patrick.net

E-man says

And please don’t compare us to Japan and Germany because they don’t have population growth. In fact, their populations have been on the decline. It’s like comparing apples to oranges. In fact, CA has been gaining population forever.

CA only has a less than a third the population density that Japan has. There is plenty of land in CA to build. Not so much in Japan.

camping says

I personally don’t see how they are unrelated, particularly in parts of the bay area where we’re talking $500k+ mortgages. A few ticks up or down results in a big change.

That's why I trust data over intuition...

Perhaps I'm missing something but I think quantity has a bearing. I don't think you can draw a graph with a straight line on it and say "We are here and when this happens we'll be here."

I think the amount of the increase and how fast it's implemented would make a huge difference as to wether or not it would affect house prices.

Also I think we're looking at secondary market forces and claiming them to be primary. Interest rates will not climb until inflation of some other primary market force causes the Fed to raise the rate. It's more likely that THIS market force will act upon house prices and not a reactionary action the Fed uses to slow the economy down.

So if you said: "When the economy turns around... as a result house prices will rise. To slow a rising economy the Fed traditionally raises rates to keep rapid growth in check." That may then become a true statement.

However. I disagree. I don't think that this time house prices will rise "along with interest rates". I have been wrong in the past and I could be wrong again. Here's how...

At the moment the stock market is and has been regaining lost ground. Now is this a market recovering or is it another mini bubble? If it is another mini bubble... There is a chance that houses could bubble again (small) as the die-hards jump back in. Some call it a "W". I see some signs of that, where buyers/investors are all too ready to jump back in on what they believe to be the bottom. ANYONE who knows real estate knows... there shouldn't bean instant rebound, more a gradual slowing of the decline, then a long flat period and then perhaps a pickup.

Then again who knows? Let's increase the tax incentive, or extend it. How about forgiveness of tax debt? Let's make it easier for foreign investors to buy US property. How about the tax payers buy a few car companies? Let's force banks to lower the mortgages on their customers. Let's open the discount window forever? Hey did I just see a pig fly by?

See what I mean? All bets are off. All these other forces are now in play when they weren't before. It's my opinion that we've become a consumer nation, and it's our spending that drives the economy. So what will the forces that be do to convince us we're wealthy again?

Sure they may convince us our houses are worth more, but if you don't have a job... you basically can't afford the mortgage on a house that's now worth more. I'm interested to see how this plays out but anyone with a bold prediction is asking for trouble.

tatupu70 says

camping says

I personally don’t see how they are unrelated, particularly in parts of the bay area where we’re talking $500k+ mortgages. A few ticks up or down results in a big change.

That’s why I trust data over intuition…

To what data are you referring? And this isn't intuition - it's called logic. If something becomes more expensive, fewer people are able to afford it unless the purchasing power of the purchasers increases. That's why prices typically increase during times of higher rates, because wage inflation is also happening concurrently. 2000-2005 were years without wage inflation yet prices went up because of decreasing mortgage rates. Is there any historical data where prices and mortgage rates went up where there WASN'T wage inflation to support the increases? If not, what makes you think that we're going to have any meaningful wage inflation in the next few years? Is it the 9.x% unemployment rate, the continuous exporting of jobs or some other anti-logic that will cause this wage inflation?

camping says

To what data are you referring?

Historic housing prices and interest rates.

camping says

Is there any historical data where prices and mortgage rates went up where there WASN’T wage inflation to support the increases?

Probably not.

camping says

If not, what makes you think that we’re going to have any meaningful wage inflation in the next few years? Is it the 9.x% unemployment rate, the continuous exporting of jobs or some other anti-logic that will cause this wage inflation?

What makes you think interest rates will go up if we have 9.x% unemployment?

tatupu70 says

camping says

To what data are you referring?

Historic housing prices and interest rates.

Well, that leaves out a lot of data.
camping says

Is there any historical data where prices and mortgage rates went up where there WASN’T wage inflation to support the increases?

Probably not.

If not, what makes you think that we’re going to have any meaningful wage inflation in the next few years? Is it the 9.x% unemployment rate, the continuous exporting of jobs or some other anti-logic that will cause this wage inflation?

What makes you think interest rates will go up if we have 9.x% unemployment?

The fact that mortgage rates have been artificially depressed by the Fed for the past year+. If mortgage rates were naturally going to go down to 5% while our economy tanked, then why did the Fed spend $1.25T buying them?
From what I've heard, there's a general consensus that mortgage rates will rise to above 6% by the end of this year and that unemployment will remain stubbornly high. It seems you agree that house price inflation won't occur without wage inflation (based on historical data or lack thereof), and there won't be wage inflation with high unemployment. Therefore, if unemployment remains high as expected, yet mortgage rates also rise, the next logical step is that prices will fall.

camping says

From what I’ve heard, there’s a general consensus that mortgage rates will rise to above 6% by the end of this year and that unemployment will remain stubbornly high. It seems you agree that house price inflation won’t occur without wage inflation (based on historical data or lack thereof), and there won’t be wage inflation with high unemployment. Therefore, if unemployment remains high as expected, yet mortgage rates also rise, the next logical step is that prices will fall

There's a lot of ifs there. Under your hypothetical scenario, I'd agree that prices would probably fall. I don't agree that interest rates will necessarily rise to 6% if unemployment remains stubbornly high, however.

tatupu70 says

camping says

From what I’ve heard, there’s a general consensus that mortgage rates will rise to above 6% by the end of this year and that unemployment will remain stubbornly high. It seems you agree that house price inflation won’t occur without wage inflation (based on historical data or lack thereof), and there won’t be wage inflation with high unemployment. Therefore, if unemployment remains high as expected, yet mortgage rates also rise, the next logical step is that prices will fall

There’s a lot of ifs there. Under your hypothetical scenario, I’d agree that prices would probably fall. I don’t agree that interest rates will necessarily rise to 6% if unemployment remains stubbornly high, however.

Actually, it was just one "if" in the stated hypo. Hard to do any sort of hypo without an "if" considering that's pretty much the definition of a hypo.
The unemployment rate isn't going anywhere soon. Mortgage rates were up at 8% during the 2000 recession; I'm not sure why they can't make it to 6% during this recession (that ended).
Well, then what do you think is going to happen over the next 2 years?
Unemployment is going to drop significantly?
Mortgage rates are going to stay at 5%?
Wage inflation is going to occur?
My view is that unemployment is going to stay high, rates are going to rise to at least 6% by EOY 2010 and wages are going to be flat. This is based on the fact that millions of jobs were lost over the past few years and the current hiring numbers are still unimpressive, Fed getting out of MBS and the rest of the world not bailing us out, wages continue to be flat due to high unemployment. Where's your logic/evidence to the contrary?

I'm no good at predicting the future of the economy... If we're talking about 2 years out, I'd guess that unemployment will drop a couple of points and that wages will increase. Interest rates will rise a bit--I think 6% is a reasonable guess.

My view is while each recession has its own special causes and concerns, the economy as a whole acts similarly during recovery. If you look at business articles from the last couple of recessions they scream jobless recovery, outsourced manufacturing, budget deficit, etc., but 2 years later things were somehow back to being OK.

Yes, this time it might be different. Like I said, I'm no good at predicting these things...

Here's some more of the competition in Concord; the property at 1786 Toyon Dr rents for $1650. It's a 3/2 that advertises 1700sq.ft. of livable area (property records indicate 1400sq.ft., perhaps there have been improvements). It's about 1/2 mile to BART and the highway. Oh, and it has a sub $60k tax basis. How low can you go...

I’m not sure what evidence there is to suggest that we are returning to normal market conditions.

The pendulum doesn't swing one way only to swing back and stop in the middle. Asset bubbles typically over correct.

It seems you agree that house price inflation won’t occur without wage inflation (based on historical data or lack thereof), and there won’t be wage inflation with high unemployment.

There will be no wage/salary inflation for the biggest percentage of American workers. All data points to things trending in the opposite direction, but for some radical shift in policy/trade laws.

Tech stocks, USA... ex NASDAQ 2000 to today, 11 years and counting.
Japanese stocks a couple of decades
Japanes land, ditto.
Gold, 1980 peak $850 an ounce... took 27 years to come back.

tatupu70 says

If you look at business articles from the last couple of recessions they scream jobless recovery, outsourced manufacturing, budget deficit, etc., but 2 years later things were somehow back to being OK.

The 1991 peace-dividend, RTC recession sucked until 1995-1999. Dotcom got the ball rolling in the bay area again, and from 1995 to 1999 Greenspan was allowing money supply to really flow.

2001 recession never ended, really. We just had the mother of all housing bubbles to pull us out of it temporary-like.

Zlxr's above comment echoes my thinking exactly.

I'd add that the median baby boomer was turning 20 in 1975, putting pressure on household formation.

We got trade flows with China and OPEC taking wealth out of the economy. NAFTA thanks to Clinton.

I just don't see any upside from here.

The existing stock of housing has a cost of production of $200/mo or so. That's the baseline that housing providers are facing, the price the market is seeking as the middle-class and below wage base is beaten down and has to make ends meet.

We bid up the cost of housing to where it is now, and we can and will bid it down.

E-man says

And please don’t compare us to Japan and Germany because they don’t have population growth. In fact, their populations have been on the decline. It’s like comparing apples to oranges. In fact, CA has been gaining population forever.
.

Slapping random charts together without any explanation is in?! No one told me...California is losing US citizens and gaining illegal immigrants with no skills. Is that the point you were trying to get across or was it some correlation between California population and the Irish RE bubble?

short drive to DiVino's Pizza in PH is a plus

Silicon Valley median home price rises 29 percent

http://www.contracostatimes.com/real-estate/ci_14890494?source=rss

Wow, according to that article Alameda county saw house price raises of 40%. I wonder who has the money for these crack shacks?

rcesar says

Silicon Valley median home price rises 29 percent
http://www.contracostatimes.com/real-estate/ci_14890494?source=rss

...

But the big increases in median price...does not mean a correspondingly generous increase in the value of all homes in the county.

Median prices have risen sharply in recent months compared with year-ago levels primarily because the mix of homes selling is more balanced now than it was a year ago, when post-foreclosure resales were a bigger portion of the completed transactions.

Median price can be a misleading number.
I prefer to track prices in neighborhoods known to me.
I am constantly "window shopping" in those areas.

From what I see, prices for less expensive homes hit bottom at the beginning of 2009. Those great deals are gone.

Prices for middle market seem to be bottoming now.

High end properties might slip a little more, and I think multi-family and commercial will slip a little more as well. But not much, and not for long.

oh, my dear friends, the next drop commeth

The next drop does commeth - but not until after the next peak.
We are into the recovery phase of the economic cycle now.

Zephyr says

Median price can be a misleading number.

I prefer to track prices in neighborhoods known to me.

I am constantly “window shopping” in those areas.
From what I see, prices for less expensive homes hit bottom at the beginning of 2009. Those great deals are gone.
Prices for middle market seem to be bottoming now.
High end properties might slip a little more, and I think multi-family and commercial will slip a little more as well. But not much, and not for long.

Can you tell me, what area and what percentage of peak price level are you talking about?

In my area, home prices on all classes are holding up quite well at mid 2005 to early 2006 price level. Do you think I can say the same?

Your good feeling could possibly be an early indicator of the next phase of the downcycle. Do you remember when you last had a "recovery feeling?"

Zephyr says

The next drop does commeth - but not until after the next peak.

We are into the recovery phase of the economic cycle now.

Yep. I have very little doubt this is a double dipper. The only thing bringing positive readings is government intervention on a scale never before seen in US history, barring WWII buildup.

Rob,

I play the market cycles as a real estate and stock market investor.

For real estate I was a buyer in the early to mid 1980s, and largely sold out in 1989 in Los Angeles. I waited through the doldrum years of the 1990s until 1998 when I felt the timing was good to start buying again. I continued to buy more rentals until early 2003 when I felt that prices were crossing the line. However, I expected the market would go into a strong final appreciation phase (2-3 yrs) at that time, to be followed by a decline of 20% to 30%. So I held, and then sold some property in 2006. The decline came when I expected, but it was broader and worse than I expected. I started buying again about six months ago.

For stocks I was bullish in the 1990s but expected a frothy bubble ending. I got out before the decline of 2000-2002. I became bullish again in late 2002 and started buying heavily in early 2003 (the Dow was under 8,000). I sold nearly all of my stock in late 2007 when the Dow was around 13,000 because I expected a recession to start by year end 2007. In late 2008 I felt the market was nearing the bottom and I started buying stock again.

I have most of my money in the stock market now, and most of the rest in real estate. I have almost no debt. Over the next few years I will slowly increase my real estate, and increase my leverage.

Seaside,

Conditions vary from place to place. Some places have recovered to their 2005 levels. Most have not. Generally, I expect that homes priced under $500,000 in and near the coastal cities have seen the bottom. The most sought after areas have fallen the least, and they will rise the most in the recovery.

MarkinSF,

A double dipper on Real Estate would be a nice opportunity. We can dream!
Unfortunately, I think it is only a dream.

But real estate generally has a slow, weak recovery in the early years of the cycle. So I do not expect anything exciting in the price recovery for a while. Inventory is down. But, unemployment has to decline before there will be real price pressure. It is always the last two plus years of a boom that bring bubble froth.

To assume there won't be a double-dip scenario requires that one totally neglect wage/salary erosion/bankruptcy rates/abysmal savings rates/personal debt rates, etc. These will remain the reality for the greatest majority of the US workforce failing some major game change/miracle.

Listen to the Mark Hanson interview on King World News http://kingworldnews.com/kingworldnews/Broadcast/Broadcast.html
Eric King has only the best of the best on his show and Mark Hanson is well respected and well informed.
Mark talks about this recent uptick and why it will not last. Starting in July, the real estate market will be slowing down appreciably. Lots of shadow inventory coming on the market soon. Real estate prices will be drifting downward for MANY years.

This is information one cannot get in the mainstream news.

Austin,

The issues you mention are significant, but they are not new, and not getting worse. For a double dip these problems would have to get worse than they are now. That is possible. However, we are seeing some improvement on all of these issues.

The economy is rising. Consumer spending is rising. Corporate profits are rising. And a rising tide will soon lift all boats. Hiring is about to pick up. This will cause the recovery to gain momentum.

Housing inventory is down, and sales are up. But shadow inventory will keep coming into the market preventing any dramatic price increases. This happens in every recovery.

"You could make all these arguments x 10 in 1933, yet that was the end of the bear market in real estate."

Maybe real estate investors will be OK, but that doesn't help the 20% who are unemployed.
And the Depression didn't end until we got onto a war footing.
Guess that option ain't available now, either!

"Housing inventory is down, and sales are up. But shadow inventory will keep coming into the market preventing any dramatic price increases. This happens in every recovery."

ok, I just have to say a little something ~
THose idiots buying over-priced homes .. are those homes empty (yes), and will there be someone moving into them (yes) and will that make for another empty home somewhere {rental or owned} (yes), soooooo, riddle me this then, with a few hundred thousand empty units sitting around California, and a credit/job climate that absolutly sucks, where do you plan to find all of these new occupiers? The "Specuvestors" are trying to make hay with all of the high rents they are ablew to squeeze from those that used their homes as ATM's and now have to rent. But, my dear dear Specuvestors, you guys have a really really big set of problems headed your way......
1) unemployed renters pay no rent and MAYBE Obama will soon pass a law making it illegal to cast out a poor soul for not paying rent, even forcing you to set your rent to the renters ability to pay(exactly as the banks have been made to do)
2) the tax man commeth. SFH's used as rentals MAYBE will get taxed out the arse, and passing that onto the renter only goes so far.
3) insurance rates on rentals tripple due to both of the above
4) Section 8 and all other welfare housing help is not allowed in private owned rentals any longer.
5) nothing bad happens and you remain the smartest person ever to invest a dime and you will be able to pay for hair plugs for yourself and a tummy tuck and boob job for the wife.

Bap33,

There is a cycle to markets.
They rise and then decline.
Booms are followed by busts.
Rise, decline, rise, decline...
Over and over.

One should take note of where we are in the cycle.

@bap33
You write fox news polls don't you!
Do you think:
a) doom and GLOOM!
b) DOOM and gloom!
c) DOOM AND GLOOM!
d) GLOOM AND DOOM!

The first two options are for their liberal watchers are who aren't fully into the doom and gloom, if you didn't figure that out already!

Trying to pawn off "a house buyer opens up another spot, and nothing gets created!" well things do get created. Lots of things. Movers get paid, real estate agents get paid, banks get paid, repair men get paid, new house hold goods are purchased, and the list goes on and on. It's a fairly large wealth generation when someone buys. Those people can possibly afford to hire more people who will rent. Maybe they're moving out of a shared housing currently and nothing changes. The people who were renting are still out there. Many might be sharing more housing right now, but as they become more comfortable with their positions and their jobs, they might assume more risk. Many companies have had all the fat cut from their pay rolls now, and they're show profits this quarter because of it. Maybe not growth, but profits. Which means those companies don't need to change anything. If you're a taco vendor for one of those companies, you might have lost a good number of customers, but now you know exactly how many you've got, because it's a stable environment now. It might not be the same number as before, but you know what you have to deal with.

Trying to come up with all doom and gloom possibilities as the *ONLY* way out is meaningless. The government has already shown that it can hold it's own in slowing things down and making the ride much less spiky than it would have been and much more manageable for most people. If the economy was spiky, there is only one group that will become rich, the rich. Us normal investors would freak when the bottoms came and sell, selling at the bottom, trying to catch the rise again, only to lose on the down swing. Non economic related people don't have the skills to manage money like a hedge fund manager, or any fund manager. We can look at some documents, figure out what looks ok and buy. We can see a value and buy. If all those numbers were changing all the time, we would be SOL.

There *IS* money out there, because investors are coming out of the frame work and buying up anything cheap. The lower it goes, the more investors will come out. There is a fixed bottom, and that is when all investors come out buying up everything they can. We'll never see it, because the government is flattening out the whole process.

The issues you mention are significant, but they are not new, and not getting worse.

Of course they are not new, but you cannot really suggest that we have arrived at some kind of stasis where compensation erosion is concerned. Completely false. Our compensation in America continues to suffer not just from outsourcing, trade imbalances and labor arbitrage, but also from the squeezing of the workforce for the benefit of shareholders, particularly when there's a good pretext, like a meltdown. C level executives who make it priority number # 1 to wring every last drop of blood from the bottom line so that they can see short-term quarterly growth are the only ones who have seen any decided improvements on their returns.

For a double dip these problems would have to get worse than they are now. That is possible. However, we are seeing some improvement on all of these issues.

Honestly, where?

The economy is rising. Consumer spending is rising.

Even a the most hyper-optimistic soul would have to admit that the economic recovery is a cheap and sleazy sham by any sane measure. What fundamentals have been restored or ratified to ensure truly healthy economic growth? As for consumer spending, I've suggested for about the last half year that this is thanks to preemptive defaulters living rent free, and I'm now seeing official stats to support that in the media. When you aren't paying your #1 expense every month, it frees up a lot of cash. That was a boon to the savings rate at the last half of last year, too, which is back down in the toilet. Consumer confidence is also way down there in the toilet, and rightfully so. Nothing has changed.

Corporate profits are rising.

Thanks in large part to layoffs and salary freezes. Alcoa and Caterpillar are just two examples that spring to mind, although I think Caterpillar has its tit in the wringer again.

And a rising tide will soon lift all boats.

That's great if you happen to be lucky enough to have a boat/yacht. Whatabout all the slobs scrambling around in leaky water wings?

Hiring is about to pick up.

Mostly for a fraction of what these people were getting paid before the meltdown.

This will cause the recovery to gain momentum.

The only thing that will provide the momentum is a return to the easy-credit/free money paradigm. Next time, however, count on the credit being much more usurious in nature. Where credit cards left off, payday lenders will take over.

Housing inventory is down, and sales are up.

Speculation is up. Organic sales are not up.

But shadow inventory will keep coming into the market preventing any dramatic price increases. This happens in every recovery.

You know, it would be really nice to read some good news that actually had some fiber in it!

Austinhousingbubble says

Of course they are not new, but you cannot really suggest that we have arrived at some kind of stasis where compensation erosion is concerned

I can
Austinhousingbubble says

For a double dip these problems would have to get worse than they are now. That is possible. However, we are seeing some improvement on all of these issues.
Honestly, where?

Have you followed any of the latest news of the economy?
Austinhousingbubble says

Thanks in large part to layoffs and salary freezes. Alcoa and Caterpillar are just two examples that spring to mind, although I think Caterpillar has its tit in the wringer again.

That's pretty much how it happens at the end of every recession. As the economy improves further, companies are forced to hire and wages increase.
Obviously you aren't convinced the economy is out of the woods yet. Fine, but you realize that at some point it will right? The world is not going to end in 2012 no matter what the Mayans think...

Not to mention that companies are showing profits, look at all the conglomerates, like Ge. They are all showing profits now. It's pretty obvious that if they're making money in all their different little businesses, that things are stable. That things have come back to the norm.

If "normal" people aren't spending, then these businesses are surviving off normal peoples spending habits, and that means we've hit a bottom. Maybe you're just seeing bad news, but the good stuff is all around you. You're just insanely stuck on foreign work forces and how we're going to compete. How there isn't any way. Look around, all of these companies are doing it, and they've been doing it for a long time, making lots of money.

I can

You can what?

Have you followed any of the latest news of the economy?

Yes, perhaps more studiously than yourself.

That’s pretty much how it happens at the end of every recession. As the economy improves further, companies are forced to hire and wages increase.

Nice shade of brown, but it's still horseshit. The order of the day has been layoffs and forced retirement; when these positions are refilled, they are filled by less employees doing more work, and are significantly less compensated. Do a little reading on some of the companies I mentioned -- Caterpillar and Alcoa. If you'd like, I can compile a list.

Obviously you aren’t convinced the economy is out of the woods yet.

I lost nothing during the downturn, and have actually seen my income/net worth improve. However, I know that my unique situation is not one enjoyed by 2/3 of the population. In other words, I don't suffer from an insular point of view.

Fine, but you realize that at some point it will right?

I realize that we can loom more rug to stick more ugly bugs under, yes, and I suppose that's an improvement in some people's mind.

The world is not going to end in 2012 no matter what the Mayans think…

Keep it on the sunny funny side.

With all due respect, it's something of a folly to cite corporate profits as a benchmark of an improved economy where the man-in-the-street is concerned, unless you are a proponent of trickle-down.

But anyway, GE is not doing as swimmingly as you suggest. Witness: GE Profits Drop by a Third As it Eyes Cuts:

http://online.wsj.com/article/BT-CO-20100416-704882.html

@Austin--

OK. Let's talk again in 6 months and see where we are...