patrick.net

EastCoastBubbleBoy says

Back to the OP. I think that in some areas of the East Coast, I would have to reluctantly agree with you. The reality is that spending 30%+ of your income on housing has become the norm, and the incomes can (barley) support the selling prices. (which are typically 3 to 6% less than the asking prices)

I'm surprised its not worse to be honest. Jobs then interest rates I guess. If we see 10% interest rates that will shut down the market, but what would cause that? An abandonment of the currency, in which case we'd have rampant inflation in every thing imported? People can't buy a house when they can't buy heat.

There is no bottom in socialism.

The government is in an endless battle. The USA cannot keep buying $15,000 or even $40,000 or $60,000 cars when the rest of the world is buying $3,000 or $5,000 cars. It battle will never end if the quacks in Washington insist on trying to keep GM/Chrylser (over-priced, non-competitive) alive.

Same for housing. People cannot pay more than 3x their salary. The government can, of course, subsidize or outright buy houses for people. But what will happen to the market? I rent. My neighbor has a house the government bought for him ($8000). So, why would I buy a house?

Didn't read the whole thread but most people are ignoring Supply and Demand. Kookynomics can bend the demand curve but long term Supply and Demand win.
"People can’t buy a house when they can’t buy heat."
Kookynomics will squeeze every dime from the middle class. The lazy-class will get free heat and houses and cars. The gentry will get bonuses from the taxpayer. The working class is being flipped the bird by Obama and Congress. They are taunting and bullying the working class. We can hope this will be a bloodless revolution. We can hope the voters voice will win the day as our founders empowered us; but, the battle is socialism (reward those who do not work) versus freedom (earn your own reward). If enough people are lazy, socialism will win.

There is no bottom in socialism. Its like being a slave. You do not ever know what the master will do. A "bottom" is a supply/demand thing. Today, houses can go up in select areas if the governments make them and will go down anywhere else. The question is if the government can steal enough from the workers to keep their ponzi scheme alive. How many cars do you have to give away to keep a market alive? How many mortgages do you have to pay off to keep a market alive?

The government is in an endless battle. The USA cannot keep buying $15,000 or even $40,000 or $60,000 cars when the rest of the world is buying $3,000 or $5,000 cars. It battle will never end if the quacks in Washington insist on trying to keep GM/Chrylser (over-priced, non-competitive) alive.

Same for housing. People cannot pay more than 3x their salary. The government can, of course, subsidize or outright buy houses for people. But what will happen to the market? I rent. My neighbor has a house the government bought for him ($8000). So, why would I buy a house?

"Interest rate will go up and housing will go down" --> cannot happen as long as fed is alive.
Interest rates will go up only when inflation will go up and housing cannot go down when inflation goes up after a housing bottom ( assuming all other variables are constant - no arm resets)
If housing will go down , it has to happen due to some other reasons like economy gets even worse, more arm resets..etc

renter for ever_san jose says

“Interest rate will go up and housing will go down” –> cannot happen as long as fed is alive.
Interest rates will go up only when inflation will go up and housing cannot go down when inflation goes up after a housing bottom ( assuming all other variables are constant - no arm resets)

Interest rate/housing prices have that inverse relationship while all other things remain constant. Unfortunateley median income in markets is not staying constant. And the fed won't be making a dent in those numbers. In fact even the bulls think they'll be getting worse for a while.

Interpretame--the thing about your inflation scenario is it suggests wages will also rise in step w/inflation. I make this assumption because you don't mention the stresses of inflation on the ability to pay the mortgage. But most people I know don't think it will happen w/our current rate of globalization and the pay levels needed for the US worker to compete on the world stage. So perhaps at a later date in time than the first evidence of inflation, the CPI takes ever larger bites out of what was once discretionary income and if the inflation gets bad enough, paycheck to paycheck types soon can't pay their mortgage, eat, clothe themselves and have any other sort of life. Time to downsize again. Downward prices resume on housing even as the dollar loses value.

I'm sticking w/the Austrians. You can't inflate this bubble away. The only way to really fix this instead of kicking the can down the road only to face an even bigger problem ilaater s to rebuild from scratch and fix the fundamentals.

We are no longer in a bubble.. did you look at the case shiller index lately ?
Just like an optimist denies the upside deviation from shiller index , the pessimists will deny the index in the downside. I agree with your analysis completely but only in the bubble scenerio. I am assuming we are 10-20% range of bottom.
"AFTER A BOTTOM" , interest rate hikes cannot kill housing because interest rate will only rise when housing is rising or is stable.
Do you believe fed is going to raise interest rate if it causes housing to tank ?

The fed can only buy so much, and their power to control mortgage rates is dwarfed by the overall size of the market.
Without anyone buying t-bills rates will go nutz. The fed doesn't "control" mortgage rates.

The fed does not control long term mortgage rates !

i know so many people who are taking arms which is very tighly related to FED rate.The arms will rise only when the economy picsk up and inflation picks up

Hey, if I had the cash I'd take out the home loan with a ARM, then be able to dump the cash backwards if things go crazy. Of course, this doesn't work in the middle of a deflationary implosion.

chrisborden and missgredenko, well said!

"chrisborden says

to get a lousy $135K loan. I’m glad it was tough. No way would I ever have been tempted to take anything else than a nice, predictable fixed rate. BTW, I sold to some idiot in 2003 who paid me 3.5 times what I paid, and invested most of the cash, so am able to pay cash for a small house in Oregon where sanity prevails and retire at 55!

Chris,
looks like you 'pocketed' the money, and didn't 'upgrade' to another expensive home (or did you?)

One of my friend bragged that he sold his condo at the peak of 2006. I asked him, what he'd done with the money. He 'upgraded' to a single family home in Fremont! at the same peak !!
I laughed my ass off and pointed out to him, he just got into more debt into another overpriced home.

oh well.

Thanks warblah!

I'd also like to point out to renter for ever that California may feel like it's bottoming. But the country is not moving in unison. Our county's median sales price is up 2.3% from what others id as the peak. We saw mark downs after the indices started to implode last fall. Then the $8k tax incentive and low mortgage interest rates saw list prices move back up. Some neighborhoods experienced a 50% jump in median prices since '02 so there's a correction coming somewhere. The sales numbers have taken a hit and inventory is building in some price niches. Still unless you're shopping for aspirational level homes there hasn't been any significant correction......yet.

Japanese economy out of recession

http://business.timesonline.co.uk/tol/business/economics/article6798681.ece

I though japanese economy too had a second bubble to bust ..
If it was that easy to explain away the bubbles and busts , everybody would have been rich.

Pretty much 100 percent in all SF BA counties and more on top of the 100% from 1998-2000. The people calling 02 prices are way off. We will be going down further than that

Whats so different now that the prices will be way DOWN from case shiller long term trend ?

BTW, i use to ask the same EXACT question during bubble (2005)

"Whats so different now that the prices will be way UP from case shiller long term trend ?"

my reference is only long term case shiller index ! it worked before and it will always work.

So you believe 100% of wealth created during the tech bubble was fake...not even a small % was real ?
what happened to the real wealth that was created ?

last i checked , tech stocks bottomed to 2000 prices not 1990 prices !

Lets assume there was no bubble, what would be the total wealth that would have been created in bay area ? same as inflation ?
looks like you belive everything is zero sum game...dude wake up. I was there in 1990's and i know 80% of the bubble was fake but real wealth was created too. did you check out oracle/cisco/intel stock ? its not at 1990 level

There is lot of truth to what you are saying about bubbles in general but the tech bubble came and went.
bay area median income is very high compared to other areas. unless median income falls i don't see why we will see correction beyond shiller index.

bay area median income graph.

Do you believe tech market will crash even further dragging the income level.

http://www.data360.org/dataset.aspx?Data_Set_Id=9357

bay area household incomes have grown much faster than rest of US.

zetabeos1 : if i go by your theory, the house hold income across US should be same...but its not.
hollywood would always have higher income that a suburban town. film prodcution won't be COMPLETELY shifted to the town just because its cheap. just like big companies have wide moat so do some areas.

The world has gone flat!

true ..but that does not apply to BA area alone. it applies to all us cities.
the prices should go down everywhere due to deflation. fed kicks in during deflation and prints money like crazy and increase money supply so that won't happen. I believe that bay area prices will fall if the jobs in bay area are outsourced relatively more than other places in US.

....

A picture is worth a thousand words:

if i go by your theory, the house hold income across US should be same…but its not.
hollywood would always have higher income that a suburban town. film prodcution won’t be COMPLETELY shifted to the town just because its cheap. just like big companies have wide moat so do some areas.

I actually just read last week that a lot of Hollywood production types are heading for the hills because of California's ridiculous taxes. It was a different article than the one below, but this one touches on it, too.
http://www.theinsider.com/news/2240662_Hollywood_workers_settling_in_tax_friendly_states

http://en.wikipedia.org/wiki/Confirmation_bias
"confirmation bias is a tendency to search for or interpret new information in a way that confirms one's preconceptions"

Japan did not descend into their lost decade with the level of national debt that we had (and have) at the outset of this downturn. A rather big difference.

then tell me how come bay area median incomes have been rising for past three decades.
I'll believe when i start seeing actual numbers like what happened in michigan and detriot.

If its in the benefit of a company to secure its intellectual property and trade secrets, how does giving away the core stengths to other countries help USA. ...I think this globalization is another academic term abused by rich corps to bankrupt USA , just like wall street used free market to sell derivatives and bankrupt us.

Just like a private company keeps its trade secrets and intellectual property well guarded. A country needs to keep its core strengths ( key R&D , certain manufacturing technologies..etc) well guarded and only use globalization for its OWN benefit and ship out redundant stuff ( labor intensive, low skill work)
The countries long term benefit should be one important aspect in globalization.I am not against globalization but its should be well regulated globalization just like you have well regulated immigration ( atleast on paper :-) Just like opening borders completely to the whole world doesn't make sense , completely free globalization does not make sense.

As far as global competition, its become meaningless, do you consider that what we do here is already well known by other global companies. Ever hear of SAP, Toshiba Microelectronics, TEL ( Japan), TSM (Taiwan), Nokia, Samsung, and thousand other overseas … They all have competing products and cheaper labor cutting their product prices to gain market share. The genie got of the bottle decades ago

I know how things work in these countries...they can never compete without US (USA) enabling them.
R&D is still US Forte...but they are catching up.
I agree the genie go tout of the bottle decades ago ...but only for the industries which are already now mature. what about the new emerging technologies...will we be exporting R&D for thses as well.. till these countries learn to do that as well ? then what would our country's competetive edge would be ?
believe me...once the countries learn to do thier own R&D...we as a country are toast. Out ability to enjoy worlds resources at cheaper price will be gone. our standard of living will go down as well ( we are already seeing this trend)

perhaps it’s wishful thinking on my part.

It's wishful thinking on your part. Housing prices still have plenty of room to fall. Just wait until the summer buying season is over.