Housing Bubble Correction

[FRED]

Re: Housing Bubble Correction

I am in San Diego, and I read all these breathless articles about catastrophe about to strike this local market. Yes, there are a good deal more houses for sale citywide, but as I drive around neighborhoods, (not the teeming condo developments which do have forests of for sale signs), I notice it's not exactly a "bloodbath" in the single famly home market, and we are supposed to be one of the worse city markets in the US.

Frankly, the "housing implosion" going on down here is a huge yawn. Not a whole lot of blood in the streets that I can see, with or without the credit crunch. I sold a home in a very central area two years ago. I've not exactly made any huge killing in stocks or gold, or anything else. Meanwhile I get the sense the people and homes I've been watching can hardly be described as "losing their shirts".

Don't forget the point of iTulip's Jan 2005 projection of housing. The housing market correction is minimally a 5 to seven year process. It started mid 2005 so we're only slightly more than two years into it. You're taking the psychological temperature too early. See how folks feel about real estate starting in three years. Also, as the projection notes, the degree of price correct depends on the local employment picture. If the Clinton II administration cuts a similar deal with Bernanke as Clinton I cut with Greenpsan, trading off military spending cuts for low interest rates, what do you suppose will happen to San Diego housing prices?

[Guest]

Re: Housing Bubble Correction

Fred -

That event would probably be a wash for San Diego. A) Military spending cuts weaken the military components of San Diego county (and these are substantial) and B) low interest rates goose the local housing market.

Either way Fred, I must confess to having become fairly cynical that San Diego median home prices will experience a reduction in prices greater than $120K at the deepest correction down from 2005 housing peak prices. I'd greatly appreciate being wrong however.

When the median home price at the peak was around $600K, you can see how a $120K drawdown peak to trough is not a hugely compelling or an imperative reason for long term home owners to sell their primary residence (uness you share Charles Mackay's vision).

Long term homeowners property taxes alone are so low out here that selling and attempting to buy back in at the trough of this housing correction would jack their new property tax basis cost high enough that the difference in that tax alone is the equivalent of 100K in debt service costs. Where's the huge advantage?

I happen to think, and it's entirely within the iTulip framework where housing sees a long term deflationary trend n the midst of massive inflation in other hedge assets, that at some point real property in the US will once again catch a bid when the inflationary bonfires are really roaring. This is the counterintuitive notion that few would believe, because "ride the real estate train to riches" was so heavily oversubscribed as an idea in recent years that the present severe correction is thought to have driven a stake through it's heart.

I think there's a time window in the coming inflagtionary storm when real estate will once again do it's leveraged thingy and rack up some quite impressive further gains. But then I sold early (back in late 2004) and spent the next two years gnashing my teeth as all the "ride the real estate train to riches" guys kept riding the real estate train to real riches! Bah! Humbug! :mad:

[zoog]

Re: Housing Bubble Correction

Thanks all for your comments, encouragement, and suggestions. I think last time I posted on this thread I was in a particular funk about my situation. I now feel more positive. Traffic has picked up, I've had five looks this week and a couple more today. There is also an investor who buys houses to rent who has driven by a couple times, and now wants to see the inside of the house.

The investor is probably my best bet, as this is a street of low-income apartment buildings, duplexes, and other rentals. There is only one other resident homeowner on the block. If there was a tough situation to sell in a slowing market, this would be it. Yet I am now pretty confident that I will not have to ride this out.

...if it were possible to pull 100K - 150K out of it and put it into gold bullion...

Heh, if only there were $100K of equity to pull out... I only bought the house a couple years ago (ah... I was young and dumb then), and well under the median then and now. However, barring any dramatic drop in selling price, I should walk away with a chunk of change, as the home has gone up 25-30% in fictitious value. After paying off debts and putting some in savings, the rest will go into investments such as the yellow clinky-clink.:cool:

I am in San Diego, and I read all these breathless articles about catastrophe about to strike this local market. Yes, there are a good deal more houses for sale citywide, but as I drive around neighborhoods, (not the teeming condo developments which do have forests of for sale signs), I notice it's not exactly a "bloodbath" in the single famly home market, and we are supposed to be one of the worse city markets in the US.

Frankly, the "housing implosion" going on down here is a huge yawn.

Don't forget the point of iTulip's Jan 2005 projection of housing. The housing market correction is minimally a 5 to seven year process. It started mid 2005 so we're only slightly more than two years into it. You're taking the psychological temperature too early. See how folks feel about real estate starting in three years.

When I stumbled onto iTulip late last year and read the housing bubble projections, and along the same time was looking at Robert Shiller's as well, I reasoned that I would have plenty of time to get out of this house if I wanted to. I also realized I could probably stay throughout the whole thing and not go underwater. But paying interest on a depreciating asset, combined with a growing dislike for my particular street (terribly "classicist" of me, I know), plus seeing the potential for gains in the next few years in gold and other investments caused me to decide at length to sell the house.

But then the credit crunch came down in July/August, and that really scared me. I was worried that would make prices plunge more rapidly, especially down here near the bottom end. Well, I'm sure it has had an effect, but it does not yet appear to be as bad as I was thinking a few weeks ago. I often have to remind myself that this housing crash moves in slow motion. I'm sure it can appear boring if you're on the sidelines, even in San Diego.

Take it from someone who (currently) lives in the middle of the world's biggest sand box, there's lot's worse places to have to wait out a housing slump than Portland (or San Diego or any number of other west coast locales). You two are living in the midst of some of the most naturally beautiful territory on earth.

This is quite true. In fact, it's so desirable here that Portland house prices are going up FOREVER!!!!

Ahem. Sorry, I was channeling VancouverGoinUp there for a sec.:eek::rolleyes:

If Vancouver BC has its land limitations, we have our Urban Growth Boundary, which has at least restrained the mega-subdivision build-outs seen in so many parts of the country, and filled in gaps in our historical neighborhoods. (Unfortunately I don't personally feel like the gaps have been filled in an attractive manner, but it still beats unregulated suburban sprawl.) Oh we still have suburban sprawl, it's just not as bad as it could have been. This makes for a relatively compact metropolitan area, so you can soon get out of the city and into all that natural beauty.

To close, here is the Portland inventory chart I put together recently. You can see that the seasonal peaks of new listings keep rising (red line) while the peaks of closed keep falling (green line).

[zoog]

Re: Housing Bubble Correction: Portland Peak

The YOY% has been going down since spring of 2006. I expect it to hit zero by the end of this year (using the median and average numbers published by the local MLS), or possibly even September (using the Case/Shiller index).

The September numbers are out, and it appears that Portland has peaked. September median and average took about a 6% dive from August, though YOY is still positive for both (2.9% and 0.45%). I've updated my charts, and added one for inventory. I do not know what our all-time high is for months of inventory, but according to the report, the 8.6 months in September is the highest since January 2000, when it was 10.1.

[GRG55]

Re: Housing Bubble Correction: Portland Peak

The September numbers are out, and it appears that Portland has peaked. September median and average took about a 6% dive from August, though YOY is still positive for both (2.9% and 0.45%). I've updated my charts, and added one for inventory. I do not know what our all-time high is for months of inventory, but according to the report, the 8.6 months in September is the highest since January 2000, when it was 10.1.

These charts show some remarkably sharp trend reversals across the board! :eek:

By the way zoog, you've got a knack for laying out great charts that are easy to interpret.

[FRED]

Update: Nov. 28, 2007

The number of homeowners receiving foreclosure notices each month now almost equals the number of home sales across the state, said Tim Warren, chief executive of the Warren Group, publisher of Banker & Tradesman.

[santafe2]

Re: Housing Bubble Correction

Hello all. First post here, nice site with more original thought than the usual cut and paste net world. I hope we can learn from each other. You can find me on investorshub.com if you want a background on my point of view. If that's more time than you want to invest, you could get a good sense of how I value things by knowing I measure the value of things in their relationship to precious metals and I measure inflation by watching M2 as it relates to US GDP growth. Both have served me well.

That said, I'm not all that negative regarding the housing issue. There will be too many people that jumped into a new sub-division as the market was peaking but many of these families will soldier it out and currency inflation will make them whole, (sort of), over time. Not all homes purchased in 2005-2006 will prove to be horrible investments.

Examples: If you bought a Mac-mansion in way-west Las Vegas where only lizards lived 5 years ago, you should find a matchbook, light your hair on fire and run down the street screaming. If you bought a fixer-upper in an old school, classic neighborhood and you're under water, start fixing and you'll be fine. The Fed is busy inflating but it won't be enough to inflate a truly horrible decision, only good decisions, badly timed.

If you're a real estate gambler you better change your name and move to Mexico but if you have some foresight and you're a real estate investor who understands the pain of seeing the future while it's prologue, start making a list of what you want to buy.

[Jim Nickerson]

Re: Housing Bubble Correction Re. John Authers

Prieur du Plessis http://www.investmentpostcards.com:80/ 3/9/08

John Authers (Financial Times): What are the markets telling us?
“Let us apply the logic of extremes. Jean-Claude Trichet on Thursday pushed the euro to new unimagined highs against the dollar as he declined to talk down the single currency. He appears set on a starkly divergent path from the Federal Reserve, which is committed to cutting rates to aid growth.

“Meanwhile, commodity prices stayed near record levels, suggesting extreme concern about inflation. And the price of buying insurance against default on the credit market showed that fears for the health of the financial sector, particularly in the US, is at extreme levels.

“Now, let us put the messages from different markets together. The S&P financials was at a new low on Thursday, in dollars. But measure this index in euros and the scale of the collapse in the world’s confidence in the US financial system becomes more apparent. This index has now fallen more than half – 53% – since it peaked in euro terms as long ago as 2001.

“What if gold, close to $1,000 per ounce, is the only true global currency? If we believe that, then it says something interesting about the price of US houses – another asset that can claim to be a store of value.

“In gold terms, US houses have never been as expensive as they were at the beginning of the 1970s when the median house cost more than 700oz gold, according to Tim Lee, of Pi Economics. But they nearly regained that peak in 2001. Their decline since then – even as their prices in dollar terms have gone through the roof – has been precipitous. A US house would now cost you only 220oz of gold. Over history, this price has tended to revert to an mean of about 350oz.

“So, if disparate markets are put together, the US financial industry has lost more than half its value and US housing more than two-thirds of its value since 2001.

“Either the US is on course for disaster or the moves on these markets are overdone.”

So which is it? Disaster or the price of gold is too high?

[KenD]

Re: Housing Bubble Correction Re. John Authers

Prieur du Plessis http://www.investmentpostcards.com:80/ 3/9/08

So which is it? Disaster or the price of gold is too high?

First off, I want to thank everyone here for the education I have received over the last several months that I have been lurking here and reading everything.

Admittedly, I don't pretend to be an expert but I have a few ideas that I would like to throw out and see what you all think.

In 1962, my father, then five years out of college, purchased his second house for what amounts to one year's salary after taxes. During that time, as you may recall, most American families were single income, so the price he paid was for his salary alone.

It is my understanding that median family income in the US for 2007 was roughly $50K with 95% of the American households below $75K - yet the median price of homes is somewhere in the $250K range. In other words, by my crude calculations, we have gone from a 1 to 1 net income to mortgage value ratio to a 5 to 1 mortgage ratio while at the same time we have gone from a single household income to dual income, further skewing this ratio. For the life of me I can't see the Case-Shiller Index as accurately representing this.

Now, this all ties back to the post I am responding to (and I realize this might sound like heresy here) but I cannot see how the price of gold shines any light on this pricing relationship either.

Thanks for your indulgence and I look forward to any responses I might receive.

[Rajiv]

Re: Housing Bubble Correction Re. John Authers

You will find this thread of interest

Ricardo's Law - The Great Tax Clawback Scam

[jtabeb]

Re: Housing Bubble Correction Re. John Authers

First off, I want to thank everyone here for the education I have received over the last several months that I have been lurking here and reading everything.

Admittedly, I don't pretend to be an expert but I have a few ideas that I would like to throw out and see what you all think.

In 1962, my father, then five years out of college, purchased his second house for what amounts to one year's salary after taxes. During that time, as you may recall, most American families were single income, so the price he paid was for his salary alone.

It is my understanding that median family income in the US for 2007 was roughly $50K with 95% of the American households below $75K - yet the median price of homes is somewhere in the $250K range. In other words, by my crude calculations, we have gone from a 1 to 1 net income to mortgage value ratio to a 5 to 1 mortgage ratio while at the same time we have gone from a single household income to dual income, further skewing this ratio. For the life of me I can't see the Case-Shiller Index as accurately representing this.

Now, this all ties back to the post I am responding to (and I realize this might sound like heresy here) but I cannot see how the price of gold shines any light on this pricing relationship either.

Thanks for your indulgence and I look forward to any responses I might receive.

Very Simple, deflation of purchaseing power due to deflation of real wages. (or, unequal rates of inflation in wages vs home prices)

[metalman]

Re: Housing Bubble Correction Re. John Authers

First off, I want to thank everyone here for the education I have received over the last several months that I have been lurking here and reading everything.

Admittedly, I don't pretend to be an expert but I have a few ideas that I would like to throw out and see what you all think.

In 1962, my father, then five years out of college, purchased his second house for what amounts to one year's salary after taxes. During that time, as you may recall, most American families were single income, so the price he paid was for his salary alone.

It is my understanding that median family income in the US for 2007 was roughly $50K with 95% of the American households below $75K - yet the median price of homes is somewhere in the $250K range. In other words, by my crude calculations, we have gone from a 1 to 1 net income to mortgage value ratio to a 5 to 1 mortgage ratio while at the same time we have gone from a single household income to dual income, further skewing this ratio. For the life of me I can't see the Case-Shiller Index as accurately representing this.

Now, this all ties back to the post I am responding to (and I realize this might sound like heresy here) but I cannot see how the price of gold shines any light on this pricing relationship either.

Thanks for your indulgence and I look forward to any responses I might receive.

not heresy. the price of houses in the usa is a result of gov't policy. see 'the next bubble'... tax policy and monetary policy.

the dollar price of gold is a factor of both usa and global monetary policy.

the two may only become relevant to each other some day if the monetary system finishes breaking down and gold becomes the unit of currency of debt that the house sit on.

[KenD]

Re: Housing Bubble Correction Re. John Authers

Very Simple, deflation of purchaseing power due to deflation of real wages. (or, unequal rates of inflation in wages vs home prices)

Yes, I get that.

How do we fix this without creating the wholesale slaughter of hundreds of thousands of families, financially speaking?

Or can we?

[KenD]

Re: Housing Bubble Correction Re. John Authers

the two may only become relevant to each other some day if the monetary system finishes breaking down and gold becomes the unit of currency of debt that the house sit on.

I don't see that scenario as a likely outcome - there is simply too much at stake for the status quo to allow this to happen.

The other issue is that gold is a resource that is used, as with electronics, which translates into an ever-declining pool of gold. For my way of thinking this makes gold an unstable resource to base monetary value on.

But like I said, I'm an amateur, I don't even take my own advice. ;)

[metalman]

Re: Housing Bubble Correction

Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.

By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?

So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.

The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent).

A system like this will make the financial markets work as smoothly as the local fruit market.

clearly remember similar arguments when the nasdaq was 5000... > 80% above where it is today, nine years later.