Sunday, August 3, 2008

As the Endgame Draws Near

According to Webster's "endgame" is the final stage of a game of chess, usually following the exchange of queens and a serious reduction of forces. This term seems appropriate for the eventual fate of this blog as well as many other RE bubble sites.

In that past couple months, many longtime bubble bloggers have purchased, or are currently purchasing a home, as prices in the Sacramento area have come back down to earth.

This leads me to wonder, what is going to happen to the vibrant community of bubble bloggers? Looking at all the links on Lander's site, its a sizable cottage industry =)

As for this blog, sometime in the short term, we hope to buy a home. If we don't, I suspect it will get really lonely around here, as many will have preceded us.

But what I am really curious about is the long term. In the long term, all the housing bubble sites will be obsolete. I suppose some sites with a large economic base, like CalculatedRisk, could evolve with the times.

Obsolesce is awkward. It's like the mom's I see around here, who, instead of aging gracefully, are still trying desperately to be hip and young.

When my time comes, I already know it will be hard to let go of something I have diverted so much energy and time to. This waiting game is a lot like being pregnant. The end product makes the wait worth the while (although this time we have waited longer than both pregnancies combined!).


Paul said...

So maybe it just evolves into BT's trials and tribulations of homeownership, and how to find a good repair person, property line disputes, neighborhood butt-heads, all that usual EDH stuff! :-)

Deflationary Jane said...
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Deflationary Jane said...

No worries BT, Sac still has a way to go. The few good homes are picked up and the rest degrades until it finds a price. That's been the same pattern for the last 3 years hasn't it?

sacramentia said...

Jane - Do you miss California at all?

I think there will be plenty of RE stuff to talk about even if the news turns positive. I do like Paul's ideas of homeowner pains.

This morning I called the the number for the EDH schools mello roo on my tax bill and asked what for the maturity date and payoff. It turns out I can't pre-pay it, and the maturity depends on the rate and timing of the other homes in the neighborhood. This is news to me, I always assumed that I could payoff the mello-roos at some point.

Deflationary Jane said...

Miss Davis? lolol not in eighty bagillion years. The only thing I really miss is peak performance, my old gym. Still looking for a good local one.

Miss CA? a little. My mom is still there and many friends.

But Mr. Jane is thrilled to be gone from CA so it's nice to see him less stressed out. It's also a huge relief that either one of us could loose our job tomorrow and the only dent it would make in our budget is that we would save less. That is a huge benefit to me.

Once the hot and muggy season is over (come on - August sucks in 90% of the country and 100% in Paris), we get to do a lot of weekend trips and explore the neighboring states. Not missing restaurants and shopping because we're within walking distance to the loop which reminds me of midtown. Great food and plenty of fellow liberals.

We got close to making a cash offer on a house that would have cost 400k easy in midtown now. But then we'd have to find someone to take over our current lease. So we decided to wait some more and see what the market does once the reality of no down payment assistance hits.

Buying Time said...

Glad to hear you and Mr. Jane are settling in so nicely!

Financial security is a huge stress relief.....we have had a great time doing things we never had the money to do when we were younger.

For instance, Mr. BT and I went wine tasting in Amador county this weekend (my first wine tasting)....great fun, but not for the cash strapped.

Mike said...

Well, I finally capitulated and purchased a home. Will be signing the final papers next week.

However, we are NO way near the endgame yet. I think we are going to be in deep housing funk for at least 3-5 years. Prices will continue to go down.

In fact, I am counting on prices continuing to drop as I have money left over to purchase a rental property when the price decline comes to bottom (which won't happen anytime soon).

Only reason I am buying now is because I can financially afford to and I am tired of renting.

PeonInChief said...

Don't worry, BT. We're not planning to buy at all, so we'll always be around. And I think people may still be interested in the issues, even if they've bought a house. We just need to be very gentle when talking about price declines.

And we could always talk about gardening, home maintenance, decorating and other related topics. DJ could send us posts on life in the Midwest, comparing restaurants, shopping, parks and other amenities.

Paul said...

Congratulations Mike! I'm envious that you have gotten out of the rental and into your own home. I'm so tired of renting ... but agree the bottom is still some distance away.

Mike said...

Per New York Times Today

"The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building. Homeowners with good credit are falling behind on their payments in growing numbers..."

Oh where near Endgame. I would say maybe 4th inning?

Deflationary Jane said...

Roubiani (think I spelled it correctly) says we've just hit the end of the second. Either way, I'd say that the pent up demand from people priced out of the market for the last half a decade is getting used up finally. Problem is there aren't enough of them to soak up all inventory.

So what happens with that second wave? Prices are not going to go up between now and when they hit the market. So the move up market remains locked. That only leaves the smart first timers and some very patient specuvestards in the batting cage warming up. That'll be ugly.

Buying Time said...

I didn't mean to imply we were near the endgame as far as the housing bust goes....I would say we are about half way through that one.

I was refering to the everyone-I-know-who-was-waiting-it-out-has-now-purchased side of things, which leaves very few tuning into the housing bubble blogospere.

And my congrats as well to Mike. I am also envious.

smf said...

Some of us already had homes!

And then went out and purchased again. But we are very happy with our overpriced home.

Anyways, it was well known that bubble blogging would at one point of time end. And the time keeps getting closer.

But who knows?

This still has years to play out in many places and countries.

To me, it is hilarious to read the news from other places that mimic what was said about Sacramento but a few years ago.

Deflationary Jane said...

Ahhh got ya.

We can always talk about the banks and their stupid ideas on how to run a business and liquidate inventory.

I have a friend who works for UCD, who is looking to buy in Oakpark. I have to live vicariously through her sac bubble adventures now. I told her to wait until the Alt A fallout and thankfully she's confined herself to a super low DTI. She put in an offer last week and has been pestering me while she waits to hear from the bank. I'll pass on her better war stories when I get them.

Mystere said...

In terms of price declines, we're well more than halfway through the housing bust...unless you seriously believe prices will drop another 43%, for an aggregate decline of ~86% off peak, in which case you should be looking for a cave in the hills at this point rather than a SFR.

And Gwynster left California? Now there's one bottom indicator *marks check box*

Mike said...

"I was refering to the everyone-I-know-who-was-waiting-it-out-has-now-purchased side of things, which leaves very few tuning into the housing bubble blogospere."


Even though I purchased a home, I have no plans to delete this or any other home blogs from my bookmarks. I've been reading housing bubble blogs since 2004/2005 and will continue to do so for a long long time.

smf said...

"In terms of price declines, we're well more than halfway through the housing bust..."

Indeed, but you still foreclosures, the excess inventory, other global bubbles, etc. that will follow the same steps Sacramento has.

I had a good laugh the other day, when in one of those home shows, they purchased a home in Argentina.


Because home prices were 'expected' to rise by 3X in the next five years...


mcb44 said...

I sometimes wonder about the impact of future supply from people who want to sell but are waiting for a return to "normal" market conditions.

I don't know any way to measure what the volume might be, but I expect it might be significant when some of these folks accept that waiting out the market might not give them the hoped for results.

I'm interested to hear what you all think about this.

Cmyst said...

You might have to count me in to the number of people who have capitulated, but since I don't have a large down payment, my capitulation may not amount to much -- if it happens.
We have friends who are short-selling, and I mean SHORT (like, 300K). I've not seen their "old" place, just where they're living now. The Sig Other has seen it, he likes it, and he's hustling me out there to look at it in about 30 mins. It's got acreage, and the closest thing to an underground home we're likely to see: it's built into the side of a hill, with a separate entire living area in the basement. The Realtor reduced the price today to the top part of my range, and since Sig doesn't get excited about anything housing related and he's excited about this, if I like it, we'll try for it.
As for the hold-outs, I can't begin to tell you how many people I know personally that have told me the same "I want to sell, but I'm waiting until the market recovers" story. Most of them are well past retirement age, and it's difficult to keep my lip zipped. I do try to diplomatically point out to them that "many experts believe that the market won't stabilize for several years". Most of them won't live to see it, sadly, and their children will be collecting whatever they can get for the houses.

sacramentia said...

"Most of them won't live to see it, sadly, and their children will be collecting whatever they can get for the houses."

I seriously doubt this situation. The market will return to normal, this will pass, and real estate will continue to be a good store of value.

The bloggisphere is full of very logical people and many are starting to buy. Not because they think this is the bottom, but because on balance it is time to settle. If enough people do this, the market will be normal again.

But there are too many homes...I personally know of 4 families from the bay that are starting look at homes here in sac because the prices have become so attractive. At the right price ratio, the equity migration will resume from the Bay Area, it is just a matter of when.

With such a lousy expectation so wide spread for real estate values, it is the time to get out your calculator and figure out what kind of return you need for an acceptable margin of safety and
look for opportunity.

smf said...

"The market will return to normal, this will pass, and real estate will continue to be a good store of value"

The market IS returning to normal.

This is not a temporary situation, this is what will be.

Those 2005 prices are long gone and will be nothing but a distant memory.

Houses at 10X income are a thing of the past.

All you have to do is take a look at any bubble chart, and see the progression it takes.

Take a look at the NASDAQ. You can see a fine example of what returning to 'normal' is.

8 years after that bust, in a market that moves far quicker than housing, the value is still 1/2 its high. And no one is assuming it will return to its 2000 high 'soon'.

sacramentia said...

I agree with your first sentence SMF, except I would define normal as prices tracking inflation. Stocks are different, they can always go to zero.

Cmyst said...

I seriously doubt that prices will reach 2005 levels, adjusted for inflation and median income, again in my lifetime. Maybe someday, but it will be far enough in the future that the lessons we are learning today will be long forgotten.
I believe that the most conservative and prudent fiscal route currently for people past retirement age with a lot of equity still in their house, who wish to move to another state or city or smaller house, is to price their house very well and sell it NOW.
Figure another 2 to 3 years to the bottom, then another 2 to 3 years of flat values, then a return to the gradual accrual of equity -- not the crazy gains we had from 2000 to 2005.

Buying Time said...

Cymst - So nice to see you!!! You have certainly been missed.

BTW - I totally agree with your assessment. If people are planning to sell, they should have done it yesterday. Waiting for 2005 prices is going to be a long long wait.

My LL is planning to wait till sping to sell his two properties in Serrano. Not sure why he would want to...but I am certainly not going to talk him out of it!

I also know of a Bay area couple planning to move here....but I also know of a couple planning to move back there since their commute has gotten so expensive.

Deflationary Jane said...

Cmyst! Yes you have been missed >; )

I'm hearing about more people moving back then coming here because of the cost to commute and the price declines in the BA.

You need a huge spike in prices in the BA like we had in the last 90s to scare people back to Sac. It's going to take quite a while to get back to that part of the cycle.

Remember I'll be back in town in the middle of Nov so hopefully we can plan a girls day out.

Patient Renter said...

I sometimes wonder about the impact of future supply from people who want to sell but are waiting for a return to "normal" market conditions.

It is significant. As others have mentioned, I can't even count how many times I've heard it said that someone is waiting for the market to "turn" before they try again to sell their house. Even the folks on the flipper shows on TV are doing this! The perpetual "wait for Spring" strategy is being employed by 3 out of the 4 homes that have been for sale recently on my street. I'm sure the 4th one will decide to wait soon too.

The way this plays out is slow and painful for all. Eventually the would-be sellers realize that the market is not going to "turn", at least not in the way that their short term memories are expecting it to, and they decide to sell for an even greater loss or suck it up and make do with their current house.

Cmyst - did you give up on the Strengs?

Cmyst said...

DJ and BT - I've been lurking, but just didn't have the heart to blog because it seems like well over half my friends and family have been hit hard by the housing bubble.
Hope you and Mr DJ are enjoying StL. I always loved that town. Did you know that potato chips were invented in a tavern in StL? (that's what they claim, anyway.)
PR - I didn't give up on Strengs, so much as I decided that community and friends were more important to my long range housing plans than style. I had the great pleasure of running across a savvy Streng owner in the course of my job a few days ago. House was furnished almost entirely with classic mid-century modern stuff. He seemed very pleased that I recognized it, and we discussed Carter Sparks and the Streng Bros. at length. The owner did further emphasize some downsides to Strengs, including problems with roofs, the slab, etc.
And that the atrium models and the virtual glass walls in the rear could be problematic due to sun and heat, depending on the way the house was situated on the lot.

Paul said...

I am hearing/reading increasingly dismal projections for the ARM resets coming up (and not peaking until 2011). With the overall home equity declines (many being negative), many prognosticians are saying that the default rates will be higher than subprimes. This could continue the downward price pressure for several more years, rather than maybe starting to bottom in 2009.

On the other hand, I wonder if many of those ARM resets have been refinanced already, or already walked (and bought) while their credit was still good, so we are seeing a lot of the ARM foreclosures now, not later. Only time will tell.

I think it is likly we will return to 2005 prices, but not anytime soon. Maybe 15 years? Just a guess.

And I too believe there is a mountain of sellers out there who don't have to sell, but are "waiting" ("hoping" might be a better word) for the market to change.

Very interesting times.

PeonInChief said...
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PeonInChief said...

Welcome back, Cmyst!

Does anyone know the ratio of Alt-A to subprime in Sacramento? I know that the Alt-As were a bit above 25%, but what about subprime? That would give us some notion of how many at-risk households there are.

The subprimes didn't go down on the interest rate re-sets entirely, but because people lost their jobs, got sick, divorced or some combination of all the above. The Alt-As will go down as a result of re-sets, as the homeowner may have to pay a higher base amount (if it's an option ARM) and will have to pay the principal over 25 years. So even if the interest rate doesn't increase, the payment will.

And, finally, the migrations from the Bay Area seem to happen every 20 years. Those who migrated in the early 1980s moved and found jobs here, as gas prices were much higher, so commuting didn't make much sense. The 2000s migration depended on people keeping their higher-paying jobs in the Bay Area. With the increase in gas prices, people have either returned to the Bay Area or found jobs here. (The return migration has been going on for a couple of years. The bubble collapse is only one part of it.)