February 12, 2017

Believing That Something Plentiful Is Scarce

A weekend topic on this New York Times article by Conor Dougherty. “Suppose there were a way to pump up the economy, reduce inequality and put an end to destructive housing bubbles like the one that contributed to the Great Recession. The idea would be simple, but not easy, requiring a wholesale reframing of the United States economy and housing market. The solution: Americans, together and all at once, would have to stop thinking about their homes as an investment.”

“The virtues of homeownership are so ingrained in the American psyche that we often forget that housing is also a source of economic stress. Rising milk prices are regarded as a household tragedy for some, and spiking gas prices stoke national outrage. But whenever home prices go up, it’s ‘a recovery,’ even though that recovery also means millions of people can no longer afford to buy.”

“So instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? People might expect home prices to go down instead of up. Homebuilders would probably spend more time talking about technology and design than financing options. Politicians might start talking about their plans to lower home prices further, as they often do with fuel prices.”

“There was a time, a few decades ago, when the cost of living did not vary all that much from city to city.”

“Finally, if housing were plentiful and cheap, we would probably stop having big housing bubbles. One good way of describing a speculative bubble is a moment when society deludes itself into believing that something plentiful is scarce, or will soon be. Housing is particularly prone to bubbles because, in contrast with other products, we seem to want it more when it is expensive and less when it is cheap. And no matter how many times we look out an airplane window to see vast acres of emptiness, we somehow still believe that land is a great investment because nobody is making more of it.”

“Homes would still hold a lot of value; they still might appreciate, if more slowly; and desirable neighborhoods would still seem relatively expensive. But there would probably be fewer manias in which people expect home prices to double in just a few years.”

“Just as we don’t expect to make a profit selling our cars, if we stopped thinking of our homes as big moneymakers, we would probably start focusing on building them faster and less expensively.”




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155 Comments »

Comment by Senior Housing Analyst
2017-02-12 07:55:33

Bonita Springs, FL Housing Prices Crater 6% YoY

http://www.zillow.com/bonita-springs-fl/home-values/

 
Comment by Ben Jones
2017-02-12 07:58:29

‘Finally, if housing were plentiful and cheap, we would probably stop having big housing bubbles’

I don’t want to be too critical of the big media when they pull their head out of their a## for just a brief bit of air, but this piece does go right back into the “oh we can’t build housing because of regulations! Staahpp!”

Please, the words glut and oversupply are more common than shortage in the MOST EXPENSIVE places.

You wanna lower prices? Cut the GSE loan limit for these expensive areas. Instant crater.

Comment by Apartment 401
2017-02-12 08:09:01

I was surprised to see that in the New York Times today.

Repost of the local piece claiming that there is no bubble:

http://www.denverpost.com/2017/02/12/denver-new-home-construction/

Comment by Albuqerquedan
2017-02-12 08:55:50

Certainly, it is possible to have a glut in high-end housing and still have an overall shortage of housing due to population growth.

Comment by Apartment 401
2017-02-12 10:14:29

I’m in downtown Denver right now.

So many people sleeping on the sidewalks here. It’s really depressing to see day after day after day.

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Comment by rms
2017-02-12 14:00:37

Ronald (Mommy?) Reagan said that was a lifestyle choice.

 
Comment by Apartment 401
2017-02-12 15:29:06

For the 20-something gutter punks panhandling on the 16th Street Mall with their dog and their guitar who came here for legal weed, perhaps.

The ones who look older than 50 are really sad to see.

Ready Construction day labor agency buses people from downtown to building jobsites every weekday to pick up trash, it’s the only employment option available for some people…

 
 
Comment by Professor Bear
2017-02-12 13:32:33

A residential real estate investment craze can have the same effect of taking homes out of the supply queue.

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Comment by rms
2017-02-12 14:04:35

“We are not in a housing bubble. There are tons of problems in housing. None of them have to do with too much credit,” Eisenberg said.

More outright lies.

 
Comment by aNYCdj
2017-02-12 15:21:55

Low-income New York tenants facing eviction in housing court will be guaranteed legal representation as part of a $93 million commitment from the city.

New York City Mayor Bill de Blasio and City Council Speaker Melissa Mark-Viverito announced the funds for universal legal access on Sunday.

The city started putting money toward legal help for low-income tenants in 2014 and is currently spending $62 million a year. The new money will be phased in over the next five years.

New Yorkers with incomes below about $50,000 will get free representation; those making more can get free legal counseling.

The city says 27 percent of those in housing court now have legal representation, compared to 1 percent in 2013. Evictions have gone down by 24 percent. Published 38 minutes ago

 
 
Comment by Larry Littlefield
2017-02-12 09:00:58

How about cutting the percent of income for conforming loans back to what it was? That just bid up the prices to benefit sellers (older homeowners, banks) at the expense of future generations of buyers.

If people didn’t think of homes as investments they would also be smaller, with lower operating costs. Solar panels and really good insulation might seem more important than “man caves,” “master suites” with his and her bathtubs, four car garages, pools, etc.

https://larrylittlefield.wordpress.com/2014/08/24/repost-how-then-shall-we-live-housing-in-the-wake-of-generation-greed/

Comment by Ben Jones
2017-02-12 09:11:28

‘Last year, the VA loan program guaranteed 707,107 home mortgages — setting a new all-time high — representing a 12 percent uptick from the previous year. Significantly, last year’s volume was nearly double the number of home mortgages the agency handled five years ago, and is nearly four times the volume from a decade ago. VA loans are so attractive that many military families end up owning multiple homes’

http://thehousingbubbleblog.com/?p=9992

If there’s such a shortage, why is the government issuing subprime loans at zero down so people can own multiple shacks?

Comment by PitchforkPurveyor
2017-02-12 09:59:18

“If there’s such a shortage, why is the government issuing subprime loans at zero down so people can own multiple shacks?”

To keep the phony “recovery” going at any and all costs.

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Comment by Yaan
2017-02-12 10:47:45

“they would also be smaller, with lower operating costs.”

Maybe. But think of all the people driving around in Escalades who would be better off in an Accord. People’s ego gets tied up in these big purchases.

Comment by Albuquerquedan
2017-02-12 11:44:42

Exactly. I have around 1200 sq. foot house in a neighborhood filled with 3500 sq. foot houses, have a Cruze and a Civic in a neighborhood with more than a few BMW SUVs and luxury cars and it does not bother me a bit. However, I know I am the exception and not the rule in America.

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Comment by redmondjp
2017-02-12 23:10:11

I’m in exactly the same boat as you - 1400sf in a sea of newer 3500-4Ksf homes, and my newest vehicle is a 2001.

And even if I was given one of the bigger homes, I would chafe at the $1K/month property taxes. That’s a little less than what I’m paying for PITI now.

 
 
 
 
Comment by rms
2017-02-12 13:48:24

“You wanna lower prices? Cut the GSE loan limit for these expensive areas.”

The GSEs need to be shut-down; investors need to re-discover risk.

 
 
Comment by Ben Jones
2017-02-12 08:16:44

‘There was a time, a few decades ago, when the cost of living did not vary all that much from city to city.’

My first or second day in college studying real estate, we were shown a graph of Amsterdam house prices. This is the most complete and accurate record of housing prices from the past to the present: 600 years. For all that time it was a very gradual, 1% or less increase year after year. Except for one tiny blip up and then back down - exactly at the same time as the tulip bubble.

Don’t believe these people who say, “there have always been bubbles, or California, etc, has always been expensive.” It’s just not true.

Comment by Ol'Bubba
2017-02-12 09:48:05

Okay, how about this disclaimer?

During my adult lifetime, California housing prices have always been nuts.

Comment by Mafia Blocks
2017-02-12 09:49:50

Were they nuts when prices fell 40% in San Francisco a few years back?

Comment by Bellinghouse
2017-02-12 10:39:40

Prices fell 40% in SF a few years ago = alternative fact. They did fall about 15% between 1989 and 1995. The Loma Prieta earthquake happened in 1989 and it scared buyers as the City went around red tagging homes and requiring earthquake retrofitting. I know the numbers pretty good as I bought my first house there in 1989!

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Comment by Mafia Blocks
2017-02-12 10:45:14

It’s reality and you’ll find the data and discussion right here on the HBB.

 
Comment by MacBeth
2017-02-12 11:03:40

This board sometimes needs a wake up call.

A 40% decline after many years of 10-30% annual increases in housing prices is hardly a reset. Not even close.

A 300K abode purchased in 1990, at the traditional annual increase of 3% should sell today for $674,349.95. That’s assuming 27 full years of compounded growth.

It should not sell for $1 million following a “40% decline”. Not even close.

If it drops ANOTHER 40% after dropping to $1 million, then I’ll concede to a “reset”.

 
Comment by scdave
2017-02-12 11:50:10

A 300K abode purchased in 1990, at the traditional annual increase of 3% ??

My SIL purchased his house 12 years ago in Kentucky for $112,000….My daughter lives there with him now…On his last visit, he said that they still owe $55,000. on the house but if they put it up for sale it may be worth about what he paid for it 12 years ago…Where are your 3% annual increases here ?? And what lesson is learned from this ??

 
Comment by Karen
2017-02-12 12:13:10

Where do you come up with a “traditional annual increase of 3%”?

Ben just posted above about prices in Amsterdam increasing 1% per year over a period of 600 years.

 
Comment by Albuquerquedan
2017-02-12 12:26:48

However, that is in real terms, 1% rises in a 2% inflation environment results in 3% nominal rises.

 
Comment by MacBeth
2017-02-12 12:29:26

3% is the traditionally accepted rate of increase in the USA. Has been for several decades…

…until the past 15-20 years. Nowadays, people think 5% and up is traditional, commonplace and justified.

Sorry, but it isn’t and never will be. Housing prices that continue to increase faster than the overall rate of inflation are not sustainable. Not without considerable and broad mal-investment across an entire economy.

The anecdote above re: Kentucky is an example.

 
Comment by Albuquerquedan
2017-02-12 12:34:01

Thus, as I said for more than 10 years unless the Fed is abolished and the country goes back on the gold standard protracted periods of deflation are impossible, periods of disinflation yes, outright deflation no because it is just too easy for the Fed to offset deflationary forces. You do not have to go back to Weimar Republic to find hyperinflation. Zimbabwe and now a famous oil country to the south where people are eating anteaters are two good recent examples.

 
Comment by Albuquerquedan
2017-02-12 12:52:15

Moreover, hyperinflation is a bit of straw man argument, it will not take hyperinflation to make the debt burden of the country serviceable several years of 5 to 6% inflation will do.

 
Comment by MacBeth
2017-02-12 13:01:08

“Where are your 3% annual increases here ?? And what lesson is learned from this ??”

Those are excellent questions, scdave. Why don’t you take a stab at answering them here?

 
Comment by scdave
2017-02-12 14:57:27

Those are excellent questions, scdave. Why don’t you take a stab at answering them here ?

Okay. I will start with interest rates are not the only driver.

 
 
 
Comment by PitchforkPurveyor
2017-02-12 10:00:29

So, you’re a millenial?

 
 
Comment by In Colorado
2017-02-12 10:08:02

Yup, I remember when a house in San Diego cost $50K more than a house in say Phoenix, and that was considered a big deal. Now it costs what? $500K more?

Comment by Albuqerquedan
2017-02-12 10:39:25

It is insane but most land in Phoenix proper is the same, there is a limited amount of beach land in San Diego, you go twenty miles inland and you are living in Phoenix in California even if you see might be able to drive to a more temperate climate. That said I think San Diego is still in a bubble just not as bad as 2005.

Comment by Karen
2017-02-12 12:16:46

It is insane but most land in Phoenix proper is the same, there is a limited amount of beach land in San Diego

Given the problems with building near the ocean, these shacks should be nearly worthless. In fact, were it not for Federal insurance programs, no one would build on the coasts because no company would insure these buildings!

I know someone who inherited a small beach front cottage in Rhode Island. Over the course of the last 15 years, the ocean ate it. It, and the land it was on, are completely gone.

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Comment by In Colorado
2017-02-12 13:10:32

FWIW, they don’t get hurricanes in San Diego.

 
Comment by Albuquerquedan
2017-02-12 13:13:16

Sorry people like living next to the ocean, it is more problematic on the East Coast due to hurricanes, but mankind has preferred living near the ocean before we really were human.

 
Comment by Karen
2017-02-12 13:21:52

Who said anything about hurricanes?

 
Comment by In Colorado
2017-02-12 13:34:13

Who said anything about hurricanes?

“In fact, were it not for Federal insurance programs, no one would build on the coasts”

You don’t need federal insurance in coastal California. Why? Because there are no hurricanes or tropical storms like the ones that wipe out coastal property on the Atlantic and Gulf of Mexico coasts.

 
Comment by Karen
2017-02-12 14:46:26

My friend’s inherited property in Rhode Island was not destroyed by a hurricane. Hurricanes are not the only issue affecting coastal properties.

https://www.google.com/search?q=erosion+on+the+west+coast&oq=erosion+on+the+wes&aqs=chrome.1.69i57j0l3.7177j0j4&sourceid=chrome&ie=UTF-8

 
Comment by Mafia Blocks
2017-02-12 15:01:21

The losses to mudslides and earthquakes dwarfs losses to tropical storms.

 
 
Comment by In Colorado
2017-02-12 13:12:30

“you go twenty miles inland and you are living in Phoenix in California”

Not quite. Yeah, it’s hotter in Escondido or El Cajon than in La Jolla or Del Mar, but not Phoenix hot. Not even close.

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Comment by Albuquerquedan
2017-02-12 13:15:14

ok slight exaggeration but twenty or thirty degrees for twenty or thirty miles is quite the difference.

 
Comment by Professor Bear
2017-02-12 13:54:22

It gets Phoenix hot about two days a year in Rancho Bernardo. And that’s it.

 
Comment by Albuquerquedan
2017-02-12 14:09:49

That is more than enough, just getting into the high 90s is bad enough.

 
Comment by Professor Bear
2017-02-12 14:57:24

We have swimming pools and a cold ocean nearby for surviving those two unbearably hot days every summer.

 
Comment by Albuquerquedan
2017-02-12 15:33:09

Not a question of being unbearable, we don’t get unbearable temperatures in Albuquerque even though we have all four seasons. But on the coast in San Diego, the temperatures are in the 70s in the Summer and in the 60s in the Winter that is what makes San Diego so desirable. Twenty miles inland and both the highs and the lows vary much closer to a continental and not a coastal climate.

 
 
Comment by rms
2017-02-12 14:25:53

“…twenty miles inland and you are living in Phoenix in California…”

Maybe during the Santa Ana winds, but in Phoenix the AC is running 24/7 about eight or nine months per year.

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Comment by Yaan
2017-02-12 14:42:51

But it’s a dry heat.

 
Comment by rms
2017-02-12 15:34:59

“But it’s a dry heat.”

Ditto for the Santa Ana winds.

I don’t know people stand the humidity from Houston to Chicago and everything else east. And then their winters.

 
Comment by In Colorado
2017-02-12 16:54:34

“I don’t know people stand the humidity from Houston to Chicago and everything else east.”

There is a world of difference between a dry 90F in inland San Diego or Colorado and a humid 90F day on the east coast. If you’re from the west is feels shocking, like you’re in the Amazon or something.

 
 
 
 
Comment by Prime_Is_Contained
2017-02-12 11:22:27

Except for one tiny blip up and then back down - exactly at the same time as the tulip bubble.

Fascinating, Ben! I didn’t know that. Makes me wonder what else was going on in that economy from a monetary perspective, if they provoked multiple simultaneous bubbles (sound familiar?)…

 
 
Comment by Ben Jones
2017-02-12 08:19:48

This is another dead giveaway:

‘Jeff Wilson, a college professor turned entrepreneur who refers to himself as Professor Dumpster for the year he spent living in a metal trash container that he turned into a home, is trying to make this happen on a small scale. Mr. Wilson’s nascent company, Kasita, wants to produce a line of one-bedroom homes. They would be identical in size and bought for a single price, and could be placed on city lots that traditional developers are unlikely to be interested in.’

‘Homes would be stacked together, creating de facto apartment buildings that could be built and unbuilt in a few weeks. Although that wouldn’t do much to help a family of four, it might take some pressure off the housing market by directing younger people to studios instead of having them pile in together, freeing up some three-bedroom apartments for families.’

Yes, we just need to live in dumpsters! All will be solved. New paradigm solutions to problems that didn’t previously exist are a sure sign of a mania.

Comment by palmetto
2017-02-12 09:34:42

And tiny houses, and container homes, etc., etc. There is a company around here that sells what is basically glorified back yard storage sheds with a bathroom, and markets them as “in law” suites, a place to put aging parents.

I kind of like the container home thing, though, as a form of modular housing that stands up to hurricanes in Florida. I’ve seen some of the modified structures and they look pretty good.

But on the whole, much of this seems to be part of the marketplace of bad ideas. In fact it seems there is a bubble in bad ideas.

Comment by Blue Skye
2017-02-12 11:36:24

Anyone with a saw and a hammer can build a cute cozy little shack, if they can find/afford a suitable patch of dirt to place it on. Lots of people used to do this if they decided to get off the hamster wheel, or never got on it. I’ve had some adventures of this nature. I had a friend who paid $400 for an old school bus and put it on blocks and it was quite the handy shack. I saw a guy in Louisiana pull and old PT boat up on land and make a spectacular (flood proof) shack out of it.

What keeps people (or an entire country) from destroying themselves with debt? I think it could only be wisdom or restraint. Apparently there isn’t much of either. Paying 10x earnings for a house is insanity and ruin. Government in debt 10x earnings the same. Wisdom will be served up for those lacking.

Comment by palmetto
2017-02-12 12:10:25

Nothing wrong with any of that. It’s the “marketing” of these “tiny homes” and container houses and such that bothers me. The prices go up to cover the “marketing”. All of a sudden they’re “lifestyle choices”, not ways to live modestly and creatively.

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Comment by Albuquerquedan
2017-02-12 13:52:12

Or as a response to the unaffordability of housing. BTW, I decided to watch a movie that made the last time liberals melted down after the Republicans won the House in 1994. Barb Wire it is a classic a modern day Casablanca. LOL

 
Comment by palmetto
2017-02-12 14:37:08

“Or as a response to the unaffordability of housing.”

This little gem is a painful half an hour of two young people who chose container living as just such a response. I understand why they did it, but there’s not much that’s charming about it. Despite their attempts to make something Utopian out of it, basically, it’s a mini-slum and not much different from the favelas of Brazil, IMO. Looks like a disease event waiting to happen.

It’s not so much that they did it that bothers me, but how they went about it. Yep, I can’t wait to sit my arse down on a Home Depot paint bucket full of dirt after a dinner of rice and beans, at the end of a hard day at the ole’ tech start up/

https://www.youtube.com/watch?v=dfqunEuw61k

 
Comment by palmetto
2017-02-12 15:13:19

And weren’t outhouses the original composting toilets?

 
 
Comment by anberlin
2017-02-12 15:45:52

I’m contemplating getting a van at some point so I can live out of that on extended hiking/surf trips. Theres a number of people with youtube channels that do it, and I dont want to pay insane hotel prices, I just want to enjoy the outdoors and tell the greedy system to go get fked. Its the economically rational decision and more will be doing it in the future.

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Comment by palmetto
2017-02-12 16:33:56
 
 
 
 
Comment by MacBeth
2017-02-12 09:50:45

Frankly, I have had it with all the attention paid to “family this” and “family that” in this country.

All single people apparently are expected to take it on the chin for the benefit of people they do not even know.

Comment by Apartment 401
2017-02-12 10:09:24

Single adults will be the majority in America within my lifetime.

And then we mobilize and get the tax code rewritten in our favor.

No more free sh*t for breeders, LOLZ.

Comment by scdave
2017-02-12 10:21:48

No more free sh*t for breeders ??

Weren’t your parents breeders ??

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Comment by Apartment 401
2017-02-12 10:30:32

Thanks to TABOR, Colorado has some of the lowest funded public education in the country.

My parents taught me to read taking me to the public library every week and taught me math using flash cards at home.

Public education is nothing more than a meal program and babysitter.

 
Comment by MacBeth
2017-02-12 10:49:29

I hear TABOR is up for a revisit soon.

Better hope all those equity locusts flooding your state don’t decide to change Colorado’s horses. Their track record in places such as Chicago, San Francisco and Los Angeles is not particularly promising.

 
Comment by MacBeth
2017-02-12 10:50:58

Colorado = The Next California.

Be vigilant.

 
Comment by Apartment 401
2017-02-12 10:53:46

Voters here recalled two state senators who supported grabbist gun laws (and Magpul moved all their jobs to Texas and Wyoming). Michael Bloomberg himself even stooped so low as to meddle in that.

TABOR ain’t going nowhere anytime soon.

 
Comment by MacBeth
2017-02-12 11:05:42

It better not go anywhere soon.

Colorado needs to be a leader in something that matters - not in the consumption of pot at Aspen’s local delicatessen.

 
Comment by In Colorado
2017-02-12 13:17:20

I hear TABOR is up for a revisit soon.

Link? And what do you mean by “revisit”? It’s in the state constitution, it’s not like it has a statute of limitations.

TABOR ain’t going nowhere anytime soon.

Voters would have to repeal it, and judging by how proposed tax increase propositions go down in flames every election, I don’t see that happening anytime soon.

 
Comment by In Colorado
2017-02-12 13:22:41

“Colorado needs to be a leader in something that matters”

There is a lot of tech here. And oil drilling and mining. It’ll never be Silicon Valley, but there is more here than just legalized pot.

According to wikipedia:

CNBC’s list of “Top States for Business for 2010″ has recognized Colorado as the third best state in the nation, falling short to only Texas and Virginia.

And

Per capita personal income in 2010 was $51 940, ranking Colorado 11th in the nation

 
Comment by In Colorado
2017-02-12 13:30:36

Colorado = The Next California.

You keep saying this, when no one else has TABOR. No one, not even Texas. Dallas (and possibly all of Texas) taxpayers are gonna get shafted to make the Dallas PD and FD pensions whole.

As Apt 401 correctly pointed out, Colorado public schools are some of the lowest funded ones in the nation. Colorado is one of the most frugal states in the nation (much to the chagrin of local Dems)

Colorado is 20% Hispanic. Texas is 37%. California is only 40% white.

Sounds to me like Texas is the next California.

 
Comment by rms
2017-02-12 14:40:20

“Colorado needs to be a leader in something that matters - not in the consumption of pot at Aspen’s local delicatessen.”

Without a coastline and fresh ocean breeze they’ll never really matter.

 
Comment by Hi-Z
2017-02-12 14:59:32

“Voters would have to repeal it, and judging by how proposed tax increase propositions go down in flames every election, I don’t see that happening anytime soon.”

All you need is to get an activist Federal judge to rule it “unconstitutional”.

 
Comment by Albuquerquedan
2017-02-12 15:27:46

And that could happen. Similar funding schemes have been struck down due to their disparate impact on minorities. The claim is minority schools are underfunded due to the inability to raise funds through local taxes and that is unconstitutional.

 
Comment by In Colorado
2017-02-12 16:59:27

All you need is to get an activist Federal judge to rule it “unconstitutional”.

They’ve been trying that for a looooooooooooooong time.

But even if they succeed, voters will tar and feather any politician who tries to raise taxes in Colorado. And the Dems know that.

I suspect that eventually demographics will change enough so that TABOR could be repealed. When that happens I will simply pull up my stakes and move elsewhere. Maybe central Europe. The cost of living there is so low that you could live great on just US social security.

 
 
Comment by MacBeth
2017-02-12 10:53:36

It can’t come soon enough, goon.

It needs to stop. I don’t exist to line the pockets of “families”.

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Comment by rms
2017-02-12 15:51:02

“No more free sh*t for breeders, LOLZ.”

http://picpaste.com/family_man.jpg

This guy mortgaged his soul and likely suffers a from dead bedroom too. He can already “see” his entire life. “The mass of men lead lives of quiet desperation. What is called resignation is confirmed desperation.” —Thoreau

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Comment by In Colorado
2017-02-12 17:00:50

and likely suffers a from dead bedroom too

Ya gotta laugh at all those studies that claim that married men get all the nookie they want.

 
 
 
 
Comment by PitchforkPurveyor
2017-02-12 10:02:47

There is no more evident sign of the mania than the 10 foot wide apartment complex, with no bathroom walls, near UW in Seattle.

Comment by Prime_Is_Contained
2017-02-12 11:34:43

near UW in Seattle.

Where is that located, more specifically? I don’t get by the UW very often…

 
 
Comment by Professor Bear
2017-02-12 13:30:57

Why live in a dumpster when you could live on a luxury river yacht instead?

Where We Live
Looking for something different? Yacht river cruiser docked at National Harbor lists for $488,800.
By Michele Lerner
January 19, 2017
A 65-foot Legacy yacht river cruiser, dubbed Freedom II and based at National Harbor, is listing for $488,800. (Studio Trejo)

If you’re in the mood for something a little out of the ordinary but love the vibe at National Harbor, you might want to mull over buying a boat docked at the harbor. Priced at $488,800, the fully furnished 65-foot Legacy yacht river cruiser, dubbed Freedom II, is designed for year-round livability. The yacht has 1,000 square feet of indoor living space and 1,000 square feet of outdoor space for entertaining up to 40 friends.

 
 
Comment by Professor Bear
2017-02-12 08:39:56

“The solution: Americans, together and all at once, would have to stop thinking about their homes as an investment.”

That’s easily fixed. Simply tie the Fed’s and FedGov’s hands so that they can’t prop up a real estate collapse with bailouts.

Hair-of-the-dog folk wisdom would quickly give way to dog-bite folk wisdom:

Once bit, twice shy.

Comment by Ben Jones
2017-02-12 09:16:19

When did the bond markets finally head down last summer? It was the Bank of Japan announcement that they weren’t going to do helicopter money. Around then Yellen said the same thing. That’s right, they finally acknowledged they weren’t going to fill the skies with little pieces of paper that we all work so hard to get. Then $4 trillion went poof.

These are supposed to be markets. Supply and demand can’t work with a multi-trillion thumb on the scale. Even now we have posters here saying “they won’t let prices fall!” I don’t know what they are describing but it isn’t a market. Of course, the same thing was said here in 2005-06.

Comment by azdude
2017-02-12 09:26:37

do u think we are in a stock bubble?

Comment by butters
2017-02-12 09:38:29

Stooopid question.

Everything is in bubble.

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Comment by azdude
2017-02-12 09:40:51

did i ask you?

 
Comment by Albuqerquedan
2017-02-12 09:46:00

If everything is in a bubble than nothing is in a bubble. Housing can only be in a bubble if the prices are out of line either in relationship to rents and/or income. As the Economist link (previously posted a few days ago) showed unlike in 2005, housing prices are not way out of line historically compared to rents and incomes.

 
Comment by scdave
2017-02-12 10:25:42

are not way out of line historically compared to rents and incomes ??

Change the interest rate on the cost of money back to anything close to historical norms and it blows your analysis out the window…

 
Comment by Albuqerquedan
2017-02-12 10:25:51

azdude, at a minimum the stock market is fully priced based on things like PE, dividend yields etc. it might be called a bubble but it is not insanely out of value but rising interest rates will probably cause it to be more overvalued unless we get GDP growth closer to 3%, in my opinion.

 
Comment by Albuqerquedan
2017-02-12 10:31:54

Change the interest rate on the cost of money back to anything close to historical norms and it blows your analysis out the window…

So will they? Can’t see that happening without inflation returning to historic norms which will raise both income and rents which will mitigate much of the impact of the rising interest rates.

 
Comment by MacBeth
2017-02-12 11:11:26

We’ll have to see if “pending” tax cuts will serve to offset rising interest rates.

As always, be mindful of the derivatives market while ruminating the overall direction of the stock market.

 
Comment by @AltFacts
2017-02-12 11:16:26

If everything is in a bubble than nothing is in a bubble. Housing can only be in a bubble if the prices are out of line either in relationship to rents and/or income.

 
Comment by Prime_Is_Contained
2017-02-12 11:38:32

As the Economist link (previously posted a few days ago) showed unlike in 2005, housing prices are not way out of line historically compared to rents and incomes.

My recollection of those graphs is that the price-to-income DID look like a bubble; price-to-rent did not, with the obvious implication that rents are ALSO in a bubble.

 
Comment by Albuquerquedan
2017-02-12 11:46:48

The only place price to income was a problem was a few areas like the Bay area, overall for the country there was no problem. Relook at it.

 
Comment by Albuquerquedan
2017-02-12 12:05:09

The chart shows in relationship to rents the US as a whole is below historical averages in relation to income we are only slightly above. Of course, that does mean over the last administration people have lost affordability. But here is the link again:

http://www.economist.com/blogs/graphicdetail/2016/08/daily-chart-20

 
Comment by scdave
2017-02-12 12:10:30

inflation returning to historic norms which will raise both income and rents which will mitigate much of the impact of the rising interest rates ??

LOL…If you want less of something tax it or raise its price through inflation….No way rents and income keep pace…What will happen though is a recession…

 
Comment by Prime_Is_Contained
2017-02-12 12:20:51

I looked again; price-to-income since 2000 looks wildly out-of-line with price-to-income from 1980-2000.

Price-to-rent not tracking the same curve shows very clearly that rents are just as bubbly as prices at the moment.

 
Comment by Albuquerquedan
2017-02-12 12:22:59

if inflation or wages do not rise, there will be no need for the Fed to raise interest rates to historical levels and if there is a recession the Fed will be cutting interest rates maybe even to negative rates so you just never get to historical norms unless exactly what I said happens.

 
Comment by Albuquerquedan
2017-02-12 13:09:38

I looked again; price-to-income since 2000 looks wildly out-of-line with price-to-income from 1980-2000.

It is the long term average. You can cherry pick but we all know that during most of the 1980s, interest rates were abnormally high thus depressing housing prices. We reverted to the mean by 2000 only after that did we create a real bubble.

 
Comment by Mafia Blocks
2017-02-12 14:58:23

The long term mean is 9%.

 
Comment by Professor Bear
2017-02-12 15:00:03

“It is the long term average. You can cherry pick but we all know that during most of the 1980s, interest rates were abnormally high thus depressing housing prices.”

QE1, QE2 and QE3 represented the flip side of that. And just as houses reverted from abnormally low in the mid-1980s to normalcy, you can expect the same kind of mean reversion going forward from lofty bubble highs to normalcy…after overshooting to the downside, of course.

 
Comment by Ben Jones
2017-02-12 15:28:43

‘unless exactly what I said happens’

Ta-Boom!

Come back tomorrow folks, he’ll be here all week!

 
Comment by anberlin
2017-02-12 16:00:53

LOL^1000! scdave admitting supply side economics works. Cog dis much?

“LOL…If you want less of something tax it or raise its price through inflation….”

 
Comment by Rental Watch
2017-02-13 00:34:14

My recollection of those graphs is that the price-to-income DID look like a bubble; price-to-rent did not, with the obvious implication that rents are ALSO in a bubble.

If prices are out of whack only because of low interest rates, what explains high rents? Low interest rates should drive development, which would keep rents in check.

The only think that explains both high prices and high rents is too little supply overall relative to overall demand.

And if you simply look at the housing starts from 2009 until today, that data would support the too little supply theory.

 
Comment by Prime_Is_Contained
2017-02-13 00:38:11

That sounds reasonable—except for the fact that there is a TON of development going on in Seattle.

The simpler explanation is that landlords pay attention to housing prices, and price their rentals accordingly, as they know that that is their competition…

 
Comment by Rental Watch
2017-02-13 00:47:02

Try again.

Landlords’ competition is other landlords. Landlords have no power if there is enough supply, because renters have ample opportunity to price alternatives (and move if it saves them money).

Again, look at the Census rental vacancy data…the national rental vacancy rate has dipped below 7% several times since 2015…it hadn’t gone below 7% since 1993 (dipped for one quarter). It has been below 7% for 3 quarters in a through the end of 2016.

 
Comment by Prime_Is_Contained
2017-02-14 00:46:22

There are clearly equilibrium forces in play between buying and renting—if renting is advantageous, renters will avoid transitioning to owning, and vice-versa.

So maybe my “landlords pay attention” wording is simplistic, but renting and buying are clearly substitutes for each other in the market for housing—for the fraction of renters who can afford to buy, and fraction of buyers who would choose to rent if it were advantageous price-wise.

 
 
 
Comment by MacBeth
2017-02-12 09:56:45

“These are supposed to be markets. Supply and demand can’t work with a multi-trillion thumb on the scale. Even now we have posters here saying “they won’t let prices fall!”

Supply and demand in the housing market has been distorted out of existence.

Did you see the comment in the UK Daily Mail that someone else here posted about Vancouver? Within that article, the insanity of what is happening there is attributed to supply and demand.

No, it isn’t. There is no demand when there’s 65,000 empty mansions that are rotting away.

It’s not even speculation anymore. “Investors” buying into a city where increasing numbers of homes are left to rot as the weeks go by?

That’s not investment or speculation.

I don’t know what the hell that is.

Comment by MacBeth
2017-02-12 10:04:29

Ghost towns used to come into existence as local resources and wealth dried up, not as money poured in.

I guess this phenomenon might be the norm for traditionally non-productive societies such as China.

What kind of economy does Vancouver actually have? It’s certainly not capitalist. It’s a rape and pillage economy.

How does one define “globalist” economy from a practical standpoint, anyway? How is it different theoretically, fiscally and functionally from a capitalist society? A socialist society?

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Comment by Blue Skye
2017-02-12 11:00:04

Rather, what is the difference between all of those and a democracy?

 
 
Comment by PitchforkPurveyor
2017-02-12 10:06:16

It’s called “money laundering.”

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Comment by Mafia Blocks
2017-02-12 10:14:09

It’s 95% mortgage fraud a <5% laundering.

 
Comment by MacBeth
2017-02-12 10:35:23

I understand that.

Yet housing in Vancouver is not a legitimate asset, nor is it in various pockets of California.

There’s no pretense otherwise. And yet it’s happening unchecked.

I guess people really do put their faith in yellow brick roads.

Housing. The latest religious fanaticism.

 
Comment by MacBeth
2017-02-12 10:43:50

I don’t think it’s fraud, either.

Perhaps what someone here said yesterday is much closer to the truth. An empty $800K house in Vancouver, taxed at 1% per annum, nets the city $8000 annually.

Naturally, at much less expense for the city than if people actually lived in all those empty houses. Fewer people = less cost for the city.

Let them eat cake, right?

Rape and pillage. Rape and pillage. Strip future generations of all wealth. Well done. More power to you.

 
Comment by Albuquerquedan
2017-02-12 11:33:12

Don’t forget the economic impact of paying people to build the house and the sales tax collected on the materials. Of course, all of that together does not come close to the sales price but if it is local that made the money, that profit will circulate in the community.

 
Comment by Mafia Blocks
2017-02-12 11:38:09

Mortgage fraud is rampant. There was a recent article that every mortgage application reviewed had some type of misrepresentation.

 
Comment by MacBeth
2017-02-12 11:44:38

Yes, the profit will circulate, but not to the people who do not live there.

Vancouver: An Entire City on the Take?

 
Comment by MacBeth
2017-02-12 12:07:51

Mortgage fraud is a symptom, not a cause.

Mortgage fraud is permitted. How come?

 
Comment by butters
2017-02-12 17:19:03

Without mortgage fraud, the house prices would permanently drop by few percentage points.

 
Comment by redmondjp
2017-02-12 23:20:55

Gawsh Housing Analyst, get off of the mortgage fraud gig. There is a boogeyman behind every tree.

The FACT is that there are a lot of very wealthy people, the winners in the globalist game, and they are looking for places to park there cash.

No mortgage fraud required.

 
Comment by Mafia Blocks
2017-02-13 12:26:34

Incorrect my good friend. Wealthy individuals don’t waste time buying houses.

 
 
 
 
 
Comment by Senior Housing Analyst
2017-02-12 09:58:59

San Francisco County, CA Rental Rates Plummet 7% YoY

http://www.zillow.com/san-francisco-county-ca/home-values/

 
 
Comment by Can Bubble
2017-02-12 11:14:29

I received the following LinkedIn message from a former colleague of mine. He was a Snr BA at a bank. It was a decent job. He’s about 51 and his kids are finishing university. I told him that I already have a few friends who are realtors and he didn’t respond.

I hope to find you well, Happy New Year! I wanted to reach out to you and say hi and to tell you I have recently started a new career as a Real Estate Agent. I am looking to grow my business and I was wondering if you currently have a Realtor who you usually work with or refer your family and friends to? If you do, please keep me in mind when you need a second opinion. If you don’t, I would love to have the opportunity to be the person you look to answer your questions and help you with your real estate needs.

By the way, I regularly send out valuable information on the real estate market, investing opportunities and mortgage information. Let me know if you like to receive this information by emal. Keep well and I hope to hear back from you sometime soon. I hope we can do business in the future.

Warm regards,

 
Comment by Larry Littlefield
2017-02-12 11:16:06

Some of this stuff goes back a long way. Those of you not in New York may not know this, but the Robber Barrons of the 1980s, instead of re-investing their money, poured it into huge mansions near the other Robber Barrons in the Hudson Valley and at Newport. Here are the Vanderbilt properties.

https://www.nps.gov/vama/index.htm

http://www.newportmansions.org/explore/the-breakers

This guy was from Staten Island and worked in NYC. I resent the time and attention I have to pay to one small row house out of my one and only life. Why did this guy need two white elephants, to be gifted to the government later because they had no other use?

And you go to school here, and they make you go on school trips to the Hudson Valley mansions. “Look at the silverware!” Like I cared? This is more like it.

http://www.tenement.org

http://www.newsday.com/entertainment/long-island/museums/levittown-historical-museum-1.811195

In any event, the problem is this big house obsession trickled down. And it doesn’t appear as if it is going to get any better. I almost fell for this one.

http://www.thenewportbuzz.com/donald-trump-buys-the-breakers-mansion-for-112-million/262

Comment by MacBeth
2017-02-12 11:42:09

The term “robber baron” may be a great deal closer to what is happening in Vancouver and California today, with the caveats that today’s robber baron:

(1) is not necessarily a “businessman”, but an “individual” or a “government-man” and (2) could operate globally, hopping borders as the opportunity to pillage manifests.

The term also could apply rather easily to equity locusts, who sell out for big money, then move elsewhere to ruin local economies.

Vagabonds. Gypsies. Robber barons.

 
Comment by Larry Littlefield
2017-02-12 15:31:56

I meant Robber Barrons of the 1890s.

The Robber Barrons of the 1980s built museums.

http://rubinmuseum.org

Comment by MacBeth
2017-02-12 16:10:06

I know what you meant - and it was very good fodder. Thanks for the input.

The robber barons of the 1980s built museums - but that was 30 years ago.

What are today’s robber barons doing? Who are they?

I see no examples of noblesse oblige courtesy of today’s robber barons. No museums being built these days to hide behind.

Comment by redmondjp
2017-02-12 23:24:20

Bill Gates is doing pretty well in giving his money away. But a lot of these tech company titans, well shoot, they make the robber barons of a century ago look like Robin Hood!

Chief Stingy Officer: Jeff Bezos - the guy who wants YOU to contribute money to a charity of your pick when you buy something through Amazon (priced-in to everything they sell).

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Comment by Apartment 401
2017-02-12 11:38:48

Drudge Report links to an article about increasing numbers of older Americans “living apart together.”

https://www.studyfinds.org/study-finds-living-apart-together/

 
Comment by Senior Housing Analyst
2017-02-12 11:46:25

Los Gatos, CA Rental Rates Freefall 17% YoY

https://www.zillow.com/los-gatos-ca/home-values/

 
Comment by Ben Jones
2017-02-12 11:50:07

‘Three of Southwest Florida’s best real estate minds will help you steer a course at The News-Press Market Watch 2017: Focus on Real Estate forum in downtown Fort Myers.’

‘With feet planted firmly on a mountain of data, Randy Thibaut, Denny Grimes and Stan Stouder have clear views of where Southwest Florida’s sub-markets are now and where they go from here.’

‘Uncertainty has been a theme emerging for the new housing market over the past year, culminating in mixed signals ahead for 2017. Oddly enough, uncertainty is pretty normal if you consider the clear signs of a boom or bust. In times of exuberance or distress, you know where you’re at.’

‘Nationally 2016 had strong sales, but Southwest Florida wasn’t invited to the party. Why? There are two danger signs in the existing home market. Will they continue or correct?’

‘Some are predicting a new wave of foreclosures in Lee County. Is another buying opportunity approaching?’

Oh dear…

Comment by Albuquerquedan
2017-02-12 12:09:19

I believe southwest Florida always had a lot of blue collar union people buying cheaper land near the ocean. With the lower wages in the rust belt maybe they can no longer afford to buy down there.

 
 
Comment by Albuquerquedan
2017-02-12 11:57:57

This is an interesting big picture snapshot of China. Per capita income in dollars more than 50 times what it was in the late 60s. Even on a ppp basis which I think is the better measure and so does the CIA, it is 25 times. It really is honey China shrunk my pay raise for the U.S.:

http://www.tradingeconomics.com/china/gdp-per-capita

Comment by Mafia Blocks
2017-02-12 12:42:21

Housing my friend housing!

Kingston, WA Housing Prices Crater 10% YoY As Housing Losses Ramp Up Statewide

http://www.zillow.com/kingston-wa/home-values/

Comment by azdude
2017-02-12 13:17:37

in order to access your equity you still need the banks blessing.

 
 
Comment by Blue Skye
2017-02-12 14:22:08

“big picture”

The reality is the biggest steaming pile of debt in history. Fang Nu pays 20% of his salary in taxes, 70% on a mortgage payment that will not end in his lifetime and he went to loan sharks for the downpayment.

Comment by In Colorado
2017-02-12 16:50:07

For a 600 sq foot flat that won’t last as long as the mortgage.

On a related note, the division I work for fired EVERYONE at the Beijing campus. Everyone. There are other divisions present at the Beijing campus, and they weren’t affected by the reorg.

The Beijing crowd was displeased enough with their dismissals that they went to the Chinese media and complained that they were fired to save American jobs.

The truth is that they were fired because they were, with a few exceptions, so unproductive that even though they are paid about 40% of what we are stateside it didn’t make up for it.

Comment by NYchk
2017-02-13 09:48:46

they were, with a few exceptions, so unproductive that even though they are paid about 40% of what we are stateside it didn’t make up for it.

A tightwad always pays twice.

I wish more companies paid attention to this. The price of outsourced labor might be cheaper on paper, but not when you take into account the quality of output.

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Comment by azdude
2017-02-12 16:19:29

9000 companies have left CA in last decade.

Comment by scdave
2017-02-12 16:36:39

Yeah. I guess California is doing so poorly that it only sends 380 Billon of taxes to the Feds. Nobody else is even close.

Comment by In Colorado
2017-02-12 16:44:17

Link?

Comment by Albuquerquedan
2017-02-12 16:52:56

Exactly, I provided a link last week that those were pre-bubble burst levels, the last numbers from 2015 showed that for every dollar sent to Washington, they received 99 cents and that before the next high tech bubble bursts.

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Comment by azdude
2017-02-12 17:20:35

dave has caught the bug that has made him delusional.

 
 
Comment by phony scandals
2017-02-12 18:12:31
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Comment by butters
2017-02-12 17:15:40

Phony bubble economies collect more taxes while it lasts.

 
 
 
Comment by Senior Housing Analyst
2017-02-12 16:23:34

Westlake Village, CA Housing Prices Crater 9% YoY

http://www.movoto.com/westlake-village-ca/market-trends/

 
Comment by Big Fat Ugly Bubble
2017-02-12 16:51:36

Late last year, another of Vancouver’s experiments was the government offering zero-interest downpayment loans for first time home buyers. The catch is that the total property price can’t be more than $750,000 to qualify for the downpayment loan. At the time, people expressed concern that the main effect of these government downpayment loans would just raise prices in the lower segments of the market.

Looks like that’s exactly what is happening. From yesterday:

http://bc.ctvnews.ca/first-time-homebuyer-loans-triggering-real-estate-bidding-wars-1.3281291

“Bidding wars have returned, and some experts believe Victoria bears some of the blame.”

“Where there seems to be multiple offers happening is below $750,000 – the maximum amount borrowable through the province’s new home loan program.”

“What seems to be clearly the case now is the top of the market is getting absolutely clobbered, [with] single family detached, the more luxurious, the worst the impact,” said UBC Sauder School of Business Economist Tom Davidoff.”

Saretsky echoes that sentiment: “You have two markets that are almost going what appears to be in different directions.”"

Comment by Big Fat Ugly Bubble
2017-02-12 18:40:04

I think the Vancouver situation is fascinating. A great example of government market interventions, for their own benefit.

First they allow an ocean of foreign money to flood in, both laundered money and fraudulent loans, creating a market distortion with an artificially high demand for houses, and prices skyrocketed into the stratosphere. This was very desirable for the government because of large property tax revenues.

But then, things got out of control, and the locals got priced out of their own neighborhoods, and a lot of bad press in the news. The government responded with market interventions to reduce foreign demand via the 15% foreign tax and 1% non-occupancy tax to try to take the edge off the top of the market, but making up for the loss in property tax declines (due to price declines at the top) with the cash they get from the new foreign buyer taxes.

At the same time, to really make sure they didn’t lose out on tax revenues from intervening too much on the high end of the market, they invent new first-time buyer loans (free money), to increase demand in the lower end of the market — goosing the lower end. Prices are now doing that, which is desirable for the government because of increased property tax revenues (offsetting lower tax revenues from price declines at the high end, with higher tax revenues at the lower end). Will they meet in the middle?

The whole thing is so distorted — one market-intervention by government after another, all sailing on a sea of fraudulent money, set up to alter the market to maximize the amount of money going to the government in taxes.

 
 
Comment by Mafia Blocks
2017-02-12 17:35:36

Once again…… Why buy it when you can rent it for half the monthly cost? Buy it later after prices crater for 70% less.

Comment by redmondjp
2017-02-12 23:28:17

You can’t rent it for that cheap. Man you need to get out more. My mortgage is half of what it would cost to rent my house.

3BR homes are renting for $3500/month in the Seattle area. You can buy a pretty darn big house with that kind of payment.

Comment by Prime_Is_Contained
2017-02-13 00:34:53

My mortgage is half of what it would cost to rent my house.

On the other side of the lake, my rent is half of what it would cost me to buy the house that I life in… And that is AFTER a 30% rent increase a couple of years back!

 
 
Comment by Mafia Blocks
2017-02-13 04:57:54

Not to mention the fact that rental rates are cratering all over the country.

 
 
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