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Case Shiller didn't take into account the huge amount of government intervention, which is setting us up for another crash. The country is broke; tax increases and more job losses are on the horizon. People can't buy houses even with this low interest rate if they can't stay employed.
Housing market is still a good scam. House, up the block from mine hit the MLS at 51k, then they changed it to 62k, I called the realtor and said, how did it go up 10k in 2 days, he said it was priced to low, it sat for about 6-8 months, then a flipper bought it for 32k.
It's too bad the bay area doesn't match that chart. At all.
You're taking national numbers and applying them to a certain region, which is a mistake.
It's too bad the bay area doesn't match that chart. At all.
You're taking national numbers and applying them to a certain region, which is a mistake.
There is no logic in the bay area.
There is no logic in the bay area.
Because it is SPECIAL here! If you can't afford to live here, you clearly aren't blessed with the ability to innovate in the new, NEW tech economy. You are probably also too lazy...you gotta live at work if you want to own a house! That's all just part of the special'ness!
The push/pull relationship of house prices and their main driver to mania levels, is driven by 30 year mortgages.
I definitely agree that one of the major factors in RE market behavior is the mania factor. Everyone in my office and on my weekly business flights is talking about RE and how they "need to get in" to various Silicon Valley neighborhoods since the market "is back." It's a big positive feedback loop...a little mania here begets more mania elsewhere, which begets more mania and so-on. The mania train has left the station and is building steam in the SF Bay Area, as far as I can tell. If I can convince my fiancee to keep renting for a few more years, we might be lucky enough to see today's suckers get burned. Incomes aren't going up fast enough around here to support these trends in increasing prices, and interest rates can't fall far enough fast enough from here to counteract that.
There is no logic in the bay area.
Because it is SPECIAL here!
They can't build more land!
They can't build more land!
You could always buy up a bunch of Nevada real estate on the cheap and then sink California. Prime beachfront property!
You could always buy up a bunch of Nevada real estate on the cheap and then sink California. Prime beachfront property!
Or just buy a bunch of land in the Southeast US that is a foot or two higher than the current sea level. In 50 years, prime beachfront property!
Just for reference, this analysis was for aggregate national prices, not for any particular city or locality. It turned out pretty accurately for those outside of the major metros where things tended to remain on the extreme highs or lows.
I only resurrected this because when it was originally aired most of the objections were about Case Shiller. Funnily, the realtwhores argued that CS-I was a bogus index because it didn't reconcile with NAR propaganda while permabears argued it was garbage because it didn't reconcile with Peter Schiff's dire predictions of hyperinflation, death of the dollar, and angry mobs burning the whitehouse down.
What we're seeing now seems like a bifurcation of markets, where high demand low supply areas are in an uptick, or at worst flat, and low demand/so supply doesn't matter much areas are continuing their long skid.
Exactly. Que to Detroit vs San Francisco.
They can't build more land!
While driving on Winchester.. an old plot of land across the Valley Fair Mall is being turned over to new housing.. similar new developments are also going up near San Thomas Express Way.. 3 new developments so far...
Where there is a will, there is a way!
Map winchester and stevens creek
The real estate market is likely to "bottom out" around 2011.
This analysis assumes that the bottom will be at fair-market values. In all of human history, there has never been a bubble market that has not over-corrected in the burst. I wouldn't count on the housing market not over-correcting.
This analysis assumes that the bottom will be at fair-market values. In all of human history, there has never been a bubble market that has not over-corrected in the burst. I wouldn't count on the housing market not over-correcting.
But the burst was somewhat contained by massive liquidity injection. This is why the market is getting weird. But in the end, nothing can stop true market forces, so I will correct, just a matter of time scale.
errc said it best. This nation is so financially screwed, housing is lease of our worries.
And when the plug gets pulled, it will really hit the fan.
I only resurrected this because when it was originally aired most of the objections were about Case Shiller.
In your thoughts, does it prove/disprove any relationship between prices and interest rates? As we learned, the relationship between rates and prices doesnt exist.
housing is lease of our worries.
you hit the bulls eyes! CA is still high on the unemployment count. I
http://www.bls.gov/web/laus/lauhsthl.htm
California June 2012 10.7 % Oct. 2010 12.4%
As we learned, the relationship between rates and prices doesnt exist.
Perhaps not linearly. But we all know that it is a complex nonlinear system with many feedback loops.
Ppl, isn't part of the answer is where the white collar jobs are going?
Right now, I see no better place to buy than the Dallas-Houston-SA triangle. The 3:1 mortgage to income ratio holds well over there and for the most part, the work which is being in-shored is headed in that direction over the former bubble zones like the Boston-DC corridor. All and all, how badly can a $220K/3 bdrm home in Dallas go, when companies are adding headcount all around? The risk is in let's say places like greater Boston, where former big wigs like Fidelity are routinely sending thousands of jobs to other regions, defense contractors re-direct future projects to TX/CO/VA, and other companies basically suffice on their prior skeleton crews, simply replacing those who periodically quit.
But the burst was somewhat contained by massive liquidity injection. This is why the market is getting weird.
Oh that's why. And here I thought it was because of the massive accounting fraud and the banks holding onto bad debt because foreclosing would force them to recognize losses.
California June 2012 10.7 % Oct. 2010 12.4%
And don't forget that unemployment numbers do nothing to measure underemployment or shrinking wages.
Haha..Nailed it...and some people still think worst is behind us...delaying the inevitable by 5 years? 10 years? 15 years?...sounds familiar...Japan tried that...but failed miserably...
Yes, life is horrible in Japan. What a miserable failure.
Give me a break.
Yes, life is horrible in Japan. What a miserable failure.
Give me a break.
Reticulating Splines
Who is talking about life? We are talking about home prices. :)
It's too bad the bay area doesn't match that chart. At all.
You're taking national numbers and applying them to a certain region, which is a mistake.
Please point out where, precisely, I made the above referenced mistake? Please copy/paste where I applied anything to a certain region.
In your thoughts, does it prove/disprove any relationship between prices and interest rates? As we learned, the relationship between rates and prices doesnt exist.
Why are you asking a question you already seem to have answered? I assume you aren't interested in learning that there indeed is a proven relationship between interest rates and prices, but that it is not linear. The function driving prices is extremely noisy and at best is approximated by a multi-linear analysis, of which interest rates are but one variable.
Is "reticulating splines" a SimCity 2000 reference??? ;-)
What I love about Patrick.net is that it's impossible to be clever around here.
Yes, I learned more about economics from SC2000 than from my overpriced ivy mba.
Yes, I learned more about economics from SC2000 than from my overpriced ivy mba.
I don't doubt it!
Now if we could only get New York State politicians to understand the "death spiral" of high-taxes and outmigration leading to even higher taxes, and even more outmigration.
Randy, I still carry a folded copy of this chart in my wallet along with
Ivy Zelman's ARM reset chart. With rates like we have today, many ARMs were a good bet (although some folks did get slammed when they went to the full amortization schedule). I shudder to think where we'd be without the low rates. In my mind the ARM reset chart is why we've got to be Japan for the next decade. Those who can, did refi -- others will default if the rates go up.
I think Japan is a reasonable model. A lot of what I based the Bubblizer on was from quantitative research derived from the Japanese deflation.
The reason a lot of people can't fathom the Japan outcome is that it is DEFLATION, not inflation that drove their macro experience. Deflation is hard for nearly all of us reading this blog to really comprehend, unless you're one of the few 85+ year olds who happens to be internet savvy. The fundamental evidence of deflation is all around, quite unfortunately.
And deflation really would cause the original 2006 predictions above to go way off the rails. Be ready to crumble up that piece of paper in your wallet and toss it.
I don't see any upturn on the chart, so no need to toss it yet. (Its mostly for the "who could have foreseen this?" folks). The C/S Composites are still negative year over year; I'm betting we'll see new post peak lows come January. C/S SF Bay Area may be another story; I'll have to wait an see if the index turns early in August. Deflation Nation indeed. Heck, even my summer plane tickets back East are only $321 round trip this year. Last I checked, effective rates on short term T-bonds were negative and the Swiss and Danes were auctioning off debt with negative interest rates.
Any thoughts on virtual goods seller Zygna versus virtual goods marketplace Second Life? Parallels (maybe you could start a separate thread)?
As AF would say, potatoes are the only real alternative currency.
Comparison of virtual market bubbles. Now there would be a very interesting comparison. I'm not sure it would generate quite as much interest, but the data is there. I'll see if I can dig up some of the SecondLife research data I had from that whole circus. You know, to this date the only real brush with real world creepishness due to my blogging has come from the SecondLife cultists.
With rates like we have today, many ARMs were a good bet (although some folks did get slammed when they went to the full amortization schedule). I shudder to think where we'd be without the low rates
My young DINK coworker got their 800K place in The Fortress this summer, proud new 1st Time Homeowners In The Fortress. S/he told me, their savvy "5/1" adjustable made it doable. I dunno what the "/1" means but s/he told me that the rate (or payment?) won't go above 2.5% till 5 yrs have elapsed.
t's too bad the bay area doesn't match that chart. At all.
That's right. It Is Different Here. And It Is Different This Time.
The fundamental evidence of deflation is all around, quite unfortunately.
Yes it is. Even in times of deflation there will some things we pay for that have rising prices. Doesn't mean there's inflation. Just ask the many folks whose wages are stagnant.
/he told me, their savvy "5/1" adjustable made it doable
translate... couldnt get a traditional 20% down + Fixed Rate 30 yr mortgage..
Perhaps that $800K should be alot less.. like 1997 prices ($350K plus 35%).
The function driving prices is extremely noisy and at best is approximated by a multi-linear analysis, of which interest rates are but one variable.
Hype! thats what is driving prices...
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This is from one of our discussion in 2006. There were topics on Patrick.net and in my own blog (capitalism2.org) which featured the [then new] Case Shiller method and a healthy dose of linear regression.