Remember "it's contained"? Today is more evidence it wasn't and the bears have been right. Hard to imagine how the Westside will be immune; it sure wasn't in the 1990s. (Image from MarketWatch)
Also see James Howard Kunstler's latest on "The Party that Wrecked America". And Keith's (of Housing Panic) new America Panic.
Monday, September 15, 2008
Another bad Monday
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21 comments:
Since Lehman was valuing its Alt-A loans at 35 cents on the dollar (and still was forced into bankruptcy), what does that say about future real estate prices? If the loans are valued at 35% , the down payments are worthless, and the asset values will continue to fall to equilibrium.
This is just the beginning--anyone who thinks that the recent RE bubble wasn't a BUBBLE is just an idiot.
The current prices in 90402 and everywhere else in 90402 are hyperinflated and the result of IRRATIONAL behavior.
Or, it's not so bad--3 of the 5 largest investment institutions have gone belly-up, Freddie and Fannie have failed, AIG is going to fail, WaMu is going under...Other than that, the inflated house prices in 90402 and elsewhere will not suffer because the market will sustain these ridiculous prices.
The current situation has more in common with the recent Metrolink train wreck.
80% declines over the next 8-10 months. The dollar is crashing.
This is only the beginning. Wells Fargo just reported that they might lose $200 million (they'll take another charge) because of bad Lehman debt. Lehman is going to take down a lot of others with it. WaMu is next, dozens of banks are on the ropes, and the Fed is running out of ways to bail out corporations and hedge funds. The domino effect is also taking out tens of thousands of high-paying finance jobs, which will ripple into other industries including securities/M&A lawyers, accountants, etc. These are the peeps in the "high end" areas.
Meanwhile, the Alt As in the "high end" areas are only going to START resetting in 2009 and on for several years. This is going to cause a financial and real estate valuation tsunami.
We're going back to pre-Bubble prices on real estate, i.e. 2000 level prices. It might overshoot and get even worse--remember that the current boom started in 1995-1996, but 2000 prices are very reasonable as that is when the Bubble really took off and home prices totally de-coupled from fundamentals (rents, income levels, etc.).
Sky is falling...lalala la la
The real "current" bubble started long before 1995. Looked at as a very long graph, California real estate prices have been accelerating up and away from fendementals for more like 40 years. There have been ebbs and flows in this extended spike, but on the whole you'd have to go back to the pre-prop 13 1970s pricing.
Am I predicting that we're heading that way? Well, adjusted for inflation, it's possible.
That'd make the actual value for your 4.5 million mansion more like $750,000.
A little over the predicted 80%, but not much.
Immunity may sound good on "Survivor" but is far from the truth here. Big drops are in the near future. Minimum 50% from peak pricing (2007). And it could drop faster than people think.
And so it begins on the Westside...
http://www.westsideremeltdown.blogspot.com
Tokyo real estate prices have dropped 75% !!! from their peak in the 80s, and still remain flat 25 years later. I expect prices to drop back to 1996 levels or so, and maybe lower due to this ongoing recession/possible depression.
WAMU has it's credit rating dropped to JUNK!, The Chinese Shanghai index has dropped 75%, from 6000, to 2000 in 9 months.
This is not contained, and will continue to get really, really bad. Hopefully not like 1930 depression bad.
Can we please delete the posts from the idiots who keep spamming about 80% drops? I'm a bear and have posted here since the early days, but these people are just trolling. This is not a stock message board for you to yell nonsense in, we're trying to have a meaningful discussion.
i agree
by the way - are SFRs still closing ? could we have a running total of SFRs in n santa monica that close - would be interesting to see if any buyers are backing out
"This is not contained, and will continue to get really, really bad. Hopefully not like 1930 depression bad."
Worse. Believe it or not the depression had a compoaratively modest effect on real estate prices in most markets. Everything was more isolated and regionalized.
This is going to hit the average american much harder. While there will be no dust bowl depopulating middle America, it'll be far worse in many ways.
With the coming 80% drops in real estate (possibly more), the average american will be paying throusands, tens of thousands, or hundreds of thousands, on an asset with essentially no paper value.
Nobody will continue to pay on that kind of loan. Loan repayments will drop to pennies on the dollar. Entire communities will be left vacant. Squatting will become the norm.
The static hobo will rule the day. Rather than hopping trains people will squat in their own or their neighbors homes. Eviction will cease to be a reasonable option. For all intents and purposes the bulk of the property in the country will be owned by the banks for whom it has no intrnsic value.
In the end it will take 100 years for the markets to recover from this crash.
So, 80% is nothing. We're going all the way down to the basement on this one!
500 pts / 11000 = 4.5% = not so bad.
In 1987, 500 pt drop / 2300 = 22% drop = Black Tuesday = world markets all drop 20-40% in one day = bad.
In 1987 California real estate bubble was still three-four years from peaking.
Now, in CA most new jobs and economic growth over the past 3-5 years were in real estate or real estate related fields (lending, construction etc.). It is difficult to directly tie financial markets strength to the real estate bubble though the two are connected.
What is happening, however, is the real estate bubble has killed the availability of money, not just for real estate but also for other industries. The banks' losses in real estate have seriously affected their ability to lend to business, a key to keeping the U.S. economy and world financial markets going strong.
The end result a serious slowdown in the economy that doubles the impact on the real estate bubble.
Not the end of the world and a 100 year nuclear winter, but some real financial pain for the over extended nonetheless.
Quite an optimistic bunch. Let's see...proclamations of huge reductions in the near future; check. Referencing Tokyo real estate in the 80's; check. Now we just need somebody to mention rising sea levels and this thread will hit the trifecta.
The stock market taking big hits makes sense. It's the companies (and their shareholders) who own those bad loans that are feeling the pain, along with Uncle Sam bailing everybody out. But I don't really see that translating into fire sales except for foreclosures that most of us wouldn't want to live in anyways.
If there is any argument to be made, it's that hundreds to thousands of LEH employees may no longer make fat salaries and their 401k's just got killed.
And for those of you talking about resets, this last week has been the highest amount of refinancing seen in years after rates tumbled after last weeks bailout.
8:17, you're blind.
Not so long ago people were saying that there was no "housing bubble".
Well, 3 of the 5 largest investment banks have gone belly-up and AIG is being thrown a lifeline.
The carnage is just starting and idiots like you think that the BUBBLE prices in 90402 won't be affected.
Well isn't that special.
Why don't you check the statistics?
Median sale price in the 90402 is UP for ytd 2008 vs ytd 2007
median sale price is also up in aug 08 vs aug 07
is it possible you don't spent time with the people who are today buying in the 90402? Few people in the 90402 are willing to sell at today's price.
WITH FEW SELLERS, all it takes is a small number of hungry aggressive buyers to push prices up
In a lot of very nice neighborhoods the price of a house is down 20%. you would think that some of the buyers in the 90402 would substitute - they would jump to those other nice neighborhods instead of the 90402
but the fact is that the 90402 is today still ABOVE the 90402 2006 prices
and the rest of LA is BELOW the 2006 prices
the relative gap between the 90402 and the rest of la has gotten larger
what is causing this relative attractiveness of hte 90402 to rise ? i am interested in any ideas - but the numbers are the numbers
Westside = 90402.
90402 bubble prices will survive any and all assaults from the rest of the financial world and national/world economy.
These seem to be the two arguments that many people posting here believe.
I'm out of here. The economy is trying just to stay afloat and this board is completely irrelevant.
No one is saying the 90402 will not go down a lot in the future
people are just saying that it hasn't fallen a lot yet.
Sales are still happening today. Cash is still changing hands at $4 million plus per house
this is real right now.
no one wants predictions we just want to know why houses are selling today Sep 08 in the 90402
The 90402 is completely immune. We have just witnessed the greatest financial carnage our financial world has experienced since the Great Depression, but if you want a teardown or horrible shack north of Wilshire in SM it's still $1.6 million and up. Nothing will shake these prices, nothing.
Deeds in the 90402 won't be worth the paper they're printed on in a year or two. Just wait. You'll see.
it seems obvious that today's crisis on wall street will impact RE prices in NYC and London more and impact 90402 less
where is the good news? I am sick of the bad news!
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