patrick.net

Rates are up! mortgage apps are down! Recovery is just around the corner!

edvard2 says

Its fallen to levels the lowest in over four years, and in major metros like SF,
LA, NYC, Boston, and so on, those affordabilty numbers are far, far worse.

Edward - your point is taken about terrible affordability (per your link, SF is only affordable to 14% of the middle class). Yet, if you want to know if that constitutes a bubble, its important to note how affordable or unaffordable SF is, relative to its long term average. I.e. has SF been perpetually unaffordable or is this a new condition?

In point of fact, trulia does (first link to your link) measure the long term affordability, and determine overvalue/undervalue relative to long term fundamentals.

http://trends.truliablog.com/2013/08/bubble-watch/

Thus, their conclusion SF (which has a long history of being unaffordable to the middle class) is a mere +4% overvalued relative to long term fundamentals.

So yes it is overvalued by 4%, but again, that has little to do with affordability. Yes, SF is affordable to only 14% of the middle class, but that is (per Trulia) only 4% above its long term average of perpetual unaffordability to the vast majority the middle class.

Iwag says

Look at this asshole, he thinks he can mind read people over the internet and determine if theyre mad or not? lol

SubOink, i'm not mad at you. i think you are an overwhelmingly pea brained nobody. you come on here barking bout having a 30 year mortgage like its a great achievement to someone who has had a paid off house for over a decade in one of the most desirable areas of san francisco, and unwittingly make yourself look like an idiot. why would that make me mad? it brings me great amusement to see you looking and acting like a dumb asshole

lol

ok then...tell us how you really feel...

:)

thats better, quiet and subdued suits you

glad i could help

Yes, thank you for all the help. I do want to make you aware of a spelling mistake on your name. Take the I and the G and replace it with a T.

Now go on and fix it.

You are welcome!

you can't brag about having a mortgage anymore so i guess this is the natural progression for your type

flat lined prices in concord, fact

lies, lies and more lies

why dont you just claim 3,000% gains

no one believes you anyway, you know that right?

oh thats a lie and you know it. we know for a fact that you care and care a lot

someone who has 16000 post on a forum definitely cares

Is there a recovery or not?

This is my last chance before I'm priced out forever. Where have I heard that before?

Is this just for california? Or does this apply to texas, florida, georgia, pennsylvania, ohio, michigan, oklahoma, kentucky, nebraska,maine, louisiana and south carolina as well?

Last chance? LOL. Like, there will be no more suckers in the future. Very funny!

Yup, those welfare rolls just keep growing.

The market here is fairly sewn up. You either have the desirable property or you'd better be willing to pay a premium for the few that come up for sale. I've no idea if or when this state will change. This place is nuts.

Here's my (somewhat) contrarian take. As Ivy Zelman noted, it's different this time: "In many ways, the current recovery is unique in that price was pulled forward to the beginning of the cycle, versus an accelerating trend in prior rebounds". This frontloading is due to the Keynesian fantasyland we've been living in. We now begin the slide (sideways) to oblivion as you gotta pay the piper at some point for the (economy saving) stimulus.

Interesting. For someone who wants to try and deny there is a bubble, you sure are pushing a bubble awfully hard. Classic tactic of trying to goad people into buying houses via little scare tactics...

Iwag says

you can't brag about having a mortgage anymore so i guess this is the natural progression for your type

I can't ? Why?

bgamall4 says

Yeah, the plants and the landscaping is totally different than Sandy Hook,
lol. What a bunch of idiots. CNN was the station that paraded neocon warmonger
after neocon warmonger on saying that Obama's bombing Syria would not be enough
and we would need troups on the ground. I hate CNN.

And, FYI, the CNN anchor of numerous shows, Wolf Blitzer, is a former employee of AIPAC( the zionist lobby org funded by Israel)!! Why didn't you know that?

It's all starting to come together now and make no sense.

What's happening in SFBA is that with low inventory, the technocrats get first dibs. A couple both working as google software engineering for example can easily make 240K base and with bonuses/options, over/under is 300K. With inventory being so low, naturally they will get first dibs. And their "bus routes" are not limited to S.F. In fact, there's a stop for dublin/pleasanton....I know several people in my development who "ride the wi-fi bus"....as long as tech sector is strong and inventory is paltry, they will price the lower income earners out. The downside to some people being well compensated is that they utilize their relative power index to reduce the standard of living of their competitors. I don't see sfba house prices lessening unless tech sector experiences massive layoffs.

I don't know about saying that this is the last chance to buy but I don't think that houses are going to get dramatically cheaper in the short term. If price fall slightly due to higher interest rates, the cost for the non cash buyer is not going to decrease.

Ducky said: The large price gains in the beginning of the cycle are the result of a large overshoot to the downside.
I don't disagree. But banks had tremendous holes in their balance sheet so the Fed gave as much help as possible to keep them afloat by pulling even more demand forward. You ARE an example of this. And so is Roberto. He went all in when he saw the writing on the wall (one of his great Pat.net posts). Hard money lender didn't come through so he raided his retirement accounts, because he knew, in the end, he could refie into a conventional loan. You guys ain't unique. Pkennedy and Eman loading up on their 4 Fannie loans per person. This put a floor on prices and then poured gasoline on the uptrend. Add in the big boys buying houses for their funds (many of them ultimately dumping the securitized rental streams into the market). You also have the highly leveraged mREITs to sop up the loans. This allows banks to continue to patch up their balance sheets and stay afloat.
That said, the trend lines are ominous.

I don't get it.

Cash’s dominance is a sign of the fact that it’s more costly and hard to get financing.

3/4 of cash sales are investors, why do investors need financing if they already have access to cash?

Why is financing more costly now?, interest rate is at a record low.

I remember hearing someone say something like that in 2006. It was along the lines of "buy now or be priced out FOREVER".

Duck is getting desperate.

FortWayne says

I remember hearing someone say something like that in 2006. It was along the lines of "buy now or be priced out FOREVER".

While true, the scare tactics came from both sides. And predictions can either be very right or very wrong depending upon when they were uttered. Consider this missive from Pat.net circa 2003

August 2003: "The price of buying a single-family home in the San Francisco Bay Area is finally crashing. By the time it is over, I expect the value of the typical Bay Area house to fall by half. A house you could have sold for $600,000 last year will fetch only $300,000 in a few years."

http://web.archive.org/web/20030804110639/http://patrick.net/housing/crash.html

While this was perhaps accurate in 2006, consider how horrifically bad advice this was in 2003. Imagine the 2003 buyer, who could afford the then 600K house passed because he heard it would soon be 300K. Imagine his horror as not only did prices not fall, it rose for 3 more years to 850k, fall back 3 more years later to 700K, and now TEN YEARS later it is at 750K and rising.

If anything, the 2013 version of the buyer would love nothing more than to go back and smack the shit out of the 2003 version of himself - saying thusly, if you do not buy now, you truly will be priced out, perhaps forever...

WOW! The UNtrustworthy are certainly in control of what information is apparent to the people!

Say hey! This was in the Wall Street Journal on March 30, 1999. Note "... how much it will buy."

Holy cow/interesting/compelling ...!

And where is it up to date??? Right here ... see the first chart shown in this thread.
Recent Dow day is Friday, December 20, 2013 __ Level is 104.0

WOW! It is hideous that this is hidden! Is there any such "Homes, Inflation Adjusted"? Yes! This was in the New York Times on August 27, 2006:

And up to date (by me) is here:
http://patrick.net/?p=1219038&c=999083#comment-999083

WOW! The UNtrustworthy are certainly in control of what information is apparent to the people!

And http://patrick.net/?p=1230886

humanity says

This is like saying there is no correlation between monthly mortgage payment and price. It's the most ridiculous thing I've ever heard you say.

it's true as far as it goes, since "historically" the Fed has (ab)used interest rates to kill incipient wage-price spirals, which means the correlation is harder to tease out of the raw plots.

And actually, there is no correlation between monthly payment and price, since the payment is determined by down payment requirement, interest rates, tax subsidies, length of amortization (if any) . . .

Scandinavian housing markets are totally nutso now, and they've gotten that way by essentially going with interest-only ARMs. They've screwed themselves just as badly as the Japanese did in the 1980s, and Casey Serin did 2004-2005.

bgamall4 says

Yeah, it attempted to bring the country together to rally around gun control. Yeah, Bigs, I bet that is what you NWO Brits want anyway.

Putz is a word that is too good for you. Bigsby says

NWO Brit? Oh dear, here we go. Where's that face palm smiley when you need it? And so what if I think a semblance of gun control might actually make your country safer rather than more dangerous. I hardly think I'm alone in that. I'd say a good number of people would prefer that it was a bit more difficult for certain individuals to get their hands on weapons. I wouldn't, for example, be too pleased living next door to an individual with views like yours at the best of times let alone if you were armed to the teeth with such urban necessities as a Bushmaster etc... Clearly countries like the UK (0.25 gun deaths per 100,000) and Japan (0.06 deaths per 100,000) have greatly endangered their population by having strict gun controls, whereas the US is safely protecting its population (10.3 deaths per 100,000) by allowing people in many places to buy guns with the minimum of background checks.

bgamall4 says

Easy, they control the media. But the hold is weakening. More and more people are seeing that Sandy Hook was a hoax. You are a hoax. You are a fake. You are a NWO guy who wants us to think you serve tea in Kuwait.

Easy? They control the media? Ha! Presumably they also control the thousands of people who you say took part in your supposed 'hoax' because I haven't seen too many of them pop up on your favoured nut job websites. I take it those are also under the control of the instigators of this all encompassing zionist plot.

And how would you like your tea? With a sprinkling of paranoia?

humanity says

?? You know what I meant. Most people, if buying to own, have a monthly payment they make, and it is indeed connected to the price they pay, after a downpayment. . It's hard to buy a place for over 800K with as low a monthly payment as say a tiny place you buy somewhere for 50K. So yes, that correlation exists.

I guarantee you that if interest rates were 1.5% higher, versus 1.5% lower than now that there is a radical difference in pricing pressures. This is just an assertion I know, but it's an obvious one to nearly everyone.

Do I really need to elaborate ?

This subject has been covered ad nauseum. Interest rates don't rise in a vacuum. They move in tandem with wage growth, and wage growth is a much more important variable w.r.t. housing prices than interest rate level so it drowns out the rate effect.

This can be easily seen by looking at nominal housing prices and interest rates over history. There is actually a slightly positive correlation-indicating that prices actually rise as interest rates go up. As counter-intuitive that may seem to you, the data doesn't lie.

tatupu70 says

As counter-intuitive that may seem to you, the data doesn't lie.

It's not about intuition or what data you can find to back up your point of view.

Of course since interest rates sometimes go up in reponse to inflation, you will find periods when rising rates are slightly lagging rising prices.

You will aslo find times like the mother of all booms when prices were going up much faster while rates were plummeting.

I know enough to know that I don't know what's going to happen, (unlike so many around here). But there is a very obvious connection between what someone will pay per month to buy a home, and what the actual price is. These prices are two sides of the same coin. (cash purchasers too are affected by interest rates.)

When interest rates are rising, the price of buying a home is going up, even while the total price is holding steady. So much of this is too ridiculous to even argue.

Does this mean that if interest rates are rising, that home prices have to be dropping ? OF course not. Do rapidly falling interest rates mean that prices have to be rising ? OF course not.

It is a factor though. The yield curve and real interest rates may be a more telling factor and yes, these things are complicated.

Still, all else being equal if interest rates were to rise enough (with real interest rates rising as well), it would put significant downward pressure on home prices. This is a fact.

bullshitmagnet says

However at least land might hold it's value reasonably well.

Thank you Captain Obvious.

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

Buildings themselves depreciate/wear out.

Not with maintenance. Depreciation schedules are a joke.

Apartment my parents rented in the mid-1970s is still around:

http://goo.gl/u3SDcK

House (built in 1948) my parents rented in the late 70s is still around . . .

These will be around 50 years from now, too.

marcus says

Still, all else being equal if interest rates were to rise enough (with real interest rates rising as well), it would put significant downward pressure on home prices. This is a fact.

Agree - however some think that the prices of many assets, like stocks/houses, are more influenced by emotion, rather than logic. Example: dot com companies headed by 20 years olds with no business experience, and no earnings, that investors are will to pay obscene amounts of money to own shares in.

So it is possible, even if higher interest rates make owning a home seem less attractive logically, that people will continue to bid up housing prices.

Bellingham Bill says

bullshitmagnet says

However at least land might hold it's value reasonably well.

Thank you Captain Obvious.

http://research.stlouisfed.org/fred2/series/CUUR0000SEHA

Buildings themselves depreciate/wear out.

Not with maintenance. Depreciation schedules are a joke.

Apartment my parents rented in the mid-1970s is still around:

http://goo.gl/u3SDcK

House (built in 1948) my parents rented in the late 70s is still around . . .

These will be around 50 years from now, too.

Well, not only do they wear out, by they go out of style, and newer homes are better. They are more energy efficient and so on. Plus, due to the "income disparity" that so many discuss here, labor to build homes is getting cheaper (and tools/technology getting more efficient).

I know a family now that is trying to sell their home, which is only a few years old, but having trouble because the home has a "sunken living room" which is now out of style. Kind of expensive to change things like that.

Some also think that close in urban living is more in fashion now, meaning houses in the suburbs requiring a car/traffic will be more difficult to sell.

bullshitmagnet says

There is no land shortage.

There may be 6 acres of land per person in the lower 48, but the problem is the rich own most of it and aren't selling it.

I cruise the parcel maps in redfin and just cry. All that great property, might as well be on the moon since the owners ain't selling.

And why should they, with Prop 13 eliminating their current holding costs.

eg:

http://www.zillow.com/homedetails/1250-Redwood-Dr-Santa-Cruz-CA-95060/16151715_zpid/

47 acres, $700k Prop 13 valuation.

Japan has this same problem. Totally crap land (no services, no schools) an hour+ out from the city center is priced at $1M per acre, thanks to the lack of supply and their very low interest rates (~2%) and land value taxes (~1%).

tatupu70 says

Interest rates don't rise in a vacuum. They move in tandem with wage growth, and wage growth is a much more important variable w.r.t. housing prices than interest rate level so it drowns out the rate effect.

I do not totally dissagree with this. Your interest rate wage growth connection seems way too simple to me. Things have changed a lot since the seventies. We don't actually know what kind of shocks might lead to interest rate spikes. Yes it's clear that wages will be the last thing to go up in an inflationary environment.

Interest rates sometimes move due to international currency manipulation games, or in reaction to so called currency crises. You may know what's going to happen with the dollar relative to other currencies and commodities, in the next 10 years, but I sure don't. What happens if and when the dollar loses it's reserve status ? What happens when QE gets to a point that the world loses faith in the dollar ? Maybe these things never happen. To what leangths would the Fed have to go to defend the dollar ? I don't claim to understand or know.

Maybe these things are all arguments for owning real assets. In the long run that's always a good idea. But what we're talking about here is timing.

I do think we're in a different regime from the 1970s.

http://research.stlouisfed.org/fred2/graph/?g=qf8

we've untaxed corporations and the wealthy, so the average Joe is going to have to pay the debt burden this century.

But oh how leveraged we've gotten. Like Japan, the system can't support higher interest rates any more.

bullshitmagnet says

Well, not only do they wear out

NOT with adequate maintenance, especially in California's mild climate.

(Tokyo and Houston are different stories)

by they go out of style, and newer homes are better.

Nope! Location, Location, Location still rules. All the best locations were platted before I was born.

The new in-fill homes in Sunnyvale are total crap compared to the older stock that's as old as me. A house is largely concrete, sticks and bricks, the insides can be updated for pennies a month, more or less.

Here's a house built in 1950 totally refurbd:

http://www.redfin.com/CA/Salinas/229-San-Miguel-Ave-93901/home/14955872

Bellingham Bill says

Location, Location, Location still rules. All the best locations were platted before I was born.

And they were priced-in accordingly. The land that appreciated the most percentage-wise in the past decade probably was not the prime real estate in NYC or SFBA, but the farm land and wasteland in the Dakotas, which around the year 2000 were bought and sold for less than $1000 per acre. So were you too young to buy those plots back then?

Stop blaming others for your own failure.

Bellingham Bill says

Japan has this same problem. Totally crap land (no services, no schools) an hour+ out from the city center is priced at $1M per acre, thanks to the lack of supply and their very low interest rates (~2%) and land value taxes (~1%).

As a country, Japan does not have land shortage. Much of the land in Northern Japan is practically empty. Fully 1/4 of the entire Japanese population live in the Greater Tokyo Metropolitan area because they have a crony capitalist economy, where one's financial success depends on proximity to the political power center.