patrick.net

We need to define what a sick housing market is. I would argue that it means something other than an organic real estate market (regardless of what prices are), but most people in government, the finance/real estate industry, and the media use that term solely to mean that prices aren't rising.

An organic real estate market has pricing and valuation such that new home buyers are able to buy and existing home buyers can move up. It shouldn't have undue subsidies (as is the case currently) or ridiculously loose credit (think the recent boom cycle)

If you believe in an organic housing market, foreclosures after a large boom are good because they lead to more accurate pricing and provide restorative pressure to get back to a normal market. If you are a typical government, realtor, or media person, foreclosures are bad because it means a lower-priced sale has been recorded on the books. We should have had more foreclosures and short sales, but we didn't because of various subsidies and regulatory efforts to stop them. These subsidies and regulatory efforts prevent us from having an organic market and mask the "sickness."

Investor home sales are a symptom of the overall subsidies and distortions affecting the housing market right now. There should be fewer investors, but interest rates are very low, and institutional and other large investors are borrowing money cheaply and looking for yield.

Generalissimo Monsignor Cabron says

Something tells me the young generation won't be paying the boomers the prices they demand for their shacks.

Either the boomers will rot in place, with special property-tax grandfathering giving them 1990 taxes on their 2025-priced houses, or they will sell at much lower prices, as in: prices the younger generations can actually afford.

Unless there is wage inflation - hahahahahaha! - I see no sale at current prices.

That is a factor no one is paying attention to; no one can make generation Y buy homes at artificially inflated prices. The boomers can only trade up between each other for so long before they will need first time home buyers to enter the market. I've seen so some $800,000 homes labeled as "great starter homes" by the real estate agent. Just many subtleties that show the complete disconnect the people in real estate have with reality.

corntrollio says

An organic real estate market has pricing and valuation such that new home buyers are able to buy and existing home buyers can move up. It shouldn't have undue subsidies (as is the case currently) or ridiculously loose credit (think the recent boom cycle)

If you believe in an organic housing market, foreclosures after a large boom are good because they lead to more accurate pricing and provide restorative pressure to get back to a normal market. If you are a typical government, realtor, or media person, foreclosures are bad because it means a lower-priced sale has been recorded on the books. We should have had more foreclosures and short sales, but we didn't because of various subsidies and regulatory efforts to stop them. These subsidies and regulatory efforts prevent us from having an organic market and mask the "sickness."

But what about the politicians? The budget would have to reflect the true health of our economy, and those poor politicians would never get voted in again. The ignorant majority need to see good numbers right now, at any cost. Long-term stability is not even on their radar. Do you want those poor politicians to loose their jobs? What about the real estate agents? What about the people who dream of flipping their homes and living off the sale? Some people are born lazy, it's not their fault. Do you really want to take away their right to sit on their butts? Have a heart.

Paying cash for investment is OK if you bought for 10% of asking price.

To those that take a mortgage & then rent,how long before you build any equity? How much of the payment is interest? Oh,that's right after 5 years you paid $3.75 in principal.

another (more objective) way to look at this: investors and equity firms are a lot more savvy than the average joes. if they jump in the market must have bottomed. just because most people are fearful or unqualified doesn't the mean it isn't a GREAT time to buy. face the reality!

Call it Crazy says

Experts warn fundamentals just aren't there

by the time fundamentals are there, prices are no longer a bargain. that's how the market works. you buy when nobody wants to buy.

Everything is artificially inflated. A good time to buy is when things look less volatile. Investors were dead wrong before the crash, I am not gambling that they are right this time.

Also, all this speculation on why homes are not moving off the market even though inventory is low? How about a simple answer? The prices are still too high and too risky.

These two charts sum it up http://patrick.net/?p=1237918

These "Investors" are slimey parasitic middle men, usually bankers and hedge funds who use fed induced printed money to manipulate the market and in the end produce nothing. Their greatest aspiration (they get insanely excited about this) is to flip properties as soon as they can and stick a young family or some poor sap with their "profit" bill (added in along with the realtor fee as part of the family's 30 year mortgage) Please never buy or rent from these bloated pigs.

sbh says

Hey ListingAtHalfMast,

Did you re-do your double up on your double down?

I'm back to even from your look-out-below call of the century. Neener, neener, neener.

Thanks for not selling, makes the cost of shorting the shit out of this market much cheaper to me. Every cent I am saving from renting from the owner is now going on the short side. I'm talking 100's of thousands of dollars over my time in the crappy SFBA. The banquet is starting soon, hope you find a seat.

donjumpsuit says

I am gambling that

1. Rents will crater when the amount of available rentals increases due to new construction of multi family dwellings comes to market, or investment properties bought to be rented are advertised.

2. Interest rates will rise and ruin the current flipper business, making it undesirable to purchase a distressed property for the purposes of making a quick profit.

3. Something terrible will happen that forces the banks to liquidate or deal with the amount of distressed properties on the books.

4. In 5 to 10 years, house prices will remain at this exact pricing, yet incomes will double based on how the financial system is acting.

1. Why would that help you? You are only paying $1000 ($2000 with the other person) on a property worth $600,000. That sounds pretty low. And do you really think rents will collapse? Is there anywhere that that has happened?
2. Maybe rates will rise. Maybe flipping won't be attractive, though I'm not sure of what importance you think that latter aspect is.
3. They've dealt with the inventory pretty well so far. Things are obviously better than they were 4 or 5 years ago, so that sounds like a large dose of wishful thinking on your part.
4. They may or may not be at this exact pricing, though I'd bet a lot of money on the fact that if salaries do double in that 5-10 year time period (they won't), then they will be substantially higher. Even if houses simply track inflation (and that isn't an unrealistic expectation if salaries follow the same path), then at the very least sale prices will be higher though not necessarily in real terms.

hrhjuliet says

The prices are still too high and too risky.

May be the cash rich Chindians have finally figured that out.

The Professor says

If the government would openly investigate, most "truther bullshit" would
disappear

You're kidding right? Any government investigation would be immediately disbelieved. There are always "discrepancies". Most of them are easily explained, but that is irrelevent. That's why it's pointless--no matter how much effort is expended to refute the truthers, it will never be enough.

Exhibit A: bgamall.

bdrasin says

I'm afraid I have to agree, at least for the places I've been looking. Rents are pretty much in line with mortgage payments

Mortgage payments assuming 20% down? That's quite possible, but mortgage payments are not the only cost of buying a house. If you internalize the true cost (including taxes, insurance, transaction costs, opportunity cost, maintenance, etc.), then that's probably not the case everywhere. Nonetheless, part of the issue is that people are having trouble with rents too due to the weak economy, and the move-up market seems to be relatively dead.

Bigsby says

They may or may not be at this exact pricing, though I'd bet a lot of money on the fact that if salaries do double in that 5-10 year time period (they won't), then they will be substantially higher. Even if houses simply track inflation (and that isn't an unrealistic expectation if salaries follow the same path), then at the very least sale prices will be higher though not necessarily in real terms.

It's not particularly controversial to suggest that prices could stay flat while incomes catch up. Look at the 1989-1990 peak and then look at the bust through the early 90s until 1997, particularly in California.

Mark D says

another (more objective) way to look at this: investors and equity firms are a lot more savvy than the average joes. if they jump in the market must have bottomed.

Investors and private equity definitely don't always get it right. Look at the story of Stuyvesant Town in New York, where Blackrock and Tishman Speyer put miniscule amounts of money down and then walked away. The whole boom/bust cycle shows you they don't always get it right. The investors jumped on this stuff a few years ago, so even if the market bottomed then, it's not at bottom now, so I'm not sure why this matters. Simply not being right at bottom isn't a buy or sell indicator in and of itself.

hrhjuliet says

Do you want those poor politicians to loose their jobs? What about the real estate agents?

You are exactly right -- this is why a "recovery" means that housing prices are up and ideally back to where they were at peak. That's nonsensical.

What a recovery really means that we've normalized the market. That might mean lower prices for a while, which produces more transactions and more normal market-clearing transactions. Real estate agents should have embraced foreclosures as clearing out the trash because it would have meant more transactions for them. They always want a higher commission through a higher price, so they always try to prop up the numbers, but a volume business is a volume business.

corntrollio says

bdrasin says

I'm afraid I have to agree, at least for the places I've been looking. Rents are pretty much in line with mortgage payments

Mortgage payments assuming 20% down? That's quite possible, but mortgage payments are not the only cost of buying a house. If you internalize the true cost (including taxes, insurance, transaction costs, opportunity cost, maintenance, etc.), then that's probably not the case everywhere.

I was taking all of this into account, using the "rent/buy" calculator on patrick.net (thanks, Pat!) My statement applies to the areas I've been looking, namely Rockridge, Albany, and Alameda. Results may vary by location.

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, February 7, 2014 __ Level is 101.2

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

Call it Crazy says

HEY YOU says

To those that take a mortgage & then rent,how long before you build any equity? How much of the payment is interest? Oh,that's right after 5 years you paid $3.75 in principal.

Plus, you get to spend a bunch of money ripping out and replacing the carpet and appliances the tenants trashed as well as having to paint all the walls.... And that's before you have to fix/replace any of the major systems in the shack like HVAC, roof, Bathrooms, Kitchens, etc.

Yep, WINNING!!!

OH, but the landlord gets to keep the gain in equity... Sure, ask the landlords during the 2008 to 2012 time period how well that worked out...

Why in the hell would you bother with housing when you can sit behind a keyboard and ride the Dow Jones up up and away.

Call it Crazy says

Analyzer says

Why in the hell would you bother with housing when you can sit behind a keyboard and ride the Dow Jones up up and away.

Crap.... Now you tell me.....

How many rental homes did you buy?

What a relief, to know that you are never too old to steal vast sums bankster style.

Moron just didn't know how to get away with it.

Judges are kissing cousins to REALTORS, the judge probably admired his spirit, but gaviled him anyway.

Call it Crazy says

Analyzer says

Call it Crazy says

Analyzer says

Why in the hell would you bother with housing when you can sit behind a keyboard and ride the Dow Jones up up and away.

Crap.... Now you tell me.....

How many rental homes did you buy?

Ha Ha... None... I'm not that stupid...

I just bought the one I'm living in :)

I should of just put all the money I spent on down payments, closing costs and upgrades into the stock market.... I could be rich!!!!

Yep, Google and Apple when the Fed started pumping QE in would have done you well. Waste of time dealing with realtors, lier banks, lier inspectors, and sketchy tenants. Don't fight the Fed is what the big boys knew on Wall Street.

A real judge would do that anyway after accepting a massive bribe and a blow job.

Good. Eventually corporate healthcare will no longer be common. Then we can cast off the legacy of WWII and move to single payer.

donjumpsuit says

4. In 5 to 10 years, house prices will remain at this exact pricing, yet incomes will double based on how the financial system is acting.

I'm pretty sure that incomes in the US aren't going to double in the next 5-10 years.

That's very strange. Every small businessperson I've talked to or read about generally seems very happy *after* implementation of the Affordable Care Act.

What used to happen is that employers' insurance premiums would skyrocket if even only one of their employees (or their spouses/kids) within the group plan got cancer or some other expensive illness. Now, under the Affordable Care Act, these premium rises don't occur.

That's not to say some of the same people didn't bitch about the ACA before it actually was implemented, but most of them are quite happy with the results.

A lot of this stuff is non-sense. I heard the CEO of an electric motor manufacturer complaining about environmental regulations that raised the cost of business. Really? If you're a quality manufacturer of electric motors, you should be ecstatic about environmental regulations that will require more people to become your customer. If you make crappy electric motors, well, you deserve to lose money anyway.

Some of these idiots read from the same script, no matter what the issue at hand is.

People are expensive, pitchforks are cheap!

donjumpsuit says

I think Japan's "Lost Decade" tells us a lot about violent real estate speculation and its effect on the economy at large. Since Japan had it's hay day in real estate in the late 80's the economy including the price of all goods and real estate has remained stagnant for 20+ years.

People use that example all the time. Isn't that basically what people argue it should be anyway except with a version where rising prices are offset by rising salaries? The result in terms of actual cost to individuals is the same. And the way people talk about Japan real estate makes it seem as if it's very affordable because of this drop and subsequent stagnation. The truth is very different in the metropolitan areas. You pay more and get a lot less in Japan than you do in the US. Yes their economy took a hit, but the real estate aspect is hardly analogous to the US.
donjumpsuit says

So if more rentals are built, and more investors rent properties, supply will increase, and demand will decrease bringing prices down to the level where supply meets demand.

Maybe they will, maybe they won't. Maybe these rentals won't be built or at least not in the numbers you are hoping for. Maybe house prices will continue to steadily rise (it's not impossible - house prices have yet to collapse in places like the UK despite the enormous run up in prices), and so force more and more people to remain as renters. Maybe those that are built will be balanced by a rise in population.

Rents may well look better value in some areas than buying. Just look at London. But people have been saying that for nearly two decades in that city and look how well those who bought instead of rented have made out, so sticking to renting by simply looking at respective costs isn't necessarily going to be the smartest move - as has also been demonstrated to many in the BA over the last 15+ years.

Call it Crazy says

hrhjuliet says

Also, all this speculation on why homes are not moving off the market even though inventory is low? How about a simple answer? The prices are still too high and too risky.

Another little small detail, you need a job and income to pay for it and be able to qualify for a mortgage!!

The days of putting your down payment on your EBT card are over...

True, but we have the jobs, and we still wouldn't do it. Too risky. We worked too hard to gamble it away.

corntrollio says

That's very strange. Every small businessperson I've talked to or read about generally seems very happy *after* implementation of the Affordable Care Act.

The article said 44% are dissatisfied, not everyone. Go back and read it again.

zzyzzx says

donjumpsuit says

4. In 5 to 10 years, house prices will remain at this exact pricing, yet incomes will double based on how the financial system is acting.

I'm pretty sure that incomes in the US aren't going to double in the next 5-10 years.

I would bet significant money they won't......................Anyone want to take the other side of the bet?

Call it Crazy says

Nearly one-third of firms may either terminate employees or hire fewer people in the future as a direct result of ACA.”

Let's underscore the word MAY there.

Next year I MAY put off buying a new car, or I might not.

If 1/3rd of firms cut people or hours it will show in employment figures.

Vicente says

Let's underscore the word MAY there.

Call it Crazy says

The impact on the real economy is astonishing. Nearly one-third of firms may either terminate employees or hire fewer people in the future as a direct result of ACA.

Yea, I was curious how the impact "IS" astonishing when people "MAY" hire fewer people. Anyone care to explain how that works?

CaptainShuddup says

OK Who had Cluster Fuck?! Anyone have "Cluster Fuck" for the "I bet Obamacare turns into..." Pool?

Ben and Jerry's used to have an awesome ice cream called Clusterfluff. The the censors spoke up and they changed it to the less offensive "what a cluster".

Obamacare= what a cluster

The point is a whole generation has systematically been priced out unless they are gamblers or part of the 1%. My dad had hardships, he is a boomer. He bought his house while still in his master's program and taking care of his small son who is blind and has autism. He also had to refinance his house to survive after IBM gave him "early retirement" and he was going through a divorce. No one is dismissing the previous generation's individual hardships. I would argue though that the generation before the boomers are the ones who are truly entitled to make an argument about hardships as a whole; as a generation. The point is that the last generation, like the generation before that, and the generation before that, bought for less than twice the median income. This current generation has never had that luxury. My dad was the first to admit that he would have never considered buying a home that was even four times his income, he considered that for fools and gamblers. He admits this new generation should not buy, and he feels it's a shame that a whole generation of young families have to struggle every month to make the rent or mortgage. He also thinks that it seems to him that every family needs both parents working just to survive. He only knew a couple of families that needed both parents to work in his day. My dad thinks that this whole set up is asking more of the current generation than the boomers would have felt was okay for them. That's the issue. He wants a better life for his kids and grandchildren and the new system gives him very few options to help. Like most boomers his wealth is tied up in a house that doesn't make sense to sell. He can't help his children out of this mess, like a lot of loving boomer parents. At least my dad cares what is happening to young families, its not all about him. He would trade homes going back to twice the median income (even his own home that is now worth two million something) to give young families a real chance. He only wants the same chances for this generation that he had, that is all, nothing more.

Good discussion. I have never considered buying so far, although it isn't a money issue. While rents are high as well, you can get decent deals outside of downtown for yourself and family, and you always have the possibility to move. I have put in a bid back in the earlier days (when the bubble was building up) once or twice, but when the agent told me not to offend the seller with what I think the place was worth, I severed ties with the housing cabal and haven't looked back since ;) This country would be better off without realtors (6% for what?) , without the NAR, and without section 8 housing.

mell says

This country would be better off without realtors (6% for what?)

This is a valid question that I have asked before. At this point with the online tools available we can buy and sell just as we do with automobiles.
I have to laugh when people will hire agents to sell their homes in places like the bay area where housing is typically hot. Why would you dish out 6% on a 1 million + home sale when the place will basically sell itself due to the market?

Heraclitusstudent says

You're missing the key point which is that housing prices have risen faster than wages for several decades. As it happened, most people who bought a house during that time saw their equity increase and therefore were able to upgrade to more expensive homes. That's especially true for boomers.

That makes no sense. If house prices go up, then the price of more expensive houses goes up too. Prices going up does not help "move up" buyers at all. In fact, it discourages move up buyers, at least in CA. When they sell, they will lose their low Prop 13 limited tax assessment.

hrhjuliet says

2. Even when they can theoretically save for downpayment, they choose to spend money on entertainment/going out and as a result don't save.

Some do, but the majority don't. The biggest spenders I know, especially on frivolous entertainment and eating out are over 55.

Well, maybe in the SFBA but what I'm seeing in Texas is if the young get a spare dime - they spend it and spend it FAST. Eating out, because preparing dinner at home has become a lost art. Got to go see the latest movie, because ... well, I'm bored and just because I can. Buying DVD's, because ... well, because I like to watch the same movie 50 times (boy, that one I never figured out). Spending it on iTunes. A newer car, even though the one you've got is fine and fixing it would cost 1/20th (or less) of what a new car costs. Going to concerts, sports games, clubbing, you-name-it, all of which cost from $50 and go up, but we're bored and ... we just want to. Lots of shills out there crying, singing, competing for your money - and young people fall for it. PT Barnum, said there is one born every minute; I think the new reality is there are several dozen born every second.