patrick.net

tatupu70 says

I agree–this time might be different. Just usually it isn’t…

Every time is different. The America of 1800, 1850, 1900, and 1950 was under-developed and needed more labor to get business rolling.

Today, not so much, and we have trained about two billion offshore people to do many of our wealth-creating jobs for $10/day, if that.

Income disparities are more like 1929 than 1949. Credit cannot bridge this gap permanently.

Hmm. Here's two charts:

Consumer debt, 1950-1980

Consumer debt, 1980-2010

While they look very similar, I think the underlying dynamics are very different. The bump in 1973-1979 may have been due to the baby boom -- and women -- entering the work force en masse. There was of course high inflation during this time, the minimum wage doubled from $1.60 to $3.35, 1970 to 1981.

Wages didn't double 2000-2010, that's for sure. Neither did employment.

1950-1980

1980-2010

robertoaribas says

yep, deficit spend and nationalize the debt to start off a boom!!!
its working so well in greece, ireland, iceland!!! what could go wrong?

You have it backwards. Greece, Ireland, Iceland did not nationalize debt before the collapse. They nationalized as a consquence.

Businesses do this all the time. Credit is used during the lean times to float until the flush times. Retailers don't even hit the black until Black Friday.

You can't throw your citizens overboard during the down business cycles (although the Tea Party is working as hard as hell to euthanize "worthless" people getting government help). They forget that these are the same people needed when the economy booms.

If we are worse of than Ireland, it is because of our endless wars of occupation in Iraq and Afghanistan.

Troy says

Every time is different.

Yes and no. If you look hard enough you'll find differences. But I think some general trends stay remarkably similar.

C-S's August numbers are 93.57, 100.76, 113.58 for the three tiers.

This is 1.3%, 0.2%, and 2.9% above the March-May 2009 low.

Troy says

C-S’s August numbers are 93.57, 100.76, 113.58 for the three tiers.
This is 1.3%, 0.2%, and 2.9% above the March-May 2009 low.

Should C-S the sole tool to gauge home prices?

http://seekingalpha.com/article/228271-housing-wise-to-look-beyond-case-shiller-index
http://www.zerohedge.com/article/why-case-shiller-index-although-showing-another-downturn-coming-overly-optimistic-and-quite-

Well I am renting now, and am ready for prices to drop. I've been saving funds, so interest rate won't matter as much to me (relatively speaking).

The most recent Zillow report is also extremely negative. We have reached a new record percentage of "owners" who are underwater. Nice. It is true that total collapse zones such as Las Vegas (currently a full 80% of "owners" are underwater) influence the statistic, but even places such as my home (MN) are adding to the downward spiral. Zillow has my exurb at a -10% Y-O-Y. According to the CS data, Minneapolis is right up there at the top of the list for "apprecation" after SF and SD - the only problem is that once you include ALL sales, not just single-family homes, the prices were NEGATIVE (-3.5%). I am looking at the article right now. Additionally, losses have quickly intensified after the credit expired. I see zero evidence any bottom has been hit locally despite the statistical mirage that is the Minneapolis CS data. Sales are so low do prices paid even matter to the general market? It's difficult to say.

http://zillow.mediaroom.com/index.php?source=patrick.net&s=159&item=215#wd_printable_content

FWIW, the June comps on a friends appraisal got derated by 5%. Yikes.

I put an offer in for a short sale for $400k. They stalled out for over a year before I gave up. A year later, they listed the house for $399k! They just reduced it to $299k. I don't think short sales are for selling the homes, but to manipulate the owner into continual payments. The list price usually a big joke.

The short sale was in Raleigh, NC. We aren't having as much drama here as the west coast, but we are seeing it start to happen. Eventually, it will be felt everywhere.

robertoaribas says

I just got one of my short sales approved this morning!
Last sale: 97K in 2004…
My contract: 42K.

Nice. How much can you rent that out for? How are the HOAs in AZ? I know you probably don't want to give specifics, but what area of AZ is that in? Thanks.

klarek says

October CS data measured June through August. You bet your ass there was some tax credit-fueled demand that closed within that time frame

Your friend Roberto disagrees with you. This is what he says on a different thread.

"good grief! sales number tell us how many people are buying now! of course this gives us an idea of current, or worst case, 45 day ago, demand. "

He thinks worst case is 45 day closings unless I'm misinterpreting him.

gameisrigged says

So, my argument is that prices rose when the tax credit was in place, and STOPPED rising when the tax credit ended, which proves your statement false.

You need some pointers on cause and effect. You may assume that the tax credit was the cause, but you're far from PROVING it.

tatupu70 says

gameisrigged says

So, my argument is that prices rose when the tax credit was in place, and STOPPED rising when the tax credit ended, which proves your statement false.

You need some pointers on cause and effect. You may assume that the tax credit was the cause, but you’re far from PROVING it.

Ha ha. *I* need some pointers, eh? So then it is your contention that the price increase that coincides with the beginning of the tax credit, the dip that coincides with the original expiration of the tax credit, and the second increase that coincides with the extension of the tax credit, are all utterly coincidental?

It's quite obvious that this could NEVER be proven to YOUR satisfaction.

Good post klarek. here's a more complete report from Clear Capital. Its as if they read this Forum and answered directly!
http://clearcapital.com/company/MarketReport.cfm?month=November&year=2010

The REO Saturation numbers look preposterous. 61% REO Saturation for ATL? What does that even mean? 61% of the homes on the market? ???

tatupu70 says

gameisrigged says

So, my argument is that prices rose when the tax credit was in place, and STOPPED rising when the tax credit ended, which proves your statement false.

You need some pointers on cause and effect. You may assume that the tax credit was the cause, but you’re far from PROVING it.

What in the world makes you think that they will start rising again? I would like a somewhat sophisticated or educated reason that they would go from a 6% drop in two months to an all-of-a-sudden rise during winter. Please enlighten/amuse me.

gameisrigged says

Ha ha. *I* need some pointers, eh? So then it is your contention that the price increase that coincides with the beginning of the tax credit, the dip that coincides with the original expiration of the tax credit, and the second increase that coincides with the extension of the tax credit, are all utterly coincidental?
It’s quite obvious that this could NEVER be proven to YOUR satisfaction

I'm not sure how the dip that coincides with the original expiration helps your case at all. The credit never actually expired--it was extended before the original expiration date. So, please tell me exactly how the scenario works in your world?

Anyways--I agree that sales activity and prices probably will fall for a few months after the credit ends. Like I've said many times--the credit surely pulled foward some demand. Whether it will be short dip or continuation of the downturn isn't clear to me yet.

klarek says

What in the world makes you think that they will start rising again? I would like a somewhat sophisticated or educated reason that they would go from a 6% drop in two months to an all-of-a-sudden rise during winter. Please enlighten/amuse me.

Did I say they will start rising again during winter?? No. But I do think there is a reasonable chance it will be a short dip followed by flat to slowly rising prices (seasonally adjusted). Read my previous post for the explanation.

It will depend on the overall economy. If unemployment continues to fall, then the housing should be OK.

tatupu70 says

gameisrigged says

Ha ha. *I* need some pointers, eh? So then it is your contention that the price increase that coincides with the beginning of the tax credit, the dip that coincides with the original expiration of the tax credit, and the second increase that coincides with the extension of the tax credit, are all utterly coincidental?

It’s quite obvious that this could NEVER be proven to YOUR satisfaction

I’m not sure how the dip that coincides with the original expiration helps your case at all. The credit never actually expired–it was extended before the original expiration date. So, please tell me exactly how the scenario works in your world?

I believe the original expiration date was to CLOSE the contract, so no, by the time they announced an extension, the time to enter escrow had already passed. I distinctly remember a period where we did not know if the credit would be extended, don't you?

robertoaribas says

Looking up sources to prove a point to the idiot duck isn’t high on my agenda

Yes. I know. Looking up sources isn't high on your list... Unfortunately, it doesn't stop you from posting nonsense.

Anyone else seeing the job market heating up big time? Just ate with a headhunter who said it was hottest he's seen in six years. Same everywhere?

maxweber says

Anyone else seeing the job market heating up big time? Just ate with a headhunter who said it was hottest he’s seen in six years. Same everywhere?

Yeah right! LOL.

maxweber says

Anyone else seeing the job market heating up big time? Just ate with a headhunter who said it was hottest he’s seen in six years. Same everywhere?

anecdotal evidence isn't really helpful in giving an overview of the health of the overall market.

software engineers have been recruited heavily by facebook, google, and even startups for the last year.
anything to do with construction is dead.

you really have to go by unemployment/underemployment numbers to get an overview.

..could be that unemployed have now a feeling that the new congress will limit UE to 99 weeks, hence take whatever to pay the bills. That has nothing to with housing recovery. Housing recovery needs well paid jobs back...now that easy loan days are gone....figure it out ..which way the housing is heading.

ch_tah says

Uh…he said 5-10 years.

In Japan, there has been 20+ years now and still no new real-estate bubble.

Possibly obscure side note: ch_tah doing any galloping lately?

What about the FED Factor ? I think FED is on a mission to devalue dollar/pump up the stock/real estate market.

I don't think any thing can stop the FED at this point. I don't think any political entity will stop the FED. Some of politicians will pretend they are trying to stop this. But they really won't. They all know the inflation is inevitable. That's the only way out of this without the big bank casualties.

Then the question, for a middle class like me, is how does this timing of inflation plays against the future house prices ????

eoulim says

What about the FED Factor ?

What about it?

Economies experience inflation via a combination of "animal spirits" -- confidence in the future -- and the credit cycle converting savings into cash via the exercise of credit.

The Fed is dumping $600B in the banking system -- $100B per month -- next year. If we had a normal credit cycle this new capital would expand into maybe $6T of bank-money as fractional-reserve banking distributed it through the system.

But bank-money is not cash. Every loan has to come from somebody's savings in the bank. It's only when people are parking money in the bank that banks can expand the money supply through lending, as loans ping-pong through checking accounts, into savings, and back out as loans.

But these days, nobody solvent right now really needs to take on any more debt -- there's no demand.

Things were much different with the 2003-2007 credit boom, then, the rising home valuations were liberating $100B/month or so in new cash money as people cashed out their equity and spent it.

http://research.stlouisfed.org/fred2/series/CMDEBT

What the Fed is doing now is just fighting the gravitational pull of a deflationary collapse, since the 2004-2007 bubble valuations are gone now, leaving debt and sky-high under employment.

The situation is highly analogous to the Japan experience. We got a bit ahead of ourselves economically, 2004-2007, and now the bill is due, with interest.

We can't cut government jobs

http://research.stlouisfed.org/fred2/series/USGOVT

that's the only sector that has expanded since 2000.

We can't raise taxes to reduce trillion-dollar deficit since that will drive rich people out of the country or into their secret hideouts and they will stop being the great Captains of Industry we so desperately need.

The end result of all this bullshit is just going to be more and more money moving into the wealthy's pockets and the middle class and below getting entirely screwed. That's the playbook for the next two years, the American people really don't know how crazy-bad it's going to get. We're talking Bachmann crazy here.

robertoaribas says

and what things are going up in price? commodities, not salaries

Plus it will go into asset buys here in the states. Everybody expects CPI inflation to hit here someday, and stuff looks pretty cheap if you've got $500M or more to throw into the market and can wait several years for the inflation man to come.

Social Security Agency's Chief Actuary is working with the following assumptions of wage inflation:

2020 +17.3% from 2010
2030 +30.9%
2040 +47.4%
2050 +65.3%
2060 +85.2%
2070 +106.9%

ie, wages will double by 2070. 20% is about what wages have grown since 2000, but it remains to be seen how sticky these wages are.

Troy says

The situation is highly analogous to the Japan experience. We got a bit ahead of ourselves economically, 2004-2007, and now the bill is due, with interest ....
That’s the playbook for the next two years, the American people really don’t know how crazy-bad it’s going to get. We’re talking Bachmann crazy here.

You seem to contradict yourself here.
If we are tracking the Jap. experience, not much bad has happened to their middle class: in fact, many who couldn't reasonably afford their own home previously got one now and many have improved their living situation beyond their expectations.

So what specifically crazy-bad you expect in the next 2 years? I think the line for next 2 years (not much happening really) is largely fixed by recent elections, and any change (whether good or bad) is delayed till 2013.

Fisk says

not much bad has happened to their middle class

Don't mistake Tokyo for the rest of the country, and don't mistake middle-class "salarymen" for the population as a whole. The employment rate for Japan is at an all-time low, ~56%.

Hours are down, wages are down:

half of women workers are temps.

http://www.stat.go.jp/english/data/handbook/c12cont.htm#cha12_4

I think the line for next 2 years is largely fixed by recent elections,

And that's the problem. The Republicans have this strange idea that stimulus "must be paid for", ie we have to cut government spending somewhere before government can spend somewhere else!

That's a pretty bizarre idea for stimulus. And not being able to raise taxes any more is going to put the entire USD and our sovereign debt rating at some degree of systemic risk a la Greece. Our sovereign debt CDS is already less than pristine now.

Now, I don't know anything really and I'm just talking through my hat here, but I don't think things are going to get any better in the next two years. QE2 might bring us some inflation in commodities, but that's only good for farm belt, and comes at the risk of inflation in energy costs, which the farm belt is highly sensitive to.

http://www.businessinsider.com/qe-and-the-stock-market-and-inflation-in-japan-2010-11

Troy says

Hours are down, wages are down:

So wages decreased by ~10% over 15 years. But RE prices dropped ~2 - 5 times depending on location, right? The RE costs decreased even more drastically, due to lower mortgage rates. Many other prices also decreased, many by 10% or more. I'd beg for a 10% pay cut any day, if 1 M houses drop to 200 - 500 K while the mortgage rate becomes ~2.5%.

Fisk says

But RE prices dropped ~2 - 5 times depending on location, right?

~35%, actually, 1995-2008.

http://www.nuwireinvestor.com/articles/the-state-of-japans-real-estate-market-53959.aspx

from the peak prices, maybe 50% in Tokyo:

I’d love a pay cut of 10% any day, if 1 M houses dropped to 200 - 500 K while the mortgage rate became ~2.5%

The problem with this scenario is you've got to be the person with a job still.　And prices are still pretty whack compared to rents. And Japan is running a national debt at ~200% of GDP, with a declining population, and diminishing competitive advantage vs. China.

I have no idea what's going to happen with Japan this century, but I'd like I've said before I'd rather have our problems than theirs. All our problems can be fixed by taxing the shit out of the rich (like everyone else does) and instituting profit controls on medicine (again, like everyone else does). But nooo, our precious snowflake wealthy people will run off to Paraguay if marginal rates go over 40% again and our doctors will run to Mexico to escape onerous cost controls on their practices.

US Mortgage Applications Hit 4-Month Low - http://www.cnbc.com/id/40230256/

...and before you waste my time making up excuses for it - yes, it IS seasonally adjusted, bitchez.

maxweber says

Anyone else seeing the job market heating up big time? Just ate with a headhunter who said it was hottest he’s seen in six years. Same everywhere?

I can't say for sure about the job market - but I take headhunters' assessment of the job market with a pinch of salt. They get paid for removing you from your current job and 'placing' you someplace else.

As such, their livelihood depends on a 'hot job market' - so many of them have a tendency to let their wishes overtake reality (kinda like home-debtors, but not quite as pathetic)

Troy says

The situation is highly analogous to the Japan experience. We got a bit ahead of ourselves economically, 2004-2007, and now the bill is due, with interest.

I remember japan in around 1990. Things were horrendersly expensive (They still are). I saw some young people cut their own hair because it is so expensive to have their hair cut. I remember there was a big bridge from Osaka to an island. If you want to cross that bridge with your car, you would have to pay $50. Music CD costed $30-40. Movie theater you would need $20 and so on. We're talking about 1990 in Japan !. How much was movie ticket in US around 1990 ? Around $5 ? Music CD maybe around $10 ?

Things were already insanely expensive back in Japan of 1990. Yet typical japanese salary was about half of US salary at the time as I recall. Japanese middle class people could hardly afford frequent visit to movie theaters. They occasionally bought CD's for their favorite singers but they would rent CD's from a Music CD rental places.

I have lived in US for 20 years now. Except movie/cable bills and recntly gas prices, I have been simply amazed by how low inflation there has been in US for the last 20 years (I mean compared to other developed nations).
I think it has been the privillege of US being #1 in the world and having a international reserve currency.

So, in terms of inflation scenario, I have a feeling that US will take very different road compared to Japan of 1990. Up until now, US consumer prices has been very very cheap considering people's income. I think there is huge room for consumer price increase in US, IMHO.

"No, they snap them up to live in them. I’m talking about genuine $900K homes like in Lafayette and Atherton, not $900k jokes that are now selling for $300k in San Bernardino."

True, people who make good money do not live in 90% of the places the general population do.

"The supply of legitimate upper class fortress area homes has barely moved. Lafayette, Moraga, and Orinda all have very strict open space regulations and a subdivision hasn’t been created in any of those towns for 30 years."

True, same amount of homes but more people in the mix.

"In 1980 Lafayette and Walnut Creek were middle class. Homes were (and sometimes still are) typical 1500 sq. ft. ranchers. Moraga and Orinda were upper middle class but home prices were still very reasonable."

True, high income people flocked to Lafayette and not Concord and things went their separate paths.

"The people who can afford $1 million to buy a home are expanding in number. They will very selectively displace middle class areas and keep home prices high. These are the fortress areas and they are very real."

True, employment rate for high earners are around 2-3% Stocks and equity at a two year high. There are more millionaires than ever, to a lesser extent, there are more 200K households than ever.

Agree, these places are bought as primary but invest in the 100-300K ones.

If there is a collapse of housing price, it does not seem to be happening in Silicon Valley except the bad neighborhood of San Jose. Please, someone, prove me wrong.

Nobody says

If there is a collapse of housing price, it does not seem to be happening in Silicon Valley except the bad neighborhood of San Jose. Please, someone, prove me wrong.

Lower interest rates are supporting home prices now.

Graph over past 2 years.

Here's a house I picked out at random:

http://www.redfin.com/CA/Sunnyvale/774-Starbush-Dr-94086/home/669347

Originally listed for $888k, going for the Chinese buyer LOL.

Now listed for $840k. 20% down 4.3% loan shows $3500/mo cash expense (+$400 lost interest), $2600/mo not counting principal repayment.

Doesn't seem out of line to me, really.

Now, should rates go back to 6.3%, the price should be $650 - $700k to meet those monthly expense numbers.

robertoaribas says

“and they all lived happily ever after.” isn’t that how fairytales are supposed to end? Or “Amen” usually that is how you end a prayer! As in a prayer the duck doesn’t get wiped out!

Yeah. He just ignored my point that there are plenty of distressed Multi million dollar homes available here in OC, whether you want to live or invest.