Get ready California, prices are going up in 2011! (then back down)
By iwog Follow Mon, 15 Nov 2010, 1:58pm 26,301 views 491 comments
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iwog says
Uh... no they didn't. The prices were down overall about 6% Sorry but that's not what I would call "flat". But even if they were ( which they weren't) the prediction that 2011 prices would go up was totally wrong.
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Is this headline a joke???? The entire state of California is on Federal welfare to the tune of 25 billion last year. When that disappears.....well.....good luck. Home prices drop another 50% at least and never come back. Well maybe 20 years later, but that may as well be never.
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Monterey, CA
swilliamscc says
Yes, the entire state of CA is on welfare. All those people driving to work are just a mirage.
And another 50%? Good luck with that.
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Woops. The state local debt is actually 56 billion last year. More welfare than I thought.
Fast Facts
California Public Debt Issuance for the Period January 1, 2011 to December 31, 2011*
Total State and Local
Total Debt Issued: $56,184,907,023
(36.7 % decrease from 2010)
Total Long-Term Debt Issued: $36,950,744,157
(41.2 % decrease from 2010)
Total Short-Term Debt Issued: $19,234,162,866
(25.8 % decrease from 2010)
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Monterey, CA
swilliamscc says
Well then, (certain) people need to be taxed more, but seeing as a lot of Americans seem to think they should get the services without paying for them (or shouldn't need to contribute to the effective running of society at all), then that might be tricky.
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RentingForHalfTheCost says
That's not the way financed real estate works.
For the last time, a mortgage will depreciate at the same rate as a house due to inflation.
Simplified: A $300,000 home with a $300,000 mortgage at an inflation rate of 3% will result in a real cost of $291,000 for the house and $291,000 for the mortgage.
FURTHERMORE if interest rates decline during this period, and you refinance the mortgage for 1% less, (which is very likely during the last few years) the cost of the mortgage declines FASTER than the value of the house resulting in a NET GAIN DUE TO INFLATION!
You CANNOT play with inflation adjusted numbers in real estate like you can with the cost of a loaf of bread. It's a whole different universe.
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I love how people use inflation data and financing tricks to justify home values. The only thing that matters is net family income vs home price. It needs to be no more than double. It's that simple. If it is higher than that it is only short term financial trickery that will not be sustained. Hence, prices will drop!!
explanation in link below
http://www.mybudget360.com/buying-a-home-in-america-today-is-expensive-thanks-to-the-banking-sector-examining-income-and-home-prices-from-1950-to-the-present-can-home-prices-fall-another-38-percent/
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Boulder Creek, CA
yep.
The missing component in his equation is wage inflation.
Currently that doesn't exist for the vast majority of would be buyers.
Simplified: a $300,000 nut is a $300,000 nut when your wages don't increase.
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swilliamscc says
The entire world, nearly every city on the planet, disagrees with you.
Real Estate in the United States is cheap. It's the high standard of living that is almost unique to the USA that you're referencing. You can't imagine nearly every penny of income being used for shelter because you have no experience with it, but I assure you that most of the world lives this way.
We're going in the wrong direction. If you want to return to the 1950s and 1960s, we need FDR style Democrats running things and not insane Republicans.
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IWOG says
"The entire world, nearly every city on the planet, disagrees with you."
Hey IWOG the entire world nearly every city is broke and living on false wealth through unsustainable credit (debt expansion). If you want the poor to become poorer and rich to be richer. Sure, lets inflate assets like homes with printed money. That way poor people will always have to borrow money to survive and be debt slaves to the wealthy forever. OR, we could let banks fail and home prices drop to levels that people can easily afford without having to beg for money. But that is probably too simple of a solution.
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swilliamscc says
Not exactly, however if you're right this is even more reason why real estate is undervalued.
A piece of real estate is real wealth. Why would you attack fiat currency as being fake wealth, and then attempt to attack the perceived value of REAL wealth using fake wealth as an argument?
Do you understand that if this system of unsustainable debt collapses into hyperinflation that real estate isn't just undervalued, it's all that will be left?
swilliamscc says
Believe it or not, banks actually work for poor people. They provide a conduit to move wealth from the rich to the poor.
Eliminate banks, eliminate debt, and the rich will own ALL the real estate and charge whatever they want. Do you really think the people with the gold are going to allow prices to collapse when they can create their own kingdom and declare themselves king?
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I'm saying that deflation is the solution to our problems. But wealthy people doing nothing but moving paper around for a living don't like that. So they use the Fed to stop deflation and keep their system afloat. Deflation will help the poor. Cheaper everything is good for lower wage people on fixed incomes.
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swilliamscc says
Deflation will decimate the poor just like it decimated the poor in the 1930s. There isn't going to be any wages.
Wage earners are immune to inflation because wages almost always rise with inflation.
HOARDERS are hurt by inflation because the value of their holdings will steadily decrease. This forces people to invest money and property in the production of wealth, which benefits everyone.
You've got it completely backwards.
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That's laughable. Your thinking will definitely continue the fraud that is currently taking place. If you were correct, I guess we are doing great now in the US. Massive inflation helps the poor and middle class right?? Just look at income growth for the wealthy vs poor over last 20 years. Oh wait............
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swilliamscc says
My thinking is taught at the university level in economics courses.
Wealth disparity isn't a function of inflation, it's a function of government economic policies. It's a function of taxation, anti-competition regulations, the minimum wage, organized labor, and bankruptcy laws.
Inflation REQUIRES wages to rise because inflation is nothing more than money paid to people who provide goods and services. If wages are stagnant or falling in an inflationary environment, it's because there are other factors pulling them down.
The most recent large nation to experience hyperinflation is Russia. Their economy and their wages increased exponentially after inflation fixed all the imbalances in their economy. This is not a small thing and it's important that you get it right.
Stop being defrauded by Republicans.
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iwog says
Baloney. What high standard of living? If we're talking about California, New York, or other high priced coastal metros then I fail to see how those prices are "cheap". For all practical purposes, if you want to buy a starter home in the Bay Area, then you'd better be pulling in at least 150k-200k per year in income, which is absolutely ridiculous.
There are many Western countries where an average wage will afford you an average house near major metros. That is no longer possible in many US metros. Thus why prices- unless more phony mortgage and lending products suddenly appear- will likely continue to either fall or remain stagnate: A return to a more stable, affordable, and less volatile real estate market is on the horizon and anyone who bought real estate post-boom thinking they're gonna' get lucky and gain windfall profits because they believe a bubble anything like the one we just got through with is surely to happen will be sadly very disappointed.
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your voodoo economics college crap is great at not seeing reality. Did you study with Ben Bernanke? He couldn't even see the housing crisis coming. Probably a straight A student tough. Unfortunately being an expert at false economic theories doesn't mean crap in the real world. It's already been proven. Look around.
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iwog says
Who said anything about a mortgage? Putting my hard earned money in an asset that is not keeping up with inflation is just bad business. I'd be better off buying comic books or baseball cards.
The whole mortgage smoke and mirrors has distorted the game long enough. People are still gripping to the complex credit vehicles and trying to push them like drug dealers. Reality is being force fed to us all, and time we all started to wise up. There is a hard reset happening whether you want to deny it or not. Patrick didn't just happen to create this website on a guess years ago. His engineer mind knew that things were on a tipping point and he was absolutely correct. Amazing how even a 30%+ reset from 2007 numbers still has people not willing to look at things differently. All data can be distorted to make a point. Please stop ignoring the obvious path we are headed down. Too much greed, too much debt, too much spending on top of not enough savings, not enough work. Pretty simple formula.
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swilliamscc says
yes, yes it does, since the poor and middle class owe most of the debt in this country and have their greatest % of assets in land value. Both of these respond favorably to actual massive (monetary) inflation events.
Just look at income growth for the wealthy vs poor over last 20 years. Oh wait............
The world is a complicated place; while I could make the cheap point that inflation over the last 20 years has been less than the 1970 to 1990 period, it is more important you understand that increasing income disparity has not much to do with monetary inflation, other than those who can find employment and assets that are inflation-protected (housing, licensed professional skills) will do better than the hoi polloi on the real income front.
But inflation has been a non-problem for the past 20 years, other than in the 1999 and 2004-2007 periods when people were able to go crazy with debt take-on:
http://research.stlouisfed.org/fred2/graph/?g=4xl
blue line is annual debt take-on as % of wages and red line is annual inflation rate. Note that inflation peaked at 9% at the height of the housing bubble -- this was no accident since the housing bubble was injecting $1.2T/yr into the consumer economy that year.
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RentingForHalfTheCost says
no, because comic books and baseball cards cannot provide you the housing service everyone requires to be an accepted person in society.
The only way you get that is by buying, renting, or leeching off a buyer or renter like a friend or parents (if they let you).
Please stop ignoring the obvious path we are headed down. Too much greed, too much debt, too much spending on top of not enough savings, not enough work. Pretty simple formula.
The future is actually unknowable. Things could fly apart and prices crash, or the System could do a massive money drop and things semi-hyperinflate like the late 1970s, or we could continue a steady deflationary grind down and stagflation of the mid-1970s, mid-1990s, and the tech recession.
I think all these futures are equally likely.
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edvard2 says
Only in a few nations with some semblance of the United States under the New Deal.
In all third world shitholes, which is where we're headed, wages are a very tiny fraction of the price of real estate. Rich people own all the property and they take what they can get in rents.
swilliamscc says
Totally empty. Did you tire of me actually responding to your points?
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edvard2 says
This is a particularly reality-challenged statement.
Houses everywhere are fantastically expensive -- Germany, France, UK, Norway, Sweden, Australia, India, you name it, any good place is expensive to live -- except here in the US, outside of our several "Fortress" communities with the world's richest workers.
Here's a chart:
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San Diego, CA
iwog says
This is true, but this scenario only exists in a market where interest rates are manipulated. True price discovery would push interest rates up in response to inflation (and in response to the increased risk of default rates as we have now, for that matter).
What you've brought up here is another example of just how much the current housing market is being manipulated to at least TEMPORARILY subsidize the purchasing of homes.
All of this is offset in many areas. Many markets are still inflated and will likely continue to decline over the next year or two, while the FED has also just announced that it intends to keep rates near zero until late 2014 (http://www.nytimes.com/2012/01/26/business/economy/fed-to-maintain-rates-near-zero-through-late-2014.html). Feels like a safe time to wait to me.
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When one argues about inflation being low in the past years, they should probably realize that they have changed the official equation to avoid the truth from getting out. see link below. We have had massive inflation. If they looked at the 3 things that matter to everyone (food, shelter, and energy) it was probably running at 35% the past 10 years. But lets just not count the things that people need to live. LOL
http://www.shadowstats.com/alternate_data/inflation-charts
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Bellingham Bill says
Many of those countries are currently experiencing massive housing bubbles so I'm not sure if those are really good examples to use anyway. But in any regard, the chart mentioned above doesn't mean much: Its a chart that generically compares one country to another overall. That means San Francisco, Wichita, and Detroit are all lumped in together for the US. But if you were to compare SF with its average salary then yes- its grossly overinflated.
But stepping back further... what does this have to do with anything anyway? Who cares if its more expensive in other countries? Its not like people will read this and suddenly be like- "Golly-Gee-Willackers, Its cheaper here in SF than Paris! I'm gonna' go buy an 800k crap shack cuz' it'd be more in France!"
I can tell this is going to be another classic un-ending debate where those whom have a staked interest in housing will probably continue to make arguments that they hope will validate their "investments". We aren't buying it.
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edvard2 says
Oh come on, so everything is a bubble now? The conditions that caused the US housing bubble were very specific and discussed in great detail on this site. Almost none of them applied to other countries. Isn't it much more likely that the metric of 2x income is simply wrong and an anomaly in world history when it actually occurred?
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Like I said- stating that its more expensive in other countries ( There are more metrics that would need to be evaluated in order to really see if that was true) has NOTHING to do with the initial claim here- that prices are rising. They aren't. They're falling. End of story.
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Monterey, CA
edvard2 says
Housing is considerably more expensive in Europe and vastly more expensive in the UK along with the cost of living. Bubbles have already popped in Europe or in the case of the UK RE has been supported by chronic housing shortages. And I'm English by the way so I do have experience of both sides of the Atlantic.
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I thought we were talking about Bay Area Real estate? What does Europe have to do with this at all?
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iwog: "Get ready California, prices are going up in 2011!"
HAHAHAHA.
Idiot.
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GameOver says
Why would I correct a headline written in 2010?
I was right. Prices went up in 2011 then fell back again. I was looking at the short term trend as indicated by asking prices at redfin. THAT was the purpose of the thread, a short term trend using graphs that were no longer than 1 year.
Micromanaging everything I say accomplishes what exactly? I have no problem being wrong, but asking me to correct my predictions after the fact is idiotic.
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There I corrected the headline to be 100% accurate.
Now it looks like I'm a genius who knew the future in 2010.
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Boulder Creek, CA
lol
You should change it to "and then to fall below 2010 prices"
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Bellingham, WA
edvard2 says
I stepped into this debate because you were wrong about the US's affordability vs. the ROW.
We have a lot more land -- and good, productive land at at that -- to support ourselves and spread out in:
http://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependent_territories_by_population_density
I have no 'staked interest' in housing. I've said zillions of times here that I think housing can and will take another dump from here -- $10 gasoline, higher taxes on the middle class, less gov't cheese, higher interest rates -- these are all nutpunches to the housing market.
But I can't see what cards are left in the 'shoe', so to speak.
What I do know is that the general trend has been inflation pushing the cost of housing up decade upon decade -- what my parents rented in the 1970s for $300/mo now rents for $1200/mo+. What I rented in the 1980s for $700/mo now rents for $1500/mo. What rented for $1000/mo in the mid-1990s is now renting for $1700+.
Areas away from the B.A. are in Great Depression level economies, still, and their housing markets are getting slaughtered for it.
http://latimesblogs.latimes.com/lanow/2012/01/central-valley-worst-place-to-look-for-a-job-report-says.html
If the Tea Party Austerians win the policy debate this decade, I expect a total fiscal collapse and return to 1930s mass misery.
If the Establishment regains control of policy I expect levers to be pulled to engineer another bullshit boom like we saw in the mid-1970s, mid-1980s, mid-1990s, and mid-2000s.
But if you think you can definitely see where things are going, I want what you're smoking.
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Bellingham, WA
edvard2 says
The bay area's housing stock is limited by geography, zoning, and NIMBYism.
It is also a fantastically affluent area that profits from its economic dominance over its hinterland
The Bay Area has been the financial capital of N California for a century plus.
That's where the jobs and money has been concentrating, and that's why it's so expensive to live here.
It's no accident that Henry George hit upon the central thesis of Progress & Poverty while travelling through the east bay.
Shit was fucked up even back then, in the 1860s.
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Bellingham Bill says
But that's a sort of meaningless comment. The US- as you mentioned- Is vastly different from all those other countries in that we have HUGE swaths of open land. Most of our cities are also highly affordable. The conversation has been about specific, highly-frothy areas like the Bay Area, which might as well be countries on their own because they're so far removed from economic reality when it comes to home prices and real wages. If the argument is that the US overall is more affordable then sure- I concur. But that's meaningless in this debate. Many of those other countries are highly populated and congested, hence less room for new housing. That's why they're less affordable. Look up the population density of Hong Kong. Its crazy.
Bellingham Bill says
Sure- other parts of California aren't doing that great. But Other STATES and other 2nd tier cities are doing great. There was another article on Patrick about high tech wages in the Bay Area. The average engineer's wage in SV is 100k. Sounds great until you look at what the same engineer gets paid in Austin, TX: $90k. SO for 10k less an engineer could move to Austin where the Median home price is still under 200k. On top of that a lot of the sunbelt states are doing rather well- mainly because they're magnets for middle class families wanting a decent standard of living that isn't affordable on the coasts anymore. That migratory trend will continue. But the bottom line is that Cali ain't the land of milk and honey like it once was and the more young professionals move away the more competition they will create. I can easily see another state or another city taking on Silicon Valley and doing so for far less money.
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Bellingham, WA
edvard2 says
And that's the bay area, too. If we didn't have the BAY, the OCEAN, and all the MOUNTAINS, we'd have more space to build, too.
Plus zoning here is whacky and density is pretty low in most areas compared to demand.
Real estate will take every surplus dollar this area earns. That's what happened in the 1990s with the original dotcom boom, hell that's what happened in the 1970s when all the good land got finally got developed for the first time, too.
SO for 10k less an engineer could move to Austin where the Median home price is still under 200k.
yes, because Austin is in the middle of Texas and can sprawl as much as it wants to.
That $10,000 per year differential gets pushed right into home prices here. A married couple with an extra $12,000 year to spend on housing will push up prices $200,000:
$500,000 @ 3.75% (10% down) is $2700/mo all-in.
$700,000 @ 3.75% (10% down) is $3700/mo all-in.
See how it works? $1000/mo extra purchasing power can push prices up $200,000!
As mentioned above, Prop 13 protections make the market in the ba more restricted than it should be, by essentially given earlier buyers tax subsidies to remain in their properties (or just rent them out), keeping much supply off the market.
I can easily see another state or another city taking on Silicon Valley and doing so for far less money.
http://en.wikipedia.org/wiki/Business_cluster
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Bellingham Bill says
And the point is? Unlike a lot of other more densely populated countries, we in the US thankfully have the ease and ability to relocate when one area starts sucking too much. That's what we do: We move to better areas. That's been the case since the country started and we still have lots of land. Hence the reason why the fastest growing parts of the US are almost all in the Southern Sunbelt states and Texas. California circa 1940's-the 60's was indeed the golden state. Now it more or less sucks. Its a great place to come and work and perhaps stash away some cash. But that's about it. That's why so many are moving out.
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Bellingham, WA
edvard2 says
http://research.stlouisfed.org/fred2/series/CASANT5POP?cid=27564
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iwog says
The future is not bright. Doesn't make me a genius, more a realist.