Bay Area home sales have slowed, but it's still wacky here. I may give up and move.

Someone will be left holding the bag for buying millions of homes at the top of a bubble market. The Wall Street firms who are currently stuck with it are spending their political capital to lay it at the feet of the taxpayers. At this point it looks like at least part of it the losses will be spread out.

Maybe Congress can partially bail out Wall Street by rewriting the law so that homeowners have to repay their debts, and not be allowed to walk away from their debts via jingle mail. The houses in question would be de-collateralized. The debt stands. If a homeowner/investor is "under water" then, like any other investment, they take a loss. But they can't just give the house back and walk away. That way the debt that Wall Street holds has a better chance of being paid off and has more value.

Everyone can now see that housing values are headed back to 2003 and those who have more mortgage than house are a flight risk. Maybe that's the crux of the problem.

Phoenix clearly doesn't fit into the "flatland" vs "zoned" thing. The place can just keep expanding out almost forever into the desert, yet had one of the premier bubbles.

"Everyone can now see that housing values are headed back to 2003"

I can see those values in my rear view mirror in some parts of San Diego.

San Diego saw 35% appreciation from 3Q 2003 to 2Q 2004. Vegas was over 50% for same time frame.

Thats why when i bought,,,i bought where there was no property left to build on,,,,,gawd,,,i love it..

Geoff writes:
Anonymous - youve got to be patient.

I'm trying - I've been sitting out this market since 2004. I'm not even looking in SF - I'm looking in the nicer parts of San Jose where decent homes are still $800k plus. Our downpayment could buy a house in many parts of the country. Tempting to pack it in and go.

Here's a novel concept: let's pay people more money!

"The city (as well as most of that area of the South) has no gasoline. Truly bizarre."

Not really bizarre. We went into hurricane season with very low gas inventories. Two hurricanes hit us squarely in our oil production and refinery capacity regions, and these things are not as easy to restart as people would like to think.

Also understand that when EIA reports inventories of say 178 million barrels - they are including the volume of pipelines that are full of product. If those pipelines aren't full, they stop working. A rough estimate of minimum-operating-levels of gasoline inventory is 170 million barrels. We are therefore at levels now where pipelines have to stop flowing else they will empty, and then it's really a bitch to get things moving again.

And, we are still 2+ million barrels a day down in refinery capacity right now because not all refineries are back up to speed. And it's not like we have excess refining capacity out there to make up for it.

Expect gas shortages to continue for a while longer.

And go get educated at The Oil Drum | Discussions about Energy and Our Future .

ullpointer -

I would agree. I've lived a lot of places including Ohio, W NY, VA, etc. Silicon Valley is probably my least favorite. We are only here because of our jobs.

U.S. lawmaker Markey calls on SEC to curb market volatility.

sheeet...might as well shut her down like in Russia

Mike-
Amazing the press isn't running with that instead of bailout...More of the same..the have nots are left to fend off the crisis themselves..the halfs just call senators and congressmen....

In Soviet Amerika, city decline Case-Shiller index.

its still in the middle of texas...

Property taxes in Texas are pretty brutal..but no state taxes..still moving from the bay area to Austin is like eating hamburger out when you have steak at home...ode to paul newman...

Graph of Case Shiller Indices

Case Shiller Indices - West

The "Google effect" won't last forever, and I'm certain Seattle/Portland will follow SF trends. Those areas were pushed by speculation far beyond fundamentals.
yupside_downslide

Silicon Valley and Seattle area are somewhat insulated from some of the "war" out in the rest of the country. Seattle still has manufacturing jobs (that frequently pay $82K plus), as well as tech and the bio-tech/gen-pharma industry. SV still has alot of tech jobs and has become ground zero for alternate energy companies and bio-tech.
The mayor of Seattle just announced his budget and there are increases in infrastructure and social programs. And it's funded.
Those areas (SV/Seattle) are on their own economy,lol.

Seems pretty clear that Manhattan will soon fall off a cliff. Metaphorically of course. Sea level rise will prohibit any actual cliffs from forming.

why a bailout when stocks are flying, now at 340, actually now dow's higher than before vote....

Mike, you're right about the oil refineries. They have a problem with all that heat and volaatile gases floating around. They explode. The last thing they want is to shut one down, as its so dangerous to restart one. I remember one near LA that was offline for six months before they could get it started.

Link to more Mccain regional phones:

The page cannot be found

Told them he just lost my vote from proposing "to buy mortgagges" using taxpayers money.

5 Foot 3 Pablo Picasso writes:
I agree with others, CR.

The Flatland vs. Zoned Zone doesn't work so well.

I agree -- Krugman would appear to be more wrong than right on this, at least in terms of how far prices have fallen so far. As far as I can see, prices have fallen farther in Flatland (e.g. Pheonix, Las Vegas, inland empire, suburban bay area, Detroit) than in the Zoned Zone (SF proper, Portland, Manhattan).

However, the distinction is useful, and I am guessing that the Zoned Zone is going to take the bigger price hit next.

"Housing prices are expensive where people really want to live, and people really want to live where they get paid well, and people get paid well in those "liberal enclaves" because "liberal enclaves" are powerful economic engines."

That's Econ 101? Huh. From one living in bubbleland, that has that familiar bubble psychology smell--which is not supported by fundamentals, "liberal enclave" or not. Sometimes this place feels like a timewarp back to 2003-5.

I'm zoned and damn proud of it. I love my wetlands and coastal waters, rivers, clean air, clean water, clean living..

This is me: YouTube - Green Acres intro 1966 

"If healthcare is your thing, there are few places better suited for your talent than Minneapolis/St. Paul"

Minneapolis is on my list. I actually LOVE winter. I miss the snow (but not the ice). I lived outside of Buffalo for a while - it was great because it was so cold that you could drive on the snow and not worry about icy roads.

Per CNBC....

FASB, SEC "reforming" FAS 157, fair value......

They don't need no stinking Treasury oversight. They can just do it.

Thats one thing people can just get over. Or not.

The media is no longer pumping this as a shitburger, so we shall see.

On the other hand, the market seems to be pricing in a bill. Which could eliminate the sense of urgency.

I give up.

Name: Mark-to-Market
Born: September 2006
Died: September 2008

"Born on the wrong side of the business cycle"

There are burst housing bubbles in many of the advanced economies that are also experiencing bank trouble. Perhaps we need statutory caps on the valuations that lenders are allowed to attribute to properties, coupled with caps on the LTV. If, for example, one were obliged to normalize one's current market valuation to the lowest value in the preceeding 6 years (using the relevant SCI measure), it would be impossible to make the kinds of outrageous loans to actual market value that have led to the MBS disaster.

A rule like this would take the air out of any bubble before it could begin to inflate.

I'm turning into a socialist.

Max,

I looked at your web site - indeed : "Bailout is worth than doing nothing"

call McCain regional offices:

The page cannot be found

They don't get many calls, they answer quick and the impact of such call is important moer than the thousands of calls into DC.

"Came in 1958 when you could drive between the little towns through the orchards. Remember the blossom tours?"

I was born here in 70 - most of my fond memories are from the 80's. I left in the 90's and when I came back in 2000, I was shocked by the changes.

mal - I agree. If only I could convince my husband.

Re Seattle. Don't forget Wamu just went kaput. Will lose thousands of high paying jobs.

which is not supported by fundamentals,

Sorry, but it sure is.

Maybe I wasn't clear. I wasn't talking about the very real bubbles of this decade.

I'm talking about what salaries businesses have demonstrably been able to pay and what housing prices their employees have demonstrably been able to support on those salaries for a good generation+ now on the Left Coast, and much much longer in NYC and Boston.

People above have quoted jobs (sure for the guys in the middle of the bell curve then the Midwest COL is great, but do you really think the cream of the MIT crop thinks their career would best be pursued in, say, Indianapolis?), mountains, oceans, diversity... all that stuff is worth something to a lot of people, and if you want to live there you have to bid against them.

It isn't government pricing people out.

Hey, if it isn't your thing (it isn't mine, frankly), then I'm glad you found a place more to your liking. But Econ 101 still holds - for a change, anyway.

Riverside County's unemployment rate has climbed to 9.7 percent. Construction jobs are drying up as development has practically stopped.

The Coachella Valley's economic index, which is tied to job growth, shows a local economy at its weakest point in 14 years. The pain is being felt in all aspects of our economy.

Riverside County has the fourth-highest foreclosure volume in California. The county was set to receive $48.5 million for the purchase and rehabilitation of foreclosed and abandoned homes under the bill, which shows the plan had merit.

"When the government fails to pass a socialism bill and the market goes south, let it go south. I don't want to pass a socialism bill just to protect the stock market," said Limbaugh, the most popular of the talk show hosts

Still not enough.

Prices here in Maryland typically run at 5 times median household income. That needs to return to 2.5 times, and I really don't care what Wall Street crooks need to be crushed to bring about this required reality.

I've read most of the posts, but not all, so if this has been mentioned, I apologize. I haven't seen anyone mention the role zoning in places like Boston and Seattle put a curb on new supply. In places with more readily available land and lax or no zoning we saw the predictable economic response to higher demand caused by easy credit... more supply. In many of the areas that have seen prices decline the most, SD, Miami, inland empire of CA, AZ, Vegas, you saw massive overbuilding. Now you are left with inventory in Miami that is measured in years, not months. On the flipside, places like Boston, Seattle, Portland, OR make it very difficult for builders to build. Zoning laws are very restrictive, open land is scarce, or non-existent. So, while you did have rapid price appreciation, you didn't have massive overbuilding in response to the price appreciation. In addition, the areas that are seeing the greatest declines were also the ones seeing the highest levels of speculative buying... people buying into the story that there will be a massive influx of retiring baby-boomers moving to Miami, Phoenix, and Rancho Santa Fe. Well, there might be now, but the shell game gave out before the speculators could unload their condos purchased with no-doc, neg-am, option arms (cause they were just going to flip them). There are rational reason for the different levels of price declines. I'm not saying this to argue that Charlotte, Boston, Seattle, etc. won't see further price erosion, just that I wouldn't assume that just because Miami and Vegas are off 35%, everyone else needs to "catch up."

The median income for San Diego in 2008 is 72K according to HUD. That means a median house should be around $216K. And you need 20% downpayment - 44K - saved up. What can you get for 216K in San Diego? Look at the August 2008 spreadsheet from dqnews:

Probably a studio or 1-bedroom apartment converted into a condo. Or a tiny house in the worst, gang-infested neighborhoods like Logan Heights or City Heights.

Prices need to fall another 50% or the middle class will continue migrating out of San Diego to the Inland Empire.

CR:

I live in NY and New York is down just over 10%, however, The manhattan market has been holding up the average. Now that Manhattan is falling, the fall should be greater. If you were to take out manhattan from the formula, we would see that the other NY Metro area's in the formula would show a greater decline.

The dark cloud is gone, but let the bailout continue: Bloomberg.com:
Personal Finance

Lots of people slamming Phoenix. Phoenix proper is indeed a pit. The outlying cities (Tempe, Scottsdale, Chandler) are much nicer places to live. Yes, it's hot in the summer, but it's wonderful in the winter. 300+ days of sunshine a year which is great for hiking, biking, camping, and various other outdoor activities. A two-hour drive north to the Mogollon Rim and some of the most amazing forests in the country. No hurricanes, tornadoes, earthquakes, floods, or any other natural disasters. A very low cost of living now that housing is undergoing a major correction.

Yes, it's not Chicago, San Fran, or NYC. Never said it was. Not everyone wants the dense, urban lifestyle with world-class opera troupes and art museums. If that's what you're looking for, Phoenix is definitely not for you.

Outsider writes:

Politics makes strange bedfellows indeed. I can't believe who I'm cheering on these days.

Blame the game not the player.

what this finacial armageddeon thingy everything it talking about?

the market today is making it easier to push bailout till next year with new fed and treasury officials...

"Those areas (SV/Seattle) are on their own economy,lol..."
Just to briefly comment here.
What exactly is "their own economy"? It's amusing how so many around SF consider the area an entity to itself, like no other--what's up with that?
Whether you live in Stockton or Sausalito, one needs to consider the actual salary figures against home prices, and what is the support. For the Bay Area, that tenuous "support" has been excessive liquidity--first with the Tech Boom, followed by the RE Boom. A lot of newcomers here have no sense of perspective--or actually know housing prices before things got pushed up.

I live in Marin, home to higher-than-average salary levels and median home prices. That said, fundamentals here simply do not support current pricing here. Commenting further without data is just talk. We have collected ample data for Marin and the greater SF Bay on our Marin RE Blog. Check out the data for yourself--and make your own conclusions. This is too far gone to address boosterism circa 2004.

What happened just now? 14:11, a bunch of trends just set in: GLD climb, FXE climb, DJIA climb, etc.

What gives?

Bay area is still living off the grateful dead concert contact buzz...

it will find it's place..just refi-d a 2/1 flat 1000 sq ft. in sunset..appraised for $650,000..

btw-loan was fast and easy..plenty of credit for people who didn't binge...

Rush Limbaugh opened his show today by piling on top of House Republican leadership for claiming that a crucial number of their members voted against the bailout package because of a partisan speech that Speaker Nancy Pelosi (D-Calif.) gave before the roll call.

“C’mon guys. Can ya grow up?” he said. “There were a whole lot of reasons for House Republicans to vote against this thing yesterday.”

Perkins, Rogers and Kiyosaki.

Perkins is interesting.

http://radio.goldseek.com/shows/2008/09.27.2008/GSR-09.27.08-cc.mp3

"When the government fails to pass a socialism bill and the market goes south, let it go south. I don't want to pass a socialism bill just to protect the stock market," said Limbaugh, the most popular of the talk show hosts.

"I don't trust you (Bush) and when you start screaming now of dire consequences if we don't get a bailout bill, I don't trust you. I need convincing and apparently there are a lot of members of Congress who feel the same way," said Boortz in a view echoed by several of his listeners.

Callers also said they did not appreciate what they saw as scare tactics used by Bush and Treasury Secretary Hank Paulson.

"It almost sounds like they are demagoguing and preaching that the sky is falling, which makes me skeptical," said one caller.

Tens of millions of conservatives tune in to AM talk radio and trust its nationally syndicated hosts over media outlets they say have a liberal bias.

Dow is down a TOTAL of 200 points since the moment the bailout failed to pass yesterday.

If I hear one more person talk about the 777 Mandate, I'm going to explode

I'm loving this bear flag! Going for the .618 retracement on no volume! We'll be back to the lows in an eyeblink.

I love how all newspapers say the DOW is up ONLY because people think a bailout will still happen.

Where the hell do they get that bull from?

oh thats right, its where their opinions come from.

One last item from last night.

They say this today and there has been talk about this>> Another possible change to the bill would modify "mark to market" accounting rules. Such rules require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years.

Nonetheless, in the most recent unpopular Bailout Proposal (which failed to pass yesterday) IMHO, Paulson is essentially saying this is how he will value troubled assets; it looks to me, like Paulson will be able to use mark-to-market, but corporations not in his circle, will have to find other ways to value illiquid securities:

This is indirectly from the plan:


§ 502(5)(E)(E) In estimating net present values, the discount rate shall be the average interest rate on marketable Treasury securities of similar maturity to the cash flows of the direct loan or loan guarantee for which the estimate is being made.

Yeah - Krugman's an idiot with this housing mania analysis. "Flatland" my ass! Manias can occur anywhere over anything - their key feature is an price inflation moving parabolically out of line with the asset's fundamental values. Whatever sparks the psychology is irrelevent to the mania.

I have to agree---we are trying to sell a home in Phoenix (Ahwatukee) you can move to the Phoenix area and name your price.

EvilHenryPaulson writes:
Are you suggesting that given enough time, North Dakota will experience as many real estate booms and busts as California?

Suppose the population of the U.S. realized that N.D. is a great place to hide out during our meltdown - you bet your behind that a speculative mania in housing could form!

"dryfly writes:
Ask them to start there - what EXACTLY does this fix fix?

I think they are skipping that step because - they don't want us to know."

Agree!

CR, I love your view of flatland versus zoned, I have not seen nor heard of this explanation before. In Florida, we have similar view of beach versus inland (resort versus family).

Notice how four of the biggest bubble/crashes were Flatland areas within a 6-hour drive of Zoned Zones.

This was largely funded by coastal home equity. A $250k house in Vegas looks cheap to a $500k homeowner in Orange County, four hours southwest. Developers explicitly marketed these places as investments to people who couldn't afford actual income property in their own neighborhoods.

This caused the counterintuitive result: huge construction and self-reinforcing price increases in some of the the most godforsaken, unlivable locations in the West.

OK, the Charlotte gas thing... very bad scene since last Wednesday, getting slightly better in the city, but only slightly.

As of 1:15 today, here's a map. Pink pins are those stations WITH gas, blue without:

404

- CharlotteObserver.com

No problems 50 miles away in any direction. However, there is still nothing available in the mountains (west part of the state). It's been that way for two weeks.

I live north of the city. I came back from the Keys on Friday. 1 station in 11 had gasoline.

On my commute, I pass by 8 stations. 'AM' would be 6 AM. 'PM' would be 8 PM. Here is my tally:

• Sunday AM and PM, none had any gasoline.
• Monday AM, 2 of 8 had gas
• Monday PM, 5 of 8.
• Tuesday AM, 6 of 8.

Calculated Risk is coming to incomplete conclusions based on incomplete data. If you were looking at a more granualar HPI than Case/Shiller (like the LoanPerformance HPI) you would know that metro areas in the Zoned Zone are performing much better than the outlying areas. These outlying areas are more like the Flatland (ie just sprawl some more), and it is these areas along the coasts that are suffering. San Francisco proper, NYC, Boston, are all doing better than the outlying areas.

jesse writes:
a different chris: "all that stuff is worth something to a lot of people, and if you want to live there you have to bid against them."

That is indeed why affordability levels in California are poor -- people do like living there. Which is why rents AND prices are high. When rents and prices detach from each other you have problemo.

Rents and Prices ARE detached. I live in south Silicon Valley, and can now rent a comparable house for HALF my PITI. As my mortgage is deeply under water, despite a 20% down payment, that does NOT make me happy.

Dow up 450. Waiting for McCain to come on TV to talk about how we made a trillion dollars today.

Back to stocks for a minute. Anyone think that today just a 1 day 400 point bounce ?

"I recently got given The Glare for suggesting that home prices in Campbell River/Courtney might not reach a million bucks any time soon."

LOL...classic! Actually, they better hope they never do. But of course, that doesn't apply to Qualicum Beach...it will go up forever (rolls eyes).

What the hell. This chart is three years old!!!! This means that prices were already falling that much three years ago. There in the toilet now.
Why is this even on here? Ridiculous.

What do you call Vegas, Phoenix, Miami, LA, Tampa?

They're flatland cities, they expand continuously and overbuilt tremendously. Prices there declined (according to this chart) between 25 and 35%. Sounds an awful lot like a bubble.

Milton Friedmaniac writes:
And way bigger bubbles where ever immigrants congregated--L.A., Phoenix, Miami, Vegas. What you had there was massive scamming on people who didn't even know they were straw buyers. You had lots of affinity group sales (He's Hispanic/Black/Christian/Whatever like me so I trust him). You had mortgage originators sprouting up to do these sales, and lenders above them tailoring rates/products. There's been a lot of reporting on it, but I've not seen anyone connect the dots. But it's not about "flatland."

Yes, my cousin's wife was even importing those buyers from her hometown to the South Bay, but her particular arrangement blew up when her broker failed/refused to pass the $$$ under the table quick enough. But it all seems just to be anechdotal evidence; is there any real data on the size/scale of the frauds?

Jose Padilla writes:
I live in Houston which is quintensential flat land, but there was a real estate bubble here in the 70s and early 80s.

Houston doesnt even have formal zoning laws worthy of the name. I hear the latest attempt to install zoning failed again at the polls just lately. It's all about easy credit, and I wish my Yankee banker hadnt made that loan to me in 1983 (a family friend who was also a banker refused me, and has never even said I told you so!) Unfortunately the feds of the time didnt think Texans should not have to pay income taxes on short sale gains. Bush is a much kinder, gentler president who, as someone commented earlier this week, is responsible for one of the greatest tax cuts of all times (or will be as the unrealized gains roll in from the mortgage writedowns over the next few years). I doubt he will receive much gratitude from the beneficiaries, tho.

nullpointer writes:

thats austin.

I live in San Francisco, I wish you could take Berkeley and drop it in the middle of Texas.

Oh, and you owe Austin an apology.

Not sure I get this. Portland, for instance, has some of the strictest land use laws in the country--the epitome of the zoned zone. And yet the decline there is much less precipitous than say, LA, Phoenix, or Miami--all examples of sprawl. Could be that zoning ensures a certain degree of scarcity, which provides a support for prices.

The Monterey newspaper reported that in July, 61.3% of all house sales were foreclosed houses, and that prices were moving into the affordable range.

My father, Professor Avenger, bought a house west of Salinas on River Road for 70,000$ less than what the owners paid for it.

Nice theory, but let me add a layer.

The cities with the biggest declines in the Shiller Index seem to be those with the greatest amounts of sprawl, Las Vegas, Phoenix and San Diego are all notoriously sprawling, and all with very little public transportation.

In Boston, where I live, it is the areas that are off public transportation that are leading the decline.

So is it possible that, in times like these, home buyers are staying away from any place that would involve extensive driving? There are definitely many out there who have already postulated that sooner or later American cities will have to go the way of their European counterparts, such as Paris, with the rich in the inner city and slums in the suburbs.

Perhaps this crisis will do that in a rapid fashion.