Hi-lites (besides attempting to counter absudities with reason at all):

“and part 3 is some kind of solo circle-jerk. (Gawd, look how rich we are!!!)”

“If you have to wonder who has better information about the subprime market (the US Secretary of the Treasury or a Mission Viejo broker who gives sales seminars), please just trust me that Hank Paulson does. Just trust me on this.”

“While I’m skeptical (like all things Gary says that appears to be pulled out of his ass), it’s possible that this could have a small impact on superwealthy enclaves.”

OK the last one was iffy, but by then I was in hysterics.

“As an aside, Tim, how does one report the facts in an unbiased way when the facts themselves are biased?”

Easy, Chuck. Tim has the courage of his convictions. To paraphrase Colbert, Tim will believe the same thing in 2008 that he believed in 2006…no matter what happened in 2007.

Besides, the article he links to talks about properties going to vulture investors for half their original asking price. If I could get a decent property for half the asking price, even in most bubble areas, that would be close enough to any possible bottom that I would be stupid not to at least think about swooping in. Barring some Black Swan event, there is an “intrinsic value” to property.

The problem is that most sellers won’t or can’t list at half off, let alone accept anything even close. Many buyers still see 5-10% off list price as a bargain. Sure anything is a bargain when I think I can make 10% a year on some other schlub’s money. But when I don’t think that is possible or reasonable, I will look at buying through a different lens. As long as a property is priced right, it will sell. Pricing right is wholly based on the psychology of the moment.

Namely, in a rational world, house payments would reflect at bare minimum, the discounted cash flow of what I will be forced to pay for adequate shelter to protect me, my family, and my possession, all of which can be considered a classic fixed cost. When I pay more to buy a house than the DCF of rent, I am either a) paying for more “luxury” or b) paying for stability (as long as I pay my mortgage, the bank can’t evict me at the end.) But we don’t live in a rational world and house values can be based on more. I may spend more than above, and the excess can be characterized as investment, or alternatively speculation. If there is no speculation, and if the cost of shelter rises higher than inflation (however defined), I have made money on my investment. If it rises slower than inflation, I generally lose.

But humans are simultaneously greedy, predictable, and self-aware. We recognize our own shortfalls, attribute them to others, and therefore “speculate” on how others will react to the same environment. If we think another sucker will come along and believe a bigger sucker is coming down the pike, we’re willing to be a sucker ourselves. The key is recognizing when you are the first or last sucker to the table, or somewhere in between. No matter where you are, you don’t have to sell at the precise top or buy at the precise bottom. The key to wealth (if that is your goal) is to be consistently “almost right.”

Intelligent and thoughtful analysis.

Must.

Rhyme.

Or.

Not.

Be.

True.

To be fair, Brad has been very fair and even handed. Never once has he derided anyone about not buying a home. Just because he sells homes, doesn’t mean that he’s pressuring people. Remember, they go to him because they get 2% rebate on buying a home. I’ll be buying a home with Brad when I do.

He never once said that it wasn’t possible… he just didn’t think it’s likely that prices would fall substantially.

He’s not alone. There are many more, even many who know better who think that the credit event is just going to blow over in 6 to 8 months. Many of these are the same that vehemently denied the existence of a bubble.

There are also those who still swear by neg-am loans, even though very few of them have recast yet… an almost certain financial suicide for anyone who has a recast in the next 5 years. Sometimes people wake up over time rather than all at once.

Gary derided us, Brad just didn’t know raed the blog to find out. That takes guts when your livelihood depends on it, if you ask me. There are far too many agents who would rather stick their head in the sand and pretend the downturn hasn’t happened. Just look at all of the happy talk still. Just wait until 2008 to break their spirit. When the recovery gets postponed to 2010 or 2011, then you’ll see people start falling off.

Chuck Ponzi

What did we get from you? IIRC, derision…

House on the fringes have definitely imploded. Made an offer on a bank owned house in Mira Loma recently. Asking $499K for a 4800 sqft house. That’s basically $100/sqft.!! This is a nice house and is only three years old, you can’t build it for $100/sqft.

Did a search for a specific type of house in Ladera Ranch today. 15 homes met the parameters. 4 were bank owned!!! Over 25%. It’s gonna get ugly. I told my client that every day he doesn’t buy a house he’s saving money.

Houses are right now going for firesale prices on the fringes. It’s imploding inwards as predicted.

We can’t be going back and explaining everything if you haven’t been reading for 2 years… please, keep up with us.

Chuck Ponzi

As an aside, Tim, how does one report the facts in an unbiased way when the facts themselves are biased?

Wher eI am at everyone keeps getting into the Southland of Southern Cal.

This indicates to me a demand. As most who can, would consider buying a house.

Last I checked the land seems to be shrinking. Or is that just more houses filling in the desert areas around L.A.?

Ooops, my bubble friends would warn me that these homes are not selling. Or are going for firesale prices.

Some are buying though:
http://www.washingtonpost.com/.....01089.html

But fundamentally, the vast majority of bloggers and publishers seem to be biased.

This is the kind of fervor that goes on in politics. As if the bubblistas are hoping for a crash and burn.

I assume some are sincere in just wanting to wait for a good time to buy.

But the trap that most get into is that of speculation. The Bubblistas love to hammer on the flippers who profitted (many did not profit) during the run up.Yet, just like the flippers were speculating, so are the people waiting to buy (which as I mentioned I think there are not many of them in this forum).

The market has always gone up and down and back up,etc. When it doesn’t we need to all run for the hills, the end will be coming.And I do not see these so called experts packing yet. And, if they were so sure of themselves they surely would be on a road trip!Why are they so engaged in this topic?
~Tim

http://www.houseblogger.com/ho.....index.html

It’ll be interesting to note a few things:

Gary said in this email that there was 56Trillion of Net Home Equity.

Consider for a moment, that if this were true:

1. The total stock of housing units in the US. is about 116 Million. This would mean that each US house has $484K in Equity. With a median price of Mid 200’s, this is pretty much impossible.

2. The entire US Capitalization of US stocks is about 12 Trillion, with the entire world investable market cap is just over 25 Trillion. (Per Charles Scwab) That would mean just the home equity of Americans is worth more than twice the investable capacity of the entire world.

3. Meanwhile, the total value of the entire US Housing stock (including owner-occupied and rented) is estimated at just about 20 Trillion (per Freddie Mac, 2007). Likewise, Freddie Mac says that the total US mortgage debt is 9.8Trillion, leaving 10.9Trillion Home Equity (August 2007 estimates). This would mean that more than 10% of all home equity will be resetting within the next 12 months, and quite possibly much more since many arms were for low-equity borrowers.

In short, it seems that Gary Watts pulls statistics out of thin air, with absolutely no relationship to reality.

How does this guy still get speaking engagements?

Chuck Ponzi

Thanks for giving this idiot the shaft, once again, by simply contrasting the facts with his fantasy. I remember reading a report from Gary Watts back in 2005 when the absurdity in the RE Bubble had begun to reach the stratosphere. He made statements regarding macroeconomic conditions (namely, how we’re all so damn rich in Southern California that our incomes will afford ANTHING, and his ludicrous reasoning behind the supposed infinite demand for housing in the region). I wasn’t an Econ major in college, but you don’t need a degree in Economics to figure out that nearly all of this arguments relating to market fundamentals are completely baseless, incorrect, or just plain fabricated. Reading his subsequent reports (especially the most recent), in the context of the pending real estate disaster, only one person comes to mind that shares his audacity and delusion: our old friend Baghdad Bob!! I’m still waiting for an agent to email me a copy of this latest reports and try to pump me up about the buying. Initially, I will laugh hysterically and share the email with my friends, but then I might start to feel sorry for learning that someone can possibly be so naïve and/or stupid.

Gary,
I first heard you on Bruce Norris radio show and couldn’t believe what you
were saying. You have said in the past that your forecasts are based on
pure economics. This is a little unsettling. I feel terrible for the
realtors who follow you and those they sold homes to, who are now calling me
asking me to buy them for what they owe. Obviously I cant at the price they
owe. You should be ashamed of the path you’ve led the industry down as I
know many realtors who swear by you. If the simple fact that 1 trillion
dollars in loans were adjusting in 07 wasn’t enough, then I don’t know what
is. Clearly you have studied economics much more than most (myself
included), but it hasn’t helped your cause this time. You’ll need bill
clinton to help you wiggle out of this one.
–
Luke

Gary Said: (Aug. 7th 07)
Luke,

American homeowners have $56 trillion of net equity in their homes so $1
trillion of loans resetting is not going to cause a major problem – except
for a few of those homeowners. Last month the median price of resale homes
in the U.S. went up 3.8% and 36 states reported a decrease in foreclosure
activity last month versus 24 states the month before. I look at the long
term and overall we are healthy except in a few areas. If you are living in
one of those areas, then you are feeling their pain but it is not a
wide-spread problem that will hurt housing in the long run.

Luke Said: (Aug 7th 07)
Gary,
I think its fairly obvious why median prices have gone up. Those properties
in the higher end of their market are the only ones selling. Those at the
lower end aren’t moving whatsoever. 56 trillion of net equity means nothing
until their homes have actually sold and they realize their appreciation.
Besides much of that equity has already been spent out of their helocs. I
guess time will be the best indicator, but if the last few weeks are any
indication it’s not looking great for your forecasts. How can a family
earning 60k a year (on the high side) in oxnard, ca make the mortgage
payments on a 500k loan that they bought in 05? We are beginning to see
entire streets foreclosed on or being short sales in parts of ventura
county. I am sure it’s far worse elsewhere. These same properties that
were sold for 500k or more in 05, are maybe worth 250k to an investor. It
just doesn’t make sense. Something has gotten completely out of whack.
Look for home prices in southern california to recede to 2002 to 2003 prices
if not lower over the next few years. Even then they wont be affordable
based on our median household income.
No further response on this conversation

Next Conversation
Luke Said: (Sept 7th 07)
Is Gary still sticking by his midyear outlook of “neutral” for the real
estate market? I love his outlook for the rest of the year. I am sure it
is right on!

His Outlook:
Third Quarter:
“Here is where we should begin to see some improvement. The not so serious
sellers will begin to leave the market by late September and inventory

numbers should begin to decline. If the economy has truly slowed down, the
Fed may make their first interest rate cut and that will spur the homebuyers

back into the market. Prices will hold steady.

Fourth Quarter:

If interest rates are cut and buyers do come back into the market, this will
be a very busy quarter. Housing prices should begin to rise

and with the media reporting new activity, buyers that have been sitting on
the fence will enter the market. As the year comes to a close,

we will have weathered the storm of sub-prime lending, foreclosures and
start feeling pretty good as we head into the election year!”
Donna Said: (Sept 7th 07)
So far each quarter has pretty well gone the way he thought. The credit mess
should clear up in 30 to 60 days and end of this year will be pretty good.
Luke Said: (sept 7th 07)
Awesome,
Ill take your word for it. Let me know when you purchase a property, and
how well it does. Certainly 60 days will be plenty of time to iron out this
credit mess….

Donna Said: (sept 7th 07)
Gary acquired 16 properties this year. He is converting them into tri-level
condos in Costa Mesa and he is planning on bringing them to the market
around the mid-October.

Next Conversation:
Luke Said: (Regarding Gary’s 3rd quarter synopsis)
Where is Gary’s mid year forecast, you took it off your website. Seems like hes finally realized we are in a down market, but I love the new quote that he “is confident that real estate will once again make a rebound in the very near future.” He’s been in denial for the past year 2 years, and now he’s quickly gone to admission (barely), followed closely by optimism. This is unbelievable. I am sure you guys know about socalbubble.com. they will have some new updates on garys stuff. Fortunately more people now follow that site than listen to gary.

p.s. since you took it off your site, can I get a copy of his mid year 07 forecast, and even better yet, his first of the year forecast. Also, any info on those luxury townhomes you have would be great. I would like to pick a couple up as flippers.

Gary’s Response:
None!

Thanks for getting this post done. I appreciate your efforts to at least counter his junk.

Don’t forget the great hit on Lansner’s OCR blog, where he admitted he didn’t calculate percentages correctly and understated foreclosures in the market by two decimal places.

The comments were pretty funny in response to that.

An economist who publishes a report with a math error should be fired.