting that 30-year fixed rates dropped to 4.5 percent this week for conforming loans and to 4.875 percent for loans between $417,000 and $625,500.
....
But being able to play is the rub. The most enticing rates are available only to those with excellent credit, steady incomes and substantial equity or down payment.
....
"These low rates will not help homeowners who are upside down" . . . .


nuff said.

Rich said...

"After five years, which is the statute of limitations to enforce a contract in Florida, she can try to help her clients own their homes mortgage-free, Charney said. The first opportunity for her to help clients do that may arise next year."

http://www.msnbc.msn.com/id/28277420/

Husmanen said...

Many of us use a own vs. rent comparison and ratio when calculating potential market prices on homes.

I was surfing Piggington's site and they had a conversation about own vs. rent and I found a link that collects data on rental prices.

http://www.zilpy.com

I put in Folsom and Cameron Park and the numbers seem to be close (+-10%). Since I collect data from various property manager sites, as well as from Craigslist (with a grain of salt) Ziply seems to be pulling acceptable data.

How does Davis compare?

norcaljeff said...

A great post by IrvineRenter about why lower interest rates will actually push home prices even lower: http://tinyurl.com/98cw3x

PeonInChief said...

Husmanen--

You're welcome! That's what the blog is for--making sure people know what is going to happen to them and how best to protect themselves.

And thank you for warning your neighbor. The earlier in the process a tenant knows that the building is going to be foreclosed, the better she can recover her "investment" (read:security deposit).

Now I will be insufferable for the rest of the day.

Diggin Deeper said...

Norcaljeff....interesting about the low rates...I wonder what would happen if you laid compounding rising inflation numbers against those rising mortgage interest rates? I sense they would soften price declines, and at some point, depending upon the how high inflation rose, could actually wash them out.

Theoretically, lower mortgage rates provide lower payments that would then be paid off with inflated dollars. If you're buying property as a home to live for a long time, the low rates should work in your favor over the life of the loan...

I remember the my parents buying a home in the mid 60's. They paid $27,000 for it and had a P&I of $167 per month. When inflation rose during the 70's and 80's, their salaries rose to offset, and their mortgage payment became an insignificant portion of their monthly budget...I remember my mom complaining that there were no appreciable tax benefits to owning that home... so she just paid it off.

Taking a longer view, this market will eventually bottom. If inflation plays any role thereafter, the low rates could make a difference...and a big one if inflation moves much higher...

Deflationary Jane said...

so the inflation scare is the new buy now or be priced out forever?

Sorry, too much wealth is/was been destroyed for hyperinflation to hit in the next few years.

As to Davis rents vs that utility, not even close. I can find a 2/1 apt for 975 easy. Finding them lower then 900 is tough but that's a far cry from the 1225 the site lists. They must be pulling the "list" prices from old data which considering what's happened in davis in the last 6 mo is going to give a totally incorrect picture of the rental market.

If you are an investor, get out there, drive the neighborhoods, ask the locals what's really going on, and for dogs sake, do some research on future trends. If you don't, you will loose your shirt because the old models just aren't working right now.

patient renter said...

too much wealth is/was been destroyed for hyperinflation to hit in the next few years.

It's what happens after that which worries me. Nobody knows, but hyperinflation seems like a possibility.

Jacob said...

I don't see how you can get inflation, let alone hyperinflation unless you have wage inflation.

With a global workforce I just don't see wages growing much, at least until most of the world finds an equilibrium in wages/cost of living/standard of living.

When you can hire people to work in sweatshops 20 hours a day for a dollar, then companies will continue to do that.

And then you still have massive job losses.

Diggin Deeper said...
This comment has been removed by the author.
Diggin Deeper said...

"Sorry, too much wealth is/was been destroyed for hyperinflation to hit in the next few years."

DJ....That may be true for today.
But it wasn't but six months ago the reverse was true. Just shows how fast things can change.

According to everything I read, there's never been a time in history when dramatically expanding the money supply has not produced inflation. It's the antedote to our present condition and central banks have few painless choices left.

I guess this time could be different and we'll get the proper cocktail ingredients to gingerly work our way out of this and acheive the intended results. But then I wonder, isn't this the same Fed that got us here in the first place? What makes one think that more of the same will produce anything different then more of the same?

I wouldn't hesitate taking advantage of these low rates if you're already in a home and plan to stay there for the duration. As for buying...too many personal/individual variables to say one way or the other.

sacramentia said...

DD - Here is a post on base money supply from Mish:

"The only other time we have seen base money supply soar like we have now was during the great depression and World War II, neither of which was a hyperinflationary event to say the least."

http://globaleconomicanalysis.blogspot.com/2008/12/huge-demand-for-treasuries-as-banks.html

Sold in '05 said...

"According to everything I read, there's never been a time in history when dramatically expanding the money supply has not produced inflation. It's the antedote to our present condition and central banks have few painless choices left."

I don't think the supply of real money IS being expanded. All they have done so far is move numbers on balance sheets. The banks that now on paper have the money, need to KEEP it on their balance sheets to backstop themselves against future investment markdowns and protect their executive bonuses. This huge amount of money is NOT making it's way into the economy and in the meantime, it is actually being destroyed as the banks, AIG and now the car companies continue to take massive losses. The money is very much just going down the drain. The only real action has been as the fed has directly purchased treasuries, which is why we're seeing much lower mortgage rates. But that practice is VERY incestuous and would seem to bode ill for future offspring. How long can that dog eat it's own droppings before it gets ill?

Deflation seems to be getting the upper hand and once it takes hold, the only way to stop it will be to mail every person in the U.S. over 21 years old a check for $200k, every year, until we all feel like spending again. Effectively canceling most non corporate debt in the country by moving it to the federal deficit would surely make a real impact on the consumer's confidence. That's what we should have done in the first place instead of feeding that Wall Street Pig and waiting to see what good comes out the other end.

Sorry for all the fecal refs but the shoe really fits.

-CD

Diggin Deeper said...
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Diggin Deeper said...
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patient renter said...

House of the day:

MLS #28190629

anon1137 said...

Can't find it, PR.

patient renter said...

It's not local, just interesting

http://www.realtor.com/search/listingdetail.aspx?lid=1104957214

anon1137 said...

Location is everything.

Jacob said...

$2.55 a square foot. Sounds like a good deal, but will probably be $0.01 a square foot when one or all of the auto makers finally go under.

Deflationary Jane said...

the place we were renting in STL was similar, gorgeous on the inside and outside. Just imagine that building bigger and split up into 1500 sqft apts. If I had the means, I'd be heading to the midwest. Apparently other people are thinking the same thing by the last population data release.

patient renter said...

Another link to share: Krugman's inner Keynes is on full display in this blog post where he tries to paint recessions as being unnecessary and preventable.

The commenters, even ones who appear to respect Krugman, flog him:

http://krugman.blogs.nytimes.com/2008/12/27/hangover-theorists

It's still incredible to me that this sort of thinking drives policy - that despite the incredible amount of malinvestment we've suffered through, the resulting recession should not be allowed. It seems to defy the free lunch axiom.

patient renter said...

Another good read the other day from Schiff (nice to see this viewpoint in the MSM):

http://online.wsj.com/article/SB123033898448336541.html

Diggin Deeper said...

Holiday Sales Drop to Force Bankruptcies, Closings

http://www.bloomberg.com/apps/news?pid=20601087&sid=ajAqMbszJmNY&refer=home

"The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said. The U.S. had 1.11 million retail locations in 2002.

Another 73,000 locations may shut their doors in the first part of 2009, Niemira said."

There is so much overkill in this sector and closings not only put pressure on the jobs market but also hammer the commercial real estate market as owners scramble for replacements...and Sacramento's got a whole lot of space looking for retailers...

PR...another great little pearl from Schiff...as you posted earlier, he was nearly run off CNBC when he tangled with Laffer...who later looked like the bigger fool, when Schiff's predictions held true.

With all the volatility, emotions begin to override pragmatic thinking and skew trends that still remain firmly in place...I just hope the new administration doesn't get complacent just because we can fill our gas tanks for half of what it cost us 6 months ago...

patient renter said...

I just hope the new administration doesn't get complacent just because we can fill our gas tanks for half of what it cost us 6 months ago...

If it means they're complacent in trying to stimulate or spend the economy out of recession, I'm all for it :) I know that's not what you meant though...

Jacob said...

There aren't enough people to support all these businesses, there never were.

Most businesses will be fine, but the bad ones need to go away. Mervyns is dead, Circuit City is on life support.

People also have so much debt that any stimulus will (and should) likely go to paying down that debt instead of running out to buy more crap that we don't need.

Diggin Deeper said...

Home prices plunge record 18 percent in October: S&P

http://news.yahoo.com/s/nm/20081230/bs_nm/us_usa_economy_housing_3

"The bear market continues; home prices are back to their March, 2004 levels." David M. Blitzer, Chairman of the Index Committee at Standard & Poor's, said in a statement."

No bottom yet...people with any equity left might just panic out of the market and add to inventory that foreclosures have dominated over the last two years..

You'd think that this spiral would finally crash to the ground at some point...

Diggin Deeper said...

"People also have so much debt that any stimulus will (and should) likely go to paying down that debt instead of running out to buy more crap that we don't need."

I like CD's answer one....see above...$200K ea. to the spending public...and then we can continue buy things we can't afford and don't need...

Sold in '05 said...

"...and then we can continue buy things we can't afford and don't need..."

Of course if we had that kind of consumer bailout and people paid down their current ridiculous amounts of debt, the "can't afford" part wouldn't apply (at least for a few days until the cards maxed out again), the "don't need" thing... well that's a much tougher nut to crack.

If the average housing payment around here were $1500/ mo instead of $3500 / mo, think how many more retail stores and boat, car and motorcycle dealerships could survive.

-CD

Diggin Deeper said...

What I'm waiting for is the Fed to buy up all the mortgages in the country. rejigger them so that 98% of the foreclosures come to a halt, and the market goes back to normal...instead we'll get these assinine 4 letter programs with pork for everyone, and when the money finally hits the street, 70% of its already been spent keeping the "good ole boys and girls" happy.

patient renter said...

Of course if we had that kind of consumer bailout and people paid down their current ridiculous amounts of debt

Stimulus doesn't solve anything though - it merely transfers personal debt to public debt, which we're all still on the hook for. It's like paying off one credit card with another.

What I'm waiting for is the Fed to buy up all the mortgages in the country. rejigger them so that 98% of the foreclosures come to a halt, and the market goes back to normal

But realistically, where does that money come from and what happens next? I imagine the cost would be unreal. Would we be swapping a foreclosure crisis for a currency collapse?

Diggin Deeper said...

PR....Yes...but why waste time? Forget about deflation or inflation, the key is what the dollar does in '09 and beyond.

If all these programs prove successful, and the economy finds its footing in '09, it should lend strength to the dollar...at least temporarily...but what's worked so far? How much confidence do you have in what's been done up to this point?

But if the dollar weakens because the fundamental debt issues that plagued us prior to this crisis remain, or have gotten worse, the only love the USD gets is through short term intervention which hasn't worked very well for very long lately.

I'm not counting on strength next year because we've hamstrung ourselves with problems we can't solve without a devalued dollar...maybe going to the gold standard would help, but there's not enough gold in Fort Knox to back these deficits without hanging some unbelieveable price tag per oz. on it.

It's all about the dollar...inflation or deflation depends on it.

smf said...

DD -

By sheer luck, I found something that you may find interesting.

It is called 'Executive Order 6102'.

Basically, FDR forced all Americans to give up certain gold assets to the Feds.

The end result was that the value of the $$ dropped by 41%.

Google it for interesting reading.

Diggin Deeper said...

smf...thanks, I think I may have alluded to what it did to gold in previous blog...I did not know the dollar was devalued by so much, but when you think about the deficit spending that had to occur to put people back to work, it doesn't come as a great surprise...more dollars had to enter the pockets of the people whether they produced anything or not.

For all the debts we rang up during the 30's, they really didn't have much affect without WW2, and probably would have been looked upon as a failure without that war...

One thing happened during that period...politicians figured out how spend more then they received in funding...and given enough time one can see how they've perfected that concept today...

Sold in '05 said...

"Stimulus doesn't solve anything though - it merely transfers personal debt to public debt, which we're all still on the hook for. It's like paying off one credit card with another."

... except what we are doing now does not meet your definition of stimulus, what we are doing now is massively inflating the public debt with no real relief of the private debt. This is the worst of both worlds.

-CD

Husmanen said...

Conforming Loan Limit. Isn't the going to be a change in the conforming loan limit 01 Jan 2009? In 2008 it has been $474,950, part of the simultaneous package.

Reverting back to a lower level would put even more pressure on the upper tiered homes.

Or have I missed something and the cap has changed or will be changed again?

patient renter said...

Now is the time!

http://1.bp.blogspot.com/_pMscxxELHEg/SVt_CC9H9XI/AAAAAAAAEH8/Qo3ZtbBJHmw/s1600-h/great+time+to+buy+1992.jpg

Jacob said...

Interest rates can go to 0 for all it matters, the price is what matters. And as interest rates go down, the NAR's precious interest tax deduction scam goes down also. Making renting even more desirable.

People bought homes to get rich, cause they always go up. Still people are buying cause they expect 2005 prices again (and soon). But as each group of knife catches gets burned we lose more and more demand for housing.

And if you thought job losses were ugly this year just wait. Lots of businesses will fail, government spending will fall, the cycle will feed on itself for a while.

Until one day when people that have no idea what they are talking about start telling me how buying is stupid and renting is so much better, then I will know it is the right time to buy.

Home prices are 50% off peak and still none of those housing shows like "my house is worth what" have been canceled. When those start to drop off the air it wil be another indicator to me to get ready to buy.

Jacob said...

Anyone use ziprealty? I think the used home salemen are getting desperate.

It seems like every month I get a new realtor assigned to me, or my area, however they do it. And sure enough they always add a search for me with their contact info so I get emailed. Well this last time the jerk deleted all my searches and put his there. So I complained and then my account was deleted...

I know it was deleted cause I was able to sign back up with my same email. just a nuisance really, but I was saving a few homes and now I will never find them again.

patient renter said...

Wow. I was going to try and get a different Realtor on ziprealty, but it sounds like I'm better off with the one I have - at least he doesn't harass me or pull that BS.

I wish they'd let you search by keywords though, like Streng :)

anon1137 said...

I've noticed that Ziprealty is making it harder to find the previous selling prices for listings. It used to be that you could click on the "estimated value" tab and it would give you the previous sales data from zillow. Now that data is harder to find or missing entirely.

My agent hasn't been replaced, but occasionally "my homes" listings get messed around. For instance, sometimes the expired listings will get deleted without any action from me.

Maybe the "power to the buyer" marketing model is flying out the window as times get tough for RE agents. If you think about it, foreclosures have kept RE agents relatively flush. The worst thing for agents would be a stagnant market.

Cmyst said...

My Zip realty agent sends me an email maybe once every 6 months, a chain-letter thing. My lists have never been messed with, but I was upset that they changed the format to where you now have to hit some buttons to get to Zillow and prior home sales info.
When I was looking for Strengs, I set the parameters for houses built roughly between 1960 and 1990, of at least 1500 sf (most seemed to hit at about 1750).

Rental Foreclosure update (and thanks for the concern and advice):
I'm notifying our agent on Friday that we're no longer interested in our friend's short sale property. At this point what I'd really like to do is just find a nice, stable rental house with a big kitchen, fenced yard and plenty of storage. The foreclosure here has me spooked, but we are now looking at a strong possibility of moving to another part of the country in 12 to 18 months and there's no way we would be able to sell anything we bought at this point. Any ideas on how to avoid renting a problem house? Any websites serving that need? I'd rent a large apartment, but it would be miserable with our dogs and all our hobby stuff.
On the bright side, kind of, my college student grandkid is moving back to her Dad's and my daughter/baby grandkid have moved with baby's father into his sister's large house. And LOTS of people now are so beholden to us that we have plenty of help to move, LOL!