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San Diego existing single family home prices in June dropped 24.2 percent from a year earlier, according to the Standard & Poor's/Case-Shiller Home Price Indices, revealed this morning (Aug. 26). San Diego was 5th worst among the 20 largest metro areas in yearly decline. The worst was Las Vegas with a 28.6 percent drop, followed by Miami (minus 28.3%), Phoenix (-27.9%), Los Angeles (-25.3%) and San Diego. Overall, the composite of the 20 largest cities was down 15.9 percent for the 12 months. Prices in none of the 20 metro areas were up. San Diego prices peaked in November of 2005. The index is now down 29.94 percent from that peak or, rounded off, 30 percent.

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There's other problems brewing. My parents friend is in her 80's and foolishly took out a $300,000 loan on her house so her daughter could buy some homes in Las Vegas on speculation. Well now the 3 Las Vegas homes and in forclosure and the daughter is not paying the loan payments on her mothers home. When the 300K loan was taken out, the home had an appraised valuation of $500K but now is valued at $275K, or $25,000 less than the HELOC. So the $300,000 is lost and her mother is going to be homeless soon.

Another person my mother knows of took a loan out on his home to by some rental property - hoping to make enough excess cash flow to fix up his primary residence. Well the rental property is in foreclosure and the primary home he has lived in for 35 years in going into default with no possible way to repay the loans.

We have seen the fallout from some of this mess in the form of massive foreclosures, but I have a feeling we are going to start hearing stories like I described where elderly people are going to be forced out of their long-time homes because they or their family speculated and time is running out.

Sadly the people going in and buying up homes now are not just getting homes that young people lost for getting in over their heads, but older people that were convinced (or conned) into making very bad decisons with their home equity.

Aug. 26, 2008

Foolish specualtion, driven by low interest and weak lending and underwriting standards- And Alan "Mr. Buble" Greenspan.

Don, I said 30% was going to be the floor and end of the price drop, you said it will fall more-we are going to find out who is right in the next 6 months.

I actually think you have the edge right now.

If the economy tanks more-or we have another round of job losses-you will be the winner.

Aug. 26, 2008

Response to post #1: These are horror stories -- debt snowballs. The problem goes deeper than such disasters piling up. For decades, most economists, academics, and government officials urged Americans to go deeply into debt to consume. This is because consumption was becoming more than 70 percent of the economy. The powers-that-be have been encouraging debt-financed consumption at any cost. And now those costs, in the form of catastrophes such as you cite, are coming home to roost. And our leaders are not acknowledging what they were telling people all those years. Best, Don Bauder

Aug. 26, 2008

Response to post #2: On Bloomberg TV today, economist A. Gary Shilling -- who warned about excessive debt for years -- said that he didn't think U.S. home prices would stop receding until late 2010. But he said the recession wouldn't last that long. Best, Don Bauder

Aug. 26, 2008

I always thought there would be two gauges to predict the bottom of the housing market: one objective and the other subjective.

The objective bottom will be when house prices have dropped sufficiently so that, as a landlord with a moderate down payment, the rental amount would cover your monthly mortgage, property tax, HOA fees etc.

The subjective criteria is more straightforward - it's when everyone you meet says: "You can't make any money investing in real estate!"

By either criteria, housing prices are still too high in San Diego, and nationwide.

Aug. 27, 2008

Response to post #5: Agreed, housing prices are still too high in San Diego and in the U.S. It's possible they won't bottom until 2010. As long as they continue to decline, the credit crisis will worsen. And keep two things in mind: commercial real estate is next. For Wall Street, credit card woes also await. They have been securitized, too. Best, Don Bauder

Aug. 28, 2008

It's a strange world we live in, when bonds are the most 'exciting' financial instruments there are. I long for the good ol' days, before the smartest guys in the (financial) room hijacked us.

Given that credit card borrowing is the debt of last resort for most people, is it true that the overall bank exposure might be greater than that of subprime loans, should unemployment and the recession get worse?

Aug. 28, 2008

Must read article at www.reason.com

http://www.reason.com/news/show/128336.html

Official policy and structures that led to the current situation, rather than economic cycles.

Instead of changing these policies and structures, the Treasury is shoring them up. A recipe for making a bad problem worse...

Best,

Fred

Aug. 29, 2008

Response to post #7: That's possible. Best, Don Bauder

Aug. 28, 2008

Response to post #9: The trouble with this article, in my judgment, is that the writer is lamenting the moral hazard that results from bailing out mortgagees. But what about the moral hazard involved in bailing out Wall Street by letting JP Morgan Chase take over Bear Stearns at a lowball price? Saving Wall Street has cost the government and federal reserve far more than has saving people who took out unwise mortgages. Best, Don Bauder

Aug. 30, 2008

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