patrick.net

Mean Reversion Bitches.......

yup1 says

Will the Fed let that happen? Does the bond bubble burst if the Fed can expand its balance sheet to infinity?

Would the Fed allow the housing bubble to burst in 2006? It would devastate the economy and cause millions of homeowners to default.

yup1 says

Mean Reversion Bitches.......

Thanks. That shows that prices only moved sideways and needs to fall further. lol

HousingBoom says

Would the Fed allow the housing bubble to burst in 2006? It would devastate
the economy and cause millions of homeowners to default.

If you look at Fed meeting notes from 2007 the had no clue. Now they think they have a clue. I do not believe they can let interest rates skyrocket. They can't, they will have massive losses and the economy will collapse. The rich get richer the poor poorer. Same old same old.

CDon says

Update #2: I contacted Barry Ritholtz about the issues with the graph. He then contacted Steve Barry. It has been confirmed straight from the horse's mouth, from 2006 onward the disputed graph uses the S&P/Case-Shiller 20-city index, rather than the national index that Robert Shiller used, and it does not adjust for inflation. This graph is really making its way around the web, which is unfortunate because it is worthless.

Good work

Actually, Shiller keeps the data updated, so I just looked it up (see the 2nd excel chart here)

http://www.irrationalexuberance.com/

It looks like in early 2012, the real (i.e. adjusted for inflation - not the nominal like the one yup posted above) rate dropped all the way down to 113 (i.e. 1998 prices).

HousingBoom says

Thanks. That shows that prices only moved sideways and needs to fall further.
lol

Yeah that is why I posted it. Prices need to drop 50% MORE to revert to Mean.

yup1 says

If you look at Fed meeting notes from 2007 the had no clue. Now they think they have a clue. I do not believe they can let interest rates skyrocket. They can't, they will have massive losses and the economy will collapse. The rich get richer the poor poorer. Same old same old.

I agree with that statement. But what IF we have a currency crisis (runaway inflation)? They will need interest rates well above the rate of inflation to slow it down. Rates in 1981 went above 18%!

yup1 says

Yeah that is why I posted it. Prices need to drop 50% MORE to revert to Mean.

Exactly! Thanks for posting.

HousingBoom says

yup1 says

Yeah that is why I posted it. Prices need to drop 50% MORE to revert to Mean.

Exactly! Thanks for posting.

Again, if you notice, that chart Yup put up is nominal (i.e. it does not adjust for inflation). Here is the real (i.e. inflation adjusted) one:

http://www.irrationalexuberance.com/

If you believe in inflation as Mr. Shiller does, it looks like we are at 1998 prices.

CDon says

Actually, Shiller keeps the data updated, so I just looked it up (see the 2nd excel chart here)

http://www.irrationalexuberance.com/

It looks like in early 2012, the real (i.e. adjusted for inflation - not the nominal like the one yup posted above) rate dropped all the way down to 113 (i.e. 1998 prices).

Wages and home prices are still way out of wack where I live. household income to home price ratio is 7 and the national average is currently 3.5

HousingBoom says

CDon says

Actually, Shiller keeps the data updated, so I just looked it up (see the 2nd excel chart here)

http://www.irrationalexuberance.com/

It looks like in early 2012, the real (i.e. adjusted for inflation - not the nominal like the one yup posted above) rate dropped all the way down to 113 (i.e. 1998 prices).

Wages and home prices are still way out of wack where I live.

So noted. You might want to take that up with Mr. Shiller if you disagree with his data.

Shiller thinks it will take a generation for housing to recovery. I believe him.

HousingBoom says

But what IF we have a currency crisis (runaway inflation)? They will need
interest rates well above the rate of inflation to slow it down. Rates in 1981
went above 18%!

I do not believe that we can have inflation due to there being no wage inflation. All price inflation must eventually be supported by wage inflation or credit expansion. I believe that most people do not have the capacity to take on more credit. I also believe that most people are not getting raises that cover anything but there increased costs for healthcare. I believe that without wage inflation will we see price deflation and low interest rates for decades. In other words we are Japan. Lowering prices, lowering wages, lowering asset values. I doubt the average Japanese investor in 1990 though the market and houses would be lower in 2012 than in 1990 but in fact they are, MUCH lower.

HousingBoom says

Shiller thinks it will take a generation for housing to recovery. I believe him.

So is your "end all be all" date a generation? Assuming a generation is 20 years, maybe that was my acquaintances benchmark too.

yup1 says

I do not believe that we can have inflation due to there being no wage inflation. All price inflation must eventually be supported by wage inflation or credit expansion. I believe that most people do not have the capacity to take on more credit. I also believe that most people are not getting raises that cover anything but there increased costs for healthcare. I believe that without wage inflation will we see price deflation and low interest rates for decades. In other words we are Japan. Lowering prices, lowering wages, lowering asset values. I doubt the average Japanese investor in 1990 though the market and houses would be lower in 2012 than in 1990 but in fact they are, MUCH lower.

I agree that is definitely a possibility. The money velocity is at a historic low. It can go either way but I'm leaning towards inflation as the end result. The only thing the Fed is good at is creating inflation. I think they will eventually make it happen but you have a valid point.

CDon says

So is your "end all be all" date a generation? Assuming a generation is 20 years, maybe that was my acquaintances benchmark too.

Personally, I'm going to wait 2-4 yrs to buy a home. We should see some fireworks by then.

HousingBoom says

CDon says

So is your "end all be all" date a generation? Assuming a generation is 20 years, maybe that was my acquaintances benchmark too.

Personally, I'm going to wait 2-4 yrs to buy a home. We should see some fireworks by then.

And if by 2014-2016 we dont see any "fireworks", will you then jump in, ignoring the massive debt overhang? Or will you just wait say another 2-4 years, thinking "we should see some fireworks by then"?

Again, sorry to be a dick about this. Its an intellectual exercise and Im just curious if you have thought this out, or if this too, is just a sliding date.

CDon says

And if by 2014-2016 we dont see any "fireworks", will you then jump in, ignoring the massive debt overhang? Or will you just wait say another 2-4 years, thinking "we should see some fireworks by then"?

I'll have to reevaluate then.

HousingBoom says

CDon says

And if by 2014-2016 we dont see any "fireworks", will you then jump in, ignoring the massive debt overhang? Or will you just wait say another 2-4 years, thinking "we should see some fireworks by then"?

I'll have to reevaluate then.

LOL - its tough isnt it! This is the exact exercise I went through back in 1999, and if I hadnt, there is a very good chance that I would be here now, in my 14th year of renting.

BTW - you may find that you are simply incapable of setting a hard and fast date. IMO, there is nothing wrong with this - some people have very small risk tolerances such that they should never own.

If that is you, its best to be honest with yourself - embrace your renter 4 life persona and the freedom it gives you - dont delude yourself into thinking there will be some magic date, only suffer decades of disappointment (all in 2-4 year chunks of continual date adjustments) when it doesnt appear.

CDon says

LOL - its tough isnt it! This is the exact exercise I went through back in 1999, and if I hadnt, there is a very good chance that I would be here now, in my 14th year of renting.

BTW - you may find that you are simply incapable of setting a hard and fast date. IMO, there is nothing wrong with this - some people have very small risk tolerances such that they should never own.

If that is you, its best to be honest with yourself - embrace your renter 4 life persona and the freedom it gives you - dont delude yourself into thinking there will be some magic date, only suffer decades of disappointment (all in 2-4 year chunks of continual date adjustments) when it doesnt appear.

Who says I have to have a specific date? We just had the largest housing boom in history and I don't believe we hit bottom. Why is that so difficult to understand? I think we should see much more downside within 2-4 years and that is my target.

Rates are at all time lows, banks are holding most of their REO's off the market and wages are still way out of wack with home prices. This tells me that home prices will most likely fall much further to the downside.

I believe we are only in the eye of the storm and the 2nd half will be worse than the 2008 collapse. I plan to buy during or after the next economic recession.

robertoaribas says

Roberto: Ready, Aim, Fire. great shot, reload and prepare again.

Do you make regular attempts to suck your own dick?

yup1 says

robertoaribas says

Roberto: Ready, Aim, Fire. great shot, reload and prepare again.

Do you make regular attempts to suck your own dick?

I don't see this post. Oh yeah I forgot robertoaribas is on my ignore list

HousingBoom says

Who says I have to have a specific date?

Because if you dont, you will continuously re-evaluate, over and over again. As you just noted you thought you had a hard and fast date "2-4 years since there will be fireworks by then", but as you just admitted to yourself, if no fireworks, by 2014-2016, you will "re-evaluate" likely setting another target of "2-4 years". Now we are up to 2020. And if by 2020, you still havent seen the fireworks - will you jump in then - or will you again set a benchmark juuuust out of your reach.

When you do this, you nickel and dime yourself to death - doing this over and over til suddenly you wake up, and its been 20 years later, and you STILL are waiting. This is no way to live IMO.

Right now, in 2013, you can look at 20 years and say "Oh, no - thats too long - I wont do that - I wont be waiting that long". Still, if you dont set a hard and fast date, down that slippery slope many go.

CDon says

This is no way to live IMO.

I knew a guy who told me in 2006 that I should buy a house and not to live in fear. He ended up foreclosing, destroyed his credit and lost his savings. lol. "This is no way to live IMO."

Working hard for your money only to lose everything because you're too stupid to look a few years ahead.

HousingBoom says

CDon says

This is no way to live IMO.

I knew a guy who told me in 2006 that I should buy a house and not to live in fear. He ended up foreclosing, destroyed his credit and lost his savings. lol. "This is no way to live IMO."

Working hard for your money only to lose everything because you're too stupid to look a few years ahead.

Yep - think I liked being a freshly minted homeowner in 1999 watching the stock markets crash like nothing I could have ever contemplated? Sure sucked. Still, no one is saying you have to buy a house that you cannot afford.

In all seriousness, given you are (thusfar) incapable of setting a hard and fast date, perhaps you should re-consider if homeownership is for you. There is nothing wrong with renting for life - europeans do it all the time.

CDon says

In all seriousness, given you are (thusfar) incapable of setting a hard and fast date, perhaps you should re-consider if homeownership is for you. There is nothing wrong with renting for life - europeans do it all the time.

Something tells me you were a 2006 home buyer and are envious of renters. lol.

Homeowners were the biggest loser (in terms of dollars) in the last 6 years. We'll see about the next 5 years.

CDon says

In all seriousness, given you are (thusfar) incapable of setting a hard and fast date, perhaps you should re-consider if homeownership is for you.

anyone who gives a "hard and fast date" will be wrong. The fact that you're even asking for one proves to me that you're a mental midget. You belong on my ignore list

HousingBoom says

CDon says

In all seriousness, given you are (thusfar) incapable of setting a hard and fast date, perhaps you should re-consider if homeownership is for you.

anyone who gives a "hard and fast date" will be wrong. It's obvious that you're a mental midget so you belong on my ignore list

What did I do to upset you? I tried to be as dispassionate as I could when I wrote that. Still, given that you dont seem ever willing to set a hard and fast date, is it not, in fact a given that if the fireworks do not come, you will in fact, be waiting for a lifetime?

CDon says

What did I do to upset you? I tried to be as dispassionate as I could when I wrote that. Still, given that you dont seem ever willing to set a hard and fast date, is it not, in fact a given that if the fireworks do not come, you will in fact, be waiting for a lifetime?

Like I said, I believe that we are on the verge of a massive economic downturn. After this downturn, I think it would be an ideal to buy. I do believe prices will fall 20-35% during this time. If you want an exact date, it will be wrong of course. This is the reason I am not giving a hard date. It's not because I am "incapable". If you think anyone can give a "hard date" then I think you're the one who is incompetent. My time frame is 2-4 years. We should see a severe recession within this time and the latest GDP numbers is proof

HousingBoom says

CDon says

Do you understand the antecedent of that statement (i.e. printing trillions) is likely to continue so long as the fed exists? Are you willing to spend, potentially your full lifetime, "waiting out" the fed?

IMO, the Fed won't be able to print like this and keep rates down for very long. It will eventually destroy the currency. If rates go up to over 5%, then that itself will crush housing and the economy.

I wish more people realized this.

ElenaMo313 says

I wish more people realized this.

No kidding! Most people think we can print our way out of this problem and everything will be all dandy. lol

We will see massive deflation or massive inflation as the end game. Either way, it won't be pretty.

HousingBoom says

CDon says

What did I do to upset you? I tried to be as dispassionate as I could when I wrote that. Still, given that you dont seem ever willing to set a hard and fast date, is it not, in fact a given that if the fireworks do not come, you will in fact, be waiting for a lifetime?

Like I said, I believe that we are on the verge of a massive economic downturn. After this downturn, I think it would be an ideal to buy. I do believe prices will fall 20-35% during this time. If you want an exact date, it will be wrong of course. My timeframe is 2-4 years. We should see a severe recession within this time.

And if 5 years from now, we continue to kick the can, your plan will be (a) realize you are wrong and then buy or (b) wait juuuuust a little longer. My suspicion is B, but I guess we shall see.

Incidentally, you should maybe also set upside and downside targets too. Downside is easy enough, but what if its say, 2016 and prices have gone up another 8% to 10% - will that be enough to put you into action, or do you then still wait for your 20-35% (or perhaps that + the 8-10% in the interim)? I dont expect you to answer that, as these are really really tough questions - the type that cannot be answered on the fly in the middle of a discourse.

Again, I am sorry I upset you, but I offer this as some constructive criticism. The manner in which you write, the near "certainty" of your conviction of an imminent decline - and the fact that (despite 2+ years of seeing nothinburgers) your conviction has not changed in the slightest - it all reminds me of the guy I happen to know who spent 20+ years, constantly putting his target just out of his reach.

Thus, if we do get to 1/31/2017 and the debt is still massive, and the printing continues, and the various interweb pundits are still screeching "imminent calamity", just remember that conversation you had with that Cdon asshole on 1/31/2013 before you decide what you do next.

CDon says

but what if its say, 2016 and prices have gone up another 8% to 10% - will that be enough to put you into action

What if prices skyrocket to 2007 levels, doesn't that mean we returned to an unsustainable bubble? Wages are falling so any price increase is not sustainable IMO. The current price level is not sustainable in most metro areas without gov't intervention.

It is obvious that you don't understand the economic situation we are in. I am not willing to waste anymore time trying to explain to a novice where this country is headed.

Anyone of us can die tomorrow so why even bother saving for retirement? This appears to be your way of thinking.

HousingBoom says

Wages are falling so any price increase is not sustainable IMO

http://news.yahoo.com/personal-income-posts-biggest-gain-eight-years-133706758--business.html

tatupu70 says

HousingBoom says

Wages are falling so any price increase is not sustainable IMO

http://news.yahoo.com/personal-income-posts-biggest-gain-eight-years-133706758--business.html

Nice find. We'll see how this plays out in the next few months.

underwaterman says

Do a thought experiment and imagine the FED removed today all forms of monetary
manipulation distorting the timing and the market including things like
ZIRP,
85 billion per month MBS, HAMP/etc, forcing banks to really mark assets to
market, guaranteeing 90% of all new mortgages of Fannie and Freddie, etc.

If you go back to my earlier discourse, you will see that I agree with you 100%. Thats why I happen to believe that the can kicking will continue, far longer than anyone can contemplate.

I also disagree with you in scope - in that I think you are to sanguine in your idea of what would happen. Namely, if you happen to read the writing or testimony of Bernanke, Ackerloff, etc. you can see how seriously they treat it. Back in 08, the Ted Spread was going crazy - A1/P2 blew right through previous benchmarks of volatility seen during the 1930s. Rightly or wrongly, they believed we were on the verge of a liquidity trap - the type of which, (should it unwind too quickly) can be a recipe for massive social unrest. In so many ways, we are not that different from the various banana republics where they call for revolution when things move too swiftly. Thus, in lieu of rolling the tanks - they engaged in a massive can kicking campaign, the types of which we have not seen in decades.

And therein is why timing is absolutely an issue. In 305, emperor diocletian set forth a series of monetary reforms that would be the undoing of the roman empire - and 1,100 years later, they were proven correct. Likewise, the height of the UK's hegemonic power was probably 200+ years ago, and in various corners of the world, their empire has indeed collapsed. Yet, in the core, on the islands itself, its business as usual.

And therein is why I ask for stricter calls to timing. And no I dont mean to the day, or even to the year. Still, I am but a finite being, I have say 40 trips around the sun to set my investment affairs in order. This makes me but a blip compared to the potential magnitude of the forces at play here. Thus, if in the year 2138 the historians note we finally had the currency collapse that so many had predicted, it does me little good in that I would have long since been dead and buried.

HousingBoom says

It is obvious that you don't understand the economic situation we are in. I am
not willing to waste anymore time trying to explain to a novice where this
country is headed.

Please see my retort to underwaterman above. Respectfully, I dont think you understand the seriousness of the potential consequences we faced - at least in the minds of TPTB. Ripping the band aid off was not an option - revolutions are borne on the shoulders of such events. As such, the only option was to make this a long slow and unremarkable decline, such that we go the way of the Romans or the Brittish, and not the way of the Ottomans or the Soviets who collapsed virtually overnight.

CDon says

HousingBoom says

It is obvious that you don't understand the economic situation we are in. I am
not willing to waste anymore time trying to explain to a novice where this
country is headed.

Please see my retort to underwaterman above. Respectfully, I dont think you understand the seriousness of the potential consequences we faced - at least in the minds of TPTB. Ripping the band aid off was not an option - revolutions are borne on the shoulders of such events. As such, the only option was to make this a long slow and unremarkable decline, such that we go the way of the Romans or the Brittish, and not the way of the Ottomans or the Soviets who collapsed virtually overnight.

Dont get me wrong, it very well still could go kaboom overnight, but im not sure if that is going to be a problem for me, or even my grandchildren, but instead their grandchildren. Accordingly, I am not going to wait on an event that can outlast me, easily by a full lifetime.

underwaterman says

You really don't need to time it from my perspective. One can simply sit in
gold or silver and watch the currency devalue in real time irrespective when the
collapse happens and profit from either end (collapse or waiting while the
currency debases). Look at a chart of what gold has done in currencies for the
past 12 years. That isn't going to stop until money printing or currency wars
end and they won't end until the system collapses.

Fair enough - but see a difference between where you are sitting, and HousinBoom is sitting. He is waiting, on the assumption that the collapse is very, very near. And if it does not happen soon, he may be willing to wait it out for a lifetime - hence my entire comment thread.