The Housing Bubble

It’s impossible to time any market. You might as well play craps, because we at least know the odds for certain.

Psychology and sentiment are going to be your indicators, not statistics. When Joe Sixpack decides that real estate “is the worst investment you’ll ever make”, take that as a sign that we are probably nearing the bottom.

grim

We aren’t even close until your local paper runs WEEKLY ads from HUD and VA listing at least 25 repossessed homes in your area that are all vacant and have been for some time. Also, other than HUD and VA, you can’t get a loan from anybody with less than 30% down for an investor and 10% down for a primary residence.

Then you can start thinking you may be at the bottom.

When you see the cover story on Time Magazine about how home ownership is dead and future generations will all be renters because homes are such bad investments.

The sure way to time the bottom - when YOU think the RE is the worst investment, when you won’t even contemplate of buying, then it’s probably the bottom.

Bottom - when the last bull capitulates.

I would add this to the list of one of many indicators I have.
One of the best ones I have is three friends who always buy at the top and sell at the bottom (both stock market and housing).
When they start saying how terrible RE has been for them and their friends, then I know we are probably at a good time to start looking.

When you’ve finally decided to buy, and 6 months/1 year/5 years later you’ve become so frustrated that you’re regretting the decision and are thinking of selling, then THAT will be the bottom.

That’s the way it works with value stocks, at least.

What about the trends in affordability index? I had the same thought this morning and, while it is all guess and hunch, there is educated guess and hunch vs. pure guess and hunch. My thought was to look historically to see if there is a correlation between the affordability index for an area and the percent decrease from peak. Thoughts?

Not sure where my earlier post went, so this is a repost.
My comment/question is: how do people figure the affordability index factors in? I know that in California it is extremely low from a historical standpoint. Not that, for my hometown, affordability is almost nonexistent (from CNN article): “In Los Angeles, the least affordable big metro area, only 1.9 percent of the homes sold were within the reach of families earning a median income for the city of $56,200.” Crazy.
So, to rephrase, is there an index number generally associated with the bottom of downturns?

Slam dunk! When Ben starts “The Housing Bust Blog” it is time to start buying. He has a much better barometer than all the so-called “experts”.

I disagree. Looking at the last bubble in the 80s, prices will continue to go down even if inventory stabilises or even if it starts to reverse course. IMO, the housing bottom will not be reached for at least 5 years and after that prices will stay stagnant for at least that much more. We are just but at the first inning. I expect house prices to be down 50% from current ones once it’s all said and done.

Ever read a book called “Timing the Real Estate Market” by Robert Campbell, a very experienced San Diego builder who has gone through a few decades of market ups and downs? Here is a review.

the time it takes to sell a home has grown longer, prices are holding (for now), lots of propaganda in toronto about a ’soft landing’.

the chief economist for BMO says ‘dangerous conditions exist’ and ‘this will all come to an ugly end’ (i’m quoting from memory but he used those words).

Massive high-rise luxury condominium projects continue, with a lot of the units being sold to investors who will not be able to rent them at a price high enough to cover PITI + fees. sound familiar?

http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&call_pageid=971358637177&c=Article&cid=1150408210837

some choice quotes:

“Speculative buying in some condos could be as high as 40 per cent, according to some estimates.”

“The analyst has said in the past that there was “high risk” that the Toronto market is being overbuilt.”

“While banks have cut down their exposure to condo loans, some analysts have said the risks have shifted toward condo buyers who are putting up the bulk of the down payment for condos in hopes that the market will continue to appreciate.”

Isn’t there some kind of law forbidding people from making these kinds of promisses? Telling people if they buy something how much money they will make on it unless they are gauranteeing a refund? Did’nt Amway get in big trouble a few years back with the government for making false claims on income you could be making for an “investment opportunities”?

Zillow the house. Note how the house at 5226 (with a double lot) sold for 360k 5/2006.

http://www.zillow.com/HomeDetails.htm?city=SPRINGFIELD+&state=VA&zprop=51884951

That alone might not be a good indicator, as you might fall victim to a dead cat bounce. The last bubble gave you almost three years of flat prices during 1994-1996, but other fundamentals were involved such as touching the mean.
In the end, you should start seeing good fundamentals as well as psychology running from RE.

That dishwasher looks like a near-mint collectible. So easy to use, too — just “on” or “off.”

I think some of you may have overlooked that the scam some of these guys are doing is that they are paying full price and getting cash back at the close.

They can still sell at a loss and have made money.

speaking of Amway/Quixtar, there’s a dude that hocks herbalife crap at the gym in the Bradlick stripmall by this house. it wouldn’t surprise me if this was his place…

Good find, MeShell. I know exactly where that house is - I’ve a friend who lives in that development. She bought when her kid was born in 1999 for $175,000, if I remember correctly. Half a million in that subdivision is really astounding.

Ooo, that’s nice. Notice the “rent the upstairs for $1,800 and the downstairs for $1,100″ (illegal zoning code violation) against the advertised mortgage of $3,400.00 per month, for a net of -500.00 per month. Let me rephrase: “Hey, buddy! Why don’t you give me a chunk of cash and go negative on your cash flow by illegally renting this house out!” Then the ad suggests you’ll be able to sell it in 18 months.

Why do I have the impression that the current owner bought into this exact same line of hooey and now wants to pass along the joy?

“As I was leaving for work this morning, there was a pamphlet stuck on the knob of my door from a Century 21 agent advertising some homes in the area. Every last apartment had the same pamphlet. I felt like I was back in New York where the Chinese food delivery guy slips the menus under everybody’s door. The end is near…”

Actually, about 18 months ago while living in Los Angeles, my apartment building’s bulletin board had a real estate agent’s glossy flier posted. It was far from the end. I think the post lasted only a week before someone took it down. I was laughing at such a tactic. I thought the end was near. I’ve been completely out of real estate for ten years and no longer have regrets about it. This weekend I’m going to order a T-Bill online and perhaps a savings bond along with it. I sold some stocks and have lots of cash, so I’m in a good situation, waiting for good buying opportunities. I prefer to wait for good stock buys for now. I think the bottom in Real Estate will be several years away.

I finally had to post a sign on my door a few weeks ago telling the bored realtors and loan officers to go away and take their flyers with them. The DHL delivery guy was laughing about it as he dropped something off yesterday.

“The only function of economic forecasting is to make astrology look respectable.”
- John Kenneth Galbraith

Other than you’d have to be certifiably insane to buy there?

My Realtard(R) informed me that Temecula would keep going up forever, and that soon it would take 4 hours just to exit Winchester Road off the I-15.

My observation is it used to be nice when it was called “Rancho California.” Since then it’s gone downhill.

Come on people! Temecula isn’t that bad. There are some nice new neighboorhoods there, the setting is nice (surrounded by desert mountains) and the casino virtually guarantees a regular traffic of visitors with money to spend. I wouldn’t mind living there so much if I worked in Riverside or north SD county.

The problem with the Temecula/Murrietta market, IMHO, is that the speculator activity there over the past couple of years has been even more intense than in other parts of the inland empire. So it’s probably set up like Riverside/Corona/SB/Rancho for a big backslide in median price over the next couple of years.

I work in El Segundo (between LAX and Manhattan Beach), and I have almost two dozen co-workers that commute back and forth to Temecula 4 days a week. That’s a brutal 2.5 hour ride in heavy traffic. Once they see thier property values start to slip, they are going to want to downsize out of thier McMansions and move back into smaller houses closer to work.

Inventory has doubled since July 2005. No place to buy right now…

Every time I hear the name “Temecula” I can’t help but think of some sort of STD or skin disease:
Oh my god! You’ve got Temecula!

temecula has a quaint little well preserved old town. It and murrieta also have a large and growing modern industrial park. The whole area is expanding very fast but at least in an orderly fashion (unlike the slapdash unplanned growth in Much of the inland empire).

New Housing developments/residential communities are springing up and down the temecula valley from Corona south thru temecula, with the 15 frwy as the central trunk. Dos lagos is one of many master-planned communities in this mix:it is off the 15 at cajalco rd and is half-way to completion.

Traffic congestion will only get worse along the 15 and the 91 as there is no way to get around the corona bottleneck.

The entire southwest riverside county region(south of the 91-60/east of the 15/west of the 79(basically a giant inverted triangle with temecula as the southern tip)is exploding with new and recently built housing tracts. Did a zillow map pan and the entire level surface(and every available hillside) of this rather arid and sun-baked area is being gouged and bulldozed for housing .

This won’t pan out too well for the current homeowners in this region who are trying to sell for top dollar. As many developments are just being graded or halfway/close to completion this will result in a crush of new homes coming on line over next several years, resulting in inventory overload and probable price reductions, maybe as bad as phoenix bubble.

I always though that the San bernardino/rialto/fontana area was the biggest IE area in exploding new home tracts but southwest riverside may be even bigger, far bigger.

Hedge fund are kind of like hell, easy to get into and very hard to get out of.

Apologies to Buffet/Munger as they had a similar quote in 2003 in their annual report.

I remember Hoenig getting booted off Realmoney a few years ago for insulting Booyah Boy or something like that. He was a little worm.

Be careful ,if it isn’t a assumable loan note the lender could call the note .

Since it appears the borrower never made a mortgage payment, Doesn’t the end lender have recourse against the Mortgage Lender?

Thats probably one of those fraud deals where the buyer and seller were in it together. This is why you simply cannot buy at these prices. We’re just seeing the tip of the iceberg at this point.

Nah, I disagree those sorts of things always happen. Lending standards or no lending standards. It’s just now they are going to be super amplified because pricing is so out of wack. But if it foreclosed within 6 mo’s look like some broker just bought a house.

I don’t think the media is evasive or failing. The housing bubble collapse is not going to happen like the stock market collapse and lose 300 points in an hour. It is not glamorous and is essentially boring if you are not a bubble market player. For long time readers of this blog, forecasts from 2 years ago are just starting to occur. Yet even with such a non glamorous story (Home Builders Stock increases by 4.7%), there are articles every day in the US as well as International press - including Russia see MoscowTimes.com.
(Which reminds me of an old joke, An American and a Russian are talking about their respective countries and the American says “In the US we have Freedom of speech. I can go to the gates of the White House and yell “George Bush sucks!” and not get in trouble. The Russian says “In Russia we have Freedom of speech also, I can go up to Red Square and yell “George Bush sucks!” and not get in trouble either!”

M.B.A. - I think your comment refers to how scared we should be because the media seems to have lost its journalistic integrity? If that’s what you mean then I agree.

M.B.A. — whether by Providence or other, the Internet has (temporarily at least) set us free. Do you personally know well any people who think for themselves and also get their news from the media and not, in whole or in at least 50% part, from the Internet?

Commercial clam diggers? Well, they going to have to dig up quite a few more clams to right that ship. She’s listing to starboard and takin’ on water in heavy seas. Arg! Avast there, ye landlubbers, scoundrels, why don’t ye buy me domicile?

wow, very persuasive. and we should buy this house because..??

don’t think so.

Ridiculous analogy.

Great fund-raising idea. I did. Mozo Maz — I often make the mistake of cheerleading late in the day, after many readers have moved on to other activities. I think your call to “pledge,” if duplicated and at the start of a blog day, will not offend anyone in the least and might generate an even better outcome.

Haha, his spelling and typing skills are about on par with “419 scam” e-mail from Nigeria.

Yeah, pretty eloquent!

Well, I have to eat my words. Jon published my comments unedited.

Jon, we know you lurk here or someone on your staff does, thanks for publishing it, now how about asking the tought questions of these RE experts?

OR interview someone in a finance or economics background that doesn’t derive a paycheck from RE on the fundamentals of the housing market.

The above article is entitled “Bernanke’s risky business” and can be found here: http://tinyurl.com/o32vl

The key quote in this article is the comment about the increase in “income” from mortgage equity extraction. 7% of personal income can be traced to HELOC borrowing? Holy $hit, batman.

Wonder how many of the tour-and-graze crowd are going to end up taking a dump at Home #6?

the same people say that gas prices going up is bad. Hey, just buy some Exxon stock and be happy! Oh I forgot, you have to pay cash money for the stock, no 100% financing.

Good topic Sunsetbeachguy .I guess people like Ponzi schemes they can get in on .

“Why does the general population believe housing prices going up is good?”

Because over 2/3 own one already. You only need to buy a home once a decade or so — not like the tomatoes you buy from your favorite store. And the house is an investment — you get to resell it later on, and if its value doubled over the time you live there, you get to pocket up to $500,000 in tax-free gains. And very bad stuff goes down when home prices fall (e.g., last time they fell throughout the US was during the Great Depression, and there is a serious chicken-and-the-egg question regarding which was the cause and which was the effect).

So the answer to your question seems like a no-brainer to me. Too bad that if home prices get artificially inflated beyond the value dictated by fundamental considerations, they have a tendancy to subsequently fall.

“designer paint”?

LOL! That is funny.

“They are facing a pension crisis worse than ours.”

This is one area where a totalitarian regime can solve the problem a lot more quickly and efficiently than ours. “Pension? What pension, comrade? The People need your sacrifice, comrade! That’s good, comrade, very good — we knew you’d understand.”

It will be interesting to see if we have problems first or China. I think (and people who are really good at this can correct me) that the situation we have at hand is unprecedented in our recorded history. On the good side we have the means to record these events so that our children might avoid it.

Thankfully, due to vigilance and a spot of good luck, we have not had the El Queso terrorists pull any crap using shipping containers yet. Shut down the Pacific Conveyor and the US / China co-dependency would come apart.

just heard from a broker in FL that there is no bubble as they only have 18months of supply. When I asked when this last happened I was told never.

Timberrrrrr!

“Seven years ago to the month, the typical house in the Sarasota-Bradenton market would have cost you about $128,100.

Now, at the tail end of a price run-up that nearly tripled that value, you can get $120,000 knocked off a home just to entice you to buy.”

This is a Famous & Barr Company “sale.” Mark the price up by 200%, then tell your customers you are having a 33%-off sale.

My Guess? People are wising up that buying is a bad idea. So they are renting. More demand with constant supply == rising rent.

Jack — I’m also an Orlandoan. I don’t understand where the $200K plus number comes from, unless the mobile home owners assume that they will need $200K to buy equivalent brick and mortar living space. They still have the option of renting and, before long, there will be a lot of condos for rent in Florida’s bubble areas, especially South Florida, for rent at great rates. Or they can sell their mobile home and rent one, including in an inland area that doesn’t have the big insurance rate increase. Or they can move to an area that they can afford to live in, as I likely will have to do.

No one will be happy to see these people displaced, but neither is anyone else responsible to see that it doesn’t happen. If the insurance is relative to the risk, the unfortunate mobile home owners to whom you refer are living in the wrong place in the wrong part of the century. Someday the same will be true for a lot of Californians. We are guaranteed only death and taxes — no one has a “right” to live in any particular place at any particular time if they cannot, or can no longer, afford to do so.

In today’s LATimes business section, the Donald T. Sterling Corporation announced two new credit facilities “For Acquisition of Real Property in Sounthern California and Nevada”. The two facilities add up to $775,000,000.

Based on past history, my guess is that they’re planning to buy high-end rental properties. Or maybe take out a bunch of condos and convert them to rentals. Just guesswork on my part.

D’ya think LV Landlord and BeaConst went into hiding together?