June 13, 2006

‘Overvaluation Well Balanced’: Harvard Study

The Financial Times reports on the new Harvard study. “Markets seldom disappoint both bulls and bears for long. But over the coming years the US housing market looks likely to do just that, according to a study by Harvard University. ‘Although housing prices are stretched, it is hard to see the catalyst for a crisis in the market,’ says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard.”

“‘The overvaluation looks pretty well balanced by longer term supports for house prices, so we may just see a few years with little action. Houses will revert to being something to live in rather than money makers,’ he said.”

“Over the past five years house prices have outstripped income growth more than sixfold, the median home now costs more than four times median household income in 49 out of 145 metropolitan areas in the US, a record. In 14 metropolitan areas, the median house is now worth more than six times median income. Last year saw the average house price shoot up 9.4 per cent, the biggest rise in the average house price since records started more than 40 years ago.”

“The strongest underlying support for the market comes from accelerating household formation. Demand is being driven not only by population growth but by household fragmentation, as couples divorce or children leave home.”

“Not everyone concurs, however. Many economists say national figures are deceptive, since they obscure pockets of extreme over-valuation in property prices and greater vulnerability to rising rates. Others point to evidence of overbuilding in recent years. Residential investment has risen to 6 per cent of gross domestic product, its highest level in 50 years and much higher than the average of 4.75 per cent.”

The Boston Herald. “New figures show Greater Boston housing is less affordable than ever, with a median-priced home costing nearly six times what the average family makes per year.”

“‘Affordability problems are worsening,’ Harvard University researchers write in their annual study, due out today. The report found that a median Hub-area home sold for 5.9 times local median household income last year. That’s up from 3.2 times median income in 1994, as well as about two times median income in the 1950s.”

“Affordability also dropped to record lows in all three other Bay State areas measured: Barnstable/Cape Cod, Greater Springfield and Greater Worcester. All told, researchers found that more than one Massachusetts household in three spends at least 30 percent of family income on housing. Worse, nearly one family in six pays at least half of everything earned.”

“‘The problem of affordability is not just a low-income problem any more. Middle-income families are facing affordability problems as well,’ said Nicolas Retsinas.”

“The study found Greater Boston municipalities issued just 7,974 building permits for new houses last year, a 16.6 percent drop from 1994. The good news: Retsinas said a lack of excess construction means prices in Boston’s jittery housing market aren’t likely to collapse.”

“The expert said researchers found sharp price drops usually require a combination of overbuilding and big job losses. ‘While there clearly will be a softening and flattening (of Greater Boston house prices), it’s unlikely there will be steep falls in the single-family market,’ Retsinas said.”

“However, he conceded that the Hub’s condo sector, which has seen lots of construction in recent years, ‘may be oversupplied.’”

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Comment by Ben Jones
2006-06-13 07:14:10

‘The problem of affordability is not just a low-income problem any more. Middle-income families are facing affordability problems as well,’ said Nicolas Retsinas. Researchers attribute much of the problem to zoning laws that have limited house construction.’

‘For instance, the study found Greater Boston municipalities issued just 7,974 building permits for new houses last year - a 16.6 percent drop from 1994.’

‘The good news: Retsinas said a lack of excess construction means prices in Boston’s jittery housing market aren’t likely to collapse.’

So the affordability problem in Massachusetts is caused by zoning that prevents homes from being built, yet the lack of homes being built will prevent a collapse?

BTW, did we ever resolve the matter of Retsinas being an economist or not?

Comment by GetStucco
2006-06-13 07:23:07

He is not an economist, unless a bachelor’s degree counts. At any rate, he does not appear to have learned much in his economics coursework…

“Nicolas Retsinas was appointed Director of Harvard University’s Joint Center for Housing Studies, a collaborative venture of the Harvard Design School and the Kennedy School of Government. Mr. Retsinas is also a Lecturer in Housing Studies at the Harvard Design School and the Kennedy School of Government. Prior to his Harvard appointment, Retsinas served as Assistant Secretary for Housing-Federal Housing Commissioner at the United States Department of Housing and Urban Development. President Clinton also appointed Retsinas to serve as Director of the Office of Thrift Supervision. Mr. Retsinas served on the Board of the Federal Deposit Insurance Corporation, the Federal Housing Finance Board and the Neighborhood Reinvestment Corporation. Mr. Retsinas also served the State of Rhode Island as the Executive Director of the Rhode Island Housing and Mortgage Finance Corporation from 1987 to 1993. He received his master’s degree in city planning from Harvard University and his AB in economics from New York University.”

Comment by Binko
2006-06-13 08:02:43

That’s all nice. But how many houses has he flipped? How many houses does he own? Is he invested in the Real Estate industry? Does he get speaking fees for giving speeches on Real Estate?

My point is he talks like a man who’s good sense is clouded by self interest.

Comment by Backstage
2006-06-13 09:15:53

Not self interest. It’s his job to be the new housing cheerleader. Got Harvard credibility?

Check out the list of the policy board members.


From the web site: “The Policy Advisory Board provides financial support and guidance to the Joint Center”

Unbiased? I think not.

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Comment by Moopheus
2006-06-13 08:05:15

“So the affordability problem in Massachusetts is caused by zoning that prevents homes from being built, yet the lack of homes being built will prevent a collapse?”

Zoning and other restrictions have certainly had a limiting effect in Mass., but that’s been true for many years. Certainly it was true ten years ago, or even twenty years ago. It didn’t suddenly become three times more difficult to get a permit in the last few years.

I’m now living in a neighborhood in Brooklyn where zoning was changed a few years ago to allow taller buildings, and so many new condos are going up nearby. Expensive, “luxury” condos. Zoning changes may allow more housing, but rarely does it affect affordability. And the neighborhood is becoming noticeably more crowded; there’s more traffic, more people on the sidewalks, more crowding in the subway station. Zoning limits are not all bad.

Comment by buddhaman
2006-06-13 08:33:43

I agree - new condos going up all over Brooklyn’s old neighborhoods - and it looks like many of the recent ones are not selling at all. Because of affordability - all priced 400K and up. The borough has absorbed huge amounts of immigrants who have been willing to pay high prices for SFH’s because they can pile up extended families in them - but not so in these tiny condos at these prices. I think there will be a lot of resistance from the entire buyers market of immigrants and ex-pat Manhattanites at paying 400-800K to live in an 800 sq. foot 2 bedroom (used to be that one bedrooms were 800 sq. ft. - hmmm…) condo in formerly working class neighborhoods like Sunset Park, Kensington and Bensonhurst.

2006-06-13 08:36:12

The funny part is - you can pay much more than 400K to live in a condo in downtown Vancouver. Want to compare incomes in New York vs. Vancouver? (Hint: Vancouver’s median family income is around C$60K)

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Comment by Stan
2006-06-13 08:46:35

Oh, 400k gets you a condo in an outer borough of NYC - probably an hour subway ride from Manhattan.
If you are talking about Manhattan, 400K *may* get you a 400 sq. ft. studio with an 800/month maintence fee.

Comment by Moopheus
2006-06-13 09:20:31

Median family income in all of NYC is much lower than 60K. New York’s income figures are skewed by the high-income workers in financial services, the top law firms, and so on, but most people here can’t afford an 800K or more condo. Which is why most still rent.

Comment by Rental Watch
2006-06-13 11:24:25

It’s pretty simple actually.

Generally, high demand and low supply helps prices up (all else being equal), BUT demand at certain price points is negatively effected by 1) availability of debt AND 2) psychology.

So yes, lower supply of a specific product type in a market will will keep prices from eroding as much as in another market where there is more supply of that product type, but it won’t stop the price erosion as lending standards tighten and people become more negative on housing.

Comment by need 2 leave ca
2006-06-13 07:19:02

Double talk. How many wats can you twist things around?

Comment by arroyogrande
2006-06-13 07:22:44

>The good news: Retsinas said a lack of excess construction means
>prices in Boston’s jittery housing market aren’t likely to collapse.”

How is that good news (except for current owners)? How are new families supposed to be able to afford to buy in Boston? Won’t they opt to live somewhere else?

Comment by crispy&cole
2006-06-13 07:23:32

Harvard study is financed by the Housing Industry. These Unversity studies have become a joke. They should be independent centers of higher learning, instead they have become mouthpieces for the highest bidder.

Comment by Chip
2006-06-13 08:05:36

“Harvard study is financed by the Housing Industry.”

This was disclosed in detail in this blog a few days ago, as to all the building industry outfits that finance Retsinas. I’d be really ticked if I were paying for my kid to go to Harvard and learned that its resources are diverted to this type of “work” and that the resulting report is so flawed as to be useless.

Comment by crispy&cole
2006-06-13 08:11:48

Why would the FT waste their newspaper on this biased POS report?

Comment by Chip
2006-06-13 08:15:38

Slow day.

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Comment by crispy&cole
2006-06-13 08:27:09

LOL. You are probably correct.

Comment by M.B.A.
2006-06-13 13:48:47

Harvard just ain’t what it usta be

Comment by OCBear
2006-06-13 07:25:08

“The strongest underlying support for the market comes from accelerating household formation. Demand is being driven not only by population growth but by household fragmentation, as couples divorce or children leave home.”

Thank goodness the Divorce Rate is going to save us…….OUCH!

Comment by Karen
2006-06-13 07:28:33

Yeah, we all know single moms can afford 500K homes on their 30K a year job, cuz they get 6K a year in child support.

And Dad needs a place fot the kids when they come for a visit. He can afford the 500K house cuz he makes more money…He makes 40K a year…

Comment by optioned unarmed
2006-06-13 07:33:33

Right. House prices are going up because couples are getting divorced. Not!

Comment by GetStucco
2006-06-13 07:25:13

‘Although housing prices are stretched, it is hard to see the catalyst for a crisis in the market,’

Maybe a record number of vacant homes in the USA? Or a new Fed chair who is commited to price stability, which requires higher interest rates? Or a home construction industry which is building away like there is no tomorrow, despite an apparent oversupply of existing homes?

Comment by huggybear
2006-06-13 07:35:27

I quit reading the article after that remark. Really, if Bernanke raises interest rates later this month I think it’ll be the final blow.

The stock market is spazzing out every time BB opens his mouth. I’ve never seen so much open pleading by the big business mouthpieces to keep this party going.

It’s like a drunk that keeps asking for just one more drink before the party ends. Time for this economy to sober up!

Comment by Les Pendens
2006-06-13 07:45:57

Here’s an analogy:

It’s last call at the local watering hole on Saturday night at 2:00am.

The lights just came on; and that attractive blond you have been teasing back to your place all night long suddenly looks like a weathered old hag.

Such is housing.

When the lights were low, the music was booming, and the drinks were flowing, everyone was sensual and beautiful.

Now the keg is dry, the lights are glaring, the music has stopped and everyone is trying to figure out which backroads they can use to safely sneak back home.

THere are checkpoints everywhere, however, and many drunks are gonna get caught and humiliated by the law.

The pain is coming. Save your money people.

Comment by DinOR
2006-06-13 07:57:55

Les Pendens,
How true, and sad. Unlike good drunks that know how to negotiate a wicked hangover the RE juggernaut wants to turn the clock back to at least midnight. What they fail to realize is that everyone is now quite broke and playing with the clock won’t change that.

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Comment by Max
2006-06-13 08:30:11

I love your analogy!

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Comment by M.B.A.
2006-06-13 13:51:41

Weathered old hag? What about cheap transvestite? Some people do not mind old hags - if they are still drunk! :)

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Comment by NjGal
2006-06-13 08:12:53

“Really, if Bernanke raises interest rates later this month I think it’ll be the final blow.”

Agreed, especially since they say these rate hikes take 6 mos. to show themselves. We’re just now seeing the effects of earlier hikes. Can’t imagine where we’ll be in another 6 mos.

Comment by ajh
2006-06-13 20:34:38

Disagree! I think the rate rise this month is a done deal. The PPI numbers combined with the anti-inflation rhetoric we’ve been hearing from various Fed. members mean the credibility of Bernanke (and the Fed. as a whole) would be shot to pieces if they don’t raise.

To make matters worse I believe the YOY core PPI figures are going to be impacted by the upcoming removal of some very low monthly numbers from 2005. I don’t know the CPI situation here.

The markets and the main players know all about this, and have factored it in even if they don’t like it. What the VI’s like the NAR are trying to do with their bleating is stop another rise at the next meeting, or at least make the next one the last one.

The final blow will be if inflation figures force the Fed. to raise again at the August meeting, without indicating a definite top.

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Comment by Ben Jones
2006-06-13 07:45:45

I thought about this in regard to the hysterics about rents going up. We have record new home inventory, record existing home inventory and are near a 40 year high in rental vacancies. But we are to believe there is some kind of shortage?

Comment by stever
2006-06-13 08:19:33

We should underestimate neither the reach nor unscrupulousness of the PPT and their minions. They will try to inflate and otherwise steal from the last sector of the economy untouched by the bubble burst-RENTERS! How else can they pay the Bills?

Comment by Davis_ renter
2006-06-13 08:31:32

I live in a college town just outside of Sacramento where rents are supposed to be skyrocketing. My landlord just asked if we wanted to renew and she was thrilled we said yes. As long as we maintain the house within reason and pay ontime, she promised to never raise the rent. Sure I’d like that in writing but I suspect that only the big property management companies will try to milk the renter. Individual landlords seem to be reducing rents so I wonder who will win.

Comment by Nikki
2006-06-13 09:08:34

My landlord raised my rent $50 last year after living there for 3 years. He was going to sell out from under us this fall, when our lease is up, but he called and told me that after speaking to his agent, there are so many other properties for sale that she thinks he should wait. I didnt’t ask “Wait until when?”, but I’m thinking he means until Spring 2007. Little does he know…but we plan to renew in 6 month leases beginning 1 Nov. I have plans to lowball all over the place this fall and see where it gets me.

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Comment by Bearnanke
2006-06-13 07:53:17

‘Although housing prices are stretched, it is hard to see the catalyst for a crisis in the market,’

I’ll make up a new quote - “There is no crisis besides the crisis itself”. His perma-bull blinders don’t allow him to see a potential bubble. My bubble-blinders tell me that the very thing that kills bubbles is the realization by the participants that there IS A BUBBLE and the ride is over.

This is the crisis that will kill the bubble just like every bubble before it.

Comment by Binko
2006-06-13 08:08:14

Don’t forget about tens of millions of arm loans resetting at a higher rate. Nor about households having a negative savings rate and being unable to weather any crisis. How about the millions of upcoming foreclosures brought on by sub-prime loans made to people with bad credit and minimal income?

Could this guy be more of a fool? “Hard to see a catalyst?” Bah..I can see a dozen catalysts. Only a half-blind, RE industry insider talking out the side of his mouth could fail to see a multitude of catalysts.

Comment by stever
2006-06-13 08:23:05

see this movie site about predatory lending

Comment by stever
2006-06-13 08:24:35

Whoops. Its called “Maxed” Out and I guess I didnt use the tag right.

Comment by stever
2006-06-13 08:26:34

Comment by stever
2006-06-13 08:34:14

Ok, this is the link to the movie about predatory lending and its reach into the culture
Maxed Out

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Comment by Max
2006-06-13 08:28:28

A Safeway bagboy, holding six houses in the desert, with option-ARMs is certainly not going to a catalyst. (snicker)

Comment by DinOR
2006-06-13 07:27:47

“The overvaluation looks pretty well balanced”
Huh? How is it possible to complete that sentence and have it make sense? Oh well, not my problem. Both bears and bulls will be disappointed? Oh and wouldn’t be to sure about that. I’m a bear and I’m feeling much better these days with total vindication only one more article or one lower comp. away! To say that houses will revert back into something that we live in vice an investment vehicle is another way to say crash, isn’t it? Now if that is true (I believe a home will become something you live in and regret having bought) what will become of the 40% plus speculator bought, I mean “vacation” homes? Who will live in them? Or do realtors consider these “vacation” homes seperate from the “rest” of the bloated inventory?

Comment by Chip
2006-06-13 08:14:35

“…what will become of the 40% plus speculator bought, I mean ‘vacation’ homes?”

I’m trying to imagine how many people who bought a second home for a vacation home, as opposed to an outright flip, would have done so if they had known the resale price would be flat for the foreseeable future. Renting a vacation home (as opposed to a place you’d use every weekend) is not only a fantastically better deal in most cases, it gives a person the opportunity to change their destination. I liken owning a vacation home to owning a time share, but worse in most respects.

Comment by Kaleidoscope Eyes
2006-06-13 13:23:26

I would never, ever, own a vacation home. It makes absolutely no sense to me. It’s a much better deal to either rent, or stay at a hotel. And with the latter, you’re also relieved of housekeeping chores.

The only reason I see to own a second home outright is if you spend a lot of time in that location, year after year. Otherwise, renting or hotel-ing is the ticket.

Comment by passthebubbly
2006-06-13 11:08:59

I was gonna say, that was a comment so opaque only someone from Harvard could have said it.

Comment by GetStucco
2006-06-13 07:28:32

“The study found Greater Boston municipalities issued just 7,974 building permits for new houses last year, a 16.6 percent drop from 1994. The good news: Retsinas said a lack of excess construction means prices in Boston’s jittery housing market aren’t likely to collapse.”

I guess these Hahvard folk have not looked beyond the walls of their ivory tower lately, to notice that the Massachussetts housing bubble is collapsing? It reminds me of the story of the weatherman who predicted a sunny day, while failing to notice the rain falling just outside his office window…

Comment by optioned unarmed
2006-06-13 08:03:38

Also, that still means almost 8,000 new homes in a city with declining population. A *decline in growth* is still growth. It might be totally different if the study had instead found that 8,000 homes had been demolished with no new homes being built.

Comment by orlandorenter2
Comment by holgs
2006-06-13 07:47:46

It’s a who’s who of the housing industry. I found myself sitting here trying to come up with the big names randomly and then searching for them in the list… 95% of the time I could find them there…

Comment by holgs
2006-06-13 08:02:14

Ben, can you put something on the front page about this scoop? We do have some journalists here that might be interested but may not read the comments.. This is a major conflict of interest, and may lead to far deeper stories about the RE complex in the coming months.

I think someone else also posted an interview yesterday between Liarah and this Niklas guy from 2002 where the latter was absolutely fawning over RE or something (unfortunately I didn’t read it.)

Comment by optioned unarmed
2006-06-13 08:07:56

I like that idea! How about changing the thread title to something like “Harvard Study Funded by Housing Industry Concludes Housing Industry Not At Risk of Collapsing”

Comment by Bearnanke
Comment by Cassandra
2006-06-13 12:25:58

I’m going to hurl…

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Comment by M.B.A.
2006-06-13 13:54:02

how much kickback are they getting paid to say that BS?

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Comment by arroyogrande
2006-06-13 20:41:24

Un-Be-freaking-lievable. That’s the first time that I’ve ever had my lower jaw drop down so hard and so fast that it actually bounced on my desk a few times.

Wow. There’s a whole fertilizer industry worth of product right there in that story. And they shovel it pretty fast and furious. Wow.

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Comment by plysat
2006-06-13 08:09:19

Here’s the list of who funded this “report”

Andersen Windows
Armstrong Holdings, Inc.
Beazer Homes USA
Black & Decker
Boral Industries
The Bozzuto Group
Bradco Supply Corporation
Builders FirstSource
Building Materials Holding Corporation
Canfor Corporation
Cendant Corporation
Centex Corporation
CertainTeed Corporation
Champion Enterprises
Countrywide Financial Corporation
Crosswinds Communities
Fannie Mae
Fannie Mae Foundation
Federal Home Loan Bank of Boston        
Fortune Brands - Home and Hardware                   
Freddie Mac
GAF Materials Corporation
Georgia-Pacific Corporation
Hanley Wood, LLC
Home Depot
HomeStore, Inc
Hovnanian Enterprises
Huttig Building Products
James Hardie Industries NV
Johns Manville Corporation
KB Home
Kimball Hill Homes
Kohler Company
Lafarge North America
Lanoga Corporation
Lennar Corporation
Louisiana-Pacific Corporation
Marvin Windows and Doors
Masco Corporation
Masonite International Corporation
McGraw-Hill Construction
MI Windows and Doors, Inc.
National Gypsum Company
Oldcastle Building Products, Inc.
Owens Corning
Pacific Coast Building Products
Pella Corporation
Pulte Homes
Reed Business Information
Rinker Materials
The Ryland Group
S&B Industrial Materials S.A.
The Sherwin-Williams Company
Stock Building Supply
The Strober Organization
UBS Investment Bank
WeyerhaeuserWhirlpool Corporation

Comment by Davis_ renter
2006-06-13 08:12:38

Now that is a very telling list of supporters. He’s just lost an credibility as far as I’m concerned.

Comment by DC_Too
2006-06-13 10:07:49

“Telling?” It’s disgusting. Let’s just say it.

Comment by tweedle-dee (not dumb...)
2006-06-13 10:10:50

I agree. Disgusting. At least they published the list with the document so we know.

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Comment by Neil
2006-06-13 07:31:11

OT: Did you see this article on yahoo?
“How to Profit From a Cooling Real Estate Market”

from the article: “To add more pain to the misery, they still have to pay the capital-gain taxes they made from their previous successful flips. They’re toast. The alligators are eating them alive.”

I like that “alligator” term. Its defined as an investment property you must feed and as soon as you can’t afford to feed it, it eats you. ;)


Comment by Slewfoot
2006-06-13 07:45:57

Robert Kiyosake is one of the bigger long term RE bulls. I used to hate his articles for their unreleting RE upside, but for the last 3 months, he’s turned into a gloom and doomer. I agree that the amateurs are going to get killed, which is slightly unfortunate since most of the amateurs are probably neighbors to you and me (I wont shed any tears though, Ill just buy their house real cheap). As usual the rich and smart, get richer.

Comment by Brian M. Gwyn
2006-06-13 08:41:16

In Kiyosaki’s defense I have to disagree with the “but for the last 3 months, he’s turned into a gloom and doomer.” comment. I won’t make an issue over when he said what but I will say I have never seen him ever suggest investing for capital gains over cash flow. There’s a world of difference between the two investment strategies.

Comment by Michael Viking
2006-06-13 10:19:11

I agree. Mr. Kiyosaki is all about cash flow. I also feel like I read an article of his about how RE is toast and it was more than 3 months ago, but I could be wrong.

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Comment by UnRealtor
2006-06-13 21:33:19

Kiyosaki is a quack. Google up Kiyosaki and MLM:


Comment by Pinch-a-penny
2006-06-13 07:58:01

“Some people say we’re now entering a bad real estate market. I disagree. I think we’re entering a great market. A bad one is when amateur investors become real estate experts and they bid up prices. They make housing expensive for homeowners, often adding little to no value to the property. They simply muddy the waters and make a valuable investment, a home, expensive.”
Right now would be absoulutely the worst time to get into the market, and this dumbf*ck is saying that it is a great time! Way to go. Lets all go buy some nasdaq at 5000, or dow at 18000 books, and become cheerleaders!

Comment by Backstage
2006-06-13 09:31:47

In a twisted way he’s right! We are LEAVING a bad RE market. We just have yet to pay the bill. When the check is paid, you can leave.

Comment by Curt
2006-06-13 07:37:47

You don’t need a weatherman to see which way the wind blows, and you don’t need a Harvard economist to see that housing in the US is tanking.

(My apologies to Mr Dylan)

Comment by nnvmtgbrkr
2006-06-13 07:44:34

Ben, I think you have an amazing amount of people just beginning to find this blog and are trying to (finally) educate themselves on what this thing really is. I was gone this weekend, but one of the things that I was going to suggest for a topic was a discussion of the fundamentals that support that this is irrefutably a housing bubble, stuff that is elementary to those who have been here a while, but essential to the “newcomer”. Since these folks are no being bombarded with crap like this piece here from Harvard, a re-hashing of the simple, undeniable truths will help them be able to decide for themselves what is fact and what is fiction. It’s hard to decieve someone who has been informed.

If any reading here this morning fall in this category, here is a great piece that can start you on your pathway to understanding. http://www.financialsense.com/fsu/editorials/schiff/2005/1118.html This could serve as an outline to future “topic discussions”.

I’m amazed as of late at the amount of knowledge on this blog. To those of you that have it, keep enlightening the masses.

Comment by DinOR
2006-06-13 07:52:03

Excellent suggestion! While many of us have been watching this thing since 2000/2001 many folks are just now becoming aware. Many of the articles written lately seem to include “re-caps” as to “how we got into this mess” and while helpful to new comers they gloss over some of the more important nuances.

Comment by optioned unarmed
2006-06-13 08:25:29

A list of “essential reading and resources” linked to from the home page would be great.

Comment by Sunsetbeachguy
2006-06-13 09:41:40

see piggington.com

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Comment by Bearnanke
2006-06-13 11:53:00

Pigginton is great. I second the idea in a little more refined manner. We essentially need our own “press kit” that is essentially facts, figures, pretty pictures, with references, how to organize this effort and “get the word out” is a different issue. I’m sure there are many people here that would be willing to help out. Maybe this would take the form of thehousingbubbleblog WIKI?

Comment by Backstage
2006-06-13 09:35:54

The first blog I turned to was Patrick.net. His arguments, while somewhat SF Bay Area-centric, give a great overview of the market as a whole and the arguments pro and con.


Recommended reading.

Comment by DinOR
2006-06-13 07:46:11

Realtors (and all their cohorts) know that they are smarter than Wall Street. They seem to think that with a few carefully placed “reports” they can sway public opinion to not only control the rate of descent but with a little help from BB can turn this thing back into “rock and roll” in a matter of weeks if not days! I mean there’s just such a sense of urgency in all of their press releases and it’s as if they believe that the minute they land their “counter punch” piece the crash will stop, stabilize and continue to appreciate? They’re putting themselves under tremendous pressure “to get this thing turned around”.

Comment by orlandorenter2
2006-06-13 08:06:41

Spin and lies-it’s what this great country of ours is built on. And I mean on both sides of the aisle.

2006-06-13 08:09:13

Well, we’re moving from ‘denial’ to ‘blame’ — blame the media for the bad press.

Comment by Salinasron
2006-06-13 07:48:12

Amen, Curt.

Comment by Larry Littlefield
2006-06-13 08:13:18

“The strongest underlying support for the market comes from accelerating household formation. Demand is being driven not only by population growth but by household fragmentation, as couples divorce or children leave home.”

This is nonsense. The divorce rate has peaked. Their scenario for the generation includes Mom and Dad, Grandma and Grandpa, and each kid living in a 4,000 square-foot McMansion.

Now as I’ve said, it is possible that downsizing empty nesters and new entrant echo boomers will absorb all those condos. But only if they can afford them. The absorption price is much lower than the sale price around here.

As for the McMansions, they are overbuilt.

Comment by Chip
2006-06-13 08:43:22

“The [condo] absorption price is much lower than the sale price around here.”

Close to 50% lower, by my reckoning, in much of Florida.

Comment by Kaleidoscope Eyes
2006-06-13 13:28:26

And the downsizing empty nesters are going to have to sell their original house, which will put it right back on the market.

It is true that more and more singles, especially women, are buying homes. But usually they marry or partner eventually, and unless they are one of the rare “Living Apart Together” couples, one or both will wind up putting their homes on the market again.

I think that there was a huge supply of buyers when the Baby Boomers were growing up and moving out on their own. But nowadays, I see it more as a churning than as growing numbers of households “sitting” on the supply.

Comment by cereal
2006-06-13 08:16:41

our harvard buddy is invested in r.i. & md.

Comment by Northern VA
2006-06-13 08:27:37

I know we have talked about Kiyosaki here a number of times on this blog. He has an article on Yahoo finance with the summary starting “Flippers are toast-”


Whatever you think about the guy, you have to love that written on a page that draws as many eyeballs as finance.yahoo.com.

Comment by Mike
2006-06-13 08:28:01

The academicians can study this to death, but in the real world, the sellers that are in trouble (loss of job, interest rate resets/exotics/ARMs, divorce, relo, etc.) will drive this market. They will drive the price down along with the comps.

Those markets that have a higher proportion of these type of sellers will see larger price drops

Comment by Davis_ renter
2006-06-13 08:46:46

I work with a research group that specializes in social psychology, social economics, rural mental health, and demographics. The general consensus is that housing in CA is severely out of whack with fundamentals and will suffer them a “white flight” effect as a significant portion of the middle class relocates to more affordable locations. We just now really are seeing the effects in the 2004 data on poverty in CA and the 2004 census numbers.

Comment by huggybear
2006-06-13 09:47:14

Davis_renter, do you have a study or further data that you can share from your research group?

Comment by Davis_ renter
2006-06-13 10:17:33

We don’t forecast as much as document what is happening >; )
I can say that general consesus is that affordablity in CA is unsustainable currently for the majority of the middle class. No suprise for us here - folks on this blog knew that a while ago.

(Comments wont nest below this level)
Comment by orlandorenter2
2006-06-13 08:36:04

Well the NAR can rest easy now that the Harvard Study has been released. No need to bother BB about not raising rates because according to that study, ”it is hard to see the catalyst for a crisis in the market”.

Comment by Peter
2006-06-13 15:54:32

Great observation.

Comment by Mo Money
2006-06-13 08:46:10

Quick comment from San Jose, CA. Just got the latest flyer stuck in my door with latest sales. People are still overbidding for houses and condo by $10-20K like it was last year. Only 1 in 10 sales was at asking price or slightly below. Looks like the word is still not out and people are seeing those increased open house signs as a buying oppertunity.

Comment by SlashChick
2006-06-13 10:50:16

Who stuck the flyer in your door? A Realtor(R)? Of course it’s in their best interest to show that everything is selling above asking price. Let me guess… it had a little tagline that said you should sell now? And a number to call?

I get these all the time (I rent a property here in San Jose, but get “owner” spam in the mailbox.) San Jose is not showing the signs of cooling that some markets are…YET. But my office is downtown and I get the monthly newsletter of the SJDA (San Jose Downtown Ass’n), which likes to spout off about the 7,000 new condos that are going to go up here in downtown by 2009. Remember that the population here is actually declining, and the few people who are moving in aren’t buying. It may take a few more years for the bubble burst to show itself here (I don’t plan to buy until 2010), but I have hope. In the meantime, I’m paying $1550/month for a really nice 3BR duplex, and I’m happy there.

Comment by santacruzsux
2006-06-13 11:05:41

Yup. I get to pay $1600 for a nice 3BR/2BA for my ok townhouse with a 10 minute walk to the beach. The unit next door to mine sold in October for $700K. I think I’m doing ok on the deal! I’m still moving in the fall back to the ‘Burgh though.

Comment by lunarpark
2006-06-13 11:33:05

Santa Clara County inventory is moving up:

SFH/Condos -

4/13/2006 3890
5/13/2006 4455
6/13/2006 5009
*6/13/2005 inventory was at 3633. (source mlslistings.com)

Also, noticed a spike in SFH inventory in the 95128 & 95125 zip codes this week.

Comment by Mort
2006-06-13 08:49:52

Bartender Ben Bernanke: “Last call!”
Drunken Economy: “What? Hic* We’re just getting started!”
BBB: “No, it’s closing time”
DE: “How about one more for the road?”
BBB: “Time to pay your tab”.
DE: “How about one more, then I pay?”
BBB: “How about some coffee?”
DE: “No! I want scotch!”
BBB: “I’ll find you a ride home”.
DE: “The bank foreclosed, I live under a bridge”.
BBB: “Okay, tell me where your bridge is.”

Comment by tweedle-dee (not dumb...)
2006-06-13 10:09:59

So Harvard thinks we are in for a soft landing ! Hilarious ! Rolling on the floor laughing.

2 months ago everyone and their dog, except us, of course…, denied there was a housing bubble, although things were really slowing down. Now, we have confirmed the existence of the bubble and economists are telling us we will have a soft landing ? Wow. Do they realize we are 2 or 3 YEARS away from being at a bottom in the housing market ? YEARS. And yet 2 months into this thing they are forecasting a soft landing ? Doesn’t make sense. Its like forecasting what the landing will be like in LA just after you’ve reached cruising altitude after taking off from New York.

Comment by Sunsetbeachguy
2006-06-13 11:42:36

Good point, I looked at the 2005 version of the same report.

1 dismissive mention of bubble
No mention of overvaluation
No mention of bust

Even Harvard’s compromised JCHS is having to acknowledge the bubble and find justification .

Comment by santacruzsux
2006-06-13 11:02:01

William F. Buckley

“I’d rather entrust the government of the United States to the first 400 people listed in the Boston telephone directory than to the faculty of Harvard University.”

Not a huge Buckley fan but this quote is hilarious!

Comment by Thomas
2006-06-13 11:15:22

“The expert said researchers found sharp price drops usually require a combination of overbuilding and big job losses.”

In the past, when most people bought using fixed loans, this might have been true: Job loss was one of the few things that could render someone unable to make his monthly payment.

But now, when most recent purchasers used teaser-rate ARMS and negative-amortization vehicles, it won’t take the loss of a job to cause payment shock: When you’ve stretched to the limit to make a $3,000 minimum option-ARM payment, when the teaser period ends and the minimum payment goes up to $5,000, you might as well have lost your job: You simply can’t make the monthly nut. Doesn’t matter that you’re only $2,000 short instead of the full $5,000 short you would have been had you lost your job outright — short is short, default is default, and the end result — foreclosure — is exactly the same.

Because this run-up in appreciation is unprecedented, both in its causes and in its extent, don’t look to historical precedent as a limit to when and how far it can fall. Bottom line: Even without massive job losses among the RE industry people whose jobs account for a massive portion of recent job growth, it won’t take job losses to break this market. Exotic mortgage payment shock will do that handily all by itself.

I understand that the government has indicated that it will issue new binding requirements on lenders that will only allow people to qualify for loans based on their ability to pay not just the introductory payment, but the payment after an exotic loan adjusts. When that happens, the market will correct 30% or more in the overheated markets, and I believe it will happen faster than previous downturns.

BTW, great job, guys, on pointing out the Harvard study principal’s thin credentials and RE industry funding.

Comment by ajh
2006-06-13 22:21:16

Excellent point.

Comment by neuromance
2006-06-13 11:58:45

Ben, an amazing blog. Truly a must read for anyone who is considering speculating in real estate.

I read about the Harvard study on the CNN site. I thought, wow, Harvard - the final word. It doesn’t get smarter or clearer than Harvard.

Then I come here and see who the study is funded by - the heavy hitters in the housing industry. And then I read Thomas’s observation on job loss versus home prices and exotic loans versus home prices. A very solid observation it seems to me.

I don’t think anyone knows exactly what’s going to happen to the market. But it’s important to hear both sides of the issue in order to make educated decisions.

Comment by OC Max
2006-06-13 12:22:36

This study is also CNN’s top Business section article:

My comments to some of their nonsense follows:

“Graying boomers. As boomers have aged and prospered, they have begun to buy vacation or second homes in increasing numbers. This trend will widen as they near retirement.”

I thought boomers were totally ill-prepared for retirement … now they’re buying more homes? So which is it?

“Fewer adult children live with their parents; they establish their own homes.”

Absolutely, categorically false.

“Minority gains. Ownership among formerly under-represented minorities has increased. Black and Latin home ownership has always trailed that of whites but the past 10 years has seen minorities making great progress.”

Harvard always has to do a little race-baiting, further reducing their credibility. Furthermore, luring minorities into death-or-glory loans at the height of a housing bubble isn’t what I’d call “progress”.

“The Harvard researchers downplay the risk in mortgages with adjustable rates and easy downpayment requirements.”

To that I ask: Who funded this study?

“As Lawrence Yun, managing director of quantitative research for the National Association of Realtors, points out, in general, places with expensive housing are often the hardest places to build.”

And no study would be complete without quoting an “expert” who works for the NAR.

Comment by need 2 leave ca
2006-06-13 13:18:51

minority ownership = higher foreclosure. There is no racial bias on my part. It should be one simple fact. Can the buyer afford the property? Yes, they buy. No, they can’t. The homeownership should not be determined by race, only by the $$$. Now, many folks, irregardless of ethicinity (?sp) are SCREWED. These loans have been equal opportunity nooses for people to willingly hang themselves.

Comment by fatsacca
2006-06-13 15:28:43

Mr. Retsinas has been drinking too much of his own wine.

Comment by Miami_med
2006-06-14 03:35:55

I love Harvard. Lots of prestige and always good for a laugh. I guess news travels slowly to those in the ivory towers.

Comment by Hawk
2006-06-14 10:00:09

Check the video part on:

Mother of 4 in foreclosure states “we got into it not knowing about home ownership”. Let’s see, the home was used as an ATM, the ARM reset, and opps we lost the house. If you have 4 kids, do you think you may want to get a brain before doing something so stupid? I have no sympathy what so ever for people like this. Good job and explain to your 4 kids while you’re back at mommy and daddies about real estate 101 so in the 2nd RE up cycle they won’t be as retarded in 2 decades from now. Wow I was looking to buy from people this stupid?

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