patrick.net

Meanwhile: FORECLOSURE ACTIVITY INCREASES 7 PERCENT IN FIRST QUARTER
http://www.realtytrac.com/contentmanagement/pressrelease.aspx?channelid=9&itemid=8927

Darn, still got that bug where some people's ID doesn't get recorded with their comment. OK, think I fixed it...

SF ace says

“So we keep wasting on something nobody really need, because this waste is heavily subsidized.”

“However, one thing is absolutely clear: US economy is not strong enough to support this waste of resources for much longer.

The conclusion is very simple: housing prices have to crash and the will. Either they will crash by themselves or they will crash the whole economy before they crash.”
I don’t get this rant as well.

If they keep building, while there are 17 million vacant units, it means prices are way too high. What is not to understand here?

Annual housing building rate is 626,000 per year, which is well, about 25% - 33% of average. Most of these appear to be multi-family type building which are smaller than single family homes. That 626K annual rate is about .6% of US households, lagging population growth and destruction of older homes and/or vacant homes. Building in reality is at an absolute standstill and is reflected in loss of construction jobs.

US natural population growth is .545%, the rest (.432%) is immigration. So they build more new units than natural growth. Beside this there are all kind of expansion projects people do with and without permits. Also with aging baby boomers the natural growth will quickly decrease in the next couple of years. So, .6% growth in the number of units will keep the market oversupplied for about 50 years.

You should be happy that at least some homes are being built, do you really want a long period of very low housing starts, that will guarantee a housing shortage and drive up home and rent price down the line.

Hey, i'm very happy about it, since it guarantees falling prices in the future, though it would be much better to let housing prices fall to were they belong, i.e. about 50% from today's and let Americans start doing something more meaningful than building large wooden boxes that consume tons of energy.

I'm also happy they mostly build multi-family houses with smaller units. At least all new emigrants will easily find homes.

SF ace says

Good to know, let me know when prices fall 20% from today before we talk about 50.

Well, my point is that spending 30+% on housing devastates our economy. That's what a typical middle class family spends. This is not sustainable. In the long run this percentage should be no more than 15%.

Please note: I'm talking about middle class, which is the people who actually pay income tax. Those with low enough income to qualify for all kind of extra deductions/credits are in a different category, as well as really reach ones. For the first ones this percentage may be higher (which is not necessary the case today due to housing programs), For the second ones it is naturally much lower, since they can afford much nicer things than housing to waste their money.

In fact, rising medium income would fix the problem as well as falling housing prices. Income rising by 25% would be equivalent to prices falling 20%. Doubling the income - equivalent to housing prices falling 50%.

I reality, both need to move, so we'll have real prices falling by 20% and this will happen quite soon, i'd say nationwide it should take less than 3 years, much faster in the "fortresses" of California.

Falling by 50% (in real value) would take longer. In best case it may happen within 5 years if the bond market collapses and interest rates jump to double digits, in the worst case scenario take as long as 12-15 years until most baby boomers retire.

@michaelsch

People don't have to spend 30% on housing, they do. They spend more than that, using every way possible to do so.

They will spend the maximum they possibly can. Even if housing dropped over night to half of what it is today, the first couple of buyers would get a good deal and then people would bid things right back up. If interest rates go up, people will simply pay more interest and less on the house. People will pay whatever they can for a house. Saying "no more than 15%" isn't realistic. People will do it, and find a way to do it.

pkennedy says

@michaelsch
People don’t have to spend 30% on housing, they do. They spend more than that, using every way possible to do so.
They will spend the maximum they possibly can. Even if housing dropped over night to half of what it is today, the first couple of buyers would get a good deal and then people would bid things right back up. If interest rates go up, people will simply pay more interest and less on the house. People will pay whatever they can for a house. Saying “no more than 15%” isn’t realistic. People will do it, and find a way to do it.

It's abnormal. It's like saying most people are insane or constantly on drags. I agree this mentality exists now, but it was cultivated. Forces that built it are much weaker now. Well, yes detoxing takes time but we have no other way to go.

Post number 2 is me and I am speaking specifically about the Portland metro area. Yes, we do have some more fallin' to do. Yes, they are still building, yes, we have 600 condo units for sale in the downtown area, yes, we have a higher rental vacancy rate, yes, rents are falling, yes, our bankruptcies and foreclosures are spiking again, no, we don't have the Californians moving here with their wads of cash supporting our bubble. I give Portland metro another 9 months before we level out at bottom.

One difference nowadays compared to 1992/1983/1974 and every other recession year in the whole history of the USA is babyboom demographics.

mathematics applied to economics was my research area.

Well, I tend to judge based on the content of one's posts, not their self proclaimed titles...

yes, how can we consider Greece or Iceland.. After all Greece has massive federal deficits, and Iceland's banks are insolvent. I'm certainly glad the US doesn't have either of those problems! Good thing we have a balanced budget, and don't have to bailout our banks!

when I first wrote that housing prices would collapse, I cited Japan as an example. at that time everybody told me "how can you compare the US to japan, US prices will never go down..."

azrob00 says

You have used the “if interest rates rise, who cares, prices rise with rates” line at least a dozen times on here; Now you are contradicting yourself. clearly if rates rise now, your statements logic is obvious: it won’t matter for house prices, when it obviously will. Why do you think the government drove mortgage rates down to 5%? because rate means nothing to home prices? good thinking!

As someone with a PhD, I would think you would see the flaw in your logic. Interest rates won't rise (much) during a recession with so many out of work.

The prices are set by what is paid. So, the graph of price versus year is the graph of what buyers paid versus the year.

It means that the graph of home prices in Japan versus the year is the graph of prices the buyers paid versus the year.

Therefore I suppose around about the year 1994 buyers in Japan were saying things like,

"We are now 4.3 years after the (..) peak in real estate! I know it doesn’t seem like it has been that long but it has. Prices go up from here.