So this is the housing recovery?


By Patrick   Follow   Tue, 27 Nov 2012, 7:41pm   4,531 views   38 comments
In Menlo Park CA 94025   Watch (2)   Share   Quote   Permalink   Like (2)   Dislike  

Doesn't look like much of a recovery to me.

Image from ritholtz.com

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  1. Goran_K


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    1   7:45pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike (1)  

    Even with all the hot money, and cheap credit, it's still hitting an income/underwriting ceiling. Private banks won't engage in risky lending anymore, FHA will, but FHA is sinking faster than the Titanic. Mortgage demand is at mid-90s levels. Whose left to buy?

    1) Investors/speculators
    2) Foreign buyers
    3) FHA'ers (who will soon lose even more purchasing power when FHA is bailed out)

    Investors cannot sustain a recovery. Even with 6 years of free no-doc credit, the ponzi scheme crashed violently. Cheap credit didn't do it last time, and it won't do it this time.

  2. EastCoastBubbleBoy


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    2   8:17pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    For now, this is as good as it gets in IMHO. Low rates are keeping prices "affordable" - putting an artifical bottom on the index.

    plus there is a certian amount of psycology invovled. buyers look at prices now, realative to 2009 and say "wow, buy waiting untill today I saved 25%!". They don't say "wow, prices more than dobuled in an unsustaiable upwards clime!"

    The same would happen with a box of ceral. If the box goes from $1.00 to $2.00 sales suddnely drop off... a few months later when the $2.00 box gets marked down to $1.75, everyone grabs a "bargian". Very few ever remember that the box cost $1.00 only a few months before.

  3. Bigsby


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    3   8:26pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike (1)  

    Patrick says

    Doesn't look like much of a recovery to me.

    Image from ritholtz.com

    It doesn't look like crashing prices either. Presumably the indices for the nation as a whole shows even more of a return to historical price trends.

  4. Call it Crazy


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    4   9:06pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    Doesn't look like much of a recovery to me.

    Not only does it NOT look like a recovery, but every bounce UP is smaller then the last bounce and every drop back DOWN is drops more then the previous drop....

    I think there was a little higher "spike" for this year's spring bounce because of the additional institutional investors stepping in to buy blocks of houses this year. But that is short lived, and I think the next leg down will be even larger....

  5. Kevin


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    5   9:37pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    As near as I can tell, sales have recovered, but prices are flat.

    I fully expect prices to remain flat for the next 5+ years. It'll take at least that long for the refinanced people to stop being underwater and actually think about moving.

  6. rooemoore


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    6   9:58pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    The recovery has started but the next buyer boom is about 21 -25 years old. In 5 years housing will be strong again. (but no bubble, I hope)

    Patrick, do you think it would have been a good decision to buy a house in Palo Alto or Menlo Park in 1994?

    Edit: And why did you freeze my avatar?

  7. BoomAndBustCycle


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    7   9:58pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Prices cant fall if people are underwater and cant sell.... And banks wont foreclose.

    No sales = no or very slow price drops

    Only successful sales are those with equity and ability to squeeze buyers who want to buy from the limited selection for every last penny.

  8. BoomAndBustCycle


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    8   10:02pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    rooemoore says

    The recovery has started but the next buyer boom is about 21 -25 years old. In 5 years housing will be strong again. (but no bubble, I hope)

    Patrick, do you think it would have been a good decision to buy a house in Palo Alto or Menlo Park in 1994?

    Edit: And why did you freeze my avatar?

    Of course it was a good idea to buy even in 2000! You are up and have nearly 15 years paid off... Could refi the last 15 years at 2.5% today and be paying half what others are paying to rent the same place!

  9. tannenbaum


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    9   10:33pm Tue 27 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    BoomAndBustCycle says

    rooemoore says



    The recovery has started but the next buyer boom is about 21 -25 years old. In 5 years housing will be strong again. (but no bubble, I hope)


    Patrick, do you think it would have been a good decision to buy a house in Palo Alto or Menlo Park in 1994?


    Edit: And why did you freeze my avatar?


    Of course it was a good idea to buy even in 2000! You are up and have nearly 15 years paid off... Could refi the last 15 years at 2.5% today and be paying half what others are paying to rent the same place!

    30-year mortgages were rising in 1994, reaching more than 9% by year end, well more than double what they are now. They were in the 8% range for the majority of 2000.

  10. Ceffer


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    10   10:43pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (2)   Dislike  

    It does look like low interest rates slowed the rate of decay and created a bouncy trend. Increase interest rates by 3 percent and see where it goes.

    The trend is still down, just with a slower decay rate and some artificial bounce from the musical chairs crowd.

  11. tannenbaum


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    11   10:58pm Tue 27 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    Ceffer says

    It does look like low interest rates slowed the rate of decay and created a bouncy trend. Increase interest rates by 3 percent and see where it goes.


    The trend is still down, just with a slower decay rate and some artificial bounce from the musical chairs crowd.

    Exactly- What we have today is totally unprecedented and unchartered territory. Rates increasing to even 5% (still stunningly low by any historic metric) would be dicey for today's completely dysfunctional real estate market.

  12. ELC


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    12   7:46am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Kevin says

    I fully expect prices to remain flat for the next 5+ years. It'll take at least that long for the refinanced people to stop being underwater and actually think about moving.

    5+ years? I doubt the financial intelligence and staying power of, "underwater people." If a major price rise doesn't happen soon they will max out their credit cards and walk away from their mortgages.

  13. Mobi


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    13   8:21am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    I think this so-called "recovery" is not uniform geographically in terms of the prices. Some cities see good bounces but some areas (east coast, midwest) are still dropping. I would not rely on the composite for my local investment. But from a macro-economy point of view, yes, the recovery is very weak (if any.)

  14. RentingForHalfTheCost


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    14   8:57am Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    BoomAndBustCycle says

    Of course it was a good idea to buy even in 2000! You are up and have nearly 15 years paid off... Could refi the last 15 years at 2.5% today and be paying half what others are paying to rent the same place!

    Well, it depends what you are comparing it to. In that 15 years a renter in the bay area that took the excess money from renting and invested could have enough to buy a house with cash today. That beat the 15 years at 2.5% of debt situation.

  15. dodgerfanjohn


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    15   9:16am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    BoomAndBustCycle says

    Prices cant fall if people are underwater and cant sell.... And banks wont foreclose.

    No sales = no or very slow price drops

    Only successful sales are those with equity and ability to squeeze buyers who want to buy from the limited selection for every last penny.

    Again no. Prices reach a point where its profitable to build, building will commence.

  16. Goran_K


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    16   9:18am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    RentingForHalfTheCost says

    Well, it depends what you are comparing it to. In that 15 years a renter in the bay area that took the excess money from renting and invested could have enough to buy a house with cash today. That beat the 15 years at 2.5% of debt situation.

    I bought Gold in 2004. I will never finance a home purchase.

  17. BayArea


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    17   11:53am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    Does anyone know a source that allows you to manipulate the S&P/Case-Shiller index by house price/location?

    For example, the index is not too interesting to me for all real estate in the country. But it starts to get interesting if I can look at a specific price range and/or location.

  18. ELC


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    18   11:59am Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    dodgerfanjohn says

    Prices reach a point where its profitable to build, building will commence.

    But even if it's profitable to build there is an unkown boogy man know as shadow inventory. Smart businesspeople will be highly reluctant to make a move if there's no concrete way to quantify just how much shadow inventory is out there, and from the debates I've been reading on this and other forums, no one knows for sure. I sure wouldn't believe BOA or Wells Fargo when they say there is none.

    What we're seeing so far is the people with more money than brains making emotional decisions based on greed and impatience rather than sound business decisions. Once the chum gets devoured it'll be happy hunting once more.

  19. tatupu70


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    19   12:13pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    ELC says

    But even if it's profitable to build there is an unkown boogy man know as shadow inventory. Smart businesspeople will be highly reluctant to make a move if there's no concrete way to quantify just how much shadow inventory is out there, and from the debates I've been reading on this and other forums, no one knows for sure.

    It seems pretty clear to me. Look at deliquency statistics

    http://www.fool.com/investing/general/2012/11/13/mortgage-delinquency-rate-drops.aspx

    Your shadow inventory will either be captured there or in the defaults.

    There is no super secret inventory that nobody knows about....

  20. Dan8267


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    20   1:47pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    From the graph, it looks like the 20-city composite needs to drop in half just to reach fair market prices that were normal for the past 100+ years pre-bubble.

  21. pazuzu


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    21   1:54pm Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    "...needs to drop in half just to reach fair market prices that were normal for the past 100+ years"

    Seriously!

    And Bigwog looks at the chart and sees returns to "historical price trends". LMAO

  22. ELC


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    22   3:05pm Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    tatupu70 says

    There is no super secret inventory that nobody knows about....

    Then the ones investing now are in denial of it. The banks are denying it. The very name "shadow" and "ghost" seems to suggest something spooky. It sure spooks me.

  23. unstoppable


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    23   3:22pm Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    BayArea says

    Does anyone know a source that allows you to manipulate the S&P/Case-Shiller index by house price/location?

    For example, the index is not too interesting to me for all real estate in the country. But it starts to get interesting if I can look at a specific price range and/or location.

    Seattlebubble posts graphs every month where all 20 city's are listed individually.

    http://seattlebubble.com/blog/2012/11/27/case-shiller-seattle-hpi-bucked-seasonality-in-september/

  24. David Losh


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    24   3:25pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    Doesn't look like much of a recovery to me.

    If you plot the trend line from the beginning in 1987 this is a huge recovery.

  25. David Losh


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    25   3:27pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    unstoppable says

    Seattlebubble posts graphs every month

    The Seattle Bubble graphs are the best, and some are interactive, like the Tableau graphs that allow you to go back to the earlier reporting times.

  26. Mark D


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    26   8:03pm Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike (1)  

    the Case-Shiller chart will go down in history as the most accurate and yet most misleading chart every created. it will cause many bears to bang their heads on the walls many years from now wishing they had never laid eyes on it.

  27. JohnLaw


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    27   8:17pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    All bubbles are fully retraced. That would put prices at 1997 - 1999 levels. Las Vegas, Phoenix and parts of Florida may have already retraced, but most other places have a long way to go.

  28. Bellingham Bill


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    28   8:21pm Wed 28 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    JohnLaw says

    All bubbles are fully retraced

    Bullshit.

    http://research.stlouisfed.org/fred2/graph/?g=dei

  29. rooemoore


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    29   8:26pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike (1)  

    Billybigrig says

    rooemoore says

    And why did you freeze my avatar?

    It's stuck just like the pages of the XXX magazines I used to find in my big brothers room...

    analog porn - those were the days.

    But seriously, wtf patrick? Avatar gifs of "You're brainwashed" are cool, but a sweet thang gif is not? Site is going down....

  30. New Renter


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    30   9:18pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    rooemoore says

    Billybigrig says

    rooemoore says

    And why did you freeze my avatar?

    It's stuck just like the pages of the XXX magazines I used to find in my big brothers room...

    analog porn - those were the days.

    But seriously, wtf patrick? Avatar gifs of "You're brainwashed" are cool, but a sweet thang gif is not? Site is going down....

    I like the bouncy

  31. thomaswong.1986


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    31   9:28pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    BoomAndBustCycle says

    rooemoore says

    The recovery has started but the next buyer boom is about 21 -25 years old. In 5 years housing will be strong again. (but no bubble, I hope)

    Patrick, do you think it would have been a good decision to buy a house in Palo Alto or Menlo Park in 1994?

    Edit: And why did you freeze my avatar?

    Of course it was a good idea to buy even in 2000! You are up and have nearly 15 years paid off... Could refi the last 15 years at 2.5% today and be paying half what others are paying to rent the same place!

    Breaking into the market

    Yes, Virginia, it is possible to buy a first home in this area--if you're willing to make compromises

    by Jocelyn Dong

    So you're looking to buy your first home in Silicon Valley. How do you get into the market?

    "Stock options," says real estate agent Chuck Atwell dryly. "Being a multi-millionaire."

    http://www.paloaltoonline.com/news_features/real_estate/fall2000/2000_09_22.lowmarkt.php

    Tell you what.. I will sell you my employee stock options of Ariba (recent IPO back in 1999) for about $300 per share IN CASH and you get stock certificates whose value drops by 90%. I get free money and a free home... So 10 years later your still poor holding stock of a near dead company.. while the home buyer did well..

  32. thomaswong.1986


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    32   9:33pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    rooemoore says

    Patrick, do you think it would have been a good decision to buy a house in Palo Alto or Menlo Park in 1994?

    yes.. as i did in Los gatos.. but this isnt 1994 and for many reasons buying at these high inflated prices make far less sense than in 1994..

    1994... booming economy where shortage of workers existed given more companies need tech workers.

    20 years later.. everything going into reverse... utter decline in the economy.
    Too many out of work with too little jobs.

    http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

    One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

    But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

    In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

    That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.

  33. thomaswong.1986


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    33   9:35pm Wed 28 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Patrick says

    Doesn't look like much of a recovery to me.

    one way or another we will certainly go back to 75-100 on the index.
    we should have already been there but govt intervention stopped that for now.

    Odd how we dont hear any politicianl talk about normal prices over the past several decades
    prior to the bubble years.

  34. CDon


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    34   6:22am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    New Renter says

    rooemoore says



    Billybigrig says



    rooemoore says



    And why did you freeze my avatar?


    It's stuck just like the pages of the XXX magazines I used to find in my big brothers room...


    analog porn - those were the days.


    But seriously, wtf patrick? Avatar gifs of "You're brainwashed" are cool, but a sweet thang gif is not? Site is going down....


    I like the bouncy

    Yeah - I'd like to think im above this, being married to a hot wife & all....

    But im not...

    That avatar was one of my favorite little perks of coming to this site. Im sad to see it go.

    @rooemoore can you give us the source for that gif? If patrick wont let you have it, maybe I'll keep her in the corner of the screen - kinda like that stupid smiling paperclip in the early versions of MS Office. I wonder if my wife will care?

  35. ELC


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    35   6:32am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Mark D says

    the Case-Shiller chart will go down in history as the most accurate and yet most misleading chart every created.

    Exactly how is it misleading?

  36. David Losh


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    36   8:11am Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Billybigrig says

    drawn-out fundamental downtrend

    We haven't hit the long drawn out downward trend, but we will.

    What I find sad is that banks were never held accountable, and it will be up to individuals to dig out of this financial crisis, without any help.

    Sure we got low interest rates, but I think in the long run that will only add more debt, with lower payments.

    The asset prices will continue to slip, and unless the consumer stops today, looks around, and says they will address personal debt, they will be lost.

  37. BayArea


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    37   2:00pm Thu 29 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    unstoppable says

    Seattlebubble posts graphs every month where all 20 city's are listed individually.

    Excellent, thank you sir.

  38. FunTime


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    38   1:52pm Tue 4 Dec 2012   Share   Quote   Permalink   Like   Dislike  

    BayArea says

    Does anyone know a source that allows you to manipulate the S&P/Case-Shiller index by house price/location?

    Are you not using the their own city by city data provided in Excel spreadsheets?

    http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----

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