patrick.net

Population density, urbanization etc are the most common reasons given to justify the ABSURD bubbles in India and China. These do not make any sense when the median apartment costs over 50 times the median income and the median single family home costs over 100 times the income, especially with loan rates close to 10%. The total lack of affordability indicates there cannot be any big demand to meet the supply. Rental yields in India and China are very low compared to the cost of the home, so it makes a lot more sense for the "newcomers" to just rent instead of buying at inflated prices, another reason that the "population density" theory is utterly false. Also, the majority of the "new" people moving to the metros do not aim at downtown or older neighborhoods. There are plenty of new satellite towns/suburbs that they move into, so it is just a sprawl into previously vacant land. Finally, it is common for 5-10 people to share an apartment in India and China, unlike in America, which also reduces any real demand and dents a hole in the "density" logic. Tokyo has over 30 million people, but home prices have actually been declining for the past 20 years as part of the nation's deflating economy. Home prices in India and China are going up merely on speculation, and all other given reasons are cliche. It is not widely known that over 65 million apartments in major Chinese metros are lying vacant. No demand, period. However, prices keep going up in the ponzi scheme so that the next set of speculators can play the game

By some of your arguments, home prices should keep going up with increasing urbanization/population density forever. Currently, single family home prices in India and China's metros are over USD 1 million, which is already way more than what it is in most American cities. Are you guys saying that in another 20 years, these home prices in India and China would be much higher, say over USD 50 million, while America stays stagnant. What if the Chinese and Indians with their massive muli-million net worth start buying the really cheap homes in America real soon?

Maybe I'm part of the "self-destruction" crowd. I call it reality. Prices will continue to stagnate/fall slightly for the next several years. The psychological damage has been done and the baby boomers are hanging onto what's left of their nest-eggs. That means unemployment will stay high for a few more years.

Why only a "few more years?" What mechanism exists that would cause an improvement in the domestic UE rate five years or so down the road? I can't think of any with the exception of a marvelous new large-scale invention/production capacity.

Clay, housing around the world IS a massive bubble, the largest that has ever existed. Worldwide interest rates were held far too low for far too long in an attempt to salvage the world economy after 9/11 with Greenspan leading the way. Central bankers around the world followed suit. The free money flowed into housing almost exclusively via unprecedented speculation.

Dubai's housing bubble blew up even worse than ours did (nationally). Check out Ireland, Spain, Iceland too - big busts across the board.

China's housing bubble is ridiculous - read some of the articles on patrick.net - it's so ridiculously extreme so as to make any rational person laugh. Homes that cost 10-20 times the median income? I mean, HONESTLY. Empty cities and rows of empty apartment buildings - sounds like Miami on steroids, doesn't it? Canada and Australia have tiny but healthy economies as they export to the bubble that is Chindia, but there are signs of exhaustion in Australia (24K subsidies from the gubmint) and outright drops in Canada.

It was fake money that never really existed and was never justified by any fundamental - world economic output has not gone up nearly enough to increase RE valuations to these levels, and GENUINE economic output (that which is not based on ZIRP/speculative bubbles) certainly has not increased sufficiently to justify these levels.

clayfire23 says

Currently, single family home prices in India and China’s metros are over USD 1 million

clayfire23 says

You read that right, an apartment will cost you USD 500,000 and a small independent house will cost you at least USD 1 million in the cities of India and China.

I'm calling shenanigans on this for India. There is no way a median apartment or median single family home costs that much. It is possible that a prime apartment in a prime location costs that much, but you would have to be among the prime earners in India as well. Please explain to us where you are getting your figures and how applicable they are to our discussion.

Here is a recent link to Mumbai's bubble prices. Remember that this is for apartments. The Indian currency "Rupee" is about 44 to a US dollar, so the apartment rate is over a 1000 dollars per sqft. So a 1000 sqft apartment would cost USD 1 million. Even the non-prime areas will have at least half that rate, so those apartments will touch half a million dollars. Again, these are small apartments. Do not even get started on single family homes.

http://jllindia.wordpress.com/2010/10/03/mumbai-property-rates-up-50-pc/

Please read my earlier posts on why it is relevant to this discussion.

clayfire23 says

So a 1000 sqft apartment would cost USD 1 million.

Might as well be quoting Miami. Some developer quotes $1000 per sq ft or so and what? Heck we had the same happen here not to long ago and they all went bust dropped like a rock! Someone is smoking some Hash in Mumbai.

Unsold Homes Pile Up As Prices Put Off Buyers(Financial Expresss, Oct 08, 2010)

http://jllindia.wordpress.com/2010/10/08/unsold-homes-pile-up-as-prices-put-off-buyers/

New Delhi: The festive season is around the corner, but it could spell bleak times for India’s realty sector, as unsold inventory piles up. With the prices of residential units exorbitantly high especially in Delhi and Mumbai and a deluge of residential project launches quarter after quarter, it’s a clear demand-supply mismatch. The lean July-September quarter has been marked by oversupply.

"The Indian currency “Rupee” is about 44 to a US dollar, so the apartment rate is over a 1000 dollars per sqft. So a 1000 sqft apartment would cost USD 1 million. Even the non-prime areas will have at least half that rate, so those apartments will touch half a million dollars. Again, these are small apartments. Do not even get started on single family homes."

You don't know what you're talking about. Prime areas in city centers always cost a ton of money, whether you're in Mumbai, Lagos, Almaty, or New York. What you're stating is not an accurate measure of anything in particular. Give us median stats and not the highest of the high, and then tell us why this is relevant once again.

Corntrollio,

It is folks like you that have never stepped out of the United States, or know nothing of what is happening in the rest of the world, or question the relevance of anything happening outside America, that is the biggest reason for the decline and self-destruction of our great country. I already talked about non-prime rates in Mumbai, and if you do a bit of research yourself on what is happening in other parts of the world, you will stumble upon the reality that has clearly eluded you so far.

clayfire23 says

Corntrollio,
It is folks like you that have never stepped out of the United States, or know nothing of what is happening in the rest of the world, or question the relevance of anything happening outside America, that is the biggest reason for the decline and self-destruction of our great country. I already talked about non-prime rates in Mumbai, and if you do a bit of research yourself on what is happening in other parts of the world, you will stumble upon the reality that has clearly eluded you so far.

I've lived all over the world and like corntrollio it's also been my experience that the prime area's in the city centers are very high priced worldwide. Please enlighten us and enable us to stumble onto the reality of why this is not true so I can correct my thinking allowing me to halt the decline and self destruction of America.

If you have any thoughts of buying a home in foreclosure, YOU NEED TO READ THIS:

http://www.oftwominds.com/blogoct10/foreclosure-collapse10-10.html?source=patrick.net

PolishKnight says

Why bother with silly “fundamental” value?

What exactly is "fundamental" value of a house?

Just for fun, I'm going to predict my area. Small city between Milwaukee and Chicago. First I was going to say next Spring, then I adjusted to next Summer. Now I think it will be next Fall, if we're lucky.

Prices have come down about 15% here since our peak in late 2006. We did not lose as much value because we didn't have as big a bubble. There did not seem to be a high number of For Sale signs added over this past summer, so maybe the distressed sales are slowing down. But, I also see lots of houses that are listed and then removed from the market without selling. Maybe these are people who think they can wait out the market.

For about the next year, I predict tha people who want to sell will chase the market down until they realize that prices are still falling. There is an auto plant in town that will close in December. This has to increase the inventory, both voluntary and distressed.

I have accepted the need for the decreasing prices, because I did the math, and prices really were too high for area wages. But, if my home loses another 15% of value, that means it has increased at less than half the rate of inflation over the 20 years that I have lived here. Add in all the money spent on property taxes and maintenance and it's disheartening. I do have the benefit of paying far less per month in PITI than I would be paying to rent anything comparable. So that's something.

Bap33 says

the whole push for a “rapid rail” to the illegal-immigrant-full central valley is one way to avoid in-fill of the same service workers in the actual bay area area. If those that pull the strings of life get to put in that rapid transport system it will only result in the valley being the crime ridden center of all things , while the Bayarians retain all of their wealth and comfort.

Bap,
can you say, NIMBY?

Bap33 says

I would add is the whole push for a “rapid rail” to the illegal-immigrant-full central valley is one way to avoid in-fill

Not if a train ticket costs $50 one way.

good point. Maybe the business owners will pay a fee to the train for worker passes? No cash transactions, seen as a taxible benifit to the worker .... hmmm... another "company store" deal ?

I'll go ahead and drop my 2 cents in here... Listings have almost doubled in my local (Monterey) area in the past 3-4 months. Price cuts across the board - although not as drastic, they still seem to be falling again since tax credit expired.

Visited my family on the east coast this past week - been monitoring 3 subdivisions since 2008:

Neighborhood #1) $450k - Now $335k
Neighborhood #2) $330k - Now $190k
Neighborhood #3) $280k - Now $150k

While the prices above are just averages - all the floorplans have stayed the same, so what you got in 2008, should be pretty close to what you get now.. I think some of the lower end are near bottom - funny though because some of the existing homes are priced much higher than the newer stuff.

Troy says

His administration was pretty disastrous, really. Tripling the national debt was one thing, and much of that money just went into militarism instead of actual societal investments with long-term payoffs.

One slight, little, insignificant (to liberals that is) dividend to all that was the collapse of the USSR. Oh, I forgot. Liberals never give any credit to Reagan because they loved the Soviet Union. They always said it wasn’t perfect. It just needed to be tweaked a little bit and they would have found Utopia.

Trade with Mexico : 1994 -- $1.3B surplus
Trade with Mexico : 2009 -- $47.7B deficit

clayfire23 says

Corntrollio,

It is folks like you that have never stepped out of the United States, or know nothing of what is happening in the rest of the world, or question the relevance of anything happening outside America, that is the biggest reason for the decline and self-destruction of our great country.

I can guarantee that I've been to India more times than you have. It simply is not as you say it is, and you are unable to provide median housing price statistics that I've asked for. I wonder why that is...

On average people make an incredibly low income in India, and it's only the ridiculously rich robber barons and the extremely rich ex-pats who would be buying the properties you're describing. No doubt India has gone through significant inflation which has raised the price of "normal" properties as well, but the average single family home is not worth anything close to what you're saying.

PolishKnight says

You do realize that you’re on the side of the crony capitalists and wall street, don’t you?

Now that's funny. Democrats are the party of crony capitalists and wall street? Did I read that correctly?

tatupu70 says

PolishKnight says

You do realize that you’re on the side of the crony capitalists and wall street, don’t you?

Now that’s funny. Democrats are the party of crony capitalists and wall street? Did I read that correctly?

I'd agree with that. To be complete though, it should be said that Republicans are the party of crony capitalists and wall street too. These banks give a few million to politicians and then reap billions in profits. Best investments ever.

tatupu70 says

Now that’s funny. Democrats are the party of crony capitalists and wall street? Did I read that correctly?

A sample of Obama’s contributors back in 2008. Note the number of banksters. GE is one of the largest defense contractors in the USA.
This table lists the top donors to this candidate in the 2008 election cycle. The organizations themselves did not donate, rather the money came from the organization’s PAC, its individual members or employees or owners, and those individuals’ immediate families. Organization totals include subsidiaries and affiliates.
Here’s just a few of the top donors:
Goldman Sachs $994,795
Microsoft Corp $833,617
Google Inc $803,436
Citigroup Inc $701,290
JPMorgan Chase & Co $695,132
Time Warner $590,084
UBS AG $543,219
Wilmerhale Llp $542,618
Skadden, Arps et al $530,839
IBM Corp $528,822
Morgan Stanley $514,881
General Electric $499,130

According to this site, "banksters" seem split their money pretty evenly when giving money to Dems and Repubs.

http://www.opensecrets.org/overview/topcontribs.php

ch_tah says

According to this site, “banksters” seem split their money pretty evenly when giving money to Dems and Repubs.

Money is the mother's milk for BOTH parties. I posted my information in order to dispel the common myth that liberals love to promulgate, which is that Democrats are above being bought by the big money players. Obama ran as a reform type "change" candidate. He has proven he is nothing other than another political hack just like the rest of them.

RayAmerica says

Money is the mother’s milk for BOTH parties. I posted my information in order to dispel the common myth that liberals love to promulgate, which is that Democrats are above being bought by the big money players. Obama ran as a reform type “change” candidate. He has proven he is nothing other than another political hack just like the rest of them

I agree that there's too much money in politics. That's the #1 problem with Washington.

But to the point. I look at actions. eg. From today's news:

http://finance.yahoo.com/news/Bank-of-America-posts-77B-apf-4096614857.html?x=0

"The new legislation that caused Bank of America to take the $10.4 billion charge limits fees banks can collect when merchants accept debit cards. BofA said that change would reduce future revenues in its card business."

Sounds like B of A definitely didn't get its money worth on their contributions, huh?

tatupu70 says

Sounds like B of A definitely didn’t get its money worth on their contributions, huh?

How much TARP money did BoA get? They (like other big banksters) didn't use TARP to "lend" money out into the market (as our lying politicians claimed) but instead used it to balance off their toxic loans that were on their books. So I guess they didn't do too awful bad now did they?

Duck .... did Obama & the Democrats vote for TARP .... or were did they vote against it (as you obviously think as you paddle around on Fantasy Pond)?

klarek says

Yes, you already said above: the evil Republicans TRICKED them into signing it.

LOL!

RayAmerica says

Sometimes I wish I could be more like you. It must be lots and lots of fun living in a fantasy world of make believe

Who is in the land of make believe exactly? Please find me any expert who believes TARP was not necessary.

tatupu70 says

Who is in the land of make believe exactly? Please find me any expert who believes TARP was not necessary.

Exactly. There really is a Wizzard of Ozz. All you need to do is "follow the yellow brick road."

RayAmerica says

tatupu70 says

Who is in the land of make believe exactly? Please find me any expert who believes TARP was not necessary.

Exactly. There really is a Wizzard of Ozz. All you need to do is “follow the yellow brick road.”

OK--you keep reading Mish and the shadowstats world....

Picture worth a thousand words...

In 2004 he said: "I believe that we, as the federal government, have probably done too little rather than too much to push them to meet the goals of affordable housing." He went further: "I would like to get Fannie and Freddie more deeply into helping low-income housing."

"I did. I saw them on TV," she said. But Barney Frank did not budge. He understood that a good offense is the best defense. He also understands that rewriting history this election year is his best bet for keeping his long political career alive.

thomas.wong1986 says

Picture worth a thousand words…

"If I only had a brain ......"

RayAmerica says

There really is a Wizzard of Ozz. All you need to do is “follow the yellow brick road.”

Tatupu70 asks: "What exactly is “fundamental” value of a house?"

VERY good question.

Let's start with the house itself. The fundamental value would begin with the root cost of labor and materials to actually build it When most people think of a "house", that is the basic thing that pops into their head and also what most people spend their time looking at.

Next, there's the old saying in real estate: location, location, location. This is referred to as the "land" value.

These are both listed in the county assessment public listings. Interestingly enough, the "land" value for my (rented) condo was 80% of the value with the land at 20%. That surely can't be correct since I know I can buy the same place for half that value about 30 miles out in the exoburbs. But it's the same materials and overall probably the same labor that built it.

Of course, these so-called fundamentas are subject to "market" conditions. The labor and land, especially, vary wildly by location while materials less so.

PolishKnight says

Next, there’s the old saying in real estate: location, location, location. This is referred to as the “land” value.

And where land values are low and inexpensive as was the case early on in Silicon Valley business and industry flurish providing income and robust growth to the population.

Housing prices crash and what happens next ? This...

Intel to spend up to $8B on US manufacturing
Intel spending up to $8 billion on US factories as it pushes chip industry's pace

http://finance.yahoo.com/news/Intel-to-spend-up-to-8B-on-US-apf-2298150898.html?x=0

SAN FRANCISCO (AP) -- Intel Corp. on Tuesday revealed the scope of its latest infusion to keep its factories cutting-edge and push the chip industry's pace: an investment of up to $8 billion to build a new factory in Oregon and upgrade four existing plants in Arizona and Oregon.

In all, the projects will create up to 8,000 temporary construction jobs and up to 1,000 permanent positions in Oregon when that factory opens in 2013.

Tatupu asks: "Now that’s funny. Democrats are the party of crony capitalists and wall street? Did I read that correctly?"

Answer to both questions: Yes. And it is funny as hell.

Is George Soros a Republican? How about Steve Jobs? Or Warren Buffet? Or Steven Spielberg? Wall street gives more money to the Democrats than the Republicans.

This is nothing new, really. Nobody, leftist or right wing, goes into politics to hang around with POOR people or to get connections with companies that won't pay their niece well. Bill Clinton didn't throw his daughter a multi-million dollar wedding because his speaking tours to big corporations (that just happen to get corperate welfare) flew them to their events economy class!

All leftism really is just a cheerleading section for a kind of Marxist priesthood and they're the altar boys getting molested. The working and middle class who've fled the socialist democrats are ahead of the curve. Unless you're gay or living in a limosine liberal bubble, that is.

Thomas.Wong observes: "SAN FRANCISCO (AP) — Intel Corp. on Tuesday revealed the scope of its latest infusion to keep its factories cutting-edge and push the chip industry’s pace: an investment of up to $8 billion to build a new factory in Oregon and upgrade four existing plants in Arizona and Oregon."

There goes the neighborhood!

How many Oregonians does it take to change a lightbulb?

10. 1 to change it and 9 to keep those friggin' Californians from sharing the experience! :-)

PolishKnight says

Of course, these so-called fundamentas are subject to “market” conditions. The labor and land, especially, vary wildly by location while materials less so

That was kind of where I was going. It's really market driven. The house is worth what someone will pay for it. I don't see how "fundamentals" apply.

PolishKnight says

Is George Soros a Republican? How about Steve Jobs? Or Warren Buffet? Or Steven Spielberg? Wall street gives more money to the Democrats than the Republicans.

Is Steven Spielberg a crony capitalist? Does he work on Wall St.? How about Steve Jobs? It's a huge stretch to even portray Warren Buffet as such.

I'm just surprised that someone would seriously argue that the Democrats are the party of Wall St. I thought it was pretty well established that they were firmly Republicans...