patrick.net

found elsewhere:

The Nat'l Ass'n of Realtor®s "anti-bubble reports":

http://www.realtor.org/research.nsf/pages/anti-bubblereports

Obviously the source is biased, and statistics are in the eye of the beholder.. But there are some interesting numbers and charts that I haven't seen elsewhere, including a per-market analysis of the common loan types, and average down payments.

There is plenty of marketing-speak in the reports, but also some honesty. Truthfully, more honesty than I would have expected. It doesn't make their analysis or conclusions any more likely to be true, but make of it what you will.

Central point: price-to-income is all out of whack, but it doesn't matter any more because the new metric should be "debt service cost-to-income", which is actually somewhat lower than the historical norm.

They do acknowledge that a sizeable portion (~10%) of borrowers are on thin ice due to their choice of loan product.

I am not sure whether we should trust numbers and statistics anymore. For example, on the subject of "global warming", both sides of the argument appear to have evidences suggesting that the phenomenon is fact or fiction.

Personally, I am not too sure about the existence of "global warming"...

I am not sure whether we should trust numbers and statistics anymore.

I don't trust them, especially if they have been created by someone who has an interest in selling real estate.......but those abundant for-sale signs don't lie.

Central point: price-to-income is all out of whack, but it doesn’t matter any more because the new metric should be “debt service cost-to-income”, which is actually somewhat lower than the historical norm.

Income reports can never be accurate....what about all those off-the-books jobs that noone knows about........there is alot of money changing hands under the table, maybe even more than above the table.

Central point: price-to-income is all out of whack, but it doesn’t matter any more because the new metric should be “debt service cost-to-income”, which is actually somewhat lower than the historical norm.

Not if this “debt service cost-to-income” is inherently unstable. Very low debt severice costs do tend to balloon easily and are very sensitive to interest rate and asset prices themselves.

but those abundant for-sale signs don’t lie.

Well, many for-sale signs mean many people want to sell property. They don't mean that the sellers will accept a lower-than-current-expectations price. Some will have to, but not all. Maybe not even most.

There are many reasons to sell...it's possible that one very large one is the collective sense that a local price peak is upon us (too late). But it says nothing about the sellers' willingness to transact if the opportunity is missed. We just don't know yet.

I'm not arguing against the bubble. But a "bubble" can only be called ipso post facto. In fact, the definition is entirely dependent on the results after the events. If it bursts, it's a bubble. If it sloowly deflates, it's an elongated economic cycle. If it sustains, it's a New Economy®, dude!

But a “bubble” can only be called ipso post facto.

So is "murder"... :)

If the victim does not die, it is not murder!

If the victim does not die, it is not murder!

Exactly. And my pre-cog abilities suck.

And my pre-cog abilities suck.

Try to improve them. They come in handy. ;)

What determines the “expectations” price (whether going up or down) is the price that sellers who _close_ accept.

For those sellers who do not close, no coffee for them! Coffee is for closers!

Well there you are, tied to the train tracks of “progress,” and isn’t that a whistle I hear back around the bend?

Heh. Well, yeah. Semantics aside, lots of people could get creamed.

Myself among them, but I don't really think about it that way. It's clear to me that housing is overpriced. I expect a reversion to the mean (however quickly or slowly), and I expect five or ten or more years of net (personal) asset value quiescence.

From an opportunity cost perspective, I expect to get creamed. But that's not tremendously important to me. I optimize for other variables.

What determines the “expectations” price (whether going up or down) is the price that sellers who _close_ accept.

Yes, for the next batch of sellers. What determines the "expectations" price for the current (and growing) batch of sellers, is the price that sellers who _closed_last_quarter_, roughly, accepted.

Anyway, this isn't really a big point I'm trying to make. The big one is: we don't know. Some portion of today's sellers (of non-new units) may only be selling because they think now (last quarter) is the best offer they'll get for years, so they might as well pack up a bit early. We don't know. I don't know. Maybe you do. I don't think so. But we all will, soon enough.

...for perspective, I say this as a one who was a potential seller last summer. I decided that I should either sell around June or wait ten years. I decided to wait. Obviously, not everyone has the flexibility to plan that far ahead, but in this case, I did. I have no idea how unusual I am. But I've heard whisperings...

The first sale of the day on the stock exchange provides a good visual example. Sometimes we’ll see by a gap in a graph where a certain stock opened much below or above any price on the previous trading day.

I thought the official "opening price" is determined using prices within a time period.

f I even suggest the Sacramento market (where I live) could go down 30% around here people still think I’m crazy. Though people who live in the BA don’t seem to find the scenario hard to believe because they don’t live here.
But why is 30% so hard to believe is possible?

Because where we live is a "special" place--where prices never go down. Therefore, that's like money in the bank...let's cash it out! My HELOC is my friend; it would never bite me in the ass.

I've never trolled before, so here goes...

"In 2003, I could have bought a 3,000 sq. ft. Mcmansion in San Jose for only $50k. I didn't because Peter said we were at the top of the housing bubble and I would be a stupid loser to risk it.

Today, that very same Mcmansion was just listed for $65.5 million. I could have retired in opulence, splendor and ennui. Now I've got to flip burgers for a living.

Damn you Peter!"

Just kidding!

How was that troll?

I didn’t because Peter said we were at the top of the housing bubble and I would be a stupid loser to risk it

Huh?

I'm sure MichaelHolliday was just having some fun with the whole "evil twin" thing. Funny though how so many bloggers confuse Peter P with Patrick.

Hey, come to think of it, I've never seen them both post on the same thread before. Could it be.... ?

But why is 30% so hard to believe is possible? The house I live in would have sold in the mid $200k range five years ago and now would probably sell for approx $500K. The house has doubled in value in five years but to suggest a 30% correction is looked at as absurd. Why is that?

Yes...... People always think it can't go down....not here....... It's funny though how people were buying houses at such a high rate that the supply was so tight causing bidding wars to take place..... People would pay unbelievable prices on houses I wouldn't even want to live in if they were priced right. Some people would even buy a house without even looking at it for fear that they might miss out on getting (any) one. Realtors and builders saying that prices will keep going up because there will always be high demand...and don't forget that population is growing like never before........now, everyone is selling and noone is buying! What happened to this growing population that are supposed to keep the inventories tight? Did they all just die in mass suicide?

Now it looks like the exact opposite, this is why I say the bubble had already popped. This time of year most people wouldn't list there house because it show desperation.......but look how many are anyway! There are so many speculators that are trapped in the market (it shows), they were flipping houses back and forth to each other like playing musical chairs, but the music has now stopped! "What do you mean this starter house isn't worth $500k?" Now the psycology is changing and will be more pronounced come spring....and I think the sellers are going to be more desperate this spring when they dragged through the winter without a bite.... at the same time interest rates will be higher which will put even more downward pressure on prices.

I’m sure MichaelHolliday was just having some fun with the whole “evil twin” thing. Funny though how so many bloggers confuse Peter P with Patrick.

Again, P does not stand for "Patrick". P stands for "Peter P".

Huh. Not what this said. I’ll keep looking for it. How does the formula work?

I thought the "open" price is the average of all prices record in the "opening range", which contains prices at which orders are filled at the "open". Perhaps I am mistaken.

Does anyone know?

Look for BA press release tomorrow.

Want to read tomorrow's news today? I can give this predition:

Indicators of market distress are still largely absent.

In the not so distant future, expect to hear:

"Bay Area Housing Prices Up"

"... prices are still up more than 10% from 1995 ..."

If you are not planning to sell it soon, if you really want to own a home and maybe live till you die there, I think it’s still ok to buy a reasonably priced house now.

True. Couple things though...

1) Use 15-YR FRM to determine affordability
2) Do not assume tax deductibility
3) The house must be adequate for at least 10 - 15 years, do not buy a "starter" house

** NOT INVESTMENT ADVICE **

I still remember back in 1980s, when my father was complaining how much he needed to pay the mortgage, that was only $600.

It is not about the amount. It is about valuation.

but you see, everyone is paying very much the same amount of mortgage, so it’s just like part of life

Really? Perhaps every recent homebuyers in a few states are paying that same amount...

pbass writes: Flexibility, it’s a wonderful thing, a whole different world. Some day I hope to have enough of that to pass on to the kids.

Flexibility ain't always (and ain't never, in my case) money. Which is lucky, because it's easier (and more valuable) to pass non-money on to your kids...

Already brought it writes: If you are not planning to sell it soon, if you really want to own a home and maybe live till you die there, I think it’s still ok to buy a reasonably priced house now.

Yup. It's even OK to overspend a bit, if you can afford it, and it's really where you want to be, and you have enough awareness of self and situation to confidently predict more than a few years into the future. Not necessarily financially savvy, but if you can allow yourself the flexibility of making choices based on criteria other than strictly financial ones...then it's a perfectly reasonable decision. Imho.

Hmm, for people I know nowadays, no one considers a 15-YR FRM, because NO ONE could afford that But it is a good advice.

I would use 15-YR as a reference but get 30-YR or even IO instead. It is good to have a margin. You can always prepay. :)

I think it’s still ok to buy a reasonably priced house now.

It's always a good time to buy a reasonably priced house....problem is there is no such thing....and they could cut 25% off the price and still it won't be reasonable at least not in my eyes.

Home values have doubled in the past four years and almost all, if not all, of those gains are here to stay,” said Marshall Prentice, DataQuick president.

doubled in the past four years...here to stay
It's sure hard to refute their self-cancelling train of thought.

People who have bought into this thing have been driven by friends and aquaintances who also bought...people who were renting have seen their friends house and their friends have bragged about how glad they were to buy and no longer have to waste money on rent and say stuff like, "If I didn't buy last year, I would have had to pay tens of thousands more this year".......the power of words is really strong, strong enough to drive prices up as we have seen........this became a trend so much that they made television shows about it.

Now that houses are sitting and interest rates are rising, people are going to start to here the sob stories....there will be people saying stuff like "Buying was the worst mistake I ever made in my life"......people who didn't buy yet will see their friends and aquaintances who are in dire straits.......this news will travel which will reinforce the fear of buying and people will think more rational when it comes to buying. The power of words can also drive prices down just the same.

The great depression happened so long ago and there was nothing like it ever since and for good reason.......people learned after it happened first hand.....but those days are far out of our generation that we have forgot the lesson it has taught us....perhaps history is coming back to reteach us the mistakes we should have not made.

I am new to this board, but am very impressed by the wealth of information and general level of civility (with the usual exceptions) of discussion. As my name suggests, I am a home owner, mortgaged to the hilt, and worried that my equity will go "poof" someday soon. As part of a paper I am writing for a college class, I am interested in compiling a list of studies that attempt to peg the level of overvaluation/undervaluation in cites across the U.S. Does anyone know if such a compilation is available anywhere? At the present I have about a half-dozen examples but I know that there are more out there. I will galdly share whatever info I can find. Thanks!

until the 2nd Great Depression

Ben has his fleet of Chinook helicopters on high alert. GDII will be crushed by money from the sky.

In a recent survey, NAR members say they predict home prices to rise only 5 percent in the next 12 months. Nearly half of the realtors predict prices will rise less than five percent and 6.4 percent actually expect prices to fall.

Wow only 6.4% of realtors aren't trolls!

Ben has his fleet of Chinook helicopters on high alert. GDII will be crushed by money from the sky.

You can't pay off bad credit with more credit.

Nearly half of the realtors predict prices will rise less than five percent

I also predict that prices will rise less than 5%. -60% is less than 5%.

quesera Says: The Nat’l Ass’n of Realtor®s “anti-bubble reports”:

A 30% debt-service-cost to income ratio for NY just doesn’t sound right. I compared median household incomes (from the wealthiest region in their study) to the cost of servicing a loan on a median priced single family home under very favorable loan conditions (30yr 5.5% 20% down) during the prior three years and can’t even come close to their numbers. Perhaps I’m doing something very wrong. Or perhaps their statistics are very biased.

Ok, found the relevant report from the US Treasury Department. NAR is being very misleading. If I didn't know better, would even say they were just outright lying. I guess desperation is finally setting in.

http://www.occ.treas.gov/qj/qj24-1/3-SpecialStudies.pdf

Good day for us bubble types, wasn't it? After three years of being horribly, terrifically wrong, the worm is turning.

I'm reminded of the eight long years (which I refer to as "The Dark Ages") when He Whose Name I Shall Not Type coached Stanford and we, the gallant and true Sons of California, were Axe-less, only to find final redemption in the Great Man From Fresno. After our first victory I crawled a quarter mile through a sewer pipe just to recreate the climactic scene from The Shawshank Redemption.

I'm going to spend the rest of the evening sitting around patting myself on the back for not having fallen for this whole "housing" thing back in 2001/2002, where, if I had gotten in, I would only be up 125%. I mean, talk about dodging a bullet.

_smile_

Go Bears,
prat

@frank:

Where in the reports is the data you're talking about? And what calculations are you making?

The NAR might be crediting tax deductions, though from their wording I was led to believe they were using a very simple calculation...

Reading through the reports more carefully, I do notice a fair bit of mealy-mouthed saying-but-not-saying-ness...specifically the "stress test" section. Also, there are a few glossed-over implied comparisons between local and national statistics, which come out looking favorable but probably aren't...especially the "average" 25% down payment, which obviously doesn't apply everywhere but is probably used in their "debt service" calculation.

Hmm. Snowed by pretty charts?