patrick.net

I think that people made 2 major errors:

1) Believing that "rental parity" would automatically mean that house prices would go down. Not many considered rents going up to achieve "parity."

2) Fear of down payment loss aka vaporization. But they didn't look at other side of the coin - house prices going up which causes future income to be "vaporized" due to continuing to rent and then buying at a higher price.

CDon says

It wasn't until late 2012 that she woke up and realized she was being deluded by a self selected group who were driven more by emotions than fact.

Don't worry we will be revisiting the 2008 situation very soon when the next recession hits, it is not a matter of "if". Any gains above the normal rate is going to be corrected whether it is a stock market or housing.

bubblesitter says

CDon says

It wasn't until late 2012 that she woke up and realized she was being deluded by a self selected group who were driven more by emotions than fact.

Don't worry we will be revisiting the 2008 situation very soon when the next recession hits, it is not a matter of "if". Any gains above the normal rate is going to be corrected whether it is a stock market or housing.

The problem is the bears have been saying the next recession is going to hit for the past 2 years. Instead the stock market went up 30%+, housing market went up, rental market went up. The only thing that didn't go up was wages (for people that actually work).

The "correction" could be 10 years from now. By then your real wage may be 2/3 of what it is now.

These types of analysis are so deceptive. They fail to take into account historical and potential real estate appreciation. Throw that into the equation and all the colors get reversed.
Ask yourself why the rich Chinese are not buying in the best place to buy according to this map - Baltimore, but instead buy in the worst place - San Francisco. These rich Chinese got rich by being smart, they must know something.

Strategist says

These types of analysis are so deceptive. They fail to take into account historical and potential real estate appreciation. Throw that into the equation and all the colors get reversed.

Ask yourself why the rich Chinese are not buying in the best place to buy according to this map - Baltimore, but instead buy in the worst place - San Francisco. These rich Chinese got rich by being smart, they must know something.

They're buying where there are other Chinese people (Bay area, NYC, DC) and where the good universities are at. Why the hell would anyone buy in Baltimore. Aside from JHU and inner harbor, that place is a dump. Also the demographics aren't attractive to east asians.

Actually I used to see mostly east asians (75%+) at open houses in the bay area. Lately, it's basically all Indians. The last open house I went to consisted of me (asian), my spouse, a white guy and his asian spouse....and 20+ Indians (I didn't bother counting all the kids they had there). NYC real estate remains white and east asian central.

CaffeineAddict says

The problem is the bears have been saying the next recession is going to hit for the past 2 years. Instead the stock market went up 30%+, housing market went up, rental market went up. The only thing that didn't go up was wages (for people that actually work).

The "correction" could be 10 years from now. By then your real wage may be 2/3 of what it is now.

At least, you admit that correction is in future. Even couple of bulls have admitted 2017 could be it. It seems like you are totally oblivious of the national debt and decline in government revenue. On top of it they come up with more taxes on folks....all this just does not add up. Correction is inevitable, we can debate all day as to when that is gonna happen. Until then enjoy the good times.

CaffeineAddict says

Ask yourself why the rich Chinese are not buying in the best place to buy according to this map - Baltimore, but instead buy in the worst place - San Francisco. These rich Chinese got rich by being smart, they must know something.

They're buying where there are other Chinese people (Bay area, NYC, DC) and where the good universities are at. Why the hell would anyone buy in Baltimore. Aside from JHU and inner harbor, that place is a dump. Also the demographics aren't attractive to east asians.

Actually I used to see mostly east asians (75%+) at open houses in the bay area. Lately, it's basically all Indians. The last open house I went to consisted of me (asian), my spouse, a white guy and his asian spouse....and 20+ Indians (I didn't bother counting all the kids they had there). NYC real estate remains white and east asian central.

A smart businessman and investor will seek to maximize his returns. The most influencing variable in the equation will be potential total returns, while the rest of the variables will be secondary. If history is a guide it will show that Baltimore will continue to be the worst place to invest in, while San Francisco among the best. I am biased towards Orange County though.

EastCoastBubbleBoy says

Good counterpoints. Particularly 1, 2 and 5.

Although I now am a homedebtor and don't post much, I still lurk.

I'm thankful that I pulled the trigger when I did.

I'd like to say I made a data driven decision based on all the great feedback here at this site - but truth be told I just got lucky.

That said, this place does have it's pulse on where things are, and more importantly, where they are headed next.

(Trolls and permabears notwithstanding)

To echo what you said above, when the sky is cleared, it's way too late. The saying of "buy when there's blood in the street" is very true.

I was nervous seeing you kept on waiting and waiting to pull the trigger. You barely got in at the tail end of the cycle. Congrats for pulling the trigger.

I know quite a few people that wish they had pulled the trigger. One of my tenants is currently shopping for a house. Ironically, they were so negative toward housing when their friends bought houses in 2011 - 2012. They even talked their friends out of buying houses at those prices. Now, they're a little panic because prices are 30% higher than just from a couple of years ago. They NOW feel that home prices will likely go higher because of the tech boom in the Silicon Valley, which has created a lot of millionaires in the recent years and will likely created even more millionaires in the coming years.

This couple is in their early 30's and is making close to $250k/year. It's ironic to see it comes in full circle.

Looks like @seaside is still renting. Hope @TechGromit is doing well.

@CDon, I got out of FB and made some money. I guess it was a lucky bet. :0)

By the end of the year, Fed will have 5T on its balance sheet. How much is that? At 376K median price for California, it's enough to buy 13.2 Million homes. Yes, enough money has been printed to buy all houses in California at today's prices.

Does everyone really think that 5T on the Fed balance sheet will not have negative consequences on the quality of life in the future?

bubblesitter says

CDon says

It wasn't until late 2012 that she woke up and realized she was being deluded by a self selected group who were driven more by emotions than fact.

Don't worry we will be revisiting the 2008 situation very soon when the next recession hits, it is not a matter of "if". Any gains above the normal rate is going to be corrected whether it is a stock market or housing.

Please define "very soon" and a date where if it doesn't happen, you will step up to the plate and apologize saying "I was wrong"

I ask because while I think most everyone understands that on an esoteric level, there will be a giant WOOSH type correction inevitably, I fail to understand why it is imminent.

In point of fact I could very well see this happening and hear this on this site:

EVENT & PATNET COMMENT
2014 Prices 500K Don't buy now, prices are gonna CRASH!
2015 Prices 515K Don't buy now, prices are gonna CRASH!
2016 Prices 530K Don't buy now, prices are gonna CRASH!
2017 Prices 550K Don't buy now, prices are gonna CRASH!
2018 Prices 580K Don't buy now, prices are gonna CRASH!
2019 Prices 630K Don't buy now, prices are gonna CRASH!
2020 Prices 680K Don't buy now, prices are gonna CRASH!
2021 Prices 740K Don't buy now, prices are gonna CRASH!
2022 Prices 540K SEE I TOLD YOU SO!!!!!!!!!

In this hypo those that waited are now 9 years older, and passed on 500K prices only to buy at 540K. In a way, this hypo above is exactly what happened 2000-2011 - while the crash happened, 2011 prices were still way above 2000 prices so the year 2000 bubble sitters have ever thought possible - forcing some to sit on the sidelines forever.

So in any event @bubblesitter, since you responded care to tell us when is the end all be all date for the great crash you envision? Since you are so certain that it will be "soon" when do you give the "all clear" signal for those who simply want to some day buy a house and get on with life?

CDon says

So in any event @bubblesitter, since you responded care to tell us when is the end all be all date for the great crash you envision? Since you are so certain that it will be "soon" when do you give the "all clear" signal for those who simply want to some day buy a house and get on with life?

Boom and bust cycles is what USA is about. 2017 is year of housing collapse like the last one. So get out from RE by then.

bubblesitter says

2017 is year of housing collapse like the last one. So get out from RE by then.

So we can put you on record then? Are you saying to the sitters that do not want to pay say 500K in 2014, if they wait 3 more years until 2017, they will see nominal prices far below 500K so as to justify waiting and paying whatever amount of rent in the interim?

CDon says

So we can put you on record then? Are you saying to the sitters that do not want to pay say 500K in 2014, if they wait 3 more years until 2017, they will see nominal prices far below 500K so as to justify waiting?

It could be sooner then 2017. If not then there is a pullback in price by 2017.

bubblesitter says

CDon says

So we can put you on record then? Are you saying to the sitters that do not want to pay say 500K in 2014, if they wait 3 more years until 2017, they will see nominal prices far below 500K so as to justify waiting?

It could be sooner then 2017. If not then there is a pullback in price by 2017.

And again, that pullback will be so severe as to put nominal prices below 2014 values, and paying whatever amount of rent in the interim so as to justify waiting - yes?

Tim Aurora says

you are apt to lie about the housing prices as you are a fence sitter.

I am bear for a reason. I make much more then investing in shacks.

Tim Aurora says

but I do not see any compelling evidence to corroborate your theory

Live your dream. I can't stop you from doing that.

CDon says

And again, that pullback will be so severe as to put nominal prices below 2014 values, and paying whatever amount of rent in the interim so as to justify waiting - yes?

yes and yes. Why would I block my earnest money and not have any gains on it? Go revisit your rent vs buy math cuz I have and concluded that for my financial situation buying never makes sense, it is a money pit, home is a place to live and enjoy - nothing more.

bubblesitter says

CDon says

And again, that pullback will be so severe as to put nominal prices below 2014 values, and paying whatever amount of rent in the interim so as to justify waiting - yes?

yes and yes. Why would I block my earnest money and not have any gains on it? Go revisit your rent vs buy math cuz I have and concluded that for my financial situation buying never makes sense, it is a money pit, home is a place to live and enjoy - nothing more.

And there it is. There is your true motivation (my boldface of your comment) - you are not a bubble-sitter... you are a perma-sitter. There is nothing wrong with that BTW for some people given their risk tolerance & location, it will never make sense to buy. Again no problem there.

The problem is we are not all like you. For every person in your situation - there is another for which buying does make sense. Yet, given that they continue to hear a great CRASH is just around the corner, they continue to wait - and why wouldn't they? Sure they could easily afford 500K now. But why risk it when others here are certain that same place will be 420K soon?

So again, if that is your personal situation and it will never make sense for you then that is fine. If I may, may I suggest that you recongnize that you recognize that fact. You should simply say "I cant afford it" shrug your shoulders and go out and live your life...OR if you really like being here - espouse the virtues of lifetime renting for some. That said, it is incredibly irresponsible to come here and continue to spout of your opinion (presented as some sort of axiomatic fact BTW) that if they wait juuuuuust a little longer, a magnificent CRASH will come such that the long time sitters will be richly rewarded.

CDon says

That said, it is incredibly irresponsible to come here and continue to spout of your opinion

Hahaha. Now you are the police on this site?

I remember the mantra "Don't fight the Fed" as far as stock markets are concerned, i.e. if interest rates are low, stocks would do well. This has been true in the last few years.

QE may slow down but the Fed may not touch interest rates for quite some time.

Some interest rates are out of the Fed's control, this is confusing sometimes.

Let us see how soon they actually stop QE.

People buy houses for themselves where 1. they want to live 2. near where they work

People buy houses to rent out where 1. they can afford to buy it 2. (hopefully) where people exist to pay rent, i.e. people have jobs there.

Often the cheap properties are located in welfare zones, unemployed zones, dead zones so although inexpensive, they're worthless as investments.

I know a guy here who bought a place in some hellhole and he flies back east there once in awhile to try to keep it up and deal with his renters, what a colossal PAIN in the ASS. But, he's a slumlord type so he may like it.

hydrocabron is swilling Koolaid I think.

There were numerous things Obama and Congress could have done in 2009 to try to stimulate the economy, Obama did the opposite.

The economy and jobs were the #1 problem, and what did Obama and Pelosi focus on? Changing our healthcare system.

This is the sign of a person who is an idealogue and not a good executive. The executive functions are 2: 1. choose which problem to solve in priority of importance 2. choose people who are qualified to help you.

Obama chose the wrong priority, health care, and ignored the economy. It's either his stupidity or it was intentional to keep the economy sucking long enough to get re-elected, I believe it's both.

New taxes, regulations were obviously bad for job creation.

Obamacare is going to further slow down the economy, it's 1. new regulations 2. new taxes 3. new bureaucracy imposed on us. Obamacare MUST slow down our economy, by what degree is a guess.

Since Obama took office, USA GDP has grown an amemic 2%. This will likely continue.

Many people who dislike Obama also are not too enamored of Bush, because BOTH wanted to grow government.

On balance however, Bush at least didn't raise taxes, rather cut them for inheritance, capital gains, dividends, etc.

I'll answer.
Some people like to perpetuate the myth that the Federal reserve can stimulate the economy because this doesn't require any political discussion.

If lowering tax rates is politically unpopular or impossible, these types can always say "the Fed stimulus", which of course now has been since 2008 or was it 2007? It's been a long time now and GDP still is anemic, 2% since Obama took office.

What the Federal Reserve can do is throw cold water on the economy in an effort to slow down inflation, but the converse is not true, the Federal Reserve can obviously not stimulate the real economy.

Why not? Because most increases of production and innovation have the ability to find capital and grow on their own or with private investment.

As mentioned above, Apple doesn't give a shit what interest rates are but TAX rates sure interest them.

clambo says

There were numerous things Obama and Congress could have done in 2009 to try to stimulate the economy, Obama did the opposite.
...

On balance however, Bush at least didn't raise taxes, rather cut them for inheritance, capital gains, dividends, etc.

Are you suggesting that Obama should have done the same things which Bush already tried? Because those did not stimulate the economy at all.

Eventually they'll run out of foreign buyers or cash buyers.

92 million people out of the workforce cannot qualify for a mortgage today.

86 million people actually working have houses or are tapped out.

People who don't get around much don't know that owning a house is optional but funny thing you can rent about anyplace you would like to live.

It's sometimes expensive to rent, but the freedom can be appealing.

My businesswoman grandmother rented houses since I can remember. She always had money. I found out later she lent my MD father some dough for our summer place. She had cash, he didn't. She of course could visit any time she liked forever. He had to deal with the problems and upkeep, taxes, etc.

U.S. real estate is safe. The value can never go to zero no matter what happens. You can lose it all in the stock market, but you'll always at least have the house.

The world just figured this out, so we're not even at the beginning of them buying it up.

If you didn't buy before 2012, and you're an American, then sorry, this Bud is not for you.

The Fed is between a rock and a hard place (and they're the ones who built the hard place and dragged the rock next to it).

Last year, QE amounted to over a trillion dollars, a trillion which is counted in GDP. Remove the QE, and we had economic contraction in the productive, non-financial sectors of the economy.

What the Fed is doing is propping up an insolvent banking system whose insolvency is due to massive leverage of assets which devalued during the housing bubble popping last time. The lip service they pay to use peons may be about their dual mandate of limited inflation and high employment, but that's all secondary to keeping their Wall Street minders happy.

If the Fed tapers, assets (mainly housing and stocks) should lose at least the amount they've gained from sustained QE, but probably more because of deep leverage. This would, once again, bring banks to insolvency, even without mark-to-market rules, so the Fed can't allow this to happen.

I'm guessing the QE program may end, but no matter what the fed calls it, it will continue to grow its balance sheet until we have some significant inflation. That's the only way to benefit debtors, and the US government and the banks are now the biggest debtors, by far.

There are several houses here that I saw "go to zero"; some in the winder of 83 were crushed by mudslides, a few over on the coast washed away, others were flooded next to a river, etc.

Years later I saw some explode in the 89 quake, the gas mains broke, filled the house up and POOF! there she goes.

exfatguy says

If you didn't buy before 2012, and you're an American, then sorry, this Bud is not for you.

What are you talking about? There are tons of cash rich Americans, it is just that the high prices are chasing them away.

clambo says

With my profits from my shares of Apple I can buy one outright, you must be drinking some powerful Koolaid.

Zing! It is amazing that some people think that bears are poor. :)

I want to see a go to chart that highlights all of the Democrat's wins and accomplishments.

...but just the short list, we don't need the 7000 page book.

Too many words! The Democrats will never read all of that. They would pass it though.

myob says

Last year, QE amounted to over a trillion dollars, a trillion which is counted in GDP. Remove the QE, and we had economic contraction in the productive, non-financial sectors of the economy.

This is incorrect. QE is not counted in GDP.

Removing QE is just removing part of the funding for the government. We saw the effect: interest rates go slightly higher and some other people buy the gov bonds.

clambo says

If lowering tax rates is politically unpopular or impossible, these types can always say "the Fed stimulus"

Yes, if the government spending more is politically unfeasible, and you have a deadlock in Washington then the fed stimulus is the only game in town and people cling to that.

clambo says

As mentioned above, Apple doesn't give a shit what interest rates are but TAX rates sure interest them.

Right wing types think lower tax rates is the cure to everything, but they can't reconcile this with the obvious fact that, whether it's $100 billions or $150 billions, there is simply nothing Apple can/want to do with this money.

Why 2017? I keep seeing this number on zerohedge as well. But then again zerohedge is the epitome of perma-bear.

Anyway I too am confused how everything seems to be going up, despite the fact that real unemployment is still high. Inflation sure as hell isn't "2%" as the Fed claims. Is it all due to QE money printing? If so, what's stopping the Fed from just printing forever until burning money is cheaper than burning fuel?

Next big crash will be October 18, 2016.
You heard it here first.

Disclaimer: This is not meant to be legal, financial or other advice and is for entertainment purposes only. Patrick.net, its employees, friends, associates neither support nor refute the above statements. Permabears, permabulls, and all in between are free to make their own decision as to how to spend their money, when and on what.

Back to the OP - I'll disagree with 3 and 4.

Appraisers need to appraise out at a number that will meet the loan, or else they won't get work from the banks. There were stories of this from before the bubble deflated the 1st time - not sure if it still goes on.

To a credit worthy applicant, banks will lend as much as they think they can get away with. More money = more interest in their pockets. If I bought a house based on what I was preapproved for, I'd be in a McMansion without enough money to heat it. Even with regulation, it amazes me how much one is expected to spend on housing. Since most buy what they can finance, not what they can afford, its no wonder that prices have recovered as well as they have.

@E-man. I wasn't waiting by design - I just kept getting outbid because once I put a value on something, I tend to stick to it. That and my wife is very selective (in a good way).

I try and see the world as it is, not as I want it to be.

Not being able to beat the competition, I got aggressive on a bank owned property and kept the competition at bay. The process was a min-soap opera, as my many posts from that time attest to, but it all worked out well in the end.

CaffeineAddict says

Why 2017? I keep seeing this number on zerohedge as well. But then again zerohedge is the epitome of perma-bear.

If you studied history, the market crashed in 1929 (Great Depression). We made a recovery and entered the next recession in 1937.

2009 (Great Recession)...... 2017??? I'd be conservative and say the market will top out in 2006. Better safe than sorry.

Zerohedge is a bunch of perma-bears. Tyler Durden is an idiot.

When everybody is so sure 2017 is the date, the more likely that it is wrong. The real date could be in 2014, 2015 .... 2019, 2020 .... Definitely not 2017.

exfatguy says

You can lose it all in the stock market, but you'll always at least have the house.

Go for index fund.

Obama is a Wuss.
He could have declared all his Rep/Con/Tea opponents in Congress,SCOTUS & media, "Enemy Combatants" & rendered them to unknown locations. I bet they would STFU & beg to pay for their unfunded wars out of their pocket & search for WMD until they found them.

Bush didn't cause or even like the sub-prime mortgages that led to the economic troubles which peaked in fall 2008 when Lehman imploded.

Sub-prime mortgage is a euphemism for a mortgage that should have not been lent in the first place.

There are 86 million people working and 92 million out of the workforce.

The recovery summer came and went a couple years ago, you don't hear this nonsense any more.

GDP grew only 2% since Obama took office, that's anemic.