The Housing Bubble

most 1988 markets didn’t get even till 97-98 inflation adjusted

According to John Kenneth Galbraith, it takes about 20 years for the memory of the last bust to fade sufficiently, and long enough to “grow” young new specuvesters. However, if the crash is severe enough, memories last longer, and parents may be able to convince some of their kids to stay away from the kool-aid.

I saw the piece. Lareah almost sounded respectable, but I thought that his quote was cut off before he finished it and I’ll bet it continued with “…. However we feel that appreciation will continue at a more modest level, and buyers should be confident that purchasing a home in this market is a great opportunity”. END respectability.

Re: ABC story on housing bubble
My husband and I caught that story. I tell him about what I read on this blog….a lot. Anyway, I had to actually put my hands over my mouth when we heard that she dropped the price $24,000 because I knew I would go into a rant (I still managed to sqeak loudly under those hands). As if a $24,000 reduction would be meaningful at all in the SD market, etc. Hey, you guys know. Anyway, it’s so cool to have read on this blog how the MSM would handle this crash WAY before actually seeing it.

Me too. I am morbidly fascinated with disasters.

Bullshit.

Read Austin Craiglist and check the foreclosures in Travis County.

yikes - an acquaintance that recently moved to Austin is going to ‘try her hand’ in the real estate business flipping houses…i want to advise against it but guess it’s better for her to learn on her own..

Wrong. People in Massachusetts–a top bubble market today–who bought in the late eighties had to wait twelve years for their houses to bounce back in value to what they paid. And that’s only true for nominal prices; adjusted for inflation, the rebound took even longer.

eventually your house will go up in value it just might take 6 years or so.

it depends on the size of the bubble. Look at the Japanese market for example: ten years and counting, no appreciation.

if you bought late 90 then you got in 10-20% off peak

I’ve been here 16 yrs and my house has quadripled in value

So you’ve had the equivalent of 9% per year increase. Not too bad. It gets more complex once you factor in maintenance and repairs, then offset with tax breaks (if any — in many cases your interest won’t be high enough to deduct), and compare with the cost of renting for that time, which probably increased past $550. But being bearish here, let’s see where it goes in two years from now and if you’re still “quadrupled”.

Depending on where you bought, you also might have not even bough tin to a bubble like we have now. When I was in Texas in 1990, houses were dirt cheap and didn’t appreciate for years, but buying then would not have been buying into a bubble like we have now in many places.

BTW - I like the Japanese example. That’s something to think about and compare with our situation today.

Interest rates have been on a downward trajectory for 23 years from 1980 until 2003. Yes, house prices were destined to come back from those “blips”. But value a house in 2003 with 1% short rates (Neg AM for everyone!) and it’s a different starting point. I’ll take the other side of that bet, buying at the peak prices seen in this bubble (in markets that had bubblish appreciation) will not be a break-even proposition in six years. At least you better hope not. If it is Gold will be at $1200 Amero’s/oz

In the long run its ok, but if you’d bought low and sold high you’d have a house PLUS a couple hundred thousand profit. By not being aware of the rise and fall of house prices you lost money you could have easily made.

Question is . . . will your house still be quadruple in value after the coming correction? And how much of an increase in value were you at in, say, 2001 - before the true madness took off?

To offer a flip-side to this, I know stories of people who sold at a loss 10 years after they bought their homes (forget the exact years). So one cannot necessarily put a blanket statement on how long they need to hold their home to see an increase in value.

For sure, real estate is the right thing to do long term. But one should not stretch themselves uncomfortably just to get in the game (IMO) - which is what is being done presently.

This is interesting.

The LA Times has published 2-4 bearish RE stories when Jon Lansner of OCR (rival So Cal paper) is on vacation.

It is nice to see the market working and papers competing to tell the bearish story on RE.

This is a huge admission in a big paper - should be its own post.

how about stub the toe, bump, glitch, charlie horse, bruise…..nah, bump, hit, smack, slap, hammered, smash, crash.

All hat and no cowboy.

“…On Wednesday, US government statisticians reported a further jump in inflation to 4.3 per cent. This was the highest inflation rate reported since 1991 (apart from a one-month blip after Hurricane Katrina). And while politicians in Washington routinely play down this “headline” figure because it is allegedly distorted by rising prices, the argument is wearing thin, not only because the reported figure reflects the cost of living as perceived by consumers, but also because the so-called core or underlying inflation figures are also relentlessly on the rise.

In response to recent increases in core inflation, Federal Reserve officials have started arguing that this core inflation figure, too, is exaggerated by statistical distortions in the calculations of housing costs…” From Anatole Kaletsky
The Times July 21, 2006
You can’t just wish it away: inflation is back on both sides of the Atlantic
http://tinyurl.com/k3jfs

We can always hope on the “new” economy, like google. But then again, Yahoo bombed on their earnings so not all of them are doing enough to help with cap ex…

“For example, June sales were down 24 percent from a year earlier, the 24th consecutive month of year-to-year sales declines. The inventory of homes on the market is hovering around 20,000 – nearly double the number at this time last year.”

“Hovering” makes it sound as though the inventory has reached a permanently high plateau around 20K. The truth of the matter is that greater SD inventory is shown on ziprealty.com at 23,265, which excludes FSBO and Craig’s list, and hence is a low-end estimate. Further, this number has steadily grown from 13,896 on 1/2/06 and the rate of increase shows no sign of slowing.

“to buy a home right now”

Lenders aren’t generally “afraid” of foreclosures in a rising market. They can foreclose the property, take it back if nobody wants it, then oftentimes resell it for a profit. They aren’t afraid of foreclosures if the buyer put 20% down because there is a substantial equity cushion. Lenders are only afraid of foreclosures on loans made at a market top with the market headed south or if there is no equity cushion for them. Those are the only scenarios where lenders face any meaningful risk. Even then, if the lender is adequately capitalized, they can simply hold the property through the downturn, and sell on the next upswing. The problem now is none of the lenders appear to be adequately capitalized and none appear to have made adequate provisions for recourse liability from MBS pools or packages they have made.

The structure of the MBSs is interesting in this respect. Most of the mortgages have been structured so there is an 80% first (with equity cushion) and a 20% second. The second is, of course, the risky loan, since a downturn or any sort of problem will cause a loss on it. The loans get packaged into different MBSs because of the risk differential. So lenders or MBS investors who are in on first trust, low-risk paper have low risk. MBS investors who have high-risk second paper are the ones who will squeal if the market heads south. Most of the losses will be realized there. It will take a market decline of more than 20% to jeopardize the first trust paper.

Boing! Boing!

PPT lift is pretty much on schedule today…

I seriously think it is time for Toll to reverse last year’s split. Who are they trying to kid? There can’t possibly be many folks looking for an $800K garage mahal when word is out that prices are headed down. And nowadays, a few cents off their share price translates into a large percentage loss — more and more like a penny stock.

I look like David Lereah’s evil twin

Someone suggested having regular posters provide a Bio of sorts as to what they do for a living and education history. I thought that would be a good idea buy it never went any where.

I rarely blog clothed.

I wouldn’t want a photo gallery as I often wonder what would happen if people I knew read some of my posts (about the local “look at me” materialism)

How about something we used to do at work. We came up with a tv/movie personality that we thought each of us resembled. That way you’d have a general idea.

Here’s the opposing Las Vegas Business Press viewpoint:

“We just report what we find out, but it was still pretty scary to hear recently that the Federal Deposit Insurance Corporation, the federal agency that has been insuring banks since the Great Depression in the 1930s, doesn’t have ‘the historical data’ to be sure whether Las Vegas house prices are overpriced by as much as 50 percent.”

The full article is here–note that both articles are dated today:

http://www.lvbusinesspress.com/articles/2006/07/21/columnists/col01.txt

From the RJ piece:

“Prices have to continue to rise,” Bottfeld said.”

They HAVE TO! Does this sound like desperation to anyone other than me?

I have noticed fewer bids on Ebay and more items not selling. I have an old Honda 305 Dream on Craigslist that has had no inquiries.