I caught this KPCC AirTalk interview with economist Christopher Thornberg (right; photo source) yesterday (9/8/08) and wanted to capture a minute or so that he said very clearly about mortgages and the housing bubble, beginning at 24:04 (emphasis added).
Keep in mind, that in many ways the rising credit standards is more a return of the housing market to some sort of normal set of standards.
We have to understand that if you went back before 2000-2001 it was significantly more difficult to get a mortgage than it was, say in 2004-2005, and that's exactly why we had this housing bubble.
Those restrictions are there for a very good reason. It sort of controlled the excesses of the market. When those controls left, the market went crazy and now we're at the back end of this and still feeling the outfall from that.
So in many ways I think we have to understand that it feels tough, but it mainly feels tough because prices are just simply still too high relative to incomes. When prices come down enough, it's going to be easier for everyone to qualify for a mortgage. ...
I think, overall in the state I think we're about half way to the bottom. ...
It's funny, because everybody keeps talking about how these credit standards and people aren't able to get mortgages, and gee, we have to do something about the mortgage market.
Well, there's a natural process occuring here, that is to say that if people can't qualify to get mortgages at these price levels, price levels will fall to the point where people can qualify in order to get those mortgages.
19 comments:
Thornberg is god... He is the only one telling it like it is. That's why UCLA couldn't deal with him. He looks at the facts and doesn't have to please anyone. Pay attention to this guy. He has been right on so far.
Westside numbers for September on Melissa Data look horrible so far.
Big drops are a' comin....
http://www.westsideremeltdown.blogspot.com
My favorite Thornberg quote is from some time in 2006, when he basically said yes, there is a housing bubble, prices are going to soften, but "if your house is worth $700,000 today, it will be worth $700,000 in five years." I wonder if he'd be willing to stand by that statement today?
Thornberg may be SLIGHTLY more bearish than the UCLA idiots, but Schiff, Dean Baker, Schiller, and Roubini are the true "gods".
I agree - i am a bear - i see prices coming down huge.
Let me ask a dumb question - if i have specific needs in a house - i need a house to be custom designed to fit my specific needs, it doesn't seem like the coming collapse in values really helps me that much.
Let's say hypothetically that a vacant scrap of land in the 90402 is exactly two million today.
Let's say that i agree with the super bears on this site who say that that scrap of land will fall to one million at the bottom - a 50% fall.
OK
let's say the cost of architect, landscape designer, construction, permits, and etc etc on building my dream house north of montana is 3 million exactly today.
OK if i buy the land for 2 million today and build the house for 3 million today i am all in at 5 million
OK - if i wait a few years for land to bottom out at 1 million then i pay 3 million to build the house i am all in at 4 million
So - 5 million vs 4 million - By waiting for the super bears to be proven right i save 20% of the cost -
ok - is this wait for the super bears to be proven right worth it - is it worth dealying the move in to my house by a few years in order to save 20% ?
Look, i agree with the super bears - i think we are heading for apocalyptic price falls - but i just want to point out that for people that need custom build, the apocalypse won't help much
That all depends if you have an extra million lying around! Most people don't.
Let's look at this another way -
let's say that a sane family, a family who is buying a crummy house, a house that they will eventually want to rennovate or tear down, should spend three times family income.
Let's say that that three times income is the magic number.
OK - back in 1990 the crummy house north of montana was 900 thousand bucks. You needed a family income of 300k in order to afford it
Today, 2008, the crummy house north of montana is 2 million. you need a family income of 700 thousand bucks.
The key issue is, how common were 300 thousand household income families in santa monica around 1990. how common are 700 thousand household income families today?
was 900k in 1990 actually affordable to FEWER people that 2.0 million today ?
seems like lots more very high income people in SM today with many of them married to other high income people.
perhaps there are MORE 700k couples in 2008 around than there were 300k couples in 1990?
@ 9.46, construction costs are dropping rapidly in the custom home sector, architects, engineers and contractors are all looking for work right now, plus it will definitely be finished quicker (improved response times from city, subs etc..).
Even though the difference may not close the gap in the depreciation of the land value, it may bring it that bit closer to the point where it is worth it..
OT, but this is too awesome not to share: BH listing on CL advertising: "WAS IN ESCROW FOR HUNDREDS OF THOUSANDS OVER ASKING!!" (Caps and exclamation points not mine.)
Okay: So, you are telling me to jump on this because it FELL OUT OF ESCROW AT A MUCH HIGHER PRICE?!! (Caps and exclamation points mine.)
You freakin' lamebrained realtor. Hey, how about buying my used Dodge which was previously not bought by several other people at a MUCH HIGHER PRICE???
Okay folks. This is what we are dealing with in this day and age. Morons. Freakin' morons.
Here's the linky if you want to torture yourself:
http://losangeles.craigslist.org/wst/reb/834205217.html
Thornberg is a babe....never saw a picture of him before!
Another n of montana home sold to a private equity partner - buying the home for his son.
is this a trend?
incomes north of montana have diverged from prices - incomes and prices don't have to line up with the private equity crowd is in town
to Anon (September 10, 2008 9:46 AM) who needs a $5mil house in 90402, i would suggest that you look at your impact on the environment, and whether it's really worth depleting that much of the earth's resources for your ego's dream house? what kind of Earth will you be leaving your children and grandchildren? resources are not limitless, and this kind of attitude has led us to the mess we have in the global environment today.
Pleeezzzeee...rich people don't care about the environment...they want their big fat house.
"Pleeezzzeee...rich people don't care about the environment...they want their big fat house."
Al Gore cares about the environment. Just ask him.
a 6000 square foot new green house in SM is better for the environment than a 2000 square foot house in phoenix
in sm it is possible to use very little heat or AC - and if you have enough solar panels the house can have zero carbon footprint.
you can't judge a person's eco footprint by the size of their house.
plenty of folks in 6000 sq foot houses can legitimately feel they are doing great things for the environment.
How much water does a 6000 sqft house in SM use?
actually if you go to the 90402 you will see that many of the brand new 6000 square foot houses are planted with desert plants that require ZERO water.
water usage is all about the landscaping.
just go to city hall and look it up - many of these 6000 foot houses are leed certified.
SM is filled with insecure people who like to feel morally superior to the people who live in bigger houses. they will come up with any reason to explain why they are better citizens than their neighbor living in 6000 square feet.
pathetic
How much rainfall occurs in SM yearly?
How many people in Southern California?
SM gets very very little rainfall
that is why the people who use desert plants like cacti are really superior to the proles who use green grass.
do a little homework. few people in the ghetto neighborhoods of SM plant desert plants - the few people doing this are north of montana.
why the hate and scorn for good honest folks who live north of montana ?
All you folks with Alt A or variable mortgages set to reset....call your damn bank now and work out a loan modification....
I did, and locked in my teaser rate as a perm. loan.....Yep, you heard me, the banks are getting pressure from the feds to avoid have anymore foreclosures, so they will do it....you'll be surprised....it wasn't that hard....I'll keep my Santa Monica house thank you very much...
--_the majority of sm citizens want no developers
developers bribe the city counsel in sm to ignore the people and let them build anyway.
therefore i classify the developers who build in santa monica as the worst type of despicable scumbags.
how do they bribe the city counsel? well for starters if one of the councilmen has an idiot unemployed son, the developers will give said son a do nothing $300,000 a year job
the whole system in SM is corrupt - go spend some time in city hall
the developers have plans to build new hotels new office buildings - they are filling our city up with development and driving traffic through the roof
already they have made the intersection of 26th and san vicente hellish
do you like to bicycle or walk or enjoy our city - the increased traffic on san vicente will lead to even more bicyclists and pedestrians killed
this is not a bull vs bear issue. it is an issue in which all of us who plan to stay in SM for future decades have to come together on
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