patrick.net

People flock to places that have jobs, dreams, and other attractions. RE investing basically figure out where that is, take a position in that place, jack up the rent and squeeze the renters until they give up the jobs, the dreams, the attractions. That’s when the “bubble” pops, no longer sustained by the jobs, the dreams, the attractions. Then the dump begins. Bay area are such places. Does silicon valley still have jobs, dreams, attractions? Are people giving it up?

Pablo alto folks have the luxury of getting stuck and can NOT move up. When the thing hits, there will be forced sellers because they can NOT sustain the mortgages any more. It does matter what you want, you do what you HAVE to.

SunnyvaleCA says

Have people found an effective way to mitigate the robbery of the real estate cartel? 6% is ridiculous.

I keep seeing this tv commercial for “Purple Bricks” which I gather is a flat fee real estate agency.

Quigley says

They aren’t buying in fucking Iowa! They’re buying in coastal California, and along the west coast. It’s not a myth when I’ve personally been outbid several times by Chinese with cash, and my friends have also experienced this. A Taiwanese friend said there were/are tour buses for prospective Chinese buyers to inspect areas and neighborhoods of interest.

So giving us a national average is exactly useless when most of the activity is local to where we live.

Sorry Bob, I have to agree with Quigley on this one. And it's only a big city coastal California - they are not buying in Sacramento.

Strategist says

My dear friends. I'll give you 3 hints. Shortage Shortage Shortage. As long as there is a shortage of homes, prices cannot drop. They could plateau, but they cannot drop.
Stop thinking emotionally, stop cherry picking data, and use rational thought. You housing bears are screwing up your finances.

Well then what were the 2008 taxpayer robbery bailouts all about? It's not like they were suddenly building more land. While I agree that long term housing should always be a relatively decent investment if you can pay your mortgage and are a decent landlord, current prices are critically inflated due to the fact that the housing market is better supported by the crony capitalist/socialist system than the stock market (and there is of course some inter-dependency), and that is not easy to accomplish. So any bear betting on total housing annihilation must also bet on the inability of the Fed to re-inflate the bubble another time and the inability of the cocksucker government (back then Obummer and Dubya) to pass yet another taxpayer raping bailout legislature. Thus I believe, while housing should drop or at least stagnate very soon, it will never completely crash until the Fed and the gov are out of bullets.

rootvg says

I've bought a few minor toys but the big purchases will wait until there's blood in the streets. That day is coming.

Blood in the streets is the most efficient time where money changes hands from the poor/middle class to the rich. It’s built in by design and tends to come every decade or so like clockwork.

mell says

Strategist says

My dear friends. I'll give you 3 hints. Shortage Shortage Shortage. As long as there is a shortage of homes, prices cannot drop. They could plateau, but they cannot drop.
Stop thinking emotionally, stop cherry picking data, and use rational thought. You housing bears are screwing up your finances.

Well then what were the 2008 taxpayer robbery bailouts all about? It's not like they were suddenly building more land. While I agree that long term housing should always be a relatively decent investment if you can pay your mortgage and are a decent landlord, current prices are critically inflated due to the fact that the housing market is better supported by the crony capitalist/socialist system than the stock market (and there is of course some inter-dependency), and that is not easy to accomplish. So any bear betting on total housing annihilation must also bet on the inability of ...

Between 2002-2008 homes were popping up like weeds. Thereafter. Home builders ground to a halt in 2009. 2012 and since then homebuilding has lagged.

Until you see new build in the 2m there will he shortages

SFace says

Between 2002-2008 homes were popping up like weeds. Thereafter. Home builders ground to a halt in 2009. 2012 and since then homebuilding has lagged.

Until you see new build in the 2m there will he shortages

Probably. But a lot of that shortage was artificially created, for example by dropping the discount window to zero and the resulting pass-on of 3% or less p.a. interest rates guaranteed for a whole decade to big RE giants made them not sell their underwater homes - which they may have been forced to without the Fed stepping in - but in fact double down (while rolling over their existing debt), buying up homes in droves from distressed non-commercial owners and converting them into rental property. Clearly homes (esp. SFH) are much scarcer than rentals since 2008. While rents are high you can almost always find a reasonably priced rental anywhere given good credit. But regardless they will keep making tons of money on those rentals (with fixed low interest loans) and unload them at the next top again, using all the new cash to buy up even more homes in the next great recession ;)

anotheraccount says

Quigley says

They aren’t buying in fucking Iowa! They’re buying in coastal California, and along the west coast. It’s not a myth when I’ve personally been outbid several times by Chinese with cash, and my friends have also experienced this. A Taiwanese friend said there were/are tour buses for prospective Chinese buyers to inspect areas and neighborhoods of interest.

So giving us a national average is exactly useless when most of the activity is local to where we live.

Sorry Bob, I have to agree with Quigley on this one. And it's only a big city coastal California - they are not buying in Sacramento.

OMG I forgot that the universe revolves around a couple cities in CA. I can't imagine why prices would be high in landlocked cities with extreme concentrations of wealth and jobs combined with insane nimby rules restricting building other than foreigners buying all the houses. After all housing there was so cheap 20 years ago. The good old days when you could get a SF victorian for the price of a used toyota. What was I thinking?

mell says

Probably. But a lot of that shortage was artificially created, for example by dropping the discount window to zero and the resulting pass-on of 3% or less p.a. interest rates guaranteed for a whole decade to big RE giants made them not sell their underwater homes - which they may have been forced to without the Fed stepping in - but in fact double down (while rolling over their existing debt), buying up homes in droves from distressed non-commercial owners and converting them into rental property.

Big RE giants weren't sitting on underwater houses. Huge numbers of late to the game following the herd without a clue individuals (remember people lining up for days to put deposits on condo construction in places like Miami) were the underwater cohort. The big operators bought them up at fire sale prices after the crash.

bob2356 says

Big RE giants weren't sitting on underwater houses. Huge numbers of late to the game following the herd without a clue individuals (remember people lining up for days to put deposits on condo construction in places like Miami) were the underwater cohort. The big operators bought them up at fire sale prices after the crash.

When you buy a house with basically any level of downpayment, you're underwater for multiple years. The commissions, mortgage fees, and moving fees will ensure that. Even if you weren't under water, it doesn't mean you're not going to lose a large sum of money by selling immediately either.

Underwater homes aren't the problem. It's whether you can pay for them or not, and it's all about the monthly payments, not how much you paid. If I pay $1000/month @ x%interest or $1000/month @ y%interest it doesn't matter. It doesn't matter if I have a 15 year mortgage or a 30 year, if I'm paying $1000, and that's what I can afford. If it's $1100, ok, things are getting tight. If it's $1500 I'm going under, probably in 1-2 years.

However we haven't been seeing mortgages that were "free for the first year!" or "limited payments for the first 18 months!". So people are having to foot the full bill from day one, regardless of where the market is going, in 18 months they will be gone, good or bad times.

During the economic crisis in the bay area, during the worst of the worst when the country was dealing with horrendous unemployment, the bay area was 2.2% for those making over 100K. So the money was still there. It's all about if they can afford the house or not, not when a crisis hits. Those big houses don't need to sell. And if you bought back in 2000, you're almost 20 years into your mortgage. If you refi'd, you're probably still at a point you can handle unless you refi's at the last possible moment for the worst terms possible, but that isn't going to be the majority of those people.

The crisis will be in the lower end markets, where those people have way over bought and where most people don't want to live anyway.

mell says

But a lot of that shortage was artificially created, for example by dropping the discount window to zero and the resulting pass-on of 3% or less p.a. interest rates guaranteed for a whole decade to big RE giants made them not sell their underwater homes - which they may have been forced to without the Fed stepping in - but in fact double down (while rolling over their existing debt), buying up homes in droves from distressed non-commercial owners and converting them into rental property

Nonsense. This argument has been thoroughly debunked multiple times.

pkennedy says

When you buy a house with basically any level of downpayment, you're underwater for multiple years. The commissions, mortgage fees, and moving fees will ensure that. Even if you weren't under water, it doesn't mean you're not going to lose a large sum of money by selling immediately either.

Underwater homes aren't the problem. It's whether you can pay for them or not, and it's all about the monthly payments, not how much you paid. If I pay $1000/month @ x%interest or $1000/month @ y%interest it doesn't matter. It doesn't matter if I have a 15 year mortgage or a 30 year, if I'm paying $1000, and that's what I can afford. If it's $1100, ok, things are getting tight. If it's $1500 I'm going under, probably in 1-2 years.

That was what I said. Big RE investors had postive cash flow so the house price and discount rate were irrelevant. Even small RE investers like me did. The roi stayed exaclty the same. People who over committed and took out insane loans that depended on refinancing out the appreciation to stay afloat were the problem.

Everybody was underwater. Many big RE firms and banks were on the verge of BK to make way for new ones. The discount rate - basically free money for those speculators - then messed up the natural cycle and artificially inflated prices, worse socializing their losses with backstop guarantees. Until the Fed and govt stop meddling or run out of bullets there will be no true price discovery.

mell says

Everybody was underwater. Many big RE firms and banks were on the verge of BK to make way for new ones. The discount rate - basically free money for those speculators - then messed up the natural cycle and artificially inflated prices, worse socializing their losses with backstop guarantees. Until the Fed and govt stop meddling or run out of bullets there will be no true price discovery.

Wow--so many inaccuracies there. Any borrowing form the Fed discount rate is documented and viewed as a sign of extreme weakness so banks almost never do it.

Nobody speculated with discount money--that's ridiculous.

What losses were socialized?? Bailouts (save for the auto industry) cost basically nothing.

And the fact that housing prices rebounded so quickly indicated that there was price discovery. Without the bailouts, prices would have done exactly the same thing, except you would have had a lot more hedge funds renting out houses and fewer owner occupied. Not sure how that's better.

What drives swings in a bubble are short termers. RE speculators, home equity extractors etc. I do believe lending standards remain tight compared to anyone with a pulse. A lot of folks are predicting a hiss if a slowdown but not pop. Won’t help the sideliners. But folks have been predicting a crash for some time - insert popcorn munching porn stars gif. -

LeonDurham says

Nobody speculated with discount money--that's ridiculous.

Lol had a good laugh reading it. Bailouts were extremely expensive for the taxpayer while socializing losses for the wealthy. They cost billions. Why doesn't the Fed print money every day and let it rain down on the people?! Lol cost basically nothing right

mell says

Lol had a good laugh reading it. Bailouts were extremely expensive for the taxpayer while socializing losses for the wealthy. They cost billions. Why doesn't the Fed print money every day and let it rain down on the people?! Lol cost basically nothing right

OK--can you detail the expenses then?

I'm assuming inflation was running rampant, right? With all that Fed money printing? You must be able to show when the inflation kicked in as a direct result of the all the money printing, right?

And just, fyi, deflation doesn't simply mean lower prices. It also means reduced employment, lower wages, higher governmental costs (food stamps, welfare, etc.)

Inflation can be bad, but deflation is worse.

LeonDurham says

mell says

Lol had a good laugh reading it. Bailouts were extremely expensive for the taxpayer while socializing losses for the wealthy. They cost billions. Why doesn't the Fed print money every day and let it rain down on the people?! Lol cost basically nothing right

OK--can you detail the expenses then?

I'm assuming inflation was running rampant, right? With all that Fed money printing? You must be able to show when the inflation kicked in as a direct result of the all the money printing, right?

Have you checked house prices, health insurance, tuition, rents lately? Inflation out of control for years. The EPI is what matters.

LeonDurham says

OK--can you detail the expenses then?

No, there are people more interested in spouting dogma than presenting facts. https://money.usnews.com/investing/articles/2017-01-19/financial-crisis-bailouts-have-earned-taxpayers-billions

In total, $623 billion in taxpayer money was dispersed via bailouts and roughly $698 billion has come back via dividend revenue, interest, fees and asset sales. It doesn't take a math genius to see the bailouts ultimately earned taxpayers more than $75 billion in profit, and that number is still growing.

I still think the banks should have been nationalized and the assets sold off. They are still too big and run by the same people for the most part. There will be a repeat.
The bailouts worked out this time, mostly by luck. Next time probably will not be so lucky.

mell says

Have you checked house prices, health insurance, tuition, rents lately? Inflation out of control for years. The EPI is what matters.

I don't know--Patrick just posted a thread showing rents dropping. What matters is overall inflation--not in a few cherry picked sectors that have unique circumstances.

If it was the Fed causing it, it would affect the entire economy.

bob2356 says

I still think the banks should have been nationalized and the assets sold off.

+1. Absolutely.

SFace says

Between 2002-2008 homes were popping up like weeds. Thereafter. Home builders ground to a halt in 2009. 2012 and since then homebuilding has lagged.

Until you see new build in the 2m there will he shortages

We need 1.5 million units of new construction every year. So little was built in the last 10 years, so large is the shortage, it would take years to catch up, even by constructing 2 million units per year. We need 3 million units per year built right away to stabilize the housing market.
The current shortage is around 4 million units, and continues to grow. We are presently constructing only 1.3 million units per year.

LeonDurham says

mell says

Have you checked house prices, health insurance, tuition, rents lately? Inflation out of control for years. The EPI is what matters.

I don't know--Patrick just posted a thread showing rents dropping. What matters is overall inflation--not in a few cherry picked sectors that have unique circumstances.

If it was the Fed causing it, it would affect the entire economy.

3 reasons why it is not affecting the entire economy equally (it also has been affecting the stock market so you can see it beyond housing):

1) When you get (interest) free money, you will invest/speculate in goods/services with the highest leverage => housing!

2) When you get guarantees of being backstopped by the taxpayer, you will favor those goods/services => housing, education!

3) When the economy is fueled with "free" cash, local goods/services (i.e. which cannot easily be globalized/imported) will inflate => housing, education, healthcare!

The reason rents are not as crazy as SFH prices is precisely because SFH have been bought en masse by the big RE firms with free Fed money and converted to apartments, hence more units to rent, less to buy => renter nation!

mell says

3 reasons why it is not affecting the entire economy equally (it also has been affecting the stock market so you can see it beyond housing):

1) When you get (interest) free money, you will invest/speculate in goods/services with the highest leverage => housing!

No--most people who get free money spend it. But even if you are going to invest it, why would a low interest rate cause people to choose riskier investments?

mell says

2) When you get guarantees of being backstopped by the taxpayer, you will favor those goods/services => housing, education!

Well, first off, nothing was guaranteed backstopped. That's a lie. Did IndyMac get made whole? Bears Stearns? Even the folks who got loans weren't made whole. They just were loaned enough money so they didn't fail. They lost billions.

mell says

3) When the economy is fueled with "free" cash, local goods/services (i.e. which cannot easily be globalized/imported) will inflate => housing, education, healthcare!

The economy wasn't fueled with free cash. Local goods/services DIDN'T inflate! That's my point. Education isn't local. If what you say is correct--everything would have seen inflation and that didn't happen.

I think it is true that there is a lot of money in the capital market. By capital, I mean loans, bonds, stocks that are used to form companies and employ labor.
Those capital market does help huild companies like Telsla, Uber, Snap, etc that can bleed capital for very long time and are still running.
For consumer goods and services to inflate, NOT only you have to think about these jobs created generates demand, BUT ALSO the price cutting and over supply/production fueled by these capitals.
Imagine all credit goes into production and they keep selling goods at loss, how can you have consumer inflation?

What is for certain is that the jobs created by Uber, Telsla, Snap will need houses to live and schools to go to. So let’s just squeeze rent out of them.
This is how ZIRP/QE was carried under the name of stimulating the economy but in reality, it just helps rent seekers to fuck the W2 workers.

JZ says

This is how ZIRP/QE was carried under the name of stimulating the economy but in reality, it just helps rent seekers to fuck the W2 workers.

It was carried to offset the deflationary effects of the housing bust.

It was carried out to make sure everybody is loaded with debt so that wealth is transferred from honest work and wealth creation to rent seekers such as bankers and land lords.
I have no problem for bankers and rent seekers to take on risk, and do what they do. When they levered up and blowed up, let’s do NOT bail out, let them die and drag down everybody with them. It is NOT only honest that way, it also clean the rot and restore displine for the “COMMON” good. In stead the “offset of deflation” encourages more corruption and wealth transfer. I was in post office and wait in line for passports. I was chatting to a young lady and asked her what she does. She told me she does NOT want to work, “how about investing?” that’s what she said.

JZ says

When they levered up and blowed up, let’s do NOT bail out, let them die and drag down everybody with them. It is NOT only honest that way,

How is that honest? So, letting the commercial paper market freeze up and putting who knows how many good businesses under because they couldn't get bridge financing is honest?

JZ says

it also clean the rot and restore displine for the “COMMON” good. In stead the “offset of deflation” encourages more corruption and wealth transfer.

Again--losing billions of dollars doesn't restore discipline?

JZ says

She told me she does NOT want to work, “how about investing?” that’s what she said.

And that surprised you? Who wouldn't rather invest than work? That's human nature.

JZ says

What is for certain is that the jobs created by Uber, Telsla, Snap will need houses to live and schools to go to. So let’s just squeeze rent out of them.
This is how ZIRP/QE was carried under the name of stimulating the economy but in reality, it just helps rent seekers to fuck the W2 workers.

Correct, You think garbage like TSLA would trade at $300 in 2008 conditions where people are actually carefully and sane with their money? The problem is once you have enough free cheap money/credit you can blow up these bubbles yourself (short-squeeze etc.) and profit from them by selling at the top. And deprive areas of SFHs and convert them to rentals, etc. etc.

JZ says

It was carried out to make sure everybody is loaded with debt so that wealth is transferred from honest work and wealth creation to rent seekers such as bankers and land lords.
I have no problem for bankers and rent seekers to take on risk, and do what they do. When they levered up and blowed up, let’s do NOT bail out, let them die and drag down everybody with them. It is NOT only honest that way, it also clean the rot and restore displine for the “COMMON” good. In stead the “offset of deflation” encourages more corruption and wealth transfer. I was in post office and wait in line for passports. I was chatting to a young lady and asked her what she does. She told me she does NOT want to work, “how about investing?” that’s what she said.

That means we've come to a point where money has little to no value and work has no value, a big issue in the SF Bay Area where so many have made so much for so long.
We would return to Ohio in a minute (in a second) but my wife is a Civil Servant so we can't. There's going to be one hell of a crash here. Has to be.

There's a follow the leader, high schoolish emotionalism about the culture here. I didn't grow up that way and I'm not going to be subject to it now. We waited before and were very handsomely rewarded. I'm sure that will happen again.

Leon, what you are saying is this
Investing is for everybody, work is for suckers.

What I am saying is this:
Let everything freeze up and let business die. Then the mass will hang the responsible and drain the swamp. Then it comes the era of responsibility and discipline. Losing billions does NOT restore any disciple when FED is printing trillions. Those who take the public hostage gets bigger and the public is a bigger hostage now.

JZ says

What I am saying is this:
Let everything freeze up and let business die. Then the mass will hang the responsible and drain the swamp. Then it comes the era of responsibility and discipline. Losing billions does NOT restore any disciple when FED is printing trillions. Those who take the public hostage gets bigger and the public is a bigger hostage now.

Yep I know what you're saying. And I'm saying your very naïve.

That solution puts the US in another Great Depression that doesn't end because you don't want to implement the New Deal.

If I am in the operation room and being operated, I have no problem using some narcotics. Otherwise, I die. It is totally another matter of using pills to ease the pain and take an injection to go eccastacy under the name of human nature when your body is and health is decaying. It is another total different matter if you introduce narcotics to the public and keep making money out of them once they get addicted.

JZ says

It is another total different matter if you introduce narcotics to the public and keep making money out of them once they get addicted.

If you want interest rates to rise, fix the inequality problem.

LeonDurham says

JZ says

It is another total different matter if you introduce narcotics to the public and keep making money out of them once they get addicted.

If you want interest rates to rise, fix the inequality problem.

Inequality has no bearing on rates whatsoever. You can see that by comparing various countries with similar inequality index and totally different rates. The rates are set by the Fed and influenced by the bond vigilantes. That's it.

The FED power to print and set rates attracts psychopath and create corruption at the cost of the public who can NOT print. You can argue that without FED power, nothing can be done in a disastrous crisis situation. This is like all the other kind of powers. without it, nobody can do anything. With power, it invites corruption. This is the cycle of birth and death of all civilizations. At least the founding fathers of US of A went against human nature and created a country with good balance of power. No fiat money, public own guns to have basic deterrence against the government power. Today, money is fiat, FED power invites wealth transfer and corruption more than it helps wealth creation and crisis mitigation. When they have ZIRP, not everybody can borrow at 0%, only their friends can. The impact of this invisible but YUGE.

I have no problem of inequality. If Bill Gates and Steve Jobs get rich, their employee have a better life too, so does the society. But if the inequality is caused by moneytaty policy which facilites wealth transfer by blowing bubbles and rent seeking, I do have a problem with inequality.

JZ says

I have no problem of inequality. If Bill Gates and Steve Jobs get rich, their employee have a better life too, so does the society.

All men will never be equal. Problem arises when people start comparing what they have to what others have.
Why care what others have? I would not mind being the poorest man on earth if I have everything I need, and am happy.

mell says

Inequality has no bearing on rates whatsoever. You can see that by comparing various countries with similar inequality index and totally different rates. The rates are set by the Fed and influenced by the bond vigilantes. That's it.

Ah, I see where you are mistaken. First off, let's remember that all interest rates that would concern you or I are set by the free market. Supply and demand. The Fed sets none of these.

Once we understand that, we can see why inequality is the main reason for low rates in the US today. The higher one's income, the smaller the % of it goes towards consumption. So, as more and more $$ goes to the 1%, it gets saved and invested creating higher and higher levels of $$ available for lending. More supply leads to lower rates. But that's not all--as more money goes to the 1%, less obviously goes to the 99% meaning fewer and fewer people qualify for loans. This reduces demand. So you've got more supply and less demand as inequality grows. Anyone who has taken Econ 101 knows what happens--in this case it's lower rates.

To respond to your point about other countries--you have to adjust for default risk when comparing different countries. It's pretty easy to see the effect of inequality when you just look at US interest rates over time. It's no wonder that rates have been falling for 20+ years as inequality worsens here.