patrick.net

Corntrollio,

It is only a few countries like the United States where every transaction is legal, made public and there is plenty of disclosure of "median" stats like income and home prices. Countries like India and China do NOT publish any kind of median price. Even median income is not disclosed. However, not publishing this data does not mean that we cannot estimate median income or median home prices. If you have really been to India or China, you should already know that.

Having said that, just calculating median home prices without considering the type of home, size, features is itself faulty. After all, there are plenty of trailer homes and manufactured homes available for anyone to purchase in America for less than USD 20,000.00. Should those be included in the median home price, since those are available for sale anyway? Is comparing a 4 BR 2000 sqft home with a nice lot and attached garage in America with a 2 BR 1000 sqft apartment in Beijing or Mumbai fair? That is what "median" price comparisons across places seem to do.

Next, how do you define your "prime" area or "city center"? If I give you a link to the high prices in the outskirts of Mumbai, you may still claim that it is the "city center", and say that a high price is justified. What areas constitute "prime" in Los Angeles, San Francisco or New York? In any case, just look up Mumbai or Beijing or other Indian and Chinese metros on Google Maps, then find your own reasonable non-prime area, and then look up that area on that city's CraigsList. Look for apartments and land/single family residences. Here is an example. In the suburb of Andheri in Mumbai, a 600 sqft, 20 year old 14th floor apartment is selling for close to USD 200,000.00 : http://mumbai.craigslist.co.in/reb/2001803047.html . Or this one in the suburb of Goregaon, for close to USD 500,000.00. You will find plenty of such examples. Good luck finding a private single family home cheaper than a few million USD.
Again, do this for Beijing, Shanghai, whatever.

You and I made similar observations though. If you read all my previous posts, I have repeatedly called the prices in India and China the most ABSURD bubbles in the world. Even before you said it, I already have stated that majority of the local population in the metros of these countries has no hope whatsoever of buying even an apartment and so live in slums on illegal land, in makeshift tents. Affordability is almost non-existent, and yet prices have been doubling in India and China every 2 to 3 years. Like you, I am also astounded at the prices in these places, and wonder how this is even possible. However, this impossibly ABSURD ponzi game has been going on for 20-30 years, and shows no signs of stopping. Folks that have bought anything in the last 20-30 years are now extremely affluent, and even folks who bought recently are still sitting on huge gains. If the expectation is that prices will always go up double digits every year, the upper class and the upper middle class speculates and rides this ponzi game all the way and gets richer and richer with every flipped apartment.

Link to the one in Goregaon that I referenced above : http://mumbai.craigslist.co.in/reb/1993305226.html

"Corntrollio" ... sorry, but that name made me laugh alot ... I can just see Ace Ventura calling it out .... lol

clayfire23 says

Corntrollio,
It is only a few countries like the United States where every transaction is legal, made public and there is plenty of disclosure of “median” stats like income and home prices.

Hmmm... not really true. "Every transaction is legal"? Not even close. There are inside deals, secret payments on the side to sellers, and "floppers" who defraud banks into short sales at below market value, then turn around and sell to another buyer who was already lined up, just to name a few of the illegal scams going on. Every transaction made public? Not really. That info was a closely guarded secret, available only to realtors. The only reason we can get that info now is due to some enterprising people who sleuth out the information from tax rolls and make it available to the public. It is not officially "published".

wow... truly depressing thread - if so many people still believe "TARP saved the economy", there is no hope for this country. The banksters have won.

native94027 says

if so many people still believe “TARP saved the economy”

I'm still in the camp that the financial system is the cardio-pulmonary system of the debt-based economy.

If companies didn't need credit we wouldn't need banks, just check-clearing facilities. Every company I've worked for save one was utterly reliant on credit to keep the lights on.

"Warren Buffet is a capitalist, of course. But he supports regulation of the financial markets, which sets him apart from what I would term the crony capitalists."

From: http://www.nndb.com/people/445/000022379/

Warren Buffett, classified Democrat, associations:
Hillary Clinton for President
Hillary Rodham Clinton for US Senate Committee
John Kerry for President
Obama for America

He was apparently in the young republicans and may have swung over to the left later, but he is a wealthy capitalist.

And indeed, like with Bill Gates Sr, he probably supports "regulations" provided he has a way out of them. :-)

Troy says: "Confusion of terms. Not all capitalism is bad, or “crony”. Warren Buffet deploys his money to find value where others don’t, it borders on predatory capitalism but I think he stays on the OK side of that line since he doesn’t force people to sell to him.
Crony capitalism can be defined as basically skimming the productive efforts of others through the leveraging of privilege and “guanxi”. Steve Jobs and Spielberg do not fall into this category either, they made their billions the old-fashioned way, in the free market with superior consumer products."

Apparently, not all capitalists are bad "cronies" just as not all cars and private jets destroy the planet. When the cars and private jets are driven/flown by Al Gore, respectively, then it's ok.

Sheesh, television evanglists are less hypocritical! :-)

I prefer Catholic church and drinking the wine and eating the wafers. Make a lot more sense than leftism...

"Hmmm… not really true. “Every transaction is legal”? Not even close. There are inside deals, secret payments on the side to sellers, and “floppers” who defraud banks into short sales at below market value, then turn around and sell to another buyer who was already lined up, just to name a few of the illegal scams going on."

And you gotta love those ethanol subsidies too. Corporate welfare! The BEST welfare by the socialists. How about that new Airbus and the Concorde?!?!

PolishKnight says

not all capitalists are bad “cronies” just as not all cars and private jets destroy the planet. When the cars and private jets are driven/flown by Al Gore, respectively, then it’s ok

I look at the wealth -- goods and services that satisfy human needs and wants -- created in competition with other wealth creators. That's "good" capitalism. "Bad" capitalism can be defined as rentierism in all its forms.

Crony capitalism is defined by inside "old-boy-network" dealing, especially as it relates to gaining access and control over government policy, and industry collusion to support abusive pricing margins.

Is this a rhetorical question?

Simple answer: "When average people can afford an average home in an area (i.e. 3-4x income) AND banks are willing to lend to these average people. "

All property is relative on the area, (i.e. jobs and location)

LOL !

Unemployment over 10% is going to give the Fed more ammo to do even more quantitative easing. 3% 15-yr mortgages are coming soon.

ch_tah says

3% 15-yr mortgages are coming soon

If you're behind on your mortgage and go to a NACA event you can get 3.35%. I was talking with the secretary at the doctors office today and she went all the way up to the Sacramento NACA gathering and was modified from a 7% loan to a 3.35% fixed 30 year loan....... I refied the old fashioned way a little over a month ago...not behind on payments, 100K+ in equity in that particular piece of property and an 803 FICO but I could only get 4.375% (no fees/points). Go figure.

PolishKnight says

“Hmmm… not really true. “Every transaction is legal”? Not even close. There are inside deals, secret payments on the side to sellers, and “floppers” who defraud banks into short sales at below market value, then turn around and sell to another buyer who was already lined up, just to name a few of the illegal scams going on.”
And you gotta love those ethanol subsidies too. Corporate welfare! The BEST welfare by the socialists. How about that new Airbus and the Concorde?!?!

Jesus Christ, did you ever miss the point.

Let us not conflate prices with values. Excepting maybe rare collectibles, the intrinsic value of a thing is not dictated by what someone is willing to pay for it or how much debt they're willing to service in order to attain it, especially when said debt is facilitated through fraudulent lending. If the opposite were true, and sentiment was the primary dictate for the value of things, then most commodities for sale to the public would be sold at auction. Some key elements that figure into the actual value of a good include base/production cost, availability, utility - and in the case of housing/land - location, condition, size and situation. Everything else is just perception and sentiment - two highly manipulatable factors, around which a whole industry revolves.

Austinhousingbubble says

Let us not conflate prices with values. Excepting maybe rare collectibles, the intrinsic value of a thing is not dictated by what someone is willing to pay for it or how much debt they’re willing to service in order to attain it, especially when said debt is facilitated through fraudulent lending. If the opposite were true, and sentiment was the primary dictate for the value of things, then most commodities for sale to the public would be sold at auction. Some key elements that figure into the actual value of a good include base/production cost, availability, utility - and in the case of housing/land - location, condition, size and situation. Everything else is just perception and sentiment - two highly manipulatable factors, around which a whole industry revolves.

I'd have to disagree with this. Basic supply and demand says that something is worth whatever people will pay for it. Value should be independent of the base/production cost.

The value of a house does depend on interest rates, perception, and sentiment. As well as location, condition, size, etc.

tatupu70 says

I’d have to disagree with this. Basic supply and demand says that something is worth whatever people will pay for it. Value should be independent of the base/production cost.
The value of a house does depend on interest rates, perception, and sentiment. As well as location, condition, size, etc.

The price of a house depends on all that. However, when the price is expressed in terms of a fiat currency of dubious or declining strength, using price as a reliable indicator of value is inherently misleading.

native94027 says

tatupu70 says

I’d have to disagree with this. Basic supply and demand says that something is worth whatever people will pay for it. Value should be independent of the base/production cost.
The value of a house does depend on interest rates, perception, and sentiment. As well as location, condition, size, etc.

The price of a house depends on all that. However, when the price is expressed in terms of a fiat currency of dubious or declining strength, using price as a reliable indicator of value is inherently misleading.

I don't quite understand that point. Eventually, when you buy a house, aren't you going to buy in US dollars? If so, and if you think the value of the US dollar is declining, doesn't that make the point that you might as well buy now since your dollars are becoming worth less? Or more directly to your point, the value of a house in US dollars should be infinite assuming the value of the dollar is going to 0 (taking an extreme example).

tatupu70 says

Basic supply and demand says that something is worth whatever people will pay for it. Value should be independent of the base/production cost.

Prices are very much influenced by mortgages and their availability. If it weren't for NINJA 0% jumbo loans the last 10 years, housing values wouldn't have shot up so quickly. People can--and do--opt out altogether by renting, instead.

Value is independent of cost, but the supplier will quit making the product if the market only values it at a price that returns low or negative profit margin.

What do you think of this Larry?

(Warning: more evidence that the housing bottom was not reached in 2009)

http://blogs.forbes.com/investor/2010/10/19/where-is-the-housing-recovery/?source=patrick.net#socialvotestarget

Attention Duck Dude:

Simple lesson in economics; as foreclosures continue to rise along with interest rates, the amount of loan applications will decrease (as this article correctly states) putting further downward pressure on housing prices. At what point will you begin to correct your well known quack about "2009" being the bottom in real estate prices?

http://www.dailyfinance.com/story/credit/mortgage-applications-drop-foreclosures-higher-rates/19682356/?source=patrick.net#articleHeader

^ that's my view too. The light at the end of the the tunnel is a train.

btw, with the new Mac announcement from last week I've now got to go back into crunch mode for the next month or so to get my stuff out.

See you guys on the flipside : )

More bad news for housing prices (and our little Duckie friend). This is a very good 7 minute video posted on Patrick.net proving housing still has a long way to go .... down ... before it experiences a sustainable up trend.

http://www.cnbc.com/id/15840232?source=patrick.net&video=1622289522&play=1

What I do not understand about many of you folks on this board is your obvious "joy" in seeing home prices falling and more average Americans losing a lot of our wealth and jobs. You are rejoicing the tremendous suffering that most Americans are facing because of our own self-destruction of this great nation. Shame on you for doing this.

It is not just the ultra-wealthy that have suffered in this country. Most of the middle class which purchased homes in the last 10-20 years has seen their equity disappear. The loss in US housing wealth suffered by homeowners, which is still the majority of our population, is over 10 trillion in just the past few years, far surpassing other wasteful government spending measures. America's homes are already the cheapest in the world when comparing size, features, quality and surrounding infrastructure, median income and yet, you guys expect a 3000 sqft palace of gold to cost just a few pennies just in America, while you are completely ok with a small 500 sqft 1BR apartment selling for a million dollars in other parts of the world.

I have said this before, and I repeat. Housing is the backbone of every economy, and the rest of the world knows it well. China's government sponsors heavy appreciation in its own housing values to keep its economy strong. India has the most ABSURD housing bubble in the world. We in America are self-destructing our already cheap housing. Unlike many "experts" who believe that strong jobs create a strong housing market, I believe it is the other way around. A strong housing market gives homeowners a strong sense of wealth and encourage them to spend on a lot of things, resulting in a vibrant economy which then leads to stable jobs.

What do you think will happen to our wages and jobs if housing collapses even more from here? Do you think that somehow your wages will remain the same, even if you manage to retain your job?

We already have outsourcing impacting us quite a bit, but it was the collapse in housing values that has been the biggest issue with this nation's economy and has led us to the current recession/depression. When I see a huge number of people on this board wanting to collapse housing even more just in America for some unknown reason, I am losing hope for America. Things are going to get extremely bad for ALL of us here in America, thanks to you self-destructors.

robertoaribas says

Housing is consumptive behavior, not productive behaviour,

One man's consumption is another's production. Not sure how you can separate the two...

robert, here in Cal the leading indicator for econ has always been housing. Not that I think it is the backbone or anything like that, it would just seem that there is enough econ empact from new building that econ folks track it.

I want 10 new nuke plants built in Cal, and 5 new large dams to retain more irrigation/drinking water for the central cal valley. Any chance the green/epa folks will support that?

Even per Robert Shiller, Gary Shilling et al, house prices should keep up at least with inflation, which has averaged about 3% per year for the past 30 years. In the majority of our country, home prices have actually UNDERPERFORMED that rate of 3% per year over the past 30 years. While Shiller and Shilling can call out the few places where it went well over the rate of inflation, they should also call out the vast middle of the country where it is actually undervalued.

Gary Shilling said this too, but "perception" of home price movement is important. How many people will foreclose on their homes, especially intentionally, if the perception of the public changes to expect a 10% increase in their home values in the coming year?

klarek,

If you think housing in America is overpriced and "fake", so must be EVERYTHING else...the cost of a car, pizza, cellphone, you name it. You are clearly overpaid for whatever you do if you make more than a dollar per year. Fake, fake, fake, fake....to quote Elaine Benes from Seinfeld.

clayfire23 says

In the majority of our country, home prices have actually UNDERPERFORMED that rate of 3% per year over the past 30 years.

Bullshit.

clayfire23 says

If you think housing in America is overpriced and “fake”, so must be EVERYTHING else…the cost of a car, pizza, cellphone, you name it.

No, I think housing is overpriced because the fundamentals do not support the current pricing levels. We've always tracked historically along with inflation yet are still way above that trendline following a massive housing bubble. That means that a) you are lying or ignorant when you said that over 30 years that houses aren't tracking with inflation and b) they are still overpriced. My pizza and cell phone are not. Those sell at market value and aren't purchased on a 30 year loan subject to wild and speculative manipulation. Also unlike your house I don't expect to sell my phone in a few years and score massive profits that I'm not entitled to.

Stop being a whiny little bitch and accept the fact that your house is not worth anywhere near what it was in 2006.

And NO, housing is NOT the backbone of the economy. That's the stupidest thing I've ever heard and it's being peddled out there by lobbyists for home builders and NAR, then spread around by morons such as yourself.

klarek says

No, I think housing is overpriced because the fundamentals do not support the current pricing levels. We’ve always tracked historically along with inflation yet are still way above that trendline following a massive housing bubble. That means that a) you are lying or ignorant when you said that over 30 years that houses aren’t tracking with inflation and b) they are still overpriced. My pizza and cell phone are not. Those sell at market value and aren’t purchased on a 30 year loan subject to wild and speculative manipulation. Also unlike your house I don’t expect to sell my phone in a few years and score massive profits that I’m not entitled to.

I'm still not sure about the inflation tracking. If you're looking at a large enough market (like the US in general), perhaps. But, by that measure, Detroit is wildly undervalued right now. So is much of the Midwest and Deep South. Like all markets, housing prices/values are determined by supply and demand. Those dynamics change with time--some areas become more desirable and some less, and so some areas may rise faster than inflation and some slower.

Comparing the cost of renting with the cost of buying is probably a better guide.

robertoaribas says

Yeah? that applies to sushi too! point being, the pile you drop after eating sushi, and the home you live in do NOTHING to increase the long term productivity of a nation. Like cheap energy, good efficient transportation, emerging technologies do. Thus they are consumtion, NOT production investments.

I disagree there. Having people in houses increases the productivity of our nation. I know that I am much more productive after sleeping in a warm bed than when I sleep on the park bench.

A house isn't an investment. I'll grant you that. But making things and selling them is what our economy is all about. Lots of people have jobs building houses. Not sure what your point is...

tatupu70 says

I’m still not sure about the inflation tracking. If you’re looking at a large enough market (like the US in general), perhaps. But, by that measure, Detroit is wildly undervalued right now.

Yes, I was talking nationally. Regionally prices correspond to GDP levels of that region. For instance, in Detroit where household GDP has tanked due to long-lasting economic problems, the market has fallen there accordingly (and would have had the housing bubble never occurred). In my area, DC, income has risen faster than inflation over the last decade and therefore housing prices are actually fundamentally supported at a level above the inflation curve.

tatupu70 says

Comparing the cost of renting with the cost of buying is probably a better guide.

Agreed. The rental market is generally a more sloppy yet flexible market and a good gauge of where housing prices are. After all, it's the one alternative to owning.

tatupu70 says

I disagree there. Having people in houses increases the productivity of our nation.

It increases the share price of IKEA and Home Depot when they move in. Same as renting. Housing has never traditionally been a large part of our economy, especially not a cornerstone. The housing conglomerates, their lobbies, their propaganda, and banks have convinced many naive people otherwise. And if you look at all the crap coming out of Washington to promote housing, it's pretty easy to see where the money is coming from and who it has helped.

klarek,

What's with all the name calling and foul language? Did I touch a nerve when I suggested that you were overpaid if you made more than a dollar per year? Aaaah, now suddenly, in YOUR area (D.C), house prices are fundamentally supported....riiiiiiight.....You are very inconsistent with your own logic and points.

Tatupu, you on the other hand, make excellent points. I was also referring to the MidWest, Texas etc when I referred to home prices underperforming inflation. and not to the few coastal areas that had above average appreciation. You are also right about higher loan rates not adversely impacting rising home prices. Many countries in Asia have double digit inflation, double digit loan rates, and double digit home price increases per year.

clayfire23 says

What’s with all the name calling and foul language?

I use foul words like "bullshit" when I read comments like yours that are simply not true. As for name-calling, don't dish what you cannot take:

clayfire23 says

You are rejoicing the tremendous suffering that most Americans are facing because of our own self-destruction of this great nation. Shame on you for doing this.

clayfire23 says

Things are going to get extremely bad for ALL of us here in America, thanks to you self-destructors.

clayfire23 says

Aaaah, now suddenly, in YOUR area (D.C), house prices are fundamentally supported….riiiiiiight…..You are very inconsistent with your own logic and points.

I am not being inconsistent at all. National housing prices track inflation. If you want to look at a local area, inflation is less of an indicator than is local household GDP. Trust me, I am a very wary/picky buyer. I'm the type that will make you an offer on your house not based on the overinflated price you're listing it at, but rather what the fundamentals support. For instance, if you purchased it for $320k in 2000 and incomes have risen 25% for that zip/town, I am offering a fair market price of $400k. Then you can piss, moan, cry, and reject it and never find a sucker willing to pay the $500k you want. Too bad, market fundamentals don't support your selfish imaginary wealth predictors.

So the point was that there is a distinction between local markets and the national market. That's not being inconsistent, it's adding fidelity to a pricing model.

klarek,

You are comparing my usage of "self-destructor" to your usage of "moron".....riiiiight...those are the same....

As for my comments not being true, Tatupu already understood and re-stated what I said, and you acknowledged the same somewhere within those conflicting points that you make.