Rocktex

Concerning the Case Shiller Housing Index

Very good post! You mention the rosy picture the Index is painting, at least. But.... (as you said), not good enough.

As an investor, I have been questioning if Case Shiller price index is a piece of junk for a long time. Please see my article at activerain.com/blogsvi...

I would like to write an article to pinpoint the uselessness of the Index. I've check how the Shiller Index collect its data as you did and roughly had the same position as you have. But, there is one thing stop me from writing. I have to make it very sure that what Dr. Shiller means when he use the term "arm-length" transaction. Also, I have to clarify what a "transaction of sale" means since so many real estate websites such as Zillow.com, Realty Trac or Trulia.com have different criterias to include a "sale."
Can you be kind enough to tell me that NAR considers a forced "foreclosure" as a "sale" transaction as Zillow.com did?
Thank you very much.

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

To SawnIsis,

It is wrong, wrong, wrong to interpret that way.

Can you see anyone not involved in forming the dumb "plans" saying those plans will work? Almost everyone with reason know they won't change the fate. If it is true, there is no real impact on the reality, right? So look at it with a different perspective.

It is clear that housing market in some areas are "dead," i.e. without normal market function. If it was dead, how could we "kill" something dead again?

In a broader sense of macroeconomics, a "dead" is just like a winter or a trough. There is still an ivisible hand, there is an opportunity for you to profit, it as long as you can realize it in a distressed market.

Good luck!

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

Very good presentation!
Just reminds me of one concept in Economics: Utility, a satisfaction factor to a buyer.
Just also reminds me of one vital fact in real estate: a residence is not only an investment, but a personal pleasure.
Yes, most people in USA is accustomed to enjoy everything NOW so that we have a sale pitch: “buy it now and pay later.” It is a big difference between the rich and the poor. The rich do save and invest appreciating things, the poor spend and enjoy depreciating luxury.
That’s our current culture those “freeze loan” programs count on. They want those subprime loan borrowers enjoy the satisfaction of home ownership and pay more later in order to keep the junk loan look good as performing assets in their books.
But, there is a problem. Davy didn’t make it clear here. Subprime loans are just a small part of this bubble. Not only the major portion of subprime loans are left out. But also, there are more big mess coming from other primes loans, such as Alt-A loan, Option ARM. Those loans are not a subject to be rescued from those “freeze” plans. Then, what could happen?
The housing market is definitely fallen if we can't stop other non-freeze houses going to foreclosure. At this moment of writing, a steep discount of more than 45% are seem in some area. If you bought a house for $600K and the current value is $350K, will you say to yourself: “it worth owning. I am not willing to sacrifice my credit and dream home”?
I doubt you are so smart and arrogant!

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

Good point?
Paying a low interest rate is sure a GOOD thing if we assume housing price IS recovered. But, there is a sophiscated catch?
Only a fool will argue with you that Californian housing price is never going BEYOND the peak of 2006. Sure, it will with help of inflation in the long run. Maybe it will when the owner dies at age of 65, or 100?
Good assumption to say you are right? But wait, there is a sophiscated catch I don't understand?
When it is going to recovered? With a negative amortization in the freeze plan, the loan principal keeps growing. I believe in the current situation, are you sure the subprime owner will have his home valued at the end of 5 years, more than what it is worth now?
Yes, a subprime loan owner will choose to stay if his payment is equal or lower than the local rent to take the advantage of housing subsidy.
But it is true the payment & other housing costs are lower than the rent? Not likely in California as I know.
Then what's the point to keep his house by paying more money every month and paying even more loan amount in the end? I am too fool to see your arguement valid.

O

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

Good point?
Good, it tells the same scenario as we did to finance, re-finance and re-finance to a 3rd poor country who is always in default. That means the country gets a new loan to pay a old one. The people in the 3rd world is getting poorer and the anti-America imperialism aversion is growing.
Sure, we can't send a troop to collect the debt. Neither the debt is paid.
Do you think that will happen to our citizen in Cali?

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

To Davy,
The job is well-done. You are very honest to present your viewpoint and give out a practical solution.
However, so many people won't look at the truth and react to the reality accordingly. That's why a scam works: to give people a dream!
In front of God, we the human being's power is so small to defend us from Katrina.
In front of Adam Smith's "a invisible hand," what the freeze plans can accomplish? Hot money & economic activities are globalized. And the world is changing at a remarkable speed, how can we "stop" at a point of time?
US government is so powerful that can do some fine tune to the economy as we do to a airconditioner in a house. But can we deal with Katrina? Can we fine tune the globe's four seasons?
I pray our government can be humble and let Adam's invisible hand do the job. That's will shorten our pain and heal it naturally.

The Government's Subprime 'Bailout' Plan Will Kill the Housing Market

To tkap:
Here is an article talking about theory and practice of foreclosure for your reference. Foreclosure Outcome in TD States (Not for Mortgage State) activerain.com/blogs/r...

Your opinion is much welcome.

Housing Prices To Return All the Way To Pre-Bubble Levels?

Look at Japan's real estate for reference.
In early 90's, Japanese residential housing lost more than 80 percent and has been taken 15+ years without a sign to go back to pre-bubble stage.
I am not saying that USA should follow the same patten, but there is such a possibility that could be the case.
I was there thru 1991-1997 Los Angeles RE market and had seen it happen. People surrendered their house simply because there were no equity in homes. What the damage can do to them? They love to keep a good credit score, but it is just beyond their reach.
We won't give our sympathy to anyone who became a strawman in a financial scandle. Those who trapped in this "liar mortage" plot help to create inflated market. In some way, they fooled themselves as the bosses of American Dream Co. until they found out they are just a strawman.
I have some friends speculating lately who bought houses for flipping in 2004-2005. They made huge profit out of the first three deals, but now the last deal in Pasadena went wrong.
They listed it for $ 1.25m and now reduced to $980K after 3 month without an acceptable offer. Yes, they did receive an offer of $870K before the stock tumbled. Now they regret not following my advice to take it and cut possible loses.
All their profit in the past 2 year will be lost and end up with nothing or loses, if they could be lucky enought to sell the last one for $800K.
Well, let's look at the bright side. It is a crisis for some and it is also an opportunity for others, just as today's stock market people is picking up cheap stocks after yesterday's 280 points south.
Don't panic. Just be cool and sharp to explore the opportunity, guys.