Friday, October 10, 2008

Sobering

I've been in shock this week, seeing how bad it's gotten, evidenced by the Dow falling some 6,000 points from its all-time peak a year ago (MarketWatch chart).

We know the fundamentals well enough - the credit bubble that caused the housing bubble - to not be distracted by premature bottom-calls.

But witnessing the wreckage is very sobering. Yesterday on Housing Panic Keith reprised in "I wrote this post in April 2006. And remember, according to Fannie Mae's CEO, nobody saw this coming." yesterday:

Really. Stop and think about it. Now. Think hard. Visualize it. The bursting of the largest financial bubble in human history.

Because it's all going to end badly. For almost everyone. Really, really, really, really badly.

When Karl Denninger called for being in cash (as in nothing riskier than U.S. Treasuries) last spring he was all too right. Be sure to read his post yesterday, "Potential economic seizure dead ahead":

It doesn't get any more serious than this. To repeat: short-term commercial credit is threatening to completely disappear from the American scene.

Every action our government has taken thus far, including repealing mark-to-market requirements have made the situation worse by further destroying confidence.

Even the (relatively-) MSM NPR's Day to Day this morning explained this is a credit crisis, documented by the TED-spread, that government action so far has done nothing to address.

I'm also finding good daily commentary by Charles Hugh Smith, Barry Ritholtz, Calculated Risk, and Paul Krugman.

I'm amazed anyone would buy real estate now, but I guess some people never want to be kept from buying what they want.

Reality ahead for Westside real estate will be based on buyers' huge losses in stock portfolios, losses in income (there are hedge funds based here - not doing so well now - not to mention so many other jobs at risk), much tighter mortgage credit, and usually the need to sell another house.

19 comments:

Anonymous said...

What's there to discuss? We're experiencing an historical crash which reaches around the world.

If someone hasn't figured out that there is a connect between the RE bubble of the last few years and the stock market crash of this past week, then they're either in serious denial or just plain dumb.

RE Bubble blogs are rather meaningless at this point in time. I don't like looking at train wrecks--I haven't even bothered to look at how much my 401k plans have lost.

Buying a house now would just be plain silly.

Dave said...

I live in Santa Monica.

My over-extended landlord came by the other day, looking nervous, asking how work is going, etc....

he said "at least the westside has been immune from all this."

I told him the bloodletting has begun, and a bloodbath is coming. Instead of dismissing me (which I expected) he got an "Oh crap!" look on his face.

Wake up, flippers and over-extended yups. You're gonna be hurting even more soon.

Anonymous said...

It's a downward spiral, now.

A mutual fund goes down and people cash out, that mutual fund has to dump investments to pay those that are cashing out. That, in turn, drives prices further down, which causes more people to cash out. That, in turn, drives prices further down, and the vicious cycle goes on and on until the entire shadow banking system has collapsed, taking a lot of other businesses and people along with it.

Anonymous said...

"I told him the bloodletting has begun, and a bloodbath is coming. Instead of dismissing me (which I expected) he got an "Oh crap!" look on his face.

Wake up, flippers and over-extended yups. You're gonna be hurting even more soon."

Dave, it sounds like you will be kicked out of your rental soon by the bank.

Anonymous said...

--"Dave, it sounds like you will be kicked out of your rental soon by the bank."--

I'm not Dave, but I'd rather be a renter who gets kicked out of my rental than the landlord in this case.

Anonymous said...

"I'm not Dave, but I'd rather be a renter who gets kicked out of my rental than the landlord in this case."

Yes, I agree that is better. Let's hope Dave hangs onto his job in this downturn so that he can find another rental when he's back on the street.

Anonymous said...

---"Let's hope Dave hangs onto his job in this downturn so that he can find another rental when he's back on the street."---

Oh that's just special--being smug on Friday at the end of the biggest slide of the market in history. Apparently the enlightened and morally superior residents of Santa Monica are looking down their noses at the "little people" (i.e., renters and non-property owners).

This blog is dead.

Anonymous said...

Capitulation.

latesummer2009 said...

I see SFR starters on the Westside in the 300s when all is said and done. Over 50% off of peak pricing (2007).

The tide has turned and denial will no longer be an option.

http://www.westsideremeltdown.blogspot.com

Anonymous said...

"I'm amazed anyone would buy real estate now, but I guess some people never want to be kept from buying what they want."

"Buying a house now would just be plain silly."

Why? Things are FINALLY starting to drop in price and people are going to get desperate. I have just started looking at homes (after reading this blog for 6 or so months) and in the past two weeks I've had calls from 4 realtors telling me that properties I've viewed have dropped in price (20% or more). This is a very good time to buy.

Anonymous said...

"Oh that's just special--being smug on Friday at the end of the biggest slide of the market in history."

anonymous 5:32, you said it all. this blog has been SMUG CITY from day one.

dlp said...

Hey westside - once again I use your blog to ask people to think into the future and consider NOW how we can help each other.

We live in a society not an aggregation of individuals which means we impose certain rules like stopping at a red light. Unfortunately we chose to abandon such rules to govern our financial institutions despite having histtorical evidence that this was a very bad idea. So now we need to think hard about being a society and how we work together to mend the destruction.

Just a thought all, that goes beyond losses or profits in house buying on the westside.

Anonymous said...

Considering my net worth, as a renter, had dropped 42% this month... property had better come down a LONG way for me to be able to afford it.

WarChestSM said...

"This is a very good time to buy."

Yes...if you are looking at properties in some of the areas which fell first and have already declined by massive amounts.

The westside held up longer than most areas. Price declines are here, but they aren't very big so far (with the exception of lower end condos).

Things are just now accelerating to the downside. I would strongly argue that right now is NOT a good time to buy. I believe it should be relatively obvious that prices will be significantly lower at this time next year. Why buy now when you can save six figures by waiting a year?

Anonymous said...

A well located house that has come down 20-25% in Santa Monica (which this blog has pointed out in some cases) would be worth looking at....everything else, including condos, is too risky.

And stop picking on Dave the renter! Those aspirational renters are the key to the first time home buyer market.

Ad Dave, if your landlord wants to sell his building, I'm in the market for income property!!!

Anonymous said...

The market is down 40% in a year and yet we are down moderately. The bull argument to own in SM has been that we are less at risk, which has proven to be correct. Seems like the conversation is veering towards Ownership vs. Renting.

Anybody who is 10+ years from retirement and has the financial ability should be increasing their 401k contributions substantially. In 10 years, you will wish you had invested more when the Dow was below 10k.

As much as I can appreciate and understand the bear side of the argument, need to point out the bs that latesummer is saying. His/her blog is filled is pointless stats that prove nothing.

Anonymous said...

It's still a bad time to buy here, but I just bought a house in Merced for $48k and put a renter in it. It nets me a whopping $150/month. 15% CASH ON CASH. I'm rich!!!!

Anonymous said...

I still would buy property in SM if it came down a bit....I am renting out a 3 bed/2 bath for $6K/mo....none of my other investments are doing as well.
And I can write off taxes, interest, maint., etc....can't do that on every invest.

Word of advice from an old codger who has bought and sold RE as a personal investment for decades....all in Santa Monica/westside.

Don't wait for what seems like 'the perfect time' to buy....almost never 'logically' makes sense...but you have to do it when you can afford it.

I can't tell you how I have kicked myself because I thought the bottom was still coming and I passed on GREAT prop. to buy.

Anonymous said...

I read a great quote from Warren Buffett, when he said he knows its time to buy when no one else is buying and everyone is too afraid to buy. I dont think we're at the point yet, but there will be a point when people are saying real estate is a horrible investment and why would you ever want buy real estate. That's when you'll know its time to buy. It happened in the last downturn in the 90's and will happen again.