Dow tops 9000 as home sales rise

[jpatter666]

Re: Dow tops 9000 as home sales rise

From my favorite blog:









I am sorry do disappoint some of the die hard pessimists, but the the housing market are bottoming or have bottomed out. Arguing with the numbers, and figures, thinking one is smart, is just being stupid.

Hi Nero,
Counterpoint?

http://www.calculatedriskblog.com/20...isting-to.html

[nero3]

Re: Dow tops 9000 as home sales rise

Using the long term chart, I doubt it. I am afraid the negativity and pessimism ahead is more a function of personality than facts, it's quite some time since it was rational to be pessimistic, and those who play in the market should be aware of their own faults so they don't let it be in the way of making money. I think it is a matter of intuition vs seeing it, in the sense that if someone is of the type that wants to see it (the retarded type), then it will be to late as intuition is so much more a powerful force in driving the markets.

[nero3]

Re: Dow tops 9000 as home sales rise

In general the discussion here feels like how it is to discuss with someone I know that made a huge investment when conditions was perfect here in Norway (spring 2007) (perfect to someone only following the local news here). I just knew it inside of me that he was committing a huge mistake, simply because he was not the type to make money, therefore it was bound to go wrong, anyway now his investment is down around 95 %, however, it's important to understand that it was those "perfect" conditions that was needed for him to make the investment, someone like him would only be able to buy at the top. Arguing with him now, is like arguing with most here, that are still looking for better conditions, there is always some reason not to invest. I guess when conditions again is perfect, it is time to sell.

[jpatter666]

Re: Dow tops 9000 as home sales rise

I'm open to opinions, but I think that just looking at new homes is a mistake. So many foreclosures are coming onto the market that they are skewing things.

I'm also skeptical because I have yet to see the psychological changes that I saw in the (at least DC area) 95-96 housing collapse. Even I didn't buy as an investment, it was a lifestyle choice.

People still think they can make money off housing. Until I see that beat out of them, I think we've still a ways to go.

[don]

Re: Dow tops 9000 as home sales rise

site:itulip.com housing correction

Housing Bubble Correction Update
Geographic Regions Cascade

Weekly Commentary - March 29, 2006

The dynamic that drove prices outward was the need for workers in the cities and later the suburbs to escape high real estate prices, to move to where real estate was relatively cheaper and the cost of living lower, but still within an “affordable” commute. As homebuyers traveled farther from metro areas, they encountered lower real estate prices. At the extreme top of the market in late 2004 and early 2005, some home owners who bought property in the mid 1990s in market bubble areas before a housing bubble reached their region, sold their property at a huge profit, purchased equivalent property in size and quality in a rural area, and retired on the profit with perhaps a low wage retirement job. For example, home owners from Boston and nearby suburban towns, as well as from new York and Connecticut, sold their homes and purchased homes in Amherst and surrounding towns, 90 minutes from Boston and have retired using the profit on the transaction. However, most rural homebuyers who purchased at the top of the rural market in mid 2005 did so to have a chance to buy an affordable home. Of course, as more and more homebuyers searched farther away from metropolitan areas, prices increased in outlying areas as well until property values in rural areas reached historical peaks and experienced bubbles of their own.

Haven't looked at that in some time. Thanks, M-Man.

Here's the related iTulip forecast for those of us who like to remember back to those days of yesteryear when we all save some dough reading the tulip:

Step D: Three years into the decline, marginal home buyers will learn what owning a home really costs, versus renting when housing prices are declining and jobs are more scarce. Rent is a fixed cost, whereas home ownership presents many variable costs, including increased interest payments on ARMs, and rising tax, insurance, and energy costs. Also, upkeep for the average home typically costs five to ten percent of the price of the home, annually. As prices fall, homeowners will have less access to home equity loans. Many will not be able to afford repair and maintenance expenses. Homes in some neighborhoods—and in some cases, entire neighborhoods—will begin to look neglected, further depressing prices.

Step E: Five years into the downturn, rising unemployment will begin to more seriously affect the market, as indicated in Chart 1. As unemployment rises, homeowners will leave housing bust regions to move to areas where there are more jobs. Many houses will be sold at a loss, or even abandoned, as the market price falls below the loan value. Given the choice between paying cash out of pocket to sell their home or leaving the keys with the bank, many home owners will make the latter choice.

Step F: Ten years into the downturn, real estate will be widely regarded as a terrible, "can't win" investment. McMansions will be subdivided for rental as multi-family homes.

Step G: Ten to fifteen years after the start of the decline in housing values, prices will bottom out, setting the stage for the next boom. Time to buy.

[nero3]

Re: Dow tops 9000 as home sales rise

I'm open to opinions, but I think that just looking at new homes is a mistake. So many foreclosures are coming onto the market that they are skewing things.

I'm also skeptical because I have yet to see the psychological changes that I saw in the (at least DC area) 95-96 housing collapse. Even I didn't buy as an investment, it was a lifestyle choice.

People still think they can make money off housing. Until I see that beat out of them, I think we've still a ways to go.

You can have an era of rising rates, and house prices as in the seventies. This period when looking back, 2000-2016? might turn out to have been like that in retrospect. That means: No funny gains, just a inflation hedge, as with gold, and the other things that have risen.

[flintlock]

Re: Dow tops 9000 as home sales rise

Nero you continue to ignore the fact that,in the US at least, demand for housing was only so high in recent times due to ridiculous financing and virtually non-existent lending standards. Without those, we are unlikely to ever see again the "need" for new home construction on the level it was in the last 20 years or so. People were buying two, three, even more homes on a purely speculative basis. There was no read demand for that level of homes other than as speculative investments.

We have plenty of homes now. In my area, brand new homes sit empty or partially built by the hundreds, if not thousands. Without the 0% down and interest only loans that were offered we'll be highly unlikely to re-start housing at any level close to what it was a few years ago. The jig is up. The Ponzi scheme has collapsed. From now on the majority of new home construction should not expect to exceed the number of older homes that are reaching the end of their lives. The US is a relatively young country. The vast majority of homes here still have quite a long life left in them. I can't see how building more when we already have a surplus makes sense.

The biggest factor in demand for homes is population growth. During the housing boom the United States primary growth in population was due to immigration. A lot of the boom was in providing housing for immigrants. It seemed as if every average Joe had a rental home he was renting out, often to an immigrant family. Now with the US economic collapse, the influx of immigrants has collapsed, many have gone home, and there are way too many "investment homes" going unrented, which is a large part of the housing bubble collapse.

I put no faith in those graphs of yours. "Months of supply"? How is that figure arrived at? It would have to be based on a forecast of future demand for housing. I say that forecast is wrong and overstates the future need for housing based on OLD data from the bygone days of easy credit and low down payments.

If you really want to find info on the return of the home construction industry, I suggest you look at population growth/loss as well as the average age of homes in the US.

[nero3]

Re: Dow tops 9000 as home sales rise

http://web.mit.edu/cre/students/facu...ficePrices.pdf

Last 100 years of office properties in NYC and analysis. Conventional analysis shows that property pretty much appreciates at the rate of inflation over the long run. Property does significantly overperform or underperform inflation in any given short period. If you look at the chart on page 11 of the above report it shows that after periods of overperformance relative to inflation it reverts to the mean with periods of underperformance and vica versa. So the 70's were the result of underperformance from the 50's and 60's relative to the overperformance of the 40's. Prices underperformed in the 90's reverting back from the overperformance in the 80's. As we know the performance in the 00's has been significantly higher then the 90's so one can reasonably expect a 10 year period of under performance as compared to inflation in the next cycle as the pricing returns to mean inflation. Sometimes guts and technical analysis can be misleading if you are looking at the wrong set of data. The comparison to the 70's is inacurate as a baseline because you are starting with a 20 year period of underperformance as opposed to a 10 year period of extreme overperformance. Not to mention a host of other reasons. Now mind you I am not a pessimist. But it is important to know where you are in the cycle in order to make educated investment decisions.

The problem, as with the real dow on the front page (that unlike in the 20-s or in the 50-70-s ) now totally is out of tough with the q ratio or the dow/gold ratio. The reason for this is that the inflation measurements are flawed.

That means that the CPI adjusted real estate prices are totally flawed, and that all those professors are wrong. Railroad, gold, everything that went up with housing in the seventies, went up this time to. It's just the CPI that's flawed, that simple. The bubble is already deflated.


I have calculated, that real estate in norway have went up every year from 1965-1986 (except 1975), it's not a bubble, as inflation moves up, it tends to move up with inflation, and when inflation peaks, it tends to move up with the lower interest rates that provide cheaper loans. What I think happened around 2000 is that the "soft real estate cycle" from 1982-2000 peaked, and that the hard one started.

[nero3]

Re: Dow tops 9000 as home sales rise

Nero you continue to ignore the fact that,in the US at least, demand for housing was only so high in recent times due to ridiculous financing and virtually non-existent lending standards. Without those, we are unlikely to ever see again the "need" for new home construction on the level it was in the last 20 years or so. People were buying two, three, even more homes on a purely speculative basis. There was no read demand for that level of homes other than as speculative investments.

We have plenty of homes now. In my area, brand new homes sit empty or partially built by the hundreds, if not thousands. Without the 0% down and interest only loans that were offered we'll be highly unlikely to re-start housing at any level close to what it was a few years ago. The jig is up. The Ponzi scheme has collapsed. From now on the majority of new home construction should not expect to exceed the number of older homes that are reaching the end of their lives. The US is a relatively young country. The vast majority of homes here still have quite a long life left in them. I can't see how building more when we already have a surplus makes sense.

The biggest factor in demand for homes is population growth. During the housing boom the United States primary growth in population was due to immigration. A lot of the boom was in providing housing for immigrants. It seemed as if every average Joe had a rental home he was renting out, often to an immigrant family. Now with the US economic collapse, the influx of immigrants has collapsed, many have gone home, and there are way too many "investment homes" going unrented, which is a large part of the housing bubble collapse.

I put no faith in those graphs of yours. "Months of supply"? How is that figure arrived at? It would have to be based on a forecast of future demand for housing. I say that forecast is wrong and overstates the future need for housing based on OLD data from the bygone days of easy credit and low down payments.

If you really want to find info on the return of the home construction industry, I suggest you look at population growth/loss as well as the average age of homes in the US.

One special thing with housing, is that the material prices remained stagnant very long, at least here, while building costs rose due to increasing real wages. Now I think real wages will decline while the "material" part of the house, will increase in price. It's wonderful how a house serve a dual purpose of a soft paper asset in periods of declining interest rates, and a hard asset in periods of increasing rates.

It's the same with stocks... (stocks as railroad can perform well in both eras similar to housing, but not stocks such as Coca Cola)

If you have 10 year rates at 6 %, and you buy quality stocks, and let's say the dow is at 15000 at the time. Then the dow stays at 15000 while 10 year rates goes up to 15 %, and as inflation peaks, the rates fall again to 6 %, and in that period the dow rise to 50000. It's in the time when the interest rates rise, that you create the foundation for the dow 50000, the value is not created in the time when interest rates fall, completely oposite of what people think, that's why Warren Buffet loves stocks in times with high inflation as in the seventies, even the stock price itself, might not perform well until after inflation have peaked as in the eighties and ninties.


Here it is to expensive to build a house, that it is extreme in my opinion. Looking at the costs, house prices, unlike what people think is not high. There is this strange mix of cheap foreign goods, and high domestic inflation at the same time, that is ending, in the sense that the foreign goods will increase in price, creating stagflation, while the domestic cost in real terms will go down. What a house can buy today in terms of sugar is what is high, but I don't see nominal prices likely to fall.

[jpatter666]

Re: Dow tops 9000 as home sales rise

One special thing with housing, is that the material prices remained stagnant very long, at least here, while building costs rose due to increasing real wages. Now I think real wages will decline while the "material" part of the house, will increase in price. It's wonderful how a house serve a dual purpose of a soft paper asset in periods of declining interest rates, and a hard asset in periods of increasing rates.

Material prices? Like lumber, concrete, copper? Don't know about Norway, but in the US those shot up dramatically, definitely increasing the base price.

And of course, because of all the building, labor prices went to the moon as well. In my section of DC, prices more than tripled inside of ten years. That's not natural. Even now, running about 150% higher at least.

[nero3]

Re: Dow tops 9000 as home sales rise

Material prices? Like lumber, concrete, copper? Don't know about Norway, but in the US those shot up dramatically, definitely increasing the base price.

And of course, because of all the building, labor prices went to the moon as well. In my section of DC, prices more than tripled inside of ten years. That's not natural. Even now, running about 150% higher at least.

The point is that the house price gains have been modest in comparison to commodities, gold, etc. It's just high inflation, with housing also going up due to a weaker dollar. Housing and gold went together in the seventies. Housing did not went down again. There was no bubble.....The money supply have been totally crazy in the US since 2005, when housing peaked. Inflation through the roof between 2005-2008. Just as bad as in the seventies. About inflation. Even if it is speculative lending, that boosted the M3 between 2005-2008, it's still inflation. Most of the inflation in the seventies was due to negative real interest rates triggering speculation, that further triggered inflation in a vicious cycle. Maybe what will happen is that houses will actually make a comeback, and go back up there again, together with gold for a second round, while long term interest rates rise, and short term rates are kept negative. Then at some time, maybe inflation peaks, and long term rates come down again..And housing even increase further as after 82...Just up and up..

What annoys me, is that people don't understand the difference between the declining inflation environment in the 90-s after japans market peaked in 1992, and the increasing inflation environment in the US after 2005. The price of a house in gold have already went down more than it did in japan during the next 10 years after 1992.

[flintlock]

Re: Dow tops 9000 as home sales rise

Whatever the result for Home Builder stocks, I think the average home size in America will begin to shrink. If just for energy costs alone.

[nero3]

Re: Dow tops 9000 as home sales rise

Whatever the result for Home Builder stocks, I think the average home size in America will begin to shrink. If just for energy costs alone.

That's just a further signs of inflation. Save on anything because costs is getting out of hand.

I have noticed it here. The price of servicing a car have almost doubled in the last 8 years, while the costs of the car, have not increased much at all, what have decreased is the quality of the leather, parts, rust protection, etc, savings everywhere. Smaller houses to, smaller chocolate packages, all part of that inflation trend. I think even alternative energy could be rational in a negative real rates environment, when alternative energy like solar seems smart, because fuel costs increase so much compared to the negative real rates loan needed to service the solar panel, in a high inflation world. I think the poster scenario is the return to kind of a simple farm life, where everyone have a small garden, make their own vegetables, solar on the roof, and really living more in harmony with the environment.

I was buying a part. A tie rod end. Cost in 2002: 315 NOK, Cost in 2009: around 600 NOK. The equivalent car, an Audi A6, have remained pretty stagnant. A job like changing the timing belt have went up from around 5500 NOK to 11500 NOK in those years. It's all inflation I am telling you. With those increased in car costs, I just don't see why housing is a bubble.

[nero3]

Re: Dow tops 9000 as home sales rise

Here is how the next years could look like: even it is a wild guess, as good as anything else:

[xyzzy]

Re: Dow tops 9000 as home sales rise

That means that the CPI adjusted real estate prices are totally flawed, and that all those professors are wrong. Railroad, gold, everything that went up with housing in the seventies, went up this time to. It's just the CPI that's flawed, that simple. The bubble is already deflated.

I think you're completely correct, that the bubble has already deflated.

However, that doesn't mean that prices won't go down more. I'm expecting them to overshoot the bottom. High unemployment, millions of foreclosures, financial crisis, and an ever growing lack of confidence in the value of housing will cause housing prices to bottom out, in terms of the usual ranges within historical ratios that govern housing prices.

Here, by the way, is a graph of housing prices to median family income. This ignores the questionable inflation statistics and focuses simply on straightforward stats. It shows that we're now within the normal range, for housing prices, but there's no reason at least based on this that housing prices can't fall further.

For the 2009 median home price, I've chosen $180,000 as the figure. That's about where we are at this moment.