patrick.net

Let me know if that user changes it back.

I'll change it back to MCMSinger if you disapprove that much.

Take things easy, it's just harmless pranks. Be laid back... I'm willing to follow the rules & show respect to moderators.

That is the day my grandson will buy couple houses on his birthday's gifts..then housing will bubble again..fun

Sir John Templeton opined exacly the same (regarding housing dropping to ten cents on the dollar during the coming bust), and he made that statement in an interview in 2003! He also, however, made the claim that gold was overvalued at the time so it's obvious that he's not omniscient. Still, with a name like his I believe his ideas deserve attention. What would happen is that all lending in the RE sector would completely cease and that combined with Great Depression (the GreatEST Depression?) dynamics, you'd end up being able to buy property for 10% of the peak price IF YOU WERE LUCKY ENOUGH TO STILL HAVE MONEY.

Sir John Templeton WAS a big fan of beach-front RE, however, and he said that he thought that it was a good investment, so it's not like he openly said RE would crater 90% everywhere. I don't think 90% in some areas is insane at all - as other posters have already demonstrated, look at Vegas, Florida, the list is endless. Here in the exurbs of Minneapolis we've seen 50% drops as well in areas. Ireland is now down 40%, EVEN THE SACRED COW HEAVEN-ON-EARTH Australia is now going down, down, down.

The bust is on, and there is ZERO indication it's over.

"Back in the old days... Minium wage workers bought their own homes within 2 years either with full cash payment or with just a very small loan with a large cash downpayment."

Since you've mentioned this twice now (granted in different threads) can you provide an actual place and time where this was true?

If I bring up the national minimum wage vs median house price you would probably counter that the states have different rates and that all markets are local.

Trying to suggest that economic times are worse now than the 60's ignores quite a bit about the 1960's

1) We don't have a draft now. How good can a economy be if you are 18...can't even vote and yet are pulled off to fight anywhere in the planet?

2) It's much easier to move around now. If you have a cell phone and email address you can move nearly anywhere in the country and still stay connected. In the 60's if you were homeless for any reason that totally cut you out of all communications. Yes I have seen people that are homeless use cell phones..heck I've seen 8 year olds on bikes talking on them too.

3) The labor market was smaller in the 60's due to a lack of civil rights and womens rights and one might also add gay rights to it. So better for whom? What were the chances that a women would go to college in the 60's compared to today? If a women is older, single and with no children that would be looked the same today as then? Not a chance. If you were to tell any African American that times were better in the 60's you'd get a tongue lashing!

It is extremely easy to suggest that times were better back then but it was a bubble based on baby boomers. 75 million people of the same ages at the same times nearly assured that given products would boom. Baby food in the 50's, cars in the mid 60s, higher ed late 60's early 70s, housing in the 80s.

Minimum wage workers are a minority within the country and the evidence I illustrated clearly indicates that with age the percentage drops. More importantly why would someone making such a wage want to buy a house given that they are on the bottom so to speak? Otherwise that means that with promotions and raises that the person would have to sell the house to move on and this is harder due to all of the maintenance. It would make more sense to rent rather than to own.

As for higher education...again...
Let me put it in a simple way.

You don't have the money to start up a business so you look for a job.
Employer wants X on your resume
You do not have X
What's your recourse?

You can ramble all you want about how you believe it is a joke. But if it is a joke then why do employers ask for it? Do you want a job or not?

Sometimes I witness the same arguments being said about the job market and usually the breakdown is against higher end and for more equity but it doesn't totally make sense.

They want something
1) Easy to get
2) That employs large numbers of people - to lower unemployment and act as security
3) That has good pay and benefits

If a employer has a large number of people in a given profession then it means the individual demand is low and thus is hard to have good pay and benefits. If you are a factory working making widgets and the output on each person is the same then this holds true. The opposite might be Alaska where it is largely single men that work in the oil industry. It certainly is not an easy job and being up north is not one that a person can easily go to. The more training and experience required for a given profession the less people are able to do it (and the higher the pay, bennies etc)

I get the impression you make minimum wage (which is fine man it's a job and the only way to go is up) and don't have a degree (don't feel bad, plenty don't). Eventually the whole jealousy thing ends. Life isn't high school.

mdovell says

I get the impression you make minimum wage (which is fine man it's a job and the only way to go is up) and don't have a degree (don't feel bad, plenty don't). Eventually the whole jealousy thing ends. Life isn't high school.

I own my own business and do just fine. If anything I bet you fear making minimum wage; insults usually reveals a person's psyche.

Jealousy? lol I went to college bud... and graduated with an MBA. And I learned far far more valuable life skills outside the classroom. You are right - life isn't high school but neither is college mate.

Sheep always falsely think others should be jealous of them. Usually these types of people I have found to be the most jealous of others. Ironic, right?

Concluding point: Why are you so argumentative over such trivial things which are not even about the main point of this thread? But more importantly - why are you giving a double shot at one of my quotes a second time?

And by the way I already discussed and debunked everything you just wrote. Looks like you're just arguing because it's what you like to do. I'm not going to bother because I already did before upon your request.

But If you want to believe in your philosophy, that's fine with me. They only problem I have is with mindless babble about who's perspective is superior.

Why don't we both just accept that we have different perspectives based upon our different experience in this world which formed our beliefs? Unless of course - you dislike the main point of this thread in which case you resort to arguing too much off topic.

-Bye

Real estate values will drop 90-95% from their highest peak? It is already happening in parts of Detroit, where people can buy certain properties for less than $1,000.

Do you think all American cities will resemble Detroit then?

It is possible that many American cities will resemble Detroit due to lack of diversified local economies, long-term structural unemployment, and loss of certain jobs that will never return.

MCMSinger says

to pay off $140-160 trillion...

Where did this number come from? Please provide the source. Is this the notional principal of derivative contracts? I have heard doomsday people quote this figure before, but it doesn't make sense because the mark to market payments are the exposure, some contracts are offsetting, and derivatives are a zero sum game so there are winners and losers.

schmitz_kris says

Sir John Templeton opined exacly the same (regarding housing dropping to ten cents on the dollar during the coming bust), and he made that statement in an interview in 2003! He also, however, made the claim that gold was overvalued at the time so it's obvious that he's not omniscient. Still, with a name like his I believe his ideas deserve attention. What would happen is that all lending in the RE sector would completely cease and that combined with Great Depression (the GreatEST Depression?) dynamics, you'd end up being able to buy property for 10% of the peak price IF YOU WERE LUCKY ENOUGH TO STILL HAVE MONEY.

Interesting but even more interesting how nobody ever takes predictions with a good possibility of happening seriously but always take the predictions with very little possibility or none - very seriously and passionately.

And usually but not always the majority of failed predictions come from either shills, incompetence or people who can't open their mind to other possibilities.

And I checked out his credentials and they are very impressive. He has had a very high prediction accuracy.

His main advice: Be very picky on the location & try to buy as close to 1/10 of the peak "value" (fake value).

I've learned that he predicted financial chaos worldwide very early during the bubble years. Market analysts like him are extremely rare after I checked his credentials and his accuracy...

And by the way - even though gold went up since 2003 when said it was overvalued - doesn't mean he is wrong... It just might mean that the gold bubble went on longer and will crash in the future someday. I also have believed gold to be overvalued. I believe silver is a much safer bet.

Don't mean to toot my own horn but it's interesting to see how closely my predictions and beliefs match up with a billionaire with a impressive track record. And by the way - I never heard of him before. I came up with these predictions based upon my own analysis of everything related to finance and economics.

I also think the herd is very quick to demonize others for being negative if they predict a crash when actually that's positive... Because if you know whether something is going to go a certain direction or has a great possibility - you can plan ahead to make the event turn out to be in your benefit. So no luck is involved, you can create your own fate.

But most people don't think this way.

If you see a lot of people going one way - go they opposite way. You will be right most of the time because the herd usually gets slaughtered.

PRIME says

to pay off $140-160 trillion...

Where did this number come from? Please provide the source.

http://www.mckinsey.com/mgi/publications/gcmannualreport.asp

http://www.mckinsey.com/mgi/reports/pdfs/GCMAnnualReport/Mapping_the_Global_Capital_Market_2006_Update.pdf

Note: This figure is often quoted as asset value but the value is artificially propped up because it's propped up value equals a debt. They are actually toxic debt assets.

bgamall4 says

And people, there is going to be another bubble.

If that happens - dollar will defiantly lose a lot of value.

MCMSinger says

Homes are usually 5-6 times average income today. Basically double.

huh? Maybe during the bubble. Not usually.

You have been proven to be completely and utterly wrong. Own it.

Per CS we just hit brand new lows, and we are DOWN 4% Y-O-Y across the country.

Down 4% is NOT flat, it's DOWN.

My area, Minneapolis, is down double digits Y-O-Y (-10.something+%).

Would that be considered flat, semi-flat, basically flat, roughly flat, flat but on a somewhat downward slope but with a hint of flatness...

What exactly kind of "flat" would that be?

@tatupu

Neighborhood in Roslyn, NY

Median family income (in 2009 inflation-adjusted dollars)
67,040

Median value (dollars)
300,600

Clearly 5-6 times year income. This data is from the government census. And don't come back with a smart-aleck rebuttal; Government statistics are not accurate.

I can show you countless examples with median asking prices on homes that are currently on the market.

PersainCAT says

even assuming zero taxes and buying a cheap house it seems unresolvable that someone on minimum wage could save 40% of their income a year to come up with $480 for a home.

Only to people of this "modern" era. People weren't raised up on learning to save in todays society.

But I think it's interesting that people are simply attacking an insignificant detail of the main subject of this thread - instead of discussing their perspectives on the MAIN subject... Fractional Reserve banking collapsing home prices.

StoutFiles says

For the people who had cash. There was this thing called the Great Depression at the time.

Which ended on Dec 7, 1941.

So because prices were more affordable in 1941 means that we must go back to that?

What about the fact that there are also just millions of more people around? The planet's space is limited but yet the human parasite keeps multiplying...

If we ever start developing housing on other planets, you may get affordability like in 1941.

Quote: House Prices Will Fall 90-95% (from the peak)

Finally, someone more optimistic than me! As much as I'd like to believe that, the math is just too extreme. Yes, prices rose by a factor of 4 to 6 during the bubble, but a drop by a factor of 10 to 20 is just unbelievable.

A 90% drop in the Case-Shiller Index from the peak in 2006 would place the Case-Shiller Index at 28. The lowest the Case-Shiller has even been was about 65 in 1921. See graph. So a 90% drop would make housing 3 times as cheap as it was back then.

I think the bottom will be about 80-90 on the CSI, but I suppose it's possible the bottom could go down to 70 in the best-case scenario. I don't think the market will over-correct more than that unless we have a third world-war and a draft that effectively causes the American population at home to plummet.

Current cost of housing is high enough to damage economic and social life. Therefore it's unsustainable. For most people, housing costs way more than any of the following: food, healthcare, education, transportation. It should not.

However, if it gets in line with other expenses, people will start buying homes again. This will provide a hard floor to housing prices, there will be no reason for prices to fall further. It may temporary overshoot, but that's a natural floor.

My estimate is that ownership prices need to fall by 60%-65% and rentals by 40-50% to reach that floor.

Another question is how it may be achieved. I would say two simple things would do the trick in no time: stop housing subsidies and stop lenders bailouts.

But both things are unthinkable in modern USA. Therefore, there will be long bleeding going on for years maybe decades to get there.

PersainCAT says

your kidding right. at minimum wage there is no way your saving 40% of your income in ANY era of society.

People lived with their parents until marriage. Modern era associated that with losers but now it's beginning to become more and more of the norm.

SubOink says

What about the fact that there are also just millions of more people around? The planet's space is limited but yet the human parasite keeps multiplying...

I don't deny population density. Good point.

But there are a lot of other fundamentals not supporting the current market.

In fact, I made a thread about this last year relating to congestion in southern california.

http://www.city-data.com/los-angeles/1049240-congestion-driving-southern-californias-market.html

Dan8267 says

Quote: House Prices Will Fall 90-95% (from the peak)

Finally, someone more optimistic than me! As much as I'd like to believe that, the math is just too extreme. Yes, prices rose by a factor of 4 to 6 during the bubble, but a drop by a factor of 10 to 20 is just unbelievable.

A 90% drop in the Case-Shiller Index from the peak in 2006 would place the Case-Shiller Index at 28. The lowest the Case-Shiller has even been was about 65 in 1921. See graph. So a 90% drop would make housing 3 times as cheap as it was back then.

I think the bottom will be about 80-90 on the CSI, but I suppose it's possible the bottom could go down to 70 in the best-case scenario. I don't think the market will over-correct more than that unless we have a third world-war and a draft that effectively causes the American population at home to plummet.

Some good points and I can see the merit behind your logic.

They only thing I would say disagreeing with it is about how people didn't buy 50 year old homes for the price of a new one.

But I think your argument is well-opinionated.

PS. One thing I just want to make clear to everyone: I'm not interested in trying to win an argument rather I would just like everyone to give their take on my logic of home prices risk crashing 90-95% due to fractional reserve lending. Discuss well-reasoned arguments against this logic; I am interested in seeing other perspectives but do keep in mind that I am not interested in getting into a ego game about who is right and who knows more or everything.

If you wanted to make an argument that the dollar has lost value I'd say 99.9999% of the members here would agree to that even without stats.

If you make the argument that somehow things are sliding back that depends on a number of things. Having the desires to have a house might have been the status quo for decades but not now. Same with having children. The ability to preserve food is much easier today then in the 60's and it is easier to cook.

Examine some photos of people in their 60's in 1960 and then look at some from today. People are healthier today. 60 isn't nearly considered as old as it was back then. The fuel today cost more than then (even when adjusted for inflation) but the miles per gallon is much higher. A light truck today has the same fuel economy as a compact car did in the mid 70s. Communications are cheaper today and easier.

The biggest difference is that employment requires more education and training than before. After world war two the wartime restrictions were lifted so all the production that was held back could go towards consumerism. The country developed faster so of course they did not have much for standards as the demand was domestic. Goods could be made here for the cost the producer could live with and what the consumer could afford.

But we added more to the labor pool and then put on more taxes, regulations and government spending. As more markets opened up anything that was lower wages that did not require direct interaction with a customer was moved overseas. Anything can be made in the USA but it comes with a cost.

bgamall4 says

The only actual free option is to stay with family and don't buy

That is why third world countries don't care much about housing as much as we do. American dream is too deep into the psyche of common mass.

PersainCAT says

if u want to claim "logic" you need to show what has CHANGED now that makes the systems we have been using stably for 50+ years.

Inflation is stability? It robs people's wealth & makes if harder to save due to expenses increasing in price while the wages are slow to increase

PersainCAT says

im looking around every country works this way, and it has been working safely this way for how many years?

And that's why a collapse will be a global one which many people have been warning about for years. John Templeton has warned that someday a global collapse will come that will hold it's consequences for many years.

PersainCAT says

which is basically saying that the WHOLE worlds economy is about to collapse

And that's exactly what I mean to say. Go take a look at what's happening in Greek, Ireland, Spain and what's already happened in the middle east. Take a look at Dubai - economic problems. There is a sovereign debt problem & a crisis is approaching. Italy & lots of other countries in the European Union will also see a collapse. China is in big trouble if we ever get into a collapse (which there is a great chance of happening).

michaelsch says

My estimate is that ownership prices need to fall by 60%-65% and rentals by 40-50% to reach that floor.

This is absurd, you are predicting a fall down to the lows or a little lower than the previous low in California that occurred in the mid 90s. I don't see that happening, unless there was deflation in everything and the greatest depression of them all. In other words, in such an extreme situation prices would not actually be more affordable, because the earth would be scorched, or we would all be broke and in bread lines.

Given that something near 30% of people are underwater already, we know that housing can't drop so much that most of them need to walk away.

There other possible weird scenarios, where high inflation and interest rates for a brief period, cause homes values to reach a low like what you are talking about, but in REAL DOLLARS. I could totally see that happening. This would be for example where compared to other goods and services, homes are way cheaper, relatively speaking than they are now, but prices for everything are much higher, as are salaries (although like housing, salaries also might not be up quite as much in nominal terms as most other items. )

But under such a scenario, because of high interest rates, homes would actually only be that inexpensive for the cash buyer (who would be forgoing very attractive deals in the bond market (that is if it was functioning as a free market at that time)).

Actually, this scenario is one that I find very likely, but it could take anywhere from 10 to 40 years to fully unfold.

"Inflation is stability? It robs people's wealth & makes if harder to save due to expenses increasing in price while the wages are slow to increase."

One can argue that inflation and deflation can be good but in small amounts. It is natural that the market has prices rise and fall depending on conditions. If inflation goes up it can provide more of an incentive to work to survive. In deflation it can be bad because why would anyone buy today or even this week items that will be less later on. Inflation can deflate the concept of anyone in debt as their debt will be smaller (assuming fixed rates here).

The most stablest form of currency I have heard argued was Boston and NYC subway tokens. This might sound like a joke but keep reading. What you paid for the token went up in price...but what you received for the token remained the same. So a token in 1910 received the same value in 1930, 1950, 1970, 1990...until they put in the eticket things. People in lesser incomes would often buy tokens before they went up in price to hedge against inflation.

bgamall4 says

We need a little deflation to make up for all the inflation we have suffered through with the ponzi housing bubble.

Be careful what you wish for.

http://research.stlouisfed.org/fred2/series/CMDEBT

Well, the inflation long term trends were not good because they pushed cost of living up and stole from cash savings slowly.

But since we've had so much inflation and for so long - deflation will cause a lot of people economical problems.

The dollar should have stayed stable instead of inflating all those years like the Federal Reserve manipulated... And now if they deflate - asset prices will collapse and defaults and bankruptcies will skyrocket.

So yeah be careful with what your saying about deflation being good.

But the damage has already been done by inflation trends long-term. A ponzi scheme eventually collapses.

90% -95% from the pick? Yes it can happen but only is some areas where oversupply of rental houses or high unemployment will cause drop in rental prices. Yes, rent can go down too.
Some people already understood the fact that bank lent them fake money and rejected to give them back Real Money. Instead they give to bank fake asset purchased by fake money back. Pronto!
Deflation is what we actually have. During deflation is harder and harder to pay back loans. Now when cost of transportation and food is going up, but salary stay the same or often got reduced – less money retain to pay debt. With all that government breaks high inflation will definitely happen but not so fast. Beside after high inflation your current equity (if any) in house be worth much less than today’s dollar.

Inflation has two components. Prices are going up so the salary. Effectively buying power is the same.
In deflation salary goes down and prices for goods and services follow it. However we have to remember that will not apply to Everything. Some prices are dictated by local markets (e.g. rent) and some by global markets (commodities).
In fact in many areas rent is not going up at all.
Obviously, in other were job is available and many people lost houses, vacancy going be lower and rent higher. Today gas prices are dictated mostly by Chinese economy.

I would say we generally have inflation in food, energy, medical care and tuition. We have deflation largely with electronics due to the high competition. We also have deflation with some mediums because demand is lower (who buys cd's today?) Houses might be argued to have deflation but if you have to finance an object then it might not really be that much deflated. I am a tad surprised that cars have not gone down in price. Technically cash for clunkers (a bad program) caused used prices to go up.

Naturally inflation can be imported (ask anyone that filled a gas tank in the early 70s) but there are signs that people are starting to share items which can reduce aggregate demand eventually. When people lack money they are more likely to trade items with others or services in lieu of payment (barter economy). Websites make this a bit easier. Although I won't claim this is going to be a earth quaking situation I wouldn't be surprised if retailers start having lower sales in markets where trading is more common.
http://www.time.com/time/magazine/article/0,9171,2032109,00.html

Very touchy in a way for both sides of the aile. I been looking to buy a home. What has astonished me is the fact that housing effects every citizen in country at one point in time. However, no body is talikng about data much less clear information for buyers. Any tom/harry can write an article and try to persude or dissude you from buying house without the gurrantee of fact that information presented to you is factual or far fetched.
I suppose we do have middle class with income in range from 80,000 to 150,000 per family per year and we comprise about 80-90 % of population group. How in the world you expect this segment to buy a home in current market.
May be landlords lobby is spending all on the special interest people to prevent home owner ship in country. After all, who stand to benefit from un affordable housing.
I have heard NAR stating for every house many jobs are created and maintained and agreement is based on NAR data. Agreed,that include banker, real estate and lawyer.
Thier concotion is bitter sweet for taster depending upon.
Real fact is that unless Fedrale gives everone a million dollar interest free to buy homes, expect housing to correct to 1999 levels. Donot buy home to buy an ATM in house but to raise family.
I have seen people lining up with cash buying homes which make me wonder how is that happening? IRS seem dysfunctional at the best to ask where the money came from.
This should stop bullying and BS at the auctions.
In any case, lets write to our politicians who are busy with facts and fictions of thier melonodromic life to help keep american dream alive

You say inflation,
I say deflation.

I say creation,
You say speciation.

Inflation, deflation; creation, speciation
let's call the whole thing off.
****************
It really doesn't matter what you call it, those are just words. I think inflation is an expansion of the money supply (these days, "money + credit"). Deflation is a contraction of the money supply (or, "money + credit"). Some economic theory that I don't understand adds "velocity" to the description. Whatever.

Probably everyone on here will agree that we have rising prices on some stuff, falling wages for some folks (many of them, falling to zero) and so less money to spend. One can call these things whatever s/he wants to call them and boast about how s/he can smarty-pants their way into profiting from the misery with their trades in the margins of it, but I call them a Lower Standard of Living.

Sybrib says

Some economic theory that I don't understand adds "velocity" to the description. Whatever.

yeah, I don't understand velocity either, and you can't find a good definition online. My old World Book encyclopedia had an interesting diagram that showed a simplified economy of a ring of 10 or so producers all paying money to each other in a cycle in a local economy.

But actually quantifying the velocity of money is the interesting thing.

Like what happens to the $900B/yr the DOD is spending? Theoretically that should trickle out in $30,000 quanta to 30 million different people, I guess.

And of course, money is not normally destructible, so this velocity never really ends.

Sybrib says

No reason why we can't have deflation and rising prices.

yup. Some sectors are have elastic demand and some don't. Housing, energy, and medical tends to be inelastic and thus prices are more buoyant in deflationary times.

Landlords also enjoy location monopolies and via informal collusion can attempt to hold the line on prices.

It is all a battle for the paycheck. If paychecks don't get bigger, there's going to be a problem, but it's difficult for renters to go on strike. Gotta live somewhere.

And that is why, rich fatcat landlords, not only immune, but probably thrive and profit from deflation.

Rising prices are rising prices.

Inflation is the inflation of the money supply and credit supply.

Rising prices can be a symptom of rising (money + credit) supply, but need not be.

It is really just a semantics thing anyway, though some Rich Folks, including those who exploit the working classes, are deliberately and disingenuously trying to confuse others by calling Rising Prices "inflation".

Whatever.

Doesn't matter, rich folks are thriving and profiting while the rest of us are watching our living standards decline from a Deflating (money + credit) supply while being confronted by Inflating Prices for things that have as Troy wrote a rather inelastic demand.

Sybrib says

Rising prices are rising prices.
Inflation is the inflation of the money supply and credit supply

Really it's not. Inflation is defined as rising prices. Period.

Rising money supply and/or credit supply can cause prices to rise (inflation) but it is not the definition.