The Housing Bubble

These topics will run through Monday. One we’ll have up all weekend is a predictions thread. Here are some from last weeks topic suggestions:

‘

How about predictions of what next year brings? 2007
My predictions

1) recession
2) home prices down 20%
3) FED easing mid year
4) dollar down 10%-20% against EURO
5) Stock market down 20%’

‘

1) Soft Landing
2) Home Prices down 20%
3) Fed easing mid year
4) Dollar flat, Oil up
5) US Equities up 20%

Fed easing = up market’

‘Hah! Anything as widely anticipated as helicopter drops at the first sign of weakness is already priced in, and hence will not be a factor.’

‘Micheal Jackson becomes pregnant in Dubai’

Prediction:

China will blockade or Invade Taiwan, The US and other countries will threaten or start a war, China dumps hundreds of billions in Bonds crashing the market 40-50%.

In a fit of desperation because the unemployment rate jumps to 10% in 2 months, the US allows China to buy American companies repatriating our money. So China winds oup owning 51% of Microsot and GE at $10 a share, owns IBM Exxon, Citibank, and then Buys Ford and GM, gets rid of the UAW, and shocks everyone by announcing NO plants will close in America and auto worker will all keep their jobs, abit at 1/2 of union wages..And the cars will be shipped back to China.

They will start drilling in the Anwar and find tons of oil….unemployment drops to 2% by year end the marker rallies fro 7500 back to 12500

But the big shocker is they find the biggest oil field in the world in the Mekong Delta in Vietnam hinting that Pres. Johnson knew about this and send troops to protect the fileds but it got out of hand and turned in to a war instead.

I would love to see a discussion of what jobs and fields will be under pressure when all of these “real estate experts” head back into the workplace. There are 1.3 million realtors in the U.S. right now. I expect that number to be cut in half. They have to try to earn a buck doing something (tricks, maybe?).

It doesn’t scare me because none of them seem to have any real skills. Any that did have skills have now been removed from their fields and will have to basically start over. What kind of pressure will this put on such soft fields as wedding planners, closet organizers and professional matchmakers?

I predict a major crackdown on blogsters attempting to torpedo housing values. Violence escalating against anyone remotely anti-housing market. Labeling you a communist or somehow unAmerican if you don’t own a house.

I predict that when all is said and done, however, homeowners will get a repreive from the gov’t in some sort of “chump change”, payable by taxpayers of course. S&L scandal all over again.

1) Yield curve curve inversion reversed, long bond at 7%
2) Housing debacle deepens as desperate traders cling to 2005 pricing
3) Investigation into bush admin reveals criminal conduct

The realtors will be just fine. Walmart, used cars, fast food, snake oil sales… Plenty of work out there.

Ben, down 20% ? Not according to a local realtor, the guy is mailing this info to fence sitters. Hear that Youngstown, Akron, and Cleveland, you’re doing fine, leading the midwest, nothing to worry about. Buy today or forever be priced out of Youngstown. fortune

predictions:

1. 2M homes in forclosure
2. Home sales down 20%
3. median prices down 6%
4. SD, Sacramento, Phoenix, SW & SE Florida prices down 15%
5. GDP 2007 in at 0.2%
6. La Palma Volcano erupts in Canary Islands–30m Tsunami strikes East Coast— prices then down 60%, GDP -9.4%

How about a trip down memory lane to show how waiting to buy is the most prudent move?

I remember looking at a property in 1990 for sale at $205K, with 20% down and 11% interest the payments were $1900 (similiar rental $950). In late 1993 that place was again for sale for $168K, but interest had dropped to 6.125% and with the same $42K down rent vs. buy was about equal, actually was BETTER to own because of tax deduction.

1. Countrywide, Option One and Ameriquest go bankrupt. What happens to a mortgage when no one wants it at any price? Fannie Mae attempts to turn in a Long John Silver’s placemat as a financial statement, they get another extension and a stern warning that they will be delisted.
2. America is by late 2007 incredibly concerned with the Olympics. They are in China in 2008. Not since the Soviet Union has America ‘needed’ some decathlete from Sioux Falls to beat someone in a red uniform. Trust me ratings are going to be off the charts high.
3. There will be a hallmark movie about a 62 year old whose pension, stocks and house all plummetted and he has to head back to Burger King and eventually works their way up to Manager. America will be unsure whether this is uplifting.

In 2007:
1. The USA will sink into a recession. Unemployment will creep up.
2. Iran perfects its intermediate range missile launch capability and former Iranians defecting to the West claim Iran has the ability to use nuclear weapons technology (mid-summer 2007).
3. Gold finishes 2007 above $700 per ounce. Oil at $80 per barrel.
4. Median house prices down nationwide 7%. In Phoenix down 10%.
5. Dow Industrials finish 2007 at 10,000. EAFE up 7%

1. America officially enters recession in mid-2007 (it’s probably already begun). Personally, I don’t see it as being on the order of a depression, but it could well be the worst recession since the early ’80s.

2. Housing prices continue a slow slide downward with no end in sight by year’s end. The overall percentage drop may not appear to be that high, but the real drop will be masked somewhat by the fact that buyers will be getting much more house for the same amount of money as compared to 2005. The McMansion market will be an unheralded bloodbath, and lots of condo projects will never be finished.

3. Foreclosures will surge, but the inherent non-liquidity of real estate will make this too much of a slow-motion event for the media to latch onto it as heavily as they should. Until the damage is fully done, that is, which probably will not be in 2007.

4. I will magically become younger and better-looking in 2007.

ben my suggestion is the effect these latest rash of articles and news reports by the msm will have on the sheepie
the ones on cnbc and the ny papers touting a rise in sales and the bottom of the market arriving
will it lead to more fb’s taking the plunge this spring? and extending this period of of unaffordable home prices

We either deflate or inflate and inflation is the cowardly way to go about it and I view us as being that, and then some, financially, so it’s a good fit.

The key is whether we lurch into hyper inflation, or not. Should we follow the example of perhaps a hundred countries that did precisely this, in the 20th century, we are toast.

Many on here think it seems like 1938, but it feels more like 1917 to me.
Imagine asking a British person in 1913, if their government would be broke, in less than 5 years time. Who would have ever believed it?

MLB salary bubble- Zito gets 126 mil for 7 years, wtf????

A question for the panel: Why would you buy real estate? Not when, or at what price, but why would you buy? Is it still the American dream? Do you have an irresistable urge to paint the walls, or for a yard? Give me your tired, your poor, your reasons for signing a (30-year?) mortgage.

To anyone who claims housing is currently unaffordable, here is an incredible deal: A Colonial McMansion for only $15,000! Did I forget to mention the square footage?

http://online.wsj.com/public/article/SB116735855289762108-FxABKVGaWIpPg6M2cQE5_jfQ0Ts_20070105.html?mod=mktw

What are you doing in preparation for after the housing bubble pops?

Besides saving I am building a map and spreadsheets of homes in a couple of old (1920s) home areas (Orange/Fullerton/Anaheim) in Orange County CA. These are the homes I would like to own, modest in size. I look for homes in these areas that have been sold after 2003, then I go an look at all the docs at the county records, track tax payments, photo the house and cars usually at the house. I also have access to one of the online background checks, so I run the persons name and google the person also. I look at the condition of the house, yards and cars; someone said a persons financial sitrep could be studied from observing the outside of their home. I have already tracked several homes that refi’d and a new Volvo station wagon or BMW appeared outside, or a flurry of home improvement that stops half finished then picks up again after a HELOC goes through again, and some that look like they are coming into foreclosure.

I don’t expect to buy these homes but I will buy one in one of the areas. We sold in Summer 2005 in one of these communities so I know them prettty well. My wife think the “Home Dead Pool” is pretty morbid, but telling and doesn’t like that I track “friends/aquaintences” of ours homes as gauge pole.

Predictions:
Fed raises interest rates
Nasdaq falls
Housing prices decline
In 2008, local gov’ts cut spending due to erosion of tax base
Crime increases
Ethnic violence escalates

I would like to see a discussion of the “bitter renter” meme. I see a lot of sactimonious FB’s who think bubble blogs are populated with nothing but bitter renters who are angry because they missed the huge runup in home prices.

In my opnion, they fail to realize we genuinely do not envy their suite on the Titanic. Some of this sactimony is a defensive reaction to their GF and FB status, but some of it is an authentic belief on their part that prices really will go up forever and that we “bitter renters” are jealous of their upcoming riches.

2006 list of why it’s different
1. in 1986 tax laws cooled RE down some- not this time
2. under Regan you had hard money and low inflation- this time money’s free
3. in the 80’s we were 40 years from the SS medicscare brick wall - this time you can see it,so debt matters

“A condo in Florida” (or miami or naples etc.) will be used in multiple sitcoms as a punchline.

How about your equity locust story?

Here’s something to chew on:

Five Things You Need to Know: Five Themes You Need to Know for 2007
Kevin Depew
Dec 29, 2006 11:08 am
What you need to know (and what it means)!
Minyanville’s daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. U.S. Dollar

In 2007 the U.S. dollar will rise.

C’mon. It just can’t happen. The dollar is doomed. Everyone knows this, right?
Well, one would think that we would know this because we see and hear it every day; in the financial media, in analyst reports, and because even as the Federal Reserve claims to be “fighting inflation,” money supply growth has actually been accelerating over the past three months.
The rapid stimulation since August that has been able to maintain M2 growth near 5%.
So what bizarre factors might interact to cause a rise in the U.S. dollar in 2007?
We essentially see two potential paths toward a higher dollar this year.
One, and least unlikely, monetary expansion by the Fed actually does begin to tighten and the dollar rises.
Two, and more likely, economic activity in the U.S. slows, imports slow and exports rise as U.S. consumers cut back, the dollar rises and the trade deficit declines.
Why would this benefit the dollar? See Theme Number Two…

2. Personal Savings

The Personal Savings Rate will rise in 2007.

Americans have been spending more than they have been saving for 20 consecutive months.
This unsustainable behavior will likely change in 2007; rapidly if the economy slows more than expected due to housing.
For most Americans housing has been the source of liquidity necessary to consume.
As access to mortgage markets diminishes, consumption will necessarily decline.
Unlike the Federal government, consumers cannot simply maintain consumption by borrowing forever.
Eventually, someone calls in that debt, or servicing it becomes too burdensome.
Importantly, debt service is as much psychological as material. In other words, consumers must not necessarily “go the brink” financially before cutting back.
So, somewhat paradoxically, heavy debt loads in an expanding economy can seem less problematic than lighter debt loads in a slowing economy.
We are beginning already to see signs of a shift in consumer sentiment toward debt loads.
Just as condo flipping and real estate speculation, fine living and “how to spend it” shows, flooded television networks over the past five years, now we are seeing a sentiment shift toward debt.
The latest reality show? “Maxed Out.”
- In each episode of Maxed Out, finance coach Ayse Hogan gets to the root of what is causing one woman’s unhealthy relationship with money. Observing the subject’s behavior and putting her on a strict budget, Hogan helps the cash-stressed gal by demonstrating the basic tenets of wealth-building: debt reduction, savings and investment.
A larger pool of national savings would reduce demand for foreign capital because we’re not buying as many imported goods.
With less foreign capital flowing into the country, the gap between what we buy from abroad and what we sell would shrink. In other words, the trade deficit would diminish.
And this leads us to Theme Number Three…

3. Protectionism

Expect Protectionist policies to worm their way to the top in Washington.

Remember the trade deficit, the one that will likely diminish as a natural result of higher savings and lower consumption in the U.S.?
Well, far be it from Washington to allow nature to take its course.
One of the key things to understand about the trade deficit is it has very little to do with “trade policy.”
The trade deficit is actually determined by the flow of investment funds in and out of the country.
Meanwhile, we’re not even out of 2006 and protectionist talk from Washington is rampant.
And just a few weeks ago Caterpillar (CAT) CEO Jim Owens warned that international trade “has become a bad word” as a result of a “pronounced shift toward protectionism” in the U.S.
Sure, trade policies such as “emergency tariffs” is one way to reduce the U.S. traded deficit, but fewer imports would fewer dollars flowing into international currency markets, which means (back to Theme Number One) increasing the value of the dollar relative to other currencies.
But wait, wouldn’t that make imports more attractive to Americans? It would make imports less expensive for U.S. consumers, but as far as attractive… well, that leads us to Theme Number Four…

4. Deflation

Look for deflation to become a key theme by the end of the year in 2007.

Deflation gets a bad rap. And we’ve actually experienced structural deflation for nearly a decade. So what are we so worried about?
Because right now the consensus (at least as shown by the increase in asset prices) is that this we continue to live in a world with benign, supply-driven deflation, not the collapse in aggregate demand that Fed policymakers fear so deeply, and which is most often associated with the word “deflation.”
The view least shared by market participants is that the structural deflationary environment we are in, and during which a bout of cyclical inflation has already peaked, is poised to suffer from a collapse in aggregate demand.
Of course, just as no one predicted how far consumers would really go during their 25-year consumption binge, we’re going to go out on a limb and suggest no one is now accurately predicting how far consumers will go in the opposite direction, which leads us to Theme Number Five…

5. A Tale of Two Standards of Living

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity,” wrote Charles Dickens in “A Tale of Two Cities.” Man, is it just me or does that sentence resonate loudly today?

Well, if it’s not just me then that’s too bad.
The plot of Dickens’s novel centers around the years leading up to the French Revolution.
The material (as opposed to socionomic) origins of the French Revolution were rooted in fiscal crisis… as are nearly all revolutions.
High unemployment, low wages and sharp divisions between classes, from the Clergy (First Estate) to the Nobility (Second Estate) and the middle class and peasants (Third Estate) were all factors in the social unrest that exploded on Bastille Day, considered the beginning of the French Revolution.
Are we on the verge of our own “French Revolution”? Not hardly, and that’s beside the point.
Rather, the theme we are focused on here is that we are operating under economic conditions that are in a relative sense quite similar to those leading up to the French Revolution.
Keep in mind that what is important here is that the economic disparity between haves and have notes is growing in a relative sense.
Just about everyone’s standard of living now is better than it was in 1789. But economic disparity is not about absolute conditions. It is about relative conditions.
As we enter 2007, it is worth considering the economic results of popular movements toward a reduction in economic disparity.
Whether one believes such movements are worthwhile or justified is also beside the point.
What is important is that such movements can produce important and dramatic economic changes, and it’s always better to be ahead of economic changes than behind them.

Does ziprealty.com use some kind of elephant-hiding rug to conceal true inventory? Why do I suspect such a thing?

1) Media reports (esp. on this blog) about high inventories leading to lower future prices tend to scare off would-be buyers who don’t want to try and catch a falling knife.

2) Despite the drop in SD ziprealty inventory to a level of 17,316 as of today, I see no listings dated more recently than 12/27/06, suggesting no new listings yesterday or today. (Note this figure still exceeds last year’s seasonal nadir of 13,896 on 2/1/06 by 3,320 = 24%).

3) Curiously, there are 129 listings dated 12/27/06 (flagged as “New on the Market”) plus at least 71 listings which appeared on 12/26/06 (not “New on the Market”, and I don’t know how to count how many actually showed up on 12/26/06, which requires displaying over 200 listings) — which is over a 1% turnover in two days.

Does this seem normal for late December? I thought everyone had taken their homes off the market until after the Souper Bowl.

Throughout the 90’s I’d always hear that when Hong Kong would become part of China, real estate in the U.S. would skyrocket due to people fleeing Hong Kong. This never really happened and I’m now wondering if this had been fanned by the RE industry.

Anyway, what do you think they’ll cook up next as the reason we all better buy soon?

Weekend Topic Idea: What Else Can (and Will) Go Wrong?

Housing isn’t the only bubble ready to burst, and any one of these other bubbles can wreck the U.S. economy. Unfortunately, once one goes all the rest will immediately follow, hence the inevitable depression.

Name your bubble!

Now that euro might have already overtaken dollar in terms of the value of circulation, how high will inflation go if most foreign sellers start to demand euro for their goods?

Is it the first time since WWII that the dollar loses that first place?

Financial times: Euro notes cash in to overtake dollar
”
By Ralph Atkins in Frankfurt
Published: December 27 2006 22:07 | Last updated: December 27 2006 22:07
The US dollar bill’s standing as the world’s favourite form of cash is being usurped by the five-year-old euro.

The figures highlight the remarkable growth in euro notes since their launch on January 1 2002, three years after the start of Europe’s monetary union, which in January welcomes its 13th member – Slovenia, the former Yugoslav republic.”

Ever check out the SD county assessor’s web site? There is some great price data out there. For instance, here are a bunch of recently-built condos in the same 92127 condo development (in other words, very similar in terms of the property description) which sold since May 2005:

ADDRESS PRICE PARCEL NUMBER SALES DATE
16908 ABUNDANTE ST $605,000 678 512 15 00 05-06-2005
16953 ABUNDANTE ST $650,000 678 512 01 00 06-01-2005
16863 ABUNDANTE ST $655,000 678 513 03 00 06-06-2005
16972 ABUNDANTE ST $618,000 678 512 43 00 06-15-2005
16964 ABUNDANTE ST $600,000 678 512 41 00 10-07-2005
16884 ABUNDANTE ST $590,000 678 512 13 00 11-28-2005
16806 ABUNDANTE ST $575,000 678 513 13 00 12-08-2005
16812 ABUNDANTE ST $550,000 678 513 14 00 02-23-2006
16809 ABUNDANTE ST $540,000 678 513 12 00 04-26-2006
16963 ABUNDANTE ST $558,000 678 512 59 00 08-28-2006

And now we see an identical unit show up on the market this week listed at $489,000, which is apparently $655K-$489K = $166,000 (25%) off the peak sale price in June 2005.

Here is the fire sale blurb:

“Motivated!!! Seller.This property is below the new market value.Bring all offers.”

The new price in SD 92127 = $230-$235 / sq ft.

Examples:

$369,900 for 4/3 1,578 sq ft (listed on 10/24/06, bank owned) = $234 / sq ft

$750K for 3200 sq ft (new!) McMansion = $234 / sq ft
(4 or 5 brs? — I forgot)

$489K for 2112 sq ft (slightly used) 4 br condo = $232 / sq ft

These are for homes that are priced to sell quickly, which means they will soon be the new comps — deal with it, owners!

Of course if you require a snob premium, you can still find faux chateaus in the 3 br size over in nearby Santaluz listed at $1.5 million.