predictions for tomorrow – duck and cover

•October 2, 2008 • 3 Comments

Tomorrow is likely to be a bloody day in the stock and credit markets. Because of the upcoming election and the incredibly strong public backlash to ANY bailout for Wall St, house reps are likely not to pass the “sweetened” bailout in an effort to save their own skins/jobs. The failure to pass this legislation or provide any meaningful alternative will send the stock market plunging down 20 to 30% (i think it will end somewhere in the 7000s or 8000s) wiping out trillions in stock market equity value. The credit markets will be 100% frozen, not just kinda frozen like they are right now. Within days it will be nearly impossible for anyone to get a loan for anything. Businesses will begin to layoff thousands and perhaps millions of people because they will not be able to make the next payroll.

I really hope my predictions are absolutely incorrect or at best exaggerated but I really don’t think they are. Dark days are coming fast. Do whatever you can to prepare. I really don’t know how you do prepare for this type of thing. It’s a once in a lifetime thing.


havent posted for a while

•October 1, 2008 • 4 Comments

Well I havent posted in a while and partly that is laziness but partly it is because I’m frankly speechless. The news speaks for itself. The US economy is headed off a cliff and this is now far far bigger than simply housing problems in Eastvale or anywhere else for that matter. Of course it all started with the collapse of the housing market though. A good little video i saw this morning about the 15 freeway corridor referring to it as “Foreclosure Alley”. Nice. Check it out:

On a side note I know some people who are totally qualified, have good credit and the ability to pay and are getting consistently outbidded on homes. Homes in the high 200s and low 300s are seeing a very high level of demand similar to how things were during the boom years when there would be multiple bidders on each house. I guess this proves that when the price is right people WILL buy. The problem is that even though prices are getting low it still may not be greatest time to buy because it could fall much further since current values are still above what is normally considered “affordable” based on median incomes. Also, with unemployment going up we’ll now see the regular process of increasing foreclosures which typically occurs in a recession. Just throwing more gas on the bonfire… But, of course, not everyone makes the median income and not everyone is being laid off, and many people are able to pay for these houses at current prices which is why we’re seeing a lot of them jump in. This is great as a whole because at least it shows our homes are not entirely worthless… We sure have come a long way since 2005………..

Hang in there people. If you’re staying put for several years (let’s say 10 for safety sake) and you can afford your monthly payments then it may be a good idea to just ignore what is going on. Paper losses don’t impact you until you sell…. Always remember that. Same goes for the recent crash in your 401(k) plans. Yes it sucks to watch it lose value but hopefully you’re not retiring in the next 5-10 years…..

As for that nutty bailout that the government is trying to do. I can think of many reasons why it is a good idea and many reasons why it is a very very bad idea. I dont like that they are going to rush it which means it will suck like everything else that is rushed. I dont like that it will add to the deficit but thats a lost cause anyways so F it, add another trillion, its not going to change the fact that the US is headed into a very bad economic downturn. It will probably make it worse yes. But if they dont do it it will get bad really quick which people in this country just aren’t ready to handle (not that they ever would be…). I still see people driving new luxury cars, builders still building and people still buying starbucks every morning. Do you really think the average person is ready to really truly sacrifice what they “believe” is their standard of living (even though its a farce that is debt-financed)???? I dont. I think it will be forced upon them though at some point. Its just a matter of time now. The clock is ticking…

I dont know what else to say really. Like i said, these days I’m relatively speechless.

back to the future – 2003

•July 22, 2008 • 4 Comments

Well in just a couple short months we have gone from 2004 prices back to 2003 prices. Homes are consistently selling in the mid to high 300s in Eastvale with a few on the very low end going for the low 300s. This my friends is 2003 pricing when the Providence Ranch section of the neighbourhood was filling in and the Home Depot was opening signalling the arrival of Eastvale Gateway and all the amenities that this area sorely lacked prior to that. It is also coincidentally when I purchased my house so I am now on the precipice of real house value decline. It feels crappy! Just a couple years ago when things were slowing down and the hot market was losing its steam I bought in to the talk about how it would just sort of level off or maybe go down 10%. Well reality sucks! I’ve read that a good rough measure of a home’s affordability compared to local rents is the following. Take the rent you’d pay per year (monthly rent x 12) and then times it by 15. That is a nice rough estimate of what the same house should be somewhat reasonably purchased for. Rents seem to be stable in the 2000-3000 range in Eastvale depending on the size of the house. Let’s run the numbers for rents of 2000, 2500 and 3000.

$2000/mo rent x 12 x 15 = $360,000

$2500/mo rent x 12 x 15 = $450,000

$3000/mo rent x 12 x 15 = $540,000

Since most homes are being sold closer to 360,000 but many rents are above $2000 it looks like what I expected in terms of an overcorrection is occuring in earnest. Here are the possible reasons:

1) Lack of availability jumbo financing (>$417,000 loan amount) as well as much higher rates when you can find it (approx. a full percentage point higher)
2) Out of control gas prices making far flung exurbs like Eastvale without much local employment base less desirable places to live and thus not as valuable  (by the way the Valero on 6th and Hamner in norco is consistenly the cheapest in the area but BRING CASH to get the better price. Ralphs and Vons have a monopoly on gas up in Eastvale proper so they are always about 5-10cents more per gallon). To check current prices go to Gas Buddy. Oil prices may bounce up and down but the days of cheap gas are LONG GONE. Peak oil is finally making the headlines on mainstream media after years of people trying to raise the alarm.
3) Weakening employment picture (California is currently at 6.9% and more than a full percentage point above the national average due to the collapse of construction and related jobs)
4) An accelerating decline in home values in the OC may be leading some to keep renting and wait it out until the OC is “affordable”.
5) Lack of smaller more energy efficient homes in Eastvale. They built ’em big out here to attract buyers but in many ways that strategy may be backfiring in these frugal times….
6) People are just generally tapped out on debt and are unable to take on a house as they realize it is just not a great investment like everyone pumps it up to be not to mention the fact that we’re still in a declining market with no real clear end in sight and people don’t want to be knife-catchers. You might get a better ROI right now buying Indymac stock or day trading Fannie and Freddie!! In fact, the Inland Empire is the #1 riskiest real estate market in the entire US of A right now…

In the last downturn the IE registered 22 quarters of price declines between 1991-1996 and oh by the way the downturn in the early nineties was not anywhere near what we’re seeing now and we’re only 10 quarters into it.

What do you think is happening?
Are you sitting on the sidelines waiting for prices to fall further?
Is something else holding you back from purchasing a home right now?
What is your personal price point when you’ll jump in?

looks like we hit some people’s price points….

•June 26, 2008 • 4 Comments

Check out this story on CNN from today:

It looks like CA homes sales jumped 18% year over year which is a good sign. It means that at least some people think that current prices are a good bargain. Don’t get too excited though because we still have a boatload of inventory to burn through not to mention the shadow inventory of bank owned properties out there and the thousands of foreclosures that are happening every month. We are by no means “out of the woods”. You can get a little excited when you see the following:

– YOY home sales rising  – check
– median prices holding steady (in a 5K range up or down) for at least several months
– unemployment going down steadily
– the price of oil stabilizing or decreasing  (you might want to read “The Coming Economic Collapse” or “Twilight in the Desert” to see what may in store for us in this arena. Also you can google “peak oil”).
– net new number of foreclosures not refilling the market as others are sold off
– there are almost no brown lawns in your hood (spray painting doesnt count!)  🙂


A good idea? Or just one more new way to mess up your future?

•June 19, 2008 • Leave a Comment

There is this new type of home equity loan that is getting some press and I haven’t fully grasped why anyone would do this except to simply take money and walk away later… Much like the HELOCs of past years, etc, etc… In this new type of equity loan you get a certain percentage of your homes value right now in cash and essentially sign away 50% of your home’s future appreciation or conversely depreciation to the lender. You make no payments for the loan until you sell your house at which time you pay back the amount of cash they gave you PLUS that 50% of the equity gain. Sounds great eh? But wait… This COULD work out for you if you’re sure that prices will go down until you sell your house.  But if your house appreciates over time and you sell it, you have to give up half of the equity gain since signing the loan agreement to that lender. Depending on your timeline for selling your house and whether you need all of the equity gain in it to support some future need like moving into a retirement home, etc… this could be kind of a good deal or a really bad deal. The “kind of a good deal”  side of things assume you do something meaningful with the money like improve your house so the price will be higher in the future or send the kids to college or invest it something that gains greatly over time or whatever. The trouble is that most people will not do that. They will blow the money on vacations, cars, toys and then have to give up even more in the future when their house appreciates in value. My gut is telling me that this is yet another baaaaaad idea. Its tempting to get some money now and not have to make any payments on it for years, but the reality is that you’ll likely pay for it many times over when you have to pay the initial amount back PLUS give up some equity in your house. Remember, there are no free lunches and the lenders that offer this surely dont have YOUR best interest in mind. I think everyone should have learned that by now.

In summary, regardless of which way the housing market moves, when you sell your house you pay back the loan in full to the lender. They are betting that the market will go up over time and betting that up years will outnumber down years which historically is true (about 6.5%/yr for the past couple decades). You aren’t betting anything, rather you are taking “easy” money now and you are likely to get screwed either way down the road. You get screwed if the market goes down because you lose value in your house. Yes, the lender will assume half of that downside but YOU are still down! You get screwed if the market goes up because you have to give up half of the gains.  So, again.. how is this good for you? I have no idea… I must be missing something…

What do you guys think? Is there some instance where you think this is a great idea?

Here is the story explaining the new loan type:

trulia steps it up a notch

•June 12, 2008 • 2 Comments

Trulia just rolled out some new tools for viewing listings and also to see housing growth over time since 1900. This is a really really nice implementation of the microsoft virtual earth service and trulia did a great job. Big kudos to their developers on this…

Trulia Snapshot  (preloaded with Corona’s newest listings) – play around with this tool. Its just awesome.

Other tools

i really hope these guys are wrong

•June 10, 2008 • 5 Comments

I must say I’ve been a little obsessed with the situation with oil right now. Prices seem to be taking on a life of their own. Depending on who you believe this is due to pure speculation or its due to global demand outstripping supply or due to price manipulation. Regardless of the cause, oil is so critical to our way of life in the US that this is impacting everything. Stacks of SUVs piling up at local dealers, lots more compact cars on the road and the price of everything that is transported anywhere (aka everything) is rising. Personally I have cut down on anything non-essential and have sold my V6 sporty car and got a civic.

As we quickly approach $5/gallon here in California, what will this mean for the value of the housing in suburban and exurban areas such as Eastvale? There are clearly not enough jobs locally so people are forced to drive to Orange County or LA county every single day. To combat the rising cost of my own commute I’ve started taking the train every day. Not everyone works within a reasonable distance from the very few train lines though so this is not a solution for everyone. What will we do when gas costs $10/gallon?

In terms of oil supply and the future I really hope these guys are wrong:

If you look at the peak oil theory, the world doesn’t even need to run out of oil for there to be major calamity: