Price Decline from Peak

I found the following graphic over on Mish's blog. Please check it out for the whole story.

A -44.55% decline from the peak in single family residence prices in the San Francisco Bay area in just 18 months! Anathema!

November YOY Results for "Immune" Marin

More year-over-year declines for Marin. Rather surprising considering we were supposed to have "dodged the subprime bullet". At least that's what the Marin IJ once quoted our esteemed local real estate industry as saying.

From the Marin IJ:

Another month of plummeting home sales in Marin included a price drop of nearly 30 percent from November 2007, as discounted foreclosure sales continued to drive the Bay Area market. The median price of a single-family home in Marin last month was $790,000, down from $975,000 last year, MDA DataQuick reported Thursday. In October, the median single-family home price in Marin was $850,000. Realtor Peter Harris in Novato said bank-owned properties and short sales have made up about 85 percent of his business over the past year. ‘Prices are half of what they were,’ Harris said. ‘Condos are selling in the low $100,000s. We haven’t seen this for a long time.’

From DataQuick:

By the way, the graphic for this post is from a May 16, 2007 IJ article. I saved it knowing this day would come.

This Thanksgiving I Give Thanks to All of You Who Made this All Possible

This post over at the Mess That Greenspan Made blog is down right scary -- by some estimates the potential cost of the bailouts will reach $8.5 trillion. Can we survive that? No way that is going to get paid back. Or this at Calculated Risk showing that the current bear market is the worst ever (on a percentage basis).

It seems to me that the genesis of this "crisis" was in the 1980s, the rise of yuppiedom, and has gotten progressively worse by an ever growing populous that more and more chose to finance their lifestyle with debt vs. wealth earned until it reached the point where people willingly paid ludicrous prices for houses, a college education, etc. For kids who came of age during this 28-year span, living on debt has been the norm. I feel the most sorry for them, the unwinding will be the hardest on them as they don't know any better. But for the rest of us boomers who have witnessed, and in far too many cases gleefully participated in, the entire life-cycle of this debt-investment craze, I have little sympathy. Blame Wall St., bankers, financiers, etc. all you want but in the final analysis no one held a gun to your head, no one made you agree to pay a stupid price for your house.

Really, is cheaper housing such a bad thing? Maybe it is for you who listened to the self-interested persuasion of a realtor/agent, you who bought in to the ludicrous pricing and was hoping to retire on the sale of a house. But think past yourself (if you're able). Think about your kids and your grandkids. Do we really want a future where so few can afford something as simple and as basic as a house? Do we really want to live in a nation so impoverished by desperate attempts to prop up prices that we know in our heart of hearts are insane, even still? Besides, we have truly important things to worry about, like a world wracked by global warming, the solutions to which will require personal sacrifice on a scale we of the post-war generations can hardly imagine, and an ability to think beyond our own selfish wants and desires.

But at the very least let's not ever forget the people who got it right, early, when action could have made a difference:



I hope you all enjoyed your Thanksgiving.

It's Official

I'm sure you all remember that classic April 10, 2007 Leslie Appleton-Young quote in the Marin IJ that went "When is the 30 percent decline in Marin County's [real estate] market going to happen? Not in my lifetime"? I promised you then in a post that I would be "keeping this link for future use so we can rub it in her face when the time comes". Well, that time has come:

Leslie Appleton-Young: Consider your face officially rubbed in it.

From DataQuick:


When will people finally stop giving credibility to realtors and RE agents (and all others paid to have a particular point of view) by asking for their opinion on real estate? When will the mainstream media stop quoting them?

Two Ways to Say the Same Thing

Here are two ways of saying the same thing. The first in 2007 and the second in a letter written 1802.

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802), 3rd president of US (1743 - 1826)

The reason why we are in this mess is credit -- too much of it, too cheap. That's why housing, tuition, etc. went through the roof. Now our country is desperately dependent upon it and doing everything it can to prop up these phoney prices.

Withdrawal's a bitch, ain't it? Price things based on what people actually earn for themselves and it would all be reasonably affordable and "the economy" would still be humming along nicely. Stop meddling in the market Mr. and Mrs. Congressperson, Mr. Bernanke, Mr. Paulson. Let the free markets work; let them discover the correct prices of assets. Yes, it would be painful in the short term but we'd all be better off for it in the end.

As credit tightens and the credit pendulum swings the other way, those of you who bought with borrowed dollars thinking the sky's the limit and those of you who are planning to do so now had better watch out.

Canadian L33t

I've tried very hard not to get political on this blog, but....

I think I found a program that should appeal to Bay Arean ego in the unlikely event that the republican candidate for the US presidency is elected:

Where Are You?

Starting with some quotes from someone who has been nothing but sober and sane (Robert Shiller) when the majority of people were drunk on the notion that houses were going to make us all rich and 20% per year appreciation was our God given right:

What have we learned from all this?

I think we've learned some very elementary lessons. Don't think that because something didn't happen for the last 30 years it won't happen. It's amazing how people thought home prices can only go up.

One thing people haven't learned very well is home prices can stay down for 30 years, too. I'm not saying it will. It certainly can happen. Most people still think this is just a temporary interruption and real estate prices are going to soar soon. The real estate market is not cheap yet. It's not to where this bubble started (in late 1998).

And one from another independent thinker:

"People are saying the reason prices are falling are because of all of the foreclosures, but the foreclosures are happening because the prices are falling.

They've got it backwards. The prices are falling because they're too freakin' high."

Chris Thornberg, August 27, 2008

Enough bad news. Now for the good news, care of our friends at DataQuick (these days I like using DataQuick's numbers because when the bubble was still in inflation mode here in Marin, Marin RE bulls liked to use it as proof-positive that real estate in Marin can only go up because we are so damn special): Marin real estate was down only 16% last month (so sales that were committed to in late summer, before the recent financial shister hit the fan):

I think it is now safe to say we have a trend here in Marin. I eagerly await the unambiguous cratering of South Marin. Only then can our arrogance and hubris be taken down a notch or two (I can hope, can't I?).

Oh, and lest I forget some choice quotes from our local rag that has been nothing but a flagrant cheerleader of the housing market when "things were good" and the Marin real estate industry's poodle. But first, the article's title:

"Condo sales buck up Marin home sales as prices continue to fall"

Since when do condo sales "buck up" real estate in Marin? Isn't that ars-backwards for us? What does that imply for single family residences? So bottom fishers are buying the cheapest properties. Isn't that a little like the floor dropping from under your feet?

Marin's home sales increased on the strength of condominium sales last month while prices continued to drop...

DeSalvo [a Coldwell Banker broker] said county foreclosures weren't [!!!] confined to condominiums or property sales in San Rafael or in Novato, where foreclosures and short sales make up 30 percent of the real estate market.

"Houses that were selling for $675,000 are on the market for less than $450,000," he said.

In Marin, foreclosure sales - homes sold in September that had been foreclosed on in the prior 12 months - accounted for 14.9 percent of total sales, continuing a steady increase from 13.5 percent in August and single digits a year ago.

"My personal opinion is until buyers' fears are allayed and the jumbo loan market is at equilibrium, we're going to continue to see uncertainty. We're going to see this for the next 18 months."

So where are the Marin RE bulls who used to visit this blog and try to explain how confused the rest of us were? RE Junkie? Where are you? Fredtobik, where are you? (For me, the two most memorable ones; perhaps you recall others.) You were all so (how do I put this politely?)... "adamant" about your opinions. And what about the legion of anonymous realtor cowards? Where are you? You can still wear your shorts in the winter and play golf; and it's still only a two hour drive to the slopes! All your self-serving justifications and rationales are still intact. Ok, so maybe the "gas prices are going up so people will want to live in South Marin" thing isn't working out for you at the moment. But where are you? And where's that fellow who fairly recently came on this blog explaining to us why CDOs and other financial wizardry were such great ideas and, despite what we thought, were here to stay? Where are you?

Look, others had the courage to start blogs saying "it's not necessarily so" at a time when house prices were doubling about every year or so; true mavericks like Patrick.net, BubbleMeter, The Mess Greenspan Made, Mish, Calculated Risk, just to name a few. Now is your best opportunity to show us what you're made of, to stand up for what you really believe. Lay it on us...

Just one rule, spare us the "things will get better, prices always go up eventually" line of reasoning. No one here will disagree with you as it is necessarily true given our inflationary system.

Welcome Again to the "Ownership" Society

No need to discuss recent events (of course, you may if you wish); they speak for themselves. Suffice it to say that Patrick.netters said it best: the American people got "owned" yet again.

I encourage you to re-read the U.S. Declaration of Independence (here to see the original) for inspiration. It's a beautiful document; it represents the founding spirit of our nation; read it with pride.

The following sentence represents the essential message of the document:

But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

In other words, for those who have the means it is not just their right but their responsibility to effect change.

Recent events are the culmination of "a long train of abuses". The only real question now is what do we do about it?

"The Mother of All Bailouts"

Nope. Housing prices make a whole lot of sense; completely justified. Yup. No housing bubble here.

WASHINGTON (AP) — The Bush administration insisted Sunday that Congress must move quickly to approve what one lawmaker called the "mother of all bailouts" — a $700 billion proposal to buy a mountain of bad mortgage debt in an effort to unfreeze the nation's credit markets.

However, congressional leaders said the administration's spare three-page plan must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.

The plan the administration has developed with support from the Fed would have the government buy up to $700 billion of the bad loans, taking them off the books of financial firms... Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, said the government's efforts would be the "mother of all bailouts" that could well cost $1 trillion when the cost of the government takeovers of Fannie, Freddie and AIG were included.

The whole congressional debate [on the bailout] is occurring just weeks before voters go to the polls.

And

(CBS) Treasury Secretary Henry Paulson defended the Bush administration's proposal to spend up to $700 billion to buy up bad debt of financial institutions struggling with illiquid assets (such as defaulted mortgages), saying not acting would have jeopardized the possibility of anyone getting a loan - and may have jeopardized Americans' savings and retirement funds.

Oh, and while we're at it, let's have the U.S. taxpayer bail out foreign financial institutions and governments too.

Of course, bailing out incompetence, failure, fraud, speculators, and the like (foreign or otherwise) is wrong as wrong can be. But for some reason that last quote from CBS really got to me... the one about how we have to save people's retirement accounts.

Don't get me wrong. Despite what you read on this blog, I don't like the idea of people losing their house and/or their retirement funds any more than the next gal. But come on! People gambled. People have been gambling with their retirement! That's what it means to pay obviously ridiculous prices for houses (and doing so as part of your retirement plan). That's what it means to put you retirement in the stock market (401K, mutual funds, what have you). It's gambling and no one can claim ignorance as people make a point of highlighting the risky nature of the markets even clear way back when the move to 401Ks first started and was viewed with some skepticism. The stock and bond markets (etc.) are inherently risky. It's little different than putting your entire retirement on red 99 (refer to the graphic for this post). Don't put your money into those markets if you cannot afford to lose it. That's rule numero uno in the investing world.

[Begin sarcasm]
But if we are going to bail out risk-takers who lost, then shouldn't we just bite the bullet and remove all risk from the stock market? Let's make it more like the housing market which is rigged to (almost) always go up. Let's say that it is now illegal (not just temporarily stopped) to short the market; no more puts. Let's say that you can only buy a stock as long as you are willing to only pay more than the last price paid for that stock. In fact, let's call it what it is and not call it a "market" anymore... certainly not a free and open one. Let's call it "Social Security 2.0".

I like kleptocracy*. You will like it too (not that you have any choice anymore). And besides, Paulson will make for a good king of America.

*"A kleptocracy (sometimes cleptocracy, occasionally kleptarchy) (root: klepto+kratein = rule by thieves) is a term applied to a government that extends the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats) at the expense of the population.

The effects of a kleptocratic regime or government on a nation are typically adverse in regards to the faring of the state's economy, political affairs and civil rights. Kleptocracy in a government often results in a severe deficit of foreign investment prospect, and drastic weakenings in the market and exportation/importation affairs. As the kleptocracy often embezzles its money from its citizens by misusing funds derived from tax payments, or money laundering schemes, a kleptocractically structured political system can be degrading to the quality of life of the general populace. In addition, the stolen funds that kleptocrats take to their own gain is often removed from funds that were to go towards public improvements, such as the building of hospitals, schools, roads, parks and the like, bringing about yet further adverse effects on the quality of life of the citizens living under a kleptocracy."
[End sarcasm?]

Update: Mish has a convenient way for you to blast emails, all at once, to all senators with a single click of a link. Check it out.

August Results for Marin Care of DataQuick

According to DataQuick, Marin prices were down -25% year-over-year in August; 13.5% of sales in Marin were foreclosures. Sheesh! Alt-A and Prime resets haven't even started yet.

"Mortgage money for homes above the half-million-dollar mark is hard to come by right now, even for well-qualified buyers..." said John Walsh, MDA DataQuick president.

The use of so-called jumbo mortgages, until recently defined as over $417,000, has plummeted since the credit crunch hit in August 2007, making jumbo loans more expensive and harder to obtain.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,121 last month, down from $2,218 the previous month, and down from $3,171 a year ago. Adjusted for inflation, current payments are 18.5 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle.

Foreclosure activity is at record levels, financing with adjustable-rate mortgages is near the all-time low, as is financing with multiple mortgages.

And if bailing out incompetence and failure right and left (at taxpayer expense) isn't enough of a show for you, well how about Paulson's latest grand scheme to set up an entity to buy all that toxic paper from the current bag holders at the lowest bidding price? Don't want to mark to market? We'll let you do it to each other! Since that cannot really be allowed to happen, because, you know, everyone has to be a winner and our rickety system cannot tolerate losses of any kind, you know there is going to be a lot of behind-the-scenes monkeying around. I can't wait.