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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Not a topic, just a link of interest:
TALE OF TWO CITIES
New Yorkers begin to buckle under the pressure of scarce housing, accelerated by dramatically increased gentrification
“Dipan Patel’s elevator opens into a stainless steel kitchen with modern cabinets, a granite-covered island and a custom tiger maple table. The kitchen leads into an airy living room boasting a flat-screen TV, an Eames chair and an audiophile’s stereo system. The deck, just off the living room, features dramatic views of the Manhattan Bridge and the river. From his bedroom, he and his wife, Satya Chedda, can see the brand-new, orange Home Depot sign, which has opened a block away from their Spencer Street condo. In fact, it’s only when they glance downward at the trash-strewn lots that they are reminded that their luxury apartment is in Brooklyn’s Bedford-Stuyvesant. [...]
“After decades of red-lining and neglect, homeowners are discovering the beauty of Stuyvesant Heights’ brownstones and the condo bargains on the neighborhood’s northern border, which abuts Williamsburg. The neighborhood, long called crime-ridden and drug-infested, is now being described in a far different way: unaffordable. [...]
“Patel and Chedda paid $375,000 for their 1,100 square-foot pad, the result of a $25,000 discount Chedda received from the grad school program she was completing while a NYC Teaching Fellow. Patel is confident in his investment—for now. Owners who are renting their units in The Spencer are now able to cover their mortgage payments, providing a sense of stability all around. “Am I going to lose?” Patel asks. “I don’t see that happening. Worse comes to worst, I’ll keep it and rent it—take the equity out.” He estimates he could sell the unit for $500,000.”
I came across a report Drowning In Debt published
by the AmericanProgress group. ( I believe its a non-profit ).
Link to Full Report
It contains many graphs and tables and appears to be very
well researched.
It is a very good read.
Per report, a major reasons households are drowning in debt
is, of course, because of excessive borrowing for real estate.
In particular, check out Figure C, (page iii), which
indicates that of all total household debt accured ,
real estate far exceeds by dollar value all other debt
classes such as Education, Cars, Goods and Services.
My own general conclusion is that the U.S. Middle Class
is self-financing itself out of existence.
The middle class has had a dark odd shaped credit freckle on the bottom of its proverbial foot for some time; a recent biopsy reveals that it’s actually a melanoma.
What’s happening with mortgage lending standards? Does the big layoff at Ameriquest and elsewhere portend tougher standards, or are things as loosey goosey as ever?
I think lending will be getting tighter real soon .
I second this topic. Is there any evidence that standards are going to get tighter? All I see is big announcements at the bank for the new 40 year loans.
I saw an open house sign yesterday at 5:00pm.
I saw at least 6 open house signs, yesterday at lunch hour between Belmont Shore and Downtown Long Beach.
Probably broker open houses but there were a lot!
Been meaning to get a camera out and take pictures of for sale signs.
There are condos buildings with maybe 12 units with 5-6 for sale signs out front on my daily commute.
What’s happening with those buildings on E. Ocean Blvd. Even the old buildings like Villa Riviera and International Towers have quintupled in price over the last four years. What gives? Is anybody buying?
Krugman:
Coming Down to Earth
“As I summarized it awhile back, we became a nation in which people make a living by selling one another houses, and they pay for the houses with money borrowed from China.
“Now that game seems to be coming to an end. We’re going to have to find other ways to make a living — in particular, we’re going to have to start selling goods and services, not just I.O.U.’s, to the rest of the world, and/or replace imports with domestic production. And adjusting to that new way of making a living will take time.
“Will we have that time? Ben Bernanke, the chairman of the Federal Reserve, contends that what’s happening in the housing market is “a very orderly and moderate kind of cooling.” Maybe he’s right. But if he isn’t, the stock market drop of the last two days will be remembered as the start of a serious economic slowdown.”
Krugman seems to agree with my recent conjecture that the Death of the Conundrum is at hand…
Even with bugmenot’s password, I cannot access that article. Any ideas?
What should renters look for in choosing a house to rent to make sure that the house doesn’t go into foreclosure or be put up for sale while you are renting?
With the recent torrent of San Diego house rentals, how can you defend against these problems? Should you choose a place that has a property management company running it? What kinds of questions should you ask? It would be a drag to have to move again if the house goes into foreclosure. My understanding is that if the house is sold while under lease, the new owner must honor the lease.
ask for a years lease from a property mgt. company. that protects you from sale, and if it is repoed you would have at least 6 months to get out in most states, it takes that long to repo. while waiting for the repo man dont pay rent and use the savings to move.
How does leasing from a management company defend against sale? I thought the management company is an agent of the property owner.
Cost of Living in NYC Jumps
“The Bureau of Labor Statistics gives the official news of what many had suspected: NYC’s consumer price index jumped 0.9% this month! Okay, maybe we weren’t suspecting there would be an almost 1% rise (which is a big deal), but given the hoo-ha about gas prices, it is going to be more expensive to live in the city. AM New York outlines the situation from what BLS regional commissioner Michael Dolfman says, and here’s our paraphrase:
- Interest rates drive price of rental apartments up
- Higher interest rates also mean less people will buy apartments (because of mortgages), so they will need to rent instead
- Rise in gas prices drives up construction costs…so fewer rental developments are being built
“And it doesn’t seem like the CPI will drop any time soon. Another interesting reminder: Federal guidelines recommend that rent money should be 30% of household income, but in NYC, the Metropolitan Council on Housing says that more than 25% of people spend half their income on rent. Yeah, it’s depressing - can we apply for federal subsidies? Or better yet, state subsidies, considering how much of city taxes go upstate?”
Ben Bernanke has parroted the mainstream presses’ new litany that the “housing market is cooling.” This must be big news to buyers who until recently were encouraged by the RE establishment into believing that “housing prices always go up.”
My personal conjecture all along has been that the need to stay relevant in the face of eroding market conditions would eventually force the media to publicize news which would exacerbate the slowdown, and that buyers’ feet would get very cold when they learned that prices were not guaranteed to rise or even plateau. I am curious if anyone can cite evidence that these factors are measurably eroding buyer willingness to purchase a home?
Housing Bubble Forums
This blog is great I and I truly appreciate what Ben is doing for us.
But I would also like to find a Housing Bubble Forum where we can post discussions as well as simply respond.
I belong to a few forums on various subjects and I like the ability to post my own threads. Sometimes we find interesting articles or have ideas on this subject, and rather than just sending it along to Ben, a forum would be more immediate.
Does anyone know of or use a good housing bubble forum?
PS a Google search only came up with a couple of very underused forums (maybe a couple of post per month)
Another F@cked Borrower’s site. The person who runs the site stopped writing to his blog when he exited the mortgage industry, but he still maintains a forum section on his site:
http://www.housingbubblecasualty.com/forum/
Does the capital flow in the housing markets get measured? Hard cash leaving a bubble area, and what replaces it, is a ton of high risk debt. Seems to me that’s a recipe for immenent blight…
You might say that we have mortgaged a large share of our collectively overvalued home equity to China, the world’s latest lender of last resort…
From the WSJ article on loan delinquencies posted here yesterday:
“Borrowers who took out mortgages in the past two years are likely to be more vulnerable should home prices fall because they could wind up owing more than their home is worth. Twenty-nine percent of borrowers who took out mortgages last year have no equity in their homes or owe more than their house in worth, according to a study completed this year by Christopher L. Cagan, director of research and analytics for First American Real Estate Solutions, a unit of First American Corp. That compares with 10.6% of those who took out loans in 2004.”
My hunch: The 29% underwater figure is based on old valuation data, and will rapidly worsen as declining prices in markets formerly known as frothy come to light. Does anyone (besides Dr. Cagan and his collaborators) know where the valuations came from to get to the 29% underwater figure?
(I hunted a little on the First American Real Estate Solutions web site:
http://www.firstamres.com/marketwatch?page=list&moduleid=6
but could not get my computer to load up the Feb 2006 report; and this report seems out of date for the WSJ to cite it as “news” anyway…)
If we are going to see an end game squeeze of rental rates climbing because people can’t afford to buy then the only solutions would be: 1) no tax deduction on property other then primary residence 2) higher loan rates on rental property (check year end tax forms to catch cheaters) 3) rent control (all those condos in foreclosure)..sell to investor groups with stipulation that rents will be controlled for twenty years and then they can do what they want with the property.
Slightly off-topic, but my personal experience over the past few years in SoCal is that rents are not exactly cheap, just cheaper than buying overpriced real estate. At least in my neighborhood, older tract homes renting for $2400 is not what I’d consider to be a steal.
Yes, exactly. Even though you can rent a house for 50-70% off the monthly PITP cost of buying it, rent will still consume a huge chunk of the average working/middle-class HH’s income. If buying in CA is completely out of reach for most, renting is also not exactly a “bargain” either –just as you say, cheaper than buying.
NIMBY anti-development laws, “just because we can” fees, rent control, etc. have all severely restricted the amount of housing stock that’s been built over the last 30 years, while illegals have pured into the state by the millions. Even after the liquidity/speculation driven bubble implodes, CA will still not be “affordable” by any reasonable measure –just less UNaffordable.
Many long-time residents (and businesses are bailing for greener pastures, and I for one plan on joining them ASAP.
Amen, what drives me crazy is the anti-growth freaks cause so many of these problems. It causes the natural pressure of housing needs to build-up, which then bursts out into unatural, nasty, slash-and-burn type development in cheaper, less desirable areas (ala Inland empire). The NIMBYs then point to this as “See? Look what we’re saving you from!”.
Idiots - I hope the bubble bursting and middle-class outmigration wipes them out..
I think strong rent control laws have kept rents much more affordable in Los Angeles. For example, when rent control in Santa Monica took it lastest and most severe blows, the cost of rental housing skyrocketed.
Additionally, when rent control eroded in Santa Monica, there was far more transiency in the community.
transiency, or communities which lack a vested groundedness erode quality of life and the strength of a community.
now, many tenants, instead of staying in a place for 5-10 years or more, they tend to stay maybe a year or two and move on.
Additionally, units that are vacated tended to stay empty for, instead just a couple day, for a couple months before they are rented.
IMHO, rent control, or price control needs to be regulated to protect communities and quality of life.
Los Angeles Friends In Deed
I would like to add that I think the loopholes, such as renting rooms out of a house, condos, houses, and units in a dubplex or triplex, whether or not any of the unites are occupied by the property owner, being rent controlled, needs to be addressed.
IMHO, people that rent rooms from a house are conducting a business which warrants being regulated, to protec the public.
And perhaps, those prorperty owners that rent rooms in houses, condos, houses, we should require to carry malpractice insurrance to protect renters who are harmed and to keep property owners in check for doing the right thing.
Los Angeles Friends In Deed
Maybe renters should also carry insurance to protect the landlords from flaky renters who skip out on their rent payments.
The narrow coastal strip of million-dollar homes will drop down along with the rest of the state but they will only drop due to their stratopheric prices(Newport beach homes drop from 2 million to 1.3 mil. Mahhatten beach drops from 1.5 to 1. Santa Barbara from 1.2 to 800,000 ect. There is something about having a home near the beach which raises prices in California:maybe it’s the fact that beachs and shoreline(especially pristine) are scarce and sacred commodities in Cal. This is why I see people cramming more new houses into already packed places such as Balboa island and Manhatten beach. As for the rest of the state and Scal, it will be all downhill. As many formerly well-kept middle class older burbs(Santa Ana,Riverside. upland,Van nuys for example) get infiltrated by illegals with the resulting deterioration of the neighborhood and community,you will see accelerated price drops in these areas. Some middle-class burbs such as Glendale, Torrance, Costa Mesa, All ventura county,east Long beach, ect are fighting to maintain the integrity of their communities thru no doubt keeping out low-cost housing projects or inposing strict exclusionary zoning laws designed to keep out the illeagl rifraff. They are fighting a losing battle for the illegals are literally flooding into all parts of the county, even newport beach. City of La has no pretense of strict zoning standards and is happlily allowing all parts of the city to become an affordable housing haven for illegals( and for all homebuyers needing affordable units close to the city) thru the rapid building of low-cost affordable housing units all over the city, such as the massive projects being built or planned just west of downtown or near USC. Even OC is seeing stacked/block condo’s/’apts going up.
Salinasron,
I like your ideas very much, especially #s 1 & 2. Agree with rent control, to an extent, but might suggest a shorter time period. Also, would consider doing away with Prop 13 protection for investment real estate (including commercial & industrial?), and would probably not allow inter-generational transfers of Prop 13 protection.
Rent control would be a HORRIBLE idea. All it would do is eliminate any new rental construction and hasten the neglect/decay of existing rental stock, as has happened in Santa Monica (before they rightly ditched it afew years ago) and is happening right now in S.F.
#1 would be good policy and common sense, but good luck fighting the NAR on that.
#2 is beyond the direct control of even the Fed, and is set by a combination of the 10-yr treasury, and whatever rate MBS/CMO investors are willing to lend money at. hopefully they will keep trending up.
Stock market drop this past week — just a kink that’ll pass, or sign of a coming economic slowdown? Obviously real estate has weakened dramatically in 2006 as the power engine for America’s economy… but are we headed into a larger scale recession? If attempting to answer this question, what predictive factors/measurements would one want to use or monitor, in the months to come?
I am expecting a huge drop in stocks that will affect all sectors. In every major bear market the final bottom comes when the dividend yield of the indexes are no more than 1.5 above the average PE ratio so I expect it will be at least a 75% drop since the earnings and dividends will drop to a certain extent as the stock prices drop.
Kim I am looking for a 40% drop in the DJIA to go bck to the inflation adjusted mean - this could happen by a large increase in inflation or by the drop in the DJIA.
What is peoples advice for balancing their protfolios in the coming months?? Put everything in the moneymarket and ride out the storm? Would you keep anything in gold and gold stocks? Energy? What about emerging markets? When would you jump back in?
Here’s a hint: Nobody knows. Not anyone on this blog, and not the overpaid fund managers. Not even the people who made some money betting on a particular direction last year. They got lucky, and if the market had gone the other way, there would be a different bunch of market gurus claiming magnificient understanding of the market.
Excellent comment JP - However as Arnold Palmer once said after chipping in a shot to win a tournament. A reporter said “What a lucky shot”. Arnie replied “It’s funny, the more I practice the luckier I get.” There are advisors and investors that do consistently beat the market averages - these investors and advisors practice and are correspondingly lucky. It is important to remember that in advising to be right more than 50% of the time makes you a winner. What I find comfortable for investment and speculation is not going to work for any and/or all who read this or any other blog and as a result I should like to be known as a (from Itulip)”JOJO The Clown” Jo Jo’s a clown and knows it. He doesn’t try to give investment advice. He dresses up as a clown and amuses the kids at birthday parties. In this way, he conscientiously avoids causing irreparable harm to anyone’s stock portfolio.”
http://tinyurl.com/eypao
A look at the past shows that when the stock market is in a mania, the correction does not go back to the mean, it goes below.
If the stock market is dropping and housing prices are dropping we will see a contraction in the money supply which is deflation, not inflation. The increase in housing “values” has caused a huge increase in the money supply; the drop in housing prices will have the opposite effect. I expect we will see inflation, and maybe hyperinflation, but not until the deflation runs its course first, giving a great opportunity to buy RE and stocks, etc, at fire sale prices for those who have saved their cash.
As for investments, in my opinion unless you are buying put options or selling short, the best investments right now are 3 month treasury bills.
Signs of slow-down topics:
1. Locally, I’m seeing construction slow down or stop entirely. Except for bulk earthwork, that is still being done.
2. Here’s a quote from my listing realtor, when I asked him why I didn’t see many open houses last week: Open houses are becoming obsolete. With the growth of the inter-net in
the real estate world, people have a lot of information at their
fingertips and see no need to go out on Sunday afternoons to look.
Is the open house obsolete?
Is he saying that people are buying houses merely from the photos they see online? Because if that’s what he is saying, that’s just absolutely the most ridiculous thing I’ve heard a realtor say yet.
Is the Plunge Protection Team falling apart? The past couple of days may have marked a major turning point in the direction of the broad US asset markets:
1) Gold futures are plummeting
2) Stock prices seem to desperately want to come back down to earth
3) Bond yields have abruptly halted their upward tear, and have begun falling almost as quickly as the gold future price
A sidebar on the Money & Investing page of today’s WSJ offers one clue; it shows a vertical drop of over 50% (from 33 trillion yen to 15 trillion yen) in current account deposits at the Bank of Japan since they signaled the end of a five-year-old practice of pumping cash into the country’s banks — a policy called “quantitative easing.”
Could any hedge-fund-savvy analysts offer comment? Or are you too busy dealing with Black Swans to contribute to the discussion?
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
Gravity seems to be crushing Toll Bros pump-and-dump these days…
http://tinyurl.com/8cqwt
Listen to me closely. There. Is. No. Plunge. Protection. Team. There are only self-interested investors and actors, whether public (governments etc.) or private. All of them will turn their backs on a bad market. This is exactly what happened in 1929.
Oh, I suppose next you’ll be telling us that the Freemasons and the Bilderbergers aren’t in league to wrest world domination from the Reptilians and ZOG, who engineered 9/11 to keep us from noticing the imminent reversal of the Earth’s polarity. I won’t even mention the alien bases our astronauts found on the far side of the moon, because of course we never actually got there.
Listen to me closely:
How do you know? When all the swans in view are white, how can you be 100% cock-sure that there are no black swans which are hidden from your limited view? Or is this your faith-based assumption that our government would never, ever think of meddling with the invisible hand of the stock market?
Accepting that black swans could in theory exist is different from believing they exist unless there is some hard evidence to go on.
I neither believe they do or do not exist, but reserve judgment. I would like to see just one shard of evidence that the government does not intervene in the stock market, as the political incentives for doing so seem rather powerful.
Also, it strikes me as odd that a stock market whose equilibrium is set by a purely competitive process would adjust so slowly to the reality of crashes in the bond market and the gold market, as it is clear that higher interest rates tend to hurt the value of corporate profits both through higher interest costs on corporate debt and the lower present value of future profits at a higher discount rate. So far, the correction in stock prices does not get them anywhere near fairly valued compared to l-t Treasury bonds, which recently went on sale. Of course, I have no way to separate the govt intervention hypothesis from myriad other possible reasons for sticky stock prices during a correction (hedge funds playing with fire, large Wall Street firms exercising market power, a prevelance of noise traders who are too ignorant of finance to realize that stocks just lost value relative to their prices, institutional money managers who prefer to stay put rather than adjusting their portfolios at every change in market condtions, etc.).
There’s been a crash in the gold market? A small drop from an inflated price is hardly a crash. And why should the stock market care about that anyway? What does it have to do, as the old saying goes, with the price of tea in China? Bonds historically have a low correlation with stocks; movement in one market is not necessarily reflected in another. Why expect something else?
By what mechanism could the government intervene in the market, to such a large degree, without anyone seeing what was going on?
Noise traders. Gotta love it! So true!
“By what mechanism could the government intervene in the market, to such a large degree, without anyone seeing what was going on?”
Not sure; perhaps something to do with M3? Or Enron-like offshore corporations which are set up to intervene in the stock market? Or coordinated intevention through the Working Group on Financial Assets (aka Plunge Protection Team)?
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/16/AR2006051601745.html
“Also, it strikes me as odd that a stock market whose equilibrium is set by a purely competitive process would adjust so slowly to the reality of crashes in the bond market and the gold market,”
The stock market still has not finished with the mania psychology of the biggest market mania in history. The equilibrium of the market is not set merely by competative processes, but by public mood. I believe that this is why the rally was able to continue for so long, just as the RE mania has continued for longer than I believed possible a few years ago. Manias are not rational, they are rationalized.
“Plunge Protection Team” is a satirical term for what is formally known as the “Working Group on Financial Assets.” Whether they exist or not is indisputable, but how they accomplish their mission of preventing financial meltdowns is an open and fascinating question to outsiders like me.
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/16/AR2006051601745.html
But the actions of the Working Group are not very secret; for instance they established rules for controlling stock trading in the event of a runaway selloff, and both the rules and the times when the rules are invoked may be seen publicly.
Japan had three policies to save them from deflation: interest rates to zero, quantitative easing and pegging the range of the Yen. They are continuing the zero interest rates for a while, but abandoning quantitative easing reduces a potentially large amount of Japanese loans that can be used to fund the carry trade into US dollars. The effect this is going to have is unknown, but I subscribe to the theory that the Japanese policies were one of the two biggest causes of the global bubble. The other was Greenspan’s prolonged plunge in interest rates.
Eliminating quantitative easing reduces one source of easy global credit. Sooner or later the carry trade is going to collapse.
I had a co-worker (Architect) who is selling a 2nd home start a bubble conversation.
I was able to triumphantly announce that I am a bubble sitter.
There was no disagreement from the 4 people in the conversation.
The mood was that materials cost deflation won’t set in until 2008 due to firm backlogs that must be cleared.
In my Rhode Island surburbs, the local weekly newspaper posts real estate closings. Last year at this time we saw about a half-dozen per week. This year: two weeks ago: 4. Last week: 0. This week: 0. Quite a trend!!
Realtors getting very snarky here lately. Have had to have very pointed conversations with them to put them in their place. I smell fear!
Where is Suzanne when you need her?
Hooker school.
At least then she will be able to provide full service for my money!
huh?
There are several sites that have slowed down or stopped all together within 6 miles of my home. It is quite a turn of events. Some of these projects stopped at the state where they were grading the lots, some of them the buildings are half complete, and have not been worked on in about 2 months. This is both residential and commercial buildings. I hope they at least finish them.
How long will it take for prices to bottom out? Are falling real estate prices a fact of life until interest rates stablize, until the current glut is absorbed? how long?
http://www.dcbubble.blogspot.com
That is the million dollar question . Some people think the correction will be fast ,others feel it will take years to correct .
A million dollars won’t even get you a question in the New Economy. I think what you meant was the “Three Million Dollar Question.”
Depends mostly on how tight credit gets, what the investment/securities markets do and where the foreclosure levels end up… a couple of years from now. I think we’ll close on a bottom a lot more quicky than in the past… so this time IS different.
There are so many, many dominos lined up to fall, and each one takes a certain amount of time before it topples the next. If this were a crash no worse than the Savings and Loan crisis it could fully bottom in two years. But for starters this is a global problem. We are also beginning with a situation where credit is so loose that even tightening back to normal will eliminate most first time buyers for years. Our current account deficit is approach levels that collapsed Argentina, the dollar is shaky, the stock market is overvalued and commodities, oil, and China are bubbling. In no particular order, all of these dominos will thunder into each other before we see the bottom.
London median prices resumed their upward climb last month, particularly on upper-end houses.
what is going to kick the knees out from under that market? can we offer any words of hope to our good friend nhz?
We’ve lived in Brussels for almost 2 years now. A few observations: My husband does quite a bit of traveling for business in Europe, and asks about housing everywhere he goes. Someone from the Netherlands just told him this week that housing is only going up about 3% a year there, and has done that for the last few years. Here in Brussels, my neighbors are doing major remodeling on their home, and are having a hard time finding workers, as there is more work than workers. And I do know that a recent survey here in Brussels showed that investors are cautious about the financial markets, the stock market, etc. It just sounds too frighteningly familiar to what is going on in the U.S. But, we in no way profess to be experts over here! Just watching…..
Is the blog balanced enough from a participation (bears vs bulls) standpoint?
Probably not, but it’s hard to imagine most bulls would want to come to a “Housing Bubble Blog” — they didn’t when they were riding high, and they certainly won’t now — not when reality keeps slapping them in the face on a daily basis.
Absolutely not.
No, not really. I do what I can, but I’m only sort of bullish, and even I think we are going through a dip right now. I just don’t think it will be as deep or last as long as everybody else.
The housing forum on Craig’s List seems has a balanced mix of bears and bulls and dumb people. http://forums.craigslist.org/?forumID=6
“No, not really. I do what I can, but I’m only sort of bullish, and even I think we are going through a dip right now. I just don’t think it will be as deep or last as long as everybody else.”
Yes the housing party is over but I too doubt the RE market will tank big-time. Imo some areas will take a big hit esp. those heavy with condos or new housing developments. However I’ve been moditoring East Mesa (85205/District 4 schools) for the past year and have yet to see much of a price drop. I have family in the city of San Diego and although the condo market is taking a beating the price of resale homes hasn’t dipped much at all.
Denial rages at Craig’s List. Same response in March of 2001 to the speculation in dot.com stocks. They could go down a little, but they are all funded for the long run. Best advice ever got froma battle scared Wall Street veteran
“The Treand is Your Friend”
Really? Seems like the dumb people:bear:bull ratio over there is about 5:1:1.
Balance is a myth. I could care less if this is balanced primarily because I will find my own balance based on my analysis of the information at hand. Finding the Bull side of real estate is very easy, that is what the news papers, most TV media and a quick call to your local real estate agent if for. This site represents one of the great things about the web and new media, you are combining the analysis and input from a host of very solid thinkers who are doing some great research. To be honest, you would be hard pressed to hire a team like this, but thanks to a great site and a good moderator, it has sprung up as a community of interest. Gotta love it.
Has anyone looked into the housing futures CME is going to start offering on Monday? Does anyone have any good ideas on how this might affect the housing market (sellers could in theory lock in their current price by selling futures and then lowering their price as the index drops)? Is anyone planning on trading these anytime soon? Does anyone know of a broker that is planning on offering them?
how about we discuss this?
“The chairman’s comments on the broader US housing market reflect recent comments from housebuilders who expect the current a soft landing from the current boom, similar to the corrections seen in 1994-95 and in 2001″
is this true?
While driving around my metro area, I’ve noticed something I wonder if people are seeing elsewhere.
Established neighborhoods that I would guess are populated by “older” folks who raised their kids in the 70’s and 80’s… Almost no homes for sale. Things look pretty normal and everything is nicely kept up.
Neighborhoods that have gone up in the past ten years or less (i.e., younger families)… for sale signs everywhere. This week I visited a friend who lives in one such development (newer homes, but definitely not McMansions) and she said most of those houses have been for sale a long time.
Anyone else seeing something similiar where they live?
Sallie,
Seeing the same thing here in Madison, WI. Established neighborhoods look normal. Newer ones have an inordinate number of for sale signs…
Cheers,
jms
Yes, but it makes sense. Older folks have grown kids, cheap/paid-off mortgages, pretty close to fixed expenses aside from possible health problems. Not a big deal for most if their incomes are flat or decline slightly. With younger families however, well that’s a different story - many are screwed, as they seem to be banking on their income or assets to balloon up in value, with wont happen unfortunately.
I also wonder if it has something to do with the type of younger folks who would buy into an older neighborhood. Perhaps more fiscally conservative, less enchanted by granite countertops and more enchanged by the idea of a lower payment and actually (GASP!) paying off the house by the time they retire…
Yes. We live in North County San Diego, and the newer developments definitely seem to have more turnover. Also, the very lower ends tend to move more because they tend to have more rentals (true investors who buy low, sell high).
We drive through the newer developments to get a real grasp of what’s happening in the credit market. Those prices are more vulnerable, IMHO, because the recent buyers were forced to stretch, financially, to get into those homes.
Anecdote: when we were doing “bubble monitoring” in one new development in 2004, I asked the salesperson some questions about the loans offered by the homebuilder financing arm. When asked what the 30 yr FRM rate was, he just stared at me blankly and said, “Gee, I have no idea. Haven’t seen anyone use one of those in months.” Again…this was mid-2004, hot, hot selling season; and nobody was using these loans. How much are these places going to hurt? hmmmm…
Credit Bubble was partly responsible for Real Estate Bubble.
IMHO, the credit bubble was 100% responsible for housing bubble since about 2001/2002 (So Cal).
In my Reno neighborhood (the subdivision is about six years old), between 5-10% of the houses are for sale at any one time. I know of only one house that has been foreclosed upon.
SJ
Lately I have seen several listing which say something like $7500 bonus to the agent who brings a buyer. This seems like a hugh conflict of interest and unethical. It is bad enough that a buyers agent makes more the more you pay. Now they will direct buyers to properties that give them the best bonus.
Good point regarding the bonus, Arlington. It’s known that Realtors will guide buyers to homes which most benefit the Realtors and their offices (inside listings, etc.). To me, this is a huge conflict of interest and is another reason we should have a flat-fee “menu” plan for Realtors.
Realtors DO serve a purpose. Sellers who work full-time would greatly benefit from a Realtor’s services (can show house during week, deal with all the marketing and paperwork, etc.).
As a potential future buyer, I’d be happy to pay a Realtor for giving me a heads-up on certain listings, for showing properties and dealing with some of the paperwork.
phoenix is firmly in the 46,000 camp at 46,292 (zip)
i see a trend - the records fight the increase until each friday, and then they cross into the next thousand grouping. phoenix is clipping along at about a 1,000 increase/week.
you do the math
It’s the same pattern here in Northern Virginia. Realtors like to list starting Wednesday and accelerating toward the end of the week. Then there is a peak on Saturday, and then some contracts over the weekend take down the numbers a little. But not enough not to make a higher high the following weekend. It has been this way *every single week* since I started keeping track January 1, 2006.
I’ve also been following Ashburn, VA a little bit. It’s in Loudoun County, VA, which has been one of the fastest-growing counties in the U.S. in the last five years. 45% of the total listings have now been reduced. About two months ago, that number was about 35%.
Looking for suggestions on objective measures of house values to determine when it’s (relatively) safe to buy again. Agents always want to use “comparables,” which is useless in a bubble, obviously.
I’ve heard of the Gross Rent Multiplier (GRM) which is [sale_price] / [yearly_gross_rent] on comparable properties, with multiples anywhere from 10-20 considered reasonable depending on the markets.
I’ve also heard prices relative to income, replacement-cost, and home-equity.
Also, look at this trendline for the SF area. If it was simple to find median home prices in each of our areas, that looks like a useful approach, no?
Maurice,
Good question. I would suggest “all of the above” in answer to your question. It’s important to look at as many variables as possible to get a really good idea WRT where things are headed.
Also, look at what local industries are upsizing/downsizing. Will wages be going up (increase in better jobs) or down (aerospace laying off, but waitressing picks up). Look at migration (don’t take a Realtor’s word for it, look it up in census figures and any other sources you can find).
As this bubble shows, look for changes in types of financing. Are credit standards tight or loose?
Look at rents to see if they are going up or down, and find out why, if possible.
You might want to obtain some statistics on the number of new notices of default for whatever area you are monitoring. Recent evidence in the SD Union Tribune showed that this number bobbed up and down around 3K per quarter before it climbed steaply to peak at around 5K per quarter in the early 1990s, before starting a long downtrend. It recently bottomed out at well below 1K per quarter before steeply increasing to over 1.5K per quarter at roughly an 18-month doubling rate (Say’s Law?). If this number continues its steep climb to a level above 3K/quarter, then SD real estate will start to really tank (right now the market is just siezed up — suspended in mid-air before the drop as it were).
Article on 50 yr mortgage.
Buy a house when your 15, and it may or may not be paid off when you retire.
http://finance.yahoo.com/columnist/article/moneyhappy/4443
I second a thread on GRM.
Dammit. 75 posts already. This will get buried. Sigh. Anyway:
WE NEED NEW CLICHES!
I recently suggested:
….death spiral.
Betamax replied with:
I like the term ‘cascade failure’, but death spiral works too.
I did my best Steve Martin with:
Alterative:
Heterodyned Hell Hole?
Technical:
Event Horizon?
Literature:
Restaurant at the End of the Universe?
Death on Denial?
Musical:
Highway to HELOC?
Saved by Zero?
Political:
Giant Sucking Sound?
There’s a lot more talented people out there. We need more catch phrases.
A name for the category of sellers who refuse to see the obvious fact that nobody wants to pay their ridiculous price:
“Not-giving-it-awayers”
They are adamant that their price is right, and if the agent would just advertise more, they’d probably find the buyer.
P.S. I could spend a million dollars on advertising every week, but if the price ain’t right, it isn’t going to sell.
I’ve been using the term “bubble bitch” instead of FB’er as I feel that the mental image of a underwater borrower with some bankers popsicle buried up his backside for the next 20 years (and every day is another thrust) more fully describes that situation (and it rhymes).
I, for one, would be interested what all of the smart people on this blog have done to prepare themselves for the coming downturn. Lots of comments blasting those that have bought into the housing chatter but if everyone on this blog has been so smart what have you done to protect yourself and family. Easy to talk the the talk but do you walk the walk?
CASH………………………….
Weekend topic: Identify the Bloggers Categorically
My wife and I are Boomers. No pensions, but small and inadequate 401ks (Please watch the great video posted earlier) and no kids. One small piece. Other Boomers have pensions as well as 401ks and Social Security. How stratified are we, and how do you adequately define us? We are definitely not a homogeneous class. We will likely work forever while others enjoy their second homes and recreational vehicles. Somewhere in our generation we were too late to qualify for a real pension.
I’d also like greater definitition of what defines Gen-X and Gen-Y and if they behave as differently as we Boomers do. Age is just a category. Behavior is different. Are Boomers giving (or leaving) more or less to their progeny than their predecessors? More selfish?
Just want the generations to understand each other’s struggles and not give blame where not warranted.
I’d really appreciate if anyone could offer median income by generation, employment percentage, homeownership percentage, etc. I think a rational discussion of where we are now and where we want to be would reveal that we are not that dissimilar.
I like this topic. Would recommend, though, that we refrain from bashing any particular generation. It’s foolish (and dishonest) to suggest that we would sacrifice our living standards so some other people “out there, from another generation” could have a better life.
Same for speculators, BTW. If I had known in 1997 (or even 2002) what I know now, I would have been the biggest specuator of all! Just being honest.
In my opinion appraisal fraud has been THE big hidden factor in the bubble. Even well-informed journalists and economists seem unaware of the size and scope of the problem.
I’d like to hear opinions or anecdotes about what’s happening with appraisals and appraisers while prices are declining. Will there still be pressure to inflate values? Will there somehow be pressure to low-ball appraisals?
In my opinion appraisal fraud is a key reason why the soft landing scenario is not plausible. Homes only sold at spuriously high appraisals because of the deleterious effect of bubble euphoria on buyer willingness-to-pay unaffordable prices and lender willingness-to-abandon underwriting standards. The amount by which valuations (and prices) will have to fall in order to get back to fundamental value is hence much larger than most of the “experts” seem to grasp.