Good overview of Case/Schiller numbers

[World Traveler]

Re: good overview of current news April 29, especially new Case/Schiller numbers

The problem is in timing the bottom and what will happen to real estate prices in the longer term, when deciding if housing is a good investment.

As I've said many times I live through Houston housing bust and it was QUITE an experience. It seemed to go on FOREVER (actual bust where home sales price was below NOMINAL purchase price in 1981 - lasted about 10 years). Bottom was 1987-1989, but, at the time, it did not seem like the bottom, it seemed like the new normal. Best time to buy was probably 1990-1991, after prices started upticking some. So at least it was clear that the bottom was probably over.

But my real point is, even today in Houston housing is not considered an investment, it's a place to live. NOBODY here (that I know) during 2000's housing boom ever talked about housing as a good investment. And we have some of the lowest housing prices in the U.S. for a major metro area. Annual house value appreciation has been modest.

And that I think what the future of the U.S. housing may be.

After the Technology/ Internet stocks bust, people were very leery of Tech stocks. Same will be true for housing, now that it is going bust.

If a buyer can get a good deal on a house, during throes of the U.S. housing bust, if that house(s) are an investment and not just a place to live...Question that buyer should ask himself is: How long do I plan to hold my house-investment(s) and how much will someone pay for it, when I go to sell it? i.e. where will housing values be in 5 years? 10 years? etc.

[touchring]

Re: good overview of current news April 29, especially new Case/Schiller numbers

The problem is in timing the bottom and what will happen to real estate prices in the longer term, when deciding if housing is a good investment.

I think it depends on the real estate and the 3 factors - location, location, location.

The housing recession will end with Manhattan prices plunging more than 50% from current levels.

No matter what the Fed does with money printing, Manhattan real estate will still collapse, it will collapse when the US loses its economic superpower status due to a devalued currency from excessive money printing, and investment money will leave en mass.

When that happens, Manhattan studios will be a good investment in another 10-15 years.

[Guest]

Re: good overview of current news April 29, especially new Case/Schiller numbers

The housing recession will end with Manhattan prices plunging more than 50% from current levels. When that happens, Manhattan studios will be a good investment in another 10-15 years.

I'm praying your are right, as that is the one place I dream of moving back to, but I don't think it will happen Touchring. If it does, I'll send you a magnum of champagne for your prescient call, which would suit me just fine! There are few places so rich in cultural resources that you can spend a Saturday like this - breakfast at a typical Manhattan diner to celebrate Manhattan's popular "street flavor", a three hour leisurely stroll across three or four different ethnic neighborhoods (because the island is so small), then an afternoon at MOMA (Museum of Modern Art), then the Guggenheim Museum or the Metropolitan Museum, followed by an evening at Lincoln Center to catch a rarefied modern classical program of Ravel or Boulez, and then take your wildly opulent pick of about 500 world class restaurants of every conceivable gastronomic persuasion. Every other city in American feels like a provincial hick town compared to that.

[touchring]

Re: good overview of current news April 29, especially new Case/Schiller numbers

I'm praying your are right, as that is the one place I dream of moving back to, but I don't think it will happen Touchring. If it does, I'll send you a magnum of champagne for your prescient call, which would suit me just fine! There are few places where you can spend a Saturday between an aternoon at MOMA (museum of Modern Art), then the Guggenheim Museum, followed by an evening at Lincoln Center and then your pick of about 500 world class restaurants. Every other city in American feels like a provincial hick town compared to that.

It won't happen overnight, i'm talking about a timeframe of 5 years at least (2012 ;)).

We got many things happening around at this moment, credit crunch, inflation, high oil prices, bubble economy in china and india, etc, everything is just medium term (the bubble in china and india can burst, but in just 2 years, they'll be up again with another boom - hell, if a frightening epidemic like SARs can't slow China down back in 2003, what can?).

The real long term trend is that the dollar is losing its significance and the Fed is not doing anything about it.

[Guest]

Re: good overview of current news April 29, especially new Case/Schiller numbers

It won't happen overnight, i'm talking about a timeframe of 5 years at least (2012 ;)).

I don't believe you. But if you turn out to be right, I'm sending you one of those giant magnum bottles of Dom Perignon (thirty litres of premium Champagne). :rolleyes:

[GRG55]

Re: good overview of current news April 29, especially new Case/Schiller numbers

The more I think about it, the more I think this could be the way it plays out, where the housing bottom correlates with a top in mortgage rates.

You could be absolutely correct. But generational moves in asset prices normally overshoot.

My experience in the 1980's [described in response to ASH elsewhere on this thread] was very similar to World Traveler's below. Housing is an asset class that needs lots of credit. Normally the peak in cost-of-credit is the catalyst that promotes the start of the last leg down, and prices bottom after credit has become much cheaper and buyers are convinced of that.

The problem is in timing the bottom and what will happen to real estate prices in the longer term, when deciding if housing is a good investment.

As I've said many times I live through Houston housing bust and it was QUITE an experience. It seemed to go on FOREVER (actual bust where home sales price was below NOMINAL purchase price in 1981 - lasted about 10 years). Bottom was 1987-1989, but, at the time, it did not seem like the bottom, it seemed like the new normal. Best time to buy was probably 1990-1991, after prices started upticking some. So at least it was clear that the bottom was probably over.

But my real point is, even today in Houston housing is not considered an investment, it's a place to live. NOBODY here (that I know) during 2000's housing boom ever talked about housing as a good investment. And we have some of the lowest housing prices in the U.S. for a major metro area. Annual house value appreciation has been modest.

And that I think what the future of the U.S. housing may be.

After the Technology/ Internet stocks bust, people were very leery of Tech stocks. Same will be true for housing, now that it is going bust.

If a buyer can get a good deal on a house, during throes of the U.S. housing bust, if that house(s) are an investment and not just a place to live...Question that buyer should ask himself is: How long do I plan to hold my house-investment(s) and how much will someone pay for it, when I go to sell it? i.e. where will housing values be in 5 years? 10 years? etc.

[bart]

Re: good overview of current news April 29, especially new Case/Schiller numbers

The real long term trend is that the dollar is losing its significance and the Fed is not doing anything about it.

It's probably a semantics issue, but the Fed is actually doing something about it. They're (sadly) factually actively helping the dollar lose value, both by various actions and also failures to act.

The inactions area is one that receives way too little attention and credence. Some examples are failing to raise margins in the late '90s, keeping rates too low for too long a few years ago, and failing to use the power they have to affect derivatives risk and the housing bubble.

[santafe2]

Re: good overview of current news April 29, especially new Case/Schiller numbers

If there is the potential for a secular rise in long term interest rates at some point in the next couple of years [bond investors finally start to fear inflation] couldn't that be the trigger that leads to a final collapse and bottom in home prices?

As long as mortgage rates remain low doesn't it just keep propping home prices above what should be the market clearing price?

I don't think that premise is valid. Home prices are not propped up in the US, they are falling either dramatically or gradually. Deflation always sets in place the expectation of further deflation. A rate of interest will be a secondary driver. While higher interest rates would make the situation worse, I don't think it's correct to assign interest as a driving factor.

[jimmygu3]

Re: good overview of current news April 29, especially new Case/Schiller numbers

You could be absolutely correct. But generational moves in asset prices normally overshoot.

My experience in the 1980's [described in response to ASH elsewhere on this thread] was very similar to World Traveler's below. Housing is an asset class that needs lots of credit. Normally the peak in cost-of-credit is the catalyst that promotes the start of the last leg down, and prices bottom after credit has become much cheaper and buyers are convinced of that.

Great point, GRG55. Makes perfect sense.

The housing recession will end with Manhattan prices plunging more than 50% from current levels. When that happens, Manhattan studios will be a good investment in another 10-15 years.

Perhaps, but Manhattan could also be held up by foreign investment. If you are a foreigner with a lot of depreciating bonars and you want to buy some real property, Manhattan would be the natural first choice. Nobody from OPEC or China wants to buy a house in Detroit or Kansas City.

As an aside, I have a friend who lives in a small 1 BR in the NYU area. The owner bought the 24-unit building at the bottom in the late '80s for something like $500k. That was when everyone was sure that NY real estate was cooked. Now the apartments rent for $3500 each (though some are rent controlled), so he probably clears $60k/month. I can't imagine foreign dollar holders letting deals get this ripe again.

Jimmy

[touchring]

Re: good overview of current news April 29, especially new Case/Schiller numbers

As an aside, I have a friend who lives in a small 1 BR in the NYU area. The owner bought the 24-unit building at the bottom in the late '80s for something like $500k. That was when everyone was sure that NY real estate was cooked. Now the apartments rent for $3500 each (though some are rent controlled), so he probably clears $60k/month. I can't imagine foreign dollar holders letting deals get this ripe again.

Jimmy

Urbanization, another factor to issue, but like EJ says, there are small movements within the big movement. Even a 50% fall is small if you considered the appreciation since America started printing money like it were free.

Sometimes, things happen once in a generation so people don't believe it will happen.

Burma has a super cyclone once in like 40-50 years, so most people don't believe it will happen this time, but so it happened.

Tsunamis that kill tens or hundreds of thousands of people happen once in like 500 or 1000 years, so people don't expect it to happen, and when it really happened, almost nobody knew the tell tale signs. These are stuff like from science fiction.

[GRG55]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Great point, GRG55. Makes perfect sense.



Perhaps, but Manhattan could also be held up by foreign investment. If you are a foreigner with a lot of depreciating bonars and you want to buy some real property, Manhattan would be the natural first choice. Nobody from OPEC or China wants to buy a house in Detroit or Kansas City.

As an aside, I have a friend who lives in a small 1 BR in the NYU area. The owner bought the 24-unit building at the bottom in the late '80s for something like $500k. That was when everyone was sure that NY real estate was cooked. Now the apartments rent for $3500 each (though some are rent controlled), so he probably clears $60k/month. I can't imagine foreign dollar holders letting deals get this ripe again.

Jimmy

Our resident NY, NY fan Lukester would doubless agree with you [and those OPEC and China buyers you mentioned].

But here's a counterpoint: NY has benefitted tremendously from the rise of the FIRE economy, as has London, Toronto and every other global financial centre. Every other financial centre, with the notable exception of Tokyo that is.

Could NY, London and a few other pricey "world-class" cities go the same way as Tokyo, as the FIRE economy moves through its White Dwarf stage?

[touchring]

Re: good overview of current news April 29, especially new Case/Schiller numbers

Could NY, London and a few other pricey "world-class" cities go the same way as Tokyo, as the FIRE economy moves through its White Dwarf stage?

From what i have read so far, Tokyo ended up that way because the japanese govenrment kept on printing money and delaying the inevitable bankruptcy.