patrick.net

TOS,

First, your back-of-the-napkin calculations are moot. Buying today at the peak of a cycle is nothing like buying in 1977 (pre-early 80s boom). Second, aside from the (flawed) message, delivering it with your smarminess ("at least read and think", or "do you get it now...") isn't winning many people over to "the other side."

No wonder you couldn't cut it in the investment world, and you probably aren't cutting it as a Realtor (TM). You appear to have a low EQ (acknowledges Peter P).

A house is a hedge against monetary inflation. Since homes are essential commodities and they tend to be credit dependent, credit expansion tends to inflate home prices as well.

skibum,

I hadn't considered home size increases; good point. To some extent industrialization has to offset that some though, as anyone who has used an air nailer over a hammer will attest.

Thanks for the link and your commentary.

A house is a hedge against monetary inflation. Since homes are essential commodities and they tend to be credit dependent, credit expansion tends to inflate home prices as well.

Exactly, just like contraction of credit (which is happening right now) has the opposite effect.

Some people believe that house prices will contract while consumer prices will increase; I disagree, my theory is that all of those consumer goods that the FB's have "purchased" with their house ATM's are going to find themselves on ebay in the next couple of years, further reducing the demand for newer products. I do think we will see very big increases in food prices though along with stagflation.

"Cramer
Most of you are negative about the housing market. I’ve read some of your posts and I’ve to say yall are making some good points. But when do you see housing prices turn really sour? I’m just curious."

I believe most of us tend to agree on a sequence of events for the unraveling of the housing market but there are a few variables subject to individual opinions. This is because not all areas are identical, and different peoples' experiences lead to different theories. Since I don't like ambiguity at the same time not wanting to be a sooth sayer I guess I can offer this: Differentiate between the commodity housing, and the super rich housing. The commodity housing for most areas will revert to the fundamental valuation. (rent somewhat comprable or normalized land and construction) In San Diego for instance that could be as much as a 50% drop. In other areas, it might only drop 10%. An insignificant number of areas might even continue to grow at a normal rate, these areas would be ones missed by the bubble effect.

What we don't know is whether it will be a steep and sudden crash, or whether it will be a decade long correction. The souring though is clearly well under way. Keep in mind that things are worse than the numbers show because the sales price numbers are lagging indicators, and don't reflect the masses of overpriced houses which simply aren't selling, and many will end in foreclosure.

A house is a hedge against monetary inflation. Since homes are essential commodities and they tend to be credit dependent, credit expansion tends to inflate home prices as well.

Peter P,
Unless I'm misreading Brent's original question, he wasn't necessarily asking about the credit-dependent aspects of housing prices, which I would imagine affect shorter-term (over a few years) housing prices. The constantly referenced "fact" that house prices beat inflation, albeit by a smallish amount in the long term, is the issue that needs explaining. It's the long march forward in prices, not the small ebbs and flow from year to year I'm talking about.

The constantly referenced “fact” that house prices beat inflation, albeit by a smallish amount in the long term, is the issue that needs explaining.

Inflation is hedonized to a small number. I guess it is not very difficult to beat.

Even some money market funds beat inflation "constantly."

This is why our bleeding heart, wanna do good, victim mentality nation is going down the tubes:

Activists want foreclosure moratorium
Housing activists say families that have mortgages with questionable terms should be given six months to work out deals.

http://money.cnn.com/2007/04/04/news/economy/foreclosures/index.htm?postversion=2007040413

These a$$holes want to "save" these idiot FBs who got themselves into this mess? Screw them.

The house itself depreciates. It is the land that appreciates enough to beat inflation.

The replacement cost of the structure also tracks inflation.

It is the land that appreciates enough to beat inflation.

I guess they really AREN'T making any land anymore, then!

"What we don’t know is whether it will be a steep and sudden crash, or whether it will be a decade long correction. "

The keepers and publishers of that data (NAR) have a huge vested interest and will spin the numbers in all sorts of ways. I dare say
they may even distort the results (like Enron hidding/covering up the losses). Fact is there is no laws or regulations that bind them into any ethical practice like the SEC or other oversight goverment body. They are anwserable to no one. And no third party reviews their public press releases. Since they believe the bubble is no more than 'media hype' they most likely see them self as Guardians. ( Sort of like Nixon on his last days) and any distortion of the facts is all for the greater good. So the potential fraud is vast.

We could be in a deep decline today or in future period and never really know it.

“What we don’t know is whether it will be a steep and sudden crash, or whether it will be a decade long correction. ”

I think between the number of houses going into foreclosure and the imaginary zillow values (that many people are heavilly fixated on) dropping (due to the relling of those properties), sprinkle in some tighter lending standards and I see prices dropping hard, unlike anyone has ever seen at any other time in history.

Just my prediction.

-relling
+reselling

"It is the land that appreciates enough to beat inflation"

You are repeating at statement many would say is true.
But can you justify that reasoning behind that. I think the reason
is lost from our agrarian roots and may not hold true any longer.

In Silicon Valley we had commercial rents and some residental rents which sky rocketed due to a tech bubble. Since 2000 they declined from $3/sq ft to $1/ft and have stayed flat now for 4-5 years. Yes inflation gone forward year over year. But rents have been flat due to no or low demand.

Currently the market demand for vacant land (future R&D or Mfg.) is practically dead. There just is no need for it.

The flip side for non-vacant R&D office space is there is in many cases a provision to increase rents due to CPI, but lets face it thats more Admin charges covering salary increases for land lord staffs. All the CAM is all pass through which do decline as they declined form my company in 2006 and projected to decline in 2007 regardless of CPI. I worked with this stuff before.

Had we not had a "Computer Revolution" back in the 1980s in SV I doubt we would even be talking about this. We would still be sitting in a orchard field which is a low margin business and seen land prices been flat since 1950s. There would be no demand for land here ... there was no reason...

Currently the market demand for vacant land (future R&D or Mfg.) is practically dead. There just is no need for it.

A free market would have converted those land into residential use. But NIMBYism is a powerful force nowadays.

My comment is awaiting moderation :(

Had we not had a “Computer Revolution” back in the 1980s in SV I doubt we would even be talking about this.

We have to thank Bill Gates for that.

"We have to thank Bill Gates for that."

Oh Lord..... you do know who Gary Kindall was? Actually gary had
a bigger impact in Computers than Gates did.
You do realize Gates was a small player in the early days...
There were others...

But even so, Gates was never in SV. He did but a lot of SV companies
out of business.

But even so, Gates was never in SV. He did but a lot of SV companies
out of business.

See, creative destruction. :)

Bill Gates is just one of my heroes. But Windows really changed the world.

"A free market would have converted those land into residential use"

Actually the free market did ... destroyed all the farms and coverted to
business parks and residentials. We are already seeing that in SF with the new towers near the ball park... I see they are also expanding and building more.

Actually the free market did … destroyed all the farms and coverted to
business parks and residentials.

But residents moved in and voted free market out of business.

allah,

Although we've kidded about picking up everything from Harley's to jet skis on ebay I don't believe this will lessen the demand for "new goods" much at all. These are "tainted goods". Bought with "free money" and neglected almost as much as the shoddy homes that originally "facilitated" their purchase.

Patrick's link about "How to Lose 260K in RE" linked today explains the situation more effectively than I could ever describe.

SF is a self-proclaimed liberal city. Can someone tell me why it is so adverse to changes (e.g. redevelopment, demolition, etc)? I thought liberals are supposed to be open-minded. :)

"Bill Gates is just one of my heroes. But Windows really changed the world. "

BAHAHAHAHAH!
Before Winblow$ we had Mac OS and Geoworks... Far far better!
You have alot to learn about tech my boy! Actually it was Gary Kindall
that changed everything with CPM my boy. Gates was still growing pimples and selling Basic and Fortram and had no idea on creating and OS
which they had eventually buy (clone of CPM).

"Can someone tell me why it is so adverse to changes (e.g. redevelopment, demolition, etc)? I thought liberals are supposed to be open-minded. "

OH Lord.. have you even been there??? There is more development there than any time before. Take a long look next to the ball park... you will more homes being built.

Before Winblow$ we had Mac OS and Geoworks… Far far better!

How so? Windows enjoyed a huge market share. Its phenomenal market penetration allowed the rapid development of the silly valley.

"See, creative destruction."

Actually see Toshiba Samsung ( Asian Tigers) due to highly educated and cheap labor froce back in 1985-90. Bills Gates had nothing to do with it.

Bill Gates runs the biggest Monoply in the world.

theotherside

You can keep repeating that half-math over and over all you wish. I still await your systematic, quantitative disproof or criticism of my publicly published model. You promised that over 6 months ago now. Thus my "vitriol". At this point you're just Trolling. I've taken the time to disprove your calculations in past threads, in excruciating detail. In the end you were shown to be relying upon hidden, unrealistic assumptions about continued perpetual out-of-band housing price growth.

By your own assumptions 23 threads ago, housing will constitute 99.9% of all world GDP by 2050. Wow.

Here's the gauntlet. I'll take you seriously as soon as you:

a) Reveal your identity or at least enough to establish credibility. You know who I am. Even anonymous people like FAB and DinOR have revealed enough to establish credible identity. Short of that you could be some investment banker's desperate adolescent teenage daughter going through some attention spasm for all I know.

b) Give & take. When I respond to your detailed calculations with similarly detailed responses don't just repeat yourself again half a dozen threads later. You know, we had another Troll who kept showing the same Marina property which sold for like $250K over asking for nearly a year as evidence there was no bubble.

c) When you agree to take up a challenge, do it. What's wrong with my model? Half a year ago you chuffed it aside as obviously flawed, and easily debunked. Forgive my incredulity, but *show me or STFU*.

"How so? Windows enjoyed a huge market share. Its phenomenal market penetration allowed the rapid development of the silly valley."

If you dont know about these things Im not going to rewite the history of MSFT monoplitic practice over the past decades. Do you expect that! LOL Silly Boy! You must be really young!!!

"Err… perhaps because not enough people moved in to oppose new projects yet?"

OK you wasted enough of my time... I see your an idiot!!!!

Perhaps SFWoman can shred some light on the subject.

Randy H,

TIME OUT! TIME OUT!

O.K, let's settle this once and for all! "theotherside" can be become "The Minister of Finance" over at Second Life and live happily ever after! (in fantasyland). :)

Randy, you are wasting time. Can't we have some sushi? :)

If you dont know about these things Im not going to rewite the history of MSFT monoplitic practice over the past decades. Do you expect that!

Still. It is hard to image what would have happened without DOS and Windows. Technically superior products are useless if they do not sell.

You must be really young!!!

I wish.

Peter P-

skibum is correct, my confusion lies in the long term expectation for inflation beating performance in RE. It takes skilled intervention to manage any asset portfolio to outperform inflation, an area I fully admit my own woeful incompetence. But RE seems to exist outside this realm, at least in many otherwise well educated minds. As I see it that's the only rational basis for a huge chunk of the mortgage industry and the "climbing the RE ladder" mentality.

As I see it that’s the only rational basis for a huge chunk of the mortgage industry and the “climbing the RE ladder” mentality.

Also, until recently, homes are long-term assets. People were able to visualize the absolute appreciation of their homes. They can see huge gains in home equity with apparently no work.

Although we’ve kidded about picking up everything from Harley’s to jet skis on ebay I don’t believe this will lessen the demand for “new goods” much at all. These are “tainted goods”. Bought with “free money” and neglected almost as much as the shoddy homes that originally “facilitated” their purchase.

The people (real financial heros) that have been buying up consumer goods with the "free money" are the people who mostly make up the people buying the "new goods"; Thus driving the economy. Now that the "free money" is no longer there and many of these people are going to try to resell those "Equity Distressed Assets" (EDA's as I call them) to help them through their financial bind. Just the fact that they are no longer buying new stuff because of their situation is already lessening demand for the "new goods"; In addition to that, many people who are not in financial distress (aka. renters), may want to get some of those EDA's for half of what they would cost brand new (Depending on like you say, what shape they are in); Further reducing the demand for "new goods".

Speaking of Harley's, according to Roubini, many hogs have been purchased with subprime loans that are also going bad, I would imagine the same would be true for jetski's and such; You don't have to be a homedebtor to be a FB.

Refering to Patricks link, I wouldn't buy the piano. :lol:

Who was it that once described a home as "a high maint. long term depreciating asset off-set only by it's utility function"? :)

But… Peter P will be dabbling in owning a chain of sushi bars and astrid will manage an interplanetary seed exchange.

I like that future! :)

allah,

Spot on! In addition to the normal depreciation inflicted by the simple act of driving it off the showroom floor we need to calculate FB's burn rate to foreclosure, decline in median for your ZIP, absorbing "the glut" in the market for Harleys and then factor in neglect on top of normal wear and tear!

Meaning I can (generously) "give" you a two months reprieve on your mortgage OR 5K (whichever is the lesser). :)