patrick.net

LILL,

To me, anyone who buys a house with ARM, or I/O is speculating. It is not investing, it is not for "settling down", it is not for buying a "home". They are expecting to various degrees

1. Continuous rise in asset prices.
2. Interest rates being lower when the reset happens.
3. Their income being higher than what it is now.

The first 2 are nothing but speculation. The first one is not happening anymore. Second one is already wrong.

The only way to save this bubble is wage inflation. How likely is that to happen ? Even if BB prints money like mad, the resulting inflation may not translate into wage inflation.

I am keeping a watch on wages. That is more important than the rents. Just because rent went up by 10%, a person may not be willing to take on a huge debt. But if salary goes up by 10% or more, it's a different story.

X
If you put a dress on a pig what do you have? A dressed up pig.

so true, surfer, so true. who could argue with that? :P

On topic: The dude in the opening pic looks an aweful lot like a Clinton

hmm, I was going to say Bush...

Np, LILLL. If rents had also gained 300% over the same period (without a similar increase in wages), then I'd be worried.

Some one mentioned Google trends a few days ago.

I searched "housing bubble" and "real estate bubble". In both trends, 4 out of 10 top cities looking for these words, were from Bay Area. Overall 6 to 8 (!!) out of 10 are from California.

This goes on to show how spooked Californians are about the RE bubble. Before anyone protests about BA being more tech-savvy, let me say these searches are normalized. The ranking is based on the % of searches !

Interesting fact. In both the searches, 3 of the BA cities are easy to guess - San Francisco, San Jose and Santa Clara. The remaining city is at 3rd place in both the searches - Pleasanton ! Go figure.

DinOR
Sean, if we are going to have a “superior” market, truly the top of the food chain (one not dominated by empty nester house wives) we need to play hard ball. If that means issuing eye patches, canes and German Shepards with really nice dispositions then that’s what we need to do. Total transparency, total liquidity!

well, stop encouraging the housewives to play the market then, and shoving it in their faces through PR and advertising campaigns all day long in every conceivable medium. and desperately attempting to build up the kids' college funds to some sort of viable level. (it's lucky other countries offer tertiary education to their citizens for free...social goods paid for out of taxation on the mega-rich, instead of giving them juicy breaks...)

altho i personally believe stock market investment should be made through managed funds and pension funds, managed ethically and sessnibly, as it concentrates expertise, provides greater leverage, and takes the burden of learning the stock market off Joe Average.

but i also always thought that 'the market' was created to serve people, not people created to serve it as a capricious master. or are we talking about different markets? do you mean 'superior stock market' -- fair enough then i suppose, i don't go wandering around industrial plants with vats of bubbling acid and falling girders without a hard hat and a guide either...

In S Cali we’ve lost many film industry jobs in the past 5 years…nobody in their right mind will start a new business here as workman’s comp is through the roof….

hmm, they shoot in prague and sydney nowadays... sydney is the indian call centre of hollywood, heh

new thread: The Ghost of Irving Fisher

LILLL

The problem with hitting a "new plateau" is that it is effectively impossible to know that it is a plateau and not a peak until it is far enough in the past. That is, we won't know if housing prices are permanently higher or not for certain until we have enough time to see if they come back down.

It is almost always impossible historically, with a couple of extraordinary exceptions, to tell when you're in the midst of a real paradigm shift. Being a contrarian, the more people who insist we're in one now the more I'm inclined to believe we aren't.

I agree with randy here -- there is probably nothing new under the sun in 500 years of European-style market economies -- and 10 000 years of organised trading between peoples...

the only paradigm shifts I see are the sorts of shifts such as increasing affluence through industrialisation (methods of mass production), where the living standards of so many are increased quickly, right into the halcyon years of the 1950s and 60s, along with increasing expectations of good wages, a 'career', home ownership, ongoing wellbeing and so on, which is really an elevation of the working class to the middle class. we could be seeing the 'hollowing out of the diamond' now though, simply through the deliberate control of property by the 'want mores', a phenomenon unfortunately creeping right down to the middle-middle class. this would represent a regression to Victorian levels of wealth inequality and disenfranchisement if it plays out and is broadly endorsed as somehow being a Good Thing. things working against it are deliberate govt policy fostering home ownership, a massive supply of cheaper housing and releases of cheap land as a market response to under-supply (if there is indeed an under-supply), and so forth... but i have bad feelings about the 'stickiness' of housing prices and the fact that it is a price-fixing racket...

+ see the next thread 'the Ghost of Irving Fisher' for the belief in 'new plateaus' just prior to the Great Depression.

Here is a chart with GDP/hr productivity levels for various countries:

http://tinyurl.com/olzng

Note that Belgium, Luxembourg, The Netherlands, Norway and France (!) are all more productive German is 92% as productive. Note this is per hour worked, not per year. American per year values are higher because Americans work more. Rather than deny this fact, we should be trying to figure out how they do it and replicate their success.