housing market go boom.
So I've ranted about this before, mainly in my own frustration at the
fact that I make a well-above-median salary and can't reasonably
afford to buy a house, since home prices doubled about three years ago
and have stayed up. I'm watching the subprime meltdown with interest,
not only because (as with the dotcom crash) I'm not surprised and I'm
gratified my financial instincts were right, and it's fascinating to
see it all come to a head in that delightfully non-linear fashion. I
love complex systems: it's what I do for a living, and probably
the only thing I'd go back to school for. Like I'm just now reading
stopped buying our mortgage debt in May: scary, because enough
panic could tip the US into a recession, but I'm also glad to see the
economy re-stabilizing itself.
I was writing a couple of years ago that
perhaps this is just what homes in Northern California cost now, and
they'll stay that way, but since then I've learned more about what
happens to all the bizarro mortgages people have used to buy houses
her, where that money comes from, and where it goes. It turns out that
while your mortgage used to be held by your bank, a mortgage lender is
in the process of handing money out (your mortgage) and getting that
money back as soon as possible, by packaging it as part of a mortgage-backed
security (MBS) and selling it to investors. The security will have
a trustee, who hires a loan servicer to collect your payments and
distribute the profits. That all may be subcontracted and divided
through several layers, so God help you if you're in trouble and need
to adjust the mortgage terms.
So here's the sequence of events. Along with many other people, I've
been assuming this won't affect Bay Area prices, because historically
home values here have stayed strong. However, even the people who have
been here a few decades acknowledge that at no time have prices
doubled in just a few years as they did from 2002-2005, so okay,
maybe this time prices might go down.
So, we'll see. I recommend the daily sets of links on the Housing Crash page for a lot of good
- People who couldn't really afford houses ("subprime borrowers"),
but bought them anyway using crazy financing they couldn't afford and
possibly didn't understand, start defaulting.
- Lenders and MBS investors start losing money, because the MBS
profits came from people's mortgage payments.
- Everyone remembers that lending money carries a risk of
non-repayment, and not only stops buying mortgage debt as investments,
but also resists financing everything else. The New
York Times says "Standard & Poor's counts $35 billion in corporate
loans that have been delayed or canceled, including loans to finance
the leveraged buyout of Chrysler."
[This is the part I'm waiting for in the Bay Area housing market.]
- Lenders tighten lending standards back to something resembling
"we'll only approve the loan if we think you can pay it back". (During
this boom, they haven't cared, because they could just sell the debt
and pocket all the intermediate fees.)
- People making $80,000/year can no longer get financing to buy a
2-bedroom house for $700,000 (the usual price in most of Redwood
- People with tons of money don't want overpriced 2-bedroom houses.
- No one buys 2-bedroom $700,000 houses.
- Prices go down to what buyers (like me) can get financing for
using sane mortgage terms.
- I've taken some time away from most everything else to devote
time to my upcoming aikido test on September 6th. This one is for
first kyu, the rank right below black belt (shodan), and the test
contains almost everything on the shodan test.
- Work has settled down, with no major changes planned for the
future, though I'm back in Anti-Burnout Mode--working at home late
into the morning, rolling into the office around 11am, leaving
sometime before 5.
- On Friday four of us left work to ride up to Alice's for lunch,
when my hapless co-worker dumped her bike. The woman sweeping behind
her likes to photograph her motorcycle adventures, so once it was
determined the victim was conscious and should just lie there until
help arrived, she documented
everything (that's my blue jacket next to the bike, keeping the
sun off a bit). She got a nasty gash on her knee, but is otherwise
I know it's tempting to worry, but there are a lot of important
reasons why this person dumped her bike and not the other three of
us. Crashing is directly related to how you ride.
Beautiful day to stand out in the hills directing traffic, though.
- I think I'm going to take a week off after Chillits in
mid-September. My aikido test will be past, Chillits will be a nice
mellow weekend, and then I think I'll take my motorcycle trip down to
San Luis Obispo.