Housing Bubble Bursting

[unlawflcombatnt]

The housing bubble continues to deflate as evidenced by today's (1-19-06) housing start report. Nationwide housing starts declined 9%. Excluding the South, which is still recovering from Katrina, housing starts declined 21% nationwide. In the Midwest, housing starts declined 24% in December, from November's annual rate of 386,000 down to 295,000 in December. In the West, housing starts declined 22% in the month of December, from November's 553,000 annual rate down to a 433,000 annual rate. In the Northeast the decline was 14%. Below is a copy of the chart from Briefing.com showing the declines.


This can be found at: Briefing.com: Housing Starts

Prices have also been declining in many parts of the country, most notably in Southern California. Typical of these price declines is the situation in San Diego, where last months housing price decline was the largest in 18 years. Prices there declined 2.7% in the month of December alone, following monthly declines in each of the previous 3 months as well. The article describing this can be found at: San Diego Home Price Decline

Again, it appears the housing bubble has finally started to deflate. Now the questions are how much and how fast will the air leak out.

EconomicPopulistCommentary- HousingBubbleLinks

[connecticut yankee]

1. You wouldn't know it

in Fairfield County, Connecticut. There are still many teardowns, and I haven't noticed any slowing down.

[unlawflcombatnt]

8. Southern California Housing Market

The bubble effect is certainly uneven throughout the country. I'm unaware of how big a bubble there is in Connecticut, or if there is any bubble at all there.

In Southern California home prices have increased over 130% since the Bush junta stole its first election. Real wages have stagnated. So the ability of Californians to afford houses is declining, despite the previous price increases. This is now changing here. San Diego is a prime example.

There were several other points worth highlighting in the article from "SignOnSanDiego."

1. The total number of homes sold in San Diego declined from 60,886 in 2004 to 55,366 in 2005. This 9.1% decline was the 1st decline since 2001.

2. DataQuick reports have shown a decline in year-over-year home sales activity for 18 straight months.

3. The total number of homes listed on the market peaked in November. This was 5 times more than the peak buying frenzy in the spring of 2004.

Below is a copy of a chart on San Diego home prices.



The link to this information can be found at San Diego Home Prices

(There are similar charts for the other areas in California at the above site, including Los Angeles, Orange County, and San Francisco. I'll try to post some of those later.)


unlawflcombatnt
EconomicPopulistCommentary
_________________
The economy needs balance between the "means of production" & "means of consumption."

[The_Casual_Observer]

2. What left to exploit after housing?

[mom cat]

43. Your children!

[StellaBlue]

3. God, I hope so

As a 26-year-old with NO HOPE currently of EVER owning a home.

[don954]

4. your in that boat too, eh?

Im 27, have savings for a home but don't want a giant mortgage that i wont ever be able to pay off, and will wait till the bubble looks fully deflated before buying a house. There are all these $1,000,000 homes that they keep building all around me, i expect to be able to pick one up cheap if the bubble bursts as bad as i think it will.... I know of one that sold for 1.25 mil last year, and the owner has a sign up for sale, reduced to 900K..!

yes, that means i have a element of schadenfreude, but, with all these freeper repubs around i find it hard not too!

[wicket]

5. I'm also 27 and am doing the same thing

It's going to get VERY VERY bad for people who have those interest-only loans. Foreclosures around here (Boston area) are SKYROCKETING.

[StellaBlue]

9. those people with interest-only loans are IDIOTS

I hadn't heard of that until this past week... I don't *think* they have stuff like that in the UK, and I had been living over there for a number of years, so... they do have lots of re-financing commercials on TV for 'homeowners with no CCJs' - basically, they give you a loan or consolidation at about 30% interest with your home as collateral. Sheesh. I am perfectly happy to keep renting if these are the only other options!

[StellaBlue]

10. Those people with interest only loans are IDIOTS

I hadn't heard of that until this past week... I don't *think* they have stuff like that in the UK, and I had been living over there for a number of years, so... they do have lots of re-financing commercials on TV for 'homeowners with no CCJs' - basically, they give you a loan or consolidation at about 30% interest with your home as collateral. Sheesh. I am perfectly happy to keep renting if these are the only other options!

[Rockholm]

12. Stella, I was in Houston in the 1980's.

I saw what a down and depressed market was. That is nowhere NEAR what is happening ANYWHERE in this country now. People were walking away from homes in The Woodlands because they owed more on their mortgare than their homes were worth.

My message to all of you who are waiting on the sidelines to buy a house..Owning a home is like owning a stock, not like bread in the grocery store. Real Estate is a commodity. People need homes. If you are trying to buy a house, buy now because as interest rates rise, you will get less house for your money.

Maybe set your expectations lower. Not everyone needs a million dollar house. There are 3500 homes in Greater Ft. Lauderdale for sale right now (for the poster who was commenting on FTL prices)

[StellaBlue]

13. what I want

the only thing I want (to RETIRE in) is a ca. 1920s-30s bungalow, three beds, one bath, front porch. Decent neighborhood. Indoor plumbing.

Those are going for $350,000 and up in Austin, Texas.

:eyes:

[ProudDad]

22. Over $500,000 in the war zone

for that kind of house here in the S.F. bay area.

[loudestchick]

42. Y ou just described my home in Kansas City, Missouri.

Walking trails, a short bus ride to a decent art museum, walking trails...all for 135k...up from 60k 15yrs ago. Come on over!

[Capn Sunshine]

14. I was in Houston in the 80's too

And THAT was a crash. You saw property there selling for less than it cost to build. Homes , office buildings. I was there as a real estate consultant to an Investment bank. Now I'm a banker specializing in Mortgage backed securities in the southwest.

I'm a banker in CA now, and what you're seeing isn't a bubble. It's normal ebb and flow of a Real Estate Cycle.

A "bubble" is an overinflated price situation which bursts, leading to a crash. There is no crash on the CA housing market horizon. Maybe a slow decline , but no crash.

What does this mean? It means you might get a discount from today's high prices, like 10%. Which puts the situation in context. If you are waiting for your dream house to go down 30% so you can buy it, that may never happen. If you are priced out by a hundred bucks a month, you should look at a more modest property.

Looking in the rearview mirror, 10% , even 30% decline from today's prices is way, way ahead of where prices were 10 years ago.
That's due to supply and demand. This is not to say some builders didn't get over extended and won't get hurt. That's part of the market.

[Rockholm]

20. Exactly. Supply and demand.

There has been little supply for years. Now, moderate supply and sill a demand for real property. If you are buying a house to live in, great. Speculation is just that...speculation.

[BlueStateBlue]

24. All the "demand" is going to shrivel up and die when the

speculators head for the exits at once. Not to mention the trillions of dollars in ARMs and I/Os that reset in 2007. If those buyers couldn't afford to lock into a fixed rate mortgage at the lowest rates in a generation, they couldn't afford the house. Period. It's gonna be ugly. Who you kiddin'?

[Capn Sunshine]

84. But demand in So Cal is not driven by "speculators"

It's driven by demographics: over a million new housholds form in California each year than there are houses for sale.

The primary factor is all the echo-boomers ( born betwen 1982 and 1995). They are just entering the household formation stages, and are in numbers as large as the baby boomers.

Up economy or down, these folks are going to get married and create families, and want to live together.

[unlawflcombatnt]

87. Speculators & "Pseudo-Investors"

The increase in population in Southern California is happening at the same, or even a slightly lower rate than it has in the past. In other words, this is not something new that has fueled the recent exaggerated appreciation in home prices.

What has changed, however, is the explosion in the number of people buying homes for investment purposes only. In addition, many buyers are "pseudo-investors," meaning they are living in the home but that a large part of their motivation for buying a home was it's investment value.

Nationwide, the number of non-residential buyers is put at 25-35%. In addition, another 15-20% of home purchases are 2nd homes. Add to this the extra demand created by "pseudo-investors" and you've accounted for a majority of home purchases nationwide.

There is little doubt that these factors play an even greater role in the Southern California than the rest of the country.

Below is a graph of the relation between population growth and home price increase in the Los Angeles area:


Price increases have been much greater than the population growth in the L.A. area. These price increases have had little to do with population growth.

EconomicPopulistCommentary: Housing Links

[AnneD]

44. I survived the Houston

RE crash and the downturned economy. It too years to come back for that. I respectfully disagree CaptSunshine. I do think the markets are overheated into a bubble, esp in California. I also feel we are poised for a bust and crash in some parts of the country. I am dutifully saving for a home (20%) and hope to take advantage of those RE investors that are overextended or take repos that are more reasonably priced.

[the other one]

35. NOT like owning a stock!

Houses are not liquid. You cannot sell your house by calling a broker and saying "sell". Houses are a place to live. they are exactly like bread in a grocery store - when the bread goes on sale you buy. Houses are not on sale...yet. But they are going to be.

[wicket]

41. I agree completely

n/t

[midnight armadillo]

45. 30 here

Ok, I'll be 31 on Sunday. My wife & I are anticipating having our finances in order for winter 2009, at which point we'll be credit card debt free, car debt free, and have a nice built up savings account. I expect that housing in eastern MA will have bottomed out by then or may have started to return so prices will be good for us.

Of course, if one considers the vast array of potential economic calamities that may hit in the next three years, anyone's guess is as good as mine. Consider the potential for such calamities as: bird flu pandemic, foreign countris giving up on US debt, a real constitutional crisis where GWB suspends elections or some shit, terrorist attacks on the US, oil pricing in Euros, and a war against Iran. Or more climate change-related extreme weather. Anyway, it's going to be an interesting couple of years.

[Lorien]

6. On the flipside

there are some of us who need to sell our homes to pay off medical debt. :-(

[tnlefty]

18. Oh Jeeez, I'm sorry to read that.

I've been in dire straits before because of medical bills (even with decent insurance), but I didn't have to sell my house. I took a nightime job while I was still recovering...and I'm just feelin' bad for you. Take care.

[Maraya1969]

32. I think what is going to happen is all these people who bought at

inflated prices are going to end up defaulting on their high mortgages. Too many people are stuck with houses they can't afford. The cost of houses just does not match the job market from any way I look at it.

A word to the wise. Buy a starter house - a fixer upper if you can, maybe not in the best area but away from the worst and pay it off as much as you can every month. I prefer to live below my means and not fret every month about bills.

[Midlodemocrat]

73. I had a friend purchase a home in Frisco for $140,000 a year ago.

And, they can't sell it for $145,000.

[Midlodemocrat]

74. Oops, wrong place.

[Capn Sunshine]

85. WHERE in "Frisco"?

140,000 ? a Year ago?

[Neil Lisst]

7. Good call and good info.

Yes, the housing bubble is done, IMO. High end houses are already taking a beating. All these homes bought with 95-100% paper are on that bubble, too. One big ripple, and the foreclosures will hit big time.

[Rockholm]

11. What is your deal with talking DOWN real estate?

This is the ONLY subject you ever seem to discuss.

Here in Massachusetts things are slowing off of RECORD increases. The real estate m,arket is simply becoming realistic. The housing prices inside 128 in Boston are still producing record prices. Sellers want their homes to be sold at top dollar. Buyers want to buy at rock bottom.
Here in New England as well as other key economic centers of the country, prices are stabilizing and you will see growth in prices at normal rates, like 5% a year, not 20+ as in years past.

[unlawflcombatnt]

16. Not the "Only Subject"

No, this is the only subject of mine that you ever read. There are other real estate speculators on this board that have made the same claim.

Regardless of whether I'm "talking down" real estate, I'm posting nothing but facts here.

As I previously stated, prices are declining in all Southern California markets, in addition to San Francisco. As shown in the previously posted charts, sales have declined significantly in the Northeast as well.

HousingBubbleLinks

[Rockholm]

21. So you are a "real estate speculator?"

You are trying to talk the market down so you and those like you can get lower prices. Thank you for coming clean on your motives.

[Neil Lisst]

33. Your attacks are unreasonable. His comments are not.

He's commenting on the state of the market. You're attacking him personally for doing so.

[Rockholm]

36. Neil, this guy only talks down real estate. n/t

[Neil Lisst]

39. You say he's "talking down real estate" like he's an enemy of the state

It's not personal, and his reasons are sound.

Do you think one guy can MAKE real estate go down by starting threads at DU about it? I hear insanely happy talkers on the business news every day, trying to talk real estate UP.

Real estate is at the top of a bubble, and it has to pop. Values have been grossly inflated, and we're seeing evidence of that. The percentage of homes bought with 100% or almost 100% financing the past few years is very high. Anyone who buys a home in that kind of spiral is at risk for losing that home if their ability to service the debt becomes in jeopardy.

I know the high end homes in this area are already languishing on the market for a year, and when sold, they're sold for less than their seller's basis.

Talking down real estate is a term that is conclusory. You're saying that you don't like hearing anyone say real estate is going down or has peaked. But it has.

I don't have a dog in the fight, but I feel you do, and maybe he does, too. Some are bulls and some are bears, and that makes for buyers and sellers of real estate based investments. I personally believe real estate has been grossly inflated due to easy money and low down payments. The end result will likely be a wave of foreclosures and a deflating of home values in general.

If your livelihood depends on real estate remaining healthy, I understand your concern, and am sensitive to that. I feel for you. I don't think it's personal, though. You two simply see the market headed different directions, and you seem to feel that his talking it down threatens your end of the business. Maybe it does, but it's a free country, or at least it still is in this regard. The answer to an argument with which you disagree is to state your case, not to accuse the other side of bad faith. Unless they are Republicans, of course.

[David Zephyr]

61. Rockholm is only exposing this posters motivations.

Neil Lisst,

What Rockholm has written is true.

Unlawful Combattant comes to the DU to "talk down" the real estate market. It's his "thing".

One can not help but imagine that he has shorted R.E.I.T.'s and is working internet forums furiously to help make his "bet" come true.

This article deals with "housing starts".

Unlawful Combattant has a long established history now here at the DU of championing the "bubble" busting. And he's been dead wrong now for a very, very long time.

[unlawflcombatnt]

69. More Self-Serving Real Estate Agent Spin

You've posted your dishonest, self-serving propaganda in the past. Your motivations were dishonest then, and they're dishonest now.

You simply troll internet message boards looking to talk down anybody that doesn't talk up the real estate market.

Unlike the unsupported opinions you've posted, I've posted multiple links and previously published, established facts.

The reason I posted actual copies of charts is so that spin artists like yourself would have nothing to support your arguments. And now, as before, you still have nothing to post but your completely biased, factually unsupported distortions.

You know good and well that the overwhelming majority of my 700+ posts have nothing to do with real estate. When you claim otherwise you are either very ignorant or very dishonest.

If you have any facts to support your propaganda, post them. Again, as you did previously, you've dishonestly misstated my motivation. You've also made a knowingly false statement about the subject matter of the majority of my posts.

If you post another falsehood about my motivations I'll notify the moderators of your post.

If you want to have a discussion, that's fine. If you want to post lies and character assassinations, you'll be reported.

unlawflcombatnt
EconomicPopulistCommentary
___________
The economy needs balance between the "means of production" & "means of consumption."

[Neil Lisst]

71. I seriously doubt.

It seems to me that his detractors are the ones with the agenda.

Why are you so intent on shouting down his sane and accurate assessments of real estate? Your speculation that he's madly manipulating the national market through message boards is downright laughable. The economic forces that make real estate rise and fall are a great deal more significant than that. You might as well believe earthquakes are caused by not wearing your lucky socks.

If talking it up or down worked, the claptrap heard daily on TV and radio business news talking it UP would swamp any negative reports on same.

It's apparent to me that those who clamor for his head don't know much about The Fed, the money supply, economics, housing, or business cycles.

If you can't argue your position without attacking him, you don't have much of an argument.

[unlawflcombatnt]

72. Thanks again

Neil,

Thanks again for your support.

[1932]

81. Excellent post. Furthermore, Irrational Exuberance is a book by a respect-

ed Yale professor in its second edition, and it says the same thing.

The critics here don't address the bubble arguments with anywhere near the academic rigor of the people making the bubble arguments.

[unlawflcombatnt]

50. Thank you

Thanks, Neil.

http://unlawflcombatnt.blogspot.com/2005/07/housing-bubble-deflation-here-are-some.html

[unlawflcombatnt]

17. Not the "Only Subject"

No, this is the only subject of mine that you ever read. There are other real estate speculators on this board that have made the same claim.

Regardless of whether I'm "talking down" real estate, I'm posting nothing but facts here.

As I previously stated, prices are declining in all Southern California markets, in addition to San Francisco. As shown in the previously posted charts, sales have declined significantly in the Northeast as well.

HousingBubbleLinks

[David Zephyr]

62. It is just about the only thing you post about.

You have an agenda and there's a lot of us that are on to you.

[QC]

77. Everybody's got an agenda. What's yours?

Your (and others') endless happytalk about how the market is just going to go up and up and up forever and ever amen is a pretty good clue, but I'd rather hear it from you.

I live in a market that is overvalued by 45%. People who actually work for a living here can no longer afford homes, thanks to speculator parasites looking to make a quick buck. (The average home price here is now 10x the average income. Prices have tripled in five years.) Now sales have dropped off dramatically, houses are sitting empty for months when not long ago they sold within days, and would-be condo flippers are backing out and letting Mr. Developer keep their down payments. Interestingly enough, this is happening at a time when we have about 50 new condo developments either in the planning stage or under construction, which will mean even more inventory becoming available precisely when demand is dropping. Yet the local paper is filled almost every day with happytalk from local developers and agents assuring us that the only way is up and we should buy buy buy!

It's easy to see why they are saying this: their livelihoods depend on roping in more buyers so that they don't get left without a chair when the music stops. Is that also your motivation?

[Rockholm]

78. QC, you mention the speculative market.

My feeling is that it is the speculators who have ruined the housing market for the majority of the populace. Housing is a commodity. People need housing. If you want to buy a home, buy one. The housing market in places where people want to be is strong. South Florida is overdeveloped. Just how many large condo hi-rises do you need? Speculators. Build it and they will come? Here in Boston, there are currently 9,000 additional units on tap to be built. Again, speculation. Just where are these people going to come from? It is supply and demand.

Here in the Northeast for example, the supply has been tight. Prices rise. Seriously, how many of us who own homes buy and sell every couple of years? Not many. If you are buying a home to live in, great. The speculative market is going to take a fall, no doubt.

Sustainable meteoric rises in appreciation is what is stopping. Really, what exactly would fuel 20%+ gains YEARLY? This is just not sustainable forever. This "bubble" has been called for for years.
Maybe instead of the "gloom and doom bubble bursting" scenario, we should agree that the rate of appreciation is slowing or stopping in some areas for now. A 5% increase per year is normal. We are NOT in a depreciating market by any means. If you bought a home for $250,000 5 years ago and you could sell it for $500,000 today, that is great. But, if you could "only" sell it today for $450,000 next month, guess what, that is still incredible appreciation. The only way it would be a bad scenario is if you could sell the house today for $249,999 or less.

As it has been discussed above, this is NOT Houston of the late 1980's or Boston of the early 1990's. As Houston was crashing in 1986, Boston was beginning its first boom. Real estate is circular. Whether up, down, stable, it is still the biggest investment most of us will ever make in our lives.

This is just my two cents.

[unlawflcombatnt]

88. Happy Talk

QC,

You've summed up my sentiments exactly. They're trying to convince potential buyers and speculators that if they buy now they'll still make a lot of money, because the market will "never" go down. It's going down now in a lot of places, and it is going to continue.

[xkenx]

15. Housing starts mean diddley. Here's the scoop.

Fewer houses being built actually exacerbate the shortage of housing in general. I have been a residential real estate broker in Los Angeles' San Fernando Valley since 1977, and have seen probably every kind of market possible.

1. Housing is NOT like the stock market. Stocks, bonds, mutual funds, etc. are paper investments. If someone thinks that market is sucking, or if they are in financial trouble and need cash, they can unload part or all of their holdings with a phone call or a few mouse clicks. That is why the stock market can undergo wild fluctuations in a short time. If someone is in financial trouble, THE VERY LAST THING THEY WILL GIVE UP IS THEIR HOME, because everyone needs shelter. They will give up the dinners out, the vacations, the car purchase, the kids' private school or college, even new clothing, before they give up their home.

2. The numbers of people who took out mortgages with temporarily low rates who get burned will be fairly low. Here's why. Many of those people did so to buy more house, but with great confidence that their income will be much higher when their payments go up. Of those people who actually get into enough trouble to have to unload their home and go rent somewhere, only a relatively small percentage of them will have to walk away from the home beacuse they are "upside down." (owe more than the home is worth). Anyone who bought before the very last few months have enough equity to sell and walk away with cash. ANYONE can sell if they need to if they have equity by simply putting the house on the market at a currently competitive price. Even in a slow market, if there is only one buyer for every 10 houses(an outrageously bad market), then I can sell if I have the house that is priced best out of the other nine houses like mine.

3. I have been a "student of the game" for the past 28 years. Here's what I've discovered about housing prices:
a. Interest rates are only marginal to the process (I've seen 15% annual appreciation with fixed rates at 12%) I've seen falling prices with falling interest rates.
b. The economy is only marginal to the process. When the economy is booming, maybe 96% of people are working. When the economy sucks, over 90% of the people are working (granted that some people are nervous). Still we're not talking about huge differences.
c. Real estate prices are mostly about supply and demand. Demand is less variable than most people think. There is a "base" market of people who really need to buy and/or sell (marriage, divorce, birth, death, job ups, downs, and transfers, upsizing, downsizing, sick of renting, sick of owning, etc.) Supply has been exceptionally low the last few years, partly because low rates have stimulated buying, partly because of demographics (just plain more boomers and boomers' children, more immigrants, just not enough homes being built to satisfy population increases/family formations). Wouldn't YOU expect to get more for anything you are selling if you know there isn't much like what you are selling and a pretty good number of people interested in buying it? I have been able to predict next year's home price changes with pretty decent accuracy SIMPLY by knowing this year's supply. All other factors are relatively small by comparison.

CONCLUSION: When you read that supply is up 50% or more, that is because supply has been pathetically low, so modest increases in numbers are large percentage increases. But supply is still well below normal in most places.(If you've been starving on 300 calories a day, getting 50% more calories helps a little, but you're still pretty hungry). What is happening is that the RATE of price appreciation is gradually slowing as supply increases. Around here, roughly 6 months supply is normal. The past few years supply has been running more like only 1-3 months. It will take time to build up the supply to normal (which still sees price increases around the economy's inflation rate), and even more time to favor buyers in order for prices to decline. That won't happen from demographics; it could happen down the road from some combination of recession and higher interest rates. Just not very quickly. Sort of like a tiny leak in your tire which you don't notice for some time. Historically, housing has outperformed the stock market every decade in the past 10, except for one. Most people seem to think interest rates will be higher. A 1% increase in rates (say 6.5% to 7.5%) will boost payments about 11%. Nasty, huh? To make the payments the same, home prices would have to go down 11%. Do you want to bet on that one by waiting? More likely you'd have the double whammy of somewhat higher prices AND higher interest rates. The many many people who really want to buy will meet a broker like me, or consult with a bank or mortgage broker, and discover that their income will only buy a lower priced home than this year. So they will buy a little less square footage or a different location than they figured this year, but buy they will. I had the identical conversations when fixed rates were 12%. They go and buy what and where they can afford. The goal of home ownership in this country has never been higher. It is the American Dream.

[sendero]

19. Well...

... I'm going to disagree with you. Because you cannot compare today's housing market to any other time in history. Why? Because of the ridiculous loans that are being underwritten today.

Zero-interest loans, zero-down loans, ARMs, these in total make up a large percentage of the loans being made today. And while on their face, these instuments are not bad, they will be abused by dumbass Americans just like credit cards are abused. People will use them to get into more house than they need or can afford, and the results are entirely predictable.

Lots of folks have taken out ARMs in the last few years, even though rates were at historic lows. How could anyone be that dumb? I really don't know but the numbers don't lie. Two years ago I heard radio commercials touting the wonderful ARM loans and the great low payments. Now the same mortgage companies are advertising that you "need to get out of that ARM and into a fixed loan".

Buying a house with zero down means you have no equity from the outset. If the market falters, you are suddenly upside down. Lots of people mail in the keys when they find themselves upside down.

Hey, I could go on and on, bottom line you are correct this is not a classic bubble - this is just like stocks sold on margin with lots of calls suddenly coming due. It's going to be ugly, that is what I believe.

[xkenx]

27. Read again what I wrote.

The only people who will mail in the keys when they find themselves upside down are those who
1. Absolutely cannot make the payments (why do you assume that most of those who took out wierd mortgages will fail to be able to make the payments?) and
2. Bought so recently that they have no equity (someone who bought only a year ago, even with zero down has 5-25% equity, depending on their marketplace).

Do you own a home? My experience has been that those who talk the most about the outrageous housing prices are those who don't own, who thought of buying a few years ago, didn't, and now desperately wish the prices would fall so they can buy. However, if you believe what you say, and you own a home, you should sell it now and rent until you can buy back in at a much lower price.
Which is it?

[sendero]

38. Dude...

... I bought my first house at age 23. I'm in my 50s now. I own my home outright, and I own a mobile home on a country acreage outright. I don't believe in debt at all, and IMHO real estate is the ONLY thing anyone should ever go into debt to get.

I've read figures of up to 50% of all loans being originated right now are either zero down, interest only or ARMs. I believe that over the longer term this is going to prove to be a huge mistake, one that everyone gets to pay for - becuase when folks are getting foreclosed it depresses the market for everyone, both the responsible and irresponsible.

Did you read MY post - I never said a home isn't a great investment. I said "buying a home you cannot afford using questionable loan stragegies (ARMS, no-down, interest-only) is stupid and you are gambling with your financial future".

If you are buying a home, you need to have a few thousand in the bank for things that never happen to renters. If you are getting a zero-down loan so that you can have 3 months living expenses in reserve, that might be ok. If you are getting a zero-down loan because you don't have the money at all, you are taking on a huge risk, you are betting that everything is going to go perfectly. And if it doesn't, we all lose.

[Buddyblazon]

34. I don't agree with yor statement

Buying a house with zero down means you have no equity from the outset. If the market falters, you are suddenly upside down. Lots of people mail in the keys when they find themselves upside down.



I bought my first house in June with zero down. I'm not upside down. I have several thousands of dollars of equity. Bought an average size home for my neighborhood (1100 sq ft). The comps in the neighborhood are going for 170-190. According to records, the lowest priced home in the neighborhood sold five years ago for 131k. I got mine for 113k.

Basically, death of the lady that had lived in it for forty years...her family sold it for 100k. The buyer immediately turned around and tried to sell it for 150. Then let it sit. No work on it. And it became overgrown. Really cute though. The look of a "Cape Cod". It was under contract twice in less than years span. Both times, the prospective buyers couldn't get funding. My friend lives across the street. I watched it for a 10 months. The sign came out..."price reduced". Had my agent call. They wanted 135. I offered 110. I bid way lower than another prospective buyer. I however was pre-approved. They said they'd settle for 113. Next to Stapleton airport (shut down 10 years ago). Yuppies moving into brand new properties a block away. EXPENSIVE properties a block away...in a MASSIVE redevelopement.

My Sister and Brother in law are speculators. They looked at it, told me if I didn't by it...they would. Hasn't been painted in 10 years. Needs a new roof. A little lanscaping. I uncovered the 90 year old floors (took weeks to get through all the coverings and paint added over the decades.

My point, I put zero down (AND got a fixed rate), and I'm NOT upside down.

Besides, my Sis and Bro-in-law have advised me to buy such "investment" properties with as little down as possible. "Don't risk your own money. Besides, there are better places to put that money." They've been doing this for about 15 years and own dozens of properties in Denver and KC.

I just think saying people that pay zero down have no equity from the outset is inaccurate.

I was just realistic about what I could afford a month. And I was patient (spent a year and half turning down overpriced homes). Not only are my monthly payments affordable, they're not much more than I was paying for rent. And it's been appraised WELL over the purchase price.

[sendero]

37. There are exceptions..

... to every supposition. The problem is, Americans have this ridiculous idea that housing prices always go up, and they make all kinds of financial decisions based on that assumption.

When that assumption turns out to be incorrect, as it has many times in the last 3 decades, well these low-qualifying loans just make the problem that much worse.

[Gormy Cuss]

40. Do you think you represent the typical zero-down buyer?

Considering that in some areas nearly half of all first mortgages written in the past year were zero-down, how many others like you do you think there are? The zero-down product is good for situations where you expect equity to rise quickly but it's being used to bring people into the market who can not afford the housing, who are one step away from financial disaster if the furnace breaks down or the roof needs replacement, or if family income decreases.

Good for you for using this vehicle appropriately. It sounds like you made a good strategic move.

[serryjw]

90. Your scenario is perfect

I live in Denver, know the area, you were patient and bought a home you could afford. Unfortunately, this is not true around the country. Square Footage (Housing) in the last 20 years has gone up 50%. Everyone wants the 3000 sq ft house they can't afford. I have read most of this thread. What no one seems to be identifying is the aging of baby boomers. IF they lose their jobs, lose their health care,lose their pensions, find themselves in financial difficulty because of medical bills or credit card bills we could see a glut of the market.
IMHO the market in many areas does not keep pace with income/jobs. I seen this to a friend about the CA RE market but it could be Denver or Atlanta too.

SF Bay Area Housing Crash Continues
Why?

http://patrick.net/housing/crash.html

[CAcyclist]

46. Exactly

What make bubbles that rise and then burst are not just overvaluations and overenthusiasm, but fraud and risky instruments of investment. Just as the stock market crashed due to massive fraud - dotcoms based on nothing more than wishful dreams in many cases and Enron - and the tearing down of the wall between banks and investment firms with the repeal of the Glass-Steigel law, so , too , the housing market is being driven by the tax incentive of the 500,000 exclusion rule that got the speculators going in the first place and risky methods of buying houses like I/O and negative amortization mortages.

[sendero]

47. To me....

.... these ill-advised loans (ARMs, zero-down, interest-only or even negative amortization) are exactly the equivalent of giving credit cards to college students and then being surprised when it becomes a disaster.

I really don't understand the reason so many here think I'm crazy, we've seen this scenario play out again and again throughout history.

[unlawflcombatnt]

26. Supply and Demand

You're right about supply and demand. It is all about supply and demand. And demand is created by the desire and the ability to pay for homes. And the ability of residential home buyers to afford homes has declined. As it declines, so does demand and price. That's exactly what's happening now. The supply is increasing faster than the demand. The ability of people to pay is declining from rising interest rates. It will also decline as the tremendous number of speculative buyers realize that prices are declining, and begin putting their homes on the market. This will increase the supply, driving prices downward.

Real wages have stagnated in California during the last 5 years, while home prices have increased 132%, prices have risen far above what any market fundamentals would have dictated. This trend is not sustainable and will be reversed. When the artificial demand supplementation from reckless bank loan practices reaches its limit, it will put further downward pressure on prices.

In fact, there is nothing new in any of the alleged "fundamentals" for recent home price appreciation. California has always been a desired spot to live, and the population has always been increasing. Nothing has changed in that respect for the last 50 years. Yet the rate of home price appreciation has never been as high as it has been during the last 5 years. In addition, all past increases have been accompanied by either wage or employment increases. This is not the case at present.

Home prices have increased much more than rental prices. And the trend in low rental rates will continue, as vacancies are higher than normal at present. In Southern California, equivalent rents are less than half of monthly mortgage payments. Renting is still a far less expensive option than mortgage payments.

There is also a guarantee that those who have bought homes on interest only loans and adjustable rate mortgages are going to experience huge increases in monthly payments in the near future. Many of these buyers will foreclose or be forced to put their homes on the market. The increase in people putting homes on the market will increase the supply of homes on the market even more than it is today. This additional supply increase will accelerate the price declines that are already occurring.

Below is a copy of Briefing.com's new home sales for November.


Notice that New Home Sales declined 22% for the month of November in the West. Also notice that inventories increased 17%. That means that the "supply" increased 17%. It doesn't make any difference whether this supply is below some alleged "normal" level. What does matter is that the supply is increasing, which always drives prices down. And the proof is in the pudding. Southern California home prices are declining, as would be predicted by supply and demand laws.

EconomicPopulistCommentary: HousingBubbleLinks

[xkenx]

28. NOT SO

You wrote "Notice that New Home Sales declined 22% for the month of November in the West. Also notice that inventories increased 17%. That means that the "supply" increased 17%. It doesn't make any difference whether this supply is below some alleged "normal" level. What does matter is that the supply is increasing, which always drives prices down. And the proof is in the pudding. Southern California home prices are declining, as would be predicted by supply and demand laws."
---------------------------------------------------------------------------------------------------

Not so. Reread your supply and demand laws. Increasing supply does not mean decreasing prices; it means the price curve changes to a slower rate of appreciation, or changes the curve from upwards to flat. Only when the balance between numbers of buyers and sellers favors buyers will prices actually fall. P.S. When the market was wretched in the early 90s, the reverse was true. Supply started DECREASING in 1993, but it wasn't until 1995 or 1996 that prices bottomed when supply finally fell enough to bring buyers and sellers into balance.
I ask you again--are you a homeowner? If so, and you believe what you say, you should sell now and wait to repurchase until you are satisfied that the market has bottomed.

[unlawflcombatnt]

53. Downward Pressure on Prices

"Increasing supply does not mean decreasing prices; it means the price curve changes to a slower rate of appreciation, or changes the curve from upwards to flat."

Increasing supply does mean downward pressure on prices. The rate of appreciation will decline. As that rate declines, it will decline into a negative category. A negative rate of appreciation means prices are declining. That's exactly what's happening now. And that's exactly what all economic textbooks say about the effect of increasing supply on prices.

EconomicPopulistCommentary: Housing Links

[kineneb]

29. from where I sit

in rural northern California. I think the demand for new or existing housing is down. Prices have stopped going up and I have started to see "reduced" in the RE ads. There seems to be a lot of housing built, but quite a bit of it is still empty. I think those who are building new housing are going to lose their shirts or at least not make nearly as much as they expect.

What are the stats for "days on the market?" I think that stat is quite informative; it would be interesting to find out how long it takes to sell a new or existing house. The longer the average, the slower the market.

And yes, I am the proud owner of a 1293 sq.ft. manufactured home(fancy name for a modern double wide), on 1/4 acre, which is mostly paid off. We did not buy to speculate, but to have a nice place to live and have a garden.

[unlawflcombatnt]

55. San Francisco Home Prices

Prices in the San Francisco area have stopped increasing. The 5-month increase in San Francisco home prices has been 0.1%. Below are some links to this information.

BayAreaCrash

SF Prices

EconomicPopulistCommentary: Housing Links

[kineneb]

57. as I suspected

Are there similar statistics for Sonoma Co./Santa Rosa area? We get the "slop over" buyers here (Lake Co.) who cannot afford the Hwy 101 corridor. I think a lot of people expected the prices to keep going up and up here.

In a perverse way I am glad the price climb has stopped. We are declaring bankruptcy (Ch. 7), and the lower value of our property means we will not lose it.

[unlawflcombatnt]

58. Northern California

What you said about bankruptcy is interesting. Could you elaborate a little more on that? I wasn't aware you could keep a home under bankruptcy rules.

Also, I have a list of metropolitan area predictions from CNN-USA Today. Here they are:

Below is a list of the most overvalued housing markets according to a Global Insight/Nationale City survey of 299 metro areas published in USATODAY on 12-9-05. The link for the article referring to this list is at:
http://www.usatoday.com/money/economy/housing/2005-12-08-overvalued-housing_x.htm?POE=click-refer

Naples, Fla. 84.0%
Merced, Calif. 76.7%
Salinas, Calif. 74.8%
Port St. Lucie, Fla. 72.2%
Stockton, Calif. 72.0%
Madera, Calif. 69.9%
Santa Barbara, Calif. 69.7%
Modesto, Calif. 66.9%
Napa, Calif. 65.5%
Riverside, Calif. 64.8%
Medford, Ore. 64.1%
Sacramento, Calif. 61.5%
Atlantic City, N.J. 58.6%
Chico, Calif. 58.5%
Fresno, Calif. 58.0%
West Palm Beach, Fla. (Div) 56.9%
Redding, Calif. 56.3%
Santa Rosa, Calif. 56.1%
Bend, Ore. 56.0%
Sarasota, Fla. 55.6%
Miami, Fla. (Div) 55.3%
Oxnard, Calif. 54.8%
Vero Beach, Fla. 54.3%
Los Angeles, Calif. (Div) 54.2%
Fort Lauderdale, Fla. (Div) 52.8%
Vallejo, Calif. 52.6%
San Luis Obispo, Calif. 52.5%
Cape Coral, Fla. 51.9%
Bakersfield, Calif. 51.1%
Palm Bay, Fla. 48.7%
Barnstable Town, MA 48.0%
Oakland, Calif. (Div) 47.4%
Ocean City, NJ 46.7%
Prescott, Ariz. 46.4%
Panama City, Fla. 45.8%
San Diego, Calif. 45.8%
Visalia, Calif. 44.9%
San Jose, Calif. 44.3%
Deltona, Fla. 44.2%
Santa Cruz, Calif. 43.7%
Santa Ana, Calif. (Div) 43.6%
Bellingham, Wash. 43.2%
Fort Walton Beach, Fla. 43.2%
Nassau-Suffolk, N.Y. (Div) 42.7%
Poughkeepsie, N.Y. 39.2%
Reno, Nev. 38.4%
Las Vegas, Nev. 38.2%
Kingston, N.Y. 38.1%
Washington, DC-Va.-Md.-W.Va. (Div) 37.2%
Bethesda, Md. (Div) 35.7%
Providence, R.I.-Mass. 34.9%
San Francisco, Calif. (Div) 34.9%
St. George, Utah 34.9%
Ocala, Fla. 34.8%
Phoenix, Ariz. 34.8%
Portland, Ore.-Wash. 34.7%
Eugene, Ore. 33.8%
Tampa, Fla. 33.7%
Pensacola, Fla. 33.2%
Orlando, Fla. 32.7%
Grand Junction, Colo. 31.4%
Honolulu, Hawaii 31.3%
Edison, N.J. (Div) 31.3%
Duluth, Minn.-Wis. 30.8%
Jacksonville, Fla. 30.5

The link for the actual list is at:
Housing

EconomicPopulistCommentary: Housing Links

[kineneb]

59. bankruptcy info, etc.

Actually, many people keep their homes, especially if they owe a lot on them. The problem comes when they have lots of equity in the home. Then it is easier to sell it to cover costs. That happens to be our case, but with extenuating circumstances.

CA has a $150K home value allowance for disabled people; Hubby is on dialysis, and gets disability payments. For everyone else it is either $100K or $125K (I forget). Totally insane, given home prices here. But since we live in the boonies, live in a mfg. home with no garage, our property is valued around $175K. We have a $25K equity loan. So the allowance plus the loan equal the value of the house. With any luck, we should have no problem protecting the house. We have no other assets, since they were spent down so Hubby could qualify for county medical assistance.

And to think this mess all started when WorldCom laid off Hubby...ahh, well.

[unlawflcombatnt]

56. San Jose Prices

I forgot to include the link to San Jose prices. Median home prices in San Jose have declined 2% in the last 2 months, from $688,850 on November 14, 2005 to $675,950 on January 14, 2006. Here's the link:

San Jose Home Prices

EconomicPopulistCommentary: Housing Links

[Gormy Cuss]

76. Housing Tracker is not a good gauge for the Bay Area markets.

Because it tracks asking prices, not sales. With the crazed market here in recent years, asking prices have been essentially without meaning. The dip in asking price may simply reflect more realtors using the strategy of lower prices to promote more bidding.

Actual sales figures do reflect a cooling off but there has not been a trending reduction in median price. I believe it's coming (we do have a serious disconnect between wages and real estate costs,) it's just not evident yet in markets where the year-to-year appreciation rate is near or above 10%.

I am concerned that there are too many latecomers who allowed themselves to be overextended in an effort to join the homeownership bandwagon. There are many local reports on the rate of zero-down and ARMs as first mortgages at the lower price range.

[unlawflcombatnt]

67. More Bay Area Prices

An "Inside Bay Area" article from yesterday's San Mateo County Times states that the median price of a Bay Area home declined 2.5% in December from the previous month. The following is a quote from the article by Eve Mitchell:

"The Bay Area housing market got hit by a double whammy in December: the ninth consecutive month of slowing homes sales and a month-to-month drop in home values, a real estate information service reported today.

A total of 9,347 houses and condominiums changed hands in December. That's down 3.8 percent from November and down 15.5 percent from December 2004, according to DataQuick Information Systems.

The year-to-year sales drop was the steepest since November 2001. The median price for a Bay Area home dropped to $609,000 in December, down from $625,000 in November but 14.3 percent higher than a year ago...."

Bay Area Home Prices Decline

EconomicPopulistCommentary: Housing Links

[ChiciB1]

54. So What Are My Odds Of Selling 5 Acres Of Land In Florida???

Heard the news today and had just put my land up for sale about a month and half ago. I WILL admit that it's "high price," but the realtor said he thought it was just about right for the area and thought maybe we could get more.

BUT, that was a month ago! I need someone who has some money to spend but I'm hearing that sales are down even here in Florida. My land is located in the fastest growing area in Florida, but it still isn't sold. I know it's early yet, but I have gotten a little worried of late since my taxes went up about $2500.00 from last year.

We decided to sell because of the high taxes this year and only bought the land as an investment in 1989. I sure HOPE the bubble hasn't burst!

[WinkyDink]

98. I have two lots in Cape Coral.

Maybe I should've sold them last year, when the offers were way high!
But WTH; land ain't going anywhere, so it'll be there if I ever want to move.

[AX10]

23. It's happening as we speak.

[Daylin Byak]

25. I'm so glad.

I live in a town call North Hutningdon, PA. it's was a pretty moderate liberal until realitors like Ryan homes and Bob Shuster came to town and started to build a boatload of "gated communities" like kerber fams and franklin farms and because of that it attracted nothing but, preps, republicans and to be honest arrogant assholes. and because of this I hate housing projects like this not to mention bob shuster.

Hopefully now people can gat wise by thinking you don't have to pay a quarter of a million dollars to live in a nice home cause in the long haul, it's not worth it.

[PsycheCC]

30. Thanks for the great links.

:kick:

[unlawflcombatnt]

31. More Southern Calif. Info & Links

You're very welcome. I have still more links.

Below is a copy the home price changes over the last 4 months in Southern California.



The links to this can be found at:

Here are the links to that information. Housing: Los Angeles
Housing: Riverside
Housing: San Diego
Housing: Orange County
Housing: Newport Beach

EconomicPopulistCommentary: HousingBubbleLinks

[Capn Sunshine]

48. The problem with those statistics

Is that "median price" is NOT a reflection of demand, it reflects what people are paying in the market that is HOTTEST.

IOW, when the rich stop buying , the median goes down. When more people are buying in a specific segment of the market the median changes. The median goes up and down reflecting where the high and low of the market is; it is NOT specifically a valuation tool.

Plus, the "housing market" is not like a stock market , where a share of Google is worth the same in Paris as it is in Kansas City as it is in New York. The housing market is reflective of thousands of micro economic environments. A 3br/2 ba house in La Jolla is not worth the same as a 3br/2ba home in Columbia, Mo.

This is a vital flaw in the housing bubble theory.


Now, I know that it is fundamental to your whole economic populist narrative that there be some huge painful crash but right now the macro conditions for this are just not in place.

[unlawflcombatnt]

49. Macro Conditions are Perfect for a Housing Crash

There's no "flaw" in my bubble theory. Not only is it completely logical, it's very well referenced as well. It's actually very simple. The price of any good cannot continue to rise beyond buyers' ability to pay. If it did, the good simply would not be sold. That's basic supply and demand principle. Considering the concept of "sticky prices," prices will not decline immediately as buyers' purchasing ability declines. However, prices do decline in the longer run.

If the supply increases, as it is doing in Southern California, prices must come down. As affordability declines, as it is at present, the number of homes sold will decline. Again, this is exactly what's happening in Southern California. Inventories are rising as sales decline. In order to sell homes, sellers will have to drop their prices.

In addition, since real wages are declining, there will be further declines in the ability of buyers to purchase homes. As interest rates rise, the amount of money buyers have to devote to principal will decline. The reduced money available for principal will reduce the money sellers can receive for home sales.

Last year is the first year in many years that consumers spent more money than they made. This will further reduce buyers' ability to pay for homes. As the full effects of the new bankruptcy bill take effect, spendable consumer income will decline even further. As more pension funds become insolvent, less consumers will be willing to devote money to a sinking housing market.


Below is a link to economist Dean Baker's assessment of the housing bubble.
HousingBubbleFactSheet

EconomicPopulistCommentary: Housing Bubble Links

[Capn Sunshine]

51. I don't dispute your stats, just what they mean

I'm looking for property to BUY right now. Currently, my investment group, and my banking group have been forced into tertiary markets becasue the big houses that need returns for their clients aren't getting it in the market, so they are here bidding up anything decent. Same with secondary markets.

We're out in bumfuck buying commercial and residential because theres positive cash flow.

But I, and thousand of other small groups just like me, have a large pool of capital going unused.
Do the math. If property values drop signifcantly, we'll be right there to buy. There's your floor.
Also do this math: if you define a crash as minus 30% from todays values, that still puts you up nearly 100% from 1997.

It gets pretty complicated but I suggest living in your house and making the payments.
Then you won't have to sell, no matter what it's "worth", and those that are priced out will get a buying opportunity.

[unlawflcombatnt]

52. Capital to Invest

I fully understand your point about having a large pool of capital to invest (and with limited investment opportunities, I assume.)

Are you going to invest in the market if you anticipate further declines? Certainly some investors are going to do what you're suggesting. But, again, will they invest in a market with anticipation of further declines?

The "affordability" to residential buyers is declining at present. If prices decline that will change some. However, if current residential owners can no longer afford payments, they're going to try to sell or foreclose. That's going to increase the number of homes on the market, driving prices down. With stagnating wages, upward adjustment of ARMs looming, and the addition of principal payments to the monthly mortgages of those with interest-only loans, it seems likely that more homes will be hitting the market in the near future.

The fact that housing starts and permits are declining, means that home builders are thinking the same way. And the 35%+ of recent buyers who bought homes as "investment" are not going to hold on to their homes either. Many of those homes will go on the market, adding to those of defaulting residential buyers.

Will long-term investors create the demand necessary to compensate for the supply increase caused by residential & speculative owners putting their homes on the market? That seems unlikely since the ultimate value of those homes is determined by what residential buyers will pay.

EconomicPopulistCommentary: Housing Links

[Capn Sunshine]

63. We invest where there is upside

paramount is a positive cash flow or ability to become positive.

Yes, I agree there is a finite limitation to the price a middle class family will pay for a 3/2 house.

But one thing banks are working on which will also bump prices in the future:

50 year loans. Asssumable. Generational. Kind of changes the landscape, doesn't it?

PS yu can already get 40 year loans in a few places. 40 year amortization is available nationwide. This creates a balloon payable after 30 years. Of course the idea is to refi out of it, maybe with a 10 year loan.

I think one assumption that is also changing is what to do with your home; managing equity into other things has some real plusses to it.

[unlawflcombatnt]

70. 50-year loans?

Do you really think people are going to take out 50-year loans? That eliminates any possibility of the buyer ever owning the property, unless they're only 21 when they take out the loan. Isn't that the main selling point for a residential buyer? That one day they'll actually own the home? Otherwise, why not just rent? I won't be alive in 50 years when such a loan is paid off, and neither will most people who obtain such loans. If I can't own the home outright, why not just rent?

EconomicPopulistCommentary: Housing Links

[David Zephyr]

64. He won't listen.

How long has been at this now?

[Capn Sunshine]

66. quite a while

nice to see you posting David.

[unlawflcombatnt]

60. November New Home Sales

Sale of new homes declined in November by the largest amount in 12 years, according to AP Economcis writer Martin Crutsinger.

"Sales of new homes plunged in November by the largest amount in nearly 12 years, providing the most dramatic evidence yet that the red hot housing market over the last five years is starting to cool down.

The Commerce Department reported Friday that new single-family homes were sold at a seasonally adjusted annual rate of 1.245 million units last month, a drop of 11.3 percent from October...

Last month's decline was even bigger than the 8.7 percent drop-off that Wall Street analysts had been expecting. While sales of both new and existing homes are still on track to set records for a fifth straight year in 2005, analysts are forecasting sales will decline in 2006 as the housing boom quiets down.

Analysts are looking for home sales to dip by around 6 percent next year under the impact of rising mortgage rates. Analysts believe that house prices, which had been soaring at double digit rates, will moderate as well.

Some of that price moderation was evidenced in the November report, which showed that the median price of a new home sold was $225,200 last month. That was up just 0.3 percent from November 2004, the weakest year-over-year price change in two years.

The November median price was down 4.1 percent from the October median sales price of $234,800."

Home Sale Decline

December new home sale numbers should be out next week.

EconomicPopulistCommentary: Housing Links

[1932]

65. An interesting thing about some of the criticisms of the OP

is that people who don't like the OP post long posts that are full of OPINION that they are trying to disguise as fact and analysis.

Unlawfulc. has posted an argument supported by fact and the only interesting contributions on this thread are the ones where people say what they're observing in their own communities.

However, there is no real engagement at all in the critical posts that is solidly based in fact. Some people confess a vested interest and then go through long, as I said, OPINIONS that they try to dress up as facts. Others just personally attack unlawfulc. or try to impute a vested interest, which, really, is neither here nor there if unlawfulc.'s argument is informed and solid.

In other words, the level of discourse and engagement after the OP is really really low and not very helfpul.

(By the way, if anyone is really interested in this issue they should read Irrational Exuberance. It's a great book about bubbles.)

[Capn Sunshine]

82. You can question the OP's OPINION of the statistics

I referenced elsewhere that the Opinion of what these statistics MEAN is what is at issue. For example, the "median" home price is as much a reflection of what level of the market is most active, which is microeconomical in nature. It doesn't necessarily follow that if the median descends, it means prices are falling.

For a "bubble" to burst , there needs to be one in the first place, and that implies that there's some sort of nationwide marketplace where homes sell at similar prices per sq ft. or other equalizing measure. True, there can be localized "bubbles" but if it pops there the net effect on someone on the other coast is minimal. Thisis not the case being implied or presented by the OP.

The OP maintains that housing is in a nationwide "bubble" that when it 'pops' will have drastic nationwide consequences possibly resulting in a nationwide depression.

Removal of a homes perceptive market value won't have this effect.

While dot com stocks sold for the same price in Parma, Ohio as in Oklahoma City, this is not true of housing.

The difference is , people LIVE in their homes, where they don't live in their tech stocks. If they don't sell, and continue to make their payment, nothing happens. It's not as if the whole country will have their loans called.

It's just not the same.

[1932]

86. I found the counterarguments much less intellectually rigorous than the

OP and mostly opinion. I think your first two paragraphs above are great examples of what I'm talking about. They SOUND like they're saying something, but they're not really. You have a firmly held opinion that you're trying make sound like it has some fact-based rigor in it. But it's actually less so than the OP and it's really not helpful to anyone who really wants to understand this issue.

Of course the median doesn't tell you which directions the extremes are heading, but saying that doesn't help anyone understand what this market is doing. The rest of your post is equally unilluminating.

People who say that they see prices going down in their neighborhoods are contributing much more helpful information than you are above.

I think the OP is interesting. I think the neighborhood observations are helpful. But I find the level of discourse in the critics of the OP is practically useless.

But that's just my opinion.

[Capn Sunshine]

95. Your opinion is just that

As is mine, and posting statistics to back up an argument is fruitless as the OP's --and others-- mind is made up.

A brief review of the LA Times article entitled the Zoom Zones aptly demonstrates what I'm talking about. I hope you find the cold hard stats which I usually forgo since I am a compensated active expert in the field (I assumed you knew this)enlightening, but I will interpret them for you. This is demand-driven activity with mimimal speculating:

The top 10 hot spots

The Southern California areas with the greatest appreciation last year, based on price per square foot, were generally south of downtown Los Angeles. 2004-05

Zip Code Community % of change
90006 LA 55.5%
90023 LA 52.5%
90061 LA/August F Haw 50.4%
90003 LA 47.1%
90007 LA/Dockweiler 47.0%
90011 LA 45.0%
90002 LA/Watts 44.0%
92410 San Bernardino 44.0%
90059 LA/August F Haw 43.3%
92345 Hesperia 42.9%
Note: Based on ZIP Codes with 100 or more sales for the year.

Sources: DataQuick Information Systems, ESRI, TeleAtlas.

OK. What do we see here? A possible example of the frenzy surrounding housing in So Cal. Let's assume for a moment that the OP is correct and this is a "bubble" and that a pop will bring a severe crash.

The last severe crash caused a decline in the Southland areas hardest hit of some 40% from the previous years prices.

Asssume the same is true again.

You still have a property that is worth more than it was in 1999- some 40% more on average, in many cases nearly 90%; 1999 ,the year they first started calling for a pop in the real estate bubble.
People who followed the advice and waitied for price declines to get a bargain would be going on year 7 of their wait.

[unlawflcombatnt]

92. Median Prices

One of the reasons I posted the links to "Housing Tracker" is so that people could verify the price information. In most cases, the low end and high end prices are dropping as well. It definitely is not just a "median" price issue.

EconomicPopulistCommentary: Housing Links

[Gormy Cuss]

93. Why link to listings rather than sales?

Footnote to the Housing Tracker graphics:
The numbers provided here are asking prices derived from MLS listings. Presumably, asking prices are correlated with sale prices and both are a function of home inventory, mortgage rates and lending conventions, the local economy, and (not insignificantly) market psychology. If you are looking for sale price statistics, check out the National Association of Realtors website.

Asking prices based on MLS listings alone is an odd indicator to use for housing trends (most use actual sale price data.) Asking price trends may track well with trends observed in sales data, or they may be greatly skewed. In some markets the asking prices are dropping because of overly exuberant owners who think because the house down the street sold for X dollars last year their houses are automatically worth X *120%. Furthermore, underpricing was a strategic move in some overheated markets to generate maximum interest and bidding wars. Finally, there are sales that never make it to the MLS and thus are not represented in the asking price data. In some markets, sale prior to MLS and FSBOs are a large enough component that ignoring them in trend data would be risky.

Have you compared trend data from Housing Tracker to median sales statistics in any markets? The assertion in the footnote is not backed up by anything but the word "presumably." Telling the user to figure out the answer for themselves suggests to me that the author either hasn't compared the data or has and doesn't like the result.

For the record, I do believe the housing market has begun to cool off rather dramatically in some areas and will do so in still other in the coming months, but that's just my informal assessment of the market.

[unlawflcombatnt]

94. Asking Prices vs. Sales Prices

"Footnote to the Housing Tracker graphics:
The numbers provided here are asking prices derived from MLS listings. Presumably, asking prices are correlated with sale prices and both are a function of home inventory, mortgage rates and lending conventions, the local economy, and (not insignificantly) market psychology. If you are looking for sale price statistics, check out the National Association of Realtors website.

Asking prices based on MLS listings alone is an odd indicator to use for housing trends (most use actual sale price data.)

I'd say there is no reason to believe that "asking prices" are any less indicative of prices than they were in the past. This particular numerical information was readily available for posting and reference. It's also consistent with DataQuick information I've seen and posted previously. I've posted a number of other references as well that support this information, including the Briefing.com reference in the OP as well as the link to the SignonSanDiego article that refers to the DataQuick information.

However, the best general reference to a large number of articles and information is the link: Patrick.net-Links or http://patrick.net/housing/crash.html">Patrick.net

"For the record, I do believe the housing market has begun to cool off rather dramatically in some areas and will do so in still other in the coming months, but that's just my informal assessment of the market."

I agree with your assessment. (Just my own informal assessment, as well.) Also, if you have any links to actual sale prices, it would be greatly appreciated if you posted them here.

EconomicPopulistCommentary: Housing Links

[Gormy Cuss]

96. Thank you for the explanation.

Having DataQuick equivalents would be better I think. The Housing Tracker charts for areas where I monitor sales data just don't seem to track very well. I wish the author supplied better evidence of the reliability and limitations of use. Without it, I am inclined to view it as soft data and I'm not willing to use it as primary input. Your mileage may vary.

I no longer have access to the appropriate data necessary to interpret the markets comprehensively. I base my assessment on my own knowledge of certain markets supplemented by publicly available hard data (news articles are a good way to identify ultimate sources for these, but they in of themselves are of limited use.)I also like to keep up to speed on trends and predictions by housing economists but as I said, I have only my informal assessment -- I'm not setting policy or holding myself out as an expert on current trends.

Two recent articles on California in the San Francisco Chronicle, both suggesting a cooling off in the market here and in the state but for the most part not a decline in values, just a slowing in the appreciation rate. The dramatic change so far has been only in time on market. The year-to-year appreciation rate is still robust.

Bay Area home sales down in December, prices slide
16% decline in number sold is biggest drop in 4 years
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/01/20/BUGLAGPT2Q1.DTL&hw=prices+cooling&sn=003&sc=851

Slowdown forecast in housing
Rates of construction, home price increases in state are expected to fall
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/01/05/BUGVEGHD4L1.DTL&hw=prices+cooling&sn=005&sc=544
Quote from Alan Nevin, chief economist at the California Building Industry Association:
"Statewide, prices will increase 5 to 8 percent, compared with between 20 and 30 percent in the last few years. In expensive, coastal areas such as the nine-county region, values could inch up only a few percentage points; although in more affordable areas, prices could rise by well above 8 percent, Nevin said.
There's an interesting spin in one of these articles suggesting that part of the December drop may be because buyers at the lower end of the market delayed purchase to take advantage of the higher conforming mortgage limit beginning in January (a 50K increase to over 400K.)


I find the PMI Group ERET index to be worth watching (even though their methodology is a bit of a black box)
http://www.pmigroup.com/lenders/eret.html


I could go on with links in other markets, but I think a national set of sales trend data is really the only way to understand it.

[unlawflcombatnt]

99. Thanks for the links

Reading the PMI link, I'm not sure exactly what the "risk index" means, but clearly it's much higher in so-called "bubble" areas. Almost all places in California, such as Los Angeles, are in the 500+ category. This includes San Diego, San Francisco, Oakland, Salinas, Napa, Riverside, Sacramento, Santa Rosa, Stockton, Orange County, and all other major California metro areas. It's also over 500 in the Boston area. The worst of it seems to be in California.

EconomicPopulistCommentary: Housing Links

[leanin_green]

68. Guess that goes to show, if you own it, keep it. It may end up . . .

all you have. And owning a home in the coming market ain't all bad. We've just decided to put our efforts into what we have and shore it up. Even if the bubble begins to deflate, we'll still have what we have.

[Capn Sunshine]

83. That is true for most people

You still ive in your home unless youstop making payments. It's not actually relevant what your neighbor buys or sells for unless you need to do likewise.

[Midlodemocrat]

75. You couldn't prove it by the prices here.

Prices keep going up and up which is a very good thing for those of us here who own homes.

There are also several areas nearby where homes are very, very affordable, less than $100,000, so it is the best of both.

[kineneb]

79. big picture: what does this mean in the long term?

My guess, and what others have predicted, is that the entire economy is headed for a cooling trend, if not downright ice cubes.

The housing/construction sector has been the only "expanding" portion of the economy and the only sector in which there has been any modest amount of hiring. The auto sector is shedding jobs right and left (GM, Ford, for starters). Manufacturing has almost completely been "off-shored." The service sector is flat, and many jobs have such low wages/benefits, that it may as well be called the "slavery sector." (Had a job like that recently.) One does not get ahead in that sector, only farther and farther behind.

So, folks, Glorious Leader has been extolling the virtues of this great economy; methinks he may have had one too many of some kind of intoxicating substance. The general economy sure does not seem that great, looking from the bottom upwardly.

[Rockholm]

80. My thoughts? See post #78.

Housing has been the engine that has kept Idiot's economy running. The economy as a whole to me seems poor.

[unlawflcombatnt]

100. Economy

I certainly agree with you about the economy being poor. And much of the money to finance consumer spending has come from home equity borrowing. It's estimated by a some economists that $200-300 billion/year of consumer spending has been financed this way. That amounts to 1.7-2.5% of our $12 trillion GDP. And this doesn't take into account the income of workers in the home construction industry.

Economist Dean Baker wrote an excellent article on this called Housing Bubble Fact Sheet

Baker suggests loss of employment in the home construction industry could be over 5 million if the housing bubble bursts.

EconomicPopulistCommentary

Populist Economics Forum

[many a good man]

89. Biggest problem with bubble bursting is effect on equity loans

Stagnant wages in the US economy would have kept us mired in recession if not for the massive influx of credit fueled mostly by the mushrooming housing market. As equity skyrocketed millions of Americans did cash back refinances which enabled consumer demand to remain high.

Stagnant or declining prices signal the end of this boost to the economy. Without any hopes of further tax cuts to provide a stimulus, it will soon be time to pay the piper. We're all out of magic tricks now.

[unlawflcombatnt]

101. Right on the Money

TorchesAndPitchforks,

You're right on target with that comment. Home equity related spending is estimated to account for $200-300 billion of our $12 trillion GDP, or between 1.7-2.5% of our GDP. Declining home values mean a declining source for home equity borrowing. With an alleged economic growth rate of 3.5-4.0%, this would reduce the rate of growth by half or more.

EconomicPopulistCommentary

Populist Economics Forum

[Digit]

91. My tale

My best friend in the DC area, whom I trained as a Realtor in the early 90's had one single condo in Falls Church, valued at $69,000.
I left the area in 1996, and of course, property took off. Pardon me while I gag.
Things were so bad when I left, he filed for bankruptcy since he was $80,000 in debt.
Then, things took off, and he purchased THREE properties which escalated in value. Mostly, they tripled in value. Lots of people have done this, and it has driven up values.

He called me Friday night, and was looking up property values....I begged him not to do it to me. He insisted on looking up my old house. I was in tears. Typing this now, I think I need to question why he needed to add more hurt to my current situation. (I am unemployed and now disabled)

Here I sit in the southeast, my little house has gone from $140,000 in 1997 to maybe $175,000 today....and I AM a Realtor (disabled, but it makes me look employed...) so I KNOW what it is worth. Oh, and that is AFTER replacing all the windows for $10,000+, replacing the AC system at $3500, and adding insulation to the attic at $500.

Moving down here, which ostensibly was for my daughter's sake, turned out to be the WORST move I ever made in my life. My goddammed house in North Arlington which was within a 7 minute walk to the metro is now worth over a million dollars. It was an adorable 5 BR 3 BA bungalow. I sold the frigging thing for a mere $280,000 and it took a whole YEAR on the market back in 1996/1997. It was within 3 years of being paid for in full when I sold it.

My sleep is filled with nightmares, and my phone only rings when creditors call.

...and you know what? There are others out there MUCH worse off than I am, and my heart aches for them more than for myself. I wish I could help them. I wish I could.

[WinkyDink]

97. Not where I live in PA. , bordering Jersey and 90 mins. from NYC.

Just today, in the local paper, was an article on this. The blue-collar locals are getting squeezed.

[The Onyx Key]

102. Interesting info. Looks like another good year for the

Chicagoland market, though. Or so the local experts say (from the local RE trade mags). But more like '04 than '05.

[unlawflcombatnt]

103. State Growth forecasts

I think most states will decline less than California. However, in this study from CNN Money, it appears the Chicago real estate prices are expected to increase 1.1% in 2006, and 0.2% in 2007. In contrast, all major California markets are expected to post price declines

Housing

I'll try to post a copy of anticipated California price declines in another post.

EconomicPopulistCommentary

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[unlawflcombatnt]

104. California Price Predictions

This information can be found at Housing Prices

EconomicPopulistCommentary

Populist Economics Forum