Prediction of 50% house-price drops in Orange County, Calif

After reading this I feel a little sick

Insider Q&A hears prediction of 50% home-price drops

http://blogs.ocregister.com/lansner/archives/2007/04/insider_qa_hears.html?ref=patrick.net

April 07, 2007
Insider Q&A hears prediction of 50% home-price drops
Recently I got a note from former Orange County resident Peter Schiff, the always outspoken investment watcher at Euro Pacific Capital, now of Darien, Conn. He wanted to remind me of a op-ed piece he penned for The Register in June 2004 that said, in part:

"In a rising interest rate environment, home equity extractions through refinancing will stop and an increasing share of household incomes will be diverted to meeting higher (adjustable-mortgage) payments. This will result in a collapse of discretionary homeowner spending, devastating the local economy and causing unemployment to soar, particularly for those whose livelihoods are directly related to the expanding real estate market. Unemployment will lead directly to higher mortgage defaults. So while today's real estate market is characterized by an abundance of buyers and an absence of sellers, tomorrow's market will reflect the reverse. " (To read it all, CLICK HERE.)
While we haven't hit that level of despair yet, I figure a guy who'd make such a gutsy statement deserves a shot at our our weekly Insider Q&A ...

Us: What did you see when you made your prediction?
Peter: As I did with the stock bubble that preceded it, I merely recognized the real estate bubble for what it was. I am a professional investor, and understand the difference between investing and speculating. In addition to having an appreciation for manias, and the dynamics that define them, I also have a good understanding of economics, and the many problems facing our nation that will lead to much higher interest rates and recession in the future. These developments are very negative for long-term real estate values. Also, the way speculative real estate purchases were being financed was very troubling.

Us: How bearish are you on housing?
Peter: We are only just getting started. The current problem is just the tip of a very large iceberg. Orange County will plunge into a severe recession, with real estate prices falling by 50 percent or more, and lots of unemployment. Higher interest rates and consumer prices will only make the situation worse, for both housing in particular and the economy in general.

Us: You don't just follow real estate. ... How will this housing slump play out for other investments?
Peter: What’s happening, and what is about to happen, will have severe negative implications for the U.S. economy, U.S. stocks and bonds, consumer and producer prices, and the value of the dollar.

Us: What events might change your mind about real estate?
Peter: Once real estate prices are cheap, and I am one of the few who sees the light at the end of what will be a very dark economic tunnel, then I will buy.

Us: What would you tell somebody thinking about investing in residential real estate now? Why is it such a wrong time? And how will they know when true bargains are available?
Peter: Don’t! When everyone in real estate is broke, when real estate agents and mortgage lenders are waiting tables (or in jail) and your neighbors think you are crazy for even considering real estate, then it will be time to buy.

Let's see, a 50% drop will put the prices back to where they were last year.

(That's a joke, Son.)

Troke said:

Let's see, a 50% drop will put the prices back to where they were last year.

(That's a joke, Son.)

Click to expand...

no a 90% drop would.

Just 50%? Don't worry, be happy. BOOYAH!

They would have to drop 80% before we could comfortably afford to buy the 35 year old condo we rent in South OC. I saw a 2 bed 1 bath "fixer cottage" advertised for 1.2 million the other day.
Of course, nothing appears to be selling.I've counted 20 for sale signs on the street I use to take my son to school. These homes are all priced over a million. Nothing's changed in the 2 months that I've been paying attention. Open houses every weekend, "new pricing" signs, etc.

But I'm sure this is just a fluke. After all this is the OC. "It's different here."

I saw a 2 bed 1 bath "fixer cottage" advertised for 1.2 million the other day.

Click to expand...

Kim99, that is amazing!


OldMan

Just reviewed a bunch of articles on crude, metals, finance.

Here is one about the CDOS which are a lot of subprimes.

Read it and comment.


Here is my question. If these CDO are 40% residential, what is the 60% made up of? If the residential sub primes are in trouble who is next? Credit card companies? Where is all that money?

Growth has been $35 B in 1994 to $625B in 2005 with an additional $500B last year. Take the time to read and comment.

John Gault what say you?

http://www.reuters.com/article/economicNews/idUSL1171898420070412?pageNumber=1

OldMan said:

Kim99, that is amazing!


OldMan

Click to expand...

Yes, I seem to be in a constant state of amazement these days

ladydkr said:

Just reviewed a bunch of articles on crude, metals, finance.

Here is one about the CDOS which are a lot of subprimes.

Read it and comment.


Here is my question. If these CDO are 40% residential, what is the 60% made up of? If the residential sub primes are in trouble who is next? Credit card companies? Where is all that money?

Growth has been $35 B in 1994 to $625B in 2005 with an additional $500B last year. Take the time to read and comment.

John Gault what say you?

http://www.reuters.com/article/economicNews/idUSL1171898420070412?pageNumber=1

Click to expand...

Also included in CDO's:

Hedge fund insurance bonds
Automotive and other consumer loans
Options on stocks and currencies
Options on commodities
Index insurance (Hedge fund plays for index fluctuations)

Let's just put it this way, the CDOs are the 8 ton elephant sitting in your living room.

And when it decides to sit on top of you on the sofa, you'll know it.

Have a nice bank holiday!

Well, this would be good news for all my friends down there who have been renting because they could not afford to buy, and instead socking away tons of cash in preparation for this drop. The housing market down there (as it is in Seattle) is incredibly insane.

Seems to me that even if the housing prices were cut in half in Orange Co., they'd still be way overpriced compared to much of the rest of the country.

I don't believe this will happen. The reason is that most people in California carry very hefty mortgages with big home equity loans. They cannot sell their homes for less than they owe on them. I doubt very much if most of the people even have half of their mortgages paid on so therefore they can't sell for half.

I don't see it happening. The houses would go back to the bank first and I sure don't see the banks taking that big of a hit on what is owed to them.

They might go down ten percent or maybe fifteen or twenty..........but never 50%. That is just my opinion though. We'll have to watch and wait to see.

Loon said:

I don't believe this will happen. The reason is that most people in California carry very hefty mortgages with big home equity loans. They cannot sell their homes for less than they owe on them. I doubt very much if most of the people even have half of their mortgages paid on so therefore they can't sell for half.

I don't see it happening. The houses would go back to the bank first and I sure don't see the banks taking that big of a hit on what is owed to them.

They might go down ten percent or maybe fifteen or twenty..........but never 50%. That is just my opinion though. We'll have to watch and wait to see.

Click to expand...

The same philosophy was thought of down here. The banks are getting homes via foreclosure and prices, due to a lack of financing on the fly down here and collapsing markets are down anywhere from 10-20% in price and falling.

50% sounds quite reasonable.

This really deserves its own thread BUT........

Some 5,316 homes were sold at foreclosure auctions in March in California, representing a whopping 264%-increase during the past six months, according to figures compiled by Foreclosure Radar—and constituting 15% of all homes for sale in the state. Of the $2 billion worth of properties foreclosing banks tried to sell statewide in March, the overwhelming majority (4,796) went back to the lender after receiving no bids.

http://www.larouchepub.com/other/2007/3416mortgage_crisis.html