Will the proposed Federal bailout Dodd and Schumer hurt us who have waited?

NEW -> Contingent Buyer Assistance Program
Nirvinerealtor....many holes and I am only pointing out a few, but ok here goes.





1) Stocks - The Dow is at all time highs, US Public Corp are exceedingly beating analyst expectations, 401Ks and IRAs are becoming very popular because of their tax benefits, and finally IPO activity is also at an all time high. Keeping all this in mind, the stock market is a great place to be right now...unforunately it has been over shadowed by the Real Estate market the past few yrs b/c those gains have exceeded the markets. THE BUBBLE MONEY IS GONE!!!!





2) Bonds - Don't you have to have home sales to have mortgage-backed bonds? Sales are way down and I believe I read somewhere recently that the FEDs have begun to audit some of these bonds as some of them might have been funded fraudalently.





3) Gold - Actually if a recession hits....other than Budweiser Gold is a great place to be.





4) Cash - I can put 100K in a CD or Money Market Fund, earn b/w 4% to 6%. All this is more than the YoY appreciation rate which in the OC is 0.6% currently. CASH IS KING!!!!





5) Can Real Estate evaporate - it happened in Southern California during the early 90s, who says it can't now? Also, land build out is meaningless in my personally opinion. Who is going to buy the houses if they complete the build out? Personally I hope they build everything out because that will even drag the market down more.
 
I do not believe OC will be completely built out by 2011. The projects that we know about will definitely take more than 4 years to be built.
 
<p>zovall,</p>

<p>I stand corrected. The accessor told us that all the "virgin" land in OC will be spoken for or permitted to build by 2011. This phenomenon would be the first of us. I kept thinking of expensive places like Hong Kong, Saigon, Korea, London. Population grows are inevitable as we live longer now. I am just thinking out loud. Not puffing.</p>
 
<p>nirvinerealtor:</p>

<p>One interesting point that you make is that, in your opinion, the effect of fraud and Subprime loans are really only limited to 2005-2007. Exactly how much exposure and for how long that exposure existed is actually debatable. I tend to agree with IrvineRenter's timeline and his concept of Fundamental Valuation. Based upon his analysis, the "standard" market bubble actually reached it's peak around 2003, and would actually have shown declines due to reduced affordability (increased home prices and increased interest rates) had the exotic loans not come into play. However, they did come into play, creating a bubble on top of the standard bubble... with Real Estate prices peaking around June of 2005. No one noticed, of course, since property values were going up, equity was increasing, and it was easy to refinance. After June of 2005, things changed; quietly at first, and then people started to notice. The housing market slowed down, equity began to shrink, and it became increasingly difficult to refinance the loans due to shrinking equity (flat real estat prices + HELOC). It wasn't until late 2006 when it was noticed that we had a problem... and then in early 2007 the MSM caught a whiff... and the panic began.</p>

<p>Thus, in my opinion, we have actually been in a bubble since 2001. IO-ARMs, Option Arms, Hybrids etc. had an ever increasing effect on the market only because affordability was going down and down as houses got more expensive. However, our current inflated prices are not ONLY due to the subprime market.... it became the standard form of home financing late in the game since the bubble was so far beyond affordability that no other financing option was possible. Thus, the exotic loans marked the end of the bubble cycle... when things really got out of hand. It wasn't until the loan underwriting standards were finally modified that the end of the bubble was official.</p>

<p>I guess to summarize... housing prices are going to go down because people can't afford the prices of houses in Orange County under standard conditions.. (meaning that they actually have to pay for them). It really is that simple. The "market" we love to talk about with charts and what-not really never captures that simple point. Price something beyond what they can afford... and they won't buy it until the price goes down to what they can afford.</p>

<p>-----------------------------------------------------</p>

<p>Your second point (I am cherry picking here) regarding "limited housing = prices MUST go up" is actually a very old argument used by many Real Estate agents to sell Real Estate and has been largely debunked. I have actually spent a lot of time in Asia (including Japan)... and let me tell you.. you just can't imagine what high population density is until you have been there. The prices in Japan crashed... and have yet to fully recover. The second argument I heard in Real Estate school was that a decline in Real Estate values can ONLY be sparked by job losses (like the Real Estate Crash in the 90's). That could actually be true if the exotic loans hadn't come into play... but they did with a vengeance.</p>

<p>In the United States, it is estimated that 2.1 million homes are not occupied. This is primarily due to the high levels of speculation in recent years and more recently foreclosures and REO's. Basically, no one wants to collect a little rent, only to have the renters trash the property. Thus, 1 in 37 homes are empty. Add to that overbuilding, 2 million additional foreclosures in the coming years and negative migration (people moving out of Orange County because they can't afford to live here) and I would say that scarcity of housing is actually DECREASING, not increasing.</p>

<p>However... it has been asked before... and no one seems to have an acceptable answer thus far. Where are the 2 million foreclosed households going to live. I honestly have no idea.</p>
 
<p>Seventhree,</p>

<p>At this second, home equity is holding firm after a huge drop for condos, much smaller drop for SFS. Inventory is growing though, but I expect people will buy because the rental maket is very tight (I am not talking about apartments).</p>

<p>Stocks are very liquid. But I can not do anything with it accept looking at it.</p>

<p>Real estate is also very liquid. However, I can live in it, or grow avocado. I love guacamole. </p>
 
<p>NickStone,</p>

<p>Empty houses. Yes, I know what you are talking about. I live in an area that is considered "somewhat up scale", My neighbors on my left, my right, one back of me, and one in front of me never moved in until 3-5 years later, they were used as empty houses for investment. I found out 30% of my neighbors paid cash.</p>

<p>Demand and supply are always balanced through pricing.</p>

<p>ARM! People are so afraid of ARM that they are going fix at 6.5%. Now, adjusted ARM rate is Index + Margin. What is current index, say 12 M T-bill is around 4.9 last time I look. The margin is 2.25%. So we are looking at 7.15%. Do you think .65% difference make that big of a difference? On a $500K loan, we are looking at $300/month increase at reset from fix. Don't you think people will refi first?</p>

<p>I truly hope price will drop further so more people can afford the homes that they really excited about. I do see lots of competition though. Parents of the Babyboomers era are giving 20 - 50% down payment for their children. Foreigners just pay "cash" for their children's home.</p>
 
<p>mino,</p>

<p>My diversified 401K's is still only 66% of peak after the great recent stock ran up. So you see how I felt about stocks.</p>

<p>Mortgage-back Bonds - IMO it's the chicken and egg. We were supposed to have a huge demand for 30-year bond that would drive the long term rate down until the recent mortgage fiasco. The money is tight again. I think this will slow the real estate recovery. When sellers do not feel confident, they will not put their homes on the market, thus create a lack of inventory that we just saw in December.</p>

<p>It is hard to predict the future. I have seen too many opposites happened.</p>
 
<p>Seventhree,</p>

<p>Glad I gave you a good laugh!</p>

<p>You can sell real estate any time with the right price! I do not think anyone can argue with me.</p>
 
<p>Point noted. But the "right price" will involve an offset of significant cost that is weighed on either the principal or buyer (especially in this market). I don't care if you sell a home in 1 day or 1 year...there will be significant transaction costs in real estate. Real estate is classified as an "illiquid asset" that falls within the bounds of "pink sheet" stocks. Coming from a finance and accounting background, I just can't bite into your argument. </p>
 
<p>1. Stocks: Yes some people lost money in the market during the last financial bubble but some made money. See ticker CGMFX and check the chart from 2000 to the end of 2002. No offense nirivinerealtor but I am glad people that got burned in the market don't come back. They are the ones who screwed it up for the rest of us investors. By the way and I am not trying to brag but in the last two years I have made more money in the market than what paper appreciation I have on my RE.</p>

<p>2. Bonds: I think you need to clarify what you classify a bond as. If you are talking about US bonds then right now I would stay away. They have tumbled this week and every auction sees less and less foreign participation. This is a very bad sign and is a red flag that rates will be going up. As for MBS and CDOs there is massive amount of money to be made here. There is nothing like a panic sell off that the pros love more than this last one. I wish I had the knowledge and capital to play in this game as it would be fun and lucrative. </p>

<p>3. Gold: Exciting or not it has done very well the last two years. I disagree it is not recession proof but other factors make this a good idea if we do have one this time. </p>

<p>4. Cash: According to DataQuick my home was down 1% or 3.4% when adjusted for inflation. My savings account pays 4% or 1.6% above inflatiion. Cash won!</p>

<p>5. Real Estate: Yes we all need a roof over our heads but when you can't afford it you leave or rent. Our population is decreasing and according to the Orange County Business Council "During 2000-05, the county lost nearly 15 percent of its 25- to 34-year olds." The economics of this is potentially devestating to the local economy. This segment of workers is essential to a growing economy. I call BS on the available rentals especially if you are using the MLS for them. I have had MLS access in the past and I can tell you it accounts for maybe 25% of the rentals available not including apartments. The amount on craigslist is huge. We have plenty of land available as this is the same BS I heard in the 90s. Guess what the builders continue to build and build. Google Marblehead and John Lusk. Job growth is weak and here is why. Construction, Finance, RE and Architecture related jobs average 11% of the total jobs by industry. There is no reason for this to go above 11% because as jobs increase that Con/RE industry would increase with it and would remain constant as a portion of the total industries. It is above 14% which means that industry is over employed by 42,000 jobs. Where has the growth been in the other industries? Lower paying healthcare, education, and "professional services" which was the weakest of these catagories. See a problem here? 1990 to 1994 we lost 7000 aerospace jobs but we lost 20,400 in con/RE jobs so don't give me the BS that aerospace was the job loss problem. In 1990 con/RE jobs were 11.8% of the total industries so when we are at 14.3% with very little other job growth and that job growth isn't the highest paying then we have a problem. I hate being a bear on the OC economy as a whole but we have a major job problem here and unless we get another industry that pays well then prices are going to drop and drop big. </p>

<p> </p>
 
<p>NickStone - I am an avid reader of calculated risk and Tanta's posts even more so. I will admit that I get overwhelmed by the comments section and don't take the time to read them all. I will make a point of finding the comments you speak of. I believe you but I just want to read about it too.</p>

<p>I am stealing this from HP but here are Schupooper's top donors. I am surprised Deutsche Bank is missing.</p>

<p>1 Goldman Sachs $350,850


2 Citigroup Inc $227,550


3 JP Morgan Chase & Co $195,900


4 Credit Suisse First Boston $191,294


5 Morgan Stanley $186,500


6 Bear Stearns $154,250


7 Merrill Lynch $125,100


8 AOL Time Warner $114,000


9 UBS Americas $108,500


10 Lehman Brothers $107,000</p>

<p>If Time Warner wasn't in there you would think it was a list of MBS pools.</p>

<p> </p>
 
<p>Graphix:</p>

<p>I have been looking for it as well... but thus far haven't been able to locate it. I actually went ahead and asked Tanta directly. I find the "insider information" generally to be the most accurate... so I definitely believed her. As soon as I have a response from her, I will post it here.</p>
 
<p>graphrix,</p>

<p>You said it very well regarding my comments. I am glad you did well on your stock and cash (CD) as you should.</p>

<p>7000 job loss in aerospace? Are you sure? I think 70,000 is more reasonable. These aerospace jobs were gone forever to other states; However, everyone left behind transitioned quickly into medicals, hi-tech, and mortgage/real estate industries.</p>

<p>Many of my colleague have already transitioned into something really cool! And I am very excited for them. Many real estate professionals had another career before and can just fall back. I think the economy is fine because you would have heard bad stories already.</p>

<p>I know people who left OC for lower living cost and somehow, found their way back to OC in a few years. Must be the good foods we have here. I do not know much about the 25-34 year old population reduction, I did hear something about it.</p>

<p>The lack of bond demand for sure will drive up interest rate and dampen sales. This maybe short-live though as people are reactive. I can see my income reduction this year already. Buyers whom I am finding homes for are financially strong and are housing bulls or they just want to be in a home that they own. For housing bears,I feel that it will take an act of God to get them to buy, or I have to be a good brain-washer, which I do not want to do.</p>

<p>At the moment I am a housing bear just like you and many others (funny how we all feel the same!). I am bullish for the next 2-3 years. I think everyone on this forum who are renters would like to eventually become homeowner; therefore, the demand for housing is very real.</p>

<p> </p>

<p> </p>
 
<p>nirvinerealtor - I don't make things up. Here is the link to the spreadsheet for annual employment history for OC from 1990-2006: <a href="http://www.calmis.ca.gov/file/indhist/oran$haw.xls">http://www.calmis.ca.gov/file/indhist/oran$haw.xls</a></p>

<p>Row 31 is aerospace 1990 to 1994 lost 7000 jobs and 1995 was the low point for a total of 7300 jobs lost. Manufacturing row 22 lost a total 37,300 which is no where near the 70,000 you claim. Add con/RE industry losses and you still are well shy of 70,000. We didn't lose aerospace to other states we just lost manufacturing jobs in America, an unfortunate fact. By the way we still haven't reached the peak tech jobs level of 2000 in 2006. </p>

<p>Don't count on the bonds being reactive and I have to ask reactive to what? You do realize that PPI was unchanged today which means the cost will be pushed onto the consumer in the CPI. The CPI is a gauge that the FED uses for inflation and when those numbers come out expect more of the same i.e. no changes with the FED. Also the demand from foreigners is more complex but also has to do with the falling dollar. As long as bonds lose value and when they lose value rates go up and the dollar goes down they become worth even less. Do you read the Register? If you do read the front page section of nation and world and down at the bottom is the globalist quiz. You will see why we need foreigners to buy our bonds. </p>

<p>I don't want to bust your rosy picture and believe me I really don't want to be a bear on the economy. I was here in the 90s and it was not pretty. While many faked it and some failed and some succeded overall it was ugly and it had a lot to do with the construction and RE businesses.</p>

<p>So with the numbers I have shown you do you not see a problem with construction/RE/finance/architecture jobs beieng way above its historical average? Seriously think about it if from 1990 to 2002 a full 12 years the average was 11% but in 2006 it was 14.3%. What possibly could justify that growth when the job growth in other industries was weak? Could it be that that industry self feed the economic growth? I expect a five page report single spaced by 12am. J/K but I would like for you to think about it a while and check out the pread sheet and give me an honest answer. </p>
 
<p>And I have to add this stat as well lets consider 2005 median price and the amount of sales with a 5% commission this would be $1,429,400,000 in revenue. The 2006 median price and amount of sales with a 5% commission would be $1,120,072,800 in revenue a loss of $309,327,200 in revenue. The 2007 median price and taking a 25% reduction in sales with a 5% commission would be $842,734,200 in revenue or a loss of $586,665,800 in revenue from 2005. Add the loss from construction, escrow, title, appraisals, inspections and finance and I now need a couple of billion dollars. Please tell me where this is going to come from because I want to join them.</p>

<p>As much as we all love good food I do not think we can generate enough revenue even if all of us go out for dinner every night to make up for this loss. Readjusting tinfoil hat now. </p>
 
<p>All the numbers everyone has pointed out are very interesting, especially the 15% loss of 25 - 34 year old in OC. Wow.</p>

<p>I think the bottom line is that people just can't afford to pay the current prices of homes or don't want to pay overpriced $ for a apartment, I mean home. My financee and I will be making *crosses fingers:) good money late next year and all we can buy for 4K/month is a junk, apartment/condo, 2br 2ba 1,100 sq.ft.? Doesn't make sense. With the fancy loans out of the way, people (and I) won't put down 50K and pay 4K/month for garbage. It just won't happen and once sellers realize the fun days are over, prices will continue to fall. Not to mention when interest rates go up even more.</p>

<p>As my original post indicates, I was concerned about the fed/states with a bail out, but it looks like people here are not worried about that. I'll be renting for a while, covering 60% of someone's mortgage. </p>

<p>As a side note, I've spoken to many real estate agents and they're all positive regarding the future. Kind of like the positive stock broker in 2000. </p>
 
<p>graphrix,</p>

<p>Thanks for the excell spreadsheet of the job sector break down. First time I ever see anything like this. The aerospace industry was supported by many other non-aerospace sectors. These sectors are engineering, hi-tech, semiconductor, .... They got hit pretty hard becasue of the collapse of aerospace industry.</p>

<p>Seemed it was a lot of job loses post cold war. I remembered many people were unemployed and could not make payments; and you hear about them everywhere you turned. I am not sure I see that yet about the RE industries. I think OC has a very diversified job market. </p>
 
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