patrick.net

My area, Minneapolis, is down double digits Y-O-Y (-10.something+%).

Would that be considered flat, semi-flat, basically flat, roughly flat, flat but on a somewhat downward slope but with a hint of flatness...

What exactly kind of "flat" would that be?

@tatupu

Neighborhood in Roslyn, NY

Median family income (in 2009 inflation-adjusted dollars)
67,040

Median value (dollars)
300,600

Clearly 5-6 times year income. This data is from the government census. And don't come back with a smart-aleck rebuttal; Government statistics are not accurate.

I can show you countless examples with median asking prices on homes that are currently on the market.

PersainCAT says

even assuming zero taxes and buying a cheap house it seems unresolvable that someone on minimum wage could save 40% of their income a year to come up with $480 for a home.

Only to people of this "modern" era. People weren't raised up on learning to save in todays society.

But I think it's interesting that people are simply attacking an insignificant detail of the main subject of this thread - instead of discussing their perspectives on the MAIN subject... Fractional Reserve banking collapsing home prices.

StoutFiles says

For the people who had cash. There was this thing called the Great Depression at the time.

Which ended on Dec 7, 1941.

So because prices were more affordable in 1941 means that we must go back to that?

What about the fact that there are also just millions of more people around? The planet's space is limited but yet the human parasite keeps multiplying...

If we ever start developing housing on other planets, you may get affordability like in 1941.

Quote: House Prices Will Fall 90-95% (from the peak)

Finally, someone more optimistic than me! As much as I'd like to believe that, the math is just too extreme. Yes, prices rose by a factor of 4 to 6 during the bubble, but a drop by a factor of 10 to 20 is just unbelievable.

A 90% drop in the Case-Shiller Index from the peak in 2006 would place the Case-Shiller Index at 28. The lowest the Case-Shiller has even been was about 65 in 1921. See graph. So a 90% drop would make housing 3 times as cheap as it was back then.

I think the bottom will be about 80-90 on the CSI, but I suppose it's possible the bottom could go down to 70 in the best-case scenario. I don't think the market will over-correct more than that unless we have a third world-war and a draft that effectively causes the American population at home to plummet.

Current cost of housing is high enough to damage economic and social life. Therefore it's unsustainable. For most people, housing costs way more than any of the following: food, healthcare, education, transportation. It should not.

However, if it gets in line with other expenses, people will start buying homes again. This will provide a hard floor to housing prices, there will be no reason for prices to fall further. It may temporary overshoot, but that's a natural floor.

My estimate is that ownership prices need to fall by 60%-65% and rentals by 40-50% to reach that floor.

Another question is how it may be achieved. I would say two simple things would do the trick in no time: stop housing subsidies and stop lenders bailouts.

But both things are unthinkable in modern USA. Therefore, there will be long bleeding going on for years maybe decades to get there.

PersainCAT says

your kidding right. at minimum wage there is no way your saving 40% of your income in ANY era of society.

People lived with their parents until marriage. Modern era associated that with losers but now it's beginning to become more and more of the norm.

SubOink says

What about the fact that there are also just millions of more people around? The planet's space is limited but yet the human parasite keeps multiplying...

I don't deny population density. Good point.

But there are a lot of other fundamentals not supporting the current market.

In fact, I made a thread about this last year relating to congestion in southern california.

http://www.city-data.com/los-angeles/1049240-congestion-driving-southern-californias-market.html

Dan8267 says

Quote: House Prices Will Fall 90-95% (from the peak)

Finally, someone more optimistic than me! As much as I'd like to believe that, the math is just too extreme. Yes, prices rose by a factor of 4 to 6 during the bubble, but a drop by a factor of 10 to 20 is just unbelievable.

A 90% drop in the Case-Shiller Index from the peak in 2006 would place the Case-Shiller Index at 28. The lowest the Case-Shiller has even been was about 65 in 1921. See graph. So a 90% drop would make housing 3 times as cheap as it was back then.

I think the bottom will be about 80-90 on the CSI, but I suppose it's possible the bottom could go down to 70 in the best-case scenario. I don't think the market will over-correct more than that unless we have a third world-war and a draft that effectively causes the American population at home to plummet.

Some good points and I can see the merit behind your logic.

They only thing I would say disagreeing with it is about how people didn't buy 50 year old homes for the price of a new one.

But I think your argument is well-opinionated.

PS. One thing I just want to make clear to everyone: I'm not interested in trying to win an argument rather I would just like everyone to give their take on my logic of home prices risk crashing 90-95% due to fractional reserve lending. Discuss well-reasoned arguments against this logic; I am interested in seeing other perspectives but do keep in mind that I am not interested in getting into a ego game about who is right and who knows more or everything.

If you wanted to make an argument that the dollar has lost value I'd say 99.9999% of the members here would agree to that even without stats.

If you make the argument that somehow things are sliding back that depends on a number of things. Having the desires to have a house might have been the status quo for decades but not now. Same with having children. The ability to preserve food is much easier today then in the 60's and it is easier to cook.

Examine some photos of people in their 60's in 1960 and then look at some from today. People are healthier today. 60 isn't nearly considered as old as it was back then. The fuel today cost more than then (even when adjusted for inflation) but the miles per gallon is much higher. A light truck today has the same fuel economy as a compact car did in the mid 70s. Communications are cheaper today and easier.

The biggest difference is that employment requires more education and training than before. After world war two the wartime restrictions were lifted so all the production that was held back could go towards consumerism. The country developed faster so of course they did not have much for standards as the demand was domestic. Goods could be made here for the cost the producer could live with and what the consumer could afford.

But we added more to the labor pool and then put on more taxes, regulations and government spending. As more markets opened up anything that was lower wages that did not require direct interaction with a customer was moved overseas. Anything can be made in the USA but it comes with a cost.

bgamall4 says

The only actual free option is to stay with family and don't buy

That is why third world countries don't care much about housing as much as we do. American dream is too deep into the psyche of common mass.

PersainCAT says

if u want to claim "logic" you need to show what has CHANGED now that makes the systems we have been using stably for 50+ years.

Inflation is stability? It robs people's wealth & makes if harder to save due to expenses increasing in price while the wages are slow to increase

PersainCAT says

im looking around every country works this way, and it has been working safely this way for how many years?

And that's why a collapse will be a global one which many people have been warning about for years. John Templeton has warned that someday a global collapse will come that will hold it's consequences for many years.

PersainCAT says

which is basically saying that the WHOLE worlds economy is about to collapse

And that's exactly what I mean to say. Go take a look at what's happening in Greek, Ireland, Spain and what's already happened in the middle east. Take a look at Dubai - economic problems. There is a sovereign debt problem & a crisis is approaching. Italy & lots of other countries in the European Union will also see a collapse. China is in big trouble if we ever get into a collapse (which there is a great chance of happening).

michaelsch says

My estimate is that ownership prices need to fall by 60%-65% and rentals by 40-50% to reach that floor.

This is absurd, you are predicting a fall down to the lows or a little lower than the previous low in California that occurred in the mid 90s. I don't see that happening, unless there was deflation in everything and the greatest depression of them all. In other words, in such an extreme situation prices would not actually be more affordable, because the earth would be scorched, or we would all be broke and in bread lines.

Given that something near 30% of people are underwater already, we know that housing can't drop so much that most of them need to walk away.

There other possible weird scenarios, where high inflation and interest rates for a brief period, cause homes values to reach a low like what you are talking about, but in REAL DOLLARS. I could totally see that happening. This would be for example where compared to other goods and services, homes are way cheaper, relatively speaking than they are now, but prices for everything are much higher, as are salaries (although like housing, salaries also might not be up quite as much in nominal terms as most other items. )

But under such a scenario, because of high interest rates, homes would actually only be that inexpensive for the cash buyer (who would be forgoing very attractive deals in the bond market (that is if it was functioning as a free market at that time)).

Actually, this scenario is one that I find very likely, but it could take anywhere from 10 to 40 years to fully unfold.

"Inflation is stability? It robs people's wealth & makes if harder to save due to expenses increasing in price while the wages are slow to increase."

One can argue that inflation and deflation can be good but in small amounts. It is natural that the market has prices rise and fall depending on conditions. If inflation goes up it can provide more of an incentive to work to survive. In deflation it can be bad because why would anyone buy today or even this week items that will be less later on. Inflation can deflate the concept of anyone in debt as their debt will be smaller (assuming fixed rates here).

The most stablest form of currency I have heard argued was Boston and NYC subway tokens. This might sound like a joke but keep reading. What you paid for the token went up in price...but what you received for the token remained the same. So a token in 1910 received the same value in 1930, 1950, 1970, 1990...until they put in the eticket things. People in lesser incomes would often buy tokens before they went up in price to hedge against inflation.

bgamall4 says

We need a little deflation to make up for all the inflation we have suffered through with the ponzi housing bubble.

Be careful what you wish for.

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

Well, the inflation long term trends were not good because they pushed cost of living up and stole from cash savings slowly.

But since we've had so much inflation and for so long - deflation will cause a lot of people economical problems.

The dollar should have stayed stable instead of inflating all those years like the Federal Reserve manipulated... And now if they deflate - asset prices will collapse and defaults and bankruptcies will skyrocket.

So yeah be careful with what your saying about deflation being good.

But the damage has already been done by inflation trends long-term. A ponzi scheme eventually collapses.

90% -95% from the pick? Yes it can happen but only is some areas where oversupply of rental houses or high unemployment will cause drop in rental prices. Yes, rent can go down too.
Some people already understood the fact that bank lent them fake money and rejected to give them back Real Money. Instead they give to bank fake asset purchased by fake money back. Pronto!
Deflation is what we actually have. During deflation is harder and harder to pay back loans. Now when cost of transportation and food is going up, but salary stay the same or often got reduced – less money retain to pay debt. With all that government breaks high inflation will definitely happen but not so fast. Beside after high inflation your current equity (if any) in house be worth much less than today’s dollar.

Inflation has two components. Prices are going up so the salary. Effectively buying power is the same.
In deflation salary goes down and prices for goods and services follow it. However we have to remember that will not apply to Everything. Some prices are dictated by local markets (e.g. rent) and some by global markets (commodities).
In fact in many areas rent is not going up at all.
Obviously, in other were job is available and many people lost houses, vacancy going be lower and rent higher. Today gas prices are dictated mostly by Chinese economy.

I would say we generally have inflation in food, energy, medical care and tuition. We have deflation largely with electronics due to the high competition. We also have deflation with some mediums because demand is lower (who buys cd's today?) Houses might be argued to have deflation but if you have to finance an object then it might not really be that much deflated. I am a tad surprised that cars have not gone down in price. Technically cash for clunkers (a bad program) caused used prices to go up.

Naturally inflation can be imported (ask anyone that filled a gas tank in the early 70s) but there are signs that people are starting to share items which can reduce aggregate demand eventually. When people lack money they are more likely to trade items with others or services in lieu of payment (barter economy). Websites make this a bit easier. Although I won't claim this is going to be a earth quaking situation I wouldn't be surprised if retailers start having lower sales in markets where trading is more common.
http://www.time.com/time/magazine/article/0,9171,2032109,00.html

Very touchy in a way for both sides of the aile. I been looking to buy a home. What has astonished me is the fact that housing effects every citizen in country at one point in time. However, no body is talikng about data much less clear information for buyers. Any tom/harry can write an article and try to persude or dissude you from buying house without the gurrantee of fact that information presented to you is factual or far fetched.
I suppose we do have middle class with income in range from 80,000 to 150,000 per family per year and we comprise about 80-90 % of population group. How in the world you expect this segment to buy a home in current market.
May be landlords lobby is spending all on the special interest people to prevent home owner ship in country. After all, who stand to benefit from un affordable housing.
I have heard NAR stating for every house many jobs are created and maintained and agreement is based on NAR data. Agreed,that include banker, real estate and lawyer.
Thier concotion is bitter sweet for taster depending upon.
Real fact is that unless Fedrale gives everone a million dollar interest free to buy homes, expect housing to correct to 1999 levels. Donot buy home to buy an ATM in house but to raise family.
I have seen people lining up with cash buying homes which make me wonder how is that happening? IRS seem dysfunctional at the best to ask where the money came from.
This should stop bullying and BS at the auctions.
In any case, lets write to our politicians who are busy with facts and fictions of thier melonodromic life to help keep american dream alive

You say inflation,
I say deflation.

I say creation,
You say speciation.

Inflation, deflation; creation, speciation
let's call the whole thing off.
****************
It really doesn't matter what you call it, those are just words. I think inflation is an expansion of the money supply (these days, "money + credit"). Deflation is a contraction of the money supply (or, "money + credit"). Some economic theory that I don't understand adds "velocity" to the description. Whatever.

Probably everyone on here will agree that we have rising prices on some stuff, falling wages for some folks (many of them, falling to zero) and so less money to spend. One can call these things whatever s/he wants to call them and boast about how s/he can smarty-pants their way into profiting from the misery with their trades in the margins of it, but I call them a Lower Standard of Living.

Sybrib says

Some economic theory that I don't understand adds "velocity" to the description. Whatever.

yeah, I don't understand velocity either, and you can't find a good definition online. My old World Book encyclopedia had an interesting diagram that showed a simplified economy of a ring of 10 or so producers all paying money to each other in a cycle in a local economy.

But actually quantifying the velocity of money is the interesting thing.

Like what happens to the $900B/yr the DOD is spending? Theoretically that should trickle out in $30,000 quanta to 30 million different people, I guess.

And of course, money is not normally destructible, so this velocity never really ends.

Sybrib says

No reason why we can't have deflation and rising prices.

yup. Some sectors are have elastic demand and some don't. Housing, energy, and medical tends to be inelastic and thus prices are more buoyant in deflationary times.

Landlords also enjoy location monopolies and via informal collusion can attempt to hold the line on prices.

It is all a battle for the paycheck. If paychecks don't get bigger, there's going to be a problem, but it's difficult for renters to go on strike. Gotta live somewhere.

And that is why, rich fatcat landlords, not only immune, but probably thrive and profit from deflation.

Rising prices are rising prices.

Inflation is the inflation of the money supply and credit supply.

Rising prices can be a symptom of rising (money + credit) supply, but need not be.

It is really just a semantics thing anyway, though some Rich Folks, including those who exploit the working classes, are deliberately and disingenuously trying to confuse others by calling Rising Prices "inflation".

Whatever.

Doesn't matter, rich folks are thriving and profiting while the rest of us are watching our living standards decline from a Deflating (money + credit) supply while being confronted by Inflating Prices for things that have as Troy wrote a rather inelastic demand.

Sybrib says

Rising prices are rising prices.
Inflation is the inflation of the money supply and credit supply

Really it's not. Inflation is defined as rising prices. Period.

Rising money supply and/or credit supply can cause prices to rise (inflation) but it is not the definition.

Missed one:

tatupu70 says

Rising money supply and/or credit supply can cause prices to rise (inflation) but it is not the definition.

Like I said, it is symantical. Whatever. But pop media got successful getting you and others to take your eyes off the mark from root causes to tangible effects.

Troy says

Missed one:

Now, why would someone assume that recession was over in 2009?

Inflation or deflation? Let's not get sidetracked,come to the central point, will the house prices increase or decrease?

^ wat?

The CMDEBT curve was mainlined right into middle America's checking accounts via the home ATM and all the real estate and construction bubble employment.

money supply has all the relevance as the price of tea in China right now since the laboring class doesn't have any money any more.

but I doubt in 2008 anyone would have predicted how little effect it would have.

what is "it" here? From 2008, the middle class lost its share of that $2T/yr credit inflow. That was the bubble machine that powered us out of the tech recession. The bubble machine still being off now is why we're still in the deep depths of recession and things are getting worse:

Unemployment is still as bad as it has ever been, since FDR.

Troy says

And of course, money is not normally destructible, so this velocity never really ends.

But in our fiat system, DEBT is destructible when it's paid back or defaulted upon. So a lot of people/companies paying back debt or defaulting results in the destruction of a whole lot of money which is deflationary.

With regards to asia we also have to consider what the dowry system is doing. In western countries all this means today is that the family of the wife pays for the wedding. In asia it can be to extremes.
http://www.the-spearhead.com/2011/05/04/the-economics-of-male-preference/
http://en.wikipedia.org/wiki/Missing_women_of_Asia
There are higher rates of abortion of girls, higher rates of infanticide and higher rates of suicide of women.
The preferences for men in the long term leads to a country having more men than women. Any extra men in aggregate will probably be single and the population will be reduced since logically they cannot have children. Add in the one child policy of china (largely ignored in the south and bribes can get past it but still) and the problem compounds on itself.

If we were to go back in time and factor out the population rise in Asia that could probably nullify how cheap the labor is. Ironically the USA keeps growing.

There's a far off prediction that by the end of the century we'll have more people than china.
http://www.theglobeandmail.com/news/opinions/more-americans-than-chinese-a-lot-can-happen-in-100-years/article1703279/

mdovell says

consider what the dowry system is doing

Notice a pattern, student visa to get your PhD, H-1 visa, then, immediately after obtaining the green card, make a trip "back home", come back with a bride and then immediately buying a Fortress Residence?

Don't know if it is true or not, but a long time ago I read a letter to the editor of a local news publication from someone who claimed to be a software engineer that said an engineering job + green card in the Bay Area was worth about 100K of dowry.

Also real estate price increases used to be signification helped by psychology, that is the belief that price increase would continue. This is over.

Meanwhile many boomers are going to want to downsize, effectively monetizing some of their home equity for retirement needs.

These are some of the reasons that many people are predicting that housing drops bit further. I am not in agreement with those who think prices are dropping a lot more.

marcus says

Sure, we don't have outright deflation in all sectors of the economy, but we have massive deleveraging and strong deflationary forces at work.

we've been treading water for 2+ years now.

Having lived in Japan in the 1990s, I've seen this movie before.

I didn't know it at the time, but I was FOB Tokyo at the exact moment that corresponded to our March 2009 bottom (August 1992).

We are not Japan (their currency has strengthened 60% since 1992, ours needs to weaken, we get massive investment inflows, Japan, not so much) but the overall debt-collapse dynamics are the same.

The dems losing the House really really screwed things up. What passes as the left in this country is fighting to stop deflationary cutbacks and not actual progressive and constructive economic interventions.

I recently read the military is no longer doing stop-loss and big enlistment bonuses. They're in spin-down mode too. Tiny 1% cuts to the military is $6B or more, which still is a lot of money, believe it or not, 100,000 jobs or so in the direct analysis, 250,000 or more due to velocity of money.

Troy says

the military is no longer doing stop-loss and big enlistment bonuses. They're in spin-down mode too.

Most of the Cold War spending was for compensation in one form or another, even pay for involuntarily conscripted conscripts, or salaries for aerospace engineers. It was a massive redistribution program, because the rich feared the alternative of Soviet type communism world domination. Confronted with that specter, the rich needed us during that time.

"Meanwhile many boomers are going to want to downsize, effectively monetizing some of their home equity for retirement needs."

That's very true. How can EVERYONE downsize. Let's not also forget that gradually they'll sell off stocks, bonds, 401k's, IRA's etc to retire.

Here is a good article..a journal infact.
http://www.scag.ca.gov/housing/pdfs/trends/AgingBabyBoomers_GHB.pdf
it also shows the crossing time that will have more people selling than buying in various states. Once it hits 2016 we'll get another chunk of this. Right now MA is getting hit. By the time we hit 2030 (obviously a bit of a ways off) we can kiss a fair amount of this goodbye. This is one of the only journals that admits it expects the housing burst to continue for decades.

If people were hit in the stock market bad they might assume they can bank retirement off of their house and frankly that isn't the case.