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Kherson, Yes, the Florida Condo market is already overbuilt, and they are still building like crazy. It will get really ugly.
Allah, There is hope. No generation will be priced out, other than on a temporary cyclical basis. I remember 30 years ago people were saying that young people would forever be priced out of the market. Then the cycle shifted. It happens about once every 10 years or so.
Of course Zephyr, do you think I had any doubts :) , I was just explaining how my view is more optimistic. I know RE will crash....make no mistake about that.....and it is for this reason that it is illogical to say that it only goes up.....and like I say, that 70% ownership rate is flawed. Many people who bought will realize when they are underwater that they don't own the house, but rather the house owns them...and their only way out of that slavery is to run away from it and leave it to foreclosure.
Sometimes we become slaves to everything we have.
I realize that you expect a crash, and a better time to buy.
With or without a crash the market must ultimately return to better balance. It is much easier to be patient when one has confidence that the cycle will come around again.
Nobody has missed the last train. However, the scedule will be a little sparse for a while.
70% of US households own their home today – a number that has steadily increased over the last 50 years.
70% of US households have a mortgage on their home. I would hardly call the I/O loans so prevalent here in the Bay Area "ownership".
I admire your analytic nature Zephyr, but I can't help but think you are being a bit disingenuous about the motivations of a good many realtors and lenders right now. Of course, I am one of those "young people", so perhaps I'm not in a good position to have a disinterested opinion.
Have I mentioned my "Baby boomers (and U.N. and trilateral commission) conspire to put Gen X in perpetual debt slavery" theory? I can get quite wild eyed while talking about it. To the point that I will stoop to reading "The Nation" on the topic!
Cheers,
prat
Their motivations are to make money.
I do not see what you are getting at with your claim that I am being disingenuous. My comments are honest and sincere.
Zephyr says:
Most of the people who owned homes 50 years ago are dead now. The current owners are the young people who were thought to be forever priced out of the market.
Exactly. The fact that life expectancy has been and is still growing is an additional constraint on supply these days.
There are lots of people living in my area who moved into their homes in the 60s, when the area grew like crazy. These guys are in their late 70s and early 80s now, and most are remarkably healthy. However, these people, sad as it may be, will start joining their ancestors in the foreseeable future and create a little supply bump. And it seems that this will coincide with not so good times in the real estate market.
I still fear that some day, the Silicon Valley market will look like Detroit's today. Tons of pretty nice houses built in the 20s and 30s, and expensive at the time, really cheap now. That'll be a while, though.
Prat, It would take an amazingly competent group to secretly conspire in such large numbers. Power brokers secretly conspire, but a whole generation is incapable of such.
Besides the truth is that the Boomer generation has been the most debt ridden generation in history. So if it is a conspiracy, it is the boomers who are the target, and the Gen Xers are just getting hit with the stray bullets.
Girgl, Some areas will end up like Detroit, while others will end up like Beverly Hills.
Excellent article prat...I especially agree with the part:
"The next generation is starting their economic race 50 yards behind the starting line," says Elizabeth Warren, a Harvard Law School professor and author of The Two-Income Trap. "They've got to pay off the equivalent of one full mortgage before they make it to flat broke, in order to pay for their education. They can never get ahead of the game, because they're constantly trying to play catch-up.
"And once you've got accumulated debt, the debt takes on a life of its own. It demands to be fed, and it takes that first bite out of the paycheck. And it means the opportunity to accumulate a little, to get a little ahead, to maybe put together a down payment—it's just never there. It's just staggering to me that this is not a part of our national debate right now."
Zephyr says:
Girgl, Some areas will end up like Detroit, while others will end up like Beverly Hills.
I take it that means it's better to buy in a better (more expensive) area when the time comes?
Zephyr says:
Allah, There is hope. No generation will be priced out, other than on a temporary cyclical basis. I remember 30 years ago people were saying that young people would forever be priced out of the market. Then the cycle shifted. It happens about once every 10 years or so.
Even though it may be temporary, it's still painful, especially if it lasts 10+ years. Who wants to buy a starter home at age 45?
Girgl, "I take it that means it’s better to buy in a better (more expensive) area when the time comes?"
Yes, but the point of my comment is that some newer expensive areas will eventually decline like Detroit while others will continue to thrive.
Zephyr says:
70% of US households have a mortgage on their home. I would hardly call the I/O loans so prevalent here in the Bay Area “ownershipâ€.
That is not what it says here. Looks to me like they are used mostly in the bay area....at least they were before the bubble popped.
[snip]
Two out of three Bay Area home buyers are choosing interest-only loans, and some experts warn that the popularity of the controversial form of mortgage debt is a sign that the overheated housing market is boiling over.
Girgl, The whole cycle typically lasts 10 years. The decline in prices usually occurs over a period of about three years. So the wait for better affordability should only be about three years from the very top of the cycle. During the 1990s it was six years. That was a major aberration from historical norms.
RealityBased says:
Blind greed and ignorance must eventually suffer. After being locked of the real estate market due to the combination of poor timing + a modicum of personal financial responsibility, I find that I have an insatiable appetite for the post-bubble sob stories that are coming.
Heh. I look forward to those, too.
Except the ones from folks who were never arrogant and greedy, but rather just naive or scared, and who are royally screwed nevertheless.
On the other hand, no one will admit to having been arrogant and greedy when the shit hits the fan :-)
On the other hand, no one will admit to having been arrogant and greedy when the shit hits the fan
No, but the stains from being hit by a flying turd will be there for everyone to see and to remind them of the stupid mistakes they have made. :lol:
Zephyr says:
Yes, but the point of my comment is that some newer expensive areas will eventually decline like Detroit while others will continue to thrive.
In your opinion, what characterizes an area that is more likely to thrive?
Lending normally becomes more liberal as the cycle progresses toward the peak. Lenders become increasingly optimistic as values rise and loan profits seem easier and less risky. This effect has been stronger during the current cycle than during past cycles.
Interest only loans and negative amortization loans are not new, but they are more widely used than before.
Prat, It would take an amazingly competent group to secretly conspire in such large numbers.
I know. I'm just kidding, my friend.
Cheers,
prat
Girgl, An area should thrive if it has a sustainable economic base that generates good paying jobs (in addition to the low paying jobs that are everywhere). Alternatively, the real estate can do well if the area is a preferred destination for people who have lots of money. If an area has both, even better.
Girgl, Detroit should have been sustainable, but the big auto makers got complacent and built themselves into cost structures that could not be sustained.
Interest only loans and negative amortization loans are not new, but they are more widely used than before.
If you disregard their use during the great depression, Interest only loans are new as for the past 5 years....and none of these products have been time tested...and being that they are more risky, there is obviously much more likely that they will fail. When the dust settles after mass foreclosures, these loans will never be used again.
Zephyr says:
Girgl, An area should thrive if it has a sustainable economic base that generates good paying jobs (in addition to the low paying jobs that are everywhere). Alternatively, the real estate can do well if the area is a preferred destination for people who have lots of money. If an area has both, even better.
That would be the SF Bay Area, IMHO. Oh goody :-)
It’s not easy selling real estate.
...but in the same post you said: The proper attitude is this: the house sells itself.
There is no marketing strategy, no sales pitch or seller’s concession that is ever going to change the fact that she’s not going to buy the house.
This is not true.....people are talked into buying real estate all the time. You act as if there are no dishonest people in the business....almost as if you are sticking up for everyone in the business. There are dishonest people in all occupations....but some occupations are more prone to attracting dishonest people...especially salesmen, and realtors are salesmen!
Scott, you never answered my question "Is it ever a bad time to buy?" yes or no?
Maybe it’s just me, but something about your post expresses an odd fixation with women.
Here we go again ....and I'm not going to touch this one! :)
Just reported on the radio, “sales after Thanksgiving are flat†does that mean same as any other day? Or, no more/no less than expected?
Well you didn't think black friday was about great house prices did you?
SW has had a pretty good run on the east coast since 1992-ish. Even now, I think that good developers are making a bit over 100. I tend to think of the west coast as more hw-centric, so maybe that explains the drop-off that sunnyvale referred to.
This is totally not true..........they are not paying these kinds of wages on the east coast.
The Oct. issue of electronic design has a salary survey:
Typical EE is 46, white, makes 93k and works 53 hours/week.
This is so not true.......don't believe what statistics say...they always make salaries out to be much higher than they actually are.....I don't know why, but it is. Go to Salary.com and look up the salary for the occupation you are in....after you get really pissed, relax....they are not getting that much.
I am in Software and I make around 150K in Bay Area……
By the way I do not own a house and can not afford to own a house….
Ha Ha, I am an Embedded Hardware/Software Engineer...... I live on the east coast and while I have many friends that don't make as much as me, I make less than 100k.
Scott C says: “What I am not going to do is make fun of her, using a pretence to superiority to justify laughing at her, as some conceited asshole might.â€
My my, a bit touchy aren’t we!
I understand your frustration, but did you really expect to get rich after simply taking a one month course in real estate at the height of the bubble? Lol.
I have absolutely zero sympathy for that “poor†girl because she was such a bitch during that open house. To sell the overpriced shit-box, she lied, tried to pressure us, played the fear card, and when nothing worked, she taunted us as we walked out the door - I’m sure you’re familiar with those tactics.
Scott, the bubble is over, done, finito. The sooner you accept that fact, the sooner you can find a job that serves yourself and our society better.
Allah says, "Scott, you never answered my question “Is it ever a bad time to buy?†yes or no?"
Isn't this like asking a barber if you need a haircut? ;-).
My theory (to repeat myself) is that engineers believe strongly in rationalism. Thus, they are profoundly offended by the irrational bubble. (â€Can’t these idiots see that this is irrational?
How can a rationalist be offended by anything at all?
Very true. It’s sort of like we’re all becoming “collateral damage†regardless of how we did or didn’t participate in the current bubble. I find myself in an interesting position because I want the market to come down to a reasonable level but I also fear the outcome if it turns in to crash rather than a correction.
No fear. Just make sure other people get hurt more than you do. :twisted:
I think the goverment a) doesn’t care too much about expenses, b) is very short on competent engineers, and c) is still in the payscale mode of the .com era. Commercial work in the DC area is more constrained after the excesses of the late 90’s.
Maybe the DC area pays well, but I live on LI and the pay isn't as great as you think it is. The government probably pays very well to help inject liquidity into the market due to all the printing they've been doing..... Gotta get me a government job! ;)
My theory (to repeat myself) is that engineers believe strongly in rationalism. Thus, they are profoundly offended by the irrational bubble.
More like Engineers believe strongly in logic.....they have to know whether or not a project is feasible because their job depends on it and deadlines enforce it. Engineers(at least those who are looking to buy) know that housing prices will crash based on sound logic, yet they just don't know how much it will crash.....only that logic tells them they would be fools to buy right now.
Funny thing, several years ago, my sister knew of this older retired couple, the husband was an engineer and since they were retired, they wanted to downsize and move to FL, but the husband wanted to wait because he felt that the value of their house would soon increase greatly in value while the wife just wanted to move......well it was just before the boom, the husband died and the wife went ahead and sold the house....even below the current market value because she just wanted to get out of there fast....I was even thinking of buying it at the time. Right after that, the house just appreciated like crazy, I could just imagine her dead husband turning over in his grave! :)
An interesting analogy for this housing bubble, but who will be the cops and the EMTs?
The repomen will be the cops and the taxpayers will probably be the EMTs.
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Rising inventory and plunging sales (leading indicators) and even modest M-M price declines in some areas have firmly established that we're past the Bubble's peak. As inventory continues to build, the pressure will mount for speculators/flippers who are equity-negative, cash-flow negative, and --thanks to exotic financing-- facing huge montly payment hikes as their loans convert to adjustable-rate, fully amotizing mortgages. The change in seller/lender/media psychology is already undeniable, but has yet to filter down to Joe Homedebtor, who remains largely oblivious to these developments. It took roughly 7 years to go from peak to trough in CA during the last cycle (1989-1996), and 15+ years in Japan. No doubt we're in for a long and bumpy ride down to the bottom.
A lot of talk recently has focused on the Bubble's aftermath and the larger implications for the economy. Some estimates place the number of CA private payroll jobs created over the last 5 years directly or indirectly tied to RE at 70% and roughly 36% nationally (http://tinyurl.com/ctdye). Most people are pretty much in agreement that individual homedebtors and speculators/flippers are not likely to get bailed out by Uncle Sam. However, this leaves some very big and very powerful players who may see their balance sheets turn red for years to come, including large institutional MBS-holders (pension funds, mutual funds, etc.), the GSEs (Fannie/Freddie/Ginnie), banks, mortgage companies, REITs, etc. If enough of these $Trillion-dollar behemoths fail, they could take a substantial portion of the economy with them, which brings to mind the phrase (and July Thread) "Too Big to Fail".
To (very loosley) paraphrase J. Paul Getty,
"When you owe $1 million on a condo that's worth $250K, you have a problem. When you're holding $1 Trillion in bad debt, the government has a problem."
We can debate the language of "implied vs. explicit" federal guarantees all day, but an MBS-holder/bank/GSE bailout on some level appears likely when the $hit really hits the fan. My questions are thus:
1. How much of your hard-earned income would you like to donate towards bailing out irresponsible borrowers and lenders?
2. Would you prefer that the government directly seize your savings to help bailout the GSEs and MBS investors, or that they sharply devalue your dollars (thereby triggering widespread inflation)?
3. Do you think the government should institute a special renter's tax to use towards the bailouts?
I'm sure that the NAR, mortgage lenders and homedebtors alike will see the justice in penalizing people who --despite enormous arm-twisting-- stubbornly refused to participate in our nation's great housing boom. Oh, and homedebtors outnumber renters by more than 2-to-1, and tend to vote in greater numbers.
Discuss, enjoy...
HARM
#housing