‘We Could Be Wrong’ About Home Prices: Fed Pres.
A Federal Reserve official is speaking this morning. “One of the greatest risks to the U.S. economy is a possible sharp slowdown in the housing market, said Boston Federal Reserve President Cathy Minehan. Speaking to the New England Realtors Conference on Monday, Minehan said, ‘The resulting rising stock of unsold new homes will likely bring about a modest decline in construction, probably accompanied by a gradual flattening of house prices,’ Minehan said.”
“‘As construction of new homes slows and the pace of growth in housing wealth eases, economic activity will be restrained. The question is ‘How much?’”
“The Fed’s forecast assumes a flattening of home prices and a decline in construction, leading to a slight softening in economic growth. The Fed sees economic growth of 3.5% this year. ‘Clearly, however, we could be wrong on the magnitudes,’ she said’. ‘Real estate prices could actually decline.’”
“While a slowdown in household wealth creation could damp consumer spending, some consumers could be hurt more than others, especially highly leveraged borrowers who’ve taken out interest-only loans. ‘There is no doubt that some potential exists for consumer hardship,’ she said. ‘I am concerned about the impact on some consumers of mortgages that become too costly, and the possible implications for lenders and markets,’ she said. ‘However, at this point, I do not view this as likely to be a major issue,’ in New England at least.”
The USA Today had this related report. “With the allure of easy money, thousands of Americans flocked to jobs in the real estate industry during the boom years. ‘You saw it, there were dollar signs in their eyes,’ recalls Nick Vayonis, a former real estate agent in Los Angeles.”
“He left the business a year ago, just in time, he says. ‘I could see the ebb and flow. It wasn’t going to be like that forever,’ says Vayonis, 40, who just opened a coffee shop in Canton, Ga., near Atlanta with his wife, also a former agent.”
“As the housing market slows, there will likely be a lot of stories of people who are bailing out of their real estate jobs and other professions related to housing, appraisers, mortgage brokers and home construction workers, and many not by choice. Almost four out of every 10 jobs created in the past four years were in housing-related fields. At the end of last year, a record 9.8% of U.S. workers were employed in the real estate industry.”
“Many companies are already seeing some business evaporate. Last month, Washington Mutual said it would close 10 mortgage processing centers and fire 2,500 employees. In November, mortgage company Ameriquest handed out 1,500 pink slips. The housing industry is braced for more belt-tightening. ‘At best, people should prepare for no pay increase and no bonus, something they have been getting a lot of. At worst, they should be thinking they may need to change occupations,’ says (economist) Mark Zandi.”
“While it’s painful for those involved, Zandi calls the slowing in housing ‘a necessary adjustment.’ The economy had gotten so dependent on housing that it needed to come down a bit to make the economy more evenly balanced. ‘Housing has been flying high, and it’s now coming back down to earth,’ he says.”
“Your income ‘is very unpredictable,’ says Janice Hofferber, who left her job as a Wall Street stock analyst in 2003 and tried her hand as an agent in Bay Head, N.J. She quit last September. It was no easier in the mortgage loan business, says Toney Goucher, who closed his restaurant in Arkansas and became a mortgage broker in 2002. Last summer, the market started drying up. ‘It seemed like every month, we had another interest rate hike, and it got harder and harder to find clients,’ recalls Goucher.’
“Goucher threw in the towel and put on an apron. He opened a Fat Toney’s barbecue restaurant in January. Goucher says he has already gotten a couple of calls from mortgage brokers he knew in Kansas asking about possible franchise opportunities for his barbecue restaurant. ‘They say, ‘You’re lucky you got out.’”
good to know she’s making big bucks
NE is already off 10% you dpsht
New England “will have negative sales like the rest of the country” in 2006, “but prices will still go up,” Lereah said. “There’s no bubble bursting,” he said. “You can put air in the bubble, and it inflates and now the air is going out of the balloon — it is not bursting.”
Lereah should know, he being an expert on the inflation of balloons with hot air.
Boston Globe in an attempt to polish up the turd all nice and shiny has a headline with a different theme.
http://www.boston.com/business/ticker/2006/03/economists_on_h.html
More proof that a consumption based borrow and spend economy spells doom. But Larry Kudlow and the rest of the republiLiars say “Everything is just fine”.
We live in a new paradigm people. Debt is really wealth and spending is really saving. “Why Martha…….. spending is good for the economy”. “But Joe, don’t you know that starving the govt. of revenue and borrowing to make up the gap is a good thing?”
They fail to mention who’s economy all this spending is good for.
Please leave the politics at the door — it just pollutes the blog.
“But Joe, don’t you know that starving the govt. of revenue and borrowing to make up the gap is a good thing?”
The govt. collected 2.2 trillion and spent 2.7 trillion last year. You call 2.2 trillion starving? Why don’t you send the poor souls all your money?
Our revenues were suppose to go to poor souls. Instead it goes to the treasury to make up for the missing cash given back under corp. “tax cuts”.
Stupid corporations! If only there weren’t any! One can dream.
Comment by feepness
Why a 60k/yr wage slave would champion the efforts of big money is beyond me.
“They fail to mention who’s economy all this spending is good for”.
That should be “whose” not “who’s”
The economy had gotten so dependent on housing that it needed to come down a bit to make the economy more evenly balanced.
Did Mark Zandi, just 2-3 months ago claim that the worst thing that can happen to housing is going flat?
WTF, this guy is already talking housing coming down. Damn flip floppers.
BBQ restaurants are the next bubble?
theBBQbubbleblog.com
BBQ! The New Paradigm!!
There can be no BBQ Restraunt bubble because everyone know that if it heats up too long it all goes up in smoke.
David
Bubble Meter Blog
Props to SoCalMtg guy for knowing it was time to get out of that bidness. Whoever got him is lucky to have him.
I have a friend who works for an independent mortgage broker here in Seattle. That mortgage broker really is top shit, really knows her business, has been doing it a long time, and will probably do okay even if the market tanks. Here’s the kicker. My buddy says that they have 4-5 people doing refinancings right now because they need money for TAXES (as in april 15 taxes). The insanity never ends.
Agreed!
9.8% are in RE related biz
can anyone compare this to 1989 ?
that is the number to look at >>>>> imo
A must see movie for all bubbleheads!
http://www.maxedoutmovie.com/reviews/index.html
For what it’s worth, there does not appear to be any bursting bubble here in LA. I’ve even tried lowballing some sellers based on all this bubble bursting talk. I’ve been told to go pound sand each and every time. Until I see some real price reductions, and I don’t mean 5% off an inflated price, this bubble is still going strong.
Some LA sellers are still in denial, but the unsold inventory will convince them.
LOL! Pay attention to the inventory numbers, then the affordability numbers. It’s clear that these are tough not to see reconcile. It may take a little while but sellers that need to sell will be racing to get their prices considered by what few buyers there are. That’s when the train gets rolling! Add a boatload of defaults and you’ll be going to auctions….
lainvestorgirl, totally agree. I think the biggest problem here in LA is that there are too many stupid people here. Only a few of us (~5%?) can be highly-compensated actors, producers, models, directors, and business-owners. The problem lies with the 90% of lemming/sheeple who don’t earn the bucks, but try and live like they do. Makes it hard for the rest of us 5%ers. But, I’ve learned to lean back and enjoy life in the meantime. Like so many of us have already said…if we’re right, then time is definitely on our side.
Because 99.999% people don’t have to sell yet. They can still “afford” thier option ARMs prior to the payment reset, and until it’s crystal clear that appreciation is flat and won’t make up for the huge payments they’re making, most won’t budge.
east beach,
I think now is the time that the ocean is receding rapidly in anticipation for the huge upcoming (downturn) wave. Based on CFC’s latest 8-K filing on the 16th, already $575 million of their loans held for investment (so it doesn’t include all the billions of loans they’ve already sold, or those of other companies) were delinquent. Average FICO on those delinquent loans was a very respectable 720. I dug further and crunched some numbers: Additional accumulated principal due to neg/am loans was $75 Billion, or a whopping 0.5% addition to principal. Assuming 6.5% interest (very conservative since I highly doubt the teaser rates for these loans were that high), and typical starting 30yr amotization ratio of .0009 (amount of principal repayed with the first few mortgage payments, assuming principal reduction; e.g. 100K mortgage with fully amortizing payments of $600/month, only $90 goes to pay down the 100K principal) more than 50% of neg/am loan borrowers made less than the interest payment, adding between 5-6 months worth of payments to their loan at current rates. Keep in mind this is only numbers for 2005…and the rate of appreciation since 2005 hasn’t been nearly enough to cover all these folks. Bottom line: get ready..because it’s definitely coming.
I think you read this 8-K too fast. Neg/AM loans are up to $75 million, not billion and delinquencies are $57.5 million, not $575 million. Both of these figures are up substantially, as you pointed out, but still are relatively low compared to what they will most likely be 1 - 2 years from now.
I believe I read it correctly. The 75 Billion was a typo and it should have been 75 million, but the resulting calculation stands. On the delinquencies, .22% delinquency rate x total portfolio of 26.1 billion = 575 million.
Oops… my mistake. You’re right on the delinquencies. wishful thinking on my part I suppose.
No problem. Now if you want to take a look at a lender that has BIG exposure to payment option ARMS look at FirstFed Financial Corp (FED). It is a southern California thrift that does A LOT of subprime lending and is almost exclusively ARM driven. During the fourth quarter of this year, the increase in its neg/am exposure was over 80% of its net income. Now when CA home prices stop increasing and or ARMs come up for repricing, what is going to happen to these loans. Since a lot of the borrowers are subprime guys, I don’t know how successful they will be terming their mortgages out. Anyone have any thoughts on this company?
Thanks
I would have an instinctive aversion to any mortgage company that had “Fed” as part of their business name. This would indicate to me that they were trying to generate some spurious respectability. A ticker symbol of FED just makes matters worse, as far as I’m concerned, so I would steer well clear of any investment associated with them.
If I’m wrong , I’m wrong.
Oh, I am doing to opposite of staying away, I am shorting it.
Wondering why you think all sellers have an ARM? Maybe in LA but across the country….. I’ve always done the fixed. Here I know so many people who have paid off, almost paid off or have 15 year loans in their 30s. Not everyone is overleveraged. Some of us just moved to the areas we could afford. We put 48% down when we bought this little fixer upper. The rest was sweat equity.
And what percentage are like us? We will walk away from our house with $500k+ and buy closer to the ocean. Couldn’t do it based on current income, but want to, and will, before we die.
LA is proving to be a bit more resilient, by both statistical and anecdotal evidence. The city has been historically underpriced (not counting the high-end vanity properties), and there are a number of ways to make good money in the Basin. A $399,000 one-bedroom condo in Hollywood (which is the level where they are all pricing right now) might not be a steal, but it isn’t going to pull you under. A $399,000 McMansion in low-income Fresno, where the summer electric bills can eat up most of a fast-food restaurant manager salary, is a one-way ticket to debtor hell. There are much better things to be doing in LA than investing anway: you could always dress like Goldfrapp, pump up a chrome boombox, and strut around the Boulevard waiting for the Big Crash. Ooh la la la…
As far as I’m concerned, that is.
By the way Ben, I like being able to post without the delay!
I have to agree with lainvestorgirl, I live in LA too and am just not seeing exploding inventory or big price reductions. I have seen 5-10% reductions but so what if the house is 40% overvalued? Also, not a lot of new construction like other places.
RE bubbles are definately a reigonal phenomenon. It’s just right now there are a whole lot of them at once… so it’s become sort of a national thing. That doesn’t mean there is one that’s about to burst where you live. It was something (the RE bubble) I was completely unaware of in Texas because basically there wasn’t one, but then I ended up in Virginia were things were completely off the charts.
Could be in LA the economic/demographic forces are in place to keep prices up for a long time… even while other markets are falling in earnest.
I don’t think we’ll see exploding inventories for awhile in Los Angeles. I was looking at the home sales in my neighborhood going over the last three years. What is remarkable is that there have been less than 30 sales and several of them were the same two houses being sold from flipper to flipper to flipper. Those two houses probably accounted for 10 of the transactions. Of the other 20 sales, 3/4 of them had a tax basis in the $50K to $99K range which means they were originally purchased before 1980. A few had a tax basis around $200K — and those people sold when the prices were over $300K so they made a nice bit of money in a very short time. I only saw approximately five transactions that were for over $499K and only one for over $600K.
I have a sneaky suspicion that the house that sold for $499K is in foreclosure right now. I think it is one that has been for sale for about 1 1/2 years now. Originally priced at $750K, it was dropped to $625K last time I looked. I haven’t looked lately but I doubt it has sold.
I think you’ll have an easier time finding exploding inventories and big price drops in the areas further outside of town: Santa Clarita, Chatsworth, Ontario, etc.
cuz LA is not the leading edge of this thing.
I see at least one person here who will jump all over things and buy at least 5 years too early. Too bad.
txchick57- After 13 years ( and 250% appreciation) on the sidelines, I’d probably wait a little while more too. You have no equity to trade-up. But, after renting for 13 years you probably can pay cash - what with all the “savings” from renting.
My house would have been owned free and clear after 13 years. But, then again, I don’t have your insight and foresight and accumen.
Many people ask us to stay away from politics on this blog because they want to discuss the “housing bubble” which they believe exists in a vacuum. Politics (economics) and this housing bubble do go hand-in-hand, so the various (well-informed and intelligent) political discussions do belong on this blog.
Personal attacks do not.
We already know you do not like txchick57. You do not need to keep reminding us on every thread.
Not to sound like I am in elementary school, but txchick started these adhominem attacks on me from my first post. She was ridiculous and relentless and just plain mean spirited. I did not set out to insult, offend or piss off anyone.
I had, and still have, no idea what her problem is. Yes, once her experience and acumen about real estate became know, I took the opportunity to call her out on it.
I’ve never seen anyone admonish txchich57 for her blatently vicious attacks.
CA - try scrolling through the Amatuer Investors thread if you really want to see TXChick’s adhominem, gratuitous grenades launched at me. This is just a small sample.
I hate to sound “grade-school”, but she started attacking me out of nowhere from day one.
I understand that you are upset. We all get flamed on here from time to time. The point is, we have to move on in order to keep the high quality of this blog’s threads. There are many different personalities here, and if we all decided to hold grudges, we wouldn’t have the awesome discourse we get to have with such a fine variety of great minds found here.
I attempt to offer useful advice. Tx feels the need to jump on my every post with some stupid remark. In the future, I, like some others, will choose to ignore her.
I am more bewildered by her behavior than “upset”. I am the more stupid one to fall for her “baiting”.
I’m tired of hearing about how salaries don’t support the high real estate prices. Most investors and homebuyers in LA, that I know anyway, seem to be using money from a previous sale. In other words, we’re not talking about real money here, this is make believe LA real estate la la land money. And so far, there is no shortage of it.
A lot of people do trade up. But in any Ponzi scheme you need new people on the bottom of the pyramid to support the upper levels. You can’t trade up unless you can unload your current home on somebody. Ultimately entry-level buyers have to be able to afford homes to support the rest of the pyramid. Make no mistake, this one will end like all the other pyramid schemes (though it will take time).
You and lainvgirl don’t get it. The problem you are facing is the juxtaposition of 5-10% price reductions against recent survey results showing LA-LA land households expected 23% YOY gains out to 2015. The downward revision in expectations is what will pop your bubble, and loudly…
Lingus et al:
The deficit is “good” because they add back the SS surplus. In 2009 the SS surplus and the expected 3% annual growth in GDP are the piper to be paid.
Yup. Thats the new way. Spend so we can save. Borrow so we can lend. [laughing]
LAInvestorgirl,
Exactly, I am seeing the same thing in South OC, prices have not come down, there are no real price reductions to speak of. Until I start seeing prices approaching what they were last February, I am with you in saying this bubble may have crested, but has yet to fall.
Prices in the OC are still 15-18% higher than they were last Feb.
Is that listing price or sold price ? I think the sellers have listed higher from last year , but, that doesn’t mean they sell . In the area I moved from last year you get about 400 sq feet more now for the same price , so to me thats the same as a price reduction
from last year.
Geez folks, relax ! This is going to be a long process, I’m putting my money on a 5 year unwind of the bubble. This isn’t like an episode of CSI where the crime is solved in 1 hour. The process is *just* begining, patience……..
I think I know what the problem is now. This younger generation of people raised on sitcom TV, video games and instant gratification from mom and dad are like spoiled children. If they don’t get what they want NOW, they’ll hold their breath until they turn blue (in real estate parlance, they’ll just go out and pay too much exactly at the wrong time).
Oh, and I’d like to address the snarks directed at me by va investor regarding my acumen and timing of making an offer on a house in Naples at what she termed the top of the market. Not hardly, Januayr of this year was hardly the top of the market there. My intention was to pay cash for the place if the owner would take my offer (which was around 20% under his asking price although still way too high in my estimation), move there and die there. I would have had no mortgage, no debt, I would have no intention of ever leveraging the place for any reason and I would have considered it a home, not an “investment,”. IOW, I wouldn’t be bragging about the HELOC checkbook I had for it. I was willing to pay what I knew was too much because I could AFFORD it and WANTED to live there long term.
I know that’s a difficult concept for all of these astute legends in their own minds but there it is.
Please please please don’t retire to Naples. Just the thought of us being neighbors may keep me awake at night. On the other hand, we could keep eachother entertained with idiotic arguments and wheelchair races.
Mo is correct….
In regard to time, a historical lesson is Japan. After their “boom” (1980’s), prices leveled-off (stabilized) for 1-2 years before “bursting”.
Well the Great Frickin’ Depression didn’t happen overnight either! I think now, especially with the advent of the Internet with instant feedback on everything, some people expect this thing to happen in realtime!
The Fed spokespersons have changed their tune on a dime. Maybe someone pointed them towards Ben’s weekend threads about the inventory explosion.
The Bubble Meter Blog receives traffic originating from the Federal Reserve Board’s servers. Is it a high level person there?
David
Bubble Meter Blog
AH - you caught me! just kidding. David are you spying on your posters or is this a national security thing?
My blog receives a significant amount of daily traffic from a number of high profile banks and investment houses (including the Fed). I’ve always attributed it to the proximity of the NYC banking community (Wall St, etc), not anyting that would require a tinfoil hat.
grim
Northern NJ Real Estate Bubble
so does Sonoma Housing Bubble… Bear Stearns, Friedman Billings, GoldmanSachs, Credit Suisse are a few of the other interesting ones…
I wonder if the real estate investor websites receive the same traffic? If so, they can see all the “investors” getting up to their necks in crocodiles. It would be sad if it were just one or two investors, but there is a whole big group that has learned the advantages of “leverage” and OPM (other people’s money) and stated income 125% loans, etc. A lot of them are doing okay now, but it’s going to take very little to tip them over.
The Chicago Board of Exchange is launching a new housing futures contract. This is awesome! It will be a great way for the market to reveal what the consensus valuation of future home prices are. I expect that this will act as a pin to prick this housing bubble.
http://cfe.cboe.com/AboutCFE/ShowDocument.aspx?DIR=ACNews&FILE=20060317e.doc
Are you so sure? Suppose I am a hedge fund, and want to speculate on, say, San Diego residential. Why can’t I cherry pick the sellers willing to sell at a discount, for later resale at a profit, and use the futures for insurance? It seems like this futures contract might give the big hedge funds a gambling advantage, as I don’t believe they work for individual households…
I’m not sure why it matters who exactly is participating in this futures market. I’m simply saying that this will provide a good idea of where the “market” belives prices are headed. Right now, the market is kinda breaking down, with the equilibrium price fallen but sellers not realizing it (so inventory up, sales down). With this futures market, I think that sellers will have yet another loud signal that market clearing prices have fallen, and they will price accordingly.
It just seems to me to be a very good indicator of the consensus view on future housing prices, since people are actually placing money on it. In fact, it could spur a lot more research into RE fundamentals, and it could mean that a lot more people become aware of just how out of hand RE prices have become.
There has been a site that you can invest in the real esate marketl that has been in operation since last year. It’s called ‘Hedge Street . com’
This is conditioning for the masses that a bail-out might be in order to salvage the economy and the vaunted ownership society.
If it unwinds slowly there will be sufficiant pain spread around….If it unwinds quickly none of us may like the outcome…
That’s exactly what I thought when I read it……
Sadly, have to agree with LAInvestorgirl and OCMetro.
There ARE price reductions in LA county, and plenty of them. Something like 32% of the listings in my daily Ziprealty search show price reductions. Moreover, even before the reductions began occurring, prices really hadn’t appreciated that much since mid-to-late 2004. There was a lot of volume last year, but prices didn’t really rise. It is also quite clear to me that prices will NOT begin rising in the future; everyone is tapped out.
Moreover, inventory IS swelling; in my town, there were maybe 100-150 listings this time last year; today there are 200-215.
Finally the days on market IS trending sharply upward. There are plenty — and I mean plenty — of houses in my neighborhood that have been on the market for 90 days or more. The pool of buyers has CLEARLY dried up, speculation is over, etc., etc.
But NONE of this has yet translated into SIGNIFICANT price reductions. Again, there have been many reductions — but they are all on the order of 5-10%, not the 33-50% that would bring prices in line with incomes/rents/etc.. Also, there is no appreciable movement on the low end, where I am looking. Condos still start at $325k, “starter” SFH’s are still around $450k, with very few exceptions.
If, for example, the low-end condos suddenly started to list at $290k, I would regard this is a significant shift — but it hasn’t happened yet.
Now, none of the above is going to make me run out and get a I/O - neg-am - payment option ARM. These things take time, I understand that.
But frankly, I don’t know that we are willing to wait. If it is going to take LA another 5 years to get back to a more reasonable level, I’ll probably just go elsewhere.
I sure would like to see some faster reductions. Maybe the next wave of ARM resets will cause foreclosures, etc. That might bring things down faster.
But so far, things are moving at a snail’s pace here.
There are PLENTY of reductions. Check ‘West Hollywood Vicinity’ in TheMLS. Apparently, no one can decide what a 2 bdrm house is worth. It used to be a solid $1M in this area (last summer), but now there are people reducing to $850.
The last home that sold made a $26,000 reduction to $820,000 before selling. This was a redone house right off of Doheny in the ‘Norma Triangle’, between Santa Monica & Sunset.
Folks, this is a substantial change in this local market. I run arouns the neighborhood every Sunday, and I stop in on the Open Houses. Let me tell you that there is also a big change in the attitude of the realtors.
Believe me - there has been a shift in LA. If you watch close enough (as I have been doing for the past 2 years), you’ll notice.
I doubt you are in LA if you are stating that homes haven’t gone up since ‘04. Upper end homes have stagnated since mid ‘05 and some have gone down when we are talking 1.2-1.8 million but $450k gets you a starter home in the ghetto and that home sold in late ‘04 for ~ $280k. I do see more borrowers in trouble in all price ranges ($300k-3 million) but I manage a RE and Mortgage company so I see every transaction that comes in.
Txchick-
I think I know what the problem is now. This younger generation of people raised on sitcom TV, video games and instant gratification from mom and dad are like spoiled children. If they don’t get what they want NOW, they’ll hold their breath until they turn blue (in real estate parlance, they’ll just go out and pay too much exactly at the wrong time).
You raise an interesting point, and there is a lot of truth to it.
Interestingly, I have a totally different perspective, although I am a member of the “younger generation.”
I sometimes feel as if I am trapped in perpetual childhood. More than anything, I want to buy a house and become a stable, contributing member of society. But it seems as if this, like so many other things, is always just beyond my reach. “Wait! Have patience!” the Baby Boomers say. And then, after years of wating and patience…it’s time to wait some more.
That is why the SLOW deflation of the bubble is so frsutrating. For God’s sake, I’ve already been living in my crappy apartment for four years, all the while earning a good salary and steadily saving…but due to the slow deflation of the bubble, I may be trapped there for another 4-5 years. This sucks! What, now I am going to buy my first house at the age of 40?!?! WTF?
So yeah, I am getting a little impatient. And interestingly, this same issue comes up in many other areas of life. For example, promotion at work. I’m a lawyer. The partnership track at law firms used to be 6-7 years. Well, I’ve been out of law school for almost 10 years, and I don’t know anyone (except for one person) who has made partner. The Boomers have taken all of the slots, promotion is effectively impossible today.
Now, I’m not whining about this. I don’t like it, but it is not one of history’s great tragedies, I am very fortunate already, billions of people living in third world countries would give their right arm to trade places with me.
But just think about what that means! The deal used to be that you worked your ass off and then were rewarded with partnership. Even if you didn’t get rich, you’d still earn a nice living; your hard work and dedication would result in a comfortable life. Today, you work your ass off and are rewarded with nothing. That’s a very significant change. It’s the same with other stuff, like getting, developing relationships with clients, amassing enough capital to start my own business, etc. Things have changed dramatically; a lot of Boomers don’t really seem to grasp that.
This is why people like me sometimes find the waiting so frustrating. I’ve already been waiting a long, long time. That’s the way the cookie crumbles these days. Becuase it is so frustrating, I come to blogs like Ben’s becuase it enables me to vent a little.
The partnership track is now about 20 years because the boomers have spent themselves into oblivion, and have so much debt they CANNOT retire. Not only have they hogged all the real estate, they also have a monopoly on clients. And they keep living longer and longer. Don’t kid yourself, the cards are stacked against you here in Hotel California, get out now while you’re still young enough to build a practice in a state where you have a chance to enjoy the simple things in life that any hard working college grad should be able to obtain: a basic, decent home and a family!
From another greedy associate, I say there’s only one answer to senior partners sticking around longer than they should:
Snipers.
>senior partners sticking around longer than they should
*sigh* I should probably stay out of this from now on, but what the hell, nobody will read this anyway…
How long SHOULD senior partners stay on? Hey, it’s their firm, isn’t it? If you don’t like what they are doing, go and start your own firm. Will it be easy? No. Will you fail at it? Quite possibly. But at least you’ll learn from the experience, and maybe be better prepared for actually BEING a senior partner.
Sweetie, a boomer bankruptcy lawyer will be doing your bankruptcy within 5 years max is my guess and a boomer judge will be denying your discharge.
Are you really a 57 year old renter?
Joe Schmoe,
I am a boomer (48) and I doubt that any generation thinks that they had it easy. I graduated (Ivy League) with an economics degree in 1980 and, after much searching, got a management trainee job at 12k. My husband was making 14k.
We had one college loan and a car payment. Mortgage rates went from 14% to 18%. We could not afford a one-bedroom condo in a slum. I went to Law School at night. Clearly, no walk in the park.
Sounds like you have a leg-up on most people. I couldn’t get hired by a top firm, so I didn’t make much. We decided very early on to make our own way and not count on an employer for financial success (only to pay the basic bills).
Never fear. He who laughs last laughs hardest.
Right now the boomers are at the height of their consumption and earnings. But all things must come to an end.
What does that mean for you? When GenX fills the boomers’ shoes, there will be more slots than people. More homes than home-buyers.
The good news is that when the smoke clears, your generation will be sitting fat. Very fat.
Keep your powder dry.
There is a geriatric time bomb overhanging the realestate market.
Joe Schmoe-
No offense, but maybe you’re at the wrong firm, or are not a very good lawyer? If you went to a top 5 law school as you claimed the other day and work hard and are good at what you do, you’d be a partner.
DWR-
You’re right, I’m not a very good lawyer. Either that, or I am too stupid to see that some other firm here in town is handing out partnerships by the dozen to their senior associates. Or maybe I am lying about my credentials; I didn’t really go to NYU, it was actually the Melvin Butts School of Law.
Thanks for clearing that up.
“You’re right, I’m not a very good lawyer.”
That’s what I suspect. A hard-working, smart attorney from NYU would be made partner. Instead of writing 1000 word posts on a blog, maybe you should bill a few more hours? That might help.
Mr. Schmoe,
Please see my post below. Best wishes,
Fred
I totally understand that partnership thing. And when you do “make” it, it’s not always as an equity partner. You’re still a wage slave with a fancy title. Trust me, I know all about that. I know it’s frustrating. What I find frustrating, however, is seeing 23 year olds “owning” 15 houses in Phoenix and 8 in Albuquerque although you and I both know he doesn’t own squat but a big load of debt. There is something very out of whack here and I would like to see you younger people get what you deserve but because of the timing of all this, the rewards are years away. MHO of course and worth what you paid for it.
>What, now I am going to buy my first house at the age of 40?!?!
Why not? I’m an “Xer”, and my wife and I waited until we were out of college, med school (her), and residency (her’s). We bought our first house (a big one, mind you) when I was 37.
No one is preventing you from buying a house now. So what if people on this blog might call you names. It’s a crap shoot anyways. Maybe prices will fall. Maybe they will fall quickly. Maybe they won’t fall at all for the next 10 years, and then re-start their upward trend. Or maybe, just maybe, prices stabilize, take a year breather, and re-start up again, slowly but surely pricing you out of the SFH market forever.
So you rolls yer dice, and you moves yer mice. If you’re tired of waiting, get an exotic loan and take the plunge. Or move somewhere with cheaper housing. Just please, oh please, stop whining about how this (possible) bubble pop is taking longer than half a year to play out.
Thanks.
>The Boomers have taken all of the slots, promotion is
>effectively impossible today.
>Now, I’m not whining about this.
!!!
Freaking start up your own firm, damn it. If you don’t want other people to have control of your life, do something about it!
Sorry to pick on you, I know it can be frustrating, but there has to be a time where you stop blaming others for your lack of attaining your goals. Maybe it’s time to change your mindset.
Exactly. Assuming Mr. Schmoe is a hard-working, competent attorney, he would figure out a way to make it to the big leagues. The other day he admitted he only makes $120K per year, and he’s 10 years out of NYU. There are only two possibilities- he’s a terrible lawyer (beleive it or not, “top 5″ law firms put out crappy lawyers once in a while) or he bills about 1200 hours per year because he’s too busy whining and complaining on blogs and to his colleagues.
And one last note oto LAInvestorgirl…
I keep in periodic contact with realtors in the three areas of Cali that I have the most interest in: LA, high desert (both Apple Valley and Joshua Tree), and central coast (SLO/Pismo). In certain LA markets, there have been a significant drop in demand; the realtor there said it was like one day she woke up and demand had hit a wall. This is in the houses in the Pasadena area priced $600K-$2M. Price reductions are on the order of 10% or so from the peak (last fall). Now mind you, $600K-$2M isn’t exactly a starter home…well OK, $600K IS a starter home, but at least in the area I’ve mentioned, and at the price ranges I’ve mentioned, there has been a slight hit in prices. Call up some realtors. Ask them to print you up a CMA (Competative Market Analysis) for a certain price range in a certain area. (Tell them you want it to make sure you don’t “overpay” for a house). It will tell you how long houses are sitting on the market, and what (if any) price reductions houses are going through. It’s a much better way to go than looking around at asking prices and freaking out. Arm yourself with knowledge. Then let us know what you find out.
Here in Salinas I took an early Friday am walk through an area that had listings in Dec. and there wasn’t a ‘For Sale” sign around. Saturday ’six’ signs appeared out of thin air and all had ‘open houses’. Walked past them several times on Sunday (a beautiful day to be out) and I didn’t see anyone looking. A year ago they had mulitple offers and sold in days. One house has had an open house for the last three weeks. The original asking price for 2400 sq. ft. was $950,000. This weekend that price was crossed out and the new price:$910,000. (if it wasn’t raining today I’d get pic’s of it…classic). A like model sold last Sept. for $700,000’s and I thought that was crazy (not worth over $350,000).My point is that if someone bought last year for $700,000 someone this year will think they got a steal if the $910,000 price approaches that figure.
Salinas is one of the most peculiar bubble markets in the greater Bay Area, IMO. What jobs exist in the area that pay enough for people to contemplate million dollar tract homes? Are there that many doctors, lawyers and IT professionals willing to commute 60 miles each way to San Jose, or 100+ miles each way to San Francisco?? I just don’t get it.
Housing crashes are very slow 5 to 10 years. You must be very patient to wait for a low point. People who were left out of the boom jump in on the way down thus stalling the decline. Housing is illiquid and houses can sit on the market for a year or more during a decline.
Your time frame makes sense, but is too long for me to wait to make my next investment. There is also the risk RE will continue to rise, or not fall, or that inflation will eat away at the value of my savings even more. For people waiting in an apartment, with little kids, I also think 5 years is too long to wait. I’m expanding my search out of state, and I’m just going to get whatever cash flows.
Some markets might still rise for a few more months, but the real economy that excludes RE and related industries has been down likely between 10 and 20% since 2000 ( over 5% average wage loss plus 5 to 15% high skill job losses). Almost all the fundamentals are bad or getting worse. Until all those problems are fixed, RE investment will always be risky.
For people waiting in an apartment, with little kids, I also think 5 years is too long to wait.
Then rent a house. Why should anyone feel pressued to buy now, when they can rent an apartment, townhouse, condo, house, etc. for a lot less? You can still live where you want, and then feel good about buying when things bottom out, a few years from now.
Because if you don’t buy now you will be priced out forever and your children will be scarred for life - pointed at and called “renters” on the playground. You will die penniless in a gutter even if you have a million dollars in the bank because houses are the new economy - your cash is worthless! Also, having scarred your children by renting, they will grow up to be low wage workers, perhaps prostitutes, because of the self-esteem problems they developed early in their renter lives. So really, you must buy now if you love your family at all.
LOL!
it’s amazing how many people really believe that. it’s truly scary.
You just made my point about instant gratification. You will make some bankruptcy lawyer a great client. Good luck with that.
Are you really 57 and renting?
I’m thinking tx was maybe born in 57 (?).
Well, I’m done with her.
She hates everyone and everything. She may be well read on issues related to real estate, but has no “real” experience. I can’t figure out why she even reads and posts on this blog. She is basically irrelevant.
Without a doubt the rudest poster on this blog.
Buy your residence to live in, not as a form of investment. (Even Robert K says that your main residence is a liability, not an asset). Use your investment wad to make money.
My eldest was five when we bought our first house. Our twins were half a year old when we finally move in. Three little kids.
This is my biggest fear. A house used to be a family’s hedge against inflation, but that isn’t possible now. Any conservative ideas?
Historically true, but I’m betting on something quicker this time around. With all the leverage, suicide loans, and economic stability predicated on rapidly appreciating RE, it might really be different this time.
I recently watched the Enron documentary; as one interviewee said: “We knew it was a house of cards. What we didn’t know is that the house of cards was built over a pool of gasoline.”
jeez…there’s indication of impatience here…the housing bubble (or whatever you want to call it) is not even going to get interesting until late summer. Of course there are no significant price reductions…every seller I’ve talked to is waiting until “the season”…the time when they perceive buyers flocking to them in droves…kids out of school, post tax season, warm weather, etc.
Only the very astute or very worried are reducing significantly now. Watch for gradual reductions thru-out the spring/early summer with real slashes coming in August.
And owning a home really needs to be reevaluated in the investor sense…I can’t believe I still talk or read about seemingly smart people itching to get in, because they fear they’ll miss something.
These are the days to be safe, not sorry. Impatience has a tendency to never work to your advantage.
Too much patience can be a real weakness in investing, too. It can mean ending up with nothing.
In the case of more than a few homeowners…it can mean less than nothing.
We know how this one will end, Catherine. LOL
>Too much patience can be a real weakness in investing, too.
>It can mean ending up with nothing.
Yes, but at least play the odds (you will have to figure out where you see the odds leaning yourself).
I remember living in the SF Bay Area before and during the tech stock bubble. Friends of friends would chuckle at me that I was “only” into index funds, when they were “making” a killing on individual tech stocks. The mood was “get in, if you don’t know, you’ll miss the boat”. Both they and I were working for tech companies at the time. We all KNEW that the run-up was unsustainable (DOW 30,000! NASDAQ onwards to infinity!) But yet the worry that they might be left behind kept them buying. And buying. And buying. And they all had reasons for why “this time is different”. Greater productivity! Faster information flow! No wasted effort! No brick and mortar upkeep!
So at a certain point, I decided that the run-up had gotten way way WAY out of hand, and that the risks weren’t offset by the potential upside. So I quietly pulled out. And I ended up keeping more of my money than the high-flyer friend of friends. How much is Pets.com stock selling for?
Maybe the housing market will be different. Maybe it will be NASDAQ at 5000 and then continue up. The question any serious investor will ask is “do the potential payoffs offset the risks”? (OK, if you are a pro, you will hedge as well, but I’m not quite there yet).
A whole other line of questioning pertains to “can you survive the fallout of your actions if your actions turn out to be the wrong thing to do?” Can you carry a cashflow negative property until rents go up? Can you survive a margin call without having to liquidate your “good” stocks? Etc. etc.
Sigh, that should be “get in, if you don’t NOW”, not “KNOW”…plus a mireeud of othur spling errs…
Ben, any chance of a “preview” button?
Two comments. First, the market in So.Cal is starting the slide down a slope that will last at least 5 years. If you look at past cycles, a 5 yr up cycle is followed by a 5 yr down cycle. This time, we have had almost 10 years of up cycle, so the down cycle could be a lot longer. If it gets really ugly fast, then it may not last past 4 years. In places like Orange County (LA too, but not quite as much) the big wild card is how hard the loss of housing related jobs (mortgage in particular) will hurt things and how fast. Ben’s post just previos to this one talks about two firms closing up shop an eliminating 200 pretty high paying jobs in OC. There have been others and I think the trend will only get worse.
Second, LAinvestorgirl, you absolutely should be looking outside So. Cal. for real estate investments (and I am not talking single family houses). I have successfully found some really good cash flowing NNN properties that are great for long distance investing in Tenn. and Iowa. It took at lot of time and effort to find really good ones, but it can be done.
‘“While it’s painful for those involved, Zandi calls the slowing in housing ‘a necessary adjustment.’ The economy had gotten so dependent on housing that it needed to come down a bit to make the economy more evenly balanced.’
Nice how he implies that the adjustment is already over. Also, the statistic that 40% of all new private sector jobs are housing-related is over a year old, and I sure didn’t see anyone except “doom and gloomers” raising the red flag back then.
Dear Mr. Joe Schmoe,
It is not necessary to buy a house to, as you say, “become a stable, contributing member of society.” Why would you want to contribute your hard earned dollars and get yourself in debt at the top of the biggest real estate bubble market in U.S. History. If anything, you would be contributing to the problem by following the herd.
I completely understand your conundrum. Do you feel lucky today, i.e. is the Fed going to let the bubble pop, or are they going to loosen the money supply by reducing rates and let things get completely out of control, i.e. inflation. Regardless, the day of reckoning will come sooner or later.
FYI, I’m 49 years old, but never felt a part of the boomer generation (I refer to as being a backwash-boomer). In 1979 I graduated from college (BS Finance and Property Management). Carter was President and we were at the tail end of another real estate boom that was caused by rampant inflation and loose money supply.
I came to Phoenix to buy and manage shitboxes for california investors. The Fed tightened and FHA rates skyrocketed as high as 18%! Needless to say, the economy went into recession. I bought my first house in 1984 for zero down at 13% interest at an inflated price of $63,000. It took 14 years for the property to “appreciate” to $77,000!
By 1998, 14 YEARS LATER, the market started to improve and I needed to escape a deteriorating neigborhood. I had completely remodeled and landscaped the property but the neighbors lived like pigs. I had the nicest house in the subdivision and got top dollar at that time. I felt lucky to get out when the getting was good.
This is the incredible part of the story and I believe represents a true MICROCOSM of the Phoenix market and the U.S. real estate market in general:
The property has been resold three times in the last 7 years, most recently in December 2005. The last sales price? Can you believe $210,000!!!! I wouldn’t give $50,000 for it. It’s currently on the market again, just 3 months later.
This is the scary part:
The first and second loans on the property total $204,000, and are held by a microcrap REIT based in New York, MortgageIT Inc. (MHL) Their stock as dropped 50% in the last 6 months. They have a market cap of only $287 Million. This single house represents, in my opinion, a loss of at least $100,000 in the next 6-12 months. I’ll keep watching and might post the results.
By the way, I have been able to concentrate on my business during the last 7 years, without the distraction of homeownership or a long commute, and have saved over 250K. Currently holding gold, cash, primo value stocks. I have a nice, warm, fuzzy feeling about it, and I’m stable and contributing to society, and I can move anywhere I want whenever I want.
Bottom line, wait or you may find yourself committed in deep doodoo for many years.
To Chris 415:
It is the weirdest place to live and contemplate buying.Boiler plate houses going from $600,000 up. I couldn’t figure out how they were selling. They people walking in the sales office looked like the best they could afford would be something in Watts or East LA. While having coffee one day I started a conversation with a local Deputy Sheriff. He was telling me what housing developments to stay away from. It seems some of these housing developments place low income families (25% of the development in some cases) within the development at extremely low mortgages. I might buy the house and pay $700,000 plus going tax rate and have neighbors on each side getting the same house for $200,000 mortgage. Needless to say I will never buy unless it’s a vacant lot in an area where everyone pays the going rate. Apparently this is going on all over Monterey County. Anyone care to educate me, I’m all ears.
Here’s a typical LA price reduction.
Down by 50K, but still 75% above what the seller paid a year ago.
My favorite feature: new smoke alarms.
$699000 - Just Reduced by $50,000.00 !!!
http://losangeles.craigslist.org/rfs/143602844.html
from Zillow
Sale History
04/25/2005: $400,000
11/08/2002: $232,000
This guy is a genius! As soon as I can, I’m going to buy a $500,000 house, list it at $5 million, then advertise a 80% price cut (”Reduced! Value - $5 Million! Price - $1 Million! $4 Million in Instant Equity!!!”) to all potential buyers about how they have me over a barrel.
I pdted this on the Boston.com board but thought it would be relevant here,
http://boards.boston.com/n/pfx/forum.aspx?nav=messages&tsn=1480&tid=46&webtag=bc-re_mainboard
“We also know that although stronger growth feels better in the short run, it can have damaging consequences over time. New England of the 1980s, in fact, provides an extreme, but useful, example of the dangers of too rapid growth. During that time, the unemployment rate fell to 3 percent in the region. Wages and other costs rose faster in the region than elsewhere, undermining the competitive position of New England businesses and setting us up for problems in the long run. Real estate prices soared, encouraging speculation and further price increases. It may have been great while it lasted, but the aftermath was devastating. It is possible to have too much of a good thing.”
Statement by Cathy E. Minehan, President, Federal Reserve Bank of Boston, before the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, October 12, 1994, in Boston, Massachusetts - Statements to the Congress - Transcript
She does not believe what she said today, as obvious by these comments in ‘94 when she became head of the Boston Fed. She can not come out and say what she believes now. There are world debt markets tied to this thing. She is a non-voting member this year so she has some leeway.
The sad thing is the reporting. They could have done a little research. I had some respect for Kimberly Blanton, on her reports last year, Something is keeping her quiet, or not doing her job, and that is sad.
To “Joe Schmoe”, “LAinvestorgirl” and anyone who is frustrated,
I can feel the pain too. I am going to be 40 soon, have 2 kids and stil rent. Yes, I want to own a home. Cannot afford it. And I do have a decent paying job. But no one said life is fair.
And there is actually +ve side to this. I know it’s frustrating to wait. But it is more frustrating to be in debt, having a significant % of monthly income simply disappearing in mortgage pit, paying huge property taxes, getting hit by AMT and no being able to deduct it, and so on. Add to it the anxiety of property value going down by 10%. How is that enviable ?
I have seen the fear in homedebtors’ eyes. Those who bought in last few months. Houses are not selling as fast. Bidding wars seem so long ago. Their neighbors’ open houses doe not generate any traffic, and not getting any offers at all for a long time. IF it gets sold, it is usually the first offer. Suddenly the buzz on housing bubble has increased. The house for which they have given up all other pleasures - vacation, dining out - may actually go down in value !! What the world is coming to ? It wasn’t supposed to be like that !
In Bay Area, there is complete denial. Denial due to fear.
I do not know how long it will take for the complete burst, nor how deep it would be. But at this point in time, I sleep far better than people who have bought in last 18 months.
But, unfortunately, not better than those that bought 10 years ago or 8 or 6 …. I don’t mean to offend you, but why didn’t you buy years ago?
Because I couldn’t. I came to this country less than 9 yars ago. The only time I could have afforded a down payment was in 2002-03. A couple of years before that, I was only trying to survive the dot-com crash. I work in IT.
I mis-calculated that the rate increases would translate into softening of house prices. Had no clue about long term interest rate staying low. Did not want to use ARM or I/O, as I am fiscally very conservative. I saw jobs in IT being exported, and salaries not increasing at all, so never understood the reasons of increases in Bay Area’s housing prices. And thought it was pure speculation driving the prices, and still think so. Did not like to buy the 50+ year old houses that went for 650K after a bidding war in Cupertino (a good school district), for example, even if I could have afforded it. They go for 850K today, which doesn’t seem sustainable to me. Even today, I would rather rent than buy those for 650K.
So if I could have bought a decent house 6 years ago, I would have.
In today’s ‘Chronical’ , Collwell Banker shill hypes the SF housing market in the ‘Letters’ segmant. Velly interesting.
That should be “Velly intellesting”.
Don’t worry that is the only RE bull argument.
Build a time machine.
Go back in time 5 years.
Buy and house and be rich like me for a while.
Recent open house in space coast Florida yields no visitors despite the continuous price drop from 3-15% of previously offered pirce. For flippers the panic is kicking in already, something I did not expect to see until the hurrican season starts. It is going to be nasty over the next year or so. My lawer friend told me not to go to open house any more but pile up some cash and wait for the foreclosures.
The future is unwritten… If any of us, either from studied observation or wishful thinking, think a big bust is an absolute certainty, we’re just as close-minded as the boosters. No one, not even the new Fed Chief himself knows what tomorrow will bring. Benji could shoot himself in the foot tomorrow; he does seem a little insecure, kind of like your little brother in your hand-me-down blazer. Inflation could hit 100, 200 percent–which is not uncommon for countries embarked upon wasteful, futile military campaigns. Or rapidly increasing productivity could create a “demand shortage,” and severe deflation that requires government subsidy of the most banal human needs–think “massage vouchers.” It’s all one big global roulette wheel now. And I have no idea why politics must be left out of the discussion as a previous poster implored. Economics IS politics and politics IS economics. Oh, but forgive me, I am beginning to sound European.
No one can predict with absolute certainty when or even if a real estate crunch will happen. But if there’s one thing that holds true about investing it’s reversion to the mean. Over long periods of time asset returns tend to fall within a certain range. Historically home prices have tracked quite well with personal income and rent. Nowadays returns on home prices have dramatically soared above returns from rent or personal income. Everyone knows which of these returns is due for a correction.
A common sense way to know that this is a huge bubble is the something for nothing principle. These past few years just about anyone with a pulse could get these mad-money loans, purchase a property, and “get rich” from the alleged appreciation. What does your house do to earn all this money for you? It provides shelter, and that’s it. It’s not making or designing anything. It’s not causing economic growth. These past few years have seen phantom economic growth created from the housing boom. Rest assured that this wealth is going to be just as real as the dot.com stock “value” that completely vanished in the stock meltdown. One way or another real home prices will fall in a big way.
I would tend to agree with Pete2303
New England’s economy grew too fast in the 1980’s- and the subsequent crash was bound to happen. Housing is still considerably more expensive in the 6 state region then it was at market peak in 3rd quarter of 1988- but that was 18 years ago- and prices adjusted for inflation here in the Hartford Metro area are;median SFH median prices of 170K 1988 and now 249K is not a huge rise in that period prices adjusted for inflation-
Thats about a 48% rise in that time period of 18 years- or about 2.7 per year if you take out the bust years 1989-1996, and the last 4 years which have seen double digit rise. New Englands economy has not overheated- so even in Boston and Providence price declines may be no more then 20% -still substanial- but not the potential blood bath that may happen elsewhere. Talking to a realtor yesterday- and she told me that many Katrina evacuees have relocated to eastern Connecticut and many X Californians as well to towns such as Willington, Killingly, Colchester
and Mansfield- with the Callifornians opting for jazzier Pomfret and Woodstock. The Californians did not surprise me-since on a regular basis I see a plethora of High end SUV’s Upscale sedans and a few economy cars locally on a daily basis- the people buying from Louisiana and Mississippi did surprise me. Also some Floridians coming in- have met a few of them socially- reasons they left; Hurricanes-
Fred Hooper, BA, Soho-
Thanks. You guys are right. I will keep my powder dry.
Don’t know where you are Joe; but I will help anyone who wants to learn about snagging a foreclosure in Virginia.
Once a lot of loans start to go bad, lending standards will start to tighten again and a lot of people who qualify for loans now will no longer qualify. This means that fewer people will be in the “buying pool” for houses… And prices will fall.
Imagine if things went back to the old way: You had to have 20% to put down and you actually had to be able to afford the mortgage (meaning the mortgage “full doc” could be no more than 30% of your income).
“Unlike stock market bubbles, real estate bubbles don’t pop. Collapsing stock market bubbles are characterized by a sudden collapse in prices because stock markets are highly liquid. You see huge volumes of transactions at ever lower prices during a stock market collapse. Collapsing housing bubbles, on the other hand, are characterized by illiquidity, a sudden collapse in transactions. Buyers and sellers seem to disappear. The reason is a reversal in the psychology of buyers that developed at the top of a speculative housing market. Buyers had been buying at prices they knew were too high but on the assumption that they’d be able to sell if they needed to. The thought was: ‘Ok, maybe it’s overpriced, but at least I’ll be able to sell it later for at least what I paid for it, but likely more.’ What happens on the way down is that houses go on the market and just about NO ONE shows up to look. That’s because buyers weren’t buying earlier primarily because they needed a place to live, but because they thought the price would likely rise and that, in any case, they’d be able to get out when they wanted with all of their money or more. On the way down, neither condition is true. So buyers stay home, so to speak.”
“But can’t buyers be enticed by declining prices, by bargain hunting, you ask? No. Once housing sale transactions suddenly fall from, say, several hundred a month in a large community to, say, one or two a month, this creates fear and loathing about prices. Long periods of time pass when there are no transactions at all. Think of it this way. What’s the comparable on your 3000 square foot home in San Mateo when the last sale was, say, seven months ago? Is it 10% less than the last sale of a similar home on the area? 30% less? This happened in Japan, and prices nationally are still more than 60% below peak prices in 1992, where real estate prices continued to climb for several years after their stock market bubble popped. Sound familiar?”
Full article at:
Full article at:
(Can’t get the link to work)
http://www.alwayson-network.com/comments.php?id=6472_0_4_0_C
Housing Bubble Correction
Fifteeen Years to Revert to the Mean
http://www.itulip.com/housingbubblecorrection.htm
“Housing bubbles don’t collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years. Given the extreme and unprecedented nature of the current housing bubble, I expect a ten- to fifteen-year downturn to follow this boom. The government will step in with all manner of supports and bailouts along the way, similar to those that created the bubble in the first place, so the exact trajectory of the decline is impossible to predict. Here I estimate how and over what time period the decline may occur.”