Threat of Japanese Intervention Stops Fall of US Dollar, For Now

Market fears of a possible intervention by the Bank of Japan to support the dollar helped the U.S. currency recover its poise Friday after it hit a 14-year low against the yen.

By mid afternoon London time, the dollar was up 0.3 percent on the day at 86.82 yen. Earlier it had sunk to 84.81 yen, its lowest level since mid-1995 as currency traders sought the sanctuary of the Japanese currency amid mounting concerns about the fallout from Dubai's financial problems - a government investment fund, Dubai World, asked creditors if it can postpone payments on $60 billion in debt until May.


Read the whole story here.

Inflation in the US: The Candy Bar

So, I thought I'd lead off the story of the declining dollar buy illustrating how inflation has slowly but surely eroding our purchasing value. I'm choosing to illustrate this by borrowing from my own life and talking about the price of candy bars.

When I was a little kid, say six years old, I was able to buy a candy bar at the local grocery store for ten cents. I can be sure of this, because my dad used to give me a quarter and I would ride my bike up to the local Lucky's and I would buy two candy bars and pocket the nickel in change.

Last week when I was a my local super, candy bars we're priced at $.99 a piece.

What this means of course is that in 35 years, the price of a candy bar has risen ten times! Or looked at another way, on average, the price of my candy bar has gone up about 6.7% every year. In Econ 101, Professor McKibben told us that inflation between 2.5% and 3% was normal. So what gives?

From what I can recall, I believe that I was paying about $.50 for a candy bar just three years ago. That means that nearly half of the price increase in candy bars has come in just three years, for about a 24% increase in price per year.

This is an example of what I (and others call) insipid inflation. Prices rise, and dramatically so, but because the government say inflation is low and contained, we believe them and go about our business.

It is precisely this kind of inflation that shows just how weak the dollar has become, but as we'll see in the coming months, this is the tip of the iceberg.

Shifting Gears: The Declining Dollar

I've decided to fire up the old blog again, but this time I am going to be re-focusing my posts broadly around the weakness of the US dollar.

Why the reason for the change? I think we're on the cusp of a very tumultuous time in world economic history. In the same way that a basket of factors lead me to believe the real estate market was going to collapse three years go, I now see a different set of factors that is leading me to believe that the American dollar is about to be worth less than it has in quite some time.

For example, the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a fresh 15-month high of $1.5141.

I think this is just the start, the implications are epic and that there is a great deal of risk coming our way; there's also the possibility some opportunity as well.

Over the coming months, I'll share my thoughts with you and would invite you to share yours.

We Bought a House!

I know that over the last couple of years I have been one of the most ardent bears relative to the real estate market. But I want to share with the small handful of readers that I've got left that as dour as I have been, my family and I just took the plunge and bought a very nice house in Huntington Beach. Nice property, great location, saved hundreds of thousands by avoiding the peak...kids and the wife are very happy.

I may have bought before the bottom, I may have been slightly late. I may be making a great hedge against inflation, I may not be as well. At the end of the day, none of that really matters. I am just happy that I finally get to live in a house and in a neighborhood that I really like and for less than it would cost me to rent. What's not to like?

Conidering Buying A Bank-Owned Home?

If you are considering buying a bank-owned home, particularly one from Chase Bank, you have to check out this blog. It tells the story in sort of a novella format about a family that got royally screwed by Chase Bank.

Check it out here: www.unethicalchase.com

I've seen some weird shit in my day...

This is even more, um, entertaining.

How Much Is It Worth?

I've been scratching my head a lot lately wondering how to estimate a fair market price on properties for sale here in Huntington Beach.

Asking prices are out-of-touch with the market and seem to be driven delusional, denial-based wishes of homedebtors. Take as an example this listing from Redfin:


1,100 cramped square feet for $629,000 or $554/sqft where other properties in the area are selling for under $400/sqft. No wonder the house had been on the market for almost half a year.

Comprables properties are of some value, but are problematic because with property prices plummeting as they are, any property sold more than 30 to 60 days prior is no longer reflective of current values.

Then there are also comprables where the buyers, IMHO, paid much more than they needed to for properties thus biasing values upward. These buyers are like the idiot who split sixes at the blackjack table when the dealer has a ten showing: not only do they screw themselves but they also mess up the game for everyone else

So, if asking prices are meaningless and comprables are of rapidly diminishing value and subject to the influence of knife-catching, sixes-splitting idiots, how can one value a home? I'm not certain but I think I've found something that can help.

I was visiting one of my favorite blogs papermoney.com last night and found a remarkable home pricing tool.


It's a home price calculator that uses the past sales price of a house to estimate its current market value. The way it does this, is by comparing the Case Shiller Home Price Index at the time of last purchase and extrapolating the current price and future price of the home by the looking at the current trading price and futures price for the index, respectively. Being a quant and a big fan of Case Shiller, I think this tool is pretty damn cool.

It's really easy to use. Select the region your suspect home is in; in our case it is the CS Los Angeles market, type in the last sale date of the property you're interested in buying and the amount at which it sold--that's it. The tool will then calculate its past, current and future value (3 and 6 months out) for the home.

Let's do an example together. Here's a house I had a passing interest in over the last few weeks.


It's a nice house on a cul de sac, almost 2,400 sqft, very serviceable with a price reduced down to $625,000. Even for this market it almost seems like a good deal at $264 a sqft. But is it really?

By scrolling down to about halfway down the Redfin listing, we can find the sale history for the home:
So we type these values into the calculator and what do we find but that, at least according to this calculator, this price is still roughly $60,000 over market. I showed this to Mrs. HB Bear and we agreed that we'd pass on this fine little number on Autumn Circle.


So, fellow ursines, when you're considered making an offer at a home in the future, be sure to check out this fine little tool first. (I've added a link to the Cool Tools section of the blog for your convenience.) It may not be an exact estimate of the value of a home, but IMHO it is far more accurate than unrealistic asking prices and short expiry comps and just might prevent you from making a big, big mistake.

Viva los Osos!

Right Time to Buy: 2014

A great article came up in one of my news feeds today that I wanted to share with readers. This provocative Business Week article, says, among other things:

• Prices will only stabilize once foreclosures and sales volumes stabilize first.
• While some areas will stabilize as early as 2010, national prices won't stabilize until 2011.
• For the "bubbliest" of markets, including the author's home turf here in OC, prices may not stabilize until 2014.
• When prices do stabilize in OC in 2014, prices very well could be lower than in the early 90's.

His and my advice to buyers in SoCal is simple: wait.

Viva los Osos!

HB Comp Killer - 6202 Point Loma Dr

6202 Point Loma Dr Huntington Beach, CA

Sold For: $550,000 (06/27/2008)
Beds: 5
Baths: 2.5
Sqft: 2,276
Price per sq ft.: $242

I've seen a lot of comp killers over the last several months, but this one takes the cake. Five bedrooms, two-and-a-half baths and almost 2,300 sqft of living space in one of the nicer/nicest parts of West Huntington Beach for only $550,000. That, friends and neighbors, is mind-boggling even to me.

At the peak, $550,000 wouldn't have bought you a sub-1000 sqft bungalow fixer-upper, on a busy part of Heil that may have had some foundation issues relative to "liquefaction." Seriously, it wouldn't have.

But, now the proverbial tides have changed and 2,300 sqft can be had in a nicer part of West Huntington Beach, in at least in one instance, so far, for only $550,000.

Now, particular property does have its issues. Even from a drive by the place I could tell that it clearly needed some work; it would be fair to call this house a "fixer-upper." It also backs a "major" street, Slater which means moderate noise. The property is also is at the entrance to the tract which means heavy traffic. Landscape rennovation would be required. Certainly there must be other issues that I couldn't grock on a drive by, but even when you consider all the negatives, this property still sold for only $550,000.

It's just amazing how much more house one can get today in west HB than he could at the peak for the same amount of money. I am actually dumbstruck by the enormity of it all.

(I have more to write about this property. Once I can gather my thoughts and get some work done for a customer, I will hit the blog with an update. Just imagine the impact on comps in the area....)

HB Haircut - 5091 Linda Cir

Beds: 4
Baths: 2
Sq. Ft.: 1,750
$/Sq. Ft.: $357
Lot Size: 6,360 Sq. Ft.
Property Type:Single Family Residence
Style: Traditional
Year Built: 1959
Stories: 1 Level
Area: Northwest Huntington Beach
County: Orange
MLS#: S520813
Source: SoCalMLS
Status: Active
On Redfin: 177 days

***Update: This property went into escrow in the last couple of days; it will be VERY interesting to see what they got.***

This single story cul-de-sac home has been remodeled and was spared no expense in the quality of materials and workmanship used throughout. It boasts nothing but the best. New Custom Landscaping, New Custom Vinyl Patio, Custom New Hardscape, Newer Carpet, Seperate Laundry Room, Recessed Lighting, New Interior doors, Baseboards and Moldings, Solid mahogany front door, Formal Dining Room, New Anlin Energy Efficient windows/sliding door, new central heat and water heater, new paint, new exterior, stucco, and new interior texture. Located in a family friendly neighborhood within walking distance to the distinguished Village View Elementary School and Marina High School.

Original List Price: $749,900
Previous Price: $649,999
Search Price (High): $649,900
Search Price (Low): $624,400

Months ago I toured this property and as the description says, it's a pretty nice home (this kitchen is quite small, however) and on a great little cul-de-sac here in my neck of the woods, West HB. At the time they were asking $749,000 for the home.

At the time, before the comp killers came en masse to West HB, I though the property was worth maybe $660,000 or about $90,000 less than they were asking. Had they priced it at that level, IMHO the house would have sold. But they didn't. Instead they introduced range pricing and brought to price of the home to the $749,000 to $699,000 range--lower, but still more than a prudent buyer would pay.

The house languished on the market and, unfortunately for this seller, the comp killers began to show up soon thereafter. In response, they dropped their price to the $699,000 to $649,000 range, but the price damage from the comp killers had already been wrought and the house was no longer worth $649,000 and so the house sat on the market.

Now they've dropped the price to $624,400 to $649,000 range. And guess what? I think the price is still to high. With the number of CA Option ARMS set to reset and the most recent comp killers, I wouldn't pay more than say $565,000 for the house at this point or about $90,000 less than I thought it was worth originally and about $200,000 less than the original asking price. Now, some knife-catcher might pay more, but that will be his loss; not mine.

Had the seller priced his property correctly in the beginning, he could have walked away with tens of thousands of dollars more than he'll get in the fullness of time. Sellers ought to know by now that pricing a house aggressively is the only way to sell it and that greed is punished severely in the market today.

So here's the take away from today's post. Buyers, if a house seems too expensive, it probably is; be patient, the market will nudge sellers in the right direction. Sellers, if you're not priced well-below the most recent and comprable comp killers, your house won't sell and every month you wait costs you....

Viva los Osos!

Case-Shiller Futures Bear Porn

Beautiful, isn't it? I wouldn't go as far as the kid in American Beauty, but to a died-in-the-wool bear, there is something vaguely comforting about this graph.

Case-Shiller Bear Porn

McCain = Bush = McCain

I've kept the blog largely apolitical, but after watching Obama's masterful speech in Berlin, I had to post this. If you'd like four more years of Bush, by all means vote for McCain.



If you want change then Obama is your man.

Interest Rates Rise, Housing Death Spiral to Ensue

Due to the problems that housing and lenders have had as of late, interest rates for California home purchases have gone up, way up, in the last couple of months. Have a look at this graph from BankRate.com

It shows that the interest rate for a "typical" home in OC has gone up from about 5.7% to about 6.5% since May. When I run the numbers, this translates into a roughly 9% higher mortgage payment! My guess is that this change alone will cause 10 to 20% of those that could have qualified for a loan in May to now be unable to qualify.

Put another way, the recent run-up in interest rates has reduced the effective demand for homes in OC by 10 to 20%. Now, if we assume that housing prices are unit-elastic, this change in interest rates/demand ought to cause home prices to drop between 10 and 20% more.

Then there's the compounding effects of the price/demand declines. If prices drop, more people will walk from their homes. If more people walk from their homes, then there will be more inventory on the market and if there's more inventory on the market, prices must drop to meet demand.

Not to mention the fact that, banks seeing a greater increase in foreclosures might use the same inscrutable logic as they've used in the last couple of months and raise their rates in response, which leads to fewer people qualifying and so it goes...

It's called a death-spiral friends and neighbors and the banks are bringing on themselves with the help of the White House...but guess what? You, me and all the rest of the American tax payers are going end up paying this particular bill in the form of bailouts and every other manner of Republican Socialism the Bushies can muster.

How much more of this crap are we going to take?

Are Your Bank Assets at Risk?

Regulators learned in the 1990s that the higher a bank's Texas Ratio the more likely it is to fail. Is your bank on this list? If it is, move your money. And call mom and dad to be sure that they don't have any money in these insitutions either.




Using this ratio, regulator say as many as 150 financially strapped institutions could fall over the next 18 months. You do NOT want to be one of the "statistics" in this fallout.

The (Un)Natural (De)Evolution of the Blog

As I have mentioned before, the cratering of the OC RE market is now so obvious, I find it uninteresting to comment on it any further. Once things start to turn, I'll be back on topic, but for the moment I still want to blog about something, though I have no idea what.

Until I figure it out, or the market turns, I'll just try out some random concepts and see where they go.

I've always enjoyed the message and simplicity of the "Wear Sunscreen" song. If one were absent a defined moral or ethical perspective, I think one could use its message as a reasonable surrogate, at least on a short-term basis. It is definitely better than MOST ethical systems I have come across.



While "Sun Screen" is fairly light-hearted , Chris has made an even more light-hearted parody of the video. Some might consider it profane; I think it's funny and it contains a few good nuggets of wisdom. Having traveled to Amsterdam as much younger man, I will also offer that based on first-hand experience central premise of Mr. Rock's video is most certainly true...

90% Marginal Tax Rate for the Middle Class

I gave some thought about how those making above $160K (for a couple) aren't welcome to receive the $7,500 First Time Buyer's tax credit and realized that we're actually getting more screwed than I originally thought.

You see, the phase out for this tax credit starts at $140K runs to $160K; so it's a total of 20K in income that determines whether you get the full $7,500 or zilch. It works the same way for the Bushie tax credit: with two kids at $140K in annual income you'd get $1,200, but at $160K in income again, you'd get zilch. That is one expensive $20K in income, but how expensive is really?

On 2oK we suffer the following losses and taxes:

$7,500 exclusion from First Time Buyer's Credit
$1,200 exclusion from Bushie Tax Credit
$7,200 Federal Taxes (would have paid regardless)
$1,800 State Taxes (ditto)

For a grand total of $17,700 in taxes or loss of tax credits or the equivalent of a 90% marginal tax rate. 90%! I defy any reader to find a single group in America that pays the same effective tax rate as this 140K to 160K income group.

Have we all done something to offend those in power? If so, how did we manage to piss off both sides of the aisle and the legislative and executive branches of government at the same time. (Let's remember that is was W who had us excluded from the "stimulus package" and it was Speaker Pelosi who sponsored this lovely First Time Buyers legislation.)

Well, I really don't think we've done anything to offend any one. I'd like to think of it as an 'oversight.' That our lawmaker's didn't mean to screw us and that some of the details fell through the cracks and that the 90% effective tax rate is just a big mistake. And mistake that ought to be rectified immediately.

I've already emailed Bush, Boxer, Feinstien and my Congressman Dana Rohrabacher; I'd invite you to do the same. No group in the US should be asked to pay a 90% marginal tax rate. It's unfair, it's unAmerican and it's anti-capatilist.

Call or write your representatives today!

Feds Set to Screw OC's Middle Class Again!

Many of middle-class families in OC are still stinging from being excluded from Bush's tax rebate program. While many of our friends got checks of up to $1,200, we got nothing. The reason? We made a bit too much money to be included and were summarily "phased out" of that particular gravy train.

Guess what? You're about to be "phased out" again.

Yesterday, the House passed HR 3221 aka the American Housing Rescue and Foreclosure Prevention Act of 2008 on May 8, 2008. This piece of homedebtor rescue legislation spends billions helping those folks in trouble keep their homes, to refinance existing mortgages, for cities buy blighted properties and so on. So, if you're were unfortunate enough to have bought a house that you couldn't afford, the taxpayers are here to bail you out.

You're welcome.

Then there's this little provision called "First-Time Homebuyer Credit" which essentially says that if you are a first-time homebuyer then you can get a $3,750 federal tax credit if you are an individual or $7,500 if you are a couple. That, unless you're middle-class, then you get nothing.

That's right, if, as an indvidual, you make more than $90K a year or a couple that makes more than $160,000 a year, then your tax credit amount falls to zero. Zero as in nothing. Zero dollars, zero help, zero consideration by your legislators. Zero, just like the tax credit you got as part of the Bush stimulus package.

That's right, once again the Congress has left the American middle class out in the cold. If you're Bear Steans, the feds fall all over themselves to throw our tax dollars at you. Buy a house you can't really afford, never mind the feds will finance it for you at taxpayer expense. But work hard, attain some level of success and then exercise fiscal responsibility and all we get from Congess is a big F#@K YOU!

The middle class pays an egregious amount of tax. We're in higher tax brackets based on what earn, but lack the resources and tax shelters of the rich; so we're left paying more than those less fortunate than us and more than those more fortunate than us. If anyone needs a f@#king tax break is it us, the middle class. But yet again, we're left out in the cold.

As you can probably gather, I am mad as hell about this and I'm not going to take this sitting down. I'm getting ambiguous information on the state of the bill in Senate at this point, but if hasn't passed yet, I am going to call my Senators and give them a piece of my mind. If it has, I am going to place a call to W's office, supporting his presumptive veto. Once I get this sorted out, I will post my efforts to this site.

I am going to be damned clear that the tax credit phase out, as written, is affront to the middle class in America. I am going suggest either doing away with the income restriction all together, raising the limit to $125,000 per indiviual or $250,000 for a couple--that is to say, inclusive of the middle class.

Once I get this sorted out, I will post what I've found and names and numbers of those we need to hold account here.

This is bullshit and I am not going to take it any more.

You shouldn't either.

Why are OC Inventories Flat?

I've seen some anecdotal evidence that inventory levels of are essentially flat since the end of January this year and on year-on-year basis as well. This causes me a great deal of cognitive dissonance; it may do the same to you.

As examples, I'll site the inventory graph from IHB which show inventory levels flat for Irvine and the OC inventory numbers found on Bubble Tracking which show inventory flatness for OC.

If you have a close look at the OC inventory data, what you're going to see is that according to Redin on Jan 30, 2008 there were 17,151 homes for sale in OC; on April 30 there were 17,358. A couple of hundred more homes in April than January, a bit more than 1% which I would call essentially flat. So for the year, inventories are essentially flat.

Even if you don't consider the 1% increase to "flat", I'd point out that in the same period in 2007, we saw inventories rise 28.5% rise from roughly 13,200 units to just under 17,000 units and that historically a rise in inventories as we enter Spring is typical. But this year we don't seem to be having any seasonal run-up inventories.

And, I'm sure you've already noticed the coincidence that we have roughly 17,000 homes for sale both now and one year ago as well, meaning of course that inventories on OC are flat on a year-on-year basis as well.

I have to say this is strongly counter-intuitive to me. I mean, we have only a trickle of homes being sold compared to last year and I would expect almost every other year on record, showing that demand is weak. On the other hand, we also have a glut of bank-owned, short-sale, foreclosure-avoidance properties on the market meaning that supply, at least for those segments of homes, is strong.

So, I pose these questions to readers:

Doesn't weak demand and strong supply at least [i]imply[/i] that inventories should be on the rise?

And if not that, then shouldn't we at least have our normal, seasonal run up of inventory?

Is it the case that a lack of "discretionary" home sales have lead to stable levels of inventory?

Does anyone have any OC-level data that shows something different? Maybe from the MLS?

Any information or insight would be welcome.

Moving On...

Today is my last day with my current employer. With that in mind, I've pulled some of my favorite work-related video clips together for your viewing pleasure. Enjoy.