TODAY'S TOURBUS TOPICS: MORTGAGE MELTDOWN / VISTA RAM

Howdy, y'all, and happy Valentine's Day from deep behind the orange curtain in beautiful Irvine, CA.

Stories from the frontline of the US housing meltdown

In October 2005, KABC television (Los Angeles) consumer reporter Ric Romero reported on a new Internet phenomenon called "blogging." Unfortunately for Romero, blogging wasn't even remotely new in 2005-- BoingBoing [at http://boingboing.net ] launched its blog in 2000 and John Walkenbach launched his J-Walk blog [at http://j-walkblog.com/] in 2002. Thanks to the kind folks at Fark.com, Romero quickly became the Internet's poster child for 'captain obvious,' someone who "[r]eports the obvious, usually long after everyone else knows it's Obvious." [source: http://www.fark.com/farq/farkisms.shtml#Ric_Romero]

Case in point: if I were to don my Ric Romero reporting hat and tell you that there has been a recent downturn in the United States' housing market, you would most likely respond by inviting me to purchase my clues in a higher quality clue store. But if I were to tell you that I think there is more to the housing story than the local Ric Romeros have been reporting, you may be interested enough to keep reading for a few more paragraphs.

A few weeks ago, the CBS news magazine 60 Minutes aired a story on "how the U.S. sub-prime mortgage meltdown, in which risky loans drove a housing boom that went bust, is now roiling capital markets worldwide." You can watch the video online at

http://www.cbsnews.com/sections/i_video/main500251.shtml?id=3756665n

The part of the story that focuses on the Fontinau family [at about the 7:30 mark] is particularly heartbreaking because it vividly depicts the problem at the heart of the sub-prime mortgage market correction: people purchased, or were induced to purchase, houses they can no longer afford.

But jump ahead to 8:40 and you'll see what I consider to be an even scarier problem that the mainstream media, even CBS, seems to miss. The Valdez family purchased a house in Stockton they *could* afford, their mortgage payments increased to a level that the family could *still* afford, but the house is now worth less than the Valdez family owes. The Valdez family is now considering walking away from the house and leaving the bank holding the debt.

I may be misreading the situation here, but the Valdez family's situation doesn't seem to be indicative of a meltdown in the *sub- prime* market. Rather, it hints at a larger problem in the PRIME housing market: people with good credit and prime loans are considering defaulting on their mortgages not because they can no longer afford the payments but rather because they see no benefit in continuing to pay X for a house that is now worth 1/X. You don't need to be an economist (or Ric Romero) to see that that is bad on many different levels.

For a perfect example of a town smack dab in the middle of the combined sub-prime and prime housing meltdowns, look no further than my beloved hometown of Irvine, California--a large, semi-aquatic, mostly plant-eating, African mammal. In July 2007, Slate.com announced that "America's most reckless real estate investors come from Irvine, Calif." You can read Daniel Gross' commentary on Irvine here: http://www.slate.com/id/2171235/.

For even more shocking examples, check out the Irvine Housing Blog at

http://www.irvinehousingblog.com/

which proudly chronicles "the seventh circle of real estate hell." A typical post starts with a 1970's stadium rock song's lyrics, a link to a YouTube video of that song, and then the fun stuff: the real estate listing of an Irvine home or condo followed by some snarky comments explaining how *incredibly* out of whack this listing's price and financial history is. As you read through the irvinehousingblog's posts, you'll see homeowners who used their homes as automatic teller machines, withdrawing hundreds of thousands of dollars each year as the housing bubble expanded. You'll also discover that Irvine sellers (who are often foreclosing lenders) are now frequently losing $100,000 or more on each house sale.

I introduced my wife to the irvinehousingblog recently, and for about an hour or so was treated to her exclamations of "oh, my!" and "no!" as she reacted to the carnage chronicled in the blog's posts. I know that schadenfreude (pleasure from the misfortunes of others) is unbecoming, but I also know that Christine and I are thankful that we don't own a house in Irvine--we rent an apartment instead. Stockton, CA, may be getting everyone's attention, but I think the real story is here in Irvine. Irvine's housing market is horrible, getting horrible-er [I are a college student!] each day, and will ultimately take down several financial institutions (at $100K at pop) before the market bottoms out.

Oh, and for all the kidding I've given Ric Romero in today's post, I should add that he's ten times the journalist I'll ever be.

Windows Vista: how much RAM is enough?

A Tourbus rider recently took me to task for something I said WGN Radio (AM 720, Chicago) last month, noting that

I do however have to differ with you when your talking to a lady who is looking for a laptop for standard use and you recommend Sony and could not agree with you more. On the other hand to tell her she needs 2 gigs minimum 3 gigs recommended is a bit out of line. The big boxes are selling the Sony's right now with Vista Home Premium with 1 gig and for basic use that is fine. You tell her different and next thing she knows shes going to be taken by the Geek Squad for another 200 bucks.

Since the reader did not provide me with a return email address, I thought I'd post my reply here.

As for the Vista Home Premium RAM requirements, 1GB is Microsoft's recommended system requirement (Microsoft, 2006). Many people, including me, believe that that amount of RAM is insufficient. For example, the latest issue of Laptop Magazine recommends that users "can get away with 1GB of RAM when running Vista Basic. If you want to step up to Vista Home Premium and get the most out of its Fancy Aero interface, then you'll want to upgrade to 2GB of RAM..." (Spoonauer, 2008). OEMs like Dell and Samsung agree (Thibodeau, 2007).

My upper limit recommendation of is more 'gut feel' than science. While the cost up upgrading from 1GB to 2GB is between $50 and $150 (Spoonauer, 2008), upgrading to 4GB as recommended last year by an IBM Global Services consultant (Thibodeau, 2007) would cost between $400 and $500 (Spoonauer, 2008). Dusting off my economics degree, I ran a cost/benefit analysis and decided that 3GB was an optimal ceiling.

Of course, I could be completely wrong. Any additional information you can send me on this matter would be gratefully appreciated.

References

Microsoft, Inc. (2006, November 8). Windows Vista Home Premium. http://www.microsoft.com/windows/products/windowsvista/editions/homepremium/default.mspx

Spoonauer, M. (2008, February). Notebook spec cheat sheet. Laptop Magazine, p. 112.

Thibodeau, P. (2007, February 20). Buying a new PC? 'Windows Vista Capable' barely hits the mark - IBM'er says Vista's RAM sweet spot is 4GB. From Computerworld: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=90115

That's it for today. Have a safe and happy week, and we'll talk again soon.

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