Who can buy these things? Yet they seem to be selling. In fact the building next door just had the notice to tear down posted yesterday so it will be going bye-bye very soon.

I too earn in the top 10%, have almost no debt, contribute heavily to retirement and have money for a down payment. I cannot afford a house in the neighborhood I want to live in. The prices have not come down. I’ve seen houses on the market in the neighborhood for months, some since last fall at least. I’ve seen them listed, removed and relisted, but they don’t really drop the prices - maybe $10-$15k, but on a house that is $600k plus that is nothing really.

And then it seems like some idiot will actually pay someone the frickin bubblicious asking price they want. The sale of that one damn house will keep all the other idiots holding out for their fantasy asking price. It’s ridiculous and frustrating.

The real game (caution: you are about to get insider information) is WaMu. This company in Q1 and Q2 this year, to be concise, tweaked the accounting book to meet earnings and at the same time hope the problems in mortgage market reversed. The problem is, the mortgage market got much much worse since end of Q2. One month into Q3 we are talking about Alt-A loans performing as bad as subprime loans as you all have now heard.

The total earnings they managed to add to income is at least 4 cents and 5 cents respectively by manipulating the books. The guy who worked the book was promoted for the idea of shifting credit card reserves to “shelter” the mortgage losses while they hold the loans in the balance sheet.

They must be in a dillemma right now, since

a) reversing the Q1 and Q2 manipulation plus the upcoming huge loss in Q3 will result in missing estimate by 20 cents and will get their stock to mid 20s by Oct.

b) However, keep doing the same thing again in Q3 may either raise SEC alarm, get a question from people about where they sell their loans for such high $, or simply lead to a significant probability of restatement (read: $5-10 WaMu stock by Dec or in Q4 sometimes.)

They have to choose big pain now or AHM-level pain later.

I absolutely can’t divulge anymore including the name of the WaMu accounting guy etc, but in the mortgage accounting land this is no secret cuz I am not even working for WaMu but I have heard this over and over since April.

Sales may have slowed, but people are *still* paying insane prices in this part of town. Condos in Hollywood and DT are still humming along, Foreclosures are few, and in “nice” areas, teardowns still sell for around a million and up.. What’s gonna stop this madness here?

FWIW, I think it will end, but if you don’t read beyond the headlines, there’s nothing to suggest to people that this is anything other than I minor blip in the market.

I’m a potential buyer, top 5% salary, no debt, and cash for a DP. I could “afford” to buy, but +/- a million bucks for a crappy 3/2 on a tiny lot is beyond insane. I’d have thought this part of town would be feeling some pain right now. But, at least outwardly, all is well. The smugness here is maddening.

You bring up an important issue. Many people that seem to be real estate experts really had very little understanding of finance and overall economics. You bring up the legal implications but these folks are not lawyers. Lots of money will be lost because people followed the advice of so-called experts.

@r,

Even in the book written in 2003, the definition of a crash was a 15 to 20 percent decline nationally. In terms of percentages, I’m not sure how useful this really is. I think a better way to predict future prices is to factor the following:

1. Potential Appreciation/Depreciation
2. Tax Benefits
3. Local Rental Market
4. Property Location
5. Income and Prestige of Area

This should give you a better view of ascertaining a realistic price for a home. Given that appreciation is going to stall or go negative, this would be an argument for lower prices. Tax benefits will add a premium to prices. The local rental market will play a big force. Since people were buying homes expecting 10, 15, or even 20 percent jumps that is why many jumped into the bubble. It was common for someone to buy a $300,000 home only to sell it next year for $400,000. After taxes, commission, and everything associated with selling a home that is a nice sum of money. Not sure what other investment vehicle would give you that much return and leverage in a short period of time (especially going zero down or 5 percent down). But this is now finished. This was a solid argument for buying a home regardless of fundamentals, “buy today and sell next year for a 20 percent profit.” Many just assumed this was going to last forever.

New York is a different market altogether. Yet people still get financed from decentralized banks and MBS holders. So I do see prices getting hit there as well. Percentage decreases all depend on the area you are looking at.

@nick,

Do you mean peak highs or lows? Just take a look at the builders and housing indexes. You can find company financials online and review their income sheets. It is a great source of education

In terms of a higher DOW and declining dollar this is very probable. The issue at hand is whether or not the Fed is going to protect the dollar from falling any further. The housing bust in my view, will force public opinion to examine economic policy, something we haven’t done for this entire decade. People need to wake up from their credit coma and understand that we are merely playing into a global Ponzi game that is coming to an end.

If you’ve kept your money in cash, you’ve lost money over the last decade. Even keeping up with inflation we have fallen behind many currencies. But jumping into the Euro in my view is simply running from one burning house to another. This is a global issue and needs to be addressed by multiple nations.

It is good that you are prudent as an investor. It will serve you well in the long run. I would examine companies and investment vehicles on a case by case basis. Keep in mind there are many states in this country that are still fairly priced in real estate. You won’t be making 20 percent yearly gains but it is a good addition to a diversified portfolio.

@tyrone,

Interesting piece. And they are in a hard place because they have a home closing in another state soon. Either way, they keep referring back to last year or peak prices as if that market still exists. These folks are delusional. You know what they say about the worth of a piece of a property? It is worth whatever someone is willing to pay. At least that was the battle cry for the last decade.

Inventory is rising and short-sales are growing. There are much better deals than negotiating with someone like this. Either they respect the prices being offered or their home doesn’t sell. This is common in any healthy market. The only problem is we’ve been living in a toxic mortgage bubble and those mortgages are systematically getting eliminated from the market. Run the numbers on this place on a conventional mortgage and you’ll see that interest may not be as high as they think.

@sandy,

Fannie and Freddie will be the last to show cracks. We still need to hit full stride with the Alt-A sector which will occur over the next 2 quarters. This is a long and slow process. And summer peak selling season is nearing an end with record inventory.