The Housing Bubble

Dont worry, commercial will bail all of us out. That, and strong retail…

Please explain to us what your point is….

There is a basic cost for housing and the DFW area is an affordable area to live based on housing costs and a diverse economy.

These are the reasons why we moved from San Diego to DFW 2 years ago.

I believe the point that txchick is trying to make - and it is a valid point - that the “economy” has very little to do with what is about to happen. I live in a rented home in Valley Ranch. It is about 2 years old - and is already falling apart - with an estimate last week of 70,000 damage. My landlord informed me last week that he is going into bankruptcy - and taking his 12 Valley Ranch homes into foreclosure. — My reward - I get to live there rent free until the bank shows up - bfd.

There are many many neighbours here - who have Lexuses Hummers etc - and live in these homes - who cannot possibly afford them. They are in the 250-500K range. A random discussion at the last neighborhood meeting revealed to me that of the few neighbors that I have left - ALL - EVERY SINGLE ONE of THEM is 100% financed in houses that are beginning to lose their value dramatically. New foreclosures are popping up every month - and my street in Valley Ranch has 12 homes - EIGHT of them now are in some type of bankruptcy, foreclosure, pre-foreclosure. I have had neighbors talk to me about leaving the keys behind. I moved here 15 months ago - and there is NOT A SINGLE NEIGHBOR who is the same. Many of the houses sit empty - while the builders are tearing up fields and fields adjacent to the properties to build new 500,000 McMansions. Meanwhile, there have been 10 properties in my neighborhood - not on the street - with FOR SALE signs out in front since the day I moved here. The only thing that changes is the realty company on the signs every 3 months.

Yeah - this is a thriving market. One drive through Frisco, Little Elm, Allen or McKinney - reveals that things are equally thriving in those locations as well.

I was in Texas in the late 1990’s when the mortgage and banking industry put on the big advertisement show to get the voters to allow people to take out 2nd mortgages on their homes - that is right - equity loans were illegal in TX until about 10 years ago. There has been an absolute bonanza in these loans - and the banks I am sure have made millions. I do foresee the day that the citizens of Texas are going to rue the day they ever voted for this insanity.

This is being brought on by people getting in debt way too far. This “no-bubble” bubble in Dallas has already savaged the lives of many people around me. I am a medical doctor - and you should hear the stories of what stupid ass doctors have done with their finances - many of these people have more money than brains. That I am afraid is a problem that will correct itself very soon indeed. And we are just beginning. What is really fun are the neighborhood association meetings here in my Valley Ranch neighborhood - we in the past several months have not been talking about the usual neighborhood things - rather - we talk about how to identify meth production facilities in the foreclosed homes - how are we going to force the banks to pay for the HOA dues in their foreclosed houses so the rest of us do not get a 200% increase in HOA dues.

Yeah - this is a thriving market.

Wake up people - and quit drinking the Kool-Aid - the day of reckoning is on the way.

TXCHICK - Keep on commenting -

Sorry about the rant folks - just am not believing the people in Dallas who have their heads in the sand.

“Sorry about the rant folks…

Doc, thanks for your candor!

Dagan,

thanks for the info.

dagen68,

I was focusing on the $100,000 to $200,000 home market. That is the most affordable section of the market.

I never knew Valley Ranch was turning into such an Arm pit. I hope it improves - but DFW is still much more affordable then CA or Florida and that is what I was addressing.

imo you’re wrong dallss,houtson, austin may go down,but nothing like boston or phx
they have 15% in the bag already

Hey TxChick,
You know you are on the right track when you start to hear the screaming.

I don’t think anyone has any idea of how bad this could be.

For historical purposes, I read of one area where condos lost 90% of their value somewhere in the Rust belt after the industry jobs started to go away.

It’s entirely possible there could be pockets of massive depreciation and I don’t think it will necessarily be tied to any one location.

Paladin,

I applaud what you are doing and you are correct in all of your points. However, nothing will happen to most of the conspirators in this thing - that includes those at FNMA, FHLMC and the Fed Reserve who were implicit in this easy money thing. Their lack of due diligence amounts to nothing less than gross negligence, and possibly fraud. But when rich guys can donate money to both policital parties and then promptly be named as ambassadors so they can funnel IMF/US/World Bank money there and get under the table kickbacks, I think the game is rigged.

Anyone working at the FBI and IRs with even a rudimentary level of business knowledge (4yr degree) knows what is going on is illegal, but nothing is being done about, nor will anything be done about it. Yes there will be a few “token” arrests, but those will msotly be people at the bottom, say some loan officers and some borrowers who engaged in outright fraud and who have no means to buy $800 lawyers (like the former head of the SEC who is now sold to the highest criminal bidder). But the big fish will never go to jail nor even have to pay restitution.

And when this bubble is over (very shortly), there will be another manufactured right behind it (or some other scam) so that all of the big brokerages on Wall St. and banks will still make money.

I know I have a pessimistic view, but all I see in the near future is greed and despair.

Rant off.

go get’m

Clark = Troll ?

did you run out of popcorn?

LOL.

Clark must have seen the downtown dealer’s “Stop Snitchin’” video…LOL MDmg!

Banter,

interesting and good point, well taken.

Welcome to the blog “Clark”……

“”If they want cash backs and want to sell guns - let them, what business is it of yours?””

The remark about “selling guns” refers to selling them on E-Bay, which is a violation of E-Bay’s rules. TxChick alerts E-Bay when such transactions are attempted. She’s not on a crusade, as far as I can tell, to stop legitimate, legal purchases of firearms from reputable suppliers. Many of us in here are gun owners and staunch Second Ammendment supporters, but don’t want to see criminals or scumbags able to acquire guns through illegal or improper channels.

Please have no doubt that NYC is also a happy place for illega’s to run scams and frauds of major proportions. We’ve got the russian mobsters, albanians, eastern europeans, honkong and chinese gangs, and of course mexicans. My biggest beef with mahor bloomberg,–he refuses to acknowledge illegal immigration. Just refuses. Meanwhile, id theft is rampant here, and police have zero ability to track or stop it–I know, I was a victim. Cops did figure out it was my library card, opened with my driver’s license, that was used–in NY your driver’s numbers is your for life–if you have that, you can get the rest, SS#. ban acc’ts, etc.

One of the most shocking things I’ve learned in my years of bubble-watching is that the illegals have pretty much migrated all across the U.S. It’s no longer a “southern states” problem. They’re in Montana, Idaho, Massachusetts, Illinois, Pensylvania, etc.

Maybe we should become “the illegals” and cross the border into Canada?

Or liken fannieMay reorganizing the bad loans into good one (see yesterday’s discussion and on mish’s blog) we can recategorize them as legals. No problem

Yeah, Here in the Twin Cities, illegal immigrant growth by some reports is larger than “natural” growth.

My practice is now 1/3rd spanish-only speaking. (just 3 years ago it was only 5% spanish-only).

Part of that is because I bit the bullet and decided to just learn spanish, but it’s a system wide change for my group. (we’re a very large group)

Exactly my point Oz. In the rest of CA, they saw 100% appreciation from 2002-2005. Your appreciation started much earlier, and the rate tailed off after the dot com meltdown.

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“My house in Saratoga increased 100% in value from 1998 to 2005.”

Believe it or not, prices doubled in Saratoga IN ONE YEAR — Apr’99-Apr’00. From the highs prices in Saratoga fell more than 30% (as much as 50%). Lot has gone on duing 1998-2005 period.

Jas

Do you mean I lost 30% by selling in 2005 instead of sooner? Waahhhhahh

I know that May 2005 was the peak since a clone house to mine (same address, one street over) sold for 10% more and this was just 6 months prior to my house closing. I’m not complaining though I’m happy.

–
“Do you mean I lost 30% by selling in 2005 instead of sooner?”

Sorry, The prices fell 30-50% between Apr’00 and 2002-03 lows. From there I think they doubled again by Jun’06, if not earlier.

Jas

JAS….Also (I hate to use the phrase again) a little bit of a anomaly ….I don’t mine the data nearly as proficient as you do but, at times, mathematical data is somewhat misleading….In the 1999-2002 time frame many in the “Silly Valley” had stock options that made them wealthy on paper but were basically worthless since they could not sell…The few that “Got Rich Quick” on the IPO’s immediately headed to the exclusive area’s of the Valley (Los Gatos,Saratoga,Monte Sereno,Los Altos, Palo Alto, Menlo Park)….These newly rich, drove up prices in those area’s beyond belief….5 & 6 HUNDRED thousand over asking prices was not uncommon…..When the bust came, those values plummeted giving you the numbers that you have posted…They are accurate, just a little misleading in that I don’t think the Valley in General had the run up like the “exclusive” areas did during that time frame.

Exactly - that’s exactly what happened.Prices were starting to go down in 2001 and then mysteriously jumped upward even though most people were cashing out and moving out o the area. Housing prices are now mostly double what they were in 2001-2002 and condo prices are absolutely ridiculous. Condos that I refused to buy at $175,000 in 1999 are around $350,000-450,000 now - or at least that’s what they are listed as. I fully expect prices to go all the way back down, and if they don’t I’ll just keep renting. I’m not putting that kind of millstone around my neck.

“Condos that I refused to buy at $175,000 in 1999 are around $350,000-450,000 now - or at least that’s what they are listed as… I’m not putting that kind of millstone around my neck.”

You’re smart not to. I still don’t understand the desire to purchase an apartment. With common plumbing, electrical, walls, structural integrity, grounds, etc. there is too much expenditure for things which are out of ones control. I could be the most responsible “owner” and still be required to pony up for some major plumbing repair since the tweakers a few doors down have been flushing grapefruit and tampons down the toilet, and pouring hot crisco down the sink. And then, there are the sleepless nights due to noise, and the concern that they could possibly set the place ablaze with an errant flame. No thanks.

Bill, like all other financial disasters, this one will create a lot of buying opportunities. Remember how Mr. Potter (It’s a Wonderful Life) came out of the Depression smelling like roses? To stay calm while all others panic can be very profitable. You just have to be patient and wait out the storm.

Disclaimer: I believe this will create a huge disaster but not the end of civilization. I have never worn, or even modelled, a tin-foil hat.

“…global warming!”

Next economic bubble (alternative fuels, “Green” products, etc.). Get ready to jump in.

If way too much money goes into ROI optimizing tech and petroleum alternatives then that might turn out in the end to be a good thing in the same way that the dot com foolishness plus Mr. Jones’ efforts resulted in us having a bubble blog when we needed it.

bill, i admire your trust and faith in this country. i really hope you are right. from the stand point of other countries, i am not sure they will ever trust us again (think of the economic and social implication of that). how can we assure them that we will not get another almost mad man as a president much less have them believe about that declaration of independence you mentioned and govt of/by/for the people when right now we do not even know what to do to stop him. check and balance, rule of law? give me a break. on the more sinister topic, how can you even trust the history you read today when you can see with your own eyes how the powerful manipulates history and presents us only those what they want us to know. without the internet we would be relying on the same media and records presented to us by the same people who refused to believe, yet, how the internet has exposed them.

You’re lucky to have an Internet connection in the insane asylum where they are keeping you, Jas.

With all due respect, garcap, exactly where is Jas wrong? Do you honestly think we will be able to get out of this economic cycle unscathed?

Crime is already on the rise, and people aren’t even desperate yet — not by a long shot. Desperate people do desperate things. Don’t underestimate the primitive nature of man when his survival is at stake.

It’s why socialism exists to some extent in almost all successful economies. It’s not so much that we need to “feed the lazy” as much as we want the majority of society to feel safe and relatively secure. To keep them from worrying about basic survival. When the masses feel relatively safe, and their basic needs are being met, the more “productive” can go about their business without having to worry excessively about personal security and the ever-present threat of theft and murder.

Society, as a whole, benefits when the weakest are taken care of to some extent.

I believe (both past and present) Chinese farmers would support your point, CA Renter.

–

Nazis were about the past evil. Bankrupters and Fraudsters of New York City are about the present evil whose fall out lies in the future. Yes, hundreds of millions of people, mostly in poor countries, will die as a result of the greed of these evildoers.

How many people know of the Concentration Camps ( a term used by top British military general at the time) set up by the British military during the Boer war where women and children were put in condition that they were dying at very high rate and there was a real chance of full extermination of those in these camps? Guess who were really behind the Boer War? “Moneybags” of London, a term used by the British Prime Minister at the time. What were moneybags of London after? GOLD (Rand deposits in the area inhabited by Boers at the time).

Every society has its prejudices and Americans are prejudiced in favor of the moneybags, BFNYC, who actually have a total control of out govt. and the economy. To quote Martin Armstrong: “Undermine the American middleclass sufficiently and the climate would be ripe for American Hitler.” BFNYC have already paved the way to undermine the American middleclass. The Housing Bubble is the best proof of that. It was a deliberate and premeditated act to herd tens of millions of American households into the Debt Concentration Camps.

Jas

Actually, Jas is correct.

My mother, and most of her friends, lived through WWII — mostly in Germany, Austria, Poland and Russia. The reason Hitler was able to convince the masses to back him was because of FINANCIAL reasons. Basically, the prior elimination of what could be called “the middle class” made it easy for people to target those who they thought were better off or who were hoarding more resources than they “deserved”.

Prior to Hitler’s rise, the Jewish people were seen as being self-serving. They owned many of the shops and business, and tended to hire mostly other Jews. It was also believed by many that they were overcharging non-Jews and benefitting from them in various ways.

Anyway, I know it’s a delicate topic, but people need to understand that there was a reason Hitler was able to convince millions to follow him. In order to understand history, people need to study as many different perspectives as possible and try to understand the underlying issues. That is the only way we can hope to actually learn something from the past.

BTW, before anyone flames me, my biological grandfather was Jewish, my step-grandfather died at the hands of Nazis — he ran the underground printing press in Vienna, and my mother was kept in a prison camp for children of the “uncooperative”.

I’m NOT suggesting that what Hitler did was justifiable in any way. Just pointing out that there were many reasons he was able to do what he did.

There is a tradition in many newsgroups and other Internet discussion forums that once such a comparison is made, the thread is finished and whoever mentioned the Nazis has automatically “lost” whatever debate was in progress. This principle is itself frequently referred to as Godwin’s Law. Thus Godwin’s Law serves to impose an upper bound on thread length in general. — wikipedia

Looks like we are at the end of the HBB thread. It was great chatting with all of you.

(As somebody who’s been using email since 1982, I gotta say that Godwin had it right.)

JP, thanks for the info.

Godwin’s Law more like CyberGeek Aphorism.

Beginning to sound more and more like NAS 5,000. On the downslope.

Shiller sounds interesting. Do you have a link for the op-ed?

Peter T, here’s the full oped ( http://tinyurl.com/2kyg9o

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It seems that no one in the 1990s forecast the doubling of home prices since 2000 in cities in the U.S. and many other countries. Harry S. Dent published a book in 1998, “The Roaring 2000s: Building the Wealth and Lifestyle you Desire in the Greatest Boom in History,” which was a New York Times best seller. Wouldn’t you imagine from the title that it predicted a huge housing boom? It didn’t. It said of the suburbs that “there will be only a modest appreciation of home values, despite a booming economy.” The book concluded only that some “select real estate” should be part of one’s portfolio. Mr. Dent was really preoccupied with the stock market, which was booming when it was written.

Books really predicting the housing boom started to appear only after it was well underway, when their forecasts were simple extrapolations. David Lereah, chief economist for the National Association of Realtors, published “Are You Missing the Real Estate Boom? Why Home Values and Other Real Estate Investments Will Climb Through the End of the Decade — and How to Profit from Them” in 2005. In contrast, his book “The Rules for Growing Rich: Making Money in the New Information Economy,” written just before the very peak of the dot-com boom and published in June 2000, spoke first about the stock market and then added only that “real-estate investments have proven, over the years, to be worthy additions to anyone’s portfolio.”

We shouldn’t blame these people for not seeing the boom coming. Nobody did. But those economists who say today that the real estate boom has been justified by “fundamentals” have to explain why they weren’t able to forecast the high home prices we have today based on those fundamentals.

With the failure of anyone really to predict today’s high home prices, one may well conclude that no one can predict today whether a home-price bust is coming, or whether the housing market will land softly, or even is poised to resume its upward climb. That may be the right conclusion about our ability to forecast the markets.

On the other hand, there is another perspective on this colossal failure to predict. Maybe it doesn’t mean that no one can forecast, but instead that the high home prices today are just an enormous anomaly that will have to correct downward sometime, if not right away.

This has been the biggest housing boom in world history, and when one looks at a long-term chart of U.S. home prices, this boom stands out among the other price increases like the highest kite in the park. It certainly looks anomalous, and maybe it is. Moreover, home-price booms, and sometimes at least real estate busts, seem awfully persistent lately, so that it looks like we should be able to forecast them. The market for homes has become very different from the stock market, which is somewhat well approximated as a random walk.

Home prices have been going in the same direction for quite some time. According to the 10-city composite Standard & Poor’s/Case-Shiller Composite Home Price Index (which Karl Case and I, and now David Stiff from Fiserv, Inc. helped design, and is now traded on the Chicago Mercantile Exchange futures and options markets), the growth rate of home prices was negative (prices were actually falling) for four consecutive years: 1990, 1991, 1992 and 1993. Then, after a brief period of oscillation, home prices started accelerating. Prices increased every year from 1996 to 2004 and in six of the eight the rate of increase itself increased, to 19% in 2004. Home-price changes hardly look unforecastable.

The next thing that happened was home prices started decelerating, the rate of increase dropping to 14% in 2005 and then down to just 1% in 2006 (12-month change ending in November). The latest month-to-month data from S&P includes an even broader set of indices for 20 U.S. cities, and these show that prices are actually falling in 17 of the cities.

So, shall we conclude, since price changes appear to be so persistent, that we are in store for strongly negative growth in home prices for a number of years?

The trouble is, we haven’t seen really long and significant strings of price decreases in the U.S. since the first half of the 20th century. The consecutive-year home-price declines in the major U.S. cities from 1990-93 amounted to a total drop of only 8% from peak to trough. More recently, we have seen sharp reversals of sudden price drops. San Francisco home prices dropped 7% between 2001 and 2002, and then resumed a strong upward climb. London home prices dropped 5% between 2004 and 2005 and then resumed an upward climb.

A string of negative home-price changes has been underway in Japan for a long time. They came after a boom in major Japanese cities in the 1980s, culminating in home prices so high they were the talk of the world. Japan’s is the principal prior example we have of the aftermath of a spectacular home price boom, like the one we have just seen in the U.S. and other countries. After the peak in 1990, Japanese urban land prices in large city areas declined for 15 years, until prices ultimately fell by 65% by 2005. Japanese private residential investment as a share of gross domestic expenditure fell gradually with the urban land prices over the same 15-year period. In the early 1990s, construction remained at fairly respectable levels, feeding the supply of new homes and helping to bring down home prices further. But as home prices continued to fall, so too did construction, contributing to prolonged weakness in the Japanese economy.

Which post-boom scenario is more likely in coming years, that of the recent reversal stories in the U.S., U.K. and Australia, or that of Japan after 1990, or something in between? Do the recent declines in home prices in the U.S. mark a historic turning point?

Some short-run indicators have been interpreted as showing that the recent weakness in the housing market may be correcting upward. Notably, people took heart when the National Association of Realtors reported that, after declining for six consecutive months, seasonally adjusted existing home sales picked up slightly in October and November. But seasonally adjusted sales fell again in December.

The U.S. Census reports that the sales of new houses have been rising since October, and increased 5% between November and December. But the increase may be attributable in large part to unseasonably warm weather and sales incentives.

Although the CME housing-futures market is still relatively thinly traded, the prices there reflect the collective view of multiple investors, hedgers and speculators. The futures market still predicts home price declines in all traded cities over the next year, though modestly lower declines than in the recent past.

These are only short-run indicators, and they do not tell us a lot about the major correction in home prices that might be in store. The fact that home prices have risen so high relative to construction costs and other indicators suggests that home prices might fall back substantially in some markets — and maybe that is what is going on. But one can hardly be sure about whether and when it will happen. It could take many years for new construction to completely close the unusual builders’ profit opportunity created by high home prices, and many unpredictable things could happen over that time.

We are left with a deeply uncertain situation, but one in which it would seem that a sequence of price declines continuing for many years has some substantial probability of happening. Traditional finance theory has trouble reconciling even a semi-predictable sequence of price declines with basic notions of market efficiency. The situation we are facing is a reminder of the glaring inefficiencies and incompleteness of existing markets for residential real estate, and may be regarded as evidence that institutional changes will be coming in future years to fundamentally change the nature of these markets.

Mr. Shiller, professor of economics and finance at Yale University, is chief economist at MacroMarkets LLC and the author of “Irrational Exuberance,” (Princeton, 2005).

Link to Shiller op-ed is tinyurl.com/2kyg9o - may not be publicly available…

Thank you, PDX renter.

Nice work Joe!

sf Jack… I like your negotiating status.
Prices where I want to buy are going down $500 to $1k per day!
:)

I’m trying to figure out the best ways to put experation clauses when I do offer. One thing I’ve decided is that upon being notified of another offer exceeding my offer that my offer will be null and void. Not to put that into legalese…

I plan to use MS word and put in headers.

1. Offer
2. contengencies
2.1 Why I can get out of this offer.
2.2 Why this offer isn’t patient and why we still have to do inspections, title searches, and agree on a moving time frame.
2.3 Ernest money will be returned to buyer upon the following conditions.
2.3.1 Rejection of offer
2.3.2 Failure to respond to this offer within 72 hours with acceptance or counteroffer with less than 48 hour decision time or counteroffer not appreciably discounted from asking price.
2.3.3 Disclosure of material defects in the house exceeding $25,000
2.3.4 Reciept of a competing bid exceeding this offer.
2.3.5 Seller not will to accept its a buyer’s market
2.3.6 Seller is in any way related to Casey Serin.

Got popcorn?
Neil