The Last Time Values Went Up This Far, Prices Crashed
It’s Friday desk clearing time for this blogger, “A recent report postulates that the Denver housing market is experiencing ‘bubble’ conditions. It is easy for one to look back and say, ‘Hey, the last time we had values go up this far in such a short time frame, prices crashed a few years later. Therefore, we must be in a bubble again.’ Well, it is easy to see now that the conditions supporting the last bubble were built out of straw. Today’s market has been based on the age old laws of supply and demand. I do not believe we are in a housing bubble here in Denver at this time. We just do not have the catalysts in place to create a rush for the exits.”
“November was a volatile, if mixed, bag for Bay Area home sales. ‘You’ve got a region that’s one of the most expensive in the country, with prices that a lot of people would consider stratospheric,’ observed Andrew LePage, research analyst for CoreLogic. ‘And yet you’re still posting some surprising year-over-year gains.’ Richard Yau, who works in IT in San Francisco, sold his three-bedroom ranch house in Dublin last month. Watching values appreciate, he had considered waiting another year to sell, but decided to jump now: ‘Because I feel things are about to downturn. We may be in a mini-bubble.’”
“A new real estate study shows it’s more affordable to rent a 3-bedroom home in the Sacramento area than to buy one. Daren Blomquist with RealtyTrac says in Placer County, average wage earners would need to spend nearly 60 percent of their income to buy a home, in El Dorado County it’s 67 percent and in Yolo County it’s 54 percent. ‘We’re starting to see numbers in some of these counties that are some red flags,’ says Blomquist, ‘that we have another bit of a…I’m hesitant to use the word ‘bubble,’ but a bit of a bubble forming when you start to see affordability become that high.’”
“The unemployment rate is not nearly as low as normal for this point in the cycle in Arizona and the number of jobs being created is not nearly as rapid. Thus, Economist Elliott Pollack said in his most recent report, there is less need for people who are looking for a job to move here. According to R.L. Brown, November saw 1,076 new housing permits in Greater Phoenix. This is a gain of almost 76 percent over a year ago. For the first 11 months of the year, permits are up 48.3 percent. Brown said ‘Metro Phoenix appears to be on a roll and the housing industry is feeling almost euphoric.’”
“Prices for luxury homes are moving in the opposite direction from the broader Manhattan market. New York’s high-end inventory has ballooned in recent years as developers focused on building large and lavish units in an appeal to wealthy investors, who now appear to be more hesitant to buy. ‘We have a lot of overpriced apartments on the market and that’s the reason for a slowdown,’ said Donna Olshan, author of a weekly newsletter on the New York luxury market. She believes the market has plateaued rather than peaked. ‘Tremendous overpricing means that marketing periods are longer, and the people who are overpriced are going to have to correct.’”
“This week, oil prices in Texas were just under $35 a barrel. Realtors warn a steady decrease in gas prices could lead to a standstill in the housing market. ‘If gas prices continue to just plummet and we see it get down to $1.25, we’ll begin to see more panic,’ Wolf says. Wolf says currently the housing market in West Texas is at a standstill. But fortunately, East Texas isn’t just dependent on oil. ‘If there was a housing crash we could definitely see values begin to trickle down, eight months out because of this.’”
“President and CEO of Fair Oil Company, Bob Garrett, says in Texas there have already been thousands of jobs lost. And if this downward trend continues, it won’t just be those who work in the oil industry feeling the impact. ‘People depend on the oil industry for their livelihood. They tend to be higher-paying jobs and with that many people losing their jobs it’s going to trickle down into housing, car sales, entertainment,’ Garrett says.”
“As crude prices have plummeted over the past 18 months amid a global surplus, new struggles engulfed the city, with thousands of jobs disappearing overnight and large swaths of workers up and leaving Williston — and North Dakota in general. Perhaps the hardest-hit sector was real estate. Much of the residential construction was planned with the assumption that people would keep moving to town. City officials estimated hotels and apartments, many of which were built during the boom, were at about 50-60 percent occupancy in November.”
“‘The market’s obviously slowed way down across the board,’ said Ryan Visser, an agent at Fredricksen Real Estate in Williston. Visser said there were more than 400 properties listed for sale, the most in nearly four decades. ‘So goes oil, so goes the real estate market.’”
“Crime is rising, home prices are falling and food banks are overwhelmed in Calgary as job losses spread. And the worst isn’t yet over in the heart of Canada’s oil patch. Some of the city’s largest employers are poised to cut more jobs in 2016. Jillian Berling-MacKenzie, 25, was one of the lucky few of her graduating geology class to secure full-time work this year, at oil company ConocoPhillips. She bought a house with her boyfriend, also a newly graduated geologist with a job, before they both became victims of the cuts. A friend’s company has provided some contract work paying slightly more than employment insurance as Berling-MacKenzie tries to land positions just about anywhere, seeing no postings she qualifies for in her field.”
“‘We all know someone who has lost a job,’ Naheed Nenshi, the city’s mayor, said in a speech this month, lamenting the ‘funeral’-like atmosphere in the business community.”
“The Big Short, the movie about the people who successfully bet that the housing bubble would pop, has been reigniting outrage over the shady, unethical, and downright illegal activities of America’s most notorious street in lower Manhattan. You might start to wonder: Is all the risky Wall Street behavior that led to the crisis still going on? Susan Wachter, a real estate and finance professor at the Wharton School who foresaw and warned about the looming disaster well before the collapse happened, is now concerned that the solution to the crisis generated the seeds of another.”
“Essentially, she argues, the government nationalized the entire residential mortgage market, handing the reins to Fannie Mae, Freddie Mac, and the Federal Housing Authority. Although these entities don’t make dangerous CDOs, and you can’t buy credit default swaps from them, our reliance on them leaves the economy vulnerable. ‘We’ve nationalized a system that isn’t supposed to be nationalized and that is not sustainable,’ Wachter says. ‘Next time it’s gonna be a different story: It’s not gonna be CDSs and CDOs which take us down. It’s what we put in their place that exposes us.’”
“This year, make your own ‘Miracle on 34th Street’ on a West Valley street, avenue or boulevard. Remember what a new home meant to the cherubic, Santa-doubting Natalie Wood in the 1947 holiday film classic? That made the childhood star happy, and could you and your family, too. The drop in demand can be frustrating for sellers and their agents, but the attitude of prospective buyers can reduce this. ‘Sellers are most anxious during the holidays, and the spirit of excitement can gain buyers a successful buy,’ said Frank Aazami, at Russ Lyons Sotheby’s, Scottsdale.”
“As a prepared buyer, look at your options, both resale and new. ‘On several occasions I have taken clients to a new home development, and they have found a house to buy,’ said Liz Recchia, a Realtor for Phoenix-based We Sell Real Estate. ‘Some homebuilders are offering great incentives, everything from loan terms to landscaping to pre-paid HOA dues to upgraded interiors, making new homes sometimes more affordable than resale homes.’”
‘Some homebuilders are offering great incentives………… making new homes sometimes more affordable than resale homes.’
It is always a good time to buy when you can get in below reproduction costs. This is not that time!
What are reproduction costs?
:crickets:
‘Because I feel things are about to downturn. We may be in a mini-bubble.’
I call it the Echo Bubble, as it is a direct consequence of the policy response to the 2007-08 Housing Bubble collapse, round one.
Though my crystal ball is quite foggy on the timing, I expect the lens of history’s rear view mirror to show that the present episode is one of the longest, largest dead cat bounces in history. The personal financial consequences to those who bought it could resemble the aftermath of the second wave of the South Sea Bubble, which wiped out Sir Isaac Newton’s personal fortune after he bought the dip.
Merry Christmas!
“Susan Wachter, a real estate and finance professor at the Wharton School who foresaw and warned about the looming disaster well before the collapse happened, is now concerned that the solution to the crisis generated the seeds of another.”
That explains exactly why this is the Echo Bubble, not something that spontaneously materialized out of thin air.
The Telegraph
Finance
How (not) to invest like Sir Isaac Newton
Sir Isaac Newton reportedly lost £20,000, equivalent to about £3m in today’s terms
By Richard Evans, Investment Editor
7:35AM BST 23 May 2014
Richard Evans looks at how Britain’s greatest physicist lost a fortune – and outlines a method for investing in bubbles safely
A few weeks ago in our series on “How to invest like…” we looked at how George Soros dealt with asset bubbles.
“When I see a bubble forming I rush in to buy,” he said. In January 2010 he declared gold to be the “ultimate asset bubble” shortly after he built up a £400m stake in the metal.
He had sold most of it by March 2011, at a handsome profit – and comfortably before the bubble popped in September of that year.
Not everyone can pull off the same trick; some clever people have lost a lot of money by failing to get out before everyone else. Some very clever people indeed, actually: one investor who lost a fortune this way was Britain’s greatest physicist, Sir Isaac Newton.
Newton was a victim of the South Sea Bubble, one of the most famous boom-and-busts in history – in fact, it was the one that gave rise to the very term “bubble”.
As the graph below shows, he initially did just what Mr Soros would do centuries later – invest early and then sell after making excellent returns very quickly. But Newton made the mistake of re-entering the market much closer to the peak, and then hanging on even after the bubble had burst, selling only once the price had collapsed to well below his buying price.
Newton reportedly lost £20,000, equivalent to about £3m in today’s terms.
The South Sea Company was an unusual business. Founded in 1711, it was promised a monopoly on trade with Spanish South American colonies by the British government in exchange for taking over the national debt raised by the War of Spanish Succession. However, the trade concessions turned out to be less valuable than hoped.
In January 1720, when the company’s shares stood at £128, the directors circulated false claims of success and fanciful tales of South Sea riches and in February the shares rose to £175.
The following month the company convinced the government to allow it to assume more of the national debt in exchange for its shares, beating a rival proposal from the Bank of England. With investor confidence mounting, the share price had climbed to about £330 by the end of March.
The South Sea Company was part of a wider flurry of speculation on the stock market, however.
Newly floated firms were seen as appearing like bubbles; 1720 was sometimes known as the “bubble year”. In June, Parliament, at the behest of the South Sea Company, passed the Bubble Act, which required all shareholder-owned companies to receive a royal charter.
The South Sea Company received its charter, perceived as a vote of confidence in the company, and at the end of June its share price reached £1,050.
But investors started to lose confidence in early July and by September the shares had plummeted to £175, devastating investors.
How to avoid losing a fortune in bubbles
The simplest way to avoid losing money in a bubble is not to invest in any asset in which you suspect a bubble is forming. But as the example of Newton illustrates, this can be easier said than done. The temptation to join in, especially if you tell yourself that you will “sell before the bubble bursts”, can be irresistible.
…
The great scientist took a philosophical view of his losses. “I can calculate the movement of the stars,” he said, “but not the madness of men.”
‘that we have another bit of a…I’m hesitant to use the word ‘bubble,’ but a bit of a bubble forming when you start to see affordability become that high.’
I’d bet ten-to-one this guy will try to claim that he saw the second wave of bubble collapse coming; never mind the present mealy-mothed assessment.
And wouldn’t ridiculously astronomical prices make affordability go down, not up? It seems Mr. Blomquist doesn’t know down from up.
” I do not believe we are in a housing bubble here in Denver at this time. We just do not have the catalysts in place to create a rush for the exits.””
Such are the lies that liars tell when their wallet depends on it.
Denver, CO Housing Prices Crater 16% YoY As Housing Bust Ramps Up Nationally
http://www.movoto.com/denver-co/market-trends/
“‘We have a lot of overpriced apartments on the market and that’s the reason for a slowdown,’ said Donna Olshan, author of a weekly newsletter on the New York luxury market. She believes the market has plateaued rather than peaked.”
No doubt the plateau is permanently high.
It’s hilarious that they all use the exact same terminology from the exact same playbook as before. Realtors are liars.
“A new real estate study shows it’s more affordable to rent a 3-bedroom home in the Sacramento area than to buy one.
That’s the case anywhere considering rental rates are half the cost of buying which explains this;
Sacramento, CA Housing Prices Crater 6% YoY
http://www.zillow.com/east-sacramento-sacramento-ca/home-values/
Wow, you’re now Santa Claus? Prices up 12% this year! Forecast up 6% next rear! HO, HO, HO! HA! HA! HA! Merry Christmas!
Its a fantastical world you live in Jingle_Fraud.
“‘Sellers are most anxious during the holidays, and the spirit of excitement can gain buyers a successful buy,’ said Frank Aazami, at Russ Lyons Sotheby’s, Scottsdale.”
That reminds me: l’ve spotted a number of Sotheby’s and also some Berkshire Hathaway yard signs while driving around my in laws’ neighborhood during our current visit.
Does it seem odd for a New York auction house and Uncle Warren to post yard signs in two feet of snow in the rural provinces north of Salt Lake City?
They go wherever they can make a sale and I bet they both have nationwide expansion plans.
Doesn’t make much sense with collapsing demand and a global recession just starting.
I look at the incursion of big Wall Street firms into local real estate sales as a transient artifact of the Housing Bubble which is destined to go away when the mania subsides.
I had the same question after I was in Ketchum, Idaho a few years ago and saw a number of Sotheby’s signs. DennisN, who hasn’t been heard from here in awhile, had an explanation, which I admittedly can’t remember.
He’s in Boise (kindly met me in person when I was there on business a few years ago…).
“Unstoppable” California Gas Leak Now Being Called Worst Catastrophe Since BP Spill
http://www.zerohedge.com/news/2015-12-24/unstoppable-california-gas-leak-now-being-called-worst-catastrophe-bp-spill
Environmental catastrophes, out of control crime, Fukushima radiation washing up on shore with a desperately ill economy in the most impoverished state in the US.
Doesn’t it sound heavenly?
Don’t buy California beach front property if you don’t want Fukushima radiation washing up in your back yard after global warming melts the polar ice caps, inducing catastrophic coastal flooding.
Just wait until the next big one hits CA - we’re waiting for the same up here in the Seattle area. It won’t be pretty. Living on the ring of fire does have its downsides.
Sorry to say, but geophysical risk in the PNW is actually worse than in CA, due to the correlated risk in the Cascadia subduction zone of volcanic eruptions, tsunamis, lahars and 8.0+ magnitude quakes.
‘In 2016, the Federal Reserve will pay at least $12.2 billion to U.S. and foreign banks to keep the money created via its quantitative easing programs out of the economy. If the Fed raises rates as expected next year, the amount nearly doubles to $23.1 billion.’
‘From 2008 to 2015, the Fed purchased over $4 trillion worth of bonds to stimulate growth in the economy. Risk markets responded, as is demonstrated by the close correlation between the S&P 500 and growth of the Fed’s balance sheet through its bond purchases.’
‘To sterilize the vast sums of money that would otherwise circulate throughout the economy and cause price inflation, the Fed pays an above-market interest rate of 0.50% to banks on reserves, or digital cash, held at the Fed. Currently, banks are holding $2.5 trillion at the Fed and are paid $34.5 million per day in interest.’
‘Assuming the Fed raises rates four times‑-once at each of the meetings that are accompanied by a press conference–payments to banks at the end of 2016 would amount to $103.6 million per day.’
‘In addition to paying interest on reserves, the Fed conducts daily auctions to drain cash from the economy and maintain a floor on short-term interest rates. These reverse repo operations pay 0.25% and have averaged $154 billion per day since the Fed raised rates on December 16.’
‘After six years of near-zero interest rates, the Fed is in uncharted territory. Never before has a central bank attempted to raise rates after having provided so much stimulus and expanding its balance sheet to such a degree. The legacy of the Fed’s quantitative experiment is largess to banks and funds that will likely total $24 billion in 2016.’
“To sterilize the vast sums of money that would otherwise circulate throughout the economy and cause price inflation, the Fed pays an above-market interest rate of 0.50% to banks on reserves, or digital cash, held at the Fed. Currently, banks are holding $2.5 trillion at the Fed and are paid $34.5 million per day in interest.”
Velocity of M2 chart:
https://research.stlouisfed.org/fred2/series/M2V
The mantra was inflation was going to save us, but … guess not.
Further evidence that cash is king. Even though money is being printed up in vast quantities as never done before this money has to get into circulation for it to do some good and for its buying power to be diluted. But, as you can see and despite what they say, the Fed isn’t going to allow this to happen.
‘To sterilize the vast sums of money that would otherwise circulate throughout the economy and cause price inflation’
When I first saw this article, I was baffled. Why do such things get written? Is it so they can’t say it’s not known? I thought the central bank wanted inflation. And Janet must be busy baking pies, or otherwise where do these vast sums come from? Then they pay billion$ of interest on these vast sums to sit on the Fed’s hard-drives! Nice work if you can get it.
Then I remembers, who owns the Fed? Oh, it’s banks that own the Fed. So let me get this straight; the Fed prints $ 4 trillion bucks to save us all, $2.5 trillion ends up at the investment banks and “funds”. And now ‘the legacy of the Fed’s quantitative experiment is largess to banks.’
And to think we are all scurrying around, working our tail off to get a few of those same bucks. It’s almost like the whole thing is a gigantic con. Folks, this QE stuff may seem like old news, but that’s because what it really means has never been fleshed out in public. In the 80’s I was watching the first financial TV cable channel and they were talking about central banks this and that. Monetizing the US government debt came up, and the commentator said it would never happen cuz confidence in the currency would collapse and besides, it would be criminal.
Monetizing government debt is a worldwide phenomenon. They monetize mortgage backed securities too. The Japanese central bank even monetizes REIT stocks!
“And to think we are all scurrying around, working our tail off to get a few of those same bucks. It’s almost like the whole thing is a gigantic con.”
If you aren’t a bank or a trust fund baby, and don’t qualify for free sh!t, you can plan on working your tail off to get your fractional portion of the Fed’s hard drive money.
“It’s almost like the whole thing is a gigantic con.”
How can it be anything else? It’s all right there in front of everyone but few bring themselves to admit what it is. Most importantly, you’d have to be a blithering idiot to fall for their debt trap.
It’s the longest of the long cons. And as with most victims of fraud, your average American will keep their eyes closed to it until the con is over and every last penny has been extracted from them.
“…your average American will keep their eyes closed…”
Yep… especially when it’s god’s children plowing their dirt.
As you say there is a problem here and it’s impossible to get a straight answer. The folks who steadfastly criticize the FED usually are the sites endlessly pitching Gold. This is the agenda on ZeroHedge.
All I know is that it’s a private corporation that makes policy for banks and creates/moves Federal Reserve notes on computerized account ledgers. They replenish low reserves here AND abroad and PURPOSELY avoid all oversight and review. A list of the loans in the last banking crisis defies comprehension. (In actuality it “prints” nothing and merely makes entries.)
You can liken the FED to a space-time continuum. In physics both expand so there is no collapse and there is no end to the universe.
The world has created an endless chain of financing and manipulation. The coming lack of potable water, however, will take down real estate. Not a lack of land or lack of r.e.financing.
This is the Century of Water. How many people understand the what rising seas will do to fresh water aquifers below ground ? Welcome to South Florida .
What happens when food-producing Asian deltas disappear? What happens when you get rain instead of snow and heat to evaporate away the water?
I like it, for two reasons:
Reason number one: The fed pays me money for doing nothing, and
Reason number two: The fed keeps money out of circulation and this causes money to become scarce and scarce money is pricy money.
Relax and learn to love the fed - as I have.
Reason number three: The Fed has an army of debtbeats scurrying about like hamsters in a wheel to repay the hard drive money they owe Mr Banker. And if they stop working for whatever reason, Mr Banker gets to take possession of the collateral.
“And if they stop working for whatever reason, Mr Banker gets to take possession of the collateral.”
Yes! They commit to buying it, they commit to paying
for it, but eventually I end up possessing it.
Bahahahahahahahaha
‘To sterilize the vast sums of money that would otherwise circulate throughout the economy and cause price inflation, the Fed pays an above-market interest rate of 0.50% to banks on reserves, or digital cash, held at the Fed. Currently, banks are holding $2.5 trillion at the Fed and are paid $34.5 million per day in interest.’
I’d like to earn some interest on my savings. Can my household qualify as a bank in order to have an account at the Fed that earns above market rates?
Is this arrangement even legal? Oh wait, I forgot the Fed operates above the law and can do whatever it deems necessary to manage a crisis.
“Monetizing the US government debt came up, and the commentator said it would never happen cuz confidence in the currency would collapse and besides, it would be criminal.”
Everything is legal in a crisis.
“Everything is legal in a crisis.”
Sort of redefines the term “crisis management”, doesn’t it?
Bahahahahahahaha
“Management BY crisis…”
“Manhattan Luxury-Home Prices Drop For 8th Straight Month Amid “Glut In Overpriced Apartments”"
http://www.zerohedge.com/news/2015-12-24/manhattan-luxury-home-prices-drop-8th-straight-month-amid-glut-overpriced-apartments
Note- Liquidations en mass are occurring in major cities in the US, Europe and Asia.
‘New York Builders Paying Huge Buyouts to Tenants in Their Way’
‘Multimillion-dollar payouts are becoming more common for residents in rent-regulated apartments in exceptionally lucrative New York real estate.’
http://nyti.ms/1OqnsT4
payouts are becoming more common for residents in rent-regulated apartments ??
That was interesting Ben….This is where rent control falls flat on its face….Multi-million payouts ?? What about relocation to a similar apartment with no adverse economic impact to the tenant ?? That seems reasonable….Government regulation in effect transferring ownership rights to a tenant…
California Makes Forbes Top Ten Worst States To Earn A Living
http://www.forbes.com/pictures/fjle45lmdf/no-6-worst-state-to-make/
Small wonder the lowest share on record of the California work force is currently participating in the labor force, and it’s still dropping.
http://www.labormarketinfo.edd.ca.gov/data/Top-Statistics.html#LFP
Wow… that’s quite the URL there. Saved!
“The Big Short, the movie about the people who successfully bet that the housing bubble would pop, has been reigniting outrage over the shady, unethical, and downright illegal activities of America’s most notorious street in lower Manhattan.”
Now that I have seen the movie, I find myself very curious which, if any, of the main characters portrayed in the screenplay were HBB posters, or at least readers, back in the 2006-08 period during which the movie plays out. The insights of the main characters certainly resembles that which was shared here back when the high and mighty denied the Housing Bubble’s very existence.
I bet the observations posted here in 2006-7 were quite important confirmations from Main Street about market conditions.
Don’t know if you recall, but for a while the HBB had quite the bearfest going on. Our collective forecasts seemed implausibly bleak, and then reality proved worse.
I do recall that period. I was overwhelmed by the blatant stupidity of the sub-prime and Alt-A lenders. I saw huge numbers of ridiculous loans being made, including to friends, employees and colleagues. It was a bizarre and crazy time.
It’s worse today Jingle_Fraud. The percentage of mortgages made on phony appraisals are greater now than ever.
‘Ol folksy gramps is hungry… really hungry.
“Minorities exploited by Warren Buffett’s mobile-home empire”
http://www.seattletimes.com/business/real-estate/minorities-exploited-by-warren-buffetts-mobile-home-empire-clayton-homes
Don’t over-look the comments either. Hehe.
Frisco, TX Housing Craters; Prices Plunge 9% YoY As Price Declines Gain Traction Nationally
http://www.movoto.com/frisco-tx/market-trends/
San Francisco Rental Rates Fall As CA Economy Stumbles
http://www.bizjournals.com/sanfrancisco/blog/real-estate/2015/12/bubble-apartment-rents-fall-san-francisco-oakland.html
Please, God, let San Diego rents tank soon!
Ditto!!!
Florida Trend
December 27, 2015
Press Release
The ‘Buy vs. Rent Index’ indicates some markets in U.S. are nearing pricing bubble territory
This report is from FAU and FIU.
| 12/10/2015
The latest national housing market index produced by Florida Atlantic University and Florida International University faculty indicates the housing market in several cities — including Dallas, Denver and Houston — is nearing pricing bubble territory.
Based on numbers from the end of the third quarter, the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index comes on the heels of the latest S&P/Case-Shiller Home Price Index, which found home prices across the nation rose 4.9 percent in a 12 month-period ending in September. While some may interpret the Case-Shiller Index as a sign to buy, the authors of the BH&J Index believe the national housing market is turning on the margin toward renting and reinvesting.
“The U.S. housing market across the board is moving toward rent territory,” said Ken Johnson, Ph.D., a real estate economist who is one of the index’s authors and an associate dean of graduate programs and professor in FAU’s College of Business.
The BH&J Index measures the relationship between purchasing property and building wealth through a buildup in equity and renting a comparable property and investing in a portfolio of stocks and bonds. It examines the entire housing market in the United States and isolates the markets of 23 key cities. Johnson’s collaborators in this ongoing independent research are Eli Beracha, Ph.D., assistant professor in the T&S Hollo School of Real Estate at FIU and William G. Hardin III, Ph.D., director of the T&S Hollo School of Real Estate at FIU’s College of Business.
Currently, Dallas, Denver and Houston are all at or above previous index scores that strongly favor renting as opposed to buying in terms of wealth creation.
“It is no longer a matter of if but when, and to what extent, we will see a downward pricing event in these three cities,” Johnson said. “Prices are rising too fast in these cities and there are no underlying fundamental changes in their economies to support current pricing, especially in the face of a booming stock market.”
…
“…the authors of the BH&J Index believe the national housing market is turning on the margin toward renting and reinvesting.”
This is truly great news for those of us who hung on to this strategy through QE1, QE2, QE3, HARP, HAMP, foreclosure moratoriums, foreclosure bus tours, all-cash Canadian and Chinese investors snapping up residential investment properties at prices that end users who only wanted a place to live could not afford, the resurrection of the zombie GSEs, and the return of subprime lending.
Glad to hear that fundamentals are finally moving in a direction that favors those who did not fall for the dangerous allure of hair-of-the-dog Housing Bubble reflation programs.
I came across this:
China’s economy: Reflating the dragon - The Economist
http://www.economist.com/node/12606998
The Economist
Nov 13, 2008 - Can the world’s fastest-growing economy avoid a sharp downturn? … China’s slowdown only partly reflects weaker exports as the world …. Mr Hu will now be able to argue that China is doing its best to …. Bigger, wider, deeper ….
Still bingeing, seven years later…
The Economist
Finance and economics
Debt in China
Deleveraging delayed
Credit growth is still outstripping economic growth
Oct 24th 2015 | SHANGHAI
IN MOST respects, double-digit growth is a relic of the past for China. In the third quarter the economy grew by just 6.9% year-on-year according to official data, and probably by a percentage point or two less in reality. Yet bank loans increased by 15.4% in the third quarter compared with the same period in 2014. Having released a torrent of credit to buoy the economy during the financial crisis, China was supposed to have started deleveraging by now. Instead, banks are continuing to pump debt into the economy, while the authorities, apparently worried about the damage a contraction in credit might do, coax them on.
Growth in credit has at least slowed in recent years. A broad measure is “total social financing” (TSF), which encompasses bank loans, corporate bonds and a range of shadowy loan-like products. TSF growth soared to 35% in 2009 when the government called on banks to open the taps and support the then-faltering economy. It has since decelerated: it rose by 13% in the third quarter from a year earlier. The problem, though, is that nominal GDP growth has fallen much lower, to 6.2%.
…
http://www.coloradonewsday.com/…lla-who-urges-humanity-to-stop-destroying-the-planet.html - 107k -
Out in the exurbs, there is still no bubble. In fact prices are nowhere near peak bubble levels.
http://www.longandfoster.com/Market-Minute/VA/Prince-William-County.htm
These bubbles are all forming in the inner cities and the close in suburbs where the rich all live. If the bubble pops then those people can afford it. The rest of us, living in areas where a middle class income can buy a house haven’t seen our home prices recover from the crash. My house is up only 18% from the very bottom. That basically accounts for inflation. In other words, there has been no recovery and prices are still at the bottom when inflation adjusted.
Why are the cities inflating? That’s pretty easy to figure out, the population distribution looks like the letter “M” with boomers on the left peak and millennials on the right peak. Gen X is in the middle - the smaller generation in terms of population. Right now lots of millennials are interested in living in the large cities where they can walk to everything. They’re aging and as this continues they’ll start to have more children of their own. At that point they aren’t going to want to continue spending $3,000 a month for an efficiency apartment where the baby can hear the TV on because it’s crib is in the same room as everything else.
In other words, by the end of this decade I fully expect to see the real estate bubbles in the cities popping and demand picking up in the more affordable parts further out. There will probably be price appreciation further out but not anything like it is in the inner cities because there’s simply more land to go around (as opposed to hundreds of thousands of people trying to pack into a small “cool” corner of a city).