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Splendid Case-Shiller Graphs Show Development of Bubble


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2018 Mar 30, 10:56pm   10,766 views  45 comments

by bill   ➕follow (2)   💰tip   ignore  

What is shocking about the graphs is how different they are from each other. A Case-Shiller graph shows the North Bay Area (covers San Mateo to Marn). Seattle and L.A. are included. The overall housing market, page 1 of 4, is not shocking and, Boston (on page 2) is rather. But fasten your seat belts for the charts on the last 2 pages.

https://seekingalpha.com/article/4159428-update-splendid-housing-bubbles-u-s

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1   MisdemeanorRebel   2018 Mar 30, 11:59pm  

I wonder if we're in for a reshuffle.

The thread about Snapchat got my thinking. What if there is a "Coastal Bubble" in places like Seattle, SFBA, Boston, etc. and people begin to think "Gee, maybe all the activities and real estate there is very overvalued."

I think the movement of certain firms OUT of Silicon Valley is also a safety-in-diversification move in addition to being simply good economic sense from a pricing standpoint.

We might find ourselves in a situation where Service companies begin looking at Rochester, Binghampton, even Cincinnati or Des Moines, places that host big universities and relatively cheap real estate, and realize there a fuck ton of educated people out there available real cheap, far cheaper than SFBA residents and their attendant housing costs. Not just for a call center staffed by college students or college drop-outs, but for their main departments.
2   _   2018 Mar 31, 8:12am  

Wolf calls bubbles like Jesse calls bubbles and it isn't a model for this cycle
3   _   2018 Mar 31, 8:16am  

Nominal prices are back to 2006, yes but what the Anti American Anti Central bank people believe is that all life are bubbles, this is why they hate being alive so much because the world hasn't collapsed like they want... most hide behind fake names, death callers without a cause left... but back to my point .. yes nominal is the same

4   _   2018 Mar 31, 8:17am  

When you adjust it to inflation we aren't back at all


5   _   2018 Mar 31, 8:18am  

2nd block of data... look at the YoY pricing data line notice the difference


6   mell   2018 Mar 31, 8:18am  

Simple once you see tech stock prices stall/decline and options become worthless, paired with the first tech layoffs, the current bay area bubble will burst. Not quite there yet but could be close.
7   _   2018 Mar 31, 8:19am  

When you adjust it to inflation the YoY data line from a longer duration point 2012-2018 looks nothing like what we saw from 2002-2005 .. this chart proves all that this housing cycle bares no price inflation like we saw in the past

8   _   2018 Mar 31, 8:19am  

Not to mention it is very hard historically to have the same exact bubble in the same exact sector back to back
9   _   2018 Mar 31, 8:22am  

2nd phase of the data line is that a bubble needs speculation demand....

For pete sake people, mortgage demand is only at 1998 levels, even with over 155,000,000 Americans working, rates under 5% since early 2011, the longest job expansion ever recorded in U.S. history and soon to be the longest economic expansion in history .... 1998 levels, without historical levels of cash buyers existing home sales would have never printed over 5,000,000 sales once this cycle even taking it back to historical % not many prints over 4,700,000

No speculation demand what so ever


10   _   2018 Mar 31, 8:23am  

West coast data doesn't look like what it was in the past either

11   mell   2018 Mar 31, 8:25am  

Logan Mohtashami says
When you adjust it to inflation the YoY data line from a longer duration point 2012-2018 looks nothing like what we saw from 2002-2005 .. this chart proves all that this housing cycle bares no price inflation like we saw in the past



It's an affordability issue more so than strictly comparing price inflation only. I'd agree that the general US housing market is not in a bubble, but the bay area and other "hot spots" may very well be. Where tech couples depend 100% on their DINK lifestyle and their stock to pay for the mortgage.
12   _   2018 Mar 31, 8:25am  

3rd phase

1996-2005 has good housing demographics, prime age labor force growth peaked in 2007, we are not running into a soft demographic patch, we are running into a positive one, this doesn't mean booming demand or housing blow out numbers .... but it does give you replacement buyers to hold things at bay

Be mindful real affordability is not as bad to college educated or skilled household home buyers because rates are lower in this cycle than the previous one and especially what it was from 1996-2000

13   mell   2018 Mar 31, 8:28am  

Ah yes and rates of course play a big role. Still even though many took advantage of those continued low rates they are still stretched thin paying their exorbitant bay area mortgages.
14   _   2018 Mar 31, 8:29am  

4th phase

Quality vs Quantity

First mortgage demand hasn't even hit the 21st century yet but the quality of home buyers in this cycle is the best we will ever see in our history.

Fixed low debt cost vs rising wages. You go back to late cycle lending which means FHA loans will be at risk at the later stages of the economic cycle.

Housing tenure has doubled in this economic cycle, we do have long term issues in the housing market from an economic standpoint but a housing bubble where demand and prices will collapse like Bitcoin did is not one of them

Prices will fall when inventory gets over 6 months but a collapse like we saw in the last cycle with massive distress sales .... No... We won't have a death cross 200 day moving average to deal with in home prices

15   mell   2018 Mar 31, 10:00am  

ThreeBays says
mell says
Simple once you see tech stock prices stall/decline and options become worthless, paired with the first tech layoffs, the current bay area bubble will burst. Not quite there yet but could be close.


And then when many in the Bay Area lose jobs, income, home values, and equity values it will all be rainbows and sunshine again to live there. Errr...


No but quality of life will have increased greatly via less congestion, pollution etc.
16   Patrick   2018 Mar 31, 11:02am  

What I really want to see is a p/e graph for housing.

That is, I want a graph over time of the price divided by the annual rent for the equivalent place.

That's the ratio that was badly out of whack for housing in the last big bubble.

If you think in terms of arbitrage, p/e can be flipped to give e/p, which should be about the same for all asset classes. If one of them is overvalued, you should move to the others:

* e/p for stock
* rent/price for housing
* prevailing interest rate (interest paid divided by amount invested)

They are all basically the same measure.
17   _   2018 Mar 31, 1:40pm  

We have housing inflation but we don't have a housing bubble.. a lot more has to happen for it to even start with the letter B




18   _   2018 Mar 31, 1:42pm  

Plus we have other hot heated areas around the world that are showing some cracks
19   _   2018 Mar 31, 1:46pm  

Since we don't have a cash out boom either which is a very good thing, the nested equity position of homeowners as equity protection is very good as well





20   _   2018 Mar 31, 1:50pm  

On another note, forgive me, I forgot to wish everyone a Happy Easter and Passover


21   MrMagic   2018 Mar 31, 2:40pm  

Logan Mohtashami says
On another note,


Ah geez, not again...
22   lostand confused   2018 Mar 31, 2:59pm  

Where I live , it still hasn't passed 2006 peak. So if you bought a house in say 2003 or 2004, your house is still lower. Though property taxes have surged forward and the stupid new dem candidate wants more taxes-progressive taxes he says.
23   _   2018 Apr 1, 5:12am  

mell says
I'd agree that the general US housing market is not in a bubble, but the bay area and other "hot spots" may very well be.


Does CA home sales look like bubble speculation. Now when a job loss recession hits that is your future supply that will impact home prices but the tech bubble bursting in 2000 lost 2,400,000 jobs all together and it really didn't do the damage that the housing bubble bursting did in terms of job loss, that burst cost near 8.8 million jobs.

Prices will fall of course with supply gets over 6 months but a bubble burst needs at min 35%-65% price declines in a very short time but in reality Bay Area home prices have go back to 2011/2012 levels if we really want to call it bubble



24   MrMagic   2018 Apr 1, 7:16am  

errc says
@patrick why doesn’t this link produce an image on pat.net rather than the hyperlinked blue text?


Because it's a link to a web page and not a link to an image.
25   JZ   2018 Apr 1, 2:17pm  

The definition of bubble is a pricks level that can NOT be sustained in the long term. Short term is 3 to 5 years. Long term is 10 to 15 years.
Every 10 to 15 years or so, the economy tends to fall back to earth due to gravity NO matter how much stimulus the politicians or central bankers inject. So do we have a bubble? In stead of looking at all kinds of data and stats which tend to be manipulated and wrongly interpreted, we can simply ask can the buyers at this level will be able to sustain the mortgage for 10 to 15 years with at least one recession that will make the mortgage holder jobless for 1 year or 2.
At current price levels in Cupertino, a couple both working for Apple can NOT afford to buy with 30year fixed rate, they have to go for year rate adjustables, and if one of them gets laid off or the rate gets adjusted 2% higher, they will NOT be able to sustain that mortgage.
26   JZ   2018 Apr 1, 2:20pm  

There are stronger hands that will be able to sustain the debt payment or even cash strong hands. For the W2 buyers in this cycle in bay area, they are NOT subprime borrowers. But they will be if they bought at this price levels.
Last cycle is about suborimes got wiped out.
This cycle is about middle class W2 become subprime.
27   Strategist   2018 Apr 1, 2:25pm  

JZ says
The definition of bubble is a pricks level that can NOT be sustained in the long term. Short term is 3 to 5 years. Long term is 10 to 15 years.
Every 10 to 15 years or so, the economy tends to fall back to earth due to gravity NO matter how much stimulus the politicians or central bankers inject. So do we have a bubble? In stead of looking at all kinds of data and stats which tend to be manipulated and wrongly interpreted, we can simply ask can the buyers at this level will be able to sustain the mortgage for 10 to 15 years with at least one recession that will make the mortgage holder jobless for 1 year or 2.
At current price levels in Cupertino, a couple both working for Apple can NOT afford to buy with 30year fixed rate, they have to go for year rate adjustables, and if one of them gets laid off or the rate gets adjusted 2% higher, they will NOT be able to sustain that mortgage.


If you are gonna be that pessimistic you will never buy a home.
28   JZ   2018 Apr 1, 3:20pm  

I bought my home in 2010. At current price level, it will be stretching my ability to pay long term. My rule of thumb is, my expense should be such that every 3 years, I will be able to save enough so that I can go vacation for a year without working.
29   Patrick   2018 Apr 1, 4:52pm  

errc says
patrick why doesn’t this link produce an image on pat.net rather than the hyperlinked blue text?


@errc That's because the url does not end in one of these: jpg|jpeg|gif|gifv|png|bmp

See https://github.com/killelea/node.patrick.net/blob/master/node/util.js#L296
30   Strategist   2018 Apr 2, 9:21pm  

I believe we will have a 20% jump in the median home price, in a 12 month period in some California Counties within 2 years.
Desperation is beginning to set in among potential buyers. Not even close to a bubble yet.
31   _   2018 Apr 3, 6:18am  

Housing tenure .....




32   _   2018 Apr 3, 6:21am  

Selling Equity is one factor in housing tenure, a lack of a reason to move is another but third which doesn't get talked about much is that if we have been building bigger and bigger homes for decades, especially in this cycle, why would a new home buyer ever move if he already has a 2,4000 4 bedroom room. These factors give legs to pricing at the cost of total sales and a reason why national mortgage demand is still only at 1998 levels.





Homes that sold for $500,000 or more accounted for 51.4 percent of all Southern #California home sales in February 2018. This is up from 49.6 percent in January 2018, and up from 43.9 percent in February 2017. For more: http://ow.ly/6Ezl30jefcx
33   Onvacation   2018 Apr 3, 8:00am  

Logan Mohtashami says
.. this chart proves

Reminds me of this flaming duck who claimed the steep part of a sine wave was the asymptote of destruction.
34   Malcolm   2018 Apr 3, 9:47am  

Some impressive charts, and some fundamentals are more sound this time around.

However, while rents are up, my experience was ALL tenants applying are very shaky.

The main problem for the bulls is to explain how we can possibly have rising foreclosures, if there is still room for more inflation. During a bull run, Calif foreclosures are usually nonexistent. It is almost impossible to lose a house unless additional cash out borrowing happened.

Also, even prevubble 1, the economy was strong and people could afford teaser rates, which are what the rates have been for the last nine years. There is nothing the government can do to lower rates further. On top of that, there is growing supply, including foreclosures, at least in my part of S California.

It might also help to remind people that the state of California is literally giving up to $100,000 to save individual homes from foreclosure; that is not a sign of a bull market.
35   Strategist   2018 Apr 3, 9:56am  

Malcolm says
The main problem for the bulls is to explain how we can possibly have rising foreclosures, if there is still room for more inflation. During a bull run, Calif foreclosures are usually nonexistent. It is almost impossible to lose a house unless additional cash out borrowing happened.


We don't have rising foreclosures.
Some banks are merely playing catch up due to reasons like lawsuits, fixer uppers and what not.
Many homeowners end up in foreclosure due to job losses, divorce, deaths in family etc.
There will always be some foreclosures when you have tens of millions of homeowners no matter what.
36   _   2018 Apr 3, 9:59am  

Malcolm says
It is almost impossible to lose a house unless additional cash out borrowing happened.


Late cycle lending risk typically comes with FHA loans or low down payment loans in general.

3.5% down plus the UFMIP added to the loan balance which means negative selling equity right off the bat, if the job loss recession hits the following year, the lack of selling equity could lead toward a future distress sale.

However, outside of that possibility, you shouldn't see that many distress sales when the next recession hits due to vast amount of nested equity accumulated in this cycle.

You can see supply rise from homeowners with equity and investors with no mortgage but distress sales will be limited to a degree because mortgage demand itself was light to start with the past few years

37   _   2018 Apr 3, 10:07am  

2nd the new home sales demand cycle has been the lightest ever and these home buyers are the best loan profiles we will ever see so the lack of distress sales coming from this sector will be limited as well, let a lone that a lot of the news homes were bigger homes created for the upper income class in this cycle




38   Malcolm   2018 Apr 3, 10:22am  

Thanks, Logan, we may disagree, but you are using some good evidence. I’ll look at it in depth later.
39   _   2018 Apr 3, 10:36am  

Malcolm says
Thanks, Logan, we may disagree, but you are using some good evidence. I’ll look at it in depth later.


Prices is all about supply and demand.... 2006-2011 was the holy mother storm of bad things happening at once

1. Credit bubble on bad debt ( good demographic patch from 1996-2005 to capture more home buyers)
2. Massive cash out bubble on bad debt
3. Very little equity build up in years 2003-2006
4. Demographics for housing were not favorable for home ownership post 2007 ( 2008-2019) light demographic patch

Add all that together = recasting distress supply + job loss recession supply Near 8.8 million Americans lost their job in the Great Recession

We just don't have that back drop anytime soon to have a similar result.

We are going to break the all time record for the longest economic expansion ever but that doesn't mean a massive supply of home buyers with mortgages in the cycle

40   Malcolm   2018 Apr 3, 10:50am  

Logan Mohtashami says


Prices is all about supply and demand.... 2006-2011 was the holy mother storm of bad things happening at once


Yes, that is why I believe we started tipping right at the end of last year. I will be curious if the data matches my local observation. In my area the listings to sales are 3 to 1 for the last month. It will take a couple of months for the graph to either validate or dismiss my observations. We had 347 listings and 93 closes in 92078.

I sold in October, I did well no matter where it goes, but my agent was very bearish on the high end homes especially. His observations were that the high end homes are a trickle of what they were earlier last year. Also, my observations on my area 92069 since are only a few very upgraded homes are hitting my $/sf. If you look at the general area, most houses are going between 225-350/sf. My home went for over $400/sf.

Again, we should know in two months and I will certainly report my observations whatever they and up being.

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