Monday, April 24, 2006

Prop 13

Here it is. Let loose the dogs of war.

The Screw Turns

Lots of people have wondered about how we can possibly unwind the housing mess. I just got one of those pit of the stomach sinking feelings. Ponder the following and please talk me out of it.

As F@cked Borrower after FB starts to falter the banks will need to do something. I always thought it would be the old fashioned foreclosure but now I'm not so sure. Banks like money, the more the better. If they foreclose they won't make any money, they lose. Instead the banks are going to do the unthinkable, they'll renegotiate the loans lower. The logical goes like this; instead of 3-6 months of no payments and then 60 cents on the dollar the banks will turn their $500k, ARMs into $400k fixeds. Better $2000/mo for the next 29 years than the alternative. And who gets screwed? The people that were smart enough to not get in the scam. My investment income goes lower, my opportunites to buy low are fewer and even my home is devalued by this process. The same b@stards that caused this mess benefit.

$5/gal Nonsense

Gas, energy, gas, energy, yadda, yadda, yadda. No insult intended but there isn’t anyone that can connect the dots with a housing bubble. Let’s give it a rest shall we? I am certain the sun will come up tomorrow a little earlier than yesterday and I’m almost certain housing prices will be a little lower. Come this fall I’m certain the sun will come up a little later and housing prices will be a lot lower. Lots of people spend more on lattes and mineral water than gas but no one ever tries to draw that connection. Transit fares are skyrocketing yet…

You want to try price corellations? How about the cost of lumber and labor making it expensive to upgrade exisitng homes causing people to buy up rather than remodel? A perfectly fair and logical conclusion except that it doesn’t fit the bubble model so it is chucked. See my point? No, I can see out the on your puzzled faces, people don’t. Try this then; the high price of gas will cause people to stay home thus increasing their willingness to spend more for the place they spend more time and increasing their willingness to improve their homes for energy efficiency and their willingness to hit the housing ATM for the costs andthese expenditures will stimulate the economy and raise the average price of homes. Perfectly logical and totally unacceptable if you are one of the energy prices will kill conventional housing clarions.

Saturday, April 22, 2006


Hurry! New shipment, new listing! Only 2 Days On Market.

Look, if you did it with fruit you'd go to jail. This is a call to action. Let's insist our District Attorneys prosecute the blatantly misleading DOM figures in the MLS.

Thursday, April 20, 2006


2 Years Tol v WY

6 Months

Amazing what a little shift in perspective can accomplish.

A Real MFer

Imagine those mile upon mile tracts in Palmdale, Riverside and Phoenix when the first REO breaks down values 40%. The other banks won’t care that 40% off of the highest price only compares to a few of all homes and they won’t care that interest rates also ate 20% of the equivalent price. What they’ll care is that on the books every single mortgage in the entire development is seriously underwater. I’m going to embark on a new career; Mortgage Falcon, MF if you prefer . I will circle overhead watching the lemmings. I’ll visit the County Recorders Office and Assesors Office making sure there aren’t any liens or tax arears. I’ll fly over the houses, looking for garage conversions and cable disconnections and brown lawns. I’ll look for the signs of “going out in style,” the New Tundra and LS450 in the driveway, moving vans, Garage Sales, FSBO ads. And every week I’ll circle down and land on the arm of a banker and wisper in his ear. He’ll reward me with a chunk of flesh from the latest kill. It’ll get so I’m famous. The neighbors will see me and call out in appreciation “Hey! MF! (Mortgage Falcon)” and I’ll continue my patrol, keeping the worlds financial system safe for all mankind.

Wednesday, April 19, 2006

Worth Overdoing

The 2006 New American Home 10,023 square feet.
The 2005 New American Home 5,950 square feet.
The 2004 New American Home 5,172 square feet.

Push/Pull Immigration

Illegal immigration is a push product not a pull product. We should be harvesting Christmas trees and strawberries with robots run by technicians, designed by engineers, programmed by SW and GIS scientists from technology developed at UC Davis and Texas A&M and controlled by satellite. Why should farmers invest in technology like every other industry has when there's huge publically subsidized exploitable labor class available?

Supposedly this is going to mean our housekeepers and gardeners and even bookkeepers are going to be "lost" and we idle rich will be helpless. Quite the opposite. Instead we will buy Roombas, Rainbirds and Quicken thereby employing robotocists, Landscape Architects, electrical engineers and software programmers who can afford to live here. This IMHO is "A Good Thing."

Let's not mistake a push market where the jobs attract illegals for the actual case of a pull market where a pool of exploitable workers preserves an otherwise antiquated system. One need only ask why we still grow strawberries the same way we did 100 years ago but we wouldn't dream of making cars by hand as we did that same 100 years ago. The only reason there are still crummy jobs in the workplace is BECAUSE there are potential workers available for exploitation.

Please try to remain focused on the illegal part of illegal immigration. This is not an immigration issue any more than bank robbery is about financial regulation.

Monday, April 17, 2006

Inland Empire: Where the L.A. Dream Landed

I don't usually do this but who can resist an article that includes:

"Say you're 35 years old, well-educated, with a family. If you buy the house in Orange County, Los Angeles or San Diego that you think you deserve, you're broke.",0,931676,full.story?coll=la-travel-headlines

The bubble denialists can call it it a Dream Landing but I'll reserve judgement for a few months.

Sunday, April 16, 2006

Saturday, April 15, 2006

Friday, April 14, 2006

What's another name for asticky illiquid?

Stickiness -used- to apply because real estate -used- to be illiquid. Just like every other economic function liquidity brings volatility. There’s absolutley no reason prices cannot fall at least as fast as they have risen. The real issue with fast rises (and declines) is that all property is priced at the margin. Just as not every property had to sell at the top for all property to be valued at the top, the cheapest house that manages to sell takes out the comps. There’s a double danger in a declining market. Not all the comparable transactions will be “arms length sales.” In a rising market there’s little doubt the highest and best price is a market transaction but if you are either trying to transfer assets or you are in financial trouble the possibility of the “sales price” being lower than the honest price increases. Back to velocity. Lenders are far less likely to delay action given their exposure. They can’t be patient as the borrower tries to catch up because there is no equity cushion for the borrower to deplete. Thus as 1.7 trillion with a "t" dollars in exotic mortgages reset in the next 18 months we can expect more letters like that form our friends at Ownyourdebt Mortgage Services below.

Thursday, April 13, 2006

SmUGGIE - Oxnard (again, sigh)

Here it is, the ghost town of the future:

Don’t let anyone tell you Ventura County is a slow growth anti-development area. We are screaming DENSITY! on this one. 2800 dwelling units on "700 acres." Well... not really but 4DU/ac sounds so innocuous whilst the reality of 250 acres of "open space" aka unbuildable floodplain and surface runoff retention basins and "pocket parks" changes the calculation. But that's not all, there's a commercial componet and a town square and a wine garden. All told we are talking effectively 16DU/ac as normally reckoned. 1800 "homes" and 1000 apartment type units are planned. So big and so risky RiverPark SFRS will be built by Shea Homes, Centex Homes, and Standard Pacific Homes.

Talk about your perfect storms. Peak of a multi-decadal market cycle, rising construction financing costs, illegal immigration blowback, tightened lending standards, demographics, California, Oxnard and more. Wait until you drill down at the website for the prices. Townhomes and triplexes from the "Low $500,000s." Zero lot line SFRs with postage stamp yards from the "High $700,000s" and up. Way up. Lots of 3 car garages and now look at this map:

Okay, 3 exiting streets and 10,000 people. The standard for the area is about 10vpd/person. Nice round number one hundred thousand vpd. Another standard; peak morning/evening hour load 14% of vpd. In one hour they are expecting to push about 8,000 vph. A primary collector arterial lane can possibly handle 1,800 vph so they'd need 5 lanes in each direction. They got three. Welcome to Oxnard.

Important Information About Your Home Loan

Dear Mortgagee:

We here at Ownyourdebt Mortgage Services (We put the "vice" in Service since 2001) have been happy to be your leinholder of choice these last 2 years. It is therefor with deepest regret that we inform you that your old loan is hereby and immediately rescinded. If you look at your note, page 42, para III, section 9.2.1 you will see that failure to pay property taxes on time is grounds for rescision. Now we here at OMS know times are tough and all so while we no longer offer a product similar to your 30yr fixed 5.25% no holdback loan that you just lost we are pleased to announce a new product; the Tax,n'Spend Megareset Home Loan. This 6.95% (intro rate) product is seriously the best you can qualify for under the new tighter lending standards so we suggest you take it. Since we have your credit and know everything about you we took the liberty of checking. If you "chose" to go to another lending institution against our advice we will be regrettably forced to report both the tax default and rescinded loan. Good luck with that.

Now don't take it like that. You aren't without options and you certainly should consider yourself lucky. We don't do this for everybody. That Schmoe Gary down the street for instance. You know the one youlaughed at for overleveraging. He didn't pay on time either but he's already in our "special clients" stable paying an adjustable 7.5% with impound and service fees. He's so upside down we don't dare use the vice (in Service since 2001) on him, he might walk. No, you are lucky. If the new rates are not to your liking OMS is prepared to offer you a very generous severance package. We'll miss you (each and every month on the 1st) but if you want "out" your house and difficulties your house being worth $800k with our mortgage only $250k (due immediately) you are indeed fortunate. We here at OMS are ready to give you 30 whole days AND $100k in addition to FULL loan forgiveness to help you start your new life as a landless renter. No messy distress selling, no middleman. Now, put down that hammer. I told you we know everything. Any damage wil come out off your severance package. Think about it, get back to us. SOON.

Looking forward to hearing from you in the next several hours.

Kindest Regards,
Your OMS Representative

P.S. Loan forgiveness is a taxable event at the full income rate and will be reported. - OMS

P.P.S. Don't forget to recommend us to all your friends!

Important Announcement

Heeeello US Homedebtors. Dr. Evil here. This is my son Scott, Number 2, various henchment, yadda yadda… I’m interupting your tedious blogging act-tiv-ities to explain my latest Evil® plot. It seems you people have foolishly played into my hands. Those papers you signed? Those loans are {air finger quotes} a-just-able. OooohOoooohOoooh, heeeeheee… cough, cough, hem. Excuse me. Now; These “a-just-able” loans are not the innocent shortcuts to no effort prosperity you were led to believe. Noooo, these a-just-ables are an Evil® international conspiracy designed to enslave you! If you are hearing my voice it is already too late! ALL YOUR Bases... er EQUITY ARE BELLONGING TO ME! Now for the good part, I am holding your mortgages hostage and you will pay me MORE. Yes, every month I will extort dozens of extra dollars. OooohOoooohOoooh, heeeeheee… cough, cough, hem. And who are we? This Evil® international conspiracy? {air finger quotes} “We” are your parents, your neighbors, your government. “We” be using your money to make sure you never get ahead ever again.

_pinky to corner of mouth, fade to black. We now return you to your regularly unfettered blogging.

Wednesday, April 12, 2006

Goin' Skiing

Yes, skiing in SoCal in April. Anyway I'll try to get to all the comments and I usually manage to "steal" local unprotected bandwidth "apres ski" so I might catch up in the evenings. Return on Friday.
[photo: The cabin in the mountains and the big trees all around.]


"Stocks have reached what looks like a permanently high plateau." --Irving Fisher, professor of economics at Yale University, October 17, 1929

[photo: Yosemite 2005]

Tuesday, April 11, 2006


"You don't know who's swimming naked until the tide goes out" - Warren Buffett

This is why the reporting delays at Freddie Mac worry me. Someone appears to be shovelling against the tide in order to conceal the naked. [photo Rockport, MA 2005]

A thread of its own

Dean asks;
"Those who didn't buy in 2002: could anyone knowledgeable/clued in enough to understand that prices were crazy then, have guessed how much more insane they would get, without being an insider? As to the folks over at patrick's and their entitlement feelings: are you saying a well educated American is asking too much when he/she imagines that a home with income at multiples of the national average *ought* to be able to afford a home?"

Nobody predicted 2000-2005. We know why now and many of us have that mountain of data as a reasonable indication of what will happen 2006-2010. Indeed the Gen Xers did the right thing and got punished for it. The houses they had worked for were stolen by undeserving people too stupid to realise what they were doing. There were market forces that worked against them as well such as the uncomfortable fact that their parents and grandparents just wouldn't die like they used to. Not only were they selfishly hanging onto the mortal coil they were hanging onto their homes as well.

As we've seen the entitlement problem is an emotional one. I don't know how to examine it without a lot of misunderstanding. They surely should be able to afford a home, thay appear to be more deserving, smarter, etc. I just don't know how to enfoce fairness. Everytime I'm aware of an effort has backfired miserably. It doen't help that I re-read Vonnegut's "Harrison Bergeron" last night. [I'm a voracious Si-Fi reader.] Fodder for another day another post.

Monday, April 10, 2006

Say Hi

It's quiet and one reason I saw was a statistic that enabling those silly "type in 8 distorted letters" to post boxes discouraged legitimate comments by 60%. So, they are turned off and let's see.

Say hi, ask a question or as I suspect; let rip.

Extra points for admiring my photography which I plan on using as visual headers henceforth.

A Simple Question

If all these illegal immigrants are good for our economy why isn't Mexico trying desperately to keep them in?

Why are home prices still going higher?

This 19th Century Japanese print is ubiquitous. So much so that we don't really look at it but there's something about the current housing market to be learn from it. Notice that the highest points are those with no support underneath. This explains rising prices with declining volume. Notice that there are more than one crest and not all at the same time or at the same level of development. Even so the little waves are about to be obscured by the larger swell. Thus the ripple effects when the major markets turn down. LA/OC will causes boats to overturn in Las Vegas and Tuscon. Finally, the bulk of the wave is behind the crest, this is analogous to my prediction that after the crest crashes there will be a storng continued orderly decline. There's more to read in the picture so I won't spoil the fun by pontificating further.

Saturday, April 08, 2006

The No-Drop Drop in Housing Prices

Let's say you missed the boat. You didn't jump at the $450k starter home in Camarillo two years ago. Here's those numbers:

$450,000 @ 5% and $50,000 downpayment: $2147.29/mo plus taxes.

But you were "smart." Even as prices ran up to $600,000 you knew sanity would eventually return. So, what do prices need to be to get the same deal when rates are $7.5%? Ans: $320,000. How's your patience? That's only to get back to the deal you didn't like 4 years ago. Gonna look better the second time around? Where ya been livin' these last 4-5 years? In order for your patience to be rewarded do you really think we'll see $600,000 houses going for $250,000?

NURBs Infect Camarillo,1375,VCS_165_4606751,00.html

Any changes would not come overnight. Planners expected initial changes probably would take as long as five years, and it would be from 15 to 20 years before the single-story strip malls and huge parking lots were transformed into pedestrian paseos, wide sidewalks, cafes, stores and homes sitting on top of office and commercial spaces.

The only problem? The owners and shopkeepers don't want this. The bigger problem? The City has spent millions for something that will end up cost the city more millions all for private benefit.

Thursday, April 06, 2006

A Modest First Step

In the spirit of "do unto others..." my near boundless compassion for the plight of illegals here in the US compells me to advocate the promulgation of some of their homeland rules. Now obviously I'm not suggesting the human rights violating rules all too common within the bounds of our neighbors to the south, just a few of the reasonable ones. In that spirit I suggest the first rule:

Non-residents may not be allowed to own property witihin 50km (31 miles) of the US Coastline. Just like Mexico. In order to facilitate this transition period to a set of laws they understand a special government unit shall be formed to "resolve" any problems. The Resolving Trusts Corp will purchase back any properties illegally transacted prior to Jan 1 1996 at the full orginal purchase price and at a sliding scale based on Jan 1 1996 values for illegal purchases made since then.

Wednesday, April 05, 2006

It's What You Say...

A man awoke one evening to discover illegal aliens camped out in his storage shed. He called the police, gave the address, and reported the intrusion. The officer asked "Are they in your house?" They were not, only in the shed out back. The phone officer said there were no cars available at that time. The man thanked the officer and 30 seconds called again. "I just called about illegal aliens. Don't worry, as I just shot them all dead!" Within seconds there were 3 police cars, an ambulance and fire engine at the scene. After capturing the intruders the policemen approached the caller, "You said you had shot them all?" The man answered, "And I thought you said there were no police available."

Socioligists and Economists agree on one thing; Broken Window Theory.

2007 Story

A man wakes up with a throbbing head. Disoriented, he wakes up enough to look around at a shabby room and a hideous hag slumped in a seat near the bed. His arm is trapped under the head of a pretty young thing next to him. Gathering what few wits God gave him he asks "oh my my God, what happened?" She looks up and says; "Don't ask me mister, I am only the bridesmaid."

Did I say his ARM was trapped?

Aesops Fables

The scorpion and the frog.

The monkey and the jar.

The jackall, the ass, the snake, the leech and the realtor but I repeat myself.

Wurd-O-Day, Disintermediation

2006 Realtors® split 6%
2010 house sellers fight over scraps


"This is the biggest real estate bubble I have ever lived through." - Kiyosaki

He hasn't lived through it yet.

Son of George

I am not a "Georgist" but I see his theories as part of a more comprehensive and fair system of property taxation. Call me Son of George. I've long thought about this.

The basis for property taxation should be a very low flat base fee plus
an area based fee plus a very low flat base fee for any buliding plus
a building area based fee with (the kicker) a multiplier based on the
ratio of built area to lot area.

How did I dream this up? Easy, I back calculated from what a property
"costs" its municipality based on the properties' character.

Every lot costs a small amount regradless of size. Call it a management

Bigger lots consume some municipal services at a rate roughly equal to area.

Buildings likewise encumber greater external costs for both factors.

Finally, there needs to be a density penalty. If you are interested I'll
explain but I'd want to hear general comments before dredging up the
flammable compounds.

Monday, April 03, 2006

How Long Must We sing This Song?

I know past bubbles have taken a very long time. Stock market 1, 12 yrs. Housing bubble 1, 6 yrs. Stock market 2, 5 yrs. I think this will be fast and brutal because so much of the housing market has been liquified. Facing a declining market the note holders will be extraordinarilly impatient. Facing a loss of equity owners will leverage to free up cash leaving no or more often negative equity for the note holder. Institutionals often have little choice about patience, they have to dump non performing assets. Past housing bubbles were stretched out due to the illiquid nature of housing. This time it isn't the housing market but the mortgage backed security market that will drive the correction. It won't take very long at all to correct these portfolios. For simplicity; say a speculator buys a bundle of mortgages at a 50% discount in expectation that half will not perform. When they end up with houses instead of paper paying them interest and principle the last thing they'll want is an actual property with taxes and management issues. They've already zeroed out the cost so as long as they get the transaction costs out of dumping the house they're good. That's extreme, the reality will be somewhere in between but the point is the paper will be priced such that even early foreclosure sales will be phenomenally lower prices. Speed trumps best price. That's the push. The pull is that anyone buying in this environment is by definition a sophisticated and/or well qualified buyer and they are going to insist on rational prices, say rent parity. I just don't see very many people buying on the way down due to a lack of competetion and the new psychology of expected return sans appreciation.

Sunday, April 02, 2006

UGB Primer

I'm a proponent of real UGBs. Not Oregon's Metro mutation nor Maryland's BANANA rules. Real UGBs neither prohibit nor direct growth. Real UGBs establish limits to local government to permit/prohibit or direct natural growth patterns.

Got that? Real UGBs limit government not development. Examples include Napa and Ventura Counties in California.

I am constantly battling the misperceptions of Venturas process. SOAR only changes the venue of land use change approval
from the Board/Council to a public majority vote. Serious proposals are likely to be Santa Paula Canyons and Moorpark again. The last Moorpark attempt to expand and urbanize was fully supported by the city council who smuggly proclaimed that the people they represented were behind the proposal. Lost 3 to 1 despite being outspent 15 to 1.

I do, however, resent any Smart Urban Growth (SmUG) parallel advocacy claim. SOAR is in no way an UGB. SOAR does nothing in the way of Nurbanist rezoning agendas. I would separate the causal truism that SOAR prevents outward urbanization from the unassociated effect that the urbanization -must- turn inward. NURBs would like that to be the case but it is not part nor intent of the SOAR plan.

No deep thoughts here. Just that the methods of land use and zoning adopted in Oregon have been hijacked by politicians and planners. Of course they like the old status quo where politicians could pick winners in the land use lottery and planners could use zoning to force their preferred development patterns.

Oregon does not have the best record, it merely has the most controlled process. Napa and Ventura Counties in California have had far better success at achieving the stated goals of anti-sprawl. I say "stated goals" because anyone familiar with Oregon in practice will tell you there is an anti-mobility agenda that really drives their development processes.

My favorite example of Oregon's failings is the UGB. Urban Growth Boundary that in fact merely allows existing central cities to prohibit any exurban competition. It gives cities control over land that isn't expected to become urban for as much as 20 years and by exclusion prevents anyplace outside their sphere to develop as well.

We'll examine the differences in subsequent posts.