patrick.net

http://www.businessweek.com/print/magazine/content/10_15/b4173013214814.htm

CHARLIE ROSE
The S&P Case-Shiller Index for January saw upticks in 12 major metropolitan markets. Is that an encouraging sign for the housing market?

ROBERT SHILLER
The fact that [prices] are up on a seasonally adjusted basis, although the market has been weakening, is definitely encouraging.

CHARLIE ROSE
You said on Bloomberg Television yesterday that there is a 50-50 chance of a double dip in housing.

ROBERT SHILLER
I am really going out on a limb to say it's as high as 50-50. Double dips are rare. You know, I have a forecasting model that I used to use years ago when we were doing forecasts for The Wall Street Journal in the late 1990s, and that model emphasized momentum before anything else. When prices go up, they tend to go up for years. That's history. Whereas if they start going down, they'll go down for years. We saw home prices decline between 2006 and 2009—three years of decline. And now that [the market is trending] up, you know, it's perfectly plausible to think we'll have three years or more of increases. But I'm not so sure. We don't know how much of this is transitory because of the government support. We're in such an unusual economy now that [a double dip] has substantial probability.

CHARLIE ROSE
You've said that 90% of the housing market is supported by the government.

ROBERT SHILLER
Well, it's 80% or 90%. Really almost the whole market now is government. And we know this can't last.

CHARLIE ROSE
And that means prices are being artificially inflated?

ROBERT SHILLER
It seems to. Government support is especially prominent in sales of existing homes, which shot up to over 6 million on an annual rate in November 2009, the month that the home buyer tax credit initially was supposed to expire.

wow ... how can that be ignored?

Thats right Bap33, its just fools catching the falling knife encouraged by the government.

thomas.wong1986 says

Thats right Bap33, its just fools catching the falling knife encouraged by the government.

Did you read the article I did? Shiller said that double dips are extremely rare, momentum is the most important factor, and that the odds are at most 50/50 of a double dip. But people buying now are "fools"?

tatupu70 says

Did you read the article I did? Shiller said that double dips are extremely rare, momentum is the most important factor, and that the odds are at most 50/50 of a double dip. But people buying now are “fools”?

Yes, its pretty clear, did we have government interference during normal market corrections like say Stock Market Crash in 1987 or 2000 ? NO! did we see double dip then ? No.

Today we have government interference inflating prices, yet prices still unaffordable based on incomes and certainly well off the inflation trends. Yes things are pretty clear to me.

Would it make any sense say back in 2000 if the government stepped in and said Yahoo or many other overpriced tech stock were too big to fail and bough its shares keeping the stock price at say $150 or $200/share when it fell from peak at $350/share? Who would be foolish to buy Yahoo or the many tech stocks whose prices were obscenely overpriced. Should you not have had a double dip under that scenario?

m1ckey6 says

I currently own RE: Prices are going up, the worst is over!
I am currently renting: The drops have only just started, buckle up!

Going back up where ? Cant wait to sell my Yahoo wall paper for $350 a sq foot.

Please tell me this person was denied!

*Lots of economic news today. Stock market up. Gold up. Interest rates up. Employment up. Home sales WAY up.*

These are all the news that are reported in media. You should verify and back it up with legit numbers.

thomas.wong1986 says

Today we have government interference inflating prices, yet prices still unaffordable based on incomes and certainly well off the inflation trends. Yes things are pretty clear to me.

I agree with some of the others here--housing should track incomes more than inflation, but either way it's going to be local. You're probably looking at your particular local market. I think Shiller was referring to the US in general. There will most certainly be local markets that lag the market and continue to decline even after the rest of the country has begun to recover.

The analogy to Yahoo is not a good one.

tatupu70 says

The analogy to Yahoo is not a good one.

We can switch to RE, and look from 1989 to 92. Did we see direct goverment interference in the RE market, trying to stop prices from falling by giving out tax refunds/rebates/loan modifications/GSE bailouts? No! and therefore didnt see any double dip in RE prices. In fact we saw some pretty heft price declines to a point where the market prices met incomes. Shiller wrote in his book, Irrational Exhuberance, that asset bubbles do pause when you have external forces at work. But like he said above, it cant last.

azrob00 says

Stock market is having it’s strongest rally since 1930… what could possibly go wrong?

funny guy!

http://www.lasvegassun.com/news/2010/apr/09/residents-lake-las-vegas-told-recovery-way/ "During the two-hour meeting at Loews Lake Las Vegas, residents aired grievances with city officials and asked questions about the future of their lakeside community. "Many complained about landscaping and zoning issues, while others expressed concern that their home values are plummeting and asked what the city was doing to help. "Casino Montelago closed March 14, and The Ritz-Carlton will close May 2. Combined, more than 500 workers will lose their jobs. “I can tell you from a business point of view, that hotel is worth a lot more open than it is closed,” Sisolak said. “Those golf courses will again be green.” "Lake Las Vegas Chief Operating Officer Jim Coyne said the development should emerge from bankruptcy by the end of June. "But attendees challenged officials to provide concrete signs that the situation is improving." ---------------------------- As mentioned in the OP, this development was extremely high-end and the empty lots sold for more than $1 million during the height of the bubble. They've plummeted, some condos well below $100k with higher HOA fees - some as high as $700/month. (http://www.trulia.com/voices/Home_Buying/IS_the_Lake_Las_Vegas_area_good_area_to_purchase_a-85926) The area is beautiful and was the brainchild of several optimistic developers, but it's in bk and there are so many foreclosures it's unbelievable. So what do the homedebtors do? They blame the govt and ask what more they're doing for the community. Sure, there are people who are hurting there - but many of them are outrageously wealthy and can sell at a loss, still remaining solvent. There are more people in trouble in other areas, and the govt ain't doing much for them. Why are these people special? They're not.

Absolutely - this area is gorgeous and an oasis in the desert. There are few places that you can go in the vegas valley that isn't heavy with traffic and smells of exhaust. But is it the county's & city's fault that RE tanked? I think not. I know a homeowner who built in the late 90's; he used the LLV builder, paid about $800k at the time. It's now worth about $250k, according to his wife. He's disappointed, but he can afford it. His HOA fees are over $700/mo as well, and says right now he gets nothing for the money.

Reminds me of a guy I know - he can't pay his rent and applied for rental assistance; on his checking acct statement there are monthly withdrawals for a big screen tv, computer & living room set from Rent-to-own. They were turned down and he was mad.

He also went to a car lot & bought a new car, drove it home and never made a payment. They had to sue him to get it back 'cause he hid it. The local law enforcement (DA) is overwhelmed and chose not to prosecute. What a POS.

tatupu70 says

I agree with some of the others here–housing should track incomes more than inflation, but either way it’s going to be local. You’re probably looking at your particular local market. I think Shiller was referring to the US in general. There will most certainly be local markets that lag the market and continue to decline even after the rest of the country has begun to recover.
The analogy to Yahoo is not a good one.

I somewhat agree w/ the idea of housing should track incomes more than inflation, and either way it's going to be local. So, let's do simple math for the sake of fun. ;)

If we say 4% annual inflation for 10 years, housing price of 2010 would be about 145% of 2000, which I think is reasonable. If we go for income basis, it's pretty much the same. For instance, fairfax county VA, one of wealthiet and very robust county, median house hold income at 2000 was 82K, 2010 will be about 110K since 2008 was 107K. That comes out to be 134% and is roughly in track with 3.5% inflation. The house price in fairfax VA is still holding at 200~250% of 2000 level.

Situation in your local may vary, but you surely can figure out the percentage. So, I'd say 2010 home price in your local should be somewhere near that percentage of 2000 price, if there was no bubble. And I guess those people living in the area where home price got slahed down close to that level may see stabilization. Otherwise, there still is a room for fluctuation.

As for stock market, I am not sure this is sign of recovery or a sign of stagflation. The reason stock market alone has been shooting up while all other markets like job, housing, loan etc has been frozen, since last fall is the liquidity aka bail out money that rushed into the stock market. Those bailed out f--kcats are alive and well, and playing messive amount of taxpayers money again in the market. Dow now is about 11000 points and that's the Dow point a day before Lehman collapsed in Sep 2008. That's the fear I got.

Anyway, I think its too early to talk about recovery. We'll see.

I post in trulia since we look at houses so much. Several agents have bragged that 2009 was their best year in three years and 2010 is set to be even better. I have to wonder what qualifies as best. Most profit? Agents dropping out of the business creating more for everyone?

I wonder if we'll see interest rates impacting price at all. How high will they have to go before things drop? When is the rate too high to be succulent? The recent 4% rates may have otherwise casual buyers thinking twice since 5 to 6% is considered high interest rates for recent memories.

NagaEater says

I wonder if we’ll see interest rates impacting price at all. How high will they have to go before things drop? When is the rate too high to be succulent? The recent 4% rates may have otherwise casual buyers thinking twice since 5 to 6% is considered high interest rates for recent memories.

If interest rates go from 5%-7% that equates to ~20% less borrowing power for the same monthly payment (ie you can afford a $200k house at %5 but only a $160k house at 7%). No way that's good for house prices.

grywlfbg says

NagaEater says

I wonder if we’ll see interest rates impacting price at all. How high will they have to go before things drop? When is the rate too high to be succulent? The recent 4% rates may have otherwise casual buyers thinking twice since 5 to 6% is considered high interest rates for recent memories.

If interest rates go from 5%-7% that equates to ~20% less borrowing power for the same monthly payment (ie you can afford a $200k house at %5 but only a $160k house at 7%). No way that’s good for house prices.

But do you honestly think the gov't is going to let that happen?

grywlfbg says

If interest rates go from 5%-7% that equates to ~20% less borrowing power for the same monthly payment (ie you can afford a $200k house at %5 but only a $160k house at 7%). No way that’s good for house prices.

With prices still in the stratosphere, interest rate changes will not have much of an impact.

BUY BUY BUY
http://www.redfin.com/CA/Concord/1151-Carey-Dr-94520/home/1609878

How long until we are in the lower 200ks?

thomas.wong1986 says

With prices still in the stratosphere, interest rate changes will not have much of an impact.

Where are you referring to with prices still in the stratosphere?

@thomas

You posted an interview which clearly states momentum is the most important factor. That other factors such as the government might come into play, but momentum is still the strongest factor.

Then you ignore momentum completely and only pull out double dip + government interference. He clearly states momentum is the largest factor, we're heading up. That is momentum UP. The largest factor is UP, how did you just remove that and replace it with your own largest factor and declare double dip down... ?

camping says

grywlfbg says

If interest rates go from 5%-7% that equates to ~20% less borrowing power for the same monthly payment (ie you can afford a $200k house at %5 but only a $160k house at 7%). No way that’s good for house prices.

But do you honestly think the gov’t is going to let that happen?

Well, the question is, do they have any choice? The Fed has already bought $1.25T in MBS. Plus TARP and all the other bailouts.... The Fed's balance sheet is a disaster area. The people in govt know that hyperinflation will destroy the govt... will destroy them. It will also destroy the Fed because their "assets" are Treasury bond/notes denominated in USD that would become worthless right along w/ the dollar. If there's one thing you can count on is that the people in power will try to hold onto that which means they will try and avoid hyperinflation. This means keeping up "borrowing" funds instead of "printing" them, keeping mortgage rates tied to T-bills or LIBOR, etc. As total govt debt creeps up investors are going to demand higher rates which will trickle down to mortgages.

"And now that [the market is trending] up, you know, it’s perfectly plausible to think we’ll have three years or more of increases. But I’m not so sure. We don’t know how much of this is transitory because of the government support. We’re in such an unusual economy now that [a double dip] has substantial probability. "

grywlfbg says

camping says

grywlfbg says

If interest rates go from 5%-7% that equates to ~20% less borrowing power for the same monthly payment (ie you can afford a $200k house at %5 but only a $160k house at 7%). No way that’s good for house prices.

But do you honestly think the gov’t is going to let that happen?

Well, the question is, do they have any choice? The Fed has already bought $1.25T in MBS. Plus TARP and all the other bailouts…. The Fed’s balance sheet is a disaster area. The people in govt know that hyperinflation will destroy the govt… will destroy them. It will also destroy the Fed because their “assets” are Treasury bond/notes denominated in USD that would become worthless right along w/ the dollar. If there’s one thing you can count on is that the people in power will try to hold onto that which means they will try and avoid hyperinflation. This means keeping up “borrowing” funds instead of “printing” them, keeping mortgage rates tied to T-bills or LIBOR, etc. As total govt debt creeps up investors are going to demand higher rates which will trickle down to mortgages.

I don't know if they have a choice. I didn't know them buying MBSs was a choice until they started doing it until they did (and $1.25T worth). With the people we've had in charge over the past few years, I don't put anything past them. I just know that I don't know enough to be confident that rates are going to go up significantly in the near term without some knee-jerk reaction by the gov't to get them down again if there are signs of trouble in housing.

Tude says

BUY BUY BUY
http://www.redfin.com/CA/Concord/1151-Carey-Dr-94520/home/1609878
How long until we are in the lower 200ks?

I'll bet you it's "sale pending" within a week - my guess is next Tues.

pkennedy says

@thomas
You posted an interview which clearly states momentum is the most important factor. That other factors such as the government might come into play, but momentum is still the strongest factor.
Then you ignore momentum completely and only pull out double dip + government interference. He clearly states momentum is the largest factor, we’re heading up. That is momentum UP. The largest factor is UP, how did you just remove that and replace it with your own largest factor and declare double dip down… ?

Don't know what thomas think though.

There certainly is a momentum. In fact, it's been there since last fall and that's quite visible now. And I also agree that the momentum is the biggest factor.

Something I cannot be sure is where this momentum is coming from. Is it the result of fantastic works they did so far for last two years, or is it the artificial one driven by trillion dollors of government money that's been poured into.

The question is, Have they've been doing well enough to get this much momentum w/o government money?

If yes, then it's not 50/50 thing. It's 99% all righty and rosy. We're heading to recovery for sure.

If no, it's liquidity injection that pushes stock market up, which is another bubble in stock market waiting to be popped.

I think Mr. Shiller himself is not sure about which is the case at this moment, otherwise he didn't say anything like 50/50.

seaside says

The question is, Have they’ve been doing well enough to get this much momentum w/o government money?

I think that's the point. The government money helped build the momentum until the recovery had enough steam to survive without it. At which point the liquidity is removed. Momentum implies that it will keep going without any force behind it...

seaside says

The question is, Have they’ve been doing well enough to get this much momentum w/o government money?

I think the Federal reserve is giving green light to make risky investments in everything, gold, oil, silver stocks and of course when these things go up it gives a lift to housing. And the government and the Fed are handing trillions straight to the housing market.

As I see it, it is safe to make risky investments even when the Fed starts raising rates as they will have to do. But real estate can't be a good investment now. How does one get out when the fed is forced to defend the buck?

There is momentum from people having a desire to buy again and make a change/move. Many people who normally would have sold, had to hold off, due to a large dip and inventory glut. They want to get out there and buy/sell their homes.

Essentially he says momentum is normally the largest factor, right now he's unsure and points to one of different factors. Essentially it comes down to momentum vs other factors, and how well they can be controlled.

*If* the government is the cause of this momentum, then they will slowly back out, and ensure that natural momentum eventually does take over. They haven't done *ALL* this work, only to drop the ball completely.

My best is that other countries, china included, would rather take a loss on their dollar positions, than allow the dollar to collapse. So they'll keep buying, no matter how much damage the government is doing to the dollar in the world sense.

You need to reread Shillers comments

tatupu70 says

thomas.wong1986 says
With prices still in the stratosphere, interest rate changes will not have much of an impact.
Where are you referring to with prices still in the stratosphere?

Excuse my comments, I didnt realize some still believed a $1M shack in BA is really worth $1M
up from mid $300K in 10 years, never mind it took historically over 15 years for prices to double.
LOL! just comical !!!

I think that’s the point. The government money helped build the momentum until the recovery had enough steam to survive without it. At which point the liquidity is removed. Momentum implies that it will keep going without any force behind it…

And where are the fundementals like incomes to home prices ? Unless the public somehow believes we doubled or even tripled our salaries somehow?

pkennedy says

You posted an interview which clearly states momentum is the most important factor. That other factors such as the government might come into play, but momentum is still the strongest factor.

No, Shiller said he had a model for Wall Street back in the '90s, he did not mention it was the strongest or most important factor. His model from the 90s wouldnt work because of government interfence, that is why he is unsure.

thomas.wong1986 says

And where are the fundementals like incomes to home prices ? Unless the public somehow believes we doubled or even tripled our salaries somehow?

I would agree with this comment if it were 2006, but many, many places have already corrected. Perhaps not where you are looking... That's why I asked to where are you referring with your comments.

thomas.wong1986 says

No, Shiller said he had a model for Wall Street back in the ’90s, he did not mention it was the strongest or most important factor. His model from the 90s wouldnt work because of government interfence, that is why he is unsure.

That's not at all what he said. He said the model emphasizes momentum over everything else. Then he went on to say that the government intervention is somewhat unique to this housing market so he's not sure how that will affect the market when it is removed. He in no way said that the model wouldn't work. He said that the conditions are different this go around--but they always are. No two situations are exactly the same.

Down the street where I purchased my home in Los Gatos went from low 300s to well over $1M by the end of the decade in 2000.

Jim Klinge thinks the spring selling season is all but done, and prices will be heading lower again (San Diego).

http://www.bubbleinfo.com/2010/04/09/random-observations/

tatupu70 says

That’s not at all what he said. He said the model emphasizes momentum over everything else. Then he went on to say that the government intervention is somewhat unique to this housing market so he’s not sure how that will affect the market when it is removed. He in no way said that the model wouldn’t work. He said that the conditions are different this go around–but they always are. No two situations are exactly the same.

Unless you have solid fundementals no government intervention will stop further corrections. What we have from the Government is a political move, based on assistance so people keep their homes, it isnt built on solid grounds of income to prices. If you dont have enough income, we will politically force the banks to forgive part of your mortgages. Are your going to do this for everyone ?