Jack, you think there were so many repos because prices held steady? Like all those people figured instead of selling their houses normally and getting back their equity, they'd just leave them to the bank? You were, or are, in denial of what happened.

P.S.: Here, jog your memory:

http://www3.telus.net/public/wertheim/2005/10/slippery-devil-that-real-estate-bubble.html

That means that even popped bubbles do not always go by that name. During the most recent real estate downturn, in the late 1980's and early 1990's, prices fell by more than 10 percent in New York and more than 20 percent in Los Angeles, according to the National Association of Realtors.

Adjusted for inflation, the losses were far worse: about 30 percent in parts of the Northeast and even more than that in Southern California. Prices peaked in about 1988 and did not return to their highs - relative to the price of everything else in the economy - until about 2000.

In Boston, where prices fell 25 percent in the early 1990's, after adjusting for inflation, "people were bringing checks to the table" to cover shortfalls in selling prices because their mortgages were larger than what the buyer paid, said Robert Buckley, a real estate lawyer in Boston.

http://money.cnn.com/2002/12/02/pf/yourhome/q_housingbusts/

In Los Angeles, home prices shed 21 percent of their value between 1989 and 1996, with the typical house selling for $172,900. (The peak was $214,800 in 1989 following a five year, 77-percent jump.)

And thousand more words

source http://www.usc.edu/schools/sppd/lusk/research/pdf/wp_1999_116.pdf

http://forums.pelicanparts.com/uploa...1147430133.jpg

negative appreciation is still appreciation, right?

XHB is still trending downward as homebuilders' guidance gets worse. Philadelphia homebuilders index (HGX) is also close to breaking support levels.

jurgen, how is HGX constructed? seems shld look worse given indiv homebuilder charts.

Median prices are meaningless unless sales volume is included. I suspect that when prices are way down sales volume takes a dive. The only people selling in that market are defaulting, moving because they have to, purchased when the housing was way way lower, ie they still had a gain. Most people simply ride out the downturns by not selling. On the other hand if you must sell in a down market and buy in the same market, you haven't lost anything but realitor fees. Yahoos in over their head are a great source for investors.

Here is a chart of house price and volume during the last bubble and bust, and the current bubble.

It comes from this interesting presentation http://alumni.anderson.ucla.edu/aw/2005/leamer.pdf

http://forums.pelicanparts.com/uploa...1147463481.jpg

Los Angeles price rose appx +100% from 1995 to 1989. stopped rising in 1989, chopped around in 1990, and started declining in 1991. The decline lasted 6 years. By the time it was over, price had fallen 27%. That's in nominal dollars. In real (inflation-adjusted) dollars, the losses were much greater.

What did volume do? It rose through 1988, then rolled over and started falling - an early warning sign. Volume declined until 1991, to half the 1988 peak. When price started declining in 1991, volume started rising. Volume kept rising as price kept falling, for 6 long years. When price was at its lowest in 1996, volume was close to the peak of 1989.

So it was not true that volume takes a dive when prices are way down. Nearly as many people were selling into the 1996 price low and suffering the losses of the past 6 years, as were buying into the soaring prices of 1989.

I agree, most people stuck it out and now, 10-15 years later, have the same faulty, rose-colored memories of 1990-1996 as you do. "Most prices stayed firm." "Prices were flat for a while, that's all." "Only the repos went down." All wrong.

And your memory is better than most. The real estate brokers and get-rich-quick folks have no memory at all of the 1990s housing crash.

By the way, here is another chart with 10 year bond yield and CPI inflation.

http://forums.pelicanparts.com/uploa...1147464849.jpg

Inflation was running about 3%/yr in the early 1990s, which is 19% over 6 years. So house prices declining 27% in nominal dollars meant a decline of about 46% in real dollars i.e. actual purchasing power.

Interest rates were pretty high in 1990, about 9% for the 10 yr bond. The Fed funds rate was 8.2%, so the yield curve was nearly inverted (sound familiar? look at it now) During the next 3 years the Fed lowered the Fed funds rate to 3%, the 10 yr went from 9% to 5.4%. The 30 yr mortgage went from over 10% to under 7%, almost a 4% decline, which probably helped stabilize home price.

Today the 30 mortgage is under 7%. In 30 years its never been lower than 5.3% (in 2003), which isn't that much different from current. If/when a house price decline starts, the Fed doesn't have that much interest rate "ammunition" left to stabilize house price.

Oh, remember how we've been saying if you stay in the house for 10 years it is very unlikely you will lose money. Anyway you've said it and so have I.

Well, there are exceptions - in really big real estate bubbles.

If you bought in Los Angeles at the peak in 1991 and held for 10 years, you roughly broke even in terms of the nominal dollar price. But you lost about 7% in commissions and other fees, to get in and out of the house. And if you say inflation averaged 2%/yr over that decade (just eyeballing the chart), over 10 years that is 22%. So in real inflation-adjusted dollars (i.e. real purchasing power) you lost about 29% for your 10 years of trouble. That's before adding up the excess of your monthly costs (mortgage, maintenance, insurance, etc) over the cost to rent a comparable house!

In the meantime, over in the stock market, from 1991 to 2001 you would have made about 220% in nominal dollars (SPX from 380 to 1214, using midyear prices) or about 198% in real inflation-adjusted dollars.

Some of my LA friends had this experience. They bought a very nice house in 1990 for what was a pretty significant sum back then. House market busts, house is re-appraised for 2/3 of its purchase price. He gets a job in New York that he has to take (no job in LA), but he can't walk away because he'd put 50% down. So they carry the house, pay the mortgage, rent it out and lose money every month, for over ten years. Sometime around 2002 (can't recall) they finally sell it. It sells for a couple hundred thou more than they paid. But over the ten or so years, they lost their shirt.

Our market looks closer to the volume line. I bought my house 5 years ago & it shows about 25% appreciation if I sold today. Sales volume is down 2% from last year, but homes priced well sell quickly. Looks like we missed the party.

What I remember most were the foreclosures. You could always spot them by the rampant weeds in the yard. After a while they started to board up the windows.

They were everywhere. In my neighborhood (nice area of Glendale, houses now selling for $800-900K) there was a foreclosure every few blocks back then.

I also remember the disinterest in real estate that had set in by 1994 or so. People didn't talk about what their home was worth, about how much so-and-so's house sold for, etc.

There might not have been a big wild party in your area.

The big boom and bust cycles seem to be something that happens in major cities, especially coastal ones. I read an article by the Economist (and I think I posted a link to it, here on PP) that showed how cities like NYC BOS LAX SFO have had these cycles while cities in the interior of the US haven't. The current cycle is really interesting because it is global - house prices have boomed in major cities all over the world, from London to Hong Kong to Paris. And it has not been in just the major cities, but also cities like Phoenix and Washington DC. But I think (never looked into it, just read/heard) that in much of the US, places like Ohio, there's been steady appreciation instead of the steep curve you're seeing in the LAX chart. I think that's a lot safer. No big wild party, no big hangover.

Rule #1 - location, location, location. The reason the prices are low & stable in them "flyover" states is exactly that - 'cause nobody really wants to live there. There isn't always the best opportunity for employment or career advancement, etc. At least I don't see it there. The coasts are where it's at - and the left one in particular.

Components of Philadelphia Housing Sector:
http://www.phlx.com/products/sectors/hgxcomp.htm

This index has less concentration in pure homebuilders. It includes material suppliers. Of the 20 components, only 14 are homebuilders, In XHB, 17 of the 21 holdings are homebuilders.

http://advisors.ssga.com/etf/fund/etf_detail_XHB.jsp

Also, in 1990, foreign countries did not hold much US debt. Today, they do, and the strength of the US dollar is very important. If Bernanke does not show resolve in maintaining inflation and protecting the dollar, foreign countries will shun our debt. In the More Bad RE News thread, a few months ago I mentioned the possibility of foreign interest in treasury bonds waning. At that time, the 10 yr treasury bond was around 4.3-4.4%. Today, it blasted up another 7 basis points to 5.20% and is showing no signs of retreating. According to Russ @ http://www.xanga.com/russwinter under his May 05, 2006 comments,"FCBs haven't added a dime to their Treasury holdings since February 23rd."


Might have missed the party, but I don't think we'll avoid the hangover. States like Georgia, Ohio, Tennessee, and Colorado lead the nation in foreclosure rates. We drank club soda, but still need two Tylenol and a cold shower in the morning. :(

Today, Mortgage Servicing News stated Massachusetts' foreclosure level is the highest in 10 years. We haven't even hit rock bottom yet, and foreclosures are already reaching highs???

God knows that Ohio was not my first choicelong strange trip. I lived in Wayne's neighborhood in the mid 80's and might have stayed except for too many damn people! I thought 250K for a small 2 br house was alot!

Wayne.

By a "car" I did mean car related, ie Pelican. Almost no one invests in a "car" except certain people who drive Enzos and crash them. Good tradeoff.

I was mislead by earlier posts that implyed you let go of your house 2 years ago and had not reinvested. As of today you MAY be correct, but only time will tell. But if you have the chance and the price if right I would do it again asap. Rember taxes, that big gotcha, no matter where you turn.