patrick.net

Housing construction has stalled significantly. As the US population increases, demand for housing will continue to increase at a higher rate than supply, eventually causing prices to increase.

BobbyS says

As the US population increases

BobbyS says

eventually causing prices to increase.

This despite decline in incomes? Where will consumer get all the extra money? Borrow from bank? But they are steadily decreasing all the HELOC and cc limits. Think about it.

bubblesitter says

BobbyS says

As the US population increases

BobbyS says

eventually causing prices to increase.

This despite decline in incomes? Where will consumer get all the extra money? Borrow from bank? But they are steadily decreasing all the HELOC and cc limits. Think about it.

The few wealthy property owners will play music house with one another while the masses will pay a large portion of their income on rent.

bubblesitter says

This despite decline in incomes

Will you PLEASE stop this nonsense. Incomes are NOT decreasing.

http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

tatupu70 says

bubblesitter says

This despite decline in incomes

Will you PLEASE stop this nonsense. Incomes are NOT decreasing.

http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm

Incomes are decreasing due to high underemployment and outsourcing taputu, just not in all sectors. At times of high unemployment it's easy for businesses to offer lower wages with so many applicants.

Last time I put an ad on craigslist for a temporary opening I got swarmed with people wanting that gig. In some places it is pretty bad out there. People don't make the money, so they don't spend it. And businesses can't hire because there isn't a demand, can't hire someone to twirl their thumbs all day.

FortWayne says

Incomes are decreasing due to high underemployment and outsourcing taputu, just not in all sectors. At times of high unemployment it's easy for businesses to offer lower wages with so many applicants

Did you click on the link?

True, fewer young Americans can afford a house; they could afford one if they stop wasting time and money on "mindless fun" like facebook and iPhone.

But there are plenty of Cash lying around, they are just sitting on the sideline and particularly not buying houses. America's printing press has been working overtime. The quantity of US$ greenback has increased tremendously since US adopted fiat money. You can tell by the sudden change of the price of Gold here www.nma.org/pdf/gold/his_gold_prices.pdf

Two important measures of value should be used. One is the study by Prof. Shiller, "real" house prices havent changed since 1800's. The second is the study by Prof. Siegel, "real" Gold prices havent changed much since 1800's, may be 0.2% rate of change.

I combine these 2 facts and use them to compute price of house in oz of Gold. I get median house price here... http://www.census.gov/hhes/www/housing/census/historic/values.html

1950, US median house price=$7354=211ozGold. California price=$9564=275ozGold.

2000, US price=$160,100=282ozGold.

2010, US price=218,000=195ozGold. If I use 275oz of Gold as the median price for California, the median house price today should be $495,800.

As the house prices stand today, it is approximately "normal". And there are plenty of Cash waiting to buy them, but not yet.

MoneySheep says

True, fewer young Americans can afford a house; they could afford one if they stop wasting time and money on "mindless fun" like facebook and iPhone.

And blogging?

MoneySheep says

1950, US median house price=$7354=211ozGold. California price=$9564=275ozGold.

2000, US price=$160,100=282ozGold.

2010, US price=218,000=195ozGold. If I use 275oz of Gold as the median price for California, the median house price today should be $495,800.

As the house prices stand today, it is approximately "normal". And there are plenty of Cash waiting to buy them, but not yet.

Price of a house in gold means nothing.

Its all about wages, jobs, and the cost of living in the end. By these measures housing has a very long way to fall.

The money on the sidelines will stay on the sidelines until the bottom comes which is years away. Likely very little of it will ever enter housing since there really isn't much money to be made for those sorts of buyers going after blocks of SFH. They'll want big rental blocks that pack the people in for maximum income for a minimum of cost. They'll also want to stay liquid since there are likely to be much better investments out there than buying/selling property or owning rentals, especially in an America where most everyone except those at the top keep getting poorer over time.

Also if you think the iPhone/blogging are what is holding up young buyers from owning a home then I have some cabanas (read: shitshacks) I'd like to sell you for a quarter million a pop.

When prices go low enough you'll find buyers for nearly anything. Of course that also depends how much money they want to put into it in fixing them up.

There is a book about tax liens called the 16% solution that is pretty interesting. Basically when people don't pay the property taxes it goes up for auction. You don't owe the property but you can end up having the right to collect the taxes on it. If they don't pay then you get the property. Interest varies dramatically along with the maturity duration. in RI it is 10% and 1% in addition for six months..I think with a year at most for maturity. In MA it depends on the town so that's a ton of work. I think NY and CA have some long long times (ten years). The only problem with this is it was written in the early 90's before there so much mortgage fraud.

theres a number of things working against those hoping for lower prices.

stock market is at a low
unemployment is at a high
lending standards are tight

when these reverse (when not if) it will produce more buyers. more buyers = higher prices.

tts says

Likely very little of it will ever enter housing since there really isn't much money to be made for those sorts of buyers going after blocks of SFH.

If history is any guide there is tons of future revenue in houses now.

Cap rates might only be 5% now, but when rents triple in the 2020s those who bought now will be happy campers, especially if they can successfully defend their Proposition 13 license to steal.

Landlords operating on 3X leverage will see 40-50% ROI numbers. Sign me up (sure beats 0% TIPS)

The question is whether history is any guide.

tatupu70 says

Will you PLEASE stop this nonsense. Incomes are NOT decreasing.

Those who do not read the newspaper are uninformed.
Those who read the newspaper are misinformed.
I speak with blue collar sector daily. Truck Drivers were making about $24 pr hr in 1997 they are closer to $20 in 2011.

Bellingham Bob says

Cap rates might only be 5% now, but when rents triple in the 2020s those who bought now will be happy campers, especially if they can successfully defend their Proposition 13 license to steal.

Landlords operating on 3X leverage will see 40-50% ROI numbers. Sign me up (sure beats 0% TIPS)

Rents tripling? Really? Rents are subject to wages, jobs, and cost of living just like housing. If people can't afford to rent they'll live with mom n' pop until they're 30 or 40, which is what is happening now. Landlords demanding those rents will either drop their price or end up foreclosed on, just like with housing.

Your dreaming if you think rents will triple. Especially that far in the future. Its likely the best case scenario for the US at this point is a nastier version of Japan's lost decade which was (is really) a long protracted but low level depression.

TMAC54 says

Those who do not read the newspaper are uninformed.
Those who read the newspaper are misinformed.
I speak with blue collar sector daily. Truck Drivers were making about $24 pr hr in 1997 they are closer to $20 in 2011.

Yea the numbers are off in her article too. They'll be revised downwards late this year or early next, just like always. MIT's BPP shows inflation is still much higher than what the government officially says so wages are actually down about .5% this year, not up.

Doesn't sound like much but it compounds after a few years much less decades. Factor in the cost of living increase, especially for healthcare which is around $22K a year for a family of 4, and most people are effectively 1 paycheck away from being on street.

tts says

Its all about wages, jobs, and the cost of living in the end. By these measures housing has a very long way to fall.

EXACTLY. No one disagreed three years ago that only 17% of the San Francisco Bay area's population could afford to BUY in the bay area. 17% of the Bay Area buyers were employed in the high tech field. They since have moved to Pakistan. Real property prices will now return to the average buyers reach.

Bellingham Bob says

when rents triple in the 2020s

What is the stock market going to do in the 2020s ?

TMAC54 says

Those who do not read the newspaper are uninformed.
Those who read the newspaper are misinformed.
I speak with blue collar sector daily. Truck Drivers were making about $24 pr hr in 1997 they are closer to $20 in 2011.

Yes, wages have probably come down in certain professions. And they've gone up a lot in others. Overall, they've increased and are continuing to increase.

TMAC54 says

tatupu70 says

Will you PLEASE stop this nonsense. Incomes are NOT decreasing.

Those who do not read the newspaper are uninformed.

Those who read the newspaper are misinformed.

I speak with blue collar sector daily. Truck Drivers were making about $24 pr hr in 1997 they are closer to $20 in 2011.

For some people highest unemployment in recent times means increase in income. Yeah sure,makes sense. LOL.

TMAC54 says

What is the stock market going to do in the 2020s ?

It tripled in the 1980s. If the PTB allow debt-to-GDP to rise like it did then, we'll triple again too.

http://research.stlouisfed.org/fred2/graph/?g=20E

Do not underestimate the power of the system.

Bellingham Bob says

It tripled in the 1980s

I don't know how are you are seeing that. I am not even seeing doubling in 2020s nowhere close to tripling.

bubblesitter says

I don't know how are you are seeing that.

S&P 500 was 100 in 1979, 350 in 1989.

I am not even seeing doubling in 2020s nowhere close to tripling.

Debt to GDP went from 1.4 to 1.8 in the 1980s (+30%), and 1.8 to 2.5 (+40%) in the 2000s.

I don't know what the system will do but it's in its power to increase debt to gdp another 30%, to 3.25 of GDP.

Assuming nominal GDP rises 2% pa, it will be $20T by 2025 and with that 3.25 ratio, total debt will be $65T, twice what it was in 2010.

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

This is certainly a possible future.

This is what the bond market is telling you. Be happy with your 0.1% yields since that's all the system is going to be giving you.

tts says

Your dreaming if you think rents will triple.

Part of this thesis is $10 gas and Walmart paying $20/hr.

I don't really see this happening but it's not impossible.

The system is stacked against prudence because if you gamble wrong, you can just Chapter 7 and try again later.

My thesis WRT real estate is that it is one major mechanism by which the proles are enslaved. Inflation is its dearest friend, historically.

Bellingham Bob says

Do not underestimate the power of the system.

The system is driven by confidence. There are reasons markets spike. New inventions, products, new services cause NEW cash flow and confidence. The Radio caused the 1929 spike. The Computer caused the present catapult. The 2008 peak on the DOW is 14 times greater than the1929 peak. If you draw a straight line following D.O.W. growth from 1900 to present, you find 6500 is on target. Do you envision an invention that will triple markets by 2020 ?

TMAC54 says

Do you envision an invention that will triple markets by 2020 ?

bubblesitter says

For some people highest unemployment in recent times means increase in income. Yeah sure,makes sense. LOL

Hey--I don't make the rules, I just report on them. You can live in your own delusion if you want. I've posted the link. How about you post something that disputes it.

Anything.

Oh, I see, You are counting on tarp or government issued paper thru 2020.

TMAC54 says

You are counting on tarp or government issued paper thru 2020.

if that's to me, no I don't. I don't know what's going to happen this decade or next.

One possible evolution I see is continued consolidation this decade and another debt renaissance in the 2020s.

This would conform to the general pattern of a decade of expansion, then a decade of consolidation.

In 2020 we've got the baby boom echo hitting their 30s, along with a serious echo echo forming at the bottom. Throw some new debt-money creation at this and things will go up like a wild fire.

Heck, if we get enough inflation there might not be nominal debt to GDP growth. It'll be the 1970s all over again.

I think it might be like the 70s but for other reasons. Basically guns and butter. Wars in iraq and afghanistan certainly were not cheap. Coupled with tax cuts, prescription drug bill and obamacare and something has to give.

I think rates really should go up but we don't want to upset the NAR now do we...

mdovell says

I think rates really should go up

http://research.stlouisfed.org/fred2/graph/?g=20X

tts says

Rents tripling? Really? Rents are subject to wages, jobs, and cost of living just like housing.

I live in DT San Francisco, and everyone in our two buildings were just given notice that all of our rents are going up between 75-100% at lease end. Granted, we have an awesome view of SF Bay but still. In addition, I thought we were ALREADY paying exorbitant rents. I guess not because most of us have decided to leave, but literally every single vacated apartment has been filled within days, not weeks or months or staying vacant as you say. Perhaps SF is a totally unique area as compared to the rest of the USA but rents are NOT stable here and I believe the situation is only going to get worse.

Bellingham Bob says

Part of this thesis is $10 gas and Walmart paying $20/hr.

Yea I can see how you'd think that high gas prices would do it at first glance. The thing is people will likely just stay with mom n' pop for longer if rents get tripled but wages remain stagnant or don't go up much more, which if you assume high inflation than $20/hr doesn't seem so hot at all. They just flat out won't have the money to rent or buy. Which is quite likely given the way the blue collar jobs are disappearing and being replaced with low paying McJobs.

And the McJobs _have_ to be low paying.

No really. In nominal terms the hourly wage for a McJob could go to $40/hr for all we know (unlikely even to me FWIW) but the buying power of those $40/hr would have to drop such that it'd be about the same as making the $8/hr or whatever they usually get now. You can't run an economy where the low end shitty service jobs pay high, it just doesn't work since the value isn't there.

Bellingham Bob says
My thesis WRT real estate is that it is one major mechanism by which the proles are enslaved. Inflation is its dearest friend, historically.

The proles can be enslaved by any means a corrupt government has available. Inflation is one but wage arbitrage and anti labor practices are another. My guess is they'll use some combo of all three and play politics to deflect the blame off them and onto their political opponents.

Buster says

I guess not because most of us have decided to leave, but literally every single vacated apartment has been filled within days, not weeks or months or staying vacant as you say. Perhaps SF is a totally unique area as compared to the rest of the USA but rents are NOT stable here and I believe the situation is only going to get worse.

What happens in situations like this is that the new people coming in are the suckers. Usually kids but not always. They'll try to tough out the nut for a year, maybe 2 and then they'll move out like you are because they'll realize they're living to pay their rent instead of doing anything else. More and more of those rooms will sit and stay empty.

Gradually the building owner will be forced to lower rents or lose the building. Usually they lose the building because they have the "I'm not giving it away!!" mental block going on and/or because they can't really afford the building either but had to burn up their credit and cash in order for reality to smack them in the face before they walk away.

IOW the same shit we saw happen in the small rental/SFH market will happen over time to bigger high rise and dense rentals, but it takes time. Years usually.

tts says

My thesis WRT real estate is that it is one major mechanism by which the proles are enslaved. Inflation is its dearest friend, historically.

I could not agree with you more....for this very reason, I think we are in the lull before the gigantic inflation storm (largely created by our own government). The government in no way is ever going to let deflation happen, and the surest way to 'cut' the debt is to ignite inflation. Of course, the only way to then protect yourself is to leverage a hard asset such as realestate so that you can at least ride the storm along and not get destroyed. I am currently a renter but am seeing the writing on the wall. Actually, it may be the best time ever (perhaps in the next year or two) to lock in your real estate deals before the inflation monster kicks into high gear.

since everyone is talking about buying at auction i'll add.

Not everyone who buys there is an investor. My cousin bought her condo at the auction, not an investor. It's her main and only residence.

A lot of that information is free and available on auction.com. It's not great for investment, banks aren't stupid either, bargains are not common. My neighbor bought his unit at an auction at 220. He thought he got a bargain, yet another neighbor is foreclosing at 185 right now.

I wouldn't consider it an investment if it will take you 20 years to get your money back renting it out.

FortWayne says

He thought he got a bargain

Most people who bought in 2006 thought that way too,and most people who bought in 2009 think that way too. Nothing is wrong on what you think. :)

Buster says

Of course, the only way to then protect yourself is to leverage a hard asset such as realestate so that you can at least ride the storm along and not get destroyed. I am currently a renter but am seeing the writing on the wall. Actually, it may be the best time ever (perhaps in the next year or two) to lock in your real estate deals before the inflation monster kicks into high gear.

The inflation we *might have doesn't have rising incomes. You are better off investing into money making operations such as your own business or wall street companies that are bound to make more money in that type of environment.

tts says

What happens in situations like this is that the new people coming in are the suckers. Usually kids but not always. They'll try to tough out the nut for a year, maybe 2 and then they'll move out like you are because they'll realize they're living to pay their rent instead of doing anything else

I'll second that observation. This is a big phenomenon in cities like NYC, SF, and LA, which is why their rental/RE markets can't really be compared to the rest of the country. My years of living in these cities I have seen plenty of this type: she has a glamour job that doesn't pay much (editorial assistant, PR gopher, event coordinator, etc.), subsidizes her $3k/month rent with daddy's money, and after a couple years 50% of them go back to wherever they came from or get tired of having no money and move out to Jersey City or White Plains or Long Island >shudder

Buster says

I live in DT San Francisco, and everyone in our two buildings were just given notice that all of our rents are going up between 75-100% at lease end.

Many buildings in downtown SF are going to corporate leases, so this really isn't a market rate. They realized that corporate leases are bringing in the $$$, at least temporarily.

FortWayne says

The inflation we *might have doesn't have rising incomes.

Oooh oooh, grandpa, please tell us more stories about this magical type of inflation that we might or might not have.

Bellingham Bob says

mdovell says

I think rates really should go up

http://research.stlouisfed.org/fred2/graph/?g=20X

“Nessuna soluzione . . . nessun problema!„

I actually meant the raw Fed Funds rate which is currently 0- 0.25%

It is possible to have inflation imported. The OPEC embargo back in the 70s was a good example of this. Sometimes there can be the opposite like when silver collapsed due to the Hunt Bros. A more recent example is the collapse of Iceland actually led to lower lobster prices in the northeast (temporarily).

NYC has had rent control for over 60 years
http://en.wikipedia.org/wiki/Rent_control_in_New_York
Supposedly Cyndi Lauper was only paying around $1k a month for her place...a fair amount of celebs live in the area not so much because it is a city but because if you can lock in the rate you would be set.

Wasn't rent control a giant subplot of the Friends sitcom in the 90's? I never watched it but that's what I heard...