patrick.net

SFace says

If you have 40 bids, 1 will win and it is still 1 sale. The problem is not demand, but supply.

. Your sign is flawed as demand for housing is higher than ever.

This.

Volumes are tanking and prices are exploding upward. Inventory is down 60%, which means that only people in the top 40%, financially, count as "competitive" buyers. Then subtract out the sizable sales volume within the remaining 40% that goes to insiders and their friends, and what is left is primed for some ridiculous price increases since only the top 10-30% of retail buyers will actually have the money to get in.

I don't like it, but it is what it is for now. I bet we have at least a few more years of bubble-mimicing price jumps before the system craps itself again.

SFace says

. Your sign is flawed as demand for housing is higher than ever

It was not flawed in the last cycle; it's only flawed if it's a one month fluke. I'll be watching the next couple of reports carefully.

SFace says

Now there are 6K, a lack of transaction reflects that a buyer cannot buy.

Buyers can always buy at higher prices as long as inventory is not zero.

Also, sales slowed down way before inventory built up in the previous cycle. Sales slow down started at the end of 2005.

SFace says

You'll have to appreciate the leverage dynamic of any transactions. Buyers want to pay as little as possible while the seller wants as much as possible. The leverage and dynamics is the 99% of the study that goes into these things.

I agree with you on that. I doubt we see three years of price increases unless the Fed brings 10 years to 1.25 level.

robertoaribas says

ridiculous comment

The goal of my post was to talk about sales volume. Last time around, sales volume starting drying up at the peak when inventory was low too.

robertoaribas says

total bullshit

Read my comments. In Bay Area, sales turned at the end of 2005 when inventory was low. I did not follow Phoenix.

Inventory graph below: Sales turned in 2005, Inventory started building up in 2006. It is a bit different this time, but the volume is very low to support the price increases that we had.

http://www.calculatedriskblog.com/2012/12/housing-inventory-down-22-year-over.html

I don't even have to read what Roberto writes anymore, it's all the same thing:

blah...blah...Phoenix!!...blah...blah...you idiot!...
blah...your graph is utterly useless...idiot...blah...ridiculous!...
blah...idiot...blah...idiot..blah...you are an idiot!!
idiot!

treatmentreport says

Inventory graph below: Sales turned in 2005, Inventory started building up in 2006. It is a bit different this time, but the volume is very low to support the price increases that we had.

http://www.calculatedriskblog.com/2012/12/housing-inventory-down-22-year-over.html

It might be a little premature to sell now. You could wait until inventory build up before you sell. Once inventory gets to say 6 months, you can list it at 5%-10% below FMV and get it sold. We're currently at about 1 to 1.5 months of inventory, there's no reason to panic and sell yet.

If we go by that graph, we still have another 1 - 1.5 years to sell and get out. Just sit back and enjoy the ride for now.

E-man says

It might be a little premature to sell now.

I agree with you. I am not selling. I am just saying that low inventory alone does not explain sales drop. Maybe it's just a consolidation phase before more run up.

SFace says

If you have 40 bids,

why not make it 50 or how about 60.. none of it was documented or can be proven. and in court a Realtor can just deny anything.

robertoaribas says

yes, but bay area prices actually went up in 2005... they went up ALOT in 2005. In fact, they didn't start down significantly till late 2006 at the very eariest.

more like it hit the turn in Q4 2008... volume was extremely light in 2006.

SFace says

Your sign is flawed as demand for housing is higher than ever.

I'll buy 40 houses if they were 10K each. Demand for cheap housing is at an all time high! As you would expect with free money all around us. Silly days.

Something is cooking now for sure. Today I stop by in few new housing developments in South Bay. At list a 100 of new houses in various steps of development. Most are spec houses, and prices… same as 2006 year.

with wages falling and taxes increasing, who can afford higher priced homes? Economic 101. The housing bubble got bigger since early 2012 and will eventually continue its downtrend once novice investors realize that we are not close to a bottom.

I just finished Taxes for last year. CA tax comes up more than twice than previous year. Simple reason: most typical Federal deduction is ignored by CA now.

RentingForHalfTheCost says

SFace says

Your sign is flawed as demand for housing is higher than ever.

I'll buy 40 houses if they were 10K each. Demand for cheap housing is at an all time high! As you would expect with free money all around us. Silly days.

If Tesla is selling for $4k each, I'll buy 10 of them. I'll even give you one.
If AAPL is selling for $10/share tomorrow, I'll buy 1,000 shares. I'll give you 100.
If a house in Palo Alto is selling for $100k each, I'll buy 10, and I'll give you one.

Yep. Demand for cheap stuff is at all time high. I love living in your world.

bmwman91 says

which means that only people in the top 40%

"which means that only people in the top 40%"

more like top 10% of anyone who doesnt have a property to leverage up. serious. new buyers cant afford to play the sf bay game.

robertoaribas says

SO, unless we see inventory building, and building alot, I wouldn't take a 6% drop in price as a bearish indicator.

No calculations on affordability or relative cost to income is warranted here. None. Its up up up, hockey stick! There is no bubble x.0.

treatmentreport says

robertoaribas says

ridiculous comment

The goal of my post was to talk about sales volume. Last time around, sales volume starting drying up at the peak when inventory was low too.

Be very careful with using sales alone to declare top. I say this because in DC (where prices hit a hard bottom in early 2009 and have been going up slightly since), sales continued to decline, YOY until 2012-2013.

Now in 09-10, Bears used declining sales volume as a sign of a peak, but the rational heads pointed out, its very hard to beat YOY sales records when there is significantly less inventory from which the sales must come. Put another way, in a rising price environment, if sales decline 10% and inventory declines more than 10%, its very possible prices will continue to rise.

In any event, the rational heads were correct, and it was only after 4 years of declining sales (and rising prices) that volume appears to have stabilized. They aslo relied on precedent in that during the early 1990s downturn, DC prices bottomed in 1992, but sales continued to decline til 1996.

That said, IF you see (a) demonstrably rising inventory AND (b) declining sales, like we saw in 2005-2006, then I think its safe to say you very well could be seeing a peak. But as some of the early bubble bloggers pointed out "its the inventory stupid"

http://bubblemeter.blogspot.com/2005/11/its-inventory-stupid.html

Thus, without the inventory build, you very well could end up disappointed.

CDon says

I say this because in DC (where prices hit a hard bottom in early 2009 and have been going up slightly since), sales continued to decline, YOY until 2012-2013.

What you describing makes a lot of sense for DC. As stimulus kicked in 2009, DC area prices increases led the county while prices still declined elsewhere. In bay area you could still buy really well until about October 2011. That's when it turned. I think the biggest two factors for the turn were super low interest rates caused by the debt ceiling fiasco and the settlement with the banks that limited foreclosures and contributed to inventory decline. I would say that even builders did not think this move was for real until about May - June 2012 when they really started getting aggressive (you can see it in their fall price increases).

My thesis is still that majority of the price gains are due to low interest rates. Crazy inventory situation does not make things better. But we still have a limited pool of buyers. If we were able to have 8500 transactions in February of 2002 (the last time interest rates dropped significantly) and only 5500 transactions 11 years later, there is something wrong with the volume. With population growth we should be getting closer to 8000 to 9000 transactions at this point.

robertoaribas says

They are underwater, but still paying a lower than rent mortgage, so they will sit.

This is impossible, or, at least, not in the bay area. If you're underwater, then you bought at the peak. If you bought at the peak, you would be paying at least 2x on your mortgage than an equivalent rent.

The Professor says

Or you heloc'ed the hell out of your "equity".

But then your mortgage + heloc payment would be much more than the rent.

robertoaribas says

it would need to climb by double or triple today's numbers, prices are going to continue to rise.

As prices climb, demand falls, so inventory doesn't need to climb for prices to stop rising.

robertoaribas says

How much longer do you need to be wrong for?

And how much longer do you have to be an asshole for?

robertoaribas says

Prices are up 20% or so, since you first said I was wrong predicting price increases.

Prices increased first with the tax credit, that primed the pump for the "bottom callers."

Next we had QE1,2, and 3 that lowered interest rates, and we got bottom callers crawling out of the woodwork.

When we had the MERS lawsuits, and bank scandal that choke the foreclosure markets we got the real bottom callers.

All the bottom callers do is distort reality.

In a real market place prices adjust to affordability. So if you bought at a price where affordability was determined by 3.5% money as a mortgage payment you're screwed.

At some point interest rates will increase.

As interest rates increase, prices will decrease. Sellers will realise they missed the "top" of the market so they will sell, and buy again on the way down, with a trade up.

So predicting a price increase with declining interest rates is a no brainer. I still say the Fed will cave either later this year, or 2014, like Bernanke promised, and we'll get higher interest rates.

robertoaribas says

Hey two years of being completly F**ing wrong!!! you go dumbross!

Better than being over 40 years of completely f**ing asshole.

Maybe many of those who went through foreclosure are ready to buy now?
And, maybe all of the REwhore LandLords that purchased bones on the court house steps - then rented them to the freshly foreclosed for more than they would rent in a healthy economy?
And, maybe those same REwhores are now selling at a huge profit - for a price based on the high rents being paid and a "max them out" attitude - to those wanting to escape high-rent hell where they are paying a rent amount that equates to buying the home for double it's worth?
And, maybe the REwhore weekly meetings, where they set the prices (known as price fixing in all other business), they have all settled in to shoot some fish in a barrel?

What I am wondering is, are those that got foreclosed on trying to buy back the homes they lost to the REwhores -- the same homes they have been renting for more than purchace price -- creating a perfect situation for the REwhores (LandLord ones) to double end the perfect deal?

The fact that the system for a home transaction has not been forced into a true daylight situation tells me that the REwhore lobby has done it's job well.

robertoaribas says

2 years and counting of complete wrongness!

Good! Some people have real jobs.

robertoaribas says

isn't really any point in trying to explain anything rational about real estate to you.

Yep. I guess it's hard to explain anything rational about basic human interaction to the Neanderthal from Phoenix.

John Bailo says

Ok, econ 101.

There are three people and 2 gum drops.

These are magic gum drops, one that a person has to consume every day to continue living.

How much is the gum drop worth to the 3rd person?

This is flawed. The 3rd person chose to rent instead of paying double for a gum drop. In some markets, this decision is actually the wisest.

Let's cool it down on here; only time will tell for sure what will happen.

Bears can't deny that low interest rates forced many people to reevaluate their buy vs. rent decision and jumped in. However, it does not seem like there are enough of these buyers to create real volume. Low end is definitely on fire but high end is not moving so fast due to many factors that I described in my previous threads.

If you are a real estate bull, enjoy your winnings which are very similar in percentage terms to buying 30 year treasury in the middle of 2011. So Roberto, you are not as much of a genius as you think. Anyone who was long duration in the last year and half made a lot of money together with the Fed. We will see if the winnings hold in three to five years.

Here is my thread from January about the possible headwinds: http://patrick.net/?p=1220983#

robertoaribas says

home prices have actually been slightly more likely to rise in years when interest rates go up, then what you claim. The reason for this is obvious: the Fed raises interest rates to cool down inflation, and if we have a strong enough economy to cause real inflation, especially wage inflation, home prices will have a stronger push from that, than from the interest rate increase.

Hi Roberto,
I have a question regarding this theory in terms of how it would relate to the current state of affairs. If the Fed raised rates to cool inflation, wouldn't the inflation be due to all of the borrowing the Fed is undertaking and not necessarily from a healthy economy & wage inflation?

robertoaribas says

the Pearson product moment correlation coefficient,

Geez, now I'm impressed. Yeah, yeah, yeah, mortgage payment is less than the rental income. That works for you, the investor. A home buyer is different, they make payments that today may be cheaper than rent, but when home prices fall they are stuck.

It means more home owners, debt slaves, will be underwater on mortgages.

This isn't a debate. The Fed will simply move on. Prices will decrease.

As prices decrease more sellers will list properties for sale because they realize they missed the peak. They will buy more house for less, and create that move up buyer market place. First time home buyers will have more choices.

The big residential investors who entered the market will sell, and reinvest elsewhere.

Again, I see Bernanke stepping down, or changing strategy in 2014.

As far as buying two years ago, I didn't, and wouldn't have recommended it. You got in in 2008, God bless you, but that was closer to where fair market value was.

Now what confuses you in your one size fits all strategy is that there are hot Real Estate market places. There are places, like Seattle Washington, that have great employment opportunities. Those places are bid up based on increased incomes. We have people from all over the world who want to, or need to live here. They pay a premium for that.

The Bay Area got to be a bargain compared to the global Real Estate market place.

You do realize there is a global Real Estate market place, I'm sure because you are telling me how smart you are.

So, it's a wage based, comparative global Real Estate market place that should be in your formula there.

robertoaribas says

Clearly facts and reality aren't your strong points, nor thinking...

Hmmmm.... rising interest rates, rising prices, and you have that in a chart, that must make for some kind of reality in your mind, but it's warm, and fuzzy math to me.

You forgot to mention the correlation of rising interest rates with inflation.

We get inflation when we have rising wages. If we have price increases without a rise in wages we have substitution, or doing without. We could also throw increasing debt as a way to bridge the gap.

Where is that increase of wages coming from?

I understand your comments.

I can imagine the types of questions on Roberto's Math tests:

How many homes did I purchase in the last year and how much money am I worth?

If the student got the answer wrong, he can expect an F and the word "IDIOT!" written at the top of the page.

robertoaribas says

dumbross, you said 2 years ago that prices were going to fall. Are you ready to apologize to everyone for bolloxing that all up 1000%???/

I don't think so. Your house price is still lower today than it was 2 years, relative to my real money which is gold, especially if you consider losing another 6% off the top, as soon as you sell it.

robertoaribas says

ok, continue in your contest to be the biggest dumbass ever on this website! it's close, but I think you can do it!!!!

Wonderful. Let's agree to disagree. But, I've gotta give it to you. As far as being the biggest asshole on this website, you're the top-down winner - no contest there!

robertoaribas says

you're a clueless twit

I would say a clueless twit is someone who invests all his money in one place.