Housing Bubble Blog

[widebody911]

Some interesting reading, thought it would be good, less contentious, debate fodder.

http://patrick.net/housing/crash.html

[island911]

nice link. . .they even take care of the debate fodder for us.

Tho SF need not worry, for they have their liberal rightousness to save themselves.


. . .and if that doesn't work, they can just blame it all on G W Bush.

[widebody911]

...which is just insance, because every reasonable person knows it's Clinton's fault!

[CamB]

There are signs that something similar may be on the way to happening here in NZ.

I was really surprised today to see a paid advertisement in the local paper from a real estate firm which rents and sells. They published a (theoretically) rather boring list of suburbs with median rentals for 2004 and 2005 split by number of bedrooms.

It should have been boring, except that the data showed that rentals have mostly been essentially flat or gone down (a few areas excluded with moderate increases). There is some explanation in a change in the mix of housing (more cheap apartments being built), but the kicker is that in the same period house prices have gone up at least 15%, following approx a 20% increase from 03-04.

So.... rents are not only not increasing with house prices, but they may in fact be falling (despite wage improvements).

I can't understand why the firm would publish the info - it can't be helping their rental or real estate business. I was, quite simply, confused...

[Joeaksa]

House behind me just sold for $320k. Was new in 1999 and sold then for $140k. They listed it at $295k and then the offers started rolling in and it all ended in a couple of days.

No burst bubble here in the land of the sun... and glad my house is bigger and nicer than the one that sold!

JoeA

[Moneyguy1]

Joe

And the property taxes will match that increase in paper value too!!

[speeder]

Originally posted by Moneyguy1
Joe

And the property taxes will match that increase in paper value too!!

That's a good point, where do property taxes go? I would think that states and munincipalities would be incredibly flush about now from all of this over-priced RE changing hands. What am I missing here?

[Moneyguy1]

I have done financial analysis for local governments for many years (consultant) and this has only been a problem for the past few. It will be interesting to see whether they keep the same rate per 1,000 or proportionally reduce the rate to maintain gross collections and work up from there.

[Eric H]

I dunno... I'm a SF bay area homeowner and I follow the market pretty closely. I think this guy has an agenda or something... as far as I can tell prices are higher than ever and homes are moving. Sure, prices might level off or go down any day but I don't think it's happened yet... (and I'm sort of hoping they do). Any other bay area people believe this guy's page?

Eric H

[Moneyguy1]

Recent industry articles have stated that certain areas such as LV, SoCal and others are getting long hard looks from potential lenders who are beginning to put restrictions on their loans.

[Joeaksa]

Bob,

They may match but they always lag behind a year at least. Will work that that as best as I can but its better than a down market.

JoeA

[grudk]

This guy's a bit over the top, but his basic premise is correct.

Housing values have risen to unprecedented levels in some areas, mostly CA and the Northeast. There is no way it can continue. Best case scenario is that prices stay flat for 15-20 years while high inflation eats away at their values. Not going to happen. I see a 20-30% correction in most CA markets within 5 years, with the potential for higher losses. If you read between the lines in current RE trends, the ball is already starting to roll in some areas. Now is not a good time to buy, unless you can hang on for 10 years and ride it out.

Too many people have been using their homes as an income-generator, and speculation is rampant. Those people are about to get schooled. The little guys always end up getting screwed.

[jyl]

People have all forgotten the CA RE downturn of 1990-1994? Only a decade ago, but it can't happen again?

Edit: a few numbers in case anyone is interested.

In Los Angeles, from 1980 to 1990, average house prices grew +130% (appx +8.7% a year, compounded). From 1990 to 1995, average house prices declined -22%.

I was a homeowner in the LA area at the time, and recall foreclosure signs on every other block, homes sitting unsold for years, and house prices going down much more than -22% in some cases.

In San Francisco the 1980 to 1990 growth was about +140% (+9.2% a year, compounded). The 1990 to 1995 decline was smaller, about -10%.

(The home price data is from the federal OFHEO agency as of 4Q04.)

During that 1980 to 1990 period, the S&P 500 rose about +210% (about +12% a year, compounded). From 1990 to 1995, the SP5 rose about +54% (+9% a year, compounded).

(The stock market data is just eyeballed from a chart).

In Los Angeles, from 1995 to present, average house prices have grown +120% (+8.2% a year, compounded). In San Francisco, average house prices have risen +125% (+8.4% a year, compounded).

During that 1995 to present period, the S&P 500 has risen +113% (7.9% a year, compounded).

[Don Ro]

Originally posted by Eric H
I dunno... I'm a SF bay area homeowner and I follow the market pretty closely. I think this guy has an agenda or something... as far as I can tell prices are higher than ever and homes are moving. Sure, prices might level off or go down any day but I don't think it's happened yet... (and I'm sort of hoping they do). Any other bay area people believe this guy's page?

Eric H

.
'Spoke yesterday w/the realtor who sold to me this house (1,800 sq. ft. on a sub-dividable 1/2 acre) 18 yrs. ago for $265k. She rattled off a few of the most recent sales in this area. All sold for more than list by a minimum of 11%.
.
Example: On University Ave./Palo Alto (very busy street), a 1947 1,000 sq. ft. 2/1 house on a 6,300 sq. ft. lot, listed at $798k, sold at $910k in ~3 weeks. The renter wanted to buy, but she couldn't swing the deal.
.
She gave me an address of an empty (soon to be listed) 1/4 acre lot (50' x 205') in an average neighborhood in P/A. I drove by and the lot is full of trees 'n shrubs. Asking price will be: sitting down?...$1.3 million.
.
She did say that one agency laid off a loan person due to a drop in activity in that office. That's the only hint that she can see as any sign of 'softening.' She said that some folks are taking their equity and buying up in this area.
Others are leaving the state - who can blame them? We'll see what happens after Greenspan does his thing, eh?
.
One of my clients told me last week that her realtor friend asked if she wanted to sell her condo because the seller inventory is down.
.
An across-the-street neighbor of mine has moved to AZ and is having his home (1,600 sq. ft. 3/2, with a shaggy shake roof, on a 1/4 acre lot) staged/upgraded (~$15k - $17k worth) right now. His agent told me that she'll list it in the $900k region and let the market do what it will. My question, in this RE feeding frenzy, is: What do these folks do for a living such that they can afford these home prices?...and the CA property taxes on same?
.
When I speak w/others here about this state's future, almost to a person, the question becomes '...who will be paying for the ever-increasing massive social welfare in CA in the years to come?'
.
"I think this guy has an agenda or something..." An envy-based renter, perhaps?

[speeder]

Let's say, just for the sake of argument, that CA. R.E. does not tank and continues to rise in value. That would mean that a modest house in a decent, (but not spectacular), neighborhood that now sells for ~$1M will rise to $1.5 in a couple years. This would merely continue the current trend, more or less. Let's say that rates continue even a slow rise.

Where are the millions, and I do mean millions of people going to come from that can afford a $10-12,000 @ month mortgage, month in and month out, for 30 years?? That means serious assets, not "have a bad month and can't pay on the first".........

This really confuses me.

[CarreraS2]

I follow all the housing sales in my neighborhood here in Orange County. The prices have been absolutely flat or somewhat declining in the past year.

Most houses seem to sit for at least 2-3 months before selling. Some have been on the market for close to a year. Here's an example of one that has been on the market for close to a year:

http://www.firstteam.com/homes/propertydetails.asp?id=10379333&db=1&MLS=S356918

[jyl]

People are stretching to the limit - zero-down adjustable rate mortgages with payments >60% of take-home income. first and second mortgages (80/10/10s), and so on. Others are speculating - buying homes for quick resale (flipping). Others are taking gains from a first house and putting them into the next house, pyramiding so to speak - this of course requires a steady stream of buyers for the first houses.

Bubbles can go on for long enough that they seem perfectly rational. E.g. the stock market not so long ago.

[techweenie]

Originally posted by speeder
Where are the millions, and I do mean millions of people going to come from that can afford a $10-12,000 @ month mortgage, month in and month out, for 30 years?? That means serious assets, not "have a bad month and can't pay on the first".........

This really confuses me.

And well you should be confused. As of the last report I saw (my girlfriend is a realtor), only 12% of Californians can now qualify for the *median-priced* house. And that's statewide. I'm sure the number is far smaller in the SF or LA/OC/SD metro areas.

[Evans, Marv]

I agree. I'm totally mystified. In the eastern part of the San Diego South Bay area (one of the fastest growing places in the state), new houses are popping up like weeds. 3K to 5Ksquare feet in the $800K+ range, and they are selling like hotcakes. Less than 10% in the S.D. area can afford the median priced home of around $550K. The financing and leverage is like a house of cards waiting to fall, in my opinion.

[Wrecked944]

Am I the only one here sitting on a pile of cash waiting for the housing market to grossly over-correct? I bought my first property back in '95 after the last crash and paid 40% less than the sellers paid for it ten years before. I can't wait for this whole thing to come crashing to the ground.