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SP: You forgot the biggest demographic of all! Baby Boomers who are "living it big" today, relying on their continuously appreciating houses for retirement funds instead of saving. Especially the ones who HELOC'ed away to get themselves a Lexus or put their kid through an expensive university at full price (hint: if you aren't rich and your kid doesn't get a scholarship, they shouldn't be going to Cornell).
I am curious, though. If inflation and interest rates did take off, wouldn't that do a lot to ease the burden on people in my own age bracket, who have gone nuts with credit card debt and large college loans? Now they're paying everything back with inflated dollars, and their life savings and retirement accounts haven't been eaten away by inflation.
I'm surprised mortgage brokers aren't sending out "offers" like this one from VW:
http://www.consumerist.com/consumer/lending/volkswagen-why-not-skip-a-payment-217946.php
HARM said: Many of the long-timers here originally came here because we found ourselves priced out of the market through no faults of our own (like Joe Schmoe & myself) and wanted to understand WHY?
To be fair though, are any of us -really- priced out?
If you really wanted the $800k starter in Mountain View, you could get it. $0 down, no doc.
But... I suppose that's not what people want.
dryfly and HARM :
The "conundrum" remains. I have no knowledge of economics - apart from reading such blogs and some sites like Barrons - but what I find perplexing is that almost all economists are perplexed !
If there was too much liquidity, then shouldn't there be inflation, or at least an increase in the commodity prices ? Oil is way below summer highs, so is gold.
If a recession is going to happen, why is the stock market partying like there is no tomorrow ?
If housing is in trouble, then why are home builder stocks rallying ? (Even before today. Today a bearish analyst became less bearish, and HB stocks took off).
If mortgage rates are dropping - even the 30 yr fixed - then why will there be a "crash" ? And that gets me back on topic. If the 30 yr fixed rates keep dropping, the correction is going to drag forever. I will definitely reevaluate my position if 30 yr fixed gets closer to 5%.
The most important thing I have learned from this blog - paradoxically - is debt is not all that bad if you can comfortably service it.
So Randy, I would specifically thank you for this, forget calling for your head.
Max,
What is USA M3 these days? I can't seem to find that data anywhere!
Paul
StuckInBA,
As for commodity prices like gold and oil, we may be off the highs but I would just call that volatility. In other words, check again in a few weeks!
Paul
"To be fair though, are any of us -really- priced out?
If you really wanted the $800k starter in Mountain View, you could get it. $0 down, no doc.
But… I suppose that’s not what people want. "
SP - yes - I really am priced out!
Dryfly,
Excellent analysis!
Let's also not forget that probably the most reliable way to determine if housing prices are way out of line with "fundamentals" in any region is to compare monthly carrying costs if you bought today (PITI + maintenance + Mello-Roos/HOA - MID) vs. going market rent on an equivalent/comparable property. If MCC is a lot higher than rent (NI/cash flow) a property can generate, it's dicey.
The beauty of using rents (not incomes) to determine relative "bubbliness", is it allows for regional variations in home prices and demographics. In CA, the long-term average incomes-to-price ratio is much higher than for the rest of the country, and has been for decades. Likewise for high-density "destination" cities and places with lots of NIMBY building restrictions, regulations & high taxes (HI, NYC, Boston, Miami Beach, etc.). Obviously, cities will almost always be more expensive than rural areas, whether buying or renting. However, rents can show whether or not that area's RE is just "normal-expensive" or 'ridiculous-expensive".
The old rule-of-thumb is spend no more than 100-120X monthly rent. Using cap rates is another rents-based calculation method, and many long-term investors won't buy properties with cap rates below 10. But of course, you also need to consider other factors like overall interest rates (high rates = > opportunity costs of not investing your money elsewhere vs. lower rates), and as Randy likes to call it, the "utility premium" of owning over renting, which varies from person to person.
Right now in most CA cities, rents generally cover around 30-50% of MCC, depending upon your location. This gives us some idea of how much they need to correct long-term. Exactly HOW they will correct (inflation erosion vs. nominal price drops) or how long it will take, of course, is still anyone's guess.
However, Let's not forget that balancing the price-to-rent equation to balance solely through inflation would almost certainly require wages to rise significantly. Why? Simple: people can't take out HELOCs, 2nds or cash-out Refis on their apartments. They have to pay the rent with cold, hard cash. All the funny-money loans have basically allowed home"owners" to devote 100%+ of their income towards the "real PITI" by indefinitely deferring both principal & interest. Colossal shell game. Try THAT with a rental.
There is a limit to what % of their total net incomes families can devote to rent because they must also eat, drive, wear clothes, get medical care, raise children, use energy, etc... Hint: it's less than 100%.
SP - sorry, mouse not scrolling properly and I'm skimming so thought it was you, instead of eburbed
I want to be able feed my family too -
Oh... well if your family is the kind that eats food, you might want to live somewhere else.
http://www.burbed.com/2006/11/23/how-to-save-20-on-your-groceries-for-thanksgiving/
Wow.
So after a glass of port (ok 2), and a bowl of tobacco, I decide to read the blog. Here are my conclusions:
1. There are some smart people that post here
2. They are completely fooled into thinking they can predict the future.
3. They are relying on historical data when we are in a climate we haven't seen before.
4. surfer X likes flacid penis
5. Arguments for a specific point are almost always "proven" by a sound but narrow focus logic
If someone can actually build an argument from ground up, as to why this is a bubble, and what will happen in the next 3 years, then I challenge thee. I'm talking about a real argument. Not one that focuses on one single economic indicator or phenomenon, not an anecdote, and not a reference to another vague and insubstantial thread on this blog. Not even a surfer x style "go suck your own cock" post.
My mind is open to be converted. I am your quintessential guy "on the fence". Convince me or your viewpoint is $hit.
bring it.
@Fuzzy Math,
You win!
It’s a new paradigm, and everybody who doesn’t buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.
Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.
This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.
thanks for a nonargument HARM. You are proving my point.
Where in my question did I claim housing will increase at 30% a year?
So, to get this straight, your argument is the following....
-housing cann't continue to rise at 3o % a year
-therefore it is doomed to crash
solid
@Housing Bubble Research,
Save your breath (or is it fingers?). FM is a troll impersonating a skeptical newbie. Re-read his statements. He basically just ignores everything anyone else says, then declares New Paradigm, followed by "bring it". CuriousCat, LittleWorried, WoopAss, Boomtime, whatever... all the same. Not worth the time or trouble.
surfer X likes flacid penis
Wow, if you are going to resort to Sophomoric name calling at least be clever. For instance, fuzzy math has to suck the John's cum out of his mother's corn filled ass with a straw and then sell the sperm in order to afford his interest only san hosebag stucco $hitbox. That's what your patent is in right? Fluid delivery?
A trolling we go a high ho a merrio a trolling we go.
HARM ;)
something else on inflation and interest rates as the topic du hier:
Taming the dragon - Money - Business - Home - smh.com.au
gittins is quite good at explaining econ. and why does increasing short-term interest rates reduce inflation? still want an answer in 1 word or less...
uh oh
US bound for recession, tips RBA board member
AN INFLUENTIAL Reserve Bank board member, Warwick McKibbin, says the United States is heading for recession.
The chairman of the US Federal Reserve, Ben Bernanke, expects a smooth slowdown, but Professor McKibbin predicts a housing-induced contraction will make 'the Fed's job very difficult'.
'I think there will be a recession in the US next year because of the housing market coming off and consumers slowing down their spending,' the Australian National University economist told the Herald."
A US recession would cause global long-term interest rates to drop and encourage central banks to cut official short-term rates.
The pressure for lower rates will increase if, as Professor McKibbin believes, commodity prices are poised to fall.
"I think commodity prices will soften," he said.
His modelling, with economist Andy Stoeckel at EconomicsScenarios.com, shows a US downturn would divert capital from US housing to other markets. A US recession would be offset by a surging China.
A recession would also assist adjustment of the US and Chinese current accounts by weakening the US dollar, lifting US exports and slowing Chinese exports.
Like the Reserve Bank governor, Glenn Stevens, Professor McKibbin is more concerned about persistent underlying inflation than weakening global growth.
However, Chinese growth should not be taken for granted.
"China again is always on the precipice … you hope something doesn't go wrong," he said.
"But there's a lot of adjustment going on in China … I think there's still enough surplus labour that you're not going to get a massive surge in wages in China that's going to cause a global inflation."
Fuzzy Math Says:
If someone can actually build an argument from ground up, as to why this is a bubble, and what will happen in the next 3 years, then I challenge thee...Not...a surfer x style...post.
My mind is open to be converted...bring it.
_____
Scope out any of the innumerable charts that demonstrate significant deviations from the historical averages in housing--a picture is worth a thousand words, not to mention a thousand mathematical formulas.
Then deny what you see with your own eyes, disregard the immutable laws of market physics and go "all in."
In other words, put your money where your mouth is & walk the walk.
FUZZY HAIKU:
Fuzzy Wuzzy was
a mouse. Fuzzy Wuzzy bought
a house...trap. Whap! Squeeek!
"Most of the old regulars on both sides of the argument have stopped participating here"
Really? Google Housing Bubble (hint) we're Number 1!
"Unfortunately, you will now have to wait another 5 years to disprove the more recent crash predictions".
No need to wait another minute. The crash is all around you my friend. The lapping sound you hear is now at your doorstep. If sound personal financial planning involves borrowing the better part of a million dollars with a loan that can never be repaid you Good Sir are counting solely on appreciation. Based on this flimsy arrangement all that's needed for Fuzzball to go belly up is for homes to stop appreciating. We're there. End of game.
True believers in the housing boom have had nothing but the wind at their back up until now. Every conceivable advantage. Heavily subsidized, tax friendly, cheap/free money environment. Not ONE obstacle. Even a natural disaster like Katrina played to their advantage driving demand (and prices) for lumber. We've defended the bubble at all costs, even at the expense of watching our currency become a laughing stock. We've gutted and revamped our entire national financial structure to protect our REIC-based economy. Could we have possibly bent over backwards any further to accomodate our precious bubble?
See? This is why these clowns come back HERE time and again! They won't even try to ply their trade over at Ben's Blog where things have a n a t i o n a l focus! It's forever with their touting the BA and how they don't see any blood in the street? Go over to Ben's guys. "Bring it" over there and tell people in FL, MA, San Diego, Phoenix, Las Vegas and Sacramento all is right with the world.
DS,
I enjoyed your post about "the original hand held GPS"! I'd read a similar article where a Norseman's artifact in the Smithsonian (long thought to be a button or "seal") was actually an early navigation device that with reasonable accuracy mapped the northern hemisphere! I'm told it was moved to a prominent display.
SP,
Your #4 above was subtle..... but hysterical nonetheless!
Dollar sliding against the Euro "more than usual"!
Like...... they didn't think we'd notice or......what?
FR,
That's the whole point. The "OR" in DinOR tends to imply I'm from Oregon? I'm hardly intimate with the BA (other than 3 mos in the service in the 80's) so I'm no expert and I don't portray myself as such. But it's like you guys are painted into this teeny tiny corner and tout endlessly about these few select communities that (up until this point) have remained largely unscathed by a bust that's affecting the balance of the country. Really, I dare you to go over to Ben Jones' Blog and tell everyone there about how "rosey" things are. Dude...... they'd eat you ALIVE!
FR,
Let me put it to you this way, o.k? Why is SO important that your home continue to appreciate? (And in a wild fashion I might add). Why is that so important to you? If we're so obsessed with "affordability" why are guys like you so determined to go "double or nothing" ensuring that future buyers will be forced to use even more rickety financing than you did? How is that "progress"?
Surely you have other investments? WE all do!
SFWoman,
Thank you and good morning! Exactly. The value derived from having a storm cellar is in one's being in there "before" the storm. (They're of little use to the dead).
SFWoman,
I sometimes get concerned that folks here might get the wrong impression. I'm a stock "trader" not an analyst. Big difference. Now..... I DO get my "dope" from analysts but I want to make sure that much is clear.
What is also clear is that RE momentum players are on their feet cheering for ever more "creative" loan products b/c they know. They know it's over. The only way any GF could possibly "afford" their overpriced hovel is with even greater leverage. They know. They're barely making the payments now, no one of any prestige lives in their neighborhood/complex so their GF HAS to come from within their own ranks. They know.
And you don't have to be a REIT analyst to see that.
So it's "o.k" for equity locusts to migrate endlessly in their pursuit of easy money taking their "road show" to Vegas, Boise, Bend and Billings, MT but it's NOT appropriate for us to comment on it? Where do you think all of the money that drove those markets came from?
None of us lives in a vacuum. In spite of your deep and debilitating state of denial, neither do you. How is it possible to have a serious and undeniable market correction from coast to coast and yet have the BA walk away without so much as a scratch? Look, I've put several credible questions before you that you've conveniently chosen to ignore. You've refused to address the core issue of just why constant and unceasing appreciation is so damn important to you yet for some reason can't fathom my frustration? Next time change your screen name to "Get Real" o.k?
SP,
your post clearly spells out what this website appears to be all about.
"I am pretty certain your mind isn’t open, but in denial - and based on the data you provided, you are NOT “on the fenceâ€."
I meant on the fence as to whether I believe a serious correction is coming in the BA douchebag.
"Your data, if true, means you are a Fucked Borrower, who has put his finances at risk to buy a shitbox near the peak of the bubble — and is understandably desperate to see this bubble continue (at the expense of other people), so that your bet doesn’t go sour and put you deep in the shithole."
awwww, SP can't buy a house. Another solid argument.
Anyhow, I guess I rest my case. At least a couple of people tried.
To those that did, your arguments seemed to speak mostly of the yield curve. Which is a good indicator, for a recession. However, for some reason recession does not equal BA housing correction. ie... dotbomb, housing continued to go up in the area. I remember reading an article in the San Jose Mercury in the 2001 timeframe which was title "Housing continues climb, but at a slower rate".
Imagine me sitting there in 2001, 23 years old, with a good engineering job, wondering why I couldn't buy a house. And I WAS SURE that the dotbomb bust was going to make housing go down. In fact, everyone WAS SURE. But it didn't.
So, yield curve is good for predicting recession. But is recession good at predicting housing collapse? It wasn't 6 years ago.
Fuzznuts,
Talk about taking two personally selected data points not making an argument!
You're outta here!
DinOR,
note that I did not say recession never causes housing to go down.
Anyhow, I'm not saying any of this to get in an argument about arguments. I'm looking for someone on the board to tie it all together.
The zombies are out this morning.
Trees grow to the moon. Every asset which has ever undergone unusually high appreciation has continued that appreciation indefinitely.
It's been mentioned many times before, but I suggest reading "Devil Take the Hindmost" to get a historical sense of bubbles. Those of us predicting a bust are partially basing it on the psychology of man. Groupthink affects bulls much more than bears. It's a fantastic party, but when they take that last step of the staircase... bang.
Through Google cash source pumping $$$ onto the penisula, the BA bubble may be the last to pop. As DinOR points, out, a survey of Ben's blog shows that the rest of the nation is popping hard right now. If the BA defies gravity, the solution is to leave the area. Painful from a personal perspective but not as bad as the nightmares BA owners are going to have over the next 5 years.
Yeah, Fuzzy Math and Confused Renter....
....shift yer arse off the chaise longe, tell the Houris to stop handing you peeled grapes for a mo', and explain to us why we're wrong?
You can't just wander in somewhere and demand the locals prove 6 impossible things before breakfast with out doing a bit of hard graft yourselves.
I admire your chutzpah for coming here and being contrarian, but, as a minority, its up to you to argue your point to us, not for us to argue our point to you.
If not-then despite the flood of housing data to the contrary - there are still bullish sites like the SDCIA Messageboard, or Bloodhound Realty - which would be more your cup of tea.
dryfly,
Typically I don't care to start my Friday's out w/ he said she said either (myself being the "he" here) o.k?
You just can't get these bulls to give it up as to why RE has just gotta gotta go up! (Other than they bought at or near the peak and all things considered are already screwed).
I know it might be tough to see the impacts of the "rolling bubble" from Guttenberg, IA but if you shared a border w/CA you'd definitely be feeling it! Bend and our coast are awash in bubble bucks and even dives like Ashland and Medford have become unaffordable to locals. Do they give a rip? Pffft. They'll ditch their specuvestment in "wet hell" like an ugly girl at a dance!
"It's a fantastic party"
FRIFY, like I always used to say, "Relax...... the cops won't be here for another 10 minutes!" Or:
"Quick, somebody give me a drink before I pass out!"
You know, no one appreciates more than a self-educated person such as myself the value of being disrespectful to your mentors when you're not getting the answers that suit your agenda!
Nobody, and I do mean NOBODY calls my pal SP anything other than SP alright!
Contrary to trolls insistance this is hardly a "love fest". There's a constant and spirited difference of opinion. As events have unfolded before our very eyes that difference has greatly narrowed as a function of market conditions. Oh btw, ISM #'s says the hopes for a soft landing got lost behind us on the last bend in the river along with "free lunch" and his rowing partner "anti-gravity".
"despite the flood of housing data to the contrary"
speedingpullet, well said. The entire post. I'm really at the point where I don't feel I have to prove anything to any bull. If you're the guy pitching an upside down asset in a declining market YOU make the case to me! Absolutely.
Oh btw Merrill Lynch's RE analyst used the term "barrage" not flood. Either works but "flood" might mislead the reader into believing that all that's required is hiking up one's pant cuffs. ""Barrage" OTOH tends to imply that ducking and hiding would be more appropriate.
dryfly,
My HS buddy got a job w/the Milwaukie Road (when they were still in bus.) and slept in a caboose in G-Berg! For kids from Chicago it looked a lot like "Children of the Corn" so we would do a road trip to cheer him up. As I look back it really was neat little town. He married a bar owner gal and they live in Calamus.
My HS buddy got a job w/the Milwaukie Road (when they were still in bus.) and slept in a caboose in G-Berg! For kids from Chicago it looked a lot like “Children of the Corn†so we would do a road trip to cheer him up. As I look back it really was neat little town. He married a bar owner gal and they live in Calamus.
Is this some kind of code? Coptic?
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In a previous thread, our friend FRIFY raised an excellent point:
While I don't fully agree that this blog is that boneheaded :-) I think it would be very interesting to discuss the impact that these economic variables will have on the housing crash.
Despite the title, this is NOT a discussion about whether we have group-think. And it is decidedly not a question of whether there was a bubble - that is patently obvious even to the trolls.
Instead, I would like us to take stock of the current economic and political situation and pick out key indicators ("sea changes", as Frify put it) that are game-changing and should necessitate a change in our bearish sentiment.
Have at it,
SP
#housing