The Housing Bubble

“There’s no PR value in it anymore.”

Plus there is a decline in the rivers of subsidy. Short sighted long range programs require lots of extra money.

We based our way of life in this

This is Kunstler’s basic argument (never mind his apocolyptic doomerism for a minute), that this is a way of life that is unsustainable, economically and psychologically…

Warren Buffet and Google seem pretty interested in it.

Demand for Solar continues to rise, it’s only Chinese dumping that has destroyed yet another industry in the US.
We all know which direction the dollar is moving, you can buy 30+ years of electricity today at slightly inflated prices with solar panels. Anyone want to guess what electricity will cost in 20 years. With a declining middle class will that electricity be as reliable as it is today, see third world electrical grids and rash of copper thefts for answer. It’s not only corporate America that is short sighted.

The world is not running out of fosil fuels? Not true, and extracting the new sources we have found will cost more and more in terms of dollars, oil, and the environment see Fracking for details.

Cost vs similar Civic 4k more, incentive was about 1000
160k miles at 35mpg vs 50
4571 gallons vs 3200 =
13700 -9600 = 4113 dollars in gas savings.

Brake jobs 1 vs 2 based on my last car- savings of 600 dollars I think if I lived in a warm climate ie salt free I could make 200k w/o a brake job, the pads were fine the brake calipers froze at 115k or so. Cab company owner in Canada reported maintenance costs of 33% of standard gas cab.

Taxi experience
Grant — a one-time car salesman who, when he’s not driving, is studying to be an executive business coach — is on his third Prius now. (Toyota, seizing a chance to evaluate the car’s durability, took his original back after he’d driven it 200,000 miles in 25 months and exchanged it with a 2003 model, fully outfitted for fares.) Compared to conventional taxis, his current 2004 Prius saves between $900 and $1,100 per month in fuel costs alone, and his repair bills — thanks to automotive innovations such as regenerative braking, which reduces wear and tear on the brake pads — have been cut by more than half.
http://www.grist.org/article/sainsbury-cab

I’ve spent no money on maintenance other than oil filter s and tires. I believe the car will easily go to 200k.

If I factor in that my job pays me by the mile I am way ahead

Being “green” pretty much comes down to economics. While I don’t pretend to know the true cost of solar, I do understand technology to be moving in a positive direction…is it cheap enough? Depending on the alternatives in the area? Maybe.

Are batteries good enough to have the energy density to be a replacement for petroleum? Not yet to my understanding.

We are getting better at manipulating smaller and smaller bits of matter though, which will help in the development of these technologies.

Personally, the only thing I’m doing to be green are purely economically driven:

1. Over time finding good LED replacement lights for my house (in No. Cal., marginal cost of electricity is $0.35 per kw for “heavier” users; at that price, LEDs are WAY cost efficient). It is hard to find good LEDs that give the right color and dim well.
2. Going to look to getting the new Nest thermostat…should pay for itself pretty quickly, but will likely only get it in anticipation for next winter.

Beyond that, I haven’t seen great places to be “green” economically (I live close to work, so buying an expensive gas-saver doesn’t make sense).

“automotive innovations such as regenerative braking”

Sorry…..wrong.

“Dynamic braking” has been installed on diesel-electric railroad locomotives since the 1940s. The only difference being: in a Prius, the current produced by dynamic/regenerative braking is used to recharge the batteries, instead of being switched into a bank of resistors.

Speaking of which somebody updated to Firefox 9.0 recently and is looking for a new version of JT that supports it. I’m thinking at the rate they’re burning numbers you should put in up to 20.0 :-).

Speaking of which somebody updated to Firefox 9.0 recently and is looking for a new version of JT that supports it

Yeah, I got an email about that. Thanks for letting me know, though. Hopefully I can get to it this weekend, though life is crazy busy at the moment…

it was me jason.
don’t sweat the 9.0 as the 8.0 is still available–but not from mozilla

thanks again for all your help
(you too carl)

Agree.

1. The earth will survive. It might just be harder for us to live comfortably here.
2. Just like electricity generated from coal (where my money is in part going to hard working Americans)…I’d much prefer to send my oil money to workers in Canada or the US than overseas. I just wish we had the option.

The only other point…if we are going to get our fiscal house in order, we need to export more and import less…oil is a big part of that.

It might just be harder for us to live comfortably here.

Anecdote: Our daughter returned from her semester aborad last night (she took a side trip to the UK before coming home).

She of course had a suitcase full of dirty laundry and her first remark upon entering the laundry room was “clothes dryer, I missed you so!”

A lot of the world, even the first world, lives without creature comforts we take for granted.

Having used a British style washer and dryer combined in one unit I sympathize with her. Better yet get a natural gas dryer and discover that you CAN get blue jeans DRY.

Yeah, what is with the Europeans and no dryers? It’s humid enough over there that they need them a lot worse than those of us in the Rocky Mountains do, and I wouldn’t want to go without one here.

As soon as I got to Poland I was noticing the high level of funky smells on the locals. By the time I left I smelled the same way and it was from trying to air dry laundry indoors where it was a race with the mold and the shower towel never really drying out and getting a bit moldy.

“The environment could be more resilent than the sky is falling crowd believes.”

Or it might not be.

“So a part of the food chain that large is gone and yet the world does not end. There might be changes to the food web undiscernable to humans but no sky fell.”

You might want to talk to the Plains Indians about that theory.

RE: dryers

The ‘rents wanted to buy us one for Xmas/first anniversary. We got a fridge and washer for the rental, but no dryer. I think that they think that we can’t afford it, but in CA, who needs one? Plus, if we use the dryer, the economic and greenhouse gas LCAs on our re-usable diapers/nappies would not nearly be as good.

Maybe if we bought another car or house a house with cash, they’d realize that we’re doing fine and have chosen to live like freaks?

Anyway, back in the US so I don’t have to worry about stepping on a Huntsman spider in the dark anymore.

MrBubble

We have old fashioned steam radiators here and it drys towels and jeans out overnight…

By the time I left I smelled the same way and it was from trying to air dry laundry indoors where it was a race with the mold and the shower towel never really drying out and getting a bit moldy.

Okay solar experts.

How do your state-of the art panels hold up against golfball sized (or larger) hail? Or 70-80mph winds?

Curious to see what the insurance companies have to say about it. No point in installing the panels, if your homeowners insurance gets jacked up enough to eat all the savings.

According to the letters we get from the power company, we use 10% of what our “neighbors” use. I think any house that uses less than us is vacant. We’re very power-frugal. We do use a lot of natural gas heat in the Winter…And you’re right, our house is in hazardous situation and will most likely have a giant tree fall on it someday, but they’re not my trees

Curious to see what the insurance companies have to say about it. No point in installing the panels, if your homeowners insurance gets jacked up enough to eat all the savings.

Some insurance companies offer discounts as green customers are less likely to file claims. My take is there is not a big change in rates. How often does your house get hit by golf ball size hail. My reading on this suggests well built solar panels will stand up to golf ball hail. I read one report of a guy who got a new roof and new car but his solar panels didn’t get damaged.

Golfball sized hail is not uncommon. Out here in Tornado Alley in the average year, you will have golfball sized hail within 10-20 miles of any random point almost every year

You will see winds of 60-70mph plus 5-6 times a year.

Baseball/Softball sized hail? One year out of 5.

WHY are “green” customers less likely to file claims? Because they are usually more involved with the care and feeding of their solar panels, and have high deductibles, because they can fix minor issues themselves?

I’m betting any “green” customer discounts will disappear if solar ever goes mainstream. All it would take is one hailstorm trashing a few hundred million in solar panels…..

Typical Repair bill, for SFH hail damage in Tornado Alley:
-New roof…….$10K
-New gutters……$5K?
-New solar panels…….$20K?

Yeah, insurance companies are going to subsidize that cost, because they want to show how “green” they are…..

Re: chronic pervasive storm damage

why the heck don’t those people have metal roofs and storm cellers/safe rooms?

(i’ll leave the snarky remark about moving to others)

Can solar panels be damaged by hail?

While hail certainly could damage some types of solar panels, the likelihood is very small and occurrences are extremely rare. Many solar-electric modules and solar hot water collectors are made with tempered glass. Under standard test conditions they will withstand hail up to one inch in diameter, traveling at 50 miles per hour. Even in locations where larger hail does rarely occur, the hail is more likely to make a glancing blow to your array rather than a direct hit since panels are usually oriented at a tilt and facing south (in the northern hemisphere), which is most frequently not the prevailing direction for severe hail storms.

However, if you live in an area of the country where softball-sized hail is more common than in other areas and you are still a little nervous, you can make some further choices that will minimize your chances of damage. For solar electricity, consider using thin-film (or amorphous) photovoltaic panels. The substrate is a flexible plastic material and highly resistant to damage from rocks or hail. Any damage that does occur will not substantially affect the array’s performance. For solar hot water applications, flat plate panels or evacuated tube collectors can be mounted vertically on a south-facing wall where some shelter is afforded from the roof eave instead of the collectors being completely vulnerable on top of the roof.

In any case, damage to your solar equipment should be covered by your homeowner’s insurance policy, although you would be wise to review your policy’s coverage with your insurance agent in case you need to add a special endorsement.

Read more: http://www.motherearthnews.com/ask-our-experts/solar-panels-and-hail.aspx#ixzz1ht9CnVgG

“oxide is a realtor.”

I think Oxy is a scientist, no? Oxy, say it ain’t so!

Holy wow, Palmetto. Thanks for reposting.

I think I am going to spend some time this week writing down some goals and a three year plan with this graph in mind.

It’s a pretty decent graph and analysis, I’ve been using it as my guide, since it pretty much takes the emotion out of the whole phenomenon. Even with all the dicking around by government and financial institutions, it’s fairly good in its tracking. Notice where we are now. Capitulation has NOT occurred as yet. And we’re headed into that little plateau there just before the capitulation.
And it is my considered opinion that the capitulation will be more dramatic than portrayed, just as the prior phases have not been quite as dramatic as portrayed.

There’s a large pond/small lake behind where I live. Lately a black swan has been showing up and paddling around. Wonder if that means anything.

I think the “it took 8 years to get into this mess, it will take 8 years to get out” is silly.

I also think comparing the price movement of shelter to the price of publicly traded securities for investment is also silly. You can live without owning a home, sure, but generally people are still renting a place to live (and higher rent levels support higher housing prices). You can live without owning ANY stocks, so you can completely stay out of the market for much longer.

Pay attention to the non-current loans and foreclosure data. That is the best indicator for when we are getting through this mess.

On the West Coast, look at foreclosure radar trends for your market. Look at the LPS Mortgage Monitor for state-by-state and national data. Pay attention to local jobs, local population growth, local vacancy rates combined with new housing development. Look at local rental rates as the alternative cost for shelter to see if there is a lot more potential movement downward for home prices. Watch to see if NON-Agency lenders are getting back into the game (not yet in any appreciable way).

This data for the market in which you are looking will either cause you to start looking now, or sit on your hands for a few years. But if you are sitting on your hands based on a graph and one-page blog that was written in 2006, before Lehman/TARP/Bailouts/Low Mortgage Rates/All-Time Low Housing Starts/All-Time High Affordability/Rising Rents/the massive printing of money by the Fed, etc. you may be missing something.

I’m not saying “it’s different this time”…it never is. But the fundamental thing that is never different is that supply/demand wins out when it comes to price. Today, we have depressed demand based on ultra-negative psychology and poor job market, a difficult financing market, an unprecedented foreclosure crisis that is increasing supply of willing sellers at lower than equilibrium prices, and a diminishing overhang of excess supply (with some markets having almost no overhang left).

These negatives are starting to turn around…job market is adding jobs (at a slow pace), builder sentiment is slowly creeping up, financing is ever-so-slowly (and almost imperceptibly) thawing, new delinquencies are just about at “normal” levels, vacancy rates are falling (without much new in the way of construction), rents are rising (making purchasing more attractive). These things are, right now and in the aggregate, creating the foundation for the housing recovery…not another leg down.

Go ahead and flame on…

Yeah right.

So the only option is a repeat of the Global Housing Fraud years? I don’t think so. And of course you conveniently didn’t address the shadow inventory. Don’t bother because you’ll merely deny the existence of it. Look no further than your own neighborhood to see it.

Considering the massive and growing empty inventory(shadow, 2nd “home”) and the growing geriatric bubble headed for the grave, there is no bottom to housing prices.

Today, we have depressed demand

And artificially manipulated supply to attempt to maintain prices despite the depressed demand. Which will last longer?

RAL-

I’m primarily focused on CA, but here, where vacancy rates are not out of control, the shadow inventory is made up of approximately 600,000-700,000 homes.

This represents about 100k homes that are on the books of financial institutions, and about 600k “non-current” mortgages. Most of the “non-current” mortgages are full of people (not sitting vacant).

A “Normal” number of non-current mortgages is approximately 250-300k (there is always someone delinquent).

I don’t know what “normal” is in terms of REO (so I don’t know how far to go there).

20 months ago, there were about 900k “non-current” loans in CA. They have burned through half of the non-current loans in the past year and a half or so. The REO still needs to be sold through, but was reduced by about 10% over the past 6 months.

I’m not ignoring shadow inventory, just recognizing that it is being dealt with more efficiently in places like CA (non-judicial) than FL/NY, which are judicial in nature.

We have an aging demographic, not a shrinking population. There is a difference between the two. One does not imply the other. A shrinking population reduces housing demand, not an aging demographic.

IMHO, the Fed is allowing the manipulated supply to last as long as the financial institutions want it to last.

And when that aging demographic (which comprises a larger than typical segment of population) hits the funeral home, you have flat or falling population. I contend this trend is already in motion and nobody is paying attention to it.

Secondly, household formation, the main driver behind housing sales, is at a post WW2 low.

That flat/falling population won’t happen for a couple of decades at least (the first boomers are just becoming eligible for Medicare). Flat/shrinking population is not a near-term concern.

Household formation being low is a byproduct of poor job market, not of there being a smaller population. All of those people living with mom, basement of grandma, sharing a one-bedroom, etc. are shadow households, in the same vein that homes in foreclosure/on the books of banks are shadow inventory and can’t be ignored, these shadow households should not be ignored either.

They don’t have an impact on supply of households in the near term, but in the medium term, they will increase supply of households and demand for housing (rental or otherwise).

RAL:

Look at this PDF: http://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf

Page 3 specifically. The population pig is moving through the python. The difference between the light blue and solid bars (2010 census), and the outlined bars (2000 census) shows the population growth. When 2020 is compared to 2010, the width of the bars for those 70+ will be bigger than 2010, and when 2030 is comared with 2020, the size of the bars for those 80+ will be bigger than 2020.

It will take time for your flat/decreasing population to take hold…in the meantime, how much $ is the Fed going to print to hit their inflation targets of 2.5-3% per year (which, all else equal, over 20 years means things get between 65% and 80% more expensive)? Will the Fed overshoot and make it even worse?

The 65% to 80% over 20 years is if the Fed hits their accepted and targeted numbers PERFECTLY and doesn’t overprint.

“That flat/falling population won’t happen for a couple of decades at least (the first boomers are just becoming eligible for Medicare). Flat/shrinking population is not a near-term concern.”

BS.

Combined gender life expectancy is 78 years. Boomer age is currently 61-65. A good number of those ALREADY retired and are looking for adult living housing(nice way of saying mini-condo). Case in point? My brother and sister and their contemporaries have all been retired since they turned 57, drew pensions and jumped on SS early. They drove the housing prices to extremes when they retired 5-10 years ago and they will drive them into the ground as they vacated their “retirement dream homes”(oh Martha!).

And you’re dead WRONG on household formation. If it’s not driven by population growth then it must be martians that occupied all those houses during the first few post WW2 decades.

A demographic analysis shorn of an economic analysis is sure to be misleading. So, accepting RWs claim that there’s this pent-up demand for household formation currently living in the basements of grandmas around the region, state, nation (take your pick), what’s causing that demand to be pent-up? House prices and borrowing terms are only two inputs in the equation; the third key input is salary. And, what’s lacking is good-paying jobs. You so easily assert that jobs are increasing, and I’ll just say maybe. But no one claims good-paying jobs are increasing. So, the big problem is that the PTB can manipulate loan terms, and they can develop housing programs, but if they do not plan to pay the mortgage for the next 30 years, they’d better have a way to get the homeloaner into a good-paying job. As far as I can see, no politician and no banker has any commitment to do that.

So, we ask, without good-paying jobs, how are the current home prices going to be sustained when that pent-up demand for household formation finally expresses itself and tries to buy (or even rent) a house?

I don’t see it. Perhaps you can clarify.

IAT

Look at my PDF from the Census. The largest age cohort of boomers is 50 years old. My parents were born in 1946…the very front wave of the boomer generation. They are just now starting on Medicare.

Now onto your comment about life expectancy, which misses the point entirely about our aging demographic, and why Medicare is such a problem:

Question: What is the life expectancy of someone who turns 65?

Answer: As of 2007, 83.6 (per the CDC: http://www.cdc.gov/nchs/data/hus/hus10.pdf#022). The 78 average from birth includes infant mortality, people who die well before 65 from disease/accident, etc.

My parents are in their mid-sixties. They live in a single-family home. My wife’s grandmother just turned 92. She lives in a single-family home. My wife’s father is 75. He lives in a single-family home. Not every retiree moves to a condo/adult living facility.

You are right, you need population growth create households (I never implied that you don’t).

Households are formed when people move out on their own, not simply enter an age cohort. Household formation comes from a combination of job creation and population growth. If you have population growth, but high unemployment, you will have weak household formation. If you have low population growth, and low unemployment, you will still have weak household formation.

You need both strong population growth as well as job creation for strong household formation. If you have population growth, but weak job market? Those people live with an existing household until they can make it on their own. Just like today. As jobs are created, plenty of people who are living in someone else’s household in 2010 will move out on their own, creating a new household.

RW,

Your post concludes with the unsupported assumption that “As jobs are created, plenty of people who are living in someone else’s household in 2010 will move out on their own, creating a new household.”

The jobs being created are low-end service jobs, so the pay is low, so no one is going to be moving out of anyone’s basement to buy a house on that salary.

Without the support of good-paying jobs, house prices must fall (or tread water while inflation reduces the real cost of the house). Indeed, my sense is the household composition trend is going in the opposite direction — more and more people are moving in with family, abandoning their single-person households to share expenses in larger agglomerations. This does not bode well for those who want high house prices.

IAT

IAT,

There are going to be two major drivers of people living in another’s household moving out over the next 5-10 years (I didn’t use “job creation”, as only one of the drivers is actually a significant creator of jobs):

1. Construction: Based on population growth of ~3 million per year, we need to be building housing units (apartments, retirement homes, single-family, etc.) at about 1.2 million units per year. We are way under that level now…that low level of contruction won’t last forever. Also, every other product type (office, industrial, retail, medical, hospitality, etc.) are at all-time lows in terms of construction. These are good jobs that can’t be outsourced, AND none of those 2 million construction jobs that we lost have come back…yet. When some of those 2 million get back to work, they will spend the money they make, strengthening other parts of the economy as well. What I am hearing in the market is that apartment construction will come back first (I heard this from an industry consultant who sees a full pipeline of multi-family development)–we are just beginning to see that take hold in the most recent new home numbers…let’s see how long it takes to manifest itself in construction job numbers. The low construction numbers today are just as unsustainable as the high construction numbers of 2005-2007…unless of course you believe that all the population growth projections are wrong.

2. Rotation of employees (young taking the retired spots): My parents are the first wave of boomers…they are just now eligible for Medicare. This will be the start of more and more people leaving the workforce, but still grocery shopping, going to movies, etc. That growing void of employees will need to be filled. We can have few net new jobs being created because of this effect, but more households being formed as the young unemployed take the recently retired positions (it’s not that simple of course, entry level positions are created as the retirees move out and everyone moves up the food chain). Additionally, as population grows, there will be more services needed…a job creator that can’t be outsourced.

An important point…while many of these jobs WILL pay well, not all these jobs NEED to pay well. The jobs only need to be good enough to get people out of the basement into their first studio apartment. As vacancies fall (as they are now doing), rents will rise (as they are now doing), which will make the economics for owning a home look more attractive for those in the rental population who can afford to buy.

Nearly everyone on this board who owns a home used to be a renter. I recall reading a study where nearly 20% of renters in the US (millions of households) don’t see the down payment as an impediment to buying. They are choosing to stay renters, in part because they see prices continue to fall–they will not always make the same choice…it’s not different this time many will eventually decide to buy a place–I think that time will be when the foreclosure mess generally burns itself out and the home price data begins to look better.

IAT

My last post didn’t hit yet, but I’ll hit your point head on. The new jobs don’t need to support a homebuyer. They need to support a renter.

As vacancies fall, rents will rise, making homebuying more attractive to those in the rental pool who can buy a home, but have chosen not to.

We know people who are buying homes in Los Angeles County at prices where it is cheaper to own than rent…they are renting them out and earning a real 7-9% yield after expenses…prices do not need to fall there for the economics of ownership to make sense…sentiment needs to change.

The problem is both your posts are living in the 1950s. Structural changes in the world economy are such that salaries can support a renter, if the renter triples up with three other adults and rents a 2 bedroom place. If that’s how you envision things working, fine, but I doubt most investors see this as a win. More wear and tear on the property, more likelihood of rent payments stopping, no ability to recover the cost of the extra hassle by raising rents because that just exacerbates the dynamic of unaffordable housing requiring more adults in a unit to pay the cost.

This will not end well.

IAT

IAT:

It already hasn’t ended well.

Are all new job low paying, requiring 4 adults to share a 2 bedroom unit? No. Have 4 adults needed to scrape by over the past several years by sharing a place to live? Yes.

80% of the jobs in CA created over the past year pay more than $50k per year. Even in Texas, where jobs are lower paying than most states have 50% of their jobs over the past year pay more than $50k per year.

If we are all concerned about rents rising, then we should be cheering the new construction of rental properties? If there is a massive glut of empty housing units out there, then why are rents rising? If there is a glut, and rents are actually not rising (as I’ve heard on this board), then why, in a capital constrained world, are people putting capital into the development of new rental properties?

The numbers simply do not support the view that everyone will need to live with a friend.

My comments rely upon the following continuing to be true:

Population growth/aging demographic; and
Normal progression in this country being:
1. Live in someone else’s household;
2. Move out when you can and rent for a while; then
3. Buy a place when you are tired of being a renter (having rent increased, etc.).

The Great Recession/subprime and foreclosure crisis has delayed (gummed up the works) in the normal progression–it did not change it, IMHO.

My point about rents in LA County was simply noting that in many places (even very infill, coastal communities) prices do not need to fall for it to be economical to own.

I know my views are not popular, but I started being bearish and pessimistic on housing quite early, and now I see the dynamics slowly changing to the positive, which makes me probably among the more optimistic on this board.

Booms are followed by busts, busts by recoveries. This boom was bigger, the bust longer, and the recovery more delayed. There will be a recovery though.

“This data for the market in which you are looking will either cause you to start looking now, or sit on your hands for a few years.”

The Sac Bee reports that homes in the 300,000-500,000 range in the area are still on quite the downswing, but for lower end starter homes, sales are brisk. So it also seems to depend on what type of house you’re looking for.

Agree.

Also, the Sacramento area is tough because there is plenty of flat, easily developable land (and it’s hot in the summer). RAL will like this next comment…it’s easy to build a nice new home and sell it for less than $300k and make a profit in the Sacramento area.

What we are seeing is that the earliest signs of firming up in the market in CA is in the coastal communities…that will move inland in time. Sacramento has a healthy overhang of problems and likely won’t be an early mover.

RW writes:

“Booms are followed by busts, busts by recoveries. This boom was bigger, the bust longer, and the recovery more delayed. There will be a recovery though. (emphasis added)”

Rrrrright. And, tell me again, how much are tulips going for now?

IAT

So, it’s different this time? There will be no recovery?

I’m not talking about prices recovering to 2006 levels in even the medium term…that’s crazy and completely unjustified by incomes/cost of debt/rents.

But there will be a construction recovery (including construction jobs) such that construction activity reverts to long-term averages;
There will be a recovery of prices so that home prices in relation to rents and incomes and interest rates is more in line with historical averages;

To believe otherwise is to believe that it IS different this time, which was all of our biggest criticism when people were touting a “permanently high plateau” at the peak. I did not believe that then, and I do not believe in the “permanently low trough” theory now.

So, RW (and perhaps the MSM) thinks 50K is a good-paying job in California. Let’s ignore the coasts, for its just too easy to make my point there, it’d be like taking candy from a baby, something I don’t want to do. Let’s look at some central CA salary and cost of living data.

I pulled the info below from http://www.payscale.com/cost-of-living-calculator/
to compare the Fresno, CA to other locations around the US. A 50K salary in Fresno, CA is like being paid:

42,000 in Denver, CO
43,500 in Wilmington, DE
57,000 in Washington, DC
37,000 in Atlanta, GA
37,500 in Boise, ID

and so on. No one can seriously maintain that 50K is a good-paying job (unless you believe 57K in DC is a good-paying job). Back in 1950 a salary of 50K was a great-paying job, but a quick check of the CPI calculator reveals that 50,000 in 1950 was equivalent to a salary of 469,356.85 today.

A good-paying job in the CA context of 2011 is probably about 150K (or, at least, a 2-person salary of 150K, with 1 earning a substantial part of that so if anyone has to stop out for childbirth/rearing they can still make ends meet). No one has provided any evidence that any dynamic or set of dynamics is going to put today’s 20- and 30-somethings in a large number of such jobs. For every 5 boomers who retire from 150K jobs, 5 were fired ten years ago in downsizing, 4 new jobs paying a small fraction of that salary are being outsourced, and maybe 1 person in the U.S. is hired for a job paying less than that to manage the outsourcing. If you weren’t keeping score, that’s about 100,000 going to one U.S. resident replacing 1,500,000 a year going to 10 boomers (but only half that in the last decade or so, as half of them were fired before retirement).

Given the facts this example represents, what model allows investors to make enough money renting out properties (once you account for increased depreciation) to sustain high house prices, and, further what model allows consumer house prices to sustain their current claimed value (as real value, not as nominal values that ignore inflation)?

I am willing to be schooled, but it’ll take facts that face these numbers, not hopes or an irrational belief that every bust is followed by a boom. I mean, really, how much are tulips going for these days?

IAT

“Look at this PDF: http://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf

Page 3 specifically. The population pig is moving through the python. The difference between the light blue and solid bars (2010 census), and the outlined bars (2000 census) shows the population growth. When 2020 is compared to 2010, the width of the bars for those 70+ will be bigger than 2010, and when 2030 is comared with 2020, the size of the bars for those 80+ will be bigger than 2020.
“

The more interesting page to me is page 4, which shows 5-year cohorts. Every cohort post-55 is smaller than every cohort pre-55. The pre-55 cohorts are all pretty even. So I see flat and not declining (yet).

How many of the 19M 55-59 cohort that are expected to retire and collect SS and Medicare in the next 10 years are actually going to kick off before doing so? How many will choose to keep working and postpone collecting SS? Perhaps Medicare and SS are not in such dire straits after all.

The tulip craze was in 1637. The I think it is you, RW, who, by claiming an iron law of “after every bust a recovery” is claiming it is different this time.

As for me, I do not believe there is such an iron law. Sometimes a bust is followed by a plateau of centuries — not a recovery, a plateau, malaise. Sometimes a bust is followed by a recovery (prices go back to marching upward with inflation, no more, no less). Sometimes it is followed by a commodity being worthless (or essentially so). What determines what happens is the fundamentals underlying the value of the commodity and the processes connecting sellers and consumers.

The long-run trend of housing costs in the West — since the 1600s — is for them to be a fairly constant multiple of family income. If incomes are crashing (or stagnating with rising inflation), what fundamentals allow anyone to claim that people are going to be able to pay the prices/rents they need to pay to make your “recovery will follow bust” prediction realizable?

As I said, I am willing to be schooled, but I need to see the analysis, not a mantra.

IAT

IAT-

Other than comparing Fresno to DC’s cost of living, I see no facts that you provide.

I find that comparison interesting thought…median price of a home in Fresno $134,000. Median price of a home in DC $340,000.

To bring it back to our conversation though: We were talking about people creating households (ie. leaving grandmas basement).

You said that people getting jobs need to live 4 adults to a 2 bedroom rental–thus not creating new households.

I said that 80% of the roughly 250,000 jobs created in CA over the past 12 months pay more than $50,000 (and thus allow those people to move out and rent a place).

Are you telling me that someone making $50,000 per year can’t afford a place to rent in CA and thus take up a vacant housing unit? Really? $50,000 buys a median priced home in Fresno.

“For every 5 boomers who retire from 150K jobs, 5 were fired ten years ago in downsizing, 4 new jobs paying a small fraction of that salary are being outsourced, and maybe 1 person in the U.S. is hired for a job paying less than that to manage the outsourcing. If you weren’t keeping score, that’s about 100,000 going to one U.S. resident replacing 1,500,000 a year going to 10 boomers (but only half that in the last decade or so, as half of them were fired before retirement).”

Did you just make up those numbers or have a source to cite?

“irrational belief that every bust is followed by a boom.”

No, real estate busts are followed by real estate recoveries not real estate booms. The booms only come after people get a false sense of security after a recovery has taken hold for some time. No real recovery has yet taken hold.

Today, in many markets (I picked Los Angeles County), home prices relative to rents make owning a home cheaper than renting. People can afford the rents. This is unusual historically. I agree with you on home values needing to be in line with incomes…and you’ll see in a post earlier today that I talk about AFTER the foreclosures burn themselves out, prices will revert to norms relative to incomes/rents/interest rates, which MAY mean that prices go up, and MAY NOT mean that.

And comparing tulips (that have no tangible, needed utility) to homes (that have a tangible and needed utility) is silly.

What I’m talking about is household formation, construction reverting to levels consistent with population growth and prices reverting to long-term norms relative to incomes/rents/interest rates. This is my recovery.

Price/Income ratios are below the long term average…http://www.usatoday.com/money/economy/housing/story/2011-12-21/home-prices/52149756/1

From the article:

“The ratio of the average home price to median income is now 13% lower than its average from 1990 to this year, Moody’s says. In 2005, the average price was 44% higher than the long-run average.”

This is independent of interest rates.

Happy2bHeard-

The telling part of Page 4 is the percentage change in cohorts in their 40’s/50’s from 2000 to 2010. Growth of ~25-55%.

Fast forward 10 years, and there will still be about 20 million kids under the age of 10 (we are pretty consistent in our birth rates as you point out), but the number of people 70-74 will grow. Today there are 16.8MM people 60-64, and 9.3 million people 70-74. Fast forward 10-years from now, and to have a constant population, we will need to have lost 7.5 million of thost 60-64…that’s a pretty high mortality rate at 45%.

For the last 10-years, we only lost 14% of that same cohort (60-64 in 2000 was 10.8 million, in 2010, 70-74 was 9.28 million)

Based on the 14% mortality, the cohort of 70-74 will grow from 9.3 million to 14.45 million in 2020 (86% of today’s 16.8 who are 60-64).

The population is most definitely growing and aging, NOT flat or declining.

And a real estate “recovery” is affordable prices by definition.

Just stop playing your Iying reaItor game. You’re working for NAR or CAR and you’re losing credibility every time you deny it. You’re a scumbag reaItor.

“The population is most definitely growing and aging, NOT flat or declining.”

Why are you misrepresenting the truth? The most recent census data shows the most recent decade saw the slowest population growth since WW2.

And are you really that stupid to suggest that population is growing with a large aging demographic heading to the graveyard?

You reaItors truly are a cesspool of corruption and criminality.

I have to agree with RAL, REwatcher, but have to give you kudos for your valiant cheerleading in the face of nasty reality.

You can cite stats all day long, but you’re ignoring the fact that 80% of those 80% of 50K+ jobs you mention were most definitely NOT created in towns like Fresno where housing is “affordable.” They were created in places where the median house price is around $450K. And there’s no way that’s going to turn out well– your efforts to the contrary.

Then, too, is the fact that a good number of those singleton basement dwellers we’re talking about are going to INHERIT Grandmother’s house, AND Mom’s house, AND Dad’s house, AND Dad’s vacation house, AND Mom’s second home, AND the singleton SPOUSE’S Grandmother’s house AND Mom’s house AND Dad’s house AND Dad’s second house….

One youngish married couple, 9 houses. Most of my (boomer, Southern California, professional, couple) friends have only one or two kids, and two or three houses between them. That sort of thing can really skewer your optimistic projections.

The Tea Party crowd didn’t set up camps. They had to be home in time to see “Dancing with the Stars”, “Teen Mom”, and “Survivor”

Does anyone have links to the violence at Tea Party rallies? I’m heading out the door, but the stories published a few months back were every bit as shocking(or more) than anything that went on at an Occupy site.

Typical real estate price negotiation:

“How much does it cost?”

“How much you got?”

FYI, this is why you don’t tell your RE agent what your financial situation is.

BINGO.

Find the place you like, NEVER disclose what you’re willing to pay or that your’e interested until you’ve written the offer.

Again… how do you know the price isn’t inflated if you don’t know the price pre-bubble?

RAL:

If home is shelter, and not an investment, then you should be looking at the cost of shelter.

If you intend to move within 5-7 years, I have a hard time advocating buying in any event.

If you intend to stay for 10+ years, then looking at the equivalent rent during that 10+ years is more important in my opinion than looking backward at what homes were priced at x years ago.

IF? It is shelter. And shelter was always 2x household income…… you reaItor.

“oxy” is the freakin’ NAR lobby.

Did any of you verify that he/she/it is NOT a realtor?

You take the total garbage emitted by her from her nether regions and assume it’s even true?

What happened to skepticisim and verificiation?

I’m particularly ashamed of you RAL (your moniker should make you skeptical of everything including me!)

Oh knock it off, you little brat. Oxy’s bona fides here are long established and sterling. Home-hunting and house pimping are two entirely different mindsets.

Besides, who in their right mind would house-pimp in Rochester?

Do you really think people earning $12/hr are going to disappear? Or their salary triple?

It depends on whether there has been a true structural change in the debt markets. The debt markets changed with the advent of mortgage securitization in 1977. Real estate prices are completely dependent on how much an individual can borrow.

It’s a big market and it makes big money for the financial sector, and the politicians whom they fund. The problem is that it keeps blowing up (1980’s S&L crisis, 2008 Great Recession). That’s because the market is flawed at its core. It provides incentives for everyone in the chain to overstate the quality of the loan which is being sold.

But - the PTB want to save this market. So the government has single handedly been buying the vast amount of MBS generated by the system - 96% of them in 2010 I heard on the news at one point.

Prices are based on how much an individual can borrow (a typical real estate transaction: “How much is it?” “How much you got?”). If the government continues to make/buy low down/no down loans (FHA allows 41 percent of gross income to go to housing and will accept 3.5% down). Fannie will buy a mortgage with no personal money down and all 3.5% coming from a gift. De facto no down mortgages.

This system keeps blowing up. The bailouts proper were, from my reading, around 300 billion. The stimulus has been in the trillions. All as a result of the system blowing up. Politicians and Wall Street love this system though.

IF the economy improves while this system continues to function, I don’t see it being dismantled. The national debt from the stimulus spending is like crack to the public and politicians. The system serves no purpose other than to:

1) Keep home buyers happy (”I bought a house. Do what you need to keep its value up.”).
2) Keep Wall Street happy.
3) Keep politicians happy.

The 35-40% of us who are not part of this game get to bear the true costs of this system - well, someone’s gotta pay.

So - can we expect prices to come back down to pre-bubble era levels? It depends on whether the pipeline from the public treasury to Wall Street stays in place. It depends on whether / how the debt markets are reformed. We’re not privy to the inside thoughts of Obama and Geithner and Bernanke. And Draghi and Merkel and Sarkozy.

I don’t have the answer, but it’s worth forming some of the questions.

I don’t think that people making $12 an hour are going away (or that their incomes will triple - what a straw man, I never said anything about the house being worth $360K).

What I do think is that the years of that sort of income being enough to get you a house in fabulous school district next door to two middle aged, experienced school teachers never happened and aren’t going to happen in the future. I think that Muggy is looking at a really good neighborhood in that town, not the one that one person making $12 an hour (or two people each making $6 an hour) can afford.

Polly get a grip. YOU implied affordability won’t return. Have no doubt in your mind. Affordability is coming down the barrel right at you.

Dude/Dudette (= polly),

oxide is clearly a Realtor, and if you can’t actually grasp that then you need, well, the kinda education that comes pretty expensive.

Caveat emptor.

Oxy,

You stated yourself they are cheap. Are they really? Based on what metric?

My apologies to you for my harsh rhetoric. I am oversensitive to NAR ideology that is accepted as common sense. I reject it entirely.

He/She/It is a Realtor!

Don’t you get it?

Given your pseudonym, I would assume that you are a lot more cynical and tuned in to whether or not a comment is self-serving.

Clearly, you haven’t quite mastered some basic lessons while the Realtor is playing you like a Stradivarius.

Interesting post, Jane.

How’s the MA going?

Sheesh, where are my manners? I bin reading and lurking between problem sets, and am delighted to see your increased presence!

The. MS. Is. Going. Slowly. Slogged through two courses out of nine so far. Then final project. It’s kicking my rear more than I had expected - and I’d prepared to Be Humbled.

OTOH, am getting reimbursible grades, so there’s that. And I would never otherwise have learnt about how big stuff is designed and built. And how to tell if it’s done right. That is some powerful knowing, there.

I’m waiting - ever hopeful - for the EUREKA moment when the gears start synching up instead of grinding and jerking.

Thanks for your interest!

As we say here: “my weekend is your vacation”

Got any good fairy tale bits?

The only *fairies* here drive Toyota Prius and have solar panels on there roof

Aye cabron! Es Muy Macho!

Aurora renters? That sounds like a plague I wouldn’t wish on anybody.

Got any choice stories about the Aurora renter experience?

No…yet another thing I try to mind my own business on since most of my friends know where I’ve placed my bets. But I notice that every year or two he’s looking for new renters and sounds frustrated with the whole situation.

Other than downtown, Cherry Creek, or the airport, why would anyone *ever* venture east of I-25?

A few people grew up on the plains and like it. For everybody else it’s just drive ’til you qualify, or “holy cow, look how much house we can afford”. But sometimes when I look at the ridiculosity that is Boulder real estate I don’t really blame them.

Good grief Polly read the thread.

The comment in this thread isn’t a general assessment of any market either. It is a comment on a video that talks about what would happen to prices temporarily if all the shadow inventory got dumped at once plus a caveat that that isn’t what is going to happen.

If the Fed upped interest rates to 15% for three months, the fall in price wouldn’t be a long term market price either.

And your constant harping that prices have to fall to what you consider “pre-bubble” is silly. It depends. It depends on what has happened to the job base in the area. It depends on what has happened to the transportation situation in the area. The schools. The places that used to be competition for living in that area. The solvency of the local and state governments. All sorts of things have an impact. And you can’t easily predict what is going to happen as some of them are feedback loops and intensify each other.

Not every place is going back to pre-bubble. Some are going lower, some are going to match it and some will probably never get down that low. But you can’t just pull a magic number out of your calendar and say that anything above that is overpriced. The world doesn’t work like that.

I love it when socialists squabble with each other. It warms the cockles of my heart!

Yeah. Because socialists dialogue to figure things out. Fascists just take their jack-boot marching orders on what to say, what to do, what to think, from their “betters.”

IAT

“It depends on what has happened to the job base in the area.”

So go on and tell us Polly. Tell us how “the job base” is improving in any location in the last 30 years. Because housing tracked incomes during the bubble….right? RIGHT? Oh yea… that’s right. Adjusted incomes have been flat for a decade or more.

But you go ahead. You got my full attention. Educate us.

WTF? Bill has no heart, as we all know. Solid gold cojones, but never has a socialist tendency been allowed across his manly firewall -

“Nationalist SOCIALIST white people’s party.” have you lived under a rock all your life, “itsabouttime?”

And yes, Plenty of tingling life in those two solid golden jewels of mine down below.

Oxy,

Have you considered that your perception of housing might be shaded by the Housing Crime Syndicate?

To be fair to Oxy I figured that by now prices would have fallen dramatically across the board. So far its only been in places likes Vegas and Phoenix and other undesirable locales.

“So far its only been in places likes Vegas and Phoenix and other undesirable locales.”

Not the least bit true; look at the Case-Shiller data fer pete’s sake!!

“is it prudent to pay 5-6 years in rent just to wait for the dregs of the dregs to go on the market at 30% off?”

This is sincerely really a very good question. Rents are higher than the howmuchamonth on a mrtgage where you are, and I can report the same for my neck of the woods. Our mortal span is something to consider too, and I am on the short end of that.

Mortgaging may pencil out as very imprudent, yet it might be more attractive to you than renting for personal reasons. Lots of people on this board are exhausted “waiting”. Still, the market is already in a pattern of 5% yearly declines with no sign of reversal, so saying the bottom must be in (or very close) doesn’t rhyme and debt is never prudent.

Blue, I’ve said this before, but I’ll repeat it, because I think it is critical for people to think about when considering the dynamics of price reductions in their local markets.

People buying on the courthouse steps have promised their investors 20%+ annualized returns as well as making a buck for themselves. In order to make this happen (and thus continue to attract the capital), they need to “turn the money” ~3 +/- times per year. This means they need to buy homes on the courthouse steps, and sell them quickly.

So, what they do is this:

1. Look at the most recent sales;
2. Assume they will be selling at 5-10% below these recent comps;
3. Back-out a profit margin, cost of fix up, etc. to determine their purchase price;

When they buy the home, they put it on the market at LESS than the recent comps. This ensures no problem with appraisals, an ability to quickly sell, and thus get the profit back to their investors, and the capital back to buy the next home.

And the key point:

As long as these home sales represent a significant portion of the activity in the market, the data will continue to show falling prices, thus the 5-10% projected decline in prices over the year.

Once this foreclosure activity slows/becomes a small portion of sales in the market, foreclosure-induced downward pressure on prices will stop.

If you are in a market where the foreclosure activity has no end in sight (judicial states), you can be more patient. If you are in a state that is non-judicial in nature (and thus has been moving through the shadow inventory steadily), you won’t have as much time (although it could still be 18-24 months).

Then prices will revert back to whatever makes sense for that market based on land cost, incomes, rental rates, etc. In some markets this will mean prices WON’T rise quickly despite foreclosures stopping. In other markets, prices WILL rise quickly.

“Not the least bit true; look at the Case-Shiller data fer pete’s sake!!”

Sorry, I have yet to see 50% haircuts in my neck of the woods. Not even close. Heck, choice nabes in Ft. Collins are still appreciating and get bidding wars (yes, it’s insane).

Whenever I read about the places with the big haircuts it’s places I would never want to live: Vegas, Phoenix, Hotlanta, Floriduh, Riverside County, etc.

And to support your view…in the SF Bay Area, if you look at the Case Shiller data for lower-priced homes, they have fallen back to the trendline. In other words, if you put a 3% annual inflation rate on the trough prices during the 90’s housing recession, you get a number equivalent to where we are today. Higher end has not fallen as much.

“Heck, choice nabes in Ft. Collins are still appreciating and get bidding wars (yes, it’s insane).”

Even when compared to peak pricing?

“Higher end has not fallen as much.”

Higher end is typically owned by stronger hands. We have always said here that the weak hands fold first, and the stronger hands fold later.

So, this is totally expected. But give it time.

Patience, grasshopper. Prices are down ~30% in Seattle, and much of the decline is in further out areas that I don’t want to live in. But foreclosures are slowly working their way into nicer neighborhoods now, and eventually the higher end will not be immune.

Price gains started from the center and worked outwards; price declines start from the edge and work their way inwards.

High-End prices are already starting to go up where I live (mid-Peninsula, home of Facebook/Linked-In, etc.). I’m not sure we’ll get that fall in prices in the high-end here, based on the fantasyland nature of the economy here.

So let me understand this….. sales of high end housing is at 17 year lows and you’re here saying that high end housing prices are going? Right? RIGHT?

In the mid-Peninsula, Bay Area, Northern California, that is exactly what I’m saying.

Here, if you grow the low end at 3% from the trough of the last housing cycle, you get to where the low end is today.

If you grow the high end at 5% from the trough of the last cycle, you get to where the high end is today.

Was I expecting the high end to also fall to the 3% trendline? Yes, I was. Has it happened? No. Do I now expect it to happen? Based on Google options being repriced to ~$300 per share (putting lots of people way in the money), LinkedIn IPO, upcoming Facebook IPO, etc., no, I don’t.

At least not SF Bay Area, Mid-Peninsula.

RW, here in NY it looks like the pipeline will take a decade to clear.

I’ve seen that…FL looks bad too.

I see… pick arbitrary numbers, plug them and to get to your desired outcome.

Another NAR contractor on site?

3% is a pretty standard view of inflation (the BLS says it’s 50bps lower, John Williams of Shadow Stats thinks it’s much higher). The trough of the Low Price Tier Cash Shiller in SF was 66.7 in March 1996. The number is 109.1 as of October 2011 (a 3.2% annual rate of increase).

5% was calculated (not picked) based on the trough of the last housing cycle, with Case-Shiller numbers for his “high tier”.

$300 is imprecise (the actual number was a few dollars more, but less than $310).

The only number I picked was 3% for inflation. If you want to quibble with that fine…I’ll make you a deal right now…you buy all my food, gas, medical care, and education today for me, and I’ll reimburse you based on the same cost of those goods in 1996 inflated at 3%.

Were there any other numbers that you deemed arbitrary?

5% adjustment for inflation is arbitrary. Ya fawkin’ liar.

“5% adjustment for inflation is arbitrary.”

5% was not an inflation number, and not picked out of the air.

Rental merely computed how much higher-end housing at current prices has gained YoY from the trough of the previous housing downturn. Nothing more.

While I’m as in favor as the guy of calling out a liar (e.g. a Realtor), your vitriol here was misplaced.

Not in either sense of the word!

Depends on his priorities. Sometimes other things trump economics for him.

Seriously. Those class-warfare hippie commie junkies need to occupy a shower and get a job. Go back to moms basement loosers

Joe-the-P thinks some things trump economics for him. The term for that is false consciousness.

IAT

Perhaps. I think he’s correct to be suspicious of others who claim to know what he should think and what’s best for him. But at the same time those who claim to be his friend usually are not.

Suspicious, yes. Unreachable, no. No matter how many times anyone demonstrated in black and white with pencil and paper that Joe-the-Plumber (who wasn’t a plumber, had not bought the business, and would be making a lot less than 250K a year) would benefit from Obama’s campaign proposal, he refused to believe it. What can you do? That’s false consciousness bigtime.

IAT

Joe The Plumber put two of his kids through USC debt free. Seriously, those guys can make some serious dough. The one who is on call for the mgmt co of this apt bldg is making a couple hundred thousand a year with one helper at $30K (learning the biz). Not bad! Low overhead too.
He has rental income which will not effect his ss. An he knows everyone in town. Car dealer discounts, Attorneys, Docs, Bankers, Property Dealers.

I did Commercial Property Management. (U-San Deigo/ICSC Certified)Some of the trade guys were pretty well off.

An s/b and . typing fast.

No matter how many times anyone demonstrated [snip] that Joe-the-Plumber [snip] would benefit from Obama’s campaign proposal, he refused to believe it.

I don’t really care what that one guy did or didn’t believe. My point is that for at least a few million guys like him, other things may be more important than who delivers the most economic benefits. For some people, “best interest” is about more than money. For better or worse…

Power Spec B633. 2nd gen i5 processor, 8 megs RAM, 2 Ter hard drive. Windows 7 pro (not home). Plus a Dell flat panel widescreen, 23 inch monitor which was more expensive that most of the others, but it was the only one that didn’t have shiny plastic around the edges. I hate shiny.

Old computer is just a few months shy of 9 years old. I can run Secunia on this (to check to make sure my software is fully patched) in a minute or less. Current machine it takes 30 to 45 minutes. Now, I don’t have as much software on this one yet, but the difference is still stunning.

Enjoy! My personal laptop is a 2005 Vaio that takes 10 minutes to go from On-button-press to last-flickering-of-the-hard-drive-light, making it somewhat unusable until that time.

Can’t justify the expense but lordy am I ready to get a new one.

Even a circa-2005 computer shouldn’t be _that_ slow. I bet you have some malware on there, sleepless. Try running one of the free scanners, such as spybot.

Thanks. Done ‘em. Malwarebytes, Spybot, Windows Security Essentials. Removed programs. Added RAM, but it’s still “only” 1M RAM.

Does Windows access any Outlook files on power up? I’m sure my main .pst is HUGE. Would that have any effect? What about the XP software patches?

Hmmm… Nope, Outlook files would not be read on boot; they only get read in when you start up Outlook.

Have you tried defraging the hard-drive? Significant fragmentation could cause serious perf degradation…

You are running XP, I assume?

If you talk facts about people behaving badly, I am totally with you.

When you start throwing N’s around, I calls it like I sees it: racist.

BTW, I too was shocked and appalled at the fights over a freakin SHOE. Southcenter mall in Seattle had a huge one.

What a bunch of low-life idiots.