WatchHere are some things I think seem true to me, but could be refuted by you geniuses.
If we have hit any bottom, we need a counterargument to the below. Please add to these negative pressure arguments as you think of more. I'd suggest we make an alternate list of bull arguments and see what we think looks most accurate as to where we are in this bubble:
Bear argument--
During the bubble:
There were 100s of thousands of consumers added to the pool of purchasers, due to easy credit and low underwriting standards.
There were more houses being built, adding to inventory now
There was lower unemployment, and now it’s very high
There were people who could have afforded houses that can no longer purchase any (due to foreclosure, credit damage, job loss or eviscerated savings)
There was irrational exuberance
There was a healthy (feeling) business environment, in Europe and in Asia too, adding to consumer strength and purchases of CDOs and MBS by sovereign wealth funds
People are trapped in houses due to underwater conditions; unable to relocate or move up
People are gun-shy, scared to take the plunge
Society is more mobile now; people may feel they need to move to get better jobs and feel that mortgages constrain them
The elderly will have houses to put on the market when they downsize, and there are millions of boomers that will
Retirement accounts have been neglected or drained, keeping people in the workforce longer (but concerned about savings, not home buying)
Deficit issues have made the idea of killing the MID or Fannie/Freddie a possibility
Wages haven’t kept up with much of anything, including inflation, driving down purchasing power
Deficit reduction obsessions dampen consumerism
Why would these conditions have changed in the last year or two, to the point where home prices would be turning around?
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In a rational world with a truly free market, you would be right.
However, what we have is a highly manipulated market controlled by large interests with a desire to keep prices as high as possible. Those large interests are ultimately sitting on a font of unlimited money (tax payers) and they can stall indefinitely, or until the entire nation implodes, in which case real estate is the last of anyone's concerns.
I doubt that anyone would argue against the logical reasons why housing prices have more to fall. However, in practice, it is unlikely that they will without some sort of larger implosion of the economy as a whole. Believe me, I would LOVE to see prices tank again as a prospective buyer, but I sort of doubt that they will. So, I focus on enjoying my life and the fact that I am financially secure with zero debt to my name.
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bmwman91 says
Do they? Or do they just want enough buyers at this level, and then the next and then the next?
In other words, are they getting exactly what they want as an outcome? They need to move inventory, and the best way to do that is to entice people off the sidelines and then let it drop some more?
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CL says
Well, there are multiple parties that want high prices. I think that they outnumber, and overpower the groups that don't.
1) Government: property taxes
2) Realtors: commissions, their "reputation" after lying out their asses about house prices always increasing
3) Current house owners: they want to be able to sell and at least break even, some want to ride the HELOC train
Individuals in 2 & 3 vote, and make up a significant portion of the electorate. In addition to this, group 2 has powerful lobbyists behind them. Combine that with the fact that group 1 is broke as fuck and wants to be able to tax higher valued properties, and you'll have group 1 doing all sorts of stuff ot keep prices up. Since CA's income is severely dampered by Prop 13, they desperately need a supply of people buying high-value properties now to pay full taxes on that property's value.
There is, of course, a lot of pressure on prices to go DOWN for all the reasons you mentioned in your original post. There's an epic struggle between those forces and the 3 groups I mentioned. Overall, the downward forces already overcame the 3 groups in a large way in most areas, and the pressure is lower now so they are having some success in fighting it. Only time will tell what is going to happen. I keep my fingers crossed for a $400k house on 0.25 acres with a 1000SF detached garage within 30 minutes of my office, but I am sure as hell not holding my breath lol. Frankly, I don't EVER expect to see that happen around here. It's more likely that I will make $300k per year and just buy what I want...and the actual odds of that are SLIM lol. Still, it is more likely than "cheap" housing in the Bay Area in my opinion. Frankly, the Bay Area has too much money and not enough people looking at the big picture in life (LIVING it, not just making money to live it with "someday" which never comes). Anyone interested in LIVING life has to compete with people that think making money is LIVING, and the results are in plain sight for all to see. $1.5M for a 700SF shit shack in Palo Alto and that sort of thing.
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I hope you are right.
All I know is that from where I sit, here is San Francisco, prices have gone crazy in the last 4 months.
We've been looking since Jan 1 and gotten overbid 4 times already - on houses that would have gone for less than list last year.
Give me some good arguments why we should wait longer to buy here in the city, because with 30% of all sales here being all cash and inventory down 45% since this time last year, it looks like we'll be renting whether we want to or not.
I sure am gonna be pissed off if I waited 12 years for the bubble to pop and then missed the bottom by 6 months.
Sick of renting already.
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1strenter, honestly, I have no idea what to tell you. It seems really unlikely that today's trends will keep up indefinitely. There is a crazy investor frenzy right now and RE is today's flavor of "easy money." As with everything, by the time the masses see these "investment opportunities" it is too late and the only people that ultimately come out ahead are LARGE players and the ones that got in early.
There is a lot of downward pressure on pricing. For now, the government, NAr and current owners can push back hard enough against it. As far as a places like SF go, I am not sure if it will ever be "reasonable" to live there given the demand & utterly limited space since every developable square foot has been developed on. It is a niche area for sure. Did you "miss" the bottom by 6 months? I don't know, but it seems doubtful.
Good luck up there. 12 years is a hell of a long time.
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bmwman91 says
Let me tell you one thing - even you missed the bottom there will be no bubble year appreciations(like 20% YOY) for years to come. Some people here say 2009 was the bottom but I see totally different results here in my area(socal). Few them sold in 2009 are coming back on market now at even lower then 2009 prices,hence waiting was worth it. BA may be crazed but who cares I am not looking there anyways.
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1sfrenter says
I don't think we've seen the true bottom. I believe what's going on is a quick Spring bounce that happens every year. When Summer gets here, prices will continue their downward trend.
Why??? until the job situation gets better and unemployment "truly" drops (not the fake numbers put out by the BLS), it takes a solid job to buy a house. Don't think the ones on unemployment will be eligible for a mortgage.
Plus, you have the boat loads of houses underwater, these people are truly "stuck"... until their houses rise in value or they pay off a big chunk of principal, they ain't going anywhere or moving up to their next larger home.
If the financial situation melts down in this country, then all bets are off....
Sit tight, you'll be able to get a deal shortly......
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But isn't US RE grossly underpriced compared to the rest of the world? A 3/2 in a free fire zone in Stockton should be at least as expensive as a 3/2 in downtown Sydney, right?
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bmwman91 says
Well actually I've been renting for almost 30 years, but wasn't in a position family-wise or career-wise to buy until about 2003, and by then it was so obviously crazy that even though I could have bought I chose not too.
Not sure when I found patrick.net and The Housing Bubble Blog, but I was one of those people everyone thought was crazy because I kept saying that real estate doesn't always go up.
Luckily I found company online.
Although now no one seems to know what's going to happen in "special" places like SF.
I know it will always cost more to live here, and I can deal with that, but sheesh, the all cash folks and the investors are bumming me out.
I'm not a facebook stockholder, a would-be-landlord, or a flipper. Just need a decent place to live and tired of landlords.
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Why would these conditions have changed in the last year or two, to the point where home prices would be turning around?
Piles of money, just waiting to be inflated away, with no where else to go with it. Investor demand.
Heck, we are even selling banks to China now.
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everything says
They haven't.... just some people want to jump on a small upward blip to say the housing recession is over!!!
Until the fundamental conditions needed to own a house change, the overall direction of house prices is DOWN!!
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Realtors Are Clowns says
Ha Ha, Why does that comment flash a picture of some big fat chick standing in line in front of me. :)
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CL,
What BMW man said. The 99% think they're in control, but the 1% is holding the remote control. :)
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Call it Crazy says
If this is your believe, are you currently shorting the homebuilder and the bank stocks? What stocks are you shorting? I'd love to know. Thanks in advance.
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E-man says
There is symbiosis here though. They can't fuck us too bad, since they need us to make and buy their garbage. (You'd be lucky if you worked at the pitchfork and torch factory!).
Keep in mind that for most Americans, they have no retirement plans per se. They spend and live like they have pensions, but they only had their houses. If the solution proffered by the .01% is that granny and Grandpa can work until they die, they might just get the revolution they've been successfully avoiding thus far.
Housing has not yet returned to pre-bubble pricing, right? We are to believe that the Government et al have finally figured out a way to defy gravity? Or is that only in SF and Manhattan? Or will we get our comeuppance soon?
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CL says
This is a very interesting line of discussion and one that always fascinated me in social science / history classes.
Looking through history, we see time and time again that the elite 0.01% ALWAYS ends up fucking the producer classes harder and harder until a revolution comes, or the society is weakened to the point that it is overrun by another one. While it may seem hard to believe that those with that sort of power could be so short sighted and stupid, it is the case every single time in history. They have an incredible gig going, but there is no such thing as "enough" and they will continually seek ways to extract wealth from the masses. Eventually, they there comes an event in history that wakes everyone up into come sort of semi-cohesive rage, and the 0.01% gets hung & dismembered. It is never a pleasant thing for anyone as the entire society generally turns inside out and a lot of innocent blood is spilled in the process.
As far as I can tell, America is still pretty far from that. We still have our bread & circuses (the dollar menu & reality TV) to keep everyone complacent, with bellies full of [something]. Our freedoms are slowly being eroded and we are in a position where the only way to get the nation's finances in order is through massive austerity & tax increases. If I had to guess, the spark that will set it all off someday will be when the government attempts to repeal the second amendment. If they did it now, it wouldn't cause a revolution. Give it 30-40 years of further government corruption & incompetence, and when it is clear that they mean to disarm us in a final move to make us slaves to the ruling class, I think that it will get ugly.
What does this tangent have to do with housing? Well, as far as I can tell, housing is increasingly becoming a vehicle for wealth extraction from the people. Home ownership has been a pillar of American culture, and having your own slice of property embodies what a lot of people see freedom as. As that is taken away from us, it will be a sore point that isn't easily forgotten, and probably drawn upon someday if things get to the point where the ruling class is hunted by the angry masses.
(and of course, it may be that not a single bit of this ever happens and we all live happily ever after...you just never know)
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bmwman91 says
Really?? That's odd because I find people in SF to be much better traveled than in Texas or North Carolina because they are LIVING it. These are people that realize that they don't need a quarter acre with a 1000 SF garage but can live in a smaller place and still enjoy the outdoors around here. I've met more folks in SF that have taken one year sabbaticals that in DC, Austin, Raleigh, Irvine in twice the time.
And using SF as a barometer for the US is disingenuous (you might as well use Manhatten as well). Plenty of folks can find cheap housing to buy in Houston, San Antonio, Dallas, Detroit.
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bmwman91 says
It's kind of also that old adage about boiling frogs. Already, we frogs are boiling in no or lost housing, low wages, bad food, unemployment, and shrinking benefits, austerity, etc.
The problem with Americans is faux outrage has displaced real outrage. We used to care about social justice and economic fairness, and now most are corporate sycophants.
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CL says
I agree completely. The internet & mass media have given people the false impression that their voice counts because it can be "seen" on a computer screen. Take almost everyone in here. It is much easier to post in a forum about why housing should be cheaper and how rigged the game is than to go and DO anything about it (defecating on a realtor's face, herding people that HELOCed their house to the max & then squatted onto some sort of prison-island, feeding investment bankers & the heads of the TBTF banks to needy children in African cannibal tribes, etc).
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It seems to me that the reason rates are low, and that the Fed et al are deploying herculean efforts, is to make the payment affordable. They want suckers to jump in and take some property off their hands at a HIGHER price, right?
The only problem this time is a shortage of suckers that either qualify or want to be the last man/woman in on the ponzi, n'est-ce pas?
And wouldn't that mean that prices have nowhere, longer term, to go but down? How long can they maintain ZIRP? How many QEs can they undertake? How many immigrants will buy with cash?
Can rents bubble? Because that would be the next step for "them". Raise the rents to make that crappy, overpriced house look more appealing, if you can get financed at 3%.
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CL says
You can't borrow money to pay for rent - so at a certain point rents must be in line with incomes.
But the landlord class will squeeze their renters for every dime...
...until they can't.
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bmwman91 says
CL,
BMW man is correct again. Americans are so spoiled. You guys don't know what it is like to be poor. Life in the ghetto part of Oakland is still pretty good compared to other countries. We have it very very good here.
If you think the Bay Area housing is expensive compared to our salary, you haven't travelled much. To me and many foreigners, RE in the Bay Area is cheap cheap cheap.
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E-man says
Unfortunately most Americans don't own a passport and are very spoiled.
I'm spoiled rotten but at least I try to cross the border once in awhile.
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E-man says
Yup. After a few trips to industrial China (I have in-laws there, and have to go to Flex/Foxconn for work stuff), I no longer complain about the quality of life in America. There is stuff that concerns me since I think that we are in a downward trajectory, but I would still prefer to be poor here than middle-class there. It was quite a shock to a white guy the first time I went there!
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E-man says
I don't think this is true. I think it ignores the fact that many don't make a living wage in the Bay Area, and points to a disconnect that Patnet readers have from the wage reality that most live under.
Sure, WE have decent wages, and WE can afford to live here. But many struggle under the onerous burden that rents and mortgages place on them.
I've lived in 3 countries. A lot of the homes were owned outright in multigenerational settings. Carpoolers I pick up from Africa are shocked at how nice and affordable their homes were in their birthplace compared to here.
Rich people don't have a problem here. That's true.
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E-man says
I'd rather say that salaries in the Bay Area are ridiculously high.
In mainland China, RE is ordinary by US standards but is expensive to them, because they're grossly underpaid (i. e., the yuan is undervalued).
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E-man says
eman,
shorting is speculating, "gambling", not investing. To be "investing" for when prices going down, whether its houses or some other asset, is being totally liquid in money or cash equivalent. you are welcome.
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E-man says
Huh... how did you get "stocks" out of my comment?? I was referencing the basics of owning: a good stable job with decent income and property values that aren't dropping...
Investing in bank and homebuilder stocks... I'd rather go out in my back yard and set my money on fire... would have the same ending...
I'm also not planning on buying in the near future either... see my fire statement above...
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Call it,
It's easy to criticize others when you have no skin in the game. If you believe the housing market will keep on tanking and the banks are insolvent, don't you think that shorting the homebuilder and bank stocks is the way to go? Basically, your action and your comments are not going hand in hand.
Iwog and I believe the housing market hit bottom so we put our money where our mouths are. We don't mouth off like others, who talk the talk, but don't walk the walk. That's all I'm saying.
For those that like to take on the challenge. Show us your bet on here so everyone knows your cards. You will have the bragging right if you make the right call. If you don't dare to show your bet/cards and put the money where your mouth is, you may want to reserve the comments to yourself.
Cheers.
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Smart investors are planting potatoes and teaching their families how to fight with ballistic weapons and bayonets.
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bmwman91 says
this is what i've done myself. i've spent way too much time analyzing and following the bay area market and finally came to the conclusion that it's just not rational.
now if i can only convince myself to stop looking entirely, it's almost like a bad accident, you don't want to look but can't help yourself.
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THere is a new show called 'doomsday preppers' and I watched a few - some people are preparing for TEOTWAKI due to currency collapse and/or hyperinflation. Its a great show!
http://channel.nationalgeographic.com/channel/doomsday-preppers/
If you arent planning for cannibal anarchy you will have two choices: become a scavenging cannibal or get eaten by one.
Fun stuff!
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ih8alameda says
I hear you. Keeping tabs is hard to stop doing...for one it is like watching a train wreck happen. Second, there's this nagging glimmer of hope that maybe it WILL be rational someday...hope is a bitch lol. The rational part of my brain already knows that it will likely always be irrational here! But yeah, looking at it objectively & seeing that there is no reason to give credence to the FEAR associated with not buying, and that that fear is a deliberate sales tactic, makes life ever so much more pleasant. It hit me a while ago that I don't want a house: I want a large garage/workshop and a big listening room with no attached walls for my speakers.
The easiest way to deal with the unhappiness that comes from wanting something...is to STOP WANTING IT! Sure, it sounds contrived and silly, but it really is the secret to keeping sane & happy in our consumerist society.
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E-man says
I had plenty of skin in the game, for 30 years I drank the kool-aid until I finally "woke up" and put down the glass.
E-man says
You two don't mouth off??? hmmm.... anyway, I DON'T think we have hit the bottom, that's why I cashed in and took my chips off of the table. I'm sitting on the side lines until the crash is done, then I will re-visit the housing market...
BTW, while I'm sitting on the sidelines, I'm saving a BOAT LOAD of money being a RENTER vs. an OWNER, so all is good!!
E-man says
I've "placed my bets" by selling out and pulling out my equity and not worrying about my house losing value year by year. We will see if my bet ends up being the right one... check back in a year. Since the date of the signed contract on my sold house last year, it's value has dropped another $30K. (and still going) (But, that $30K is currently in my pocket, so at this point, I'm ahead on the "bet"..