patrick.net

Which appears to bear out the theory that even though the reported median price is increasing, the price for the same-house (or equivalent) is trending down.

I do searches for low-end condos/townhomes. It seems that the inventory for < 650K homes is resuming the climb steadily, after a small dip near the new year.

Again, zillow.com may be of help.

I'm not sure what's going to happen to the bubble. One possibility: if people continue to want to own their own homes, and they can't afford one, then there will be upwards pressure on wages. This means small businesses just arbitrarily putting up their prices for goods and services. Waged workers will have to fight their employers, possibly go on strike, etc on wage demands, and so we will see an uptick in industrial action. (Your mileage may vary depending on how 'unionised' your particular country is.) Because the small businesses put up their prices AND housing is expensive, there will be double pressure on upwards wage demands.

Therefore, the consequence of this will be inflation. Effectively, the dollar will become devalued due to a flow-on effect from housing inflation. The gains made by some will therefore only be short-term. This is capitalism and inflation at work - stok market crashes - Fed keeps interest rates low - stimulates a housing bubble - upwards demand on wages - inflation - Fed raises interest rates to fight 'inflation'? - but average worker is hurting - industrial action - etc. Then you can do it all over again maybe 30 years later next time round.

The other option is that the people who are buying investment properties will more or less become a new economic class of landlords, and lots of other people will have to get used to the idea of renting a house or apartment forever from them. There will be a 'wealth apartheid' similar to Victorian times. Unfortunately, when the renters retire, they will still have to continue paying rent on low fixed incomes, whereas the house owners paid their houses off. So, they will be doubly damned, and no-one really will care - that's just the nature of the cruel market, so all the 'free market' apologists here will just have to accept that social outcome.

The one thing that will cap the bubble is simply that people will not be able to borrow any more money to meet the asking prices, which is what we're starting to see when prices have sagged in some areas. To buy a house or apartment as an 'investment' means that you need to get an ROI on your money. If the rent you can get is way lower than the debt on the mortgage, including interest, then you're not a wise businessperson. (However, some people still buy running at a loss because a spruiker showed them how it will go up 10% every year forever, so before long they will be able to re-fi and will be in positive cashflow territory. Further, the Australian govt is willing to reimburse you in your loss as a tax deduction.) But, normally, asking prices are capped by what people are prepared to pay as business investors based on a rent analysis, or what their existing equity and salary will let them buy as occupiers.

Interest rates being low for long periods means lower debt to service each week, so house prices go up, hence that's one feeder into the bubble, as we've seen. Liberalised credit from lenders is another feeder - used to be very hard to get a mortgage approved, or an investment loan approved - now lenders are throwing money at people at higher and higher risk. There are people like APRA (Prudential Regulatory Auithority) who tick the banks off about lending too freely, which is a regulator. The other 'natural' regulators are the aforementioned cap on wages and salaries, interest rates, other costs of living going up (such as commodity spikes - fuel prices, etc), population change, etc. Direct govt intervention could also be used, but property has been left in the free market to self-regulate in most places.

I don't think cheap goods from China etc are going to go up too much, it's not a variable. That's a long wave capitalist pattern of exploitation - and cheaper finished goods mean more disposable income for many households than before, also inflating house prices. Remember when VCRs used to be $1,000?

Warning - Off-topic: while this topic is still 'live' and people are still reading, can anyone comment on the claim on the site www.demographia.com that increasing housing prices/low affordability are pretty well caused exclusively by 'urban consolidation' policies, as proposed by Wendell Cox at the site www.demographia.com?

This site does a good international housing affordability study, but Prof. Cox examines areas like Houston, Atlanta, etc where house prices are still in line with salaries and wages, but they are still large and growing areas with a vibrant economy.

This is intended to be more of a civilised discussion and a considered examination of a hypothesis rather than a heated debate, I would like someone with the power to start a separate thread on it if at all possible. If it's true, or even a major order factor, that implies that it's not low interest rates, a flagging stock market, liberalised credit from lenders, an increasing percentage of investors, etc, causing inflation but more a 'land shortage' in the form of controls on supply of new housing, which will vary from place to place. I personally have my doubts about the thesis, especially given the factors outlined above, and my economic assumptions and thinking going back a long way now. Does anyone have any thoughts and input?

I'll post the question again in a newer thread at an opportune moment if there's not much interest here, as it's a very interesting thesis, and prices in North America apart from hotspots like CA, NYC, DC and Toronto are still pretty 'fair' to new buyers, unlike most of Britain, Australia, etc.

heh, that first sentence reads badly - should review my posts better ; )

delirious with a head cold...

back on topic, the other effect of the housing boom is that retail sales (or 'consumer confidence') are right down here, according to the national bureau of stats, so retailers are definitely suffering. hence, unemployment will go up slightly as they lay people off, and sales assistants and others will find it harder to find work and afford housing, etc. clearly every household only has so much disposable income, and more and more of it is being soaked up by passive bricks and mortar. you have to realise that only a relatively small % of the population is a new housing purchaser, many people bought 30 years ago for much less, etc and paid their houses off way back when, so they are not hurt by the boom, and still have some disposable income (possibly even benefitting by doing the old equity drawdown trick, buying investment properties, etc). ditto if you just inherited a house, or houses... but a significant number of young families would be hurting... i wonder what is going to happen when the baby boomers start 'downshifting' into retirement villages, hostels and nursing homes, and leave a pile of old houses empty with a population 'vacuum' behind them...

Juku Says:

http://futurist.typepad.com/my_weblog/2006/03/does_the_world_.html

hmm, yes, it certainly is. apropos of...?

that futurist site could be deconstructed all day - it's a rich vein of material...

renterCA Says:

> I’m a CA renter and would love to see things decline
> here in the Bay Area but I’m not betting on it. During
> the last bust in 92-93 when a lot people lost 20 -25% +
> realtor commissions on much cheaper property, the
> landscape was definitely different.

They sure were...
Almost everyone made a 20% down payment
There were almost no IO loans
There were almost no loans with low teaser rates
The ratio of home price to income was only about 25% above average vs 100-200% above average today.
Interest rates were falling from 1990 to 1995 (not rising like they are today)
Most rental payments would cover a mortgage

I could go on and on, want to change your bet...

P.S. Last night I made a post (time stamped 7:34) with some URLs that had TIC Condo and CoOp info that still say "Your comment is awaiting moderation" can anyone see the post?

http://www.mercurynews.com/mld/mercurynews/business/14112093.htm

Hmm, 24 year-olds buying $305k condos. And she gets to paint the walls purple!

Ack.

Did you guys read the SJMN about this past Feb, the Valley is having the highest number of stock insider SALES since early 2000?

http://www.siliconvalley.com/mld/siliconvalley/14088105.htm

Obviously the executives know that we are near a blowup, so better cash out the funny money before the s**t hits the fan.

Fed won't act to preserve high home prices:

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B6116173A%2DA04F%2D4EDD%2D8D0B%2D835D37201544%7D&siteid=mktw&dist=

Well, that settles that.

Lunarpark,

don't count on the Fed, the Fed's primary objective (in practice, not on paper) is to ensure full employment of the US. If supporting home price means sustaining the US through a bad depression, the Fed will certainly do it. Bill Gross was expecting a rate cut starting from the late half of the year, I think it is a reasonable bet, although I bet the Fed won't go through with the raise beyond March. CPI numbers are highly massageable, so I think the Feb low CPI is already a part of the backpedding to make way for not hiking the rate further. The announcement of mexican oil find, the announcement of extra US oil reserve, is all a way to contain the oil price for these few months so that the Fed will have an excuse to bring the rate hike to an end. However, to defend the dollar, Fed also need to put up an image of being tough, hence the doubletalk.

If housing comes down to an extent that it is hurting the economy, the Fed will be soon on a rate-cutting frenzy. However, unlike last time when Greenspan did it, there won't be much to cut.

"don’t count on the Fed...If housing comes down to an extent that it is hurting the economy, the Fed will be soon on a rate-cutting frenzy."

Yes, but when herd psychology changes all the cuts in the world won't help the housing market.

Personally I only count on the fed to screw things up.

You can give yourself a brief tutorial in identifying breast fraud.

SFWoman, again, without a clear scientific approach (fondling) there is no way HARM or myself could possibly tell. There is just too much variation. You say fake, I say correcting nature’s mistakes. I propose a vigorous testing protocol in which we first numb (Surfer-X to HARM, prepare to numb the region, HARM to Surfer-X, nmmmm, nmmmmm, nmmmmmm). Again, if you suspect a McDebtor of breast-fraud, kindly let the good folks at HARM-X know, we will conduct a 100 point inspection and get back to you with our results. Were here to serve, and nmmmmmm.

Ha Ha,

I've maintained for some time that Bend, OR is a house of cards. Every person you meet is either a builder (which anyone can call themselves) a realtor or mortgage broker. Owneroccupier said it best when he referred to "do some real work and stop pimping houses to each other". I don't know if he's been to Bend recently but it's the kind of experience that would prompt that very statement! Thanks for the link. While I believe that the BA and Sac. will be the "epicenter" of the crash it's always interesting to see some local coverage as well. The link mentioned a Bend RE blog and there were some great observations along with posters on Ben's blog that made note of the fact that many of the CA speculators are now considering "renting out" their investment properties. (Rent for a 3/2 in Bend and surrounding areas is about $7/800 per mo.) Good luck on that one.

Surfer X, SF Woman,

My wife pointed out the "plastic surgery gone bad" website to me awhile ago and it's really funny how someone you had thought of as "attractive" once exposed (for fraud) now repulses you. It's just one of those things in life you can't "un-see".

surfer-x Says:
You can give yourself a brief tutorial in identifying breast fraud.
SFWoman, again, without a clear scientific approach (fondling) there is no way HARM or myself could possibly tell.

My college girlfriend that grew up in Newport Beach used to say that her mom was the only woman with her natural hair color and real breasts living in Big Canyon. In the two years I dated her she had a habit of pointing out every fake blond and woman with fake boobs she saw. Some things I learned 1. Very few females over 14 have natural blond hair. 2. Very few (if any) tall super thin women have natural big giant boobs. 3. A natural breast (and a real expensive fake one) is asymmetrical and has a gradual taper at the top (like a ski jump) while most fake ones look like a round bag of saline was stuck under the skin. I read recently that the real estate slowdown is expected to drastically reduce Harley Davidson sales, I wonder if plastic surgery will drop when the cash out re-fi money goes away??

that futurist site could be deconstructed all day - it’s a rich vein of material…

This comment should be read as "no comment".

When we talk about our governments concern for it's citizens, perhaps we should concider the resume of our commander in chief.
George W. Bush

I was arrested in Kennebunkport, Maine, in 1976 for driving under the influence of alcohol. I pled guilty, paid a fine, and had my driver's license suspended for 30 days. My Texas driving record has been "lost" and is not available.

MILITARY: I joined the Texas Air National Guard and went AWOL. I refused to take a drug test or answer any questions about my drug use. By joining the Texas Air National Guard, I was able to avoid combat duty in Vietnam.

COLLEGE: I graduated from Yale University with a low C average. I was a cheerleader. I also joined the Order of Skull and Bones an elite secret society that uses cover-ups to advance it's members into high office positions. Thank goodness my biggest opponent this year is my fraternal brother.

PAST WORK EXPERIENCE: I ran for U.S. Congress and lost. I began my career in the oil business in Midland, Texas, in 1975. I bought an oil company, but couldn't find any oil in Texas. The company went bankrupt shortly after I sold all my stock. I bought the Texas Rangers baseball team in a sweetheart deal that took land using taxpayer money. With the help of my father and our right-wing friends in the oil industry (including Enron CEO Ken Lay), I was elected governor of Texas.

ACCOMPLISHMENTS AS GOVERNOR OF TEXAS: I changed Texas pollution laws to favor power and oil companies, making Texas the most polluted state in the Union. During my tenure, Houston replaced Los Angeles as the most smog-ridden city in America. I cut taxes and bankrupted the Texas treasury to the tune of billions in borrowed money. I set the record for the most executions by any governor in American history. With the help of my brother, the governor of Florida, and my father's appointments to the Supreme Court, I became President after losing by over 500,000 votes.

ACCOMPLISHMENTS AS PRESIDENT: I am the first President in U.S. history to enter office with a criminal record. I invaded and occupied two countries at a continuing cost of over one billion dollars per week. I spent the U.S. surplus and effectively bankrupted the U.S. Treasury. I shattered the record for the largest annual deficit in U.S. history. I set an economic record for most private bankruptcies filed in any 2-month period. I set the all-time record for most foreclosures in a 12-month period. I set the all-time record for the biggest drop in the history of the U.S. stock market. In my first year in office, over 2 million Americans lost their jobs and that trend continues every month. I'm proud that the members of my cabinet are the richest of any administration in U.S. history. My "poorest millionaire," Condoleeza Rice, has a Chevron oil tanker named after her. I set the record for most campaign fundraising trips by a U.S. President. I am the all-time U.S. and world record-holder for receiving the most corporate campaign donations. My largest lifetime campaign contributor, and one of my best friends, Kenneth Lay, presided over the largest corporate bankruptcy fraud in U.S. history, Enron. My political party used Enron private jets and corporate attorneys to assure my success with the U.S. Supreme Court during my election decision. I have protected my friends at Enron and Halliburton against investigation or prosecution. More time and money was spent investigating the Monica Lewinsky affair than has been spent investigating one of the biggest corporate rip-offs in history.

I presided over the biggest energy crisis in U.S. history and refused to intervene when corruption involving the oil industry was revealed. I presided over the highest gasoline prices in U.S. history. I changed the U.S. policy to allow convicted criminals to be awarded government contracts. I appointed more convicted criminals to administration than any President in U.S. history. I created the Ministry of Homeland Security, the largest bureaucracy in the history of the United States government. I've broken more international treaties than any President in U.S. history. I am the first President in U.S. history to have the United Nations remove the U.S. from the Human Rights Commission. I withdrew the U.S. from the World Court of Law. I refused to allow inspectors access to U.S. "prisoners of war" detainees and thereby have refused to abide by the Geneva Convention. I am the first President in history to refuse United Nations election inspectors (during the 2002 U.S. election). I set the record for least number of press conferences of any President since the advent of television. I set the all-time record for most days on vacation in any one-year period. After taking off the entire month of August, I presided over the worst security failure in U.S. History. I garnered the most sympathy for the U.S. after the World Trade Center attacks and less than a year later made the U.S. the most hated country in the world, the largest failure of diplomacy in world history. I have set the all-time record for most people worldwide to simultaneously protest me in public venues (15 million people), shattering the record for protest against any person in the history of mankind. I am the first President in U.S. history to order an unprovoked, preemptive attack and the military occupation of a sovereign nation. I did so against the will of the United Nations, the majority of U.S. Citizens, and the world community. I have cut health care benefits for war veterans and support a cut in duty benefits for active duty troops and their families in wartime. I am the first President in history to have a majority of Europeans (71%) view my presidency as the biggest threat to world peace and security. I am supporting development of a nuclear "Tactical Bunker Buster," a WMD. I have so far failed to fulfill my pledge to bring Osama Bin Laden to justice while your fathers, mothers, brothers, sisters, sons, daughters, wives and husbands are losing their lives every day.

RECORDS AND REFERENCES: All records of my tenure as governor of Texas are now in my father's library, sealed and unavailable for public view. All records of SEC investigations into my insider trading and my bankrupt companies are sealed in secrecy and unavailable for public view. All records or minutes from meetings that I, or my Vice President, attended regarding public energy policy are sealed in secrecy and unavailable for public review.

Bay Area DataQuick numbers are in:

http://www.dqnews.com/RRBay0306.shtm

Elsewhere in the world, price/sqft is used to compare housing price. Why is US using median housing price instead of price/sqft? It only makes sense to compare median housing price when you have a rather uniform stock of inventory, which is obviously not the case for us. Any history behind this? Do realtors provide price/sqft number on a timeline basis?

Viewfromsiliconvalley.com has weekly $/sqft data.

the Fed’s primary objective (in practice, not on paper) is to ensure full employment of the US.

Who says that? On paper, the Fed has a dual mandate or price stability and full resource utilization. In practice, it needs to maintain health in the financial system. It will not give a shit about employment.

the Fed’s primary objective (in practice, not on paper) is to ensure full employment of the US.

If you mean by full employment an unemployment rate equal to the computed structural unemployment, then I might agree as a tertiary goal of the Fed. The problem is that the definition of structural unemployment is controversial. There is structural unemployment caused by minimum wage, caused by collective bargaining contracts, caused by corporate wage efficiency, and caused by "unexplained" inefficiencies in the employment market. Some people think 5-6% is a reasonable number, others argue the real number is closer to 15% or even 20%.

Randy,

yeah I meant full employment doesn't really mean FULL employment in the sense of definition, but in a sense of keeping enough people off the street so that we don't end up in turmoil.

Peter P,

In the end, the existence of government is to keep the society stable through various means of social engineering like tax, medicare, social benefits, etc. If Fed's worry is REALLY inflation, Maestro Greenspan would not have artificially kept the interest rate so low for so long. The R word and the D word is what Fed is afraid of the most, not because the stock market is down or whatever, but because it will pose a threat to the very existence of our government. This is particularly the case for America, we have guns, and, we have a dwindling middle class and a greater divide between the rich and poor. America, is a rich version of Latin America. If we didn't have the reserve currency status, we would have gone broke multiple times.

Sunnyvale_Renter, thanks for your support. I just don't think housing bubble or any bubble is a concern for the Fed as long as they are sustainable, till the end of the Fed's chairman's tenure. Let the next chairman worry about the R word and the D word.

Randy, I must be talking and typing at the same time, here I'll try again.

What I meant by full employment isn't referring to the economic definition of full employment of 4 or 5% "accepted" unemployment. It merely means keeping enough people off the street so that we can all live happily ever after.

I guess it is natural for most people who are disgusted by this Re bubble (renters and owners) to wishfully hope for Fed to target the RE bubble - raise interest till it bursts. Well, I think the Fed has bigger fish to fry than the Re bubble. America's financial situation has been on a decline for years, I don't like Bush, but he merely accelerated the process, he was too stupid to be the instigator.

I lately found something really whacky about our economy, It seems like America has turned into a giant bank, this is our national industry, one-trick pony industry. GM, Ford, and other major manufacturers of anything all have a financial arm, and this financial arm is usually the most profitable part of the business. Then, Americans can buy anything 0-down, from homes to cars, furniture to jewlery, you name it, we 0-down everything. And, while most of the businesses are losing money in the last quarter, investment banks are having record revenue and record profit. Now we don't have main street any more, we will have a wall street in every town. It is like, we are nothing but a bunch financiers passing bucks to each other, and this is a far bigger problem than just the RE bubble, the RE bubble is just a symptom of a deep-rooted structural problem of our economy.

Since housing price is not even a part of core CPI, and Fed's "stated" purpose is to fight inflation, why will it target the RE bubble? America imports most of our oil, the spike in oil price is caused by the lack of processing facility, does hiking interest rate help putting more processing facility online or offline? It doesn't make sense for the Fed to halt the oil price spike through hiking interest rate. It is fighting something much larger than its stated purpose, that's my intepretation.

Back to the topic, visualising the bust.

Expect to see lots of homeless, especially in SoCal. They will camp out in particularly nice parts of town where the public infrastructure is good, along lakeside sidewalk, in public park space, near big shopping mall, or under the freeway. It is rather sad to see plenty of those in Tokyo every time I go there, sometimes you see a whole family living under the freeway out of a box. I am pretty sure we will see far more here.

ReyEstate,

Pure negligence or pure truth? You and your 1 poster aren't really worthy of a response and as we ask all die-hard RE Bulls, if you are so gung-ho about the CONTINUED upside potential of BA ReyEstate what are you doing here? Shouldn't you be closing your next big deal on a 560 sq. ft. condo for 1.3 mil? Rey, we weren't always this popular (please to note our reader count) but we've always tried to be visionary, looking toward the horizon. What would you suggest we do?

Help u with foreclosure,

Is that through the United Christians Fund? Oh, and welcome!

If the so-called bubble has indeed burst, then why are you asking your readers to visualize the housing bubble bust? Shouldn’t this be an observation?

Are you looking for a gold star for clever semantic parsing? Even relatively fast corrections in real-estate take some time to unfold. Real estate does not exactly qualify as a liquid market.

By the way, did you secure permission from this blog's owner before including its logo on your own under the title PURE NEGLIGENCE? Doesn't the CAR give you some basic guidelines to follow when propagandizing?

I wonder if reyestate is feeling quilty and sending his readers to patrick.net? I am also really confused, the first post is by annon. "propagandist in the media"? Are blogs media?

Are blogs media?

We have a regular poster named newsfreak. Perhaps that qualifies us.

Randy H,

Good point! Come to think of it the site does have a certain brand recognition factor. Besides we have our reputations to think of! I suppose to Bulls anything other than blind faith in RE qualifies as "negligence".

Help u with foreclosure,

Do you actually handle Loss Mitigation or is that just your sense of humor? Either way I like it!

DinOR,

I sent you an email about a week ago. Did you get it?

Are blogs media?

Oops, I guess they are! Just one of those people that stayed blonde after the age of 14. I will leave the blogging up to you smarties from now on!

The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday.

"If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,' Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany.

In his remarks, Kohn attacked the popular 'Greenspan put' theory that Fed policy would always protect investors from sharp asset market drops while doing nothing to restrain these markets when prices rise.
"This argument strikes me as a misreading of history," Kohn said.
"Conventional policy as practiced by the Federal Reserve has not insulated investors from downside risk," he said.

"He told me that there were only 5000 permitted and being constructed at the moment"

5000 is still somewhat remarkable considering SF's obvious geographical limitations.

surfer-x
I strongly recommend not using the words vigorously, fondle, and breast in your request for test subjects-- it just sounds painful.

As for the other bust: I keep seeing posts suggesting moving into gold or cash or offshore for other investments. What about just having a diversified portfolio that includes some of the above, but also has US investments?

SFWoman-In my experience, it is the women who talk about ideas, books, and culture who reveal their "elite" background the best. I mean, goodness, it is rather tacky to talk about money in polite company. That is how I see the "classes" breaking out. I know it sounds catty, but those who talk about shoes, bags, cosmetic experiences, fancy vacations, fancy schools, over the top consumption-- they are the ones who reveal their "lower" origins the most. When the person has to call out the distinction of class, that's when their insecurity about their place in it is made most obvious.