Housing Bubble ‘A Question Of Facts And Evidence’
The Union Tribune in San Diego has this on predicting the housing bubble. “Although the Anderson Forecast has long been dour about the housing market, the most recent data suggest that the recent home-price boom is coming to an end. The Anderson Forecast has been predicting a slowdown in home prices since mid-2003. To many of its critics, such warnings sound a bit like the boy who cried wolf.”
“‘We’ve gotten lots of hate mail,’ Thornberg said. ‘The letters go something like this: ‘Dear Mr. Thornberg, I listened to your prediction and sold my house a month ago, and now home prices are up 35 percent. My wife hates me. You’ve ruined my life.’”
“Thornberg added that in an irrational market, as real estate has been for the past few years, it’s hard to make an accurate prediction of when a slowdown will occur. ‘It’s like trying to predict what a crazy man will say next,’ he said. ‘If you could do that, it would probably mean the man wasn’t crazy.’”
And Rich Toscano takes on the issue. “A recent article on the endless housing bubble debate quoted California Association of Realtors economist Robert Kleinhenz’s criticism of the UCLA Anderson Forecast: ‘in 2002, 2003, 2004 and 2005, they said ‘housing bubble, housing bubble, housing bubble, housing bubble.’ So they got it wrong four years in a row.’”
“Kleinhenz’s reference to past Anderson Forecast analyses reminds me very much of a typical reaction I have observed when talk turns to San Diego real estate. ‘They’ve been talking about a housing bubble for years,’ says the listener with a dismissive wave of the hand. And thus, like magic, are fears of a home price decline put to rest.”
“This attitude makes little sense. For one thing, it’s not exactly clear how what ‘they’ said in the past is pertinent to what’s actually going on now. This is, or at least should be, a question of facts and evidence, not of who said what and when they said it.”
“But more importantly, people who employ this reasoning are misunderstanding what one actually means when one claims that there is a bubble in the housing market.”
“To say that there is a speculative bubble in a given asset class is to say that prices of that asset have been driven to unreasonable heights based on exaggerated expectations of further price gains. It is also to say that when those lofty expectations finally fade, prices will revert to more reasonable levels. But what happens between now and then is anyone’s guess.”
“If further price increases take place after a bubble is identified, it doesn’t mean that there wasn’t a bubble in the first place. It simply means that, as overpriced as the asset may have been in the past, it’s even more overpriced now.”
“Those who have asserted the existence of a San Diego housing bubble in the past few years may end up being wrong. But they may also end up being right. There’s simply no way to be sure until this whole thing plays out.”
“In the meantime, before dismissing the claims of seemingly premature housing bears, remember the Economist magazine’s two rules of asset bubbles: that they always last longer than anyone expects; and that they always eventually burst.”
My uncle used the same argument about smoking for years — until he had to have quadruple bypass surgery.
I’m afraid, as a former smoker (9 months and counting), I sympathize with your uncle. If I had a big enough place, I would definitely resume smoking. Can’t with little animals in a small apartment. I stopped for them.
Who wants to live forever if one is miserable? Smoking softens the “real” world dramatically.
Anton:
Call the suicide prevention hotline now!
The last thing we need is suicidal housing bears.
Smoking burns your lungs and makes your eyes water. How does that soften the “real” world except through distraction? Why not slam your fingers in a door, that would take your mind off any problems, no?
In all seriousness, though, I never did get why some picked smoking as their vice of choice. I’ve always thought alcohol offerred a nicer reward for lesser side-effects.
“Unemployment rates have been steadily improving”.
Does anyone know how long it takes to save enough money after being hired by Walmart to afford a decent home?
Comment by stanleyjohnson
2006-05-04 12:43:22
“Unemployment rates have been steadily improving”.
Does anyone know how long it takes to save enough money after being hired by Walmart to afford a decent home?
______________________________________________________
It shouldn’t take you anymore than 3 years to save 250k to by a modest house as a fulltime Walmart associate. Really…. it’s true. Haven’t you heard how great the economy is doing? Curious George Bush says the economy is roaring.
Both parties hate you. You are the rabble to them. The only differenec between you and them is that they hold politically powerful offices which allow them to be the non-rabble. They pander to you to get your vote so that they do not have to step down and become one of the unwashed masses like the rest of us. Both parties are bereft of any righteous bone.
Absolutely!
No! My party is great! The other party is out to get us! All of us!
They would never use to manipulate us! Even when could be done! Never! They love me! They told me so!
I detected cowardly republikkkans using smoke and mirrors as their leaders actions are indefensible.
Anyone who uses the word ‘republikkkans’ is easily dismissed as a fanatic, sir.
There is a party? When? Where?
There are two parties? When? Where?
How come you didn’t invite me? Aw geeze, word musta got out about that cosmic fart in the switch control room. I didn’t mean to bring down the DAP honest! Come on, I promise not to fart, I won’t even eat beans or cabbage or anything for a week. I won’t even talk to any trolls, I promise.
purty please with foreclosures on top.
Bull$hit
What this issue reminds me about is that those who can actually make a difference in asset bubbles like to pretend it occurs in some spontaneous vacuum. For instance; Alan Greenspan warned of ‘irrational exuberance’ in 1996, I believe, but didn’t do anything to stop the stock bubble from forming. He’s on the record saying he would do it the same way all over again.
How many of these things must be endured before those with their hands on the money spigot realize how damaging these episodes are?
How many of these things must be endured before those with their hands on the money spigot realize how damaging these episodes are?
Why do you assume that “those with their hands on the money spigot” are out to help anyone but themselves?
I know what you’re saying, but these guys testify in front of congress about their ‘mission’, ‘price stability’ and ‘goals.’ At some point they have to accept accountability or blame, IMO.
In the course of your existence when have you ever seen anyone in Washington accept accountability or blame. I for one have never seen it.
If I remember it correctly, there was an expression that “It’s better to forego the glory than to get the blame.”
usually the spigot controllers are getting rich and are not feeling the damage.
No kidding. G-span is off earning, what, $100,000 a speech now? Andrea and Alan could probably afford their own private island somewhere … and maybe they should move quick before this whole thing unravels any further. You’re going to have a lot of pissed off people losing their homes in the next couple of years.
Ben ..they know!
And that is the way they want it!
96% loss in USD buying power is not a mistake
facts and evidence!!,this country is faith based!there isn’t anything in the bible about housing bubbles,if you don’t believe me ,ask george bush.he’s a christian and surely you don’t think he would risk his immortal soul by lying!
That is a stretch.
“ask george bush.he’s a christian”
Correction. He’s an authoritarian posing as a Christian. There are more democrats in the bible believing Church I attend than anyone else.
Are you joking??
No joke.
Please don’t turn this blog into Daily Kos.
Comment by TRich
2006-05-04 13:21:03
Please don’t turn this blog into Daily Kos.
______________________________________________________
But rightwing.com would be ok…..
I for one am tired of your wild-eyed tirades about ‘republikkkans’. Why not take your ‘chimpy mcflightsuit’ observations to a more appropriate venue?
LOL. Well said dicean.
More republikkkan cowards desperately attempting to stifle any criticism. Typical.
Don’t forget the Bible story about Joseph’s interpretation of the Pharaoh’s dream (seven good years, seven bad years, etc). The seven bad years are about to commence for the housing bubble.
And let’s not forget Noah’s flood. Rains will come soon and dampen this bubble!
the pretense of christianity is NOT Christianity!
Mr Stone you don’t become President in this country without spitting on the cross..
I say: “San Diego condos for everyone!”
Hey Jack…Where you been ??
‘Dear Mr. Thornberg, I listened to your prediction and sold my house a month ago, and now home prices are up 35 percent. My wife hates me. You’ve ruined my life.’
So he implies his house was worth 35% more in just one month. Yeah, right. Hey, buddy — I got a gen-yew-wine Picasso I can sell you cheap.
Yeah, and just tell her she is talking out of her ass and to sit down and shut up and not be so greedy….She would have cut your balls off if you had waited until now to sell it and can’t get ANY offers….Dumb Sh t
>To many of its critics, such warnings sound a bit like
>the boy who cried wolf.”
I was in the computer tech business in the SF Bay area when the 1990s stock boom was going strong. I *knew* that stock prices were going *way* beyond ‘reasonable’ value (especially NASDAQ tech stocks), and I decided to divest from stocks early in 1999. However, due to a combination of laziness and greed (and listening to Bob Brinker), I waited to pull out, and finally divested early 2000. As it turned out, I got lucky and sold near the top. However, that whole last year, (and even before), there was a voice saying in my head “this is crazy, this is crazy, this is CRAZY! Sell, sell, SELL!”
I tend to think that timing a bubble top *exactly* is *always* a hard thing to do, as what you are actually timing is the populace’s emotional reaction to financial (and other) events…sometimes these emotions can turn on a dime, sometimes they are more like turning a supertanker. These reactions are not always rational (and that’s why you can get an overshoot on both the upside and the downside).
But we should always remember that “bubble” doesn’t mean, “look, it’s popping, we were all right about it”. It means “there is way way WAY too much risk in that sector, so no thank you, I’ll sit this one out, even if I’m not proven right this week (or month, or year).”
Risk management 101…
In 2000 blogging was essentially non-existant and all your info came from main stream media. We are much better positioned in 2006 to identify bubble tops..
But how long has Ben had this blog? I’m assuming that he (and the long-timers) have been preaching, “the bubble is coming, the bubble is coming” for one, two, three years (or even more). I’d assume that it would be hard to be a bear when others around you are making insane profits year after year from flipping houses. My point is, even if prices keep going up, it doesn’t mean that “the bubble” is a false notion. The risk is still there (and possibly even worse). I would argue that the risk was way up two (or more!) years ago, and got even worse as the market failed to correct. So in that sense, the “premature bubblistas” were still correct (even though they faced daily ridicule).
I started my first blog in October 04, and my first HB blog in December 04. I didn’t even turn on the comments for a couple of months because I had zero traffic. Spring of 05 was when Arizona went through the roof, so it wasn’t hard to know what was going on, with people buying multiple houses, sight unseen.
Nice job hanging in there BEN….
i started to read this blog in spring of 05 and sold my so california home in aug 05. now i am renting in nw az. waiting to buy. equity nomads rule!!!!
Interesting coincindence — like AZRenter, I starting reading Ben’s blog around March ‘05. Rented a place in June ‘05 and sold out and closed in Aug. Also waiting to buy, but very patiently, having convinced my spousal unit (how’s that for sterile!) that this is a good thing to do. In terms of financial reward relative to time expended, Ben and his blog (with fair respect given to Patrick, David and others) are the best things that ever happened to me. I feel a bit like one of those folks in a car wax testimonial, but it’s true. (OT, I love the one where the kid has to choose between the cheerleaders and the nuns with Eagle One — an all-ttime great commercial, IMO.).
I have been screaming about the bubble on various radio shows for years. Ben was nice enough to come on a year ago and aggravate listeners with the truth. My friends (?) dubbed me “Chicken Little” and I’ve lost many cases of been trying to predict the timing of the burst. Ben’s blog and recently Rich’s have struck a “tin-foil hat” chord with me. There’s an old legal addage that describes people who deny the existance of a bubble: They selectively use the evidence of a bubble “like a drunk uses a light pole. . .for support rather than illumination”.
in my country (NL) talk of a housing bubble started around 2000; the bubble was nearly 10 years old then and had started to spread to the outer regions of the country. All signs of a mania were present (e.g. for a nice apartment in Amsterdam you had to overbid within 10 minutes after it came to market, with 20 other prospective buyers with their agens/lawyer running around at the same time).
Because of the huge price increases - even then they were already bigger than they are now in the US - many people who discussed the subject on investor websites were expecting sharp price drops within 1-2 year.
But nothing happened - there was a mild correction in the hot areas, but thanks to even more funny money from the ECB (and probably also thanks to the introduction of the euro) average prices kept increasing and they are now 2-3 times higher than in 2000.
This probably silenced most of the housing bears. Talk of a housing bubble almost disappeared in the Netherlands, and it’s the same in most of Europe (maybe with UK/Ireland as the exception). I think it’s at least a year ago that my newspaper even mentioned the subject one time.
There is far less ’speculation’ here (nobody keeps track of speculators) but sometimes I get the impression that a large % of the EU population owns at least a few vacation homes or apartments in the EU periphery - all financed with the equity gains from their native housing bubble.
Chip, I’m in about the same boat — started reading Patrick, then Ben around late winter/ early spring 05 - my inner fiscal conservative was screaming “this is nuts!” but couldn’t find words for what was going on. Patrick and Ben cleared the fog. Now watching similar apts in my old neighborhood drop in value way beyond what I’ve spent on rent. That I’m grateful is an understatement.
I first heard about the “Housing Bubble” in 2002 - from an acquaintance in SD. I then ignored it, until the bubble started happening in the Chicago - Milwaukee corridor - more land than people can plant. Found Ben’s Blog, The Patrick’s, Then old articles posted on the web from 2002. (see attached) There were voices yelling and the majority chose to ignore. There was easy credit to the extent that the FDIC expects a 10% default rate on all mortgages generated in the last 2 years (previously posted - Fed speak a 10% recession is 10% losing their house).
http://tinyurl.com/r2xhs
What????? I was reading blogs for 10 years before the term ‘blog’ was invented! It took me a few months to figure out the newbies were just calling privately run ‘bulletin boards’ something different. The style overlapped with Usenet and the dialup modem “BBSs” of the 1980s. The DrudgeReport broke the Lewinsky story in 1998, and it had been sent around via e-mail for quite a while before that.
>dialup modem “BBSs”
Heh, heh, Fidonet, et al…those were the days…
my USR 14.4 was way fast!!!
Remember those AT commands???
Sometimes we have to take a step back and see how far we have come in so little time.
This bubble has been running strong for years, that is why it is so entrenched, the psychology shift is like turning around an air craft carrier.
Remember last summer? This baby was in full swing, condo parties, lines at the open house doors, contracts signed on the backs of cars, over bidding, ‘condoflip.com’, etc…
The shift is in, now it is the lackards who will be left holding the bag, it won’t be pretty for them, but they are clueless anyhow.
Very fortunately, by this time last year, Ben’s blog was running strong and a number of us saw the “time to get out of Dodge” message pretty clearly and did just that.
“Remember last summer? This baby was in full swing…”
That reminds me, who’s feeding the squirrels??
I remember that one, when it was current. Something like Edgar Allen Poe meets Saturday Night Live.
Patrick’s site had a link to a Washington Post article today: Reasons Change for Refinancing. Here are a couple of excerpts:
About 88 percent of people refinancing their homes took out loans for at least 5 percent more than their original balances, according to the latest quarterly review of loans owned by Freddie Mac
“The short story is that everyone has a ton of equity,” said Glenn Schwartz, president of Vision Mortgage LLC in Rockville. He said local homeowners are refinancing to arrange fixed-rate mortgages, get cash for home improvements or, in some cases, to buy beach houses. [smart move!]
Ira Rheingold, general counsel of the National Association of Consumer Advocates, said he feared that some people are spending too much of their equity, which could leave them financially exposed.
Mahesh Desai, 38, who sells software, decided that because interest rates were about to rise, it was time to refinance his house in Darnestown. He had a three-year, adjustable-rate loan at 3.625 percent, and he knew from news reports that rates that low were coming to an end.
“I’m still going to have sticker shock in my next payment, but I’ve enjoyed lower rates for a while,” Desai said. “Guess the party’s coming to an end.”
His new rate is 6.625 percent, and the monthly payment will jump 72 percent. It is an interest-only loan, but he will be pressed to afford the new payment, even without paying down the principal.
“I’m going to work harder and sell more,” he said. “I don’t have a choice.”
As to that last bit, software sales reps make on average $180-250K/yr. That someone making that kind of money would find himself living hand-to-mouth is a sign of how bad this situation has become.
And another thing! Since Realtors have been telling us for the past two years that low interest rates were one of the “strong fundamentals” behind rising home prices, do you suppose they’ll now say that the converse holds true and that higher rates will lead to lower prices? [rhetorical question!]
But it’s all about your monthly payment payment!
Lower prices + higher interest rates = higher prices + lower interest rates.
Unless prices drop significantly while rates are going up you can still end up overpaying because when it’s all said and done it’s all about how much the house cost you over the length of ownership, not the initial purchase price.
You must be joking right? You need to learn some Time Value of Money skills. It’s not the interest rate, it’s the principal. This subject has been discussed many times here and on piggington’s site.
“Time Value of Money” should be taught in high school and a very basic understanding of it should be a requirement for a diploma, IMO. Best stuff I ever learned, relative to personal wealth and finances. Second place goes to the calculators like Calculated Industries’ Qualifier Plus IIx (or current equivalent) that make it easy to sort the bull from the truth in mortgage payment/amortization touts. Amazon sells ‘em cheap — wouldn’t consider a mortgage proposal without one and they give you great ammo for refuting dubious financing claims on blogs.
Jim: It is NOT about the monthly payment. It is all about the principal. You see, if you buy an overpriced assett, even with interest rates at 1%, you still have to pay other charges like taxes and insurance on the overpriced amount. These will be significantly higher. Also, you will have no wiggle room. You will never be able to refinance, or even sell. The reason for this is that it will be very hard for you to beat the interest rate, and when prices drop, the comps will not support a refinance.
Now, lets say you bought the same property with a high interest rate, but with a low cost basis. You will be paying the same amount a month initially, but your taxes, and insurance will be lower. Also, if interest rates drop, you will be able to refinance to a lower interest rate, reducing your monthly nut, and keeping your taxes and insurance low. Now, lets say that you need to sell. You will have to either put up a smaller amount in the closing table, or will have some equity left over from where you lived there (depends on time of ownership). If you do not think that you will need to bring money to the table, ask those numnuts who bought condos in Boston last year that dropped 40% in value, and come back to me with that!
Lastly remember that banks will negotiate interest rate reductions, but most certainly will NOT negotiate principal reductions.
I just received an lengthy article from my bank (Dutch ABNAMRO) that explains that for every 1% rise in interest rates, home prices will only drop about 3.5%. And they think there are many other factors that will push prices up further so they don’t expect any real decline.
that’s funny, because up to recently, home prices would go up 20-30% for every 1% drop in interest rates … We now have a 4% rate for 30-year fixed mortgages here, so I would guess that a 1% increase still leads to at least 20% lower prices (the monthly payments, remember …).
Of course, with increasing interest rates home prices can be kept up with even more funny money and fraud, so the banks will do just that
It is called greed. Need to have all the material things in life because I have no self-esteem. Marketing is seductive and I am emmenintly seducible.
By the way, greed and false pride are 2 of the seven deadly sins.
Greed killed the pig……
Pigs get fat. Hogs get slaughtered. . .
Living hand to mouth is just as easy at $30,000 as it is at $300,000. All you have to do is spend a dollar more than you earn. Amassing wealth isn’t about making more (but most people think it is) it’s about spending less than you earn. One of the first lessons a good financial adviser will give you is that you and Mr. Gates have the same amount of cash 100% of what you have and what you will earn. It’s all how you allocate it.
Anyone who doesn’t figure it out with a small amount probably won’t with a large amount either. That’s why most lottery winners are bankrupt so quickly.
The situation is the situation, and the potential is there to do things that humanity hasn’t been able to do for mellinnia. Every change brings with it a problem and an opportunity. Once you learn to manage the problem and evaluate the opportunities the things that life throws at you seem a whole lot smaller.
“That’s why most lottery winners are bankrupt so quickly.”
And some NFL gits, boxers, rappers…
I never understood that. If I won the lottery, I’d just buy a house with cash, a prius, bank the rest and keep working. Ok and buy one pair of prada shoes just because >; )
Actually, I’d buy the LAND with cash and call in an architect.
The main objection I have to McMansions is their ill design, not their size. No insulation and no eaves means high air conditioning costs in someplace like Sacramento.
That is if you sell anything. Yes, top sellers will make pretty good money, but I think that the average is quite lower than that. It all depends on the industry that you happen to be in, etc. Base salaries are lower, but income from comisions will make up the difference. Also met a lot of software sales that did less than 50K a year due to either very cheap/low end stuff, or very high end that required several years to sell.
Two sweet youngish single girls at work have bought condoes this week. All happy talk at work!
I laughed and one asked what at? Colbert Report.
Who? never heard of it…
Daddy helped out with down payment.
First one asked my opinion and i gave her link to this site.
I give up man, they are both sweet girls with parents who made big $$ in RE.
Easy come easy go .
I am baffled as to why the Anderson kids softened their forecast. Just as their dire predictions are finally beginning to come to pass, they seem to have capitulated and joined the soft landing camp. This despite having been a proponent of the second biggest anti-soft landing argument: that so many jobs are tied to a robust RE market. (The first argument of course being payment shock due to imminent loan resets, which I heard the Andersoners are ignoring because of its lack of historical precedent and thus the difficulty in forecasting its effect).
Am I just imagining things, or did they used to be a lot more bearish on housing? If the latter, then why the change?
rich
somebody probly offered a big “grant” to shut the hell up? let’s face it corruption breeds corruption, and lately it is from the top down in the good old us of a.
that’s CatSPIT!!
Ah yes, the conspiracy theories abound. Just think of all the movie making material Hollywood will have when the dust settles.
If it is not an act of God, then it is a conspiracy. My goodness, get real.
Biblical acts of God probably WERE conspiracies.
rich
even profs (like roach) get tired of their arguments! what they see and what they think is so diconnected that they give up I suppose! They succumb to reality!
There are very few people in this world who stand by their logic long enough.
“Am I just imagining things, or did they used to be a lot more bearish on housing? If the latter, then why the change?”
I’ve written this before, but about six months ago I heard an interview on the radio with Thornberg. He said something to the effect of “If you buy a house for $700,000 today, it will be worth $700,000 in 4 years.” which implies that either prices are going flat, or there will be a short drop and quick increase back to these prices. After everything I had read from him previously, I was shocked by what he said, and thought I might have misheard him. But since then he’s really gone into the soft landing camp. Maybe he got tired of the hate mail, or didn’t want it to escalate to death threats.
I suspect that he is one of the people who believes that the Fed will inflate the dollar at a rate unseen since Jimmy Carter’s days. The desired result would be a virtual halving of USG debt to overseas investors and a huge swipe at Social Security liability facilitated by cost-of-living increases less than true inflation. So, your $700K home will sell for (don’t use “is worth”) $700K in X years when the dollar is inflated to half its present value. Joe Sixpack will never, ever, figure that one out. He just knows that, somehow, he can’t afford squat anymore. Neat trick in Budokhan.
It really does not make since to me either. The inventory in San Diego is just now getting to critical levels and shows no signs of abating. We are just now hearing the rumblings of foreclosures hitting the market. The HB’s are bascially in melt down on wall street. Its not like these trends have hit a plateau. The worst is yet to come.
This downturn will be different than the last downturn in the late 80’s. We don’t have the shock of defense cutbacks. But the fundamentals are literally twice as bad in regards to home price to income and home price to rent. IMO the true downturn will occur once we hit a critical mass of inventory, foreclosures, and HB fire sales. I am speculating here but if San Diego goes into 2007 with 10 to 14 months of inventory, increased distressed sales from foreclosures and panicked HB’s, that will impact home prices. Currently all of those trends are in place. I don’t know maybe I’m missing something here.
Rich,
My guess would be that they are afraid of being blamed for “causing the housing bubble to burst.” As absurd as that is to all of us here, there will be LOTS of people armed with lawyers looking to get their money back, and then some.
At least, that’s my best guess.
Your site was one of the first I saw in 2004, Rich. THANK YOU!!!
I noted the same and posted here. My take is that they now know much more today and updated their view. (they know the recent news of what the fed is doing, the dollar falling, gold going up, other countries rasing interest rate, global economy and connecting the dot?)
Another could be that things are coming down much faster, so they , being more public figure than Dean Baker, wants to moderate the environment.
Their latest view I know is that those who bought recently will sell for that price in 2011. Even that is not positive. In SO . Cal prices doubled in many zipcode in 2 years!
So what he is saying AFTER five years the owners can sell for same price! Due to inherent market dynamics, it is very unlikely that price can be same for all these five years.
So it must be declining and then climbing up?
I am tuning to Itulip.com as a second voice…my2cents
Good point - maybe they are factoring in higher inflation to even out “real” home prices.
But I agree that prices can’t just hang in there. The only reason people are willing pay such painfully high prices for housing is that they think prices will go up even more. Too much stagnation, and people simply won’t pay these prices. (That’s not even to mention all the ARM-holders who are counting on equity gains before their mortgages reset).
rich
I think the change is due to improved economic outlook in sectors other than real estate. Job creation is a bit more than decent right now. Wages are starting to go up again, slightly. Back in 2003-2004-2005, job creation was often disapointing and business investment was tepid.
So my guess is that they think that if the bubble burst now, as it seems to be doing, the blow will really be softened. Whether that prevents a recession or only postpone it, for the next year or so, I think we’ll be ok (nation wide).
Rich:
You make a good point.
Bears capitulating is part of the cycle.
They have some professional pride and get tired of getting hassled with broken clock jokes quite a bit.
So they tow the line of conventional wisdom to lessen the heat.
Being a contrarian and right means you are ridiculed on the way up and cannot brag about the smoking deals on the way down.
A little off topic but worth a look…………
On this page…….http://money.cnn.com/2006/05/03/news/economy/realestateguide_fortune/?cnn=yes
go down in text to the slide show……..it’s a graphic illustration of how over priced housing has become in the areas that are often mentioned on this blog
“Those who have asserted the existence of a San Diego housing bubble in the past few years may end up being wrong. But they may also end up being right. There’s simply no way to be sure until this whole thing plays out.”
It is over when the consumer can’t afford the house that they are in because they can’t pay the tax man, the car repairman, the doctor, the divorce lawyer, the gardener, the cleaning bill, buy groceries, buy new clothes, take a vacation, etc. And if it goes that far out the nation will be in the pain of ‘29.
Rich Toscano did his usual great job of cutting through the fuzzy thinking surrounding the bubble. One reason they tend to last longer than predicted by the visionaries who first detect them is the pile-on effect which occurs towards the final blowout, as an increasing number of former skeptics join the rest of the lemmings herd in the final race for the edge of the cliff. The pile-on effect tends to drive prices up parabolicly until a breaking point is reached, when all the factors which mutually supported the bubble runup simultaneously implode.
I love this story because it seemed like for so long the Union Tribune and North County Times refused to report much in the way of bad housing news. And it was good for a long time.
This got my brain thinking that one clear indicator of a housing bubble popping has got to be the frequency of its mention in the mainstream media these days.
Maybe someone can verify this but it seemed like in the olden days of this blog we’d see a few smatterings of pre-crash articles some times from obscure sources. Now, if you miss a couple of days there’s almost too much news to catch up on in the blogs. Mainstream media is almost starting to sound like some of the blogs…imagine that.
Now that the crash is happening it’s almost like watching a movie that you’ve seen a hundred times before but can’t stop watching it over and over again.
It is kind of surreal watching something so potentially enormous playing out in real time. I was oblivious to the last housing bubble, and not very attentive to the details of the last stock bubble, but I’m looking to THIS bubble as an educational experience. However, as interesting as it is to watch, I’m still fearful for the hurt it will cause some people…
Actually I know of one study that did just that. They wrote a computer program that checked all the daily papers around the nation for the word “housing bubble” and its frequency of use mimiced the run up in prices, this study was running for the last few years.
As far as San Diego, I live here, and I can tell you the home owners who bought in the last 2 years (first time home buyers) that I work with, are begging renters like me to take our overtime. All they want to do is WORK WORK WORK. They can have it, I’d rather enjoy life then spend it working 24/7 just to “own” a house.
Lets be real, the house owns them at this point. While I’m out renting a jet ski for the day on Mission Bay, they are at work.
Did everyone click through to the graphic with that story. I find it interesting that there is a regular cycle of booms and busts apparent in it. Every 10 yrs. or so, the bust seems to start and last several years … then the next boom.
What’s REALLY interesting, though, is that each boom and bust seems to get more powerful. Or put another way, the gains during the boom period got bigger in the 80s than the 70s and bigger in the 90s/00s than the 80s. And the bust period of the 80s appears to be deeper than the 90s. Given the completely out of control nature of this boom, this could be one whopper of a bust.
Mike — sorta’ like our hurrincanes.
(How long has Ben had this blog? I’m assuming that he (and the long-timers) have been preaching, “the bubble is coming, the bubble is coming” for one, two, three years (or even more).
I’ve been worried that housing has gotten out of line with income since 2002 or so. I advised friends not to purchase homes. They did so anyway and think I’m an idiot.
In the long run, I think those who bought in 2002 and 2003 overpaid, but they’ll be OK. Like those who bought stocks in 1997 or 1998. Those who bought homes in 2005? Not so good.
Ben has been running the blog since about November 2004, if I remember correctly. For the longest time, till about May of 2005, if I remember correctly, he just posted articles. There was no discussion. I was actually the first person to post a comment on his articles. I read them for several months before I posted and nobody replied to the first posts. It was just me and Ben. My, how things have changed. It has been a real life experience to watch this all unfold.
Tweedle-dee — Now THAT is lurking. Have not seen you post before, but I didn’t tune in to Ben until March ‘05. Heck, you even pre-date my long-time favorites like Melody, Deb and Goleta.
And let’s not forget Bolderbo and RE King. (Sorry to mention them in the same sentence.)
I went back to some of the old blog entries. There is a link to them on the right hand side of the page. It’s called ‘Old Site’
Rightly so, Rich Toscano was the first to write a comment:
“Hi Ben - Nothing on this post in particular; I just wanted to say that I think that this is an excellent website and I’ve taken to checking it every day for juicy tidbits of info. Thanks for your efforts.
Rich
(aka Professor Piggington)”
Well said Rich, and it’s only gotten better over time.
I used to post by the name “me2″ back before registration was even required. There was a guy by the name of John Law (a reference to the guy from England that drove them to financial ruin) and a few others of us. I wonder if Ben archives this stuff ?
I used to post quite a bit. We used to have debates over whether we would see deflation or inflation when the bubble finally popped. Lots of discussion about holding gold, which I now have quite a pile of and have made good money from recently.
This is an excellent site. There was nothing like this that I found during the dot com run up.
Boy time flies. I’ve learned a ton through all this and will be passing it on to my children when they are old enough. It is funny to see how SLOWWWW these bubbles travel through the media and finally to the mass public. When Ben first started this site, there wasn’t 100 people in the country that thought we had a bubble. Shiller, of course. The San Diego Bubble guy. Ben. And a few others of us.
I remember being extremely frustrated after going to a party and people thinking I was a total fool for even mentioning a bubble. These were the days when the press was totally discounting that such a thing could even happen. Now it isn’t so radical to talk about it.
There are probably hundreds more like me. I have been reading this blog for years but never post. I first thought there was a bubble in So. Cal. in April 2003. Still, I wish I had been more blind because I would have bought a second twnhm. that year and I am not sure housing will go down to 2003 levels.
I am reminded of a quote from “Jurassic Park” where Malcom says something like, “God, I hate being right all the time.”
I did think the bubble would have peaked years ago but I underestimated the amount of shortsightedness and stupidity of the masses with regards to I/O loans. I thought, “Could they be that crazy?” Answer: Absolutely.
I was a frequent visitor and sometimes contributor to Patrick’s website. I would say I started that in 2003-4. I started reading Ben’s since early 2005.
I recognized that there was something wrong when I moved out of Michigan to Sacramento and saw people lining up to get on the Builder’s list in Mid 2002. I did not name it bubble then but hindsight I guess that was the start of the mania and bubble had just surfaced for people with financial sense to notice.
John Law and I and others used to have great discussions. I couldn’t justify spending a lot more time here. I got the gist of it. It kept me from making a mistake. The reason I visit now is to get a feel for the timing of the pop and to figure out how to manage an investment portfolio through it all. I’m heavy in gold right now (25%) and oil (50%) with some cash sitting on the side. I’m wondering how much more the US dollar is going to slide and what will happen to banks, oil, etc. when this puppy really starts moving, probably in 2 to 6 months from now.
We haven’t seen anything yet. I believe the predictions/forecasts on this site are right on the money. I’ve got an MBA and I’ve taken classes in forecasting. It is very difficult to do well. Its been a real learning experience to see a large number of people collaborating and being so highly accurate, even in the timing of things.
Locally, construction-and mortgage-related jobs have been two of the prime drivers for employment in the past several years. But Ratcliff said any decline in housing jobs should be offset by increases in professional and technical services, wholesale trade and tourist-related jobs.
Isn’t the number around 80% for new job growth from the housing sector in the past few years in Califorina? When these jobs go poof, how are they going to be mitigated as Ratcliff suggests by tech, prof. and tourist jobs?
What a cheery outlook he has.
Wtih an outmigration of populous and the tech industry a shell of what it was and unaffordable housing for transplanted new hires a big issue, I’d be curious to know who is going to be hiring for all these magical new jobs. Sea World perhaps.
If you look at graphs in the SD Union Tribune article, it appears that the housing market tanked just before/at the same time unemployment went up. Don’t know how accurate that was, but IIRC, these things happened concurrently. The poor job market DID NOT cause the housing bubble to collapse; it exacerbated it, IMHO. I believe this will happen again.
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Speaking of jobs…
My family and I went to a local mall (North County Fair in Escondido) tonight. There were closed stores EVERYWHERE. We go there maybe once or twice a month for dinner, and I have noticed more and more stores being closed each time over the last one or two months. I was thinking that it was just my mind seeing things selectively, bearish bias that I have…but tonight was ABSOLUTELY STUNNING! I’m not one for hyperbole, so when I say this, I mean SOMETHING IS UP!!! Talking three (or more) restaurants in the food court, and **at least** 15 to 20 stores have closed that were open just a month or two ago, from what I can tell. In one mall.
I also have noticed the same pattern (but lagging) at another outdoor mall (Carlsbad). Haven’t been there in a while, so will check back this week or so.
Guys, I don’t know if this is just a local thing, so I am sending the request out to “Ben’s army.” Please go to your local malls and see if you notice changes in foot traffic, store closures, etc. and report back here. Perhaps Ben could post this for the weekend.
If what I saw tonight is more than an isolated incident, the consumption pullback will kick the hell out of our economy. I did not expect to see things move so quickly and drastically. I have NEVER seen a mall like this, even during the depths of the last recession.
Also, heard from more than a few people in the last three weeks (in LA and SD) that traffic seems lighter. Anyone else seeing the same?
Sorry so long. I will also repost this tomorrow. My apologies in advance…
Nope, It is happening around here in SE MA as well. The two malls closest to me have multiple stores that are empty, including some pretty big spots. One of them is an outlet that had over several years worth of waiting lists to get in.
The other one had a whole bunch of small stands in the middle selling junk like cell phone covers or stuffed slippers, and they are mostly gone.
The biggest impact are in stores that provide junk clothes for teeny boppers. Remember that they are the lowest rung in the employment food chain, and are being driven out by inmigrants taking low wage jobs from them, and downsized white collar workers that need a temp job to pay bills.
Has Fashion Valley filled in the Robinson’s May store location yet? That was one of their anchors that has been empty for a few months now, no?
Also seeing some of that here in PB, some empty stores in little outdoor shopping complexes. There’s usually high turnover here in my little neck of the woods save for a few entrenched restaurants/bars, but usually someone new comes along pretty quickly. But a number of the places have been empty for a while longer than usual now. (Which is doubly surprising seeing as summer tourism is starting up here… you’d think you’d want to start your new venture no later than June 1 to cash in on the flocks of college students and families… although Spring Break did seem light here this year… hrm….)
I’m getting more surprised every day by the striking difference between the US and EU housing markets.
While the US housing market seems to have turned south, the EU markets are starting a new surge up (after prior gains that are often far bigger than those in the US). Yesterdays Financial Times about the UK market:
“The rise in house prices appears to have accelerated. Over the past three months, house prices on this measure have increased by 4.5 per cent, which is equivalent to an annualised rate of 18 per cent. At face value that is not stability, that is the type of pace associated with a boom,”
And from anecdotal evidence, the Netherlands is much of the same. In my area there is a clear surge in asking prices (some RE agents simply ask 2x the price of last year to start with), inventory numbers have stabilized after increasing strongly for some years and many homes that languished on the market with ridiculous asking prices have suddenly sold. Thanks to some new subsidies, prices for starter homes have increased by about 25% compared to last year.
Prices are out of reach for almost anyone, unless you can use equity gains from other properties (many young people who buy do this with help from their equity-rich parents) or take out huge leverage. All the banks are predicting further price increases, so they are happy to provide mortgages for anyone who asks; real estate will never go down in Europe. And there is another surge in refinancing.
I think this year we will hear again that most of the foreign investment properties in for the yearly - extremely popular - ‘Second Home’ tradeshow (properties in the Balkan, Turkey, Spain, Dubai etc.) have sold out even before the show opens.
Let’s hope this is the final blow-off phase …
nhz,
That must be truly discouraging. Is it just the subsidies or ???? I can’t understand how it’s still going on over there after the increases you’ve mentioned (haven’t understood ours since around 2001, either).
What is going on with this world?
I think there is just one BIG cause: easy money. After 15 years of stellar gains, nobody can imagine that RE ever goes down again.
With official EU inflation at 2.4% and the effective rate for a 30-year fixed mortgage in the Netherlands at 2% (or shortterm rates below 1%) you can’t blame home buyers for making the obvious choice, it’s all free money
The starter subsidies only influence the low end of the market; that they push up prices enough to annihilate the effect of the subsidy is just like expected (although I’m surprised that this happens even befory the subsidy is official in the whole country). These subsidies only serve the current owners of ’starter homes’, usually well-connected individuals who own large quantities of cheap homes.
Comment by diceman
2006-05-04 20:23:07
Anyone who uses the word ‘republikkkans’ is easily dismissed as a fanatic, sir.
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But “dumbocrat” would be entirely acceptable to you. Thank you again for proving my point that you bush altar worshippers have capitulated and can no longer defend the policies of the party you so readily pledge allegiance to.
You know I’m pretty darn liberal - but you are coming across as a poorly trained troll - this blog is on housing bubbles - so unless your comments pertain to that topic please don’t post.
See the title in your browser ?
“The Housing Bubble Blog”
I have been bearish on RE since 2002, and have taken a lot of bovine fecal matter for it. Found Ben’s site when he first started. Awesome info. Also been reading Patrick for several years. Stopped me from buying in CA and found others with like thinking. Did reading before I ever made a posting. I appreciated everybody’s insight and comments. It is a nice place to have some stimulating, and interesting (with many different viewpoints) conversations. Kudos to Ben, and other great bloggers.
do i win a prize? i thought we had a housing bubble in summer of 99 in socal: multiple bids, houses sold days after listing. i told my wife, wait, the stock markets going to tank, noones going to have a downpayment anymore, unemployment will go up (we had and still have secure jobs) interest rates will fall, so we’ll be able to get more house for lower payments…
I am going to Yosemite in June. If that place is deserted then we know people are staying home. Usually you need to make reservations 6 monthes in advance.
When I booked gas prices weren’t 3.50 a gallon like they are now, I expect lots of cancelations.
I’ll let you know how empty the place is.