Chuck Ponzi July 15th, 2008
Even with all of the headlines out there, and with pretty much everything looking as black as it has been for a long time… we saw this coming, and we can see what’s on the other side.
It’s always blackest before the light. I don’t know exactly when the panic will end, but it always does, just like the euphoric mania that preceded it.
Chuck Ponzi May 13th, 2008
This is a travesty.
No mortgage bailout! None at all! Not to striving homeowners, not to the insanely-paid CEOs. Risk has penalties too.
Here’s our typical homeowners:
Here’s the problem with CEOs:
Chuck Ponzi November 19th, 2007
While much more than a philosophical question, the answer and what you say more often reflects not just who you are, but the character you carry with you.
Since I moved my blog over from Blogspot, I have wanted to put pen to paper and give just enough background on the author of the blog to provide some dangerous information, but not enough to provide enough clues for any given person to guess who I am. In reality, there are only a couple of people who know who I am as a real person, and I’m just fine with that. I never intended the blog to be a springboard into fame, nor was I trying to make a business out of it (trust me, the pitiful revenue the blog generates wouldn’t provide more than an occasional lollipop it seems in Southern California.)
About Me
Well, my story is too long for a blog entry. I didn’t originate in Southern California, but rather the midwest, though I haven’t lived there for more than 15 years. I have lived in SoCal much of my adult life (after University studies), and have lived in North LA County, Central LA County, San Diego, and Orange County where I currently reside with my wife and 2 kids. I studied Accounting and Information Systems and have a Bachelor’s Degree from one of the top schools in the US (can’t give too many details). I also earned an MBA since being in California in the past few years. I am in my 30’s and have also lived in diverse places such as Germany, DC, Utah, and Hawaii and I speak 2 languages fluently This has given me a unique perspective on language and how it reflects and changes our attitudes about life and surroundings; a window into our social makeup.
My wife… I don’t talk about her much, but it only seems fitting to give her a worthy run through. She is the most important person in my life, and so therefore deserves a place on this blog; not in name, but because she has supported me in all that I have done, even sacrificing personal beliefs and time for our family’s better good. My wife grew up in the intermountain west, and holds a Master’s Degree as. She speaks 2 languages fluently as well (not the same as mine, but she is teaching me bits and pieces of hers) and is an entrepreneur as well as stay at home mom. She truly is amazing; I got very lucky. She has lived in all of the same places in California that I have.
With that said, I started thinking about writing a blog in early 2004, although it took me nearly a year to put that plan into conception. In truth, I thought homes were overpriced already in late 2002 and early 2003. By mid 2004, it had become unbearable, and since I was itching to move onto another company, I convinced my wife in the Summer of 2004 that housing was overvalued and we had better sell our place; even before I had another job. Our place sold in exactly 3 days for a couple percent over asking price, and more than double what I had paid for it a few years earlier. It was insane. We even had one bid more than 20k above that, but at 100% financing. We chose the more prudent buyer because we feared not closing in time. It’s funny in hindsight. Housing Bubbles take years to pop.
Over the next 6 months, we resituated ourselves, moving closer to LA and taking a job in Beverly Hills. It was a nice move, but we both knew it was only temporary. It was during this time that I first started the socalbubble.blogspot.com blog. My primary inspiration was Rich Toscano, of www.piggington.com fame. I had no desire to be known, and only told a few people about the blog. I was fine to be anonymous, because, frankly, real estate had become a religion to most of the people we knew. It was as if I was attempting to hoist their savior up on a cross when I dared to even consider that housing had ever fallen in value in the past, or that it could ever fall in the future. “At worst,” one friend assured me, “it will only go up by 10% per year. That would be a terrible year.” Conceding defeat of trying to warn those close to me, and finding that noone wanted to know the inconvenient truth, I started a blog to just spill out my feelings and try to put things in context in my life. At first, the only visitors were there to ridicule me. Some sent me harassing emails, some just quietly told me how stupid I was and left. Either way, it seemed that there were only a few out there who would believe that there was a bubble, or that it would ever burst. I read Patrick.net, Piggington, and The Housing Bubble Blog daily and scoured news stories to try to piece together what would happen; I read historical economics treatises; I pored over more historical economic data than I care to admit. I was convinced, but noone else was. At times, I thought I might be going crazy myself. Noone I met would agree with what I thought was self-evident. Most people who should have known better just ignored what was going on.
It only took time. I changed my name from John Doe (my old screen name) to Chuck Ponzi when I moved to my own hosting and domain, to pay homage to the man who defined our current economic system (with stamps, no less).
Still, this was supposed to be about me.
What lies ahead for Chuck Ponzi? Even I don’t know. Will I buy again in Southern California? Who knows?; I may move before that happens, but an opportunity may present itself in the future too. Either way, moving has been both about good and bad. While many of the families in our age group that we have known in SoCal have since moved out of state or are planning to do so in the next year, we have remained noncommital to our future as Californicators.
I guess we represent much of what we thought California was, middle class families committed to our children’s future and our own personal responsibility. It is perhaps fitting that we are a dying breed here in California. Even if we leave, in a few years, there will be another group of people ready to take our place. I hope them much more success than we have had in living the American Dream. We have found that the price for that dream was much more than we were willing to give. And, for many trying to buy it; have found that it was much more a personal nightmare than the dream they (with their commissioned agent and loan broker) dreamt of. I could in some ways feel justified that I did what I could to warn, but rather, I feel saddened that most had no idea what was about to happen. Sometimes, when I’m feeling down, I walk around my neighborhood and see the Hummers, Mercedes and Lexuses, and then I’m not sad anymore. At least everyone got awesome rides.
So, by definition, who am I?
I am Chuck Ponzi. Welcome to Southern California.
My contact information can be found here.
Chuck Ponzi October 25th, 2007
This one has some great value to it.
This is perhaps a perfect example of courage in the face of adversity.
Others might call it delusional denial.
From the Marin Independent Journal (Marinite, you make us proud down here in Socal, never have I before seen this kind of lunacy. I think even Gary Watts would concede in the face of these facts)
Local homes sales dropped 77 percent last month, Thayer said. “The housing market has slowed down,” she said.
Gee… ya think?
Mostly, I wonder if the author had to stifle a chuckle while writing that.
If 77 percent of sales evaporated… I’d say it hit a brick wall and it’s brains are splattered on the pavement… we’ll all be lucky if we make it out alive.
People often ask me if I have one regret about blogging on the housing bubble. I do. It’s having missed the opportunity to document more of the amazingly delusional comments people have made over the past 3 years. I would have liked to refer back to them now that the koolaid is running out.
Chuck Ponzi August 21st, 2007
Housing bubble apologists often dismissed bubble believers’ concerns out of hand with the following party line: Southern California’s prices only fell last time due to substantial job losses due to the dislocation of the defense industry. (no matter that the Eastern Seaboard had a similarly-timed slide and did not attribute it to the same) Such job losses cannot happen again; the job market is too strong, diversified, and recession proof.
In a number of past posts, I have connected the dots related to current job strength, even while realizing that it was not just the number of jobs, but in particular, the type of jobs that matters when it comes to affordability. Indeed, it is important that the prices of houses are not supported by those that already live in an area, but rather by those who are coming to an area. On the flipside, as an area becomes too expensive, those unable, unwilling to remain, or tempted by their good fortune will sell to realize their gain and move elsewhere. We have already seen San Diego County’s negative growth rate (in spite of a substantially increased housing stock). These moves happen slowly, and reacclimating boiled frogs to lukewarm pots makes them believe they are actually in frigid arctic waters.
What the mainstream media failed terribly to see was that it is exactly the excesses created during the bubble that must be punished in a downturn. First, it was the mantra that Real estate never goes down. Then, it was a “soft patch”. Later, a “Soft Landing”. Then “A souffle’”. All of those jobs due to lending and construction that have paved the way to even higher housing prices have now turned into a vicious downcycle. Remember that the “Zombie Financial Media Awareness Week” is just a few weeks away. Why is it that the media has no memory that bubble blogs were appearing in early to mid 2005, warning of excesses in lending and finance?
Perhaps just as appropriately, one would ask, why are their virtual undead still haunting the pages of major news outlets. Featured writers, no less, that give denial a new face. It might be valuable to read what Wikipedia has to say about denial before visting one of our local train wrecks.
from Wikipedia:
Denial is a defense mechanism in which a person is faced with a fact that is too painful to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence. The subject may deny the reality of the unpleasant fact altogether (simple denial), admit the fact but deny its seriousness (minimisation) or admit both the fact and seriousness but deny responsibility (transference). The concept of denial is particularly important to the study of addiction.
After reading that, you might be able to find perhaps even a bit of humor in a piece written by our own lovable village dolt based out of San Diego, George Chamberlain just last week:
Let me begin by passing along my congratulations to the many people who are celebrating the current situation in the housing market. In concert with much of the national and local media, they have been able to artificially construct something that has never —- I repeat, never —- been done before: drive down housing prices at a time when unemployment is low, the economy is booming and consumer confidence is approaching record highs.
A column I wrote about a year ago on the housing market triggered more hate mail than any other topic that I have discussed. I needed to check underneath my car and use a food taster for a couple of weeks after I suggested that the situation was dramatically overstated.
That this level of denial exists, is not prima facie a surprise. That a person so disconnected from reality, even after it is made known to the world can get published can only mean 2 things. Either the editor couldn’t care less about what is being written, or is in similar denial. Not once does the discussion turn to the primary driver of housing prices; job creation. Stagnation can already force prices down with an increasing housing stock; much more with out-migration.
If you read the entire piece, you’ll see that his article exhibits a number of different defense mechanisms. From minimisation to transference to outright denial. One might wonder if he is addicted to house price appreciation. We sure know many San Diegans are addicted… and their only fix is through another equity extraction. Wall Street just shut off the spigot, and it’s very interesting the stages of grief that participants go through as an outsider.
It wasn’t hard to spot where our problems lied, even a year or 2 ago. Jonathan Lansner was able to identify some time ago that housing related to 17% of Orange County’s entire job base. Many observers have noted that a healthy balance is between 6% and 12%. Just to bring us to parity with a healthy balance, we would have to increase our unemployment figures by 5% to 11% of the total workforce. Those are depression-level statistics.
As scary and frightening as they may seem, there are some actions that they everyday person should have done in the past 2 years: (and might still be able to pull off before the slide gains even more steam)
1. Eliminate any speculation that is lending or real estate related: sell any properties, refinance historic-low fixed rates, sell homebuilder or financial stocks, mutual funds, and even banks.
2. Housing-recession proof your career. Find a new one, or develop your business plan to excel when downturns happen.
3. Reduce debt, and raise cash or liquid investments. This one will allow you to ride out any temporary storms as well as purchase property in 3 to 5 years from now when they once again return to appropriate levels.
4. Pay off any adjustable debt, hoard cash. Many people are carrying unhealthy levels of debt. While comical, the man riding the lawnmower in debt up to his eyeballs is all too real in America. Don’t be the person who loses their home to out of control personal expenses.
If George Chamberlain wants positive to come out of this, Southern Californians need to break their cultural pathology and begin to save, invest, and build, rather than consume. Otherwise, there is nothing for us to look forward to. Last time, the scapegoat was the defense industry. This time, it will be the “Subprime Implosion”. Years from now, people will attribute the downturn, not with the excesses that led to it (that would mean assigning the blame to ourselves and our human nature), but with the trigger that collapsed the house of cards we had built.
We have met the enemy and he is us.
Chuck Ponzi August 6th, 2007
The action around MBS’s and other derivatives related to the housing market reminds me of an often quoted speech given by Alan Greenspan.
“This vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent… But what they perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.”
While he didn’t do enough to prevent asset bubble from forming, at least he understands what the aftermath does. “newly abundant liquidity can readily disappear”.
It reminds me of a post I made back in the heady days of September 2005, Greenspan’s Interesting Clarity. Yes, nearly 2 years of blogging ago.
Where does this lead us? Well… we’re acting a bit like the japanese in our debt lending by accepting low risk premiums, and the longer this goes on, the greater the risk to all participants, lenders and borrowers. If liquidity were to be suddenly shored up by investors demanding a greater return for thier risk, or if percieved risk were to suddenly jump, borrowing would become much more difficult for buyers. Interest rates will increase accordingly. Even established buyers might not be able to purchase homes due to restricted risk premiums; all of which will only serve to slow the real estate market and put the power of purchasing into well qualified buyers.
It has been my assertion that the housing bubble was caused not by low interest rates, but by excess liquidity that banks could only farm out by lowering lending standards. It was this easy credit that was extended to a whole set of the population that had never before been entrusted with credit; this caused “neverending” demand. Much like college students that max out their first credit card, only to find that the payments exceed their income, many of today’s buyers will be unable to make payments in the future.
Our little “deflationary concern” may soon turn into a financial meltdown since problems tend to spiral: Increases of forced sales trigger lower prices, which triggers lower spending and more foreclosures; lower spending triggers more layoffs; foreclosures trigger financial losses for banks and MBS holders; financial losses triggers less liquidity; less liquidity triggers higher interest rates; which triggers more defaults on ARMs and HELOCs… the list of effects could go on forever. Our economy is increasingly dependent on house price appreciation, but 2 things keep these trees from growing to the sky.
1. Credit has limits, since some risk premium must be attached to borrowing money, and interest must be charged. Investor sentiment is everything here.
2. Even a leveling off will decrease construction jobs that will kick-off the above process, so increasing growth is necessary to keep the merry-go-round going.
As you can see, it is easier to predict WHAT is going to happen, opposed to WHEN it is going to happen. It was surprising to me that the housing boom ended with a consumer-led paring back of purchases, as I had expected the lending environment to tighten considerably before it did. What this likely means is that while it postphoned the inevitable crash, it will likely only amplify the severity of the downturn. As they say, the bigger they are, the harder they fall.
However, not trying to be a Monday morning quarterback, but had the FED raised rates twice more as I had hoped they would, they would have had an additional half-point lowering room when the credit event happened. The fact that they did not either says that they did not understand the extent of the credit market’s problems and attendant risk mongering, or they simply believed (and perhaps still do) believe that the credit markets can self-correct without affecting unemployment, or currency attractiveness. It may be that with the weakness exhibited by the currency, Ben B. should likely be raising rates when the world is calling for cutting them. It’s always easier to get out in front of the problem than cleaning up after the mess, but when has the Federal reserve done that since Paul Volker?
Chuck Ponzi April 17th, 2007
After my last post, one might believe that real estate agents have no other opinion than the mantra of “housing prices only go up”. For those ill-informed and those lacking true experience in a down market (or at least studied one out more than attending a Gary Watts cheerleading session), there is little to convince them outside of the crushing pressure of the future markets.
On the other hand, there are agents who will actually flourish in the coming real estate bubble pop. These hardened souls know the importance of negotiation, and have experience to back it up. Agents like these are well worth their six percent. I came across just one of these recently. I have only had brief contact with his business partner Lina, but after reading his website, I am convinced he’s at least going to maintain his business while many others like our aforementioned Mr. Pannatoni are going to scramble. Embracing change is key to managing it.
Turning to his site, we read:
The Return Of The Short Sale
If you lived in the Shadowridge area or anywhere else in California about fifteen years ago and owned a home, you probably remember short sales – they are back.
A recent report from Sacramento sounds eerily similar to the 1990-1996 California real estate bust, except this time, home prices are multiples of what they were back then, therefore….so will be the drop!
I have been talking about inflated home values and financing foolishness for several years now. In 2000 or so, there were the 125% loans, scary, but home values began marching upwards as real estate looked attractive to the folks who had chased the .coms.
Folks wanted to grow what they had made or rebuild what they had bled in the stock markets.Greenspan had raised interest rates decimating investments that were already overvalued causing a mass exodus from the equity markets into real estate. Then rates dropped again and property values begin to rise further. Builders who were behind on keeping up with housing demand began to build like mad. In addition, the folks to begin to, once again, speculate in real estate just as they did in the stock market. It was easy because of technology and the web.
Day trade this stock….flip this house!
Now, the folks who can really afford to own a home, are seemingly leaving California in droves. We have lots of people coming but not the type who can afford to buy these homes. These new citizens are more likely to use our social services and put a burden on our resources.
I don’t know if the statistics show it (I haven’t bothered to check), I just know the termite inspector we use told me 18 months ago that 3 out of 5 of the homeowners who he is doing inspections for, are leaving the state. And this continues.
With so many homes at such high prices and so few buyers, what happens?
The 35% property value drop that we saw between 1991 and 1994, that’s what happens.
Thirty Five Percent. That was pretty much the price drop we saw across southern California during that period. There were pockets that did better, there always are. But, pretty much across the board in southern California, the home prices dropped by 35% or more.
I remember, I was selling foreclosures and doing short sales for homeowners in the Shadowridge area during that time. By the way, what was your real estate agent doing back then? This would be a good question to ask them, before you list your home for sale of course!
The possibility of a short sale arises when you need to sell your house, but you owe more than it’s worth - like a fully-financed new car being driven off the dealer’s lot, you are “upside-down” on your loan as soon as your tail lights have crossed the curb.
That is exactly what has happened to thousands of homeowners who, for a variety of reasons, should never have bought homes but did. Most of them putting no money down. Many of these homeowners are also investors who own more than one home. Speculating on real estate just like they did in stocks.
Here’s the rub. If, for one reason or another, these homeowners must sell, then they are faced with a few choices, none of which are very appealing:
-Sell the house, and pay the difference to the lender…right
-Walk away, and give the house back to the lender…the lender doesn’t want it but will foreclose if they must or,
-Make a deal with the lender so they don’t wind up with another foreclosure.
I specialized in this sort of thing in the 1990s; luckily for many, I have dusted off my short sale notebook and am now helping people hand their homes back to their lender with the least amount of hassle.
I am becoming a very busy guy.
I have no doubt he is going to be a very busy guy. San Diego County is encountering its share of short sales now.
Thirty Five Percent was a lot back then, and it’s even more now. He could be spot on with his predictions, even if it is just a “back of the napkin” calculation.
Chuck Ponzi March 19th, 2007
There is an old saying that if a lie is told enough times, it becomes truth. For the lack of a better term, there is a definite misconception I have seen floating about the internet that has begged for a response from someone - if not in the mainstream media, at least a blogger to attack it. Since noone has bothered to rid themselves of the problem, I guess I’ll do my best at continuing to dispell myths. (Calculated Risk already did some here)
I enjoy a good thriller as much as anyone else. Oftentimes, the truth is stranger than fiction. This myth, however seems to be created by CNN.com and perpetuated (or at least commented on) by one of the most interesting bloggers that I know of. Interesting not because he brings any specific knowledge to the table, but rather that his biting remarks, poor temper, and lack of in-depth research leaves him to be the butt of numerous internet jokes. Yes, we are talking about Larry Nussbaum. His internet presence has been immortalized by other bloggers declaring “You’ve been Nussbaumed” whenever his presence is made known by his constant truthiness comments repeated over and over enough times at least someone must actually believe them now. His most recent article that I have seen floating around is not actually a new one. It originated a number of months earlier, but the basic jist of the article is that there appears to be some uncanny similarity between the NAHB Index and the S&P 500 Index. The following even appears a number of times in different places on the internet accompanied with the following story:
Tucked away in the briefcase of Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., is a chart so scary she’s hesitant to show it to investors. It plots the National Association of Home Builders’ Housing Market index - a monthly measure of builder confidence - against the Standard & Poor’s 500 stock market index, with a one-year lag.
It turns out that the mood of builders is a terrific stock market bellwether: The correlation between current builder confidence and future stock market returns over the past ten years is downright unnerving.
Not only did the NAHB index presage the start of the post-1994 bull market in stocks, but its decline starting in 1999 foreshadowed the equity market collapse that came the following year. Builder confidence rebounded in November 2001 - a year ahead of the stock market upswing that began in October 2002.
This is concerning from a number of aspects. If it were true, this would represent a significant predictor of future stock market direction.
However, the BigNose.com takes on the trouble and determines that there is perhaps only a cursory and temporary relationship.
If only there were a Sesame Street song “Correlation Is Not Causation”. I bet I’d sing it all the time.
“One of These Things Is Not Like the Others” will just have to do.
Drawing them up myself (now with even more recent data, here is how it looks (previous decade and updated to include current times). There is often too much of a bias to simply reflect our own beliefs (be it bullish or bearish) into the information we read. Minds seeking the truth will be more interested in facts that have been very different from the “expected outcome”
The First one is recreating their baseline to ensure that we have a clear picture of what is going on:
Yep, correlation exists with the base data. Then, I tried once again the previous 10 years to see if there was a correlation:
None that I can see.
Then, I extended it out to the most recent data:
Sorry, not seeing it anymore. We have clearly diverged in a statistically significant manner, and I’m just not clear what would cause that if there were some correlation.
Kinda reminds me of this picture at least in part.
I guess you can see what you want to see. To me it just looks like a piece of toast.
The worst part of the entire comparison is that you’re comparing apples and oranges. The NAHB is an absolute measure between 0 and 100. The S&P500 shares no such tether, and frankly with US monetary inflation the way it is, there is really no upper limit. Correlation is definitely NOT causation in this case, nor does it last very long. Like the normal cheese sandwich that will crumble and get moldy, the CNN article just doesn’t stand the test of time (or history for that matter)
Chuck Ponzi February 20th, 2007
With the mainstream media in a tizzy about whether housing has bottomed or not, the professional wishers and hopers are all too quick to tell us that everything will be fine, everything is ok.
Everything is not fine, everything will not be okay.
David Lereah, in fact was quoted:
Last year “was the year of contraction,” said David Lereah, the NAR’s chief economist. “When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.”
Uh… yeah. Call me in a few months and tell me how that’s working out for you.
The sad part (and the cause of so many dead cat bounces) is that the psychological environment changes enough for committed (and often overcommitted) interested parties to buy back in (Never Been A Better Time To Buy crowd). It is only when these parties become dissillusioned by repeated losses that the entire market capitulates and often sinks below fair value. In the heady times, leverage is power, in bad times, leverage is death.
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