patrick.net

It's different this time.

Clearly prices can come down a lot more and still be above the inflation rate.

Or stay flat for another 20 years or so.

gregpfielding says

Or stay flat for another 20 years or so.

In nominal terms. What about after inflation?

My belief is that the Fed will keep trying to prop up housing by devaluing the dollar. The Fed is a private bank that was created to benefit the banks.

So it might be somewhat rational to buy rather than rent...as a hedge against inflation. But what if the Fed decides to tighten for whatever reason? We're at the mercy of the Fed.

The theory makes sense if there are no transformative changes between 1980 and now.

For starter, mortgage interest was around 12% in 1980 vs 4% now. There are other transformative changes (favorable and unfavorable) unaccounted for.

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.

They arent actually trying to destroy people financially (it feels that way when u get 1% on a CD and used to get 6-7% a handful of years ago) but the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

Under which scenario will mortgage rates ever be >7% again? According to the default numbers being 4 to 10 times higher than pre 2007 mortgage rates should be in double digits and down payments shoule be 30%+ (basically thats private hard money rates). But taxpayers are giving loans to people with poor credit, 3.5% down or less at 3% - also mods at 2%. The cost must be enourmous to subsidize all these bad loans that were written and are continuing to be written. Expensive as in you can have free healthcare for all OR subsidize banks/asset holders..... #2 was chose for us.

PockyClipsNow says

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.
They arent actually trying to destroy people financially (it feels that way when u get 1% on a CD and used to get 6-7% a handful of years ago) but the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

That sums it up well.

wthrfrk80 says

PockyClipsNow says

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.

They arent actually trying to destroy people financially (it feels that way when u get 1% on a CD and used to get 6-7% a handful of years ago) but the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

That sums it up well.

I'm thinking we have to have another 1980-1982 style recession to wring out all the inflationary pressures and set us up for the next growth spurt. This is what Volcker cooked up in 1979, sold it to Reagan because it was widely known he would be President (just as most people in the know agree that Romney will be President because of historical trends telling us Obama isn't electable with his polls the way they are) and they made it happen.

Let's dig into this. Government's two primary constituencies are old people and the military. We have retirees as a rapidly expanding demographic. They're earning 1-2 percent on their holdings when gasoline is three or four bucks and commodity prices are going crazy and less well off people are getting nailed at the grocery store. People out here talk about sustainability...well, guess what? THIS isn't sustainable economically speaking. We HAVE to get a new President and new party controlling the Senate and we HAVE to get a new Fed chief to help start the process of cleaning up the unholy mess (which everyone knew was coming) and moving us back to a point from which we can have a normal economy again.

Is there anything here I've missed?

PockyClipsNow says

the people being destroyed (savers, first time buyers) are really just fuel in the fire to keep the banks warm and cozy.

Yes, that really is exactly what's going on.

Democracy? I don't think so. Just a myth to keep the banks in power.

rootvg says

Is there anything here I've missed?

Yes, Romney is just more of the same. Probably even worse.

I don't know about worse.

Foreign policy will be better under the Republicans. It always is. It's what they do. Larry Eagleburger, Caspar Weinberger, Al Haig, Jimmy Baker...they were all conservative Republicans. These guys knew how to turn the screws. They were REALLY good at it.

I do know that rates have to go up. Bernanke knows it, too. He just won't talk about it.

wthrfrk80 says

The Fed is a private bank that was created to benefit the banks.

Actually banks are FED soldiers.

wthrfrk80 says

Or stay flat for another 20 years or so.
In nominal terms. What about after inflation?

What if devaluation of dollar (inflation) pop up house prices everywhere but BA will stay on same level?

What you have there... is a bankruptcy premium for Vallejo and Stockton.

rootvg says

Foreign policy will be better under the Republicans.

LOL How did that work out under Bush Jr?

rootvg says

I'm thinking we have to have another 1980-1982 style recession to wring out all the inflationary pressures and set us up for the next growth spurt.

Growth is dead, unless we can find oil that can feed the entire global demand and find people to take on more credit. Secular Deleveraging for a decade or more.

Inflationary pressures will die down because Bernanke just said he has no more plans to do further easing. That has made the market already uneasy about liquidity concerns and we are seeing the action over the past 2 days.

What we are more likely to see is a steady long-term decline , although choppy because of an uncertain Fed monetary policy and an even more uncertain and an irresponsible political gridlock.

PockyClipsNow says

Maybe we can predict what they will do by what will create maximum benefit for the banks. Keeping asset prices super high and interest rates super low seems to be the key.....ZIRP forevermore.

It's not just the banks at this point, it's the government in tandem with the banks as well. If banks a.k.a primary dealers won't buy Treasuries, how can they make sure interest rates stay low?

I think we have Zombie banks and a Zombie Government .
Not just here, same situation in Europe, Japan as well.

Clearly prices can come down a lot more and still be above the inflation rate.

I don't know if it makes sense to compare inflation rate with prices for a place like Bay Area where people ARE willing to pay a premium to live. I know -- they are overpaying, but the point is -- there's too much competition. Think of a place like North Hollywood for example, will prices measured in dollars ever come down? They can't purely because someone is willing to pay that high price. So may be the prices correlate more with income and/or wealth (because of the affordability factor of monthly mortgage payments or buying it outright).

Bay Area (Cupertino and other most desirable areas) is one place where rent vs. buy logic fails, miserably.

uomo_senza_nome says

Bay Area where people ARE willing to pay a premium to live. I know -- they are overpaying, but the point is -- there's too much competition.

Willing to pay is also linked to banks willing to lend! Anyways, too much competition to buy? In that case prices should be rising. Isn't it? I think "competition" appears to among sellers! :)

Keep in mind, during the Great Depression (yes, I keep going back to it because you're all ignoring it) they said America was over and we emerged in the late forties as king of the hill. Europe is in worse shape than we are right now. China is another bubble waiting to burst and Japan is still in the process of emerging from its lost decade.

I also remember Carter saying at the end of the seventies that we needed to draw in our horns and accept there would be no more growth. You see what happened to him (and to Truman during a period of high unemployment in the early fifties) and that's what's gonna happen to Obama.

I just saw Santorum's speech in Steubenville. If he takes Ohio from Romney, Romney gets the nomination anyway and takes Ohio with Santorum as a running mate...whew, it'll be a wild four years with a Republican Congress. George Allen was saying it won't take much to win the Senate now. North Dakota, Nebraska, Ohio and Virginia are all Dem seats likely to flip next time around.

realitycheck says

Willing to pay is also linked to banks willing to lend! Anyways, too much competition to buy? In that case prices should be rising.

Agreed. Credit is too loose, that's another problem. There are no repercussions for making bad financial decisions. That's also a problem.

uomo_senza_nome says

realitycheck says

Willing to pay is also linked to banks willing to lend! Anyways, too much competition to buy? In that case prices should be rising.

Agreed. Credit is too loose, that's another problem. There are no repercussions for making bad financial decisions. That's also a problem.

There ARE repercussions...but not in California or even in Texas.

Credit is plenty tight back in the Rust Belt.

realitycheck says

Isn't it? I think "competition" appears to among sellers! :)

What I was alluding to was this: rents closely track income and job growth. If you have the same number of people in a locality but their income grows, so will their rent. If you have the same income for people but the number of jobs in the locality increased, then also rent will increase because of the premium to live close to your job.

I think it is a combination of things that support high prices in Bay area and it is hard to see how these things will all fall in place so that lower prices can be achieved.

I mean the whole system is rigged to support high prices.

rootvg says

I also remember Carter saying at the end of the seventies that we needed to draw in our horns and accept there would be no more growth.

Carter was an intelligent guy, he was trying to reduce the addiction of America to cheap oil. Clearly that did not work.

Secondly, economic growth over last decade was predicated on cheap credit. To claim that that was real growth is BS.

uomo_senza_nome says

realitycheck says

Isn't it? I think "competition" appears to among sellers! :)

What I was alluding to was this: rents closely track income and job growth. If you have the same number of people in a locality but their income grows, so will their rent. If you have the same income for people but the number of jobs in the locality increased, then also rent will increase because of the premium to live close to your job.

I think it is a combination of things that support high prices in Bay area and it is hard to see how these things will all fall in place so that lower prices can be achieved.

I mean the whole system is rigged to support high prices.

There are jobs here that pay well, and people with cash flow and money saved to allow sellers in choice areas to ask ridiculous prices.

Game over, thank you for playing.

It's just as I said. Some people will not be able to afford to buy here. The same could be said for Arlington, VA or Chevy Chase, MD or Brookline, MA or Westchester, NY or Bedminster, NJ or Bellevue, WA.

This is what Michael Bloomberg was saying awhile back. There will be certain places that are no longer affordable for middle class people. Peter Schiff has been screaming about Chinese real estate speculators for several years. Judd Gregg said right after he left the Senate that it's very likely we would pass to our children a nation in which they could not afford to live.

There's nothing new here.

uomo_senza_nome says

rootvg says

I also remember Carter saying at the end of the seventies that we needed to draw in our horns and accept there would be no more growth.

Carter was an intelligent guy, he was trying to reduce the addiction of America to cheap oil. Clearly that did not work.

Secondly, economic growth over last decade was predicated on cheap credit. To claim that that was real growth is BS.

I would never denigrate Carter. He was an awful President but is arguably the best ex-President we've ever had.

They say he swings a mean hammer, too.

SFace says

The theory makes sense if there are no transformative changes between 1980 and now.
For starter, mortgage interest was around 12% in 1980 vs 4% now. There are other transformative changes (favorable and unfavorable) unaccounted for.

Transformative changes.. 1970 to 1990 lots of reasons prices should of skyrocketed as it did in the last 10 years. But that didnt happen.

Today, transformative changes are vanishing...yet the people who came here after 2000 are still expecting some kind of magical boom to happen fueled by myths and legends. But that isnt happening.. is it ?

Lower interest rates certainly dont explain higher prices since rates have fallen in the past along with prices..

Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley

http://www.siliconbeat.com/2010/02/17/vanishing-public-companies-lead-to-the-incredible-shrinking-silicon-valley/

One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.

But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.

In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.

That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.

Helloeeze says

How many people in Ohio are working 80 hours a week?

In the 1970s and 80s yes we had factories in SV that ran 24/7 around 360 days a year. 3 Shifts daily rotation. It was the center of 70-80% of world semiconductor/harddrive/and other High Tech production. And since we had the global markets to supply... lots of jobs with skyrocketing growth.

So why didnt prices of RE skyrocket as it has in recent 10 years ?

Could it be people were more sensible about what they were willing to pay for homes ?

Helloeeze says

Could it be that salaries have gone up (for a talented few) higher than inflation would suggest wages should go up? The Bay Area is one of the most highly educated areas in the United States.

We must have been less educated, less paid and really lazy employees in decades prior to the year 2000...

uomo_senza_nome says

They can't purely because someone is willing to pay that high price. So may be the prices correlate more with income and/or wealth (because of the affordability factor of monthly mortgage payments or buying it outright).

Bay Area (Cupertino and other most desirable areas) is one place where rent vs. buy logic fails, miserably.

I think it's more a question of facility; as long as the debt is provided or otherwise underwritten by the GSE to allow speculation in housing, then you will see these areas stay puffed-up -- otherwise, most moneyed jerks know better than to sink such a chunk of their own capital into a dud asset like RRE. OPM!

Helloeeze says

the chart the housing bubble started in the 1987 and it continues today. Using inflation as a benchmark, we have been in the bubble for over 20 years. It appears it's the norm now for this area.

By its very definition, a bubble cannot continue in perpetuity. By calling this the "norm" you are suggesting a new, higher baseline for residential real estate. I don't think the fundamentals support this idea, unless we have even more government intervention in the housing market going forward.