Scam Diego

Local Home Values Down 37.9% from Peak

Don Bauder, December 29, 2009

San Diego home values are now down 37.9% from the peak of November, 2005, according to data from Standard & Poor's/Case-Shiller that came out this morning (Dec. 29). The improvement in home values is slowing down in San Diego, as it is in other metro areas. Local prices rose from September to October by 0.4%. However, they had risen by 0.9% from August to September. San Diego prices are down 2.4% for the year. That's better than the drop of 7.3% for the 20 major metropolitan areas. The worst performer nationwide is Las Vegas, down 28.6% this year. "All in all, [the October] report should be described as flat," says David Blitzer, economist for S&P. "The turnaround in home prices seen in the spring and summer has faded." But it's too soon to say that home values will take a second dip, he says.

a2zresource Dec. 29, 10:51 a.m.

Apparently, San Diego was one of only 7 cities in the 20-city survey to see home values rise in November, compared to 19 of 20 only two months earlier (http://online.wsj.com/article/BT-CO-20091229-705245.html).

I'll go out on a limb and say that there might be a fall in San Diego home prices in February, a month or so after credit card invoices are mailed out that account for holiday shopping... as if I know anything about real estate!

valueinvestingisdead Dec. 29, 12:01 p.m.

The ALT-A loans are about to start hitting the market and will hit San Diego hard as will the fact that banks have held onto many foreclosures until after the 1st of the year hoping to wring more value out of them. Oceanside has already been clobbered. Carlsbad and Encinitas are next. If you see the number of ALT-A loans those two cities have, you would be shocked. The low interest rates have helped it from being a complete disaster but time is ticking.

Watch the 60 minutes story on ALT-A loans. You can access it via the CBS website.

dbauder Dec. 29, 6:56 p.m.

Response to post #1: A lot of people expect home prices to renew falling again. They cite foreclosures most of all. But the fall could come as early as February. Best, Don Bauder

dbauder Dec. 29, 8:27 p.m.

Response to post #2: Those loans are a problem throughout the U.S. San Diego could get hit hard. And the banks have not recovered, as the administration keeps asserting. Best, Don Bauder

SanDiegoParrothead Dec. 30, 11:53 a.m.

What are ATL-A loans?

Ponzi Dec. 30, 1:27 p.m.

ALT-A are the so-called "liar loans", "no-doc" loans. Don't have to document income or assets, just have a good credit score. But many people using those loans were shoe-horned into packages they can't barely make the payments on and for the people with ARM loans that will begin resetting (raising the interest rate) it will squeeze them to the point where they can't afford to pay. So there's another foreclosure wave lurking.

dbauder Dec. 30, 1:34 p.m.

Response to post #5: ALT-A loans are sometimes called "liar loans," although that is a bit of an oversimplification. The borrower gets the loan with little or no verification of income through traditional employment. The loan is granted because the borrower has a good credit score. These loans are ticking time bombs. Best, Don Bauder

dbauder Dec. 30, 1:37 p.m.

Response to post #6: Yes, there have been many abuses in ALT-A loans, as you describe. These mortgages are also called "alternative documentation" loans. They have actually been around awhile, but really got hot when housing prices went crazy in the 2004-2006 period. Best, Don Bauder

a2zresource Dec. 30, 7:58 p.m.

I personally feel fairly rotten from the inside out about it all.

As an English and math tutor for decades at City College as well as a student body president, I was doing my level best to convince younger students than I (many of them minority, more than a few of the same nationalities that people are now discussing as up for racial profiling after the Christmas airline bombing attempt) that getting a useful education, joining the labor market, and doing the ordinary things like buying a home were the right things to do.

I know that among my alumni friends and former clients around 2005, most of them were well employed but scared s***less that they'd never afford to ever buy a home in San Diego county unless they had millionaire relatives. As first-generation college students, there was no real chance of that.

The people I know who got suckered into ARM financing with little or no documentation were working people with decent middle class jobs. Some of them went into foreclosure early in 2008 as things were beginning to crumble, but more foreclosed as their jobs simply disappeared...

For them as they were still getting their educations as college students, I tried to do good but misunderstood: none of us has the power of a Wall Street Master of the Universe who happens to be deficient in the mathematics of statistical probabilities relating to derivatives and credit default swaps, financial things that the Masters were assured would never go bad but did in the Crash of 2008.

There's a reason that a certain mathematical sub-field is called Catastrophe Theory.

http://www.worldcat.org/search?q=catastrophe+theory

SurfPuppy619 Dec. 30, 9:19 p.m.

There's a reason that a certain mathematical sub-field is called Catastrophe Theory.

I thought it was the Chaos Theory????

dbauder Dec. 30, 10:11 p.m.

Response to post #9: One of the most discouraging aspects of this is that prosecutors aren't going after the little crooks that sold the totally inappropriate mortgages to the naive, and definitely not going after the big crooks who peddled the housing-based derivatives, leading the world's economies to the brink, and actually got rewarded for their thievery. Best, Don Bauder

dbauder Dec. 30, 10:14 p.m.

Response to post #10: Catastrophe theory tries to build a mathematical model that describes how huge, negative events occur in a variety of fields. Chaos theory tries to describe how minimalist events can lead to huge, unanticipated events. Both theories deal with randomness. Best, Don Bauder

a2zresource Dec. 30, 11:38 p.m.

... and going a little deeper about that math theory stuff goes directly to the level of education that most business majors get before graduating.

Business majors take a semester or two of what us math tutors called "baby calc", which deliberately skips the trigonometry and pre-calculus courses that science major calculus students have to take. Sure, the business students get the flavor of derivatives as measures of change, but without the extra year of trig & pre-calc, the typical business student is generally incapable of thinking about anything that can't be visually expressed in 2D or maybe 3D. Empirically, it was merely mathematical ignorance exhibited by Wall Street to take exotic financial products of extremely limited utility and turn them into everyday items used by everyone for every purpose. As Barbarella might've said it in "Pinky Swear" as an example, "Otnay ootay ightbray."

I was just warned tonight that there are dimwits out there now trying to create new species of derivatives based on insurance contracts, as if getting a legitimate claim paid wasn't difficult enough already. Imagine bailed-out AIG going negative... That could be chaotic AND catastrophic.

SurfPuppy619 Dec. 31, 7:25 a.m.

I was just warned tonight that there are dimwits out there now trying to create new species of derivatives based on insurance contracts

And why shouldn't WALL STREET try to create this new insurance scam-it worked fine for them last year. They will just be bailed out once again, when they scortch the Earth financially and there is nothing left to scortch. This state is even following their lead since it worked so well for the Street. You see Arnold running hat in hand to Obama for a bailout-but has not even tried to fix the structural problem that caused it, pay and benefits of gov employees.

Bailing out the ones who caused this mess-Wall Street- has to be one of the most boneheaded moves-if not THEE boneheaded move- in American financial history.

dbauder Dec. 31, 7:38 a.m.

Response to post #13: The mathematical models used for derivatives were basically for fraud purposes, in my judgment. I have always said that the essence of financial fraud is contrived complexity. A mathematical formula for a derivative, going on for 30 pages, is just contrived complexity. Best, Don Bauder

dbauder Dec. 31, 7:40 a.m.

Response to post #14: Good point. If the Wall Street cozeners got away with the mortgage-based and credit card-based derivatives, why not try another fleecing mechanism? Best, Don Bauder

a2zresource Dec. 31, 1:53 p.m.

RE #15:

"...the essence of financial fraud is contrived complexity."

I like it: simply stated, logically complete, and empirically tested. From now on in my book, this is now Bauder's Axiom of Fraudulent Complexity, under the more general umbrella of Bauderian Politico-Economic Theory.

Happy New Year!

dbauder Dec. 31, 4:20 p.m.

Response to post #17: I would be honored to be in your book. Best, Don Bauder

SurfPuppy619 Jan. 1, 9:11 a.m.

Hey, it is 2010.

Happy new year to everyone.

Lets make this year the year we all get this cities problems fixed.

dbauder Jan. 1, 9:54 a.m.

Response to post #19: A day or so ago you were lamenting that both the state and San Diego were bankrupt. What did you drink last night? Best, Don Bauder

paul Jan. 1, 6:57 p.m.

SurfPup said: "Happy new year to everyone.

Lets make this year the year we all get this cities problems fixed."

I see you are embracing recycling for the new year, by reusing the resolution from last year ...... and unfortunately .......

from the year before that, and from the year before that, and from the year before that, ad nauseum.

SurfPuppy619 Jan. 1, 8:19 p.m.

No-this was a FIRST!

But I see you're not one who is into fixing the cities problems, doesn't surprise me! (ad nauseum)

dbauder Jan. 1, 8:39 p.m.

Response to post #21: It's called kicking the can down the road. It's also called kicking the bucket in painfully slow stages. Best, Don Bauder

dbauder Jan. 1, 8:42 p.m.

Response to post #22: Reagan said, "If it ain't broke, don't fix it." Sanders says, "If it's broke, don't fix it." Best, Don Bauder

paul Jan. 1, 8:46 p.m.

SP said: "But I see you're not one who is into fixing the cities problems, doesn't surprise me! (ad nauseum)"

?????

What gave you that impression?

If it was up to me, I would have the city's budget problems solved tomorrow.

dbauder Jan. 2, 8:11 a.m.

Response to post #25: I was surprised, too, that SP said you weren't interested in solving the city's problems. Best, Don Bauder

Visduh Jan. 2, 10:46 a.m.

Don, the person I remember as having made the line "If it ain't broke, don't fix it" popular was Bert Lance. He was a Georgian who was Carter's head of the Office of Management and Budget. He was also dogged by scandals, and served in the administration only briefly. That advice was typical "good ol' Southern boy" talk.