Wednesday, May 02, 2007


From Eyewitness News comes a solid piece with tons of details on sellers who are underwater on their homes:

Homeowners find mortgages cost more than they can sell for

The real estate market is getting so bad that some homeowners are finding that
their mortgages cost more than they can ever sell their house for.

In March, sales of existing homes had their steepest decline since 1989 forcing sellers to drop their asking price by four times.

Susan Adkins of Trying to Sell Home says "You lose your investment in the house, but now we're going to lose significant equity too."Would be buyers with weak credit are also having a hard time getting loans.

Realtors add that prices have plummeted whether you're selling a house for $100 thousand dollars or $100 million dollars.


rrastronomo said...

good morning guys,

I visited a matthews development yesterday. A house was on sale for 239k 1550 sq ft from the regular prices of 291k. (house of the week) what a sale. I feel sorry for the joe that buys the same model not on sale.
I sold last year and I give partial credit for this blog for giving me the fortitude for executing that transaction. The only issue I have with this blog is the doomsayers out there. I know some pretty smart people who say otherwise. Sure a %50 correction can happen but not everywhere and it will not effect everybody even in the most heated areas on our country. I’m fully invested in the stock market. I’m in constant contact with a money manager who manages 12B in assets. He says no economic busts, maybe a recession. I echo his sentiment. The truely wealthy have stayed invested in the stock market even through the Great Depression, World War I and II, the threat on nuclear war, and Vietnam just to name some truely worrisome events. John Train the great financial author states, “capital is to be sacrificed, so that society can progress.” People will continue to consume, and stocks that represent that consumption will thrive. Be greedy when other are fearful and be fearful when others are greedy. There are cheap companies out there from a valuation stand point that are the bluest of blue chips. Guys don’t miss out because you think the sky is going to fall. I have read all of those re books of the up coming collapse–truth embedded with exaggeration doctored to sell. Oakmark Family of Mutual Funds is the avenue through financial independence. Bill Nygren has been able to compound peoples’ assets at an 18% yoy clip. Even through the 2000-2002 crash. During the peak of the bubble, the argument that I would give to people that were in the “re outperforms companies crowd” was that how can a house which sole purpose it was to give shelter to a family outperform a company whose products applies to the world population. Dangers abound in the stock market or for any market but if you know what you’re buying opportunities are for the taking. IMHO

Bakersfield Bubble said...

rrastronomo -

Thanks for the update on the matthews development.

I am currently 80% stocks (index funds and selected value stocks) and 20% treasuries. I also believe one should be invested in the the stock market, if you have the patience to study (watching Jim Cramer is not studying) or only with index or other low cost funds. However, I beleive a short term correction could be in the furture as things have run up significantly from the bottom in March 2003. So I would adivse a dollar cost averaging approach.

I think our town will slow down and a present some great opportunities to purchase in the next year or two (yes I said it might be a good time to buy).

As always, do your own research, don't blindly follow what you read on the internet...

AnalysisGuy said...

I think a year or two is much too optimistic. I'm in the school of thought that things will happen in threes. My own thoughts for Bako are:

3 Years of down prices in nominal terms (06:Q3 - 09:Q3) followed by

3 Years of stagnate nominal prices, but falling inflation-adjusted prices (09:Q3 - 12:Q3) (good time for renters to typically buy) followed by

3 Years of fair prices gains or stagnate inflation-adjusted prices (12:Q3 - 15:Q3) (good time for landlord investors to typically buy) followed by

3 Years of good nominal prices gains and inflation-adjusted prices gains of 1-3% (15:Q3 - 19:Q3)

3 Years of MANIA! Yup you heard it here first the next time to flip or speculate in real estate is 2020!

AnalysisGuy said...

By the way I'm also not a big believer in the current stock market bubble theory. Although I do believe a sizeable (10%+) correction will likely occur in the next 36 months. However, in the short term we will likely see continued gains.

Despite what CNBC tells you the market has NOT been very good at forecasting economic downturns. Typically the market only sees a recession within 4 months of it actually occuring.

Asset Allocation:

60% stocks
5% bonds
30% cash
0% Real Estate

Bakersfield Bubble said...


I was in the long way off camp, however, the speed of this unwinding is causing me to think that in a couple of years prices could be at pre-bubble levels (pre 2002).

The monthly sales decline is now 70% off the peak. The credit crunch is going to continue for a some time as well. I just get this funny feeling that the FED or some other quasi govt agency (FNM) will come in and do something to slow the bleeding at the taxpayers expense.

I am not saying that I think you will see any appreciation however. I think if you are looking for a place to live at a reasonable price (pre bubble levels) and are not looking to flip you could be ok in 2009. I could be wrong, and it wont be the first time.

Adam said...

You mean the Matthews homes out near Mesa Marin? I thought the smallest they had started around 1,726....

FWIW, I don't think anyone on any housing blog I've seen is a housing perma-bear: it's just that many are bearish about valuations of RE RIGHT NOW! Prices get reasonable again, and who WOULDN'T buy? Lenders return to reasonable lending standards, and why not?

Can anyone say with a straight face that it was a good idea to buy real estate at the bubble's peak in 2006? Only if they thought the market is in a hiatus, and a rally would return, but affordability has precluded that. We've already seen people resorting to toxic loans (NINJA, ARM, etc) and getting burned as a result. The sub-prime/Alt-A lenders have been burned for it, so they're not exactly rushing in unless THEY want to get scorched again.

But that cautionary advice applies to buying real estate in May 2007, when it may not have applied in 2000-2006.

Can anyone make an argument for why it would be a smart idea to launch one's real estate empire, buying rental properties at the PEAK of the market? Only those who don't know conditions, I'd say, or who can't calculate overhead, ROI, rentals.

What part of "buy low, sell high" would someone have to NOT understand to buy at 2006 prices? That reduction is a good start, but prices got sky-high based on speculative value, and as we see, housing is not such a good investment as it was from 2000-2006....

As usual, anyone who tells you that it's all about one asset class to the exclusion of others is rarely correct (and remember: RE agents always say NOW is a good time to buy or sell). Can anyone say with a straight face that it's ALWAYS a good time to buy or sell stocks? I doubt it: people know certain stocks will rise and fall.

Not surprisingly, many others besides you have done the same thing of selling their house(s) and shifting their assets to Wall Street because their money has to go SOMEWHERE.

Ya' think that MIGHT have something to do with the stock market rally, where the record valuation is (once again) based on increasing buyer demand, and not fundamentals (P/E)?

You mean all that excess liquidity is sloshing around, looking for a place to settle?

John Train the great financial author states, “capital is to be sacrificed, so that society can progress.”

Of course, the problem is no one wants it be the THEIR capital that is sacrificed: you go first. :)

rrastronomo said...

adam, not by mesa but close to ridgeview h.s.

I do concede we are 80% stocks 20%. What I mean by fully invested was that I would not try to time the market because I know it will inevitably correct. My portfolio is made up of three components--a retirement account that is largely indexed, the bulk of our net worth deferred to Bill Nygren, and a brokerage account which I consider our speculative money even though I do a tremendous amount of research picking individual stocks. IMHO large caps are cheap.
I visited the mcmillan development near highway 99 cardona crossing what a joke of a neighborhood. many lawns were overgrown, houses appeared to be abandoned, and the pace of construction appeared canatonic, just a mess. all for 300k average cost of homes there.