Wolf Richter: Housing Bubble In Full Bloom, Zany Price Increases, And Now A Sudden Slowdown

[marmar]

from Naked Capitalism:


Wolf Richter: Housing Bubble In Full Bloom, Zany Price Increases, And Now A Sudden Slowdown

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.

Cities have seen dizzying home-price increases that are giddily reported and infused with pandemic housing hype and trillions from the Fed into a self-propagating force. And it has become accepted wisdom that the housing market would recover all the way to where it was in 2006, which would represent a complete recovery, a sign that the Fed has done its job, that it cured at least one of the ills that has been dogging this economy for so long.

Alas, not too long ago, everyone had called 2006 “the peak of the housing bubble,” the apogee of all craziness, one of the causes of the disaster that followed, and everybody had tales of just how crazy it was back then. All this is forgotten. The prices of 2006 are suddenly no longer the peak of the housing bubble, but a goal to get back to.

.....(snip).....

What’s Next? Repeat of 2007-2009?

“The price increases are crazy,” real-estate agent Amy Downs in the Dallas suburb of Garland echoed to the Wall Street Journal. And it’s not good for business; a lot of her clients stopped searching for a new home.

.....(snip).....

Their strategy was to raise home prices “to the point of significantly slowing down sales pace,” he explained. And that point has been reached. Homebuyers are maxed out. That’s what ultimately pricked the last housing bubble. And that’s what will eventually prick this bubble too. ...................(more)

The complete piece is at: http://www.nakedcapitalism.com/2013/09/wolf-richter-housing-bubble-in-full-bloom-zany-price-increases-and-now-a-sudden-slowdown.html#8vDd4l08ctiPmx6x.99

[elleng]

1. Yup, crazy.

[xchrom]

2. du rec.

[onehandle]

3. We sold our house and will never own property in the United States ever again. nt

[KurtNYC]

4. the dynamics are different now -- crazy credit is not in play like 2006

They have eased off the 20% down but Fannie and Freddie are buying mortgages that are as low as 3 and 5% again. Almost 20% of new loans are in the under 20% down category but that means that 80% are 20% or more.

There was a lot of hype locally about how the market had turned and if you want to buy you better do it because "we won't see prices like these again for a long time." At the same time, a lot of people who have been underwater for the last 5 years are looking to get out. Toward the end of summer a lot of houses came on the market in the $250 to $600K range and my impression is that many of these are people looking to get a mid-2000s price for their home.

But the market is hollow, propped up by some institutional buying of foreclosures which they are turning into rentals. Fewer would-be buyers can get credit and there is still a glut of supply. The addition of upper level homes adds to the glut and just makes the houses with market prices seem that much better value wise.

[NoOneMan]

7. Its always different now. It always can't happen here.

[KurtNYC]

9. Not saying it can't happen

but there just isn't the volume of over-priced buying that preceded the bubble of 2006/07.

This summer's rise in interest rates likely squeezed the last group of buyers to action in August. The future looks just as bleak as the last 4 years IMHO, maybe worse given the rates and the amount of underemployment nationwide.

[Nuclear Unicorn]

5. No bailouts! Yes prosecutions (where appropriate)! n/t

[BeyondGeography]

6. When lenders emphasize income security and credit worthiness it hurts housing

The present irony.Things will only bounce back in a durable way when the owners start paying people a little more and make it clear that their reign of income and job insecurity terror is easing. Not holding my breath on that front.

[SoCalDem]

8. That's so true..

When people (in the olden days) bought a first house, they were usually in their mid-thirties, and established in their career.. They saw only raises & promotions ahead, and that made them brave enough to tackle a 30 year debt for a home they would raise their family in...and later sell, to downsize in a smaller place bought for cash...or to stay in for the rest of their lives mortgage-free whey then retired.

People used to be able to save for that 20% down payment, and had skin-in-the-game (equity) when they closed escrow...and back then there were no HELOC/equity loans, so most people had their home as a longterm ASSET..not as an ATM..

These days, a 30-something has college debt, no savings and a career/job that could end at any moment, and most likely will end long before they pay off that 30 yr mortgage.