patrick.net

My statement assumes there is quite a lot of people on the sidelines that have been watching the housing market crash and have been waiting for the right time to jump into the market. Although there is still a lot of problems with the market with foreclourses and a weak labor market, I believe there a lot of qualified buyers out there waiting for the next price cut in housing prices, and then the next one, and so on. I beleive prices will initially recover rapidly, but once the inital wave of sideliners are satified, that prices will stablize and be flat for quite some time to come.

When interest rates go up again, I beleive that prices will go down more. With that being said, unless you are one of those people who can put down 20%+ or can afford to pay a lot extra every month to principle you may not be saving much money by waiting until after interest rates go up.

I think this all depends on where you are. Some areas with high unemployment also have huge numbers of
properties that are in the foreclosure process but have not yet been dumped on the market.
These areas will see large price collapses from current values already down 30 to 40 percent.
All the statistics we see are national and don't show the huge differences in specific areas
of the country.
Las Vegas seems to have hundreds of new properties being put on the market all the time and no sign of any new jobs.
Riverside County California has 14 percent unemployment not even counting the U6 people and the millions who have been forced to take pay cuts of 10 percent or more.
A million people who take a 10 percent pay cut equals the buying power of 100,000 lost jobs that are not even counted.
Dozens of "sale pending" properties come back on the market every day in the Riverside area so a lot of those supposed "sales" are never completed.
I have been getting lots of "price reduced" notifications so it does not seem that sales have picked-up any.
I have been following some specific properties for months now and several have dropped in price in the past two months.
Also 70 percent of defaulted properties are in "foreclosure limbo" because banks don't want to
flood the market. None of these are counted as "inventory" but all will have to be sold sometime.
Many of these homes are near the gigantic empty warehouses that were used to store imported goods
for trucking all over the country.
It is not likely these warehouses are going to be back in business anytime soon.
It is hard to imagine that anyone will buy or rent these huge storage buildings so that becomes art of the commercial real estate collapse that will also further bring down surrounding residential values.

Some areas are still holding up - I do not think they will shoot up until they have fallen - people do not evev really get the scope of how horrendously some of the housing market is still overpriced.

Some areas are still holding up - I do not think they will shoot up until they have fallen - people do not evev really get the scope of how horrendously some of the housing market is still overpriced.

I'm talking about the 3 bed 2 bath on 6000 sqft lot 1950's house that commands $3000 a month rent if they're lucky. That are being sold for close to $1mil.

Why would investors want to buy up huge tracts of homes in areas where the jobs have all disappeared?
They would not be able to get much from renters in these areas. Most of these homes were built specifically to provide for a workforce based on massive distribution of imported goods from overseas and no
new large scale employment is going to develop there for a long time.

Morals smorals. Decency has nothing to do with it. I agree with the OP. Bottom will be reached when prices are aligned with actual salaries and earnings. Those at the top don't want this to happen, as when it does, Americans will finally see what the economic policies of the last 30 years has brought them too. The government has been projecting this illusion that the US economy has grown substantially, but that illusion was all based on fuzzy mathematical models.
We are like the East Germans, who thought they were doing okay, until the Berlin Wall came down and they saw with their own eyes just how exponentially more advanced West Germany had become in just a few decades. The difference being that the West Germans saw it in their own best interests to help their East German breathren back on their feet in a unified Germany. Much of the rest of the world would be just as happy to see China overtake us, to see a non-dollar currency as the international reserve, to see the United States become less and less important.
Until we get back to a place where prices (not just housing but across the board), are in sync with salaries and earnings, we can't work on a strategy to rebuild the United States, which includes our housing market.

The Original Bankster says

pinnacle says

I think this all depends on where you are. Some areas with high unemployment also have huge numbers of
properties that are in the foreclosure process but have not yet been dumped on the market.

but buying now may have a number of effects. When entire blocks get dumped on the market, typically major investors pick them up.

Sorry, investors aren't going to fall for that. They're the ones who moved the jobs overseas, and they already own the land that will make them money. The last two debacles (dot-bomb and housing bubble) cost that group dearly, and I think they're going settle down and make it the old-fashioned way for a while: Get some bozo elected and milk the proletariat!

chrisborden says

This society will continue its descent into the toilet as long as millions and millions of DUMBED DOWN Americans refuse to end their love affair with greed and materialism and sense of entitlement and reward without risk and benefit without work and no responsibility for their actions, and on and on and on…

Since when was greed and materialism just an American thing!? I love it how people always accuse those who are more successful as being greedy and selfish. The truth is I cannot think of any other nations who spend as much money on charity and helping other nations. The reality is that it is humans by nature to try and better themselves financially; this is greed, but it is not an "American" thing. It is a human thing, and for one to think they are also entitled to the same as any one else is being no less greedy.

Back to the OP. I think that in some areas of the East Coast, I would have to reluctantly agree with you. The reality is that spending 30%+ of your income on housing has become the norm, and the incomes can (barley) support the selling prices. (which are typically 3 to 6% less than the asking prices)

I have felt a bit confused about this myself. But I have to get behind the affordability (which rellies on stable employment numbers/wages) and interest rate arguments. I don't believe unemployment has yet bottomed and I don't believe we're going to stay at these rock bottom interest rates forever. I guess that means I'm in the housing hasn't bottomed yet camp.

It may however be on a temporarily stable plateau before resuming the downtrend. The bump out of stability might be the commercial property defaults or maybe a failure somewhere else in the global system. Didn't the 1930s GD start w/failures in eastern Europe? Well European banks aren't looking too hot these days either.

EastCoastBubbleBoy says

Back to the OP. I think that in some areas of the East Coast, I would have to reluctantly agree with you. The reality is that spending 30%+ of your income on housing has become the norm, and the incomes can (barley) support the selling prices. (which are typically 3 to 6% less than the asking prices)

I'm surprised its not worse to be honest. Jobs then interest rates I guess. If we see 10% interest rates that will shut down the market, but what would cause that? An abandonment of the currency, in which case we'd have rampant inflation in every thing imported? People can't buy a house when they can't buy heat.

There is no bottom in socialism.

The government is in an endless battle. The USA cannot keep buying $15,000 or even $40,000 or $60,000 cars when the rest of the world is buying $3,000 or $5,000 cars. It battle will never end if the quacks in Washington insist on trying to keep GM/Chrylser (over-priced, non-competitive) alive.

Same for housing. People cannot pay more than 3x their salary. The government can, of course, subsidize or outright buy houses for people. But what will happen to the market? I rent. My neighbor has a house the government bought for him ($8000). So, why would I buy a house?

Didn't read the whole thread but most people are ignoring Supply and Demand. Kookynomics can bend the demand curve but long term Supply and Demand win.
"People can’t buy a house when they can’t buy heat."
Kookynomics will squeeze every dime from the middle class. The lazy-class will get free heat and houses and cars. The gentry will get bonuses from the taxpayer. The working class is being flipped the bird by Obama and Congress. They are taunting and bullying the working class. We can hope this will be a bloodless revolution. We can hope the voters voice will win the day as our founders empowered us; but, the battle is socialism (reward those who do not work) versus freedom (earn your own reward). If enough people are lazy, socialism will win.

There is no bottom in socialism. Its like being a slave. You do not ever know what the master will do. A "bottom" is a supply/demand thing. Today, houses can go up in select areas if the governments make them and will go down anywhere else. The question is if the government can steal enough from the workers to keep their ponzi scheme alive. How many cars do you have to give away to keep a market alive? How many mortgages do you have to pay off to keep a market alive?

The government is in an endless battle. The USA cannot keep buying $15,000 or even $40,000 or $60,000 cars when the rest of the world is buying $3,000 or $5,000 cars. It battle will never end if the quacks in Washington insist on trying to keep GM/Chrylser (over-priced, non-competitive) alive.

Same for housing. People cannot pay more than 3x their salary. The government can, of course, subsidize or outright buy houses for people. But what will happen to the market? I rent. My neighbor has a house the government bought for him ($8000). So, why would I buy a house?

"Interest rate will go up and housing will go down" --> cannot happen as long as fed is alive.
Interest rates will go up only when inflation will go up and housing cannot go down when inflation goes up after a housing bottom ( assuming all other variables are constant - no arm resets)
If housing will go down , it has to happen due to some other reasons like economy gets even worse, more arm resets..etc

renter for ever_san jose says

“Interest rate will go up and housing will go down” –> cannot happen as long as fed is alive.
Interest rates will go up only when inflation will go up and housing cannot go down when inflation goes up after a housing bottom ( assuming all other variables are constant - no arm resets)

Interest rate/housing prices have that inverse relationship while all other things remain constant. Unfortunateley median income in markets is not staying constant. And the fed won't be making a dent in those numbers. In fact even the bulls think they'll be getting worse for a while.

Interpretame--the thing about your inflation scenario is it suggests wages will also rise in step w/inflation. I make this assumption because you don't mention the stresses of inflation on the ability to pay the mortgage. But most people I know don't think it will happen w/our current rate of globalization and the pay levels needed for the US worker to compete on the world stage. So perhaps at a later date in time than the first evidence of inflation, the CPI takes ever larger bites out of what was once discretionary income and if the inflation gets bad enough, paycheck to paycheck types soon can't pay their mortgage, eat, clothe themselves and have any other sort of life. Time to downsize again. Downward prices resume on housing even as the dollar loses value.

I'm sticking w/the Austrians. You can't inflate this bubble away. The only way to really fix this instead of kicking the can down the road only to face an even bigger problem ilaater s to rebuild from scratch and fix the fundamentals.

We are no longer in a bubble.. did you look at the case shiller index lately ?
Just like an optimist denies the upside deviation from shiller index , the pessimists will deny the index in the downside. I agree with your analysis completely but only in the bubble scenerio. I am assuming we are 10-20% range of bottom.
"AFTER A BOTTOM" , interest rate hikes cannot kill housing because interest rate will only rise when housing is rising or is stable.
Do you believe fed is going to raise interest rate if it causes housing to tank ?

The fed can only buy so much, and their power to control mortgage rates is dwarfed by the overall size of the market.
Without anyone buying t-bills rates will go nutz. The fed doesn't "control" mortgage rates.

The fed does not control long term mortgage rates !

i know so many people who are taking arms which is very tighly related to FED rate.The arms will rise only when the economy picsk up and inflation picks up

Hey, if I had the cash I'd take out the home loan with a ARM, then be able to dump the cash backwards if things go crazy. Of course, this doesn't work in the middle of a deflationary implosion.

chrisborden and missgredenko, well said!

"chrisborden says

to get a lousy $135K loan. I’m glad it was tough. No way would I ever have been tempted to take anything else than a nice, predictable fixed rate. BTW, I sold to some idiot in 2003 who paid me 3.5 times what I paid, and invested most of the cash, so am able to pay cash for a small house in Oregon where sanity prevails and retire at 55!

Chris,
looks like you 'pocketed' the money, and didn't 'upgrade' to another expensive home (or did you?)

One of my friend bragged that he sold his condo at the peak of 2006. I asked him, what he'd done with the money. He 'upgraded' to a single family home in Fremont! at the same peak !!
I laughed my ass off and pointed out to him, he just got into more debt into another overpriced home.

oh well.

Thanks warblah!

I'd also like to point out to renter for ever that California may feel like it's bottoming. But the country is not moving in unison. Our county's median sales price is up 2.3% from what others id as the peak. We saw mark downs after the indices started to implode last fall. Then the $8k tax incentive and low mortgage interest rates saw list prices move back up. Some neighborhoods experienced a 50% jump in median prices since '02 so there's a correction coming somewhere. The sales numbers have taken a hit and inventory is building in some price niches. Still unless you're shopping for aspirational level homes there hasn't been any significant correction......yet.

Japanese economy out of recession

http://business.timesonline.co.uk/tol/business/economics/article6798681.ece

I though japanese economy too had a second bubble to bust ..
If it was that easy to explain away the bubbles and busts , everybody would have been rich.

Pretty much 100 percent in all SF BA counties and more on top of the 100% from 1998-2000. The people calling 02 prices are way off. We will be going down further than that

Whats so different now that the prices will be way DOWN from case shiller long term trend ?

BTW, i use to ask the same EXACT question during bubble (2005)

"Whats so different now that the prices will be way UP from case shiller long term trend ?"

my reference is only long term case shiller index ! it worked before and it will always work.

So you believe 100% of wealth created during the tech bubble was fake...not even a small % was real ?
what happened to the real wealth that was created ?

last i checked , tech stocks bottomed to 2000 prices not 1990 prices !

Lets assume there was no bubble, what would be the total wealth that would have been created in bay area ? same as inflation ?
looks like you belive everything is zero sum game...dude wake up. I was there in 1990's and i know 80% of the bubble was fake but real wealth was created too. did you check out oracle/cisco/intel stock ? its not at 1990 level

There is lot of truth to what you are saying about bubbles in general but the tech bubble came and went.
bay area median income is very high compared to other areas. unless median income falls i don't see why we will see correction beyond shiller index.

bay area median income graph.

Do you believe tech market will crash even further dragging the income level.

http://www.data360.org/dataset.aspx?Data_Set_Id=9357

bay area household incomes have grown much faster than rest of US.

zetabeos1 : if i go by your theory, the house hold income across US should be same...but its not.
hollywood would always have higher income that a suburban town. film prodcution won't be COMPLETELY shifted to the town just because its cheap. just like big companies have wide moat so do some areas.

The world has gone flat!

true ..but that does not apply to BA area alone. it applies to all us cities.
the prices should go down everywhere due to deflation. fed kicks in during deflation and prints money like crazy and increase money supply so that won't happen. I believe that bay area prices will fall if the jobs in bay area are outsourced relatively more than other places in US.

....

A picture is worth a thousand words:

if i go by your theory, the house hold income across US should be same…but its not.
hollywood would always have higher income that a suburban town. film prodcution won’t be COMPLETELY shifted to the town just because its cheap. just like big companies have wide moat so do some areas.

I actually just read last week that a lot of Hollywood production types are heading for the hills because of California's ridiculous taxes. It was a different article than the one below, but this one touches on it, too.
http://www.theinsider.com/news/2240662_Hollywood_workers_settling_in_tax_friendly_states

http://en.wikipedia.org/wiki/Confirmation_bias
"confirmation bias is a tendency to search for or interpret new information in a way that confirms one's preconceptions"

Japan did not descend into their lost decade with the level of national debt that we had (and have) at the outset of this downturn. A rather big difference.

then tell me how come bay area median incomes have been rising for past three decades.
I'll believe when i start seeing actual numbers like what happened in michigan and detriot.

If its in the benefit of a company to secure its intellectual property and trade secrets, how does giving away the core stengths to other countries help USA. ...I think this globalization is another academic term abused by rich corps to bankrupt USA , just like wall street used free market to sell derivatives and bankrupt us.

Just like a private company keeps its trade secrets and intellectual property well guarded. A country needs to keep its core strengths ( key R&D , certain manufacturing technologies..etc) well guarded and only use globalization for its OWN benefit and ship out redundant stuff ( labor intensive, low skill work)
The countries long term benefit should be one important aspect in globalization.I am not against globalization but its should be well regulated globalization just like you have well regulated immigration ( atleast on paper :-) Just like opening borders completely to the whole world doesn't make sense , completely free globalization does not make sense.