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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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Name:Ben Jones
Location:Northern Arizona, United States
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When will it ever end? And what’s it going to take to make it end?
I’m starting to come to some grim conclusions on what it’s going to take. I recently received an email from an acquaintance with a header that said something about “in Case You Care”. With a link to another one of those “Wake Up America” articles by Paul Craig Roberts. Don’t get me wrong, I like PCR. But I’m starting to get a bit tired of all these pundits and journalists. Rarely, if ever, do they give any sort of solution. Just information on how bad it all is and how Americans suck.
In other words, THEY informed you. THEY did their job. It’s now up to YOU to realize how badly you suck and YOU need to go out and start a revolution. I guess they’ll watch and report on it from behind a computer, because that’s THEIR job.
Of course I care. I do contact my Senators and rep in the dim hope that maybe they’ll listen and sometimes they do, if enough people contact them who feel like me about some issue or another.
Does anyone have any ideas for actions that can be taken by ordinary people to effect some change? I mean, other than pulling an Elliott Rodger on Capitol Hill?
Calling is fine, but it has limited impact. Writing letters, oddly enough is better, because a letter is more likely to cross the rep’s desk (they aren’t going to get a report about your phone call). Make it short and send it to the letters section of your local paper, too, as a letter you recently sent to the rep/sen.
The best thing is to express your concerns in a thoughtful way at a public forum, preferably one in which the rep/sen was introduced by a local business leader who is still sitting there and with reporters from the local paper in attendance.
Basically, the more public the better. If their opponents in an upcoming election have opposition researchers in the audience, all the better.
Yes, I am serious about this.
Ahahahahahahaha. And you work for the government. No. One. Cares.
Unless you can cost them dollars or votes.
Maybe it’s better to just give up.
As a non-breeder, it’s not my concern what happens to this country after I check out.
And in the meantime, to quote poet, mystic, and drunk Jim Morrison, “I just wanna get my kicks before the whole sh*thouse goes up in flames.”
Ha! That is why the ancients told us not to put sterile loafers in charge of anything.
When will it ever end? And what’s it going to take to make it end?
When enough is taken away, when enough personal freedoms are taken away, and when taxes rise on everybody then people revolt. Add to that-when politicians rewrite laws to make their crimes legal. People will revolt, when the boiling point is reached for J6P.
J6P has to become angry.
Please remember Americans are terrorist at heart.
How many more years will it take for the latest round of extend-and-pretend measures to play out? 60? 70? Longer?!
I’ve asked the same question, in a different way, but my post hasn’t shown up yet.
Is anyone who reads and posts here concerned that the implosion of the Chinese real estate bubble may spill over to the North American West Coast, where all-cash Chinese investors have been a driving force in recent years?
Naw, last time, prime was contained. This time, China is contained.
Subprime, prime and everything else was contained last time…until absolutely nothing was contained.
How did the rich fare during our own Great Depression? Some lost I guess, other gained. Maybe a slightly less lavish party out at old Gatsby’s house.
The Chinese government has now limited pricing discounts on homes for sale to 15%. Greater discounts are no longer legal and a sale will not be valid.
See Whac, the answer was simple. The communists have begun to legislate pricing. Supply and demand don’t exist in China, just look at the rules on birthing.
I nominate this exchange from earlier in the week:
‘What is the real problem with Housing Bubble era thinking?’
‘The big-name economists who have bought into the Housing Bubble paradigm have lost sight of the fundamental equilibrium relationship between home prices and incomes. The traditional perspective of housing as a consumption good providing shelter to owner-occupant households has been supplanted by a New Era view that owning homes is the sure path to investment gains.’
‘Since the leaders of government agencies with an interest in housing policy have generally bought into the view of housing as a financial investment, rather than a source of shelter, policies have been adopted to try to drive increases in the investment “value” of housing, and metrics (e.g. Case-Shiller/S&P Index, Zesstimates, etc) have been devised to measure the success of government programs to increase the value of housing.’
‘Although the fundamental equilibrium relationship between household incomes and home prices has not gone away, it is routinely ignored by the stumped experts who can’t figure out why the flow of housing market transactions is in the toilet again. Why is it whatsoever surprising that policies engineered to pump up home prices would end up pricing most U.S. households out of the market?’
A reply, “The fact that, after six years, the pooh-bahs running the show haven’t figured out that falling incomes = falling house/car/retail sales tells you all you need to know about their intelligence.’
‘Or that their income streams depend on the various fantasies associated with home ownership.’
One said, “Worse - due to their cheap free money policy they have actual pulled in future demand and burned it all.”
And this, “Oh I think they’re smarter than that, but in their greed they’ve decided to loot their country’s treasury via guaranteed mortgages because they don’t know what else to do other than wait for “American Innovation” to rescue the economy. Off-shored jobs, obesity, retiring boomers, etc., add up to a perfect economic storm.”
The original commenter said, “They may indeed be smarter than that, in which case their official pronouncements to the contrary are thinly-veiled lies.”
They all know it is BS, but just ignore that realization and keep on trucking because they are invested in the BS. They have their nice cushy positions. They have their friends on the inside.
Everyone wants to eat Chinese food, no one wants to walk back into the kitchen.
It’s good to keep that oft-repeated Upton Sinclair quote fresh in mind when trying to put U.S. housing policy into perspective:
The banks loaned out too much money, and it can’t be repaid. The short term solution is to loan out more. The long term solutions is….well…they don’t seem to have a long term solution.
“The short term solution is to loan out more.”
Do hair-of-the-dog hangover cures work better in banking than in drinking?
My suggestion is: Do you know any friends or family who are now thinking about a Heloc now that the fake comps have risen? And a corollary, if yes, is your impression that the person is generally financially responsible or irresponsible.
Is Mr Market’s nonresponse to yesterday’s dismal GDP number akin to the coyote spinning his legs in midair just after running over the edge of a cliff?
The US GDP puzzle: is this a temporary drop or something more serious?
Some economists claim the drop in GDP is a minor blip – but it’s not altogether clear how the US economy will bounce back
Heidi Moore
theguardian.com, Thursday 29 May 2014 14.13 EDT
New York stock exchange, GDP The pullback in GDP is the first major economic contraction since 2011 Photograph: Brendan McDermid/Reuters
Is the US economy on the cusp of great growth? Or is it being pulled back into a morass of recession?
That debate has been reignited today as it was revealed that the US economy, which is supposed to be growing more robust, actually contracted in the first three months of the year, according to the Commerce Department. The sharp pullback – which would equal a 1% loss to economic power if extrapolated over the year – is the first major economic contraction since 2011. Another measure, gross domestic income, also fell sharply after years of growth.
The clearest reaction that sums it all up came from Pantheon Macroeconomics founder Ian Shepherdson in a note to clients on Thursday: “Ouch”.
The discussion is a weighty one. GDP, a measure number-crunched by the Commerce Department every three months, is the economic data point that policymakers most trust to gauge the health of the US economy. It takes into account everything from goods bought and sold to business investment to trade and export.
It’s also a political football. The growth of the economy could prove an influential data point in the midterm US elections this fall, in which the White House will want to show the economy is improving in order to win more seats for Democrats. Many Democrats and partisan economists, including Paul Krugman, have argued that the batch of austerity measures passed over the past three years by the US Congress would hurt economic growth.
As a result, a scrum of economists and pundits tried to make sense of the sharp, unexpected drop in growth, offering competing narratives around what it means. Many economic experts waved away the fall in GDP away as an anomaly, but did not offer much in the way of explanation about where future growth would come from.
The most popular conclusion among economists writing on Thursday was that GDP was hit by a short-term decline in inventories stocked by businesses during the first three months of the year. Inventories rose by only $49bn in the first quarter, not $87.4bn as previously thought, when GDP numbers were first announced in early May.
Yet inventories aren’t a completely neat explanation. The Federal Reserve, analyzing the numbers last month, attributed the decline to a decrease in net exports and the effect of bad winter weather, both of which may have also played a part. Enemies of austerity may also note that local government spending also dropped, contributing to that lower economic growth number.
In fact, many experts saw the drop in GDP as a good sign - interpreting it as proof that the economy is cleaning out all the dross before bouncing back, bigger than ever, in just a few months.
“First-quarter real GDP growth was revised downward,” wrote Doug Handler, chief economist of IHS Global Insight. “However, the nature of the revisions helps build the economic case for much stronger growth in the second quarter and through the remainder of the year.”
…
Maybe the answer is to include drugs and sex?
Britain, Italy include drugs and sex in GDP
By Melvin Backman
@CNNMoney May 30, 2014: 9:29 AM ET
NEW YORK (CNNMoney)
Plenty of money is spent on illegal drugs and prostitution. The United Kingdom and Italy are now calculating how much.
The U.K.’s Office of National Statistics announced Thursday that paying for drugs and sex adds about £10 billion ($16.7 billion) a year to the economy. The British government is now including prostitution and narcotics sales in its official Gross Domestic Product (GDP) statistic. That’s the oft-cited measure of how much a country’s economy grows or contracts.
Overall, illegal activities are still a small part of the U.K. economy — a mere 0.7%, according to government estimates.
The reason for the change is to harmonize economic reporting across the European Union. Prostitution and some drugs are legal in the Netherlands, and the Dutch count those activities in official government statistics.
Since prostitution and many narcotics are still illegal in the United Kingdom, the government is using a combination of police seizures and other data to estimate how much money these activities are adding to the economy.
Governments often use surveys to gather this information, but drug dealers are unlikely to answer those.
Italy made a similar announcement last week that it would begin measuring narcotics and sex work in its GDP, generating “mafia economy” jokes as the news reached social media.
But the Brits and Italians aren’t the only ones who measure illegal business activity in their countries. Estonia, Austria, Slovenia, Finland, Sweden and Norway do as well.
Even the U.S. Bureau of Economic Analysis measures prostitution as a part of Nevada’s state GDP.
…
Innovation Nation
High-tech sex workers in Silicon Valley
By FINK, ERICA @EricaFink
From accepting mobile payments to live Tweeting their cam shows, Bay Area sex workers have adopted the technology developed in the area for their own businesses.
Do you notice people massively overpaying on home purchase prices in your area?
Case in point: The small 2 br home next door to us (1/2 of a duplex) just sold for $460K. The Zestimate is $452K — supposedly down $2500 over the last 30 days — and the Rent Zestimate is $1971. Taking the present value of $1971 over a thirty-year time horizon at current interest rates (4.12% on a 30-year fixed mortgage) yields a net present value of $407K.
Now I know the landlords and investors on this board may point out that my calculation is misleading, as I don’t factor in future rent increases. But I am also ignoring the other components of PITI besides financing costs, including taxes, insurance, maintenance and HOA. I also ignored the mortgage interest deduction, which is probably near $0, assuming their Schedule A deductions turn out to be little higher than the standard deduction.
Besides that, given that interest rates are currently at a generational low and likely to go up before they go down, it seems unlikely that future buyers will find it quite so easy to borrow more than $50K above the fundamental value of a property to massively overpay on the purchase price.
At the current rate of price decline (according to Zillow), the home will be “worth” $30,000 less by this time next year. These buyers were robbed!
$1971 is the gross rent. You need to deduct at least 35% for expenses (taxes, insurance, management, vacancy, maintenance) for a net rent of $1281.
$1281 x 12 = $15,373 year. How much would you pay for that cash flow? If you want a 5% return, you can pay $307,000.
Consider cash flow is negative at the price, I wouldn’t pay anything for it.
Has the Chinese Housing Bubble collapse passed the point of no return?
China News
Chinese Home Prices Slip in May for First Time in Nearly Two Years
Price Declines Spreading as Buyers in Less-Developed Cities Hold Back
By Esther Fung
Updated May 30, 2014 8:46 a.m. ET
Construction in Zhejiang province; average new home prices in China were down 0.3% in May from April, the first monthly decline since June 2012
Zuma Press
SHANGHAI—China’s housing prices fell in May for the first time in nearly two years, as fresh data indicate more cities with price declines and weaker sales.
Average new-home prices fell 0.3% in May from April, a turnaround from the 0.1% monthly gain recorded for April and the first decline since June 2012, data provider China Real Estate Index System said.
Is China’s Property Market Headed for a Crash? Beijingers Weigh In
Year to year, average new-home prices rose 7.8% in May, decelerating for the fifth straight month, after April’s 9.1% increase and March’s 10% rise, CREIS said, citing data from its survey of 100 Chinese cities.
Prospects for China’s property market, an important engine of growth for the country’s economy, are souring. More Chinese cities recorded a month-to-month fall in housing prices in May. Out of the 100 Chinese cities surveyed, 62 showed a decline in home prices, compared with 45 in April.
Many home buyers outside more-developed cities, such as Shanghai and Beijing, have shied away from the market in anticipation of further price cuts and difficulties in getting mortgages.
“We almost became home-mortgage slaves last week,” said Ou Yibao, a 29-year-old software engineer in Shenzhen, using a term for those paying off mortgages on expensive homes.
…
“We almost became home-mortgage slaves last week,” said Ou Yibao, a 29-year-old software engineer in Shenzhen, using a term for those paying off mortgages on expensive homes.
Wow…I’m a 55 year old speechless software engineer. Just wow.
They see it. Software Engineers see it. In different places. Different cultures. The trap into the home-mortgage slave pit.
I kind of halfway assumed Mr. Ou Yibao saw it here on the HBB.
Renter from hell Nina Willis takes advantage of Ontario’s left-wing renter friendly laws.
http://read.thestar.com/?origref=https%3A%2F%2Fwww.google.ca%2F#!/article/53886167ec069193f800084e-nightmare-tenant-nina-willis-battling-with-new-landlord-over-7th-eviction
Renter from hell Nina Willis takes advantage of Ontario’s renter friendly laws.
http://read.thestar.com/?origref=https%3A%2F%2Fwww.google.ca%2F#!/article/53886167ec069193f800084e-nightmare-tenant-nina-willis-battling-with-new-landlord-over-7th-eviction
Renter from hell Nina Willis takes advantage of Ontario’s renter friendly laws. Anyone else know a Nina?
http://read.thestar.com/?origref=https%3A%2F%2Fwww.google.ca%2F#!/article/53886167ec069193f800084e-nightmare-tenant-nina-willis-battling-with-new-landlord-over-7th-eviction
Can Bubble takes advantage of liberal HBB posting rules and posts the same story 3 times!
While we are aware of the inflated housing prices, what’s up with the stratospheric prices paid for professional teams. Exhibit the Clippers. Are they really worth 2 billion? Who are the chumps - the new owner or the people paying for merchandise and tickets?
It seems easy money is pouring into everything imaginable. While the lucky ducks can’t afford reasonable housing. Is this a great place or what?
Today at our lunchtime a colleague said the clippers make $15 million per year.
$2 billion they are worth?
The price-dividend ratio doesn’t pencil out. But Ballmer has enough billions of dollars so that two billion is no big deal for him to shell out.
That will be the ever widening gap between the haves and the have nots.
My question is whether the prices paid for these pro teams are peaking or does it go still higher? In other words, can something like Detroit happen to these pro teams?