patrick.net

it will be a long time before housing prices go up...too many still struggling in this economy.

terriDeaner says

But what about the next 6-12 months? Oil prices show no signs of slowing down:

Don't know. Maybe another summer spike and fall like in 2008? (Not as deep a fall of course since there won't likely be another financial panic soon.) Long term outlook is almost certainly for more expensive oil. New discoveries are just are not keeping up with depletion rates, and world demand is rising.

The '73 oil embargo started in October. In 2010 dollars, oil jumped from $20 to $40. The prices of EVERYTHING in the US economy had shot up by 20% within 2 years.

The price of oil went from $20 to $60 from 1999 to 2005. Inflation barely budged. It's been averaging $70-80, since then, and DISINFLATION been happening since the housing bubble burst.

Seriously, I don't know how anybody can look at these facts and think this is anything like the 70's.

If that’s true, then how did this happen? I thought there was supposed to be a huge sucking sound somewhere on this graph?... Also notice that the huge spike in printing is also reflected in the M2 during the recession.
Shouldn't massive debt repudiation have the net effect which is seen on the graph during the recession. Banks and those who hold the mortgages that have been sold off (MBSes) are the losers, but the freed debtor now has cash that can be used on rent, banked or spent (showing up in M2). Also, the silent stimulus (squatting in a home that has not yet been foreclosed) creates a similar scenario. Everyone benefits, except for, ya know, that gaping hole in the banks balance sheet. And the poor folks who bought securitized junk. The banks are insolvent, so their balance sheets get propped up by printing (Fed buying MBSes, and now Treasuries, in an unsterilized manner) as MarkInSF described.

bayview6 says

In addition, Bob, you should also consider the fact that a senior with significant home equity can also get a reverse mortgage.

I'm very curious about the reverse mortgage business these days. Wouldn't the lower value of houses mean a much lower payment to the owner? With all the distressed inventory already on the books, why would any company want to essentially buy the senior's home unless they were guaranteed to make a killing on it? You can't just walk into a bank and get a reverse mortgage based on what you paid or what you think the house is worth, they get to decide if they want to bother with you or not. If that 35% of seniors with paid-off mortgages decided to do reverse-mortgages, wouldn't the glut depress payouts further? I apologize for not knowing the technical terms for this stuff.

I've only heard really horrible things about reverse mortgages, so I'm not sure how it is good retirement planning.

@Cautious

I would guess that the bank assesses the value of the house low (not necessarily what the owner paid for it), since they are in a way buying it back from you.

@American: Exactly! So how can that be a retirement strategy when you'll get ripped off? Wouldn't it be better to rent out your house (if you can find a renter) or take in roommates (if you can stand them)? Hope I'm not getting off-topic, but this does relate to the subject in that the banks are going to try to clear this inventory of expired reverse mortgages in years to come. Seniors receiving a tiny equity check aren't going to do much for the economy, and after they die, their homes are going to be offered to a smaller, increasingly urban generation, which doesn't sound very bullish to me.

It could be beneficial if they are have equity in their home but have little in liquid assets that they need for living. Those who lose out are really the potential heirs...

@ LosAngeles Renter:

"Sure houses were a lot cheaper in the 90s also… BUT you paid as high as 10% interest rate on that house."

I'd like to present an example I concocted during my hard research over the years. That hard research was what led me to this site, DoctorHousingBubble and others.

Now for this hypothetical example we will be conservative so imagine a $250K house that eventually went on the market for $500K. I think we can all agree that the price of a house doubling in a few years is not far fetched. Now let's say the house which is now $500K gets an APR of 5%. The question I ask is how much of an APR would the house when it was $250K be in order to equal the mortgage payment (P&I only) of the house at 500K and 5% APR?

If you say 10% (like I did) you are wrong. It is actually over 12%. Put those figure in any mortgage calculator and see for yourself. You are STILL paying less.

Thank you Patrick for preventing me from making a HUGE mistake. I came to the conclusion a few years ago I would rather pay 10% on 100K than 5% on 500K. (I know THAT sounds far fetched but I remember the erector set houses that went up in the South Bronx back in the 90's and sold for $50K that are asking for $400K now. YEAH, RIGHT!!)

Cautious1 says

@American: Exactly! So how can that be a retirement strategy when you’ll get ripped off? Wouldn’t it be better to rent out your house (if you can find a renter) or take in roommates (if you can stand them)? Hope I’m not getting off-topic, but this does relate to the subject in that the banks are going to try to clear this inventory of expired reverse mortgages in years to come. Seniors receiving a tiny equity check aren’t going to do much for the economy, and after they die, their homes are going to be offered to a smaller, increasingly urban generation, which doesn’t sound very bullish to me.

The main element of a reverse mortgage that concerns us is that the senior gets to stay in the house until she or he dies. In effect, the can is kicked down the road with those houses. The folks making these reverse mortgages are betting that in 10 or 15 years, the housing market will have recovered to its historical appreciation rate.

American in Japan nothing will change. History will repeat itself.

All those bullish on housing I'll be seeing on television in 3 to 5 years from now, with their sob stories about how they can't feed their children. It's cyclical in CA. Every few years some people get into too much debt over their head and end up crying for a bail out. And for most part it is obvious that they paid too much for their dwelling, or bought in an area where it periodically floods/burns/mudslides... sometimes of course it's worse such as medical bills or other terrible life events.

And it is all because some level of amnesia kicks in after some time and people get too cocky believing downturns in life cannot happen to them, so they don't account for such, and bullishly believe that whatever they buy goes up in price permanently such as cars, old electronics, laundry detergent, or housing. And they over-leverage their liabilities right into permanent debt. Those type of people are the reason all the banks in LA are the tallest buildings and realtors are spending half a year on cruises in their pricey yachts drinking wine and enjoying life. Someone has to pay for all that extravagance, that someone is very easy to spot... usually a high mortgage and some sort of a HELOC down the line.

I want to quote Jurassic Park here…

Are real estate agents still enjoying those luxury cruises?