April 23, 2006

Marching Through The Phases Of The Housing Bubble

Some readers suggested a topic on phases of the bubble. “I’d be curious to discuss the phases of a housing bubble. By this I mean the media coverage and the general public’s perception of our situation. In my mind, when the public’s perception changes, this will be the beginning of the end. So far I think people aren’t buying because they can’t, not because they think it’s wise. I think we’re marching through the phases of the HB pretty quick here the last 6 months.”

Media & Public Phases of a HB:

1) Real estate is wonderful (July 05)

2) There is no bubble (Fall 05)

3) Let’s ask NAR if there’s a bubble - nope, no bubble, just soft landing (Jan 06)

4) Media actually prints pessimistic articles while also mentioning NAR babble (March 06)

5) Public poll shows people acknowledge bubble, but not in their area (classic denial phase!)


A reply, “Add this to your timeline: ‘The time has come to put this issue to rest…the nation’s home builders have said it, the Realtors have said it, and now Alan Greenspan has said it once again, in no uncertain terms: there is no such thing as a current or impending house price bubble.’ - David Seiders, Chief Economist of the National Association of Home Builders, July 2002.”

Another, “This is so true. I was talking with a friend who said that homes in his area have gone up because of the Seattle bubble, he lives 45 minutes south of Seattle, but he says Seattle prices will go down again, but the prices in his area won’t!”

From Delaware Online. “This spring selling season, the urgency is gone, real estate agents said. Not only are houses taking significantly longer to sell, the supply of homes for sale is burgeoning. In New Castle County, for example, the number of homes available for sale in March jumped 35 percent higher than the same month in 2005, while the number of new listings that month rose by 24 percent. And in what could be a sign of things to come statewide, the average price of a single-family home sold in Sussex County declined by 1 percent during the first quarter from the same quarter in 2005.”

“Ben Levit and Mia Muratori have been looking for a bigger home near downtown Wilmington for two years. Last week, Muratori, visited one property where the owner had tacked a 26 percent increase onto the previous sale price. The house last sold in December 2004. She said the house hadn’t been updated since the 1950s and needs about $100,000 in renovations. ‘That seems like speculation to me,’ Muratori said.”

“Because real estate prices tend to go up very quickly and come down slowly, agents predict it will take six months to a year for sellers to back off in their pricing. Shanon Passmore just put her semidetached house in Wilmington up for sale. She backed off $10,000 from what she originally planned to ask, but the $215,000 asking price is still a 44 percent increase over what she paid for it in June 2004.”

“‘I don’t think we’re being aggressive at all considering what other houses in the area are selling for. I’d rather be a little higher and have more flexibility,’ Passmore said.”

“‘I think it’s human nature for people not to know when the party may be over,’ said Lyman Chen, (broker) in Brandywine Hundred.”

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Comment by Ben Jones
2006-04-23 09:23:17

From the link:

‘Another sign of the times is that houses are sitting on the market longer. Homes in New Castle County during March were on the market for a median of 17 days, up 41.7 percent from a year ago. In Kent County, the median number of days jumped 100 percent to 24 days.’

‘Because real estate prices tend to go up very quickly and come down slowly, agents predict it will take six months to a year for sellers to back off in their pricing.’

So which is it, 17 days or 6 months to a year?

Comment by Robert Cote
2006-04-23 09:27:22

Reading the previous thread the thought occured to me that we are seeing in the main stream conciousness the same adjectives we were using 3-6 months ago.

Comment by GetStucco
2006-04-23 12:23:14

“the supply of homes for sale is burgeoning”

I believe we could find that one with my name attached to it about six months back, for instance…

Comment by John in VA
2006-04-23 09:32:05

The For Sale bouquets are in full bloom this fine Spring weekend. I counted 12 at one intersection. Saw a Realtor tying a half dozen balloons to one sign - that’ll get it sold! I’d take a few pictures but I have to head to the airport. There are a few open open houses in our neighborhood today but no visitors, judging by the absence of cars parked in front.

Comment by rentinginNJ
2006-04-23 10:10:09

Similar scene here in Northern NJ. Many street corners with multiple open house signs. I drove by a few houses, but didn’t see much traffic. Lots of ribbon and ballons though!
The local Party City must be making a killing on helium ballons and ribbon.

Comment by JungleJim
2006-04-23 11:32:46

Drove thru a US Home develoment in Manatee County Fl this afternoon-HERITAGE HARBOR-on one street (monteray bay) 14 out of 38 SFH w/for signs. And no traffic. Unbelievable!!

Comment by Sammy Schadenfreude
2006-04-23 16:04:08

I was thinking how much fun it would be to make a late-night visit to some of those open house sites and do one of those yellow chalk dead-body outlines on the sidewalk in front of the house. Add a few shell cases and empty 40-oz malt liquor bottles for authenticity. The look on the realtor’s face would be priceless.

Comment by ajh
2006-04-23 18:45:47

Saw a Realtor tying a half dozen balloons to one sign - that’ll get it sold!

Sarcasm aside, the Realtor™ must think that tying balloons to the sign will get a sale, or at any event might get a sale or might help get a sale. Otherwise (s)he wouldn’t do it.

So what’s going on here? Presumably the theory is simply to engage the eyeball, to get passers-by (drivers-by? :)) to look at your sign. Filter-feeding philosophy.

Comment by GetStucco
2006-04-23 09:38:20

“Add this to your timeline: ‘The time has come to put this issue to rest…the nation’s home builders have said it, the Realtors have said it, and now Alan Greenspan has said it once again, in no uncertain terms: there is no such thing as a current or impending house price bubble.’ - David Seiders, Chief Economist of the National Association of Home Builders, July 2002.”

Fast forward to April 2006…

“Greenspan sees global asset prices falling
Wed Apr 12, 2006 7:13 AM BST

SEOUL (Reuters) - Former Federal Reserve Chairman Alan Greenspan warned on Wednesday a global glut in liquidity would result in a fall in asset* prices.

He said the market value of assets worldwide had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates over the years and a significant fall in real equity premiums.”

*Such assets would include stocks, MBS, and houses…

Comment by John Law
2006-04-23 09:40:02

lereah wrote himself into history with this stock book and then a few years later with his housing book!

Comment by GetStucco
2006-04-23 12:27:53

Liareah is doomed to go down in the record books as the Irving (”stocks have reached a permanently high plateau”) Fisher of the housing bubble. Amazingly, Liareah constantly repeats the plateau metaphor, in blithesome ignorance of the inauspicious historical reference.

Comment by BlackOrchid
2006-04-23 09:43:54

God, why on earth would anyone want to live in Wilmington DE. Horrible schools, ugly, bad roads, high income taxes . . . I was just there yesterday (tax-free shopping!) and I again thought “thank God I don’t live down here.”

$215K for a twin in Wilmington is all the proof of a bubble that I’ll ever need.

Comment by bluto
2006-04-24 04:31:48

I hope you will be paying the use tax on all those Deleware purchases.

Comment by otis wildflower
2006-04-24 07:59:09


I’m moving to a rental in Newark DE for a new job in Wilmington, and I agree Wilmington is pretty scary, like Dinkins NYC (they really need a Giuliani + Bratton in this city, badly). As far as the income tax goes, I’m coming from NYC so _anything_ is an improvement. I was considering finding something in PA, but the suburban Philly tax landmine (some burbs/counties have income/wage taxes while others don’t) plus the paperwork to apply the DE taxes coming out of payroll to PA (having to file 2 state tax forms a year) I just don’t think is worth the hassle.

And yes, I hit taxfoundation.org to research my relocation.. I recommend that website without reservation!

Comment by CrazyintheOC
2006-04-23 09:52:39

We definately are in a much different phase than this time last year. The main differences are there is more and more inventory. Also there is no sense of urgency to but becuase prices will keep going up and you don want to miss it. However it is still early because prices have not gone down really.

I think by this time next year there will be even more inventory, possibly alot more. Then you will see the first few sellers start to panic and lower prices and this will snow ball.

The real fire works I belive will be in 2008. I see a real bad RE market with all the usual suspects, prices reductions, foreclosure and even people walking away from homes in the worst hit areas.

Comment by Michael Anderson
2006-04-23 10:05:40

I can feel smug because I sold my house at the top in December and started renting.

My problem. How do I know when to buy? After my triumphant timing of the top, I’m concerned that I’ll blow the call of the bottom. What should I be looking for.

Also, if the distaster plays out state by state, should I buy in, say, Florida at its bottom while waiting for my own location to hit bottom?

Comment by TXchick57
2006-04-23 10:15:17

Why is it essential that you buy the bottom tick? It isn’t.

If you find something you like and can afford and it is well priced, and by that I mean, historically, not in comparison to the past 5 years, then there is no reason to sit around and try to bottom tick it. This could happen in two years, it could happen in 5, or 10.

Comment by passthebubbly
2006-04-23 10:42:43

Keep doing the rent-vs-buy math whenever your lease comes up.

Once they get roughly close, it should be safe to buy. Some here will say wait until buying is indisputably cheaper, but if you wait until they’re about the same you shouldn’t lose too much.

Comment by Judicious1
2006-04-23 11:26:51

This begs the question: Why haven’t rents increased at the same rate, or even close to the same rate, as buying?
Answer: Nobody will give you a loan you can’t affod in order to rent something, it’s something paid with money you’ve already earned. Also, you can’t speculate on something you’re renting increasing in value in order to sell it at a gain.

Hey, these two factors are changing dramatically in the RE market…this should be interesting.

Comment by Judicious1
2006-04-23 11:01:24

IMO - We’ll have a better idea of how long the downside will take to play out by the end of this year. I agree with TX, you won’t necessarily have to wait until the bottom to get back in. You were wise enough to time your exit…you’ll be wise enough to know when to buy in again.
There’s a lot of speculation about how long the downside will be - 2 yrs, 5 yrs, 10 yrs, etc. Let’s face it - it’s impossible to predict. My feeling is the residential RE market is so highly leveraged with speculation and non-traditional financing, the biggest portion of the corrrection will be sooner (1-3 yrs) rather than later (4-10 yrs). There are many posters on this blog much more knowledgeable in this area than myself, but with everything I’ve read over the past year I don’t see anything that will hold up prices in the most overvalued markets for the long term. The average American has been spending more than they can afford for a long time now. Throw the billions of ARM resets, rising interest rates, increased minimum CC payments, tightened lending standards, lost jobs and reduced incomes in RE related industries into the equation and ask yourself how long it will take for this thing to really unwind. You don’t need a PhD in Economics to figure that one out.

Comment by The_Lingus
2006-04-23 12:06:26

“My feeling is the residential RE market is so highly leveraged with speculation and non-traditional financing, the biggest portion of the corrrection will be sooner (1-3 yrs) rather than later (4-10 yrs). ”

There is another side to that Judicious. If the scale, scope and magnitude of the asset bubble is as large as we suspect, I don’t think the FED or other powers will allow it to unwind without putting some type of brakes on it.

I don’t know either way. I merely wanted to show the other side.

Comment by Judicious1
2006-04-23 15:10:23

Good point…any idea on how they would do this? AG inflated one bubble to cover another (stocks -> housing)…what’s left for Bernanke?

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Comment by The_Lingus
2006-04-23 15:17:45

No ideas but I’m convinced markets aren’t truly free markets. They’re managed. Especially currency and liquidity.

Comment by seattle price drop
2006-04-23 11:02:34

Actually, if you are settled in the area that you plan to eventually buy a house in, it’s pretty easy to call the (near) bottom. And fun too!

Start walking around the neighborhood on a regular basis. When you see a for sale sign, check the price. Note how long the houses stays on the market at the new improved price.

At some point, you’ll see the Asking Price go up for a house or 2. If it sells quickly, the market’s going up again and it is time to make your move.

Just as most people are slow when it comes to calling the top, there are those who are slow to realize that the bottom is rising. The word about a rising market takes MUCH LESS time to get out though. So if you want to buy at the bottom, you’ve got to move quick once you see a few properties going up.

That’s the fun way to call the bottom and it’s great excersize and gets you out in the ‘hood.

That said, it could be a good long while after the fall of this market before it actually starts gong up again. I’d say, prepare yourself for many years of walking around your neighborhood! Not a bad way to spend your time though.

Comment by Michael Anderson
2006-04-23 11:29:34

All this advice is good. I don’t HAVE to call the bottom, but I’d like to get close. The mistake I don’t want to make is to buy early because prices START going down.

Comment by ajh
2006-04-23 18:54:11

Then don’t buy on the way down, no matter how tempting the prices get. Wait until you see prices (in general, not one or two outliers) start to rise again, as SDP said.

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Comment by Jim D
2006-04-25 15:18:13

I disagree - that way will only get you on track of the first upswing - which may very well be before a significant downswing. For reference, look to the stock market - a “double dip” is certainly in the offing there, once the real estate market begins to seriously tank.

Far better to do a rolling “buy vs. rent” calculation, and then buy when the numbers start to make sense. Myself, I’m waiting for it to be 10% more expensive to own, rather than rent. I may miss the bottom, but I won’t be too far off - and I don’t intend to buy instantly.

Comment by Sunsetbeachguy
2006-04-23 13:16:39

Michael Anderson:

Are you in the energy business in California?

Comment by Michael Anderson
2006-04-23 15:00:43

No. Why do you ask?

Comment by athena
2006-04-23 15:03:46

When everyone you know hates the word real estate. = buy

When it becomes the worst insult in the English language to say: “Your Mama/Daddy is a real estate agent.” = buy

When the shoeshine boy tells you real estate is the worst investment. = buy

Comment by death_spiral
2006-04-23 10:07:10

Armageddon is on its way!! All RE flippers and other assorted RE idiots will have their brains beat in when the massive defaults pile up. It will start this summer. The TV interviews will be most comical.

Comment by Sammy Schadenfreude
2006-04-23 16:05:59

I can’t wait to see Suzanne doing the perp walk.

Comment by TXchick57
2006-04-23 10:09:58

Repost of a very good synopsis of how it plays out


Comment by Chrisinpnw
2006-04-23 11:55:55

Thank you for the repost. Do you really think it will take that long? None of us know, but I respect your opinion! With all the debt loads I just think that most of it will be over in 3 or 4 years. Most, but not all of the pain. Perhaps more like the NASDAQ top in 2000?

Comment by GetStucco
2006-04-23 12:30:08

Could be anywhere from 3-20 years, IMO. Look to Japan if you want an example of how long a housing downturn can last.

Comment by nhz
2006-04-24 04:09:38

yes, and put Europe about halfway between US and Japan (less savings than Japan - especially in countries like UK and Netherlands which are getting more similar to the US every year).

I would be surprised if the EU bubble can unwind within the next 5 years, I think 10-15 years is more likely. Debt load is hardly relevant for the timeframe of this correction, because of all the monetary pumping that is going on.

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Comment by Jim D
2006-04-25 15:19:49

Or look to Argentina for how short a time it can take :-(

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Comment by The_Lingus
2006-04-23 10:11:04

I’m on a project in Sussex Co. Delaware and I believe the area is a great barometer for RE trends and sentiment. The house builders, big and small, are laying off local guys left and right. I had one foreman/finish carpenter tell me weeks ago that his employer laid off his entire crew, then cut his overtime on weekends and is now cutting his hours during the week. There are literally thousands of houses sitting empty, just constructed and many general contractors are still breaking ground on new projects in Sussex and Kent Counties. From what the locals tell me, the the housing boom here started in 1998 with no slowing. Again, according to locals, the housing cycle here in DEL. run 4-5 years. This other side of this curve is many years late it seems.

Comment by TXchick57
2006-04-23 10:12:55

Does anybody really want to live in Delaware? It ain’t exactly LA or Santa Barbara if ya know what I mean.

Comment by The_Lingus
2006-04-23 10:21:15

TXchick57, it blew my mind when I first came here to start this project. I hadn’t been through this area since 1990 and I was utterly astounded at the number of housing projects. Thousands upon thousands of $hitty ranches for everywhere. It was very disheartening as I remember Delaware as nice agricultural state with decent honest people. All the big publicly traded stucco box builders are here. Pulte, NV etc etc.

So you as why? 2 answers. Rehoboth Beach and no sales tax/low property taxes. Yes, the beach is nice but so is the rest of the eastern seaboard at 40% of the cost it is here. And here is the big kicker…… I manage public infrastructure projects (water, sewer, bridge/highway) and I can tell you or anyone that when taxes are low and public works are on the drawing board, hold on to your wallet. Water and sewer costs HUGE amounts of money. The idea that adding more users on to the system as a means to lower the cost for the existing users is a lie. A big lie.

Comment by TXchick57
2006-04-23 10:23:39

I know everyone wants to file bankruptcy there (big corps that is)

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Comment by scdave
2006-04-23 10:25:04

Lingus;…Great info and insight…

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Comment by TXchick57
2006-04-23 10:26:07

Public infrastructure . . . oh boy . . . now there’ s a can of worms. At least you HAVE water there, lol, and aren’t building entire subdivisions with no water supply. The only “real work” I still do a bit of is on MSDS stuff and some environmental. The courts are getting ready to gut wetlands protection as we speak

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Comment by The_Lingus
2006-04-23 11:11:28

“The courts are getting ready to gut wetlands protection as we speak”
And the Bush worshippers will claim, “it’s good for the economy”.

Comment by OCMax
2006-04-24 07:01:49

You’re obsessed.

Comment by the_lingus
2006-04-24 08:23:22

I see my words of truth compel you to such a great degree so to respond with something so obtuse. I would have to say that in light of that fact, you my little man are obsessed.

Comment by passthebubbly
2006-04-23 10:45:48

Lots of law-related and back office jobs in Delaware. Nothing glamorous at all, but it’s steady work and decent pay.

Comment by Vmaxer
2006-04-23 10:50:55

It’s actually a nice are in southern delaware near ocean city Md. But it’s mainly a rural agracultural type area. If someone likes a more country like area it’s nice. The winters more mild than new england. From what I’ve heard it’s becoming very popular with retireies from the D.C. area. You can get a very nice house for under $300,000. With incredibly low taxes. Taxes on a $200,000 house are about $700.00-$800.00 per year. Since it’s a very popular state for incorporation, the annual incorporation fees subsidize the taxes. A lot of very nice old real victorians are in the area.

Comment by The_Lingus
2006-04-23 11:41:45

VMaxer, It sounds like you haven’t been to Delaware in quite some time but lower Del. can no longer be described as agricultural unless you call mile after mile of cheesy subdivisions as AG. Also, you won’t find any house here for less than 300k. Maybe in northern DEL but not in sussex or kent. Yes, there are a few DC people here but the majority of destruction here is committed by none other than NJ parasites and Philedephia monsters. You’ll see more NJ and PA license plates here than any other.

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Comment by Pismobear
2006-04-23 18:33:42

I heard that the Upper Delaware River is a great, classic fly fishing water? Help me out on this one.I’m 2800 miles west.

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Comment by otis wildflower
2006-04-24 08:08:19

The Delaware river’s pretty long, the upper Delaware is closer to, say, Ithaca NY than Wilmington..

Comment by rentinginNJ
2006-04-23 12:03:50

“Does anybody really want to live in Delaware? It ain’t exactly LA or Santa Barbara if ya know what I mean.”

Delaware, so far, has been one of the winners in the housing bubble game (of course no one will be spared in the end). Many people are fleeing the NYC metro area due to high prices. Philadelphia and its suburbs, including areas of Delaware, have been picking-up many of these people. It’s far enough from NYC to find comparatively affordable housing, yet you are only 2 hours on the NJ Turnpike back to friends and family. Delaware is especially attractive because of the taxes. NJ residents pay the highest property taxes in the country.

Comment by The_Lingus
2006-04-23 12:13:00

“Delaware is especially attractive because of the taxes.”

Not for long.

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Comment by SeattleMoose
2006-04-23 10:12:24

The “but we’re different articles” are popping up as the RE industry denies that the barbarians are at the gate. And why are we different…”tight supply”.

That’s funny because King County inventories are actually rising.


Comment by seattle price drop
2006-04-23 11:30:30

I’ve noticed inventories rising nicely in all Seattle neighborhoods from North to South- since Easter, right?

Counting and recording numbers has never been more exciting!

Comment by LARenter
2006-04-23 10:27:49

I love this chart, they just moved the arrow.


Comment by Coloradan
2006-04-23 10:41:53

Friend in Boulder just put his house up for sale, He mentioned that he would list it for $500k. At listing is was priced at $450k.

Interest rates are starting to hit savvy, conservative 20% down buyers. The rest will be history.

Comment by happy renter
2006-04-23 10:59:42

We are in or in the start of the “pinch” phase.
I’ve said it many times before.
There is one group I’m watching in particular, unintentional second home owners. The unintentional second home owner are those that either relocate, move into a larger home, or inherite a house. They never planned on owning their second home as long as they have.
These are our “weak hands.”
We have many homes on the market that have sat for six months or so, the owners waiting for the spring only to find things have not improved.
They’ve seen their values skyrocket and can suffer a reduction in price.
These people held out for awhile but are now looking to get out from under the bills.

We are not going to see the median price drop for awhile. The average buyer has access to the same amount of money that they did last year. However, people are getting more house for less. The market is not crashing but eroding.

Comment by LARenter
2006-04-23 11:25:41

“The average buyer has access to the same amount of money that they did last year.”

I don’t necessarily agree with that. This is from Bob Casagrand, a realtor in San Diego.

“The rise in interest rates, especially the ARM’s has had a dramatic impact on the San Diego market. Consider that 67% of all loans in San Diego are ARM loans, compared to 35% nationally and that 50% of total loans are interest only ARM’s. Just in the past 12 months the 5/1 ARM interest rate has raised by 11.5% to about 5.96% while the 30 year fixed has gone up to 6.32% or an increase of 5%. Thus the overwhelming majority of buyers in our market are faced with major increases in the cost of home ownership. This combined with the overall San Diego pricing structure is chasing potential buyers out of the market.”

I do agree with your point about unintentional second home owners.

Comment by nhz
2006-04-23 11:55:37

yes, interest rates are rising but at the same time fraud and leverage may be rising as well. My guess is that many buyers have access to at least the same amount of money as last year (judging from the experience in Europe, not sure if it applies in the US).

There is still plenty of easy money. Banks and politicians will do anything they can to expand the bubble or at least keep it inflated for a bit longer. Ultimately they will fail, but they can probably delay the downslide for a few years.

Regarding the ‘unintentional second home owners’: in my country (NL) banks have been offering special second mortgages to these people at extremely low rates (1-2%). These mortgages usually last for 1 or 2 years and I guess the major idea for the banks is that it will buy them time (they are not charities, so …).

For most of these homeowners the cheap second mortgage is an incentive to ask the maximum price for the home they want to sell. The carrying cost for the extra home is extremely low, so they have no problem waiting 1-2 years for their dream buyer to turn up.

Comment by CA renter
2006-04-23 12:18:36

My guess is that many buyers have access to at least the same amount of money as last year…
Yes, I’ve now seen mortgages that claim you do not have to pay a single cent for 12 months. Also, they are offering I/O and NEG-AMs on FIXED RATE mortgages for 30 to 40+ years.

Agree with nhz, this bubble might take a long, long time to unwind. If everyone extends their fixed-rate teaser period on their suicide loan to 10 years or more, we bears could be f@cked if we want to buy a house. We’ll either be forced to take an exotic mortgage, or rent for another 10 years while we wait (which is what a 10-yr interest-only period is anyway — we renters just do it without the risks).

We really need a systemic financial crisis, it seems, if this is to end. Too much $$$ chasing the secondary mortgage market; though I’ll never understand why.

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Comment by LARenter
2006-04-23 13:17:58

I see it a little differently. I think more important than the supply of money is the issue of momentum in a speculative bubble. What fueled the rise of exotic loans was the rapid appreciation of home values. It made since to use these products when the asset you are purchasing is going up in value 20 to 50 percent a year. I think the data is conclusively pointing to the fact we are now past the peak. New trends are emerging such as home sales falling, inventories along with foreclosures are rising. More and more stories are coming out that flippers are getting burnt. The Washington Post ran a front page story that the door for speculators is now closed and they are now dumping there properties back into the market. Mortgage applications are falling, and the applications for exotic loans are falling dramatically. I think you are right they will keep these crazy products available, it’s just that fewer people will be using them in this environment. In other words it is becoming very apparent that demand has fallen and I should say more than anybody anticipated. To me the hard data suggest the bubble is unraveling now.

Comment by Michael Anderson
2006-04-23 15:04:20

If speculators slow purchases, I think things will go down faster rather than slower.

Comment by CA renter
2006-04-24 01:25:54

LA Renter,

What fueled the rise of exotic loans was the rapid appreciation of home values.
Gotta disagree with you on that one. IMHO, it was the exotic mortgages which caused the speculation. Speculation couldn’t have happened to the degree it did if we had traditional lending standards (including higher DP requirements and higher int rates on investment properties). Lax lending cause speculation which caused the rise in prices…and it cycled over and over. As long as we have these mortgages, we will risk having that “pricing plateau” like we have in San Diego for two years.

We need lenders who are afraid to lose money. Hopefully, that is coming around the corner now.

Comment by nhz
2006-04-24 04:23:20

totally agree with CA renter here.

to LA Renter: I can assure you that there is NO sign at all that the EU real estate bubble has stopped growing. On the contrary, there are several signs pointing to yet another expansion phase. And as long as the EU bubble keeps expanding, I don’t believe for a minute that the US bubble will pop; most of the liquidity is coming from the same channels.

You can now get 110-125%, I/O, no-downpayment mortgages of over 1 million euro in the Netherlands (and with some luck you even get government insurance in case you have to sell the home at a loss). Not for everyone of course but still, how crazy it get? The mortgage market in the UK is just as crazy, with fraud written all over it. They know the end is near, but they will do anything to postpone it.

If you look at the M3 numbers for the last months (until the FED stopped publicizing them) I cannot see anything else than an accelerating money supply.

I agree that a lot of flippers in the US will get burnt this year, but that’s about all the fireworks I expect in the near future (except if some ‘external cause’ like a big war, bird flu or something similar causes major damage to the economy).

Comment by LARenter
2006-04-24 07:22:40

nhz, CARenter,
OK, what came first the chicken or the egg? When the rapid appreciation began in the bubble markets starting in earnest late 2001 early 2002, the use of exotic loans was relatively low. It wasn’t until about 2003 the use of these products began to skyrocket. So my point is that “organic demand” set the ball in motion here. In 2001 there were some valid arguments of structural problems with RE namely land restrictions, immigration, boomers buying second homes. I would say the high end of what you could price into the market due to these structural problems was accomplished in 2002. The rest was sheer momentum coupled with irresponsible lending made possible by a global glut of liquidity. It’s the demand to use these products that made them popular. And yes the availability of these products spurred more demand. The same thing is happening in commodities today. They start with some relatively strong fundamentals then attract the forces of global liquidity and then bid up past any economic justification.

Topics I don’t see either of you mentioning that I follow very closely are two things 1)rising inventories, 2) increasing foreclosures. If these trends sustain themselves, and all indications they are, we will see price deflation irregardless of these irresponsible loans. The market is exhausted. It is collapsing of its own weight. San Diego is approaching record inventories, sales in CA are down double digits, foreclosures in LA are up 63% YOY. All of this is happening with the continued availability of these exotic loans of which appliciations for I/O ARMS etc, are down dramatically this year. Debating the housing bubble used to be more theory, now we can actually follow hard data to make our points.

Comment by BikerGeek
2006-04-23 11:33:51

I actually lived in Wilmington DE from 1990-99, and kind of liked it. But I knew things had gone nuts when I saw crummy 1960s tract houses in downmarket subdivisions off Kirkwood Highway going for $325k. Unless those people are all commuting to NYC and buying houses on Manhattan salaries, that’s way overpriced. Especially considering that Bank of America just bought out MBNA (major area employer) and up to 6,000 job cuts may be coming down the pike.

Comment by BigDaddy63
2006-04-23 12:59:46

South Florida is still on Halcion. Realtors, lenders, and 99% of the public remain in 2005. Prices are simply taking a ‘breather’ before they start back up. It is mindboggling to watch. Sellers refuse to lower prices, realters pull and relist homes, builders offer incentives and other perks to keep the sales prices artificially high, while the inventory of houses has doubled in 6 months. It does not make sense.

We keep waiting for the bubble to pop but it appears that for some unknown reason ( perhaps the resets have not hit yet?) the market continues its mexican standoff.

Anyone else from this area care to comment?

Comment by TXchick57
2006-04-23 13:53:41

I can comment by proxy. LOL. It will never crash in SoFla because of all the immigrants coming in, and there is no land left in Broward County.

I always enjoy such piercing insight. Jeezus

Comment by Patriotic Bear
2006-04-23 15:47:06

It is just a matter of time.

Comment by Sammy Schadenfreude
2006-04-23 16:08:16

You’re wrong. Suzanne says this house is special. She’s done her research. You can do this.

Comment by UnRealtor
2006-04-23 17:37:03
(Comments wont nest below this level)
Comment by simmssays
2006-04-23 16:57:20

“The market is not crashing but eroding.”

I think this is a really good desciption of what is ahppening to the real estate in most markets. In Vegas, it feels like its very very slowly starting to erode, but to watch the minimscule moves is painful.


Comment by Alex
2006-04-24 22:26:05

The average American has been spending more than they can afford for a long time now. Throw the billions of ARM resets, rising interest rates, increased minimum CC payments, tightened lending standards, lost jobs and reduced incomes in RE related industries into the equation and ask yourself how long it will take for this thing to really unwind. You don’t need a PhD in Economics to figure that one out.

Yes, indeed you are right. Unfortunately, for a country I emigrated to in 1979 times have changed. This was then and in many ways still is looked upon as the land of opportunity. The dynamics are different now and as the richest country in the world we may have to give up the crown. You cannot earn one dollar and spend two year after year and expect the rest of the industrial world to support our spending binges. Japan, Korea, and China support our currency by buying our Treasurery Notes thus keeping our spending habits for their goods alive. We don’t save because we have too much debt. There is a housing bubble that was orchestrated by Greenspan and that is without a doubt. Cheap money fueled this debacle that will eventually bring us down. Then to invite 12 million illegal immigrants to gain citizenship is insane. Those 12 million are in fact at least 50 million with large extended families. For the most part they are still and will probably be for many years renters. Still the demographics in the schools and hospitals will be a tremendous burden on the USA. I sold my condo in Camarillo, California back in May 2005 as I thought the market was topped. It went up a little since then but now is on the way south. The lady, a single mother worked two jobs and had an ARM. It is back on the market for $4000 less than I sold it for and will probably go lower as she is on the verge of default. I am in construction in the Santa Barbara area and it is much slower than last year. I am not saying the sky is falling but the cloud level is defiantly dropping. With my cash out from my condo, I did buy some gold wish I would have purchased much more but listened to my realtor too much instead of going with my gut feeling. Also, just purchased a loft apartment in Buenos Aires, Argentina. 1100 SQ feet for $65,000 a 105 year old building completely refurbished. I can no longer afford to live in the US with the property prices here and retire so I looked for the country most affordable and most like the US and they are both Argentine and Uruguay. Next month I will buy in Uruguay too as it is cheaper than even Argentina. The scary thing is before Argentina went bankrupt they had less debt than the US per capita and that was three years ago and we are still printing money like there is no tomorrow. Unlike many on this board I can live anywhere as my children are grown and I am ready to retire so this is just my own option. Also, as an opinion if you have cash I would take it out of the dollar as there are problems in the not so distant future not with just property which will plummet but with the currency that backed this bubble. Good Luck to everyone interesting board I don’t post much but do read it often.

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