Who wants to buy a house?

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From the good people at Curbed comes an article about the last four luxury apartment towers to be built in Los Angeles (well, until residential real estate goes through its current bust and comes back to an inevitable boom).

Anybody have a few extra (million) dollars lying around?

Several Odds and a Couple Ends

The LA Times' Joel Stein had a really interesting take on the latest actions by the Federal Reserve: infusing the market with $200 billion and JP Morgan Chase rescuing Bear Stearns with another $30 billion. It was really toned down in this article and his points came across more concisely. I read Stein's stuff occasioanlly but more often than not I find his humor heavy handed. As far as Times' columnists, he and Jonah Goldberg are usually orthogonal to each other, but I am usually orthogonal to the both of them. Basically, it's like a 3 dimensional space and we're the X,Y, and Z axes. Linear algebra references aside, Stein's piece was actually written really well - he seems to know what he's talking about without confusing people with too much technical detail.

The LA Land blogger, Peter Viles, did an interesting analysis on the real estate market declines in Los Angeles. He did a simple zip code breakdown to see which classes of houses were declining the most. His results show that the low end (Palmdale/Lancaster) is declining more than the high end (Palos Verdes, Mar Vista). As the houses increase in value, the percentage decline decreases, until there's actually an increase for houses over $800k. What this means is that the market is really starting to sort itself out and to echo Stein, the faster we get to the bottom, the better.

In sports news, UCLA won it's first round game against Mississippi Valley State in the NCAA tournament while USC got smoked by Kansas State. KSU was robbed by selection committe, only getting an 11 seed (3rd Place in the 2nd toughest conference only gets an 11 seed? Come on....). Ken Pomeroy could have told you that the Trojans drew a really tough first round game. Great news for the Mighty Bruins as they should be getting Luc back for Saturday's game against Texas A&M, which starts at 6:15 at the Honda Center in Anaheim.

Return of the Real Estate Ranter

The real estate bailout plans slowly gain momentum while the market continues to decline. As I ranted about earlier, I am not a big fan of any of this bailout business. I continue to be outraged that significant steps are being taken without giving thought to their long-term consequences. Don't get me wrong, I am all for making changes to help regulate the system. But how can anyone (be it consumers, investors, mortgage brokers, or bankers) be expected to change long-term behavior if they face no penalties when engaging in inherently risky activities. The conformal loan limits is a good example - I don't disagree that they should be raised. But instead of raising them by almost 100% (from $417,000 to $729000), why not raise them by a more modest amount, say a percentage tied to inflation?

And then comes the data that of all people who own homes, a third don't have a mortgage at all. Of the remaining 2/3 there are about 2% who face foreclosure. We're really not talking about a large percentage of people. But because people had been using their homes to finance consumer spending, and the demand for homes had driven the construction industry, there are significant portions of the economy that are being affected. Here's an interesting post about how a small percentage of people can affect the economy.

So we trudge along. LA Prices are still declining (generally now back to 2005 and even 2004 levels), the conformal loan limits have been raised (most dramatically in California), and the bailout plans are being fleshed out by the powers that be. At some point there will be a confluence where the external factors and my personal situation intersect and I am able to purchase a house. As I wait I vacillate between outrage and fear, wishing that everything could achieve some kind of impossibly peaceful balance. Serenity now, serenity now, serenity now.

Also, Calculated Risk is a really good blog. I just wish I had a firmer grasp of the concepts they talk about.

Real estate rant

One the many subjects that interests me is real estate. I am fascinated by the geography of how people congregate in areas, the way those areas change over time, and the value we ascribe to them. There are elements of sociology, history, race, greed, corruption, and all the wonderful emotions that make up good drama.

I am also interested in economics. Not in the supply-and-demand sense that we all learned in high school, but in the Freakonomics sense of how markets react to people and the unintended consequences of market intervention (I also read Jim Jubak on MSN and particularly liked his explanation of what the hell is going on with the credit market).

In case you haven't heard, we're currently in a housing crisis, which is wrapped up in a credit crisis. There are talks of bailouts, cash infusions, tax breaks, and other plans to right our course (i.e. market intervention). One particularly irritating plan that looks like it is going into effect is that the conformal loan limit is going to be raised. The conformal loan limit basically sets the level of mortgage that the federal government will purchase. Anything above and the loan is called Jumbo, and sits on the open market. Anything lower the federal government will purchase, thereby lowering the interest rate and making everyone feel safe.

So why would that irritate me? Well, for one, there has been a crazy run-up in real estate prices, especially in Southern California where I live. People have been given loans and bought houses that were not justified by their incomes. Much of this was speculation, people thought that prices would always go higher so there was no danger in stretching now, they could sell later for more. People that already owned homes did this as well through refinancing. Well this couldn't go on forever and once prices started to go down (as adjustable rates started resetting and people couldn't afford their payments and had to sell for less than what they bought for), more and more people realized they needed to get out. The psychology of the thing is that if people owe more than they think their house is worth, they're more likely to sell or be foreclosed upon. Once started, the cycle is viscious. People sell for lower prices, values of houses decrease, people start getting foreclosed, values decrease even more, etc.

The thing about a foreclosure is that if it's a conforming loan, the cost is eaten by the government, spread among the 300 million americans, and people don't get as hurt. Well, for the nonconforming loans that were sold as debt instruments the situation is sticky. Those are still owned by banks and they also want a government bailout. The government also wants to bail out people who bought too much and are in over their head.

Why does this piss me off? Because I could have bought any time over the last 3 years but didn't because the econmics didn't work. Now I have to finance (through my taxes) a bailout of either people who bought foolishly or the banks who loaned foolishly, or both. Now I'm not a free-market at all costs conservative. I believe in government social programs for those who can't take care of themselves. But I am against bailing out people who made conscious bad decisions, greedy corporations, or the millionarie CEO's that are crying because they won't be getting yachts for Christmas this year.

I was even irritated enough to post on the LA Land real estate blog on the Times website:

"How's this for a conspiracy: new larger conforming loan limits allow people to refi their large mortgages, the 'bad' mortgages owned by banks and investors are paid off, and the new mortgages are backed by Uncle Sam. When people have trouble paying those new conforming mortgages who's in trouble? Not the banks, who would be off the hook, but you and I, John Q. Taxpayer."

So what's the solution? I don't know - move to Canada? With global warming Vancouver could be the next Los Angeles. Either way I can't complain too much, I do live (rent) near the beach after all. In any event it is a learning opportunity and maybe I'll be able to take advantage of some government subsidies to write more about things that matter, like nachos.