Tuesday, May 24, 2005

Fundamentals Belie Housing Boom

A writer at Motley Fool has done the calculations readers of this blog know a lot about. He didn't like what he came up with. "In our neck of the woods, things look pretty unhealthy. I recently came across an OK-looking three-bedroom. Needs a new roof and windows and updating throughout. Price: $500,000. The showing agent expected prospective buyers to waive all reasonable protections like inspection clauses. To me, that screams, 'Bubble!'"

"For a reality check, I popped a few numbers into our handy rent vs. buy calculator. It informed me that we would be $60,000 worse off after seven years if we buy rather than continue to rent. It also assumed we'd be comfortable putting more than 50% of our income on the line for a home payment every month and it assumed 5% annual appreciation in housing prices for the entire seven years. In my opinion, those are pretty bad assumptions."

63 Comments:

At 3:14 PM, Anonymous Anonymous said...

Using 5% appreciation the average home in the US ($255,000 according to the NAR report today)would increase to $359,000 in 7 years.

Wages would not increase anywhere near that much. Fundamentally this is not sustainable on a national basis - let alone sustainable in the "bubble areas" The fact of the matter is this IS a national bubble.

Everything in the economy is so tied to real estate now with the refinancing boom, that what affects Boston or LA is going to affect Peoria or Boise.

If a big national bank has trouble with their portfolio, and decides to reduce lending (credit crunch) it will affect all regions. There arent that many regional or small banks anymore.

 
At 3:18 PM, Anonymous Anonymous said...

Bankrate.com just changed their three Featured Articles. The first one now is "8 steps to take before bankruptcy."

Is that telling and timely, or what?
Chip

 
At 3:25 PM, Blogger JLP said...

The problem with bubbles is that people will jump on this $500,000 house because they assume that if they wait they will have to pay even more later. It doesn't matter whether or not the house is worth $500,000, it is more a function of do I pay now or MORE later. The feeling of losing out is the main ingredient of all bubbles. I'm just glad we got into our house 6 years ago. I pray that we don't have to move any time soon.

JLP

AllThingsFinancial

 
At 3:32 PM, Blogger John Law said...

ben- did you ever get around to reading "conquer the crash"

 
At 3:36 PM, Anonymous Anonymous said...

John -- do you have a link to that -- "Conquer the Crash?" (Assuming it is on the Net) Chip

 
At 3:51 PM, Blogger JLP said...

Here's a link to the book on Amazon: Conquer the Crash

JLP

 
At 3:57 PM, Blogger John Law said...

financial sense has a link to some interviews.

http://www.netcastdaily.com/1experts/2003/exp020103.mp3

http://www.netcastdaily.com/1experts/exp060102.mp3

http://www.netcastdaily.com/roundtable/rt110103.mp3

doug noland was on last week

http://www.netcastdaily.com/broadcast/fsn2005-0514-2.mp3

 
At 4:07 PM, Anonymous Anonymous said...

One thing I remember from the 2000 dotcom crash is that there were people jumping up and down saying "these aren't real companies", etc. Then you had another camp jumping up and down when the stocks went up saying "tolja so, nanny nanny boo boo...I'm a millionaire and you're not". People came to accept that "this time, it's different". The stocks kept going up until MicroStrategy imploded. That was the top.

What I find really appalling is the fact that the "experts" are all saying "there is regional frothiness" or "there are bubblettes in certain MSAs". Nobody's mentioning that the MSAs where there are "bubbles" are all population centers where everyone lives.

The rationale that all the folks that are buying property is "I'll buy a house, put the money down, and have someone build equity in it for me by renting it out...I'll be able to sell it for a higher price than what I bought it for". I think that's perfectly rational, but given the coverage that we've seen on the topic of the "housing bubble" recently, I think when one region goes demostrably sour, there will be a rush to the exits due to the levered nature of the financing used by people to buy houses.

We've had a few things in this recent ascent in real estate that are vastly different than past cycles. The first is subprime financing. This is something that wasn't around 10 years ago. If you had a bad credit score, you rented. This time around, if you have a bad credit score, you can get a loan that's affordable. I think think institutional investors are freaked out now by the performance of subprime mortgage stocks of late. The performance of the group has been dismal and now that institutional investors have been burned, it will be harder for the group to raise money. So the subprime source of cash for this group has been cut off.

The next group that needs to be taken out are the zero down mortgage guys and equity extraction guys. I don't think that game stops until one of these companies blows up. The rationale for buying property to make money now is purely capital appreciation. I've read enough anecdotal evidence and seen for myself that this game is getting harder. To pay current prices in many areas, you're taking a leap of faith that you'll be able to sell for a higher price alone. You're not being paid to wait given that rents aren't moving up.

Given that rents are not moving up, just home prices, I don't think the constrained housing supply argument holds water. The only constraint is housing for sale, not housing to live in. If there was a constraint in housing to live in, rents would be going up in geometric sequence with housing prices.

I think we might have seen the beginning of the financing blowup phenomena with two stocks in Puerto Rico: Doral and R&G Financial. Perhaps one of thee smarty-pants finance guys on this board can explain the mechanics of how these two companies blew up.

 
At 4:33 PM, Anonymous Anonymous said...

I've got some advice for you JLP: SELL ! You are looking a gift horse in the mouth. Don't ignore it !

 
At 4:34 PM, Blogger muckdog said...

So many people are buying "investment properties" and letting them just sit empty. They make monthly payments, and plan on selling a few months down the road for big $$$.

Then, the other camp rents their homes out for less than their mortgage payments, also hoping to sell down the road for big $$$.

After factoring in commissions and maintenance, I just think it's crazy to run a monthly deficit to hold an investment.

Kind of like when folks were borrowing money in 1999-2000 to buy stocks. They didn't care about the monthly interest payments, because their .com stocks were making so much.

Ahem.

 
At 4:34 PM, Blogger Ben Jones said...

John,
No, I haven't read it. I plan to though.

 
At 4:54 PM, Anonymous JJL said...

Anybody that can do math can clearly see that renting a reasonable apartment in this environment offers better return for your money. A word about housing gains that people are so enthralled with, if you make 50k,100k in a couple of years on housing appreciation, the only thing you can do with that is buy another house. The money is not liquid in a sense and high prices keep you from really being able to put that money to work elsewhere and buy a home. Real savings and real money building simply cannot be done in a market such as this. I rent right now a 1100sq ft apartment in an excellent northeast massachusetts town. My rent is $800! Checking the real estate listings today, a 1948 1200sq ft 2 bedroom bungalow with oil heat, septic tank, and well water (RADON well as they are known in rocky northern mass)will run me about $2600 in the same town. I have done the math and come out so far ahead by renting, saving, and investing through other avenues that it is not funny. Factor in the around 40k to make the house a reasonable place to live, and you see what I mean. When more people stop and do this kind if analysis, I think things could possibly turn around. Great blog, thanks to all that provide input!

 
At 5:19 PM, Anonymous Anonymous said...

It's hard to say what's going on in DC some places go immediately with multiple offers way over asking price and other fully price places move more slowly. There doesn't appear to be an oversupply of rentals available now, in fact, I think we're a bit undersupplied now, this could well be due to the numerous number of places that have been gutted and are in the process of being fixed up for sale or rental. The length of time it takes to get the remodeling done in this town is considerable. Places that had been gutted a year ago when I moved here don't look to be any closer to completion which means a lot of housing stock has been taken off the market. Newer buildings are taking several months longer than expected so to the extent people are waiting in rentals for their new condo to open up, there's a lot of illiquidity in the market here. Things could well continue on here like this for a year or more. Anything decent in this town (good neighborhood, not a piece of crap built decades ago) costs more than $1800/month. So almost half your take home could be consumed on housing costs in this town alone assuming a greater than $100k income (still fairly high for this town).

 
At 5:40 PM, Blogger Ben Jones said...

We are having server problems at 5:40 Arizona time. Please check back.

 
At 6:12 PM, Anonymous Anonymous said...

That's an intersting comment that investors/speculators are not renting out but holding to sell later at a higher price. That could cause a shortage of rentals in any given market given the proportions of this boom which in turn will fuel the perceived shortage of land thesis further extending this bubble. I think that we can only hope for a soft landing at this point. I fear that the only way this ends is horribly with a world-wide U.S. consumer/debtor induced recession.

 
At 6:27 PM, Anonymous Anonymous said...

MarketWatch has this capsule from the FOMC meeting:
"Signs of soft-patch did not trouble FOMC: May 3 minutes By Greg Robb
WASHINGTON (MarketWatch) -- Fed officials were not troubled by indicators released in April that suggested the economy was slowing, according to the minutes of the May 3 meeting released on Tuesday. Most members viewed the weaker data as "transitory." Only a few FOMC members thought that the Fed's seven straight rate hikes since June 2004 might be impacting growth unexpectedly. The minutes suggest that inflation remained the paramount concern for the central bankers. Many FOMC members viewed the risks to the inflation outlook as "skewed somewhat to the upside." Once again, some Fed officials objected to the language in the post-meeting statement that rates could be increased at a "measured" pace. They argued that such forward-looking language would limit the Fed's flexibility. But the majority rejected this view, insisting that "measured" did not preclude either a pause in the steady pace of rate hikes or an increase the size of the rate hikes to a half a percentage point."

This looks like Rob's description of Orwell-speak times obfuscation-squared.

Chip

 
At 6:31 PM, Anonymous Anonymous said...

http://www.economics.pomona.edu/GarySmith/SoCalHousingBubble.pdf

 
At 6:32 PM, Anonymous Anonymous said...

http://www.economics.pomona.edu/GarySmith/
SoCalHousingBubble.pdf

 
At 6:45 PM, Anonymous Anonymous said...

I like the following, from an article on Motley Fool, "Never Mind the Bubble":

"The bottom line is this: A home is not an investment. It can work like one, if you pay the right price."

Amen, though I'd have inserted "only" before "if."

 
At 6:50 PM, Anonymous Paul said...

Political Animal has a discussion thread on the Housing Bubble.

Kevin lives in central Orange County.

 
At 7:18 PM, Anonymous Anonymous said...

We are damned by our silence. We are damned by our inaction. We are damned by our fear to speak out. We are damned by our weakness. We are damned by being sheep under a government of wolves.

We are damned unless and until you realize that your anger and outrage must be targeted where it is needed, not just where it is harmless. We are damned by our willingness to be angry with those who cannot affect our lives, while remaining too afraid to be angry with those who can. We are damned because individuals who refuse to obey the law morally offend us, but we remain enablers of a government that refuses to obey the Constitution. We are damned until WE THE PEOPLE remember that we ARE a people, and that this nation is US.

The President is not the nation. The media is not the nation. The selfish desires of a powerful few are not the nation. The Congress is not the nation.

This nation is 288 million teachers, doctors, bricklayers, road layers, bridging engineers, railroad workers, bakers, grocers, and thousands of others who actually make the nation work. But we seem to have forgotten that simple truth, that wisdom conveyed in those first three words to the Preamble to the Constitution, “We The People”.

The Constitution makes it clear that the nation is the people, and the government only a temporary custodian of our national sovereignty that rules by and only by the leave of the people.

We are damned because we have forgotten that the government is the employee of the people, and that like any employee the government is required to obey orders, not to give them.

We are damned because we have forgotten that as the employers of the government, we have the right to decide what our employees can do and more importantly, what they cannot.

We are damned because we have forgotten who is really supposed to be in charge.

 
At 7:26 PM, Blogger Melody said...

Conquer the crash is a great read. This prevented me from buying some time ago. Tony Robbins was on the cd's along with Robert R. Prechter. I wonder what Tony said during the Los Angeles Learning Annex? Did he say buy or sell?

 
At 7:27 PM, Anonymous Anonymous said...

In the stockmarket:

"UP by the Stairs down by the Elevator"

In the RE market:

"UP by the Elevator and down by the Stairs"

The stockmarket is infinitely more liquid than RE. That is the place to do "Flipping".

The lack of liquidity in RE wil result in owners being trapped and having to tough it out -- discipline will be needed. Only those with weak financial positions will be forced to sell so if these are not the majority of new owners then prices will deflate stair wise rather than plummet.

This Blog serves one obvious purpose: To warn those who may be about to be foolish

and a more perverse unintended purpose : To warn off anxious buyers and allow courageous (greedy) buyers the chance to get their place at a lower price (less competition)

 
At 7:32 PM, Anonymous Dimitris said...

Here's an interesting link. The party's over!

http://sacramento.dbusinessnews.com/shownews.php?newsid=27236&type_news=latest

 
At 7:53 PM, Blogger Ben Jones said...

Tuesday, May 24, 2005

Due to a hardware error, a percentage of Blog*Spot users will run into intermittent trouble when trying to access their blogs. We have people in the datacenter working on the problem and anticipate that this will be corrected during the next two hours.

Posted by Jason at 13:30

 
At 8:42 PM, Anonymous Anonymous said...

Check out the front page of the Eau Claire Leader Telegram today (Eau Claire is about a one hour commute to the Twin Cities). Homes sales dropped by 35% YOY in April and median prices also dropped. Values in the outer commuter areas of the Twin Cities were starting to inflate, but over the last year or so nothing is moving and prices are dropping. Our bubble is deflating.

 
At 8:56 PM, Anonymous Anonymous said...

I was about to give up on this and go buy that overpriced house while I can still afford it. Then I calculated that I'd have to put down 150k and pay about 3k every month for a relatively small house;
and then hope for it to appreciate more than I could make by buying short term bonds (say 5%). On the other hand I can rent for much less, have free money that I can spend on travel, etc instead of writing 3k checks every freaking month for the next 30 years; it was a dream some 6 years ago, now it feels like a nightmare to live in/with. Looks like I'm going to endup rentin, those who pushed prices so much up for no real economic reason will pay a heavy price soon; I'll hold on to my cash till it all reverts to the mean - late nineties level may be ok to consider.

 
At 9:22 PM, Blogger WillM said...

Talking about the .com stocks, in 1999 an engineer in my office (a technical genius - seriously) got a second mortgage on his house. He could not pass the opportunity to buy Lucent (LU) since it dropped to an irresistible price of $60/share. In early 2000 another friend (another extremely smart guy) cashed in his options for the hi-tech company he worked for and got $40 million. He reinvested in internet stocks, since internet stocks were "just taking off". It is troubling to see really smart people go blind with greed.

I like the comment by one of the bloggers: If there is a housing shortage, why are the rents going down?

 
At 9:41 PM, Anonymous Anonymous said...

Anon 8:42, great to live in MN..
I can still afford it there, prices look totally sane to me. Is MN a different country or a my lost in the see of the bublishious new real estate economy town with a nasty 40F weather in late May the name of which last I heard was Boston, gotto get my happy pill and enjoy it.

 
At 9:45 PM, Anonymous historybugg said...

(Here's a link to the book on Amazon: Conquer the Crash)

Another book worth reading is "Tomorrow's Gold" by Marc Faber. He's the investment manager with long experience in Asia (lives in N Thailand now) who's pretty bearish on stocks and RE and bullish on commodities, gold and Asia---though he believes Asia will go thru some reverses along the way.

The book is not very well written (unlike the brilliant Bill Bonner book which is a must-read). But it is full of wonderful information---more of a history of economics. In particular, Faber traces many historical booms/busts dating back practically to the Egyptians. Really gives you a sense of how the world works and how money flows from one place to the next. He pays particular attention to "outlier" events and rogue waves throughout history.

One of my favorite charts is the list of the biggest cities of the world at various times during history.

For example, Ur was the biggest city in the world in 2030 BC (ancient capital of Sumeria, now Iraq). 300 years later in 1770 BC, nearby Babylon (also Iraq) was the largest. Then Egypt took over. But by 612 BC (one thousand years later), Babylon again became the leader and the first city in world history with over 200,000 pop.

Fast forward to 570 AD and Ctesiphone (also Iraq) was the world's largest, even though it was 1,100 years removed from Babylon's reign and there were the Persian, Greek and Roman empires in between. Ctesiphone didn't even exist when Babylon reigned. Then by 775 AD, Baghdad was the world's largest and the first city in the world with over 1M in pop. So nearly 3,000 years of world history and various cities in Iraq alone rose and fell.

Not really actionable information, but certainly gives you a sense of perspective on how fleeting prosperity can be, as well as how formerly downtrodden nations can rise to prominence.

 
At 9:52 PM, Anonymous Anonymous said...

yes, I know how it feels; still have LU stock (7k burned very quickly) that I got for 30 -looked cheap to me then.. all that idiotic urge to get onto the band vagon. I learned the lesson; a house for 650 that was 350 just 3 years ago - no thanks. The much bigger pain is to see your house drop 50% and owe a TON of money to the bank if one has to move in a buyers market.

 
At 11:05 PM, Anonymous punchbowl said...

Sorry in advance for the off-topic comment, but I just flew from SFO to Vancouver on Alaska, and as I was leafing through the in-flight magazine, I noticed that there were a ton of property-related ads -- mainly for condos in downtown Seattle and Vancouver, rural housing in western states, and "second homes" in Mexico. So I started counting: of the full page ads, 14 of the 32 were for housing! And one of the ads was for (I'm not making this up) forest land in Idaho! Forest is to Idaho as swamp is to Florida -- and 2005 will be to the nation what 1926 was to Florida. Sorry for the off-topic comment, Ben -- and thanks (as always) for the blog.

 
At 11:35 PM, Anonymous Anonymous said...

Signs are everywhere. We may be looking at something much bigger than the property bubble though.

 
At 5:38 AM, Blogger realist said...

it's not just residential real estate. commercial real estate prices are booming in many sections of the country. rents, on the other hand, have gone nowhere. vacancies are still high.

we've had the rationale of baby boomers buying second homes and everybody needs a place to live as reasons for the residential real estate bubble, what what's the rationale behind buying overpriced commercial real estate? it's got to be that people feel the need to put their money to work somewhere, and with nothing else worth buying, real estate is the only game in town.

 
At 5:40 AM, Anonymous Anonymous said...

NY Times article:

http://www.nytimes.com/2005/05/25/business/25home.html?

May 25, 2005
Steep Rise in Prices for Homes Adds to Worry About a Bubble
By DAVID LEONHARDT

Home prices rose more quickly over the last year than at any point since 1980, a national group of Realtors reported yesterday, raising new questions about whether some local housing markets may be turning into bubbles destined to burst.

With mortgage rates still low and job growth accelerating, the real estate market is defying yet another round of predictions that it was on the verge of cooling. The number of homes sold also jumped in April, after having been flat for almost a year.

Nationwide, the median price for sales of existing homes, which does not factor in newly built ones, rose to $206,000 last month, up 15.1 percent over the last year and breaking the $200,000 level for the first time, the National Association of Realtors said. Adjusted for inflation, the median price - the point at which half cost more and half cost less - has increased more than a third since 2000.

"We've had robust markets before," said Maurice J. Veissi, the president of a real estate agency in Miami, who has been a broker for 30 years. "But this one is so much broader and deeper."

Even before this surge, housing prices had risen more steeply over the last 10 years than during any such period since World War II. A growing number of economists worry that real estate is to this decade what technology stocks were to the 1990's, with many people assuming that home values will rise forever.

Over all, home prices have never fallen by a significant amount, and Alan Greenspan, the chairman of the Federal Reserve, said on Friday that a national drop in price remained unlikely. But they have sometimes fallen sharply in certain locations, including New York and Los Angeles, and Mr. Greenspan, in his strongest warning to date, stated that some metropolitan areas were clearly showing signs of "froth."

Having been sanguine about real estate in recent years, Mr. Greenspan began to change his tone in March, when he cited some analysts' concern that the housing market might "implode."

Prices continue to rise most rapidly in the places where they are already highest, including Florida, the Boston-Washington corridor and along the West Coast. In the late 1980's, a typical house in San Diego cost about as much as two typical houses in Syracuse, according to the Realtors' association; today, someone could buy six Syracuse houses for the price of one in San Diego.

Prices have jumped most sharply over the last year in the West - up 21 percent in April from a year earlier, compared with an increase of 14 percent in the calendar year 2004. Price increases also accelerated in the Midwest, to almost 13 percent, while they remained roughly similar in the Northeast at 16 percent, and the South, where they are up about 8 percent compared with a year earlier.

In a separate report, the Census Bureau said Tuesday that the percentage of homes worth at least a million dollars had almost doubled from 2000 to 2003. California had the highest share of million-dollar homes in 2003, with more than 4 percent valued above that amount. It was followed by Connecticut; Washington, D.C.; Massachusetts; and New York, where an estimated 2.1 percent of the homes were valued at more than $1 million. Nationally, 1 percent are worth more than that.

"There's clearly speculative excess going on," said Joshua Shapiro, the chief United States economist at MFR Inc., an economic research group in New York. "A lot of people view real estate as a can't lose."

Until the April surge, the overall housing market had seemed to have reached a plateau. Economists, even some working for real estate lobbying groups, predicted that sales would decline a little in 2005 and prices would rise more modestly.

But even as the Fed has steadily lifted its benchmark short-term interest rate, mortgage rates have remained low. The average interest rate for a 30-year fixed loan is now 5.71 percent, down from 6.30 percent a year ago, according to Freddie Mac, the government-sponsored mortgage buyer.

Mortgage rates are closely tied to the market for long-term government bonds, which are benefiting from purchases by foreign governments, particularly in Asia, that continue to buy Treasury bonds, as well as from investors looking for a haven from risky corporate securities.

As the economy has gained strength this year, the still low rates and creative financing arrangements appear to have wooed a new group of homebuyers into the market. Some are trading up to larger houses, while others are buying a vacation homes or putting money into real estate simply as an investment.

"Mortgage rates are doing this," said David A. Lereah, chief economist of the Realtors' association. "They're near historic lows."

The number of existing homes that changed hands in April increased 4.5 percent, the biggest monthly gain since early 2004. Sales of condominiums, particularly popular among real estate speculators, rose faster than sales of free-standing homes. Condo prices rose faster, too.

To economists worried about a bubble, the growing gap between house prices and almost everything else - rents, incomes, population growth - is the surest sign of trouble. A typical apartment, for example, costs less to rent than it did five years ago, taking inflation into account, according to the National Real Estate Index, which is published by Global Real Analytics, a research company based in San Francisco.

The last time that house prices increased more than 15 percent over a 12-month period was in 1980, according to the Realtors' group. But overall inflation was also high at the time, helping to drive home values higher as well. Inflation has been modest in recent years.

Mr. Shapiro of MFR said that even a moderate rise in mortgage rates now had the potential to cause a price decline in some expensive markets. A rate increase would change the calculation for people buying residential real estate as an investment, he said, and could make other buyers realize that the recent price jumps could not continue.

But other economists predict that powerful demographic forces will keep prices increasing in most of the country. Many baby boomers are buying second homes, and their children - like many immigrants who have arrived in the last generation - are destined, in this view, to buy their first, continuing to stoke demand.

Construction companies have also avoided the kind of overbuilding that plagued some regions during the real estate downturn of the early 1990's. Fewer than 2.5 million homes remained on the market in April, equal to only about four months' worth of home sales, and that is near a record low.

"Obviously, there are some local bubbles," said Mr. Lereah, of the Realtors' group, who called last month's price increase unsustainable. "But I tend to think that with most of the bubbles, the air will come out slowly, rather than popping."

 
At 7:36 AM, Anonymous Anonymous said...

Catch 22...if real estate fails, so do banks, so do us all. WHo wants to create that scenario? The Illuminati? hee he.

BOttom line, there is a bubble in many metro areas but alot of these people have a shitload of equity and are able to get the mortgages on them. Look around at all the new construction of homes and commercial development still. things are hot still. Can anyone answer me this...if the bubble is about to pop, why are rich people investing still?Ie, the trader uppers and the stats on vacation homes,investment homes show this.

in other words, in a bubble situation, usually all the top major players are dumping as all the poorer classes are thinking things are great. Even Warren Buffett still owns.

 
At 7:49 AM, Anonymous Anonymous said...

At least one economist who gives me hope
http://www.resourceinvestor.com/pebble.asp?relid=9973

 
At 7:55 AM, Blogger Ben Jones said...

I am doing everything I can to get this back online. It's in Blogger staff's hands. Please check back.

 
At 8:08 AM, Anonymous Anonymous said...

As prices rise, homeowners go deep in debt to buy real estate

http://www.post-gazette.com/pg/05143/509672.stm

 
At 8:18 AM, Anonymous Anonymous said...

Here is a blogging awards site that might be a good fit with Ben's blog:

http://www.bloggingawards.com/index.php/archives/2005/03/07/future-awards/

Bookmark it for when the next awards nominations come up.

 
At 8:28 AM, Blogger goleta said...

China is rapidly Americanized, at least when it comes to shopping.

On the NY Times, free registration required to read the news:
"By DAVID BARBOZA
Published: May 25, 2005
DONGGUAN, China - After construction workers finish plastering a replica of the Arc de Triomphe and buffing the imitation streets of Hollywood, Paris and Amsterdam, a giant new shopping theme park here will proclaim itself the world's largest shopping mall."

 
At 8:54 AM, Blogger John Law said...

Interest-only loans: not magic, usually not smart

http://moneycentral.msn.com/content/Banking/Homefinancing/P118084.asp

 
At 9:00 AM, Anonymous bbh said...

"if the bubble is about to pop, why are rich people investing still?"

Actually, it's not the rich people that are investing, it's the ones who want to be rich. The stats you are seeing is because the speculators are buying these second and "vacation" homes with LEVERAGE. By now there have been countless articles on ordinary "investors" buying up several houses on LTV and IO loans for speculative reasons. That is why you are seeing the sudden jump in additional properties. Rich people don't suddenly just start buying a lot more vacation properties.

"people have a shitload of equity and are able to get the mortgages on them"

In my opinion, those who bought 2-3 years ago in the west coast are in pretty good shape, because the value has gone up so much. Markets like LA, SD, and Vegas have seen 100% growth in 3 years, and about 70% in 2 years, and I don't think the market will tumble 40-50% where their gains would be wiped out. I am looking at more like 25-30% (maybe slightly higher) drop. Then to stagger for another few years without any appreciation, to get back to the regression line.

The risk are those who bought in the past year-and a half, and those who leveraged their equity with second mortgage, loc, etc.

 
At 9:07 AM, Blogger John Law said...

http://moneycentral.msn.com/content/Banking/Homefinancing/P118084.asp

Interest-only loans: not magic, usually not smart

 
At 10:14 AM, Anonymous Anonymous said...

http://www.curbed.com/archives/2005/05/25/bubblewatch_the_bubble_who_cried_wolf.php

BubbleWatch: The Bubble Who Cried Wolf


Just when we thought we had read the ultimate in bubble prognostications (Henry F*cking Blodget!), we woke up this dark and dreary morning to find our friend the bubble on the front page of the paper of record - again. Seems that home prices have risen 15.1% over the last year, the biggest 12-month jump since 1980, and now the price of the median American home is $206,000 (which, incidentally, is the median price for a sleeping alcove on Christopher St.). Meanwhile, rents are stable, inflation is under control, and nobody can really find a good reason - beyond mortgage rates - rrrayi˜µ8™œ\agfk[BZ adgpaerk'j6u ! Ooh, we seem to have hit our head on the keyboard.

Let's get to the point: Enough! Burst! Do it! Just get it over with, so we don't have to read one more f*cking piece with a quote from some realtor from Pensacola who says he's never seen prices so darn high. Burst. Burst. Burst. It'll be gooey and messy and delicious and we'll all wake up in the morning feeling much better.

 
At 10:18 AM, Anonymous Anonymous said...

Simple math-
Housing prices going up 10-20% a year, and record bankruptcies are still happening. Thus, people are spending all income +20% plus more. Even if the market slows growth rate, BK's will be amazing. The only thing that saved the Japanese from their real estate bubble collapse was their titanic savings rate.

 
At 10:18 AM, Anonymous Anonymous said...

http://www.ocregister.com/ocr/2005/05/24/sections/business/business_columns/article_531408.php

Equity loans alarm experts:
Lenders may have ignored risks in first mortgages

 
At 10:52 AM, Blogger goleta said...

Based on the numbers on foreclosure.com, homes available on the market due to foreclosures, preforeclosures, BK, and FSBO have all increased in 3 states I've been tracking since Tuesday last week:


1. TX from 42212 on May 17 to 45484 on May 24
2. CA from 77837 to 85231
3. WA from 16031 to 18015

Almost 10%/week increase.

 
At 11:33 AM, Anonymous Anonymous said...

Ben, it the site fixed yet? I cannot get the new posts.

 
At 11:37 AM, Blogger Ben Jones said...

The site is still down. Please check back as they tell me they are working on it.

 
At 12:27 PM, Anonymous Anonymous said...

U.S. housing prices are rising in several markets at a rate that Guynn said is ``unsustainable.''

``Some of these stories we're hearing about residential speculation make me uncomfortable,'' he said.

He said excesses in the real estate are confined to ``very localized markets,'' including the coastal areas of Florida and are ``not systemic.''

Last week, Fed Chairman Alan Greenspan warned that the housing market shows signs of unsustainable price speculation and ``froth'' from rapid sales.

http://www.bloomberg.com/apps/news?pid=10000087&sid=aMZocmfDX37k&refer=top_world_news

 
At 2:57 PM, Blogger Rob said...

This comment has been removed by a blog administrator.

 
At 3:13 PM, Blogger Rob said...

This comment has been removed by a blog administrator.

 
At 3:20 PM, Blogger David said...

Check out my new housing bubble blog:

Bubble Meter Blog

 
At 4:59 PM, Anonymous Anonymous said...

The site is back online.

 
At 7:20 PM, Anonymous Anonymous said...

couple of funny little tidbits in DC...

the ritz-carlton built some luxury condos near dupont circle...apparently they've got a mold problem...tee hee

then, they thought it would be a good idea to build luxury condos in georgetown on the potomac...the one man focus group in charge of that project forgot that rich people don't want to look over the whitehurst freeway...hearing they're having trouble selling them

 
At 10:44 PM, Blogger cl said...

MA update: While the nation as a whole is still bubbling MA is showing strong signs of slowing and price reductions. Latest year over year stats:
As I "predicted" in an earlier post, the MA YOY price increases reduced in April to 5.9% (from 12.5% in March) Sales are down 10%. Inventory is up 10% Median house price is still just over 10K below it's high in June of 04. This time they are blaming it on a delayed spring market due to poor weather and an early Easter. Very creative! Actually the spring market came very early this year- Jan. & Feb. and has been slowing down since. Starter homes and condos are still selling and increasing in price at a fast clip. (Though starting to show some weakness with increasing inventory and price reductions) Houses in the 450's up are VERY slow. Not much sign of trading up in the last year. Where are all the sellers going?

 
At 10:52 PM, Anonymous Anonymous said...

7:36 AM you said...
"Catch 22...if real estate fails, so do banks, so do us all."

Follow the money trail.

I'm pretty sure the banks have passed along the risk to Fannie Mae
so that they make all the profit without any of the risk. In my opinion it's the banksters, as always, that are ruining this country (and the world for that matter). It's Fannie Mae that may fail but I think that the US government is only liable for a fraction of the $$ (by law) so it may be China that gets screwed.

By use of the Hegelian dialectic they are creating the problem that they already have a 'solution' for.

The banksters are why you will always see US deficits. They lend us the money that they created out of 'thin air' and at high interest. Thus, it's in their best interest to keep US deficits.

If you study the Federal Reserve Act of 1913 and read what Congressman Lindenberg and our founding fathers thought of giving up the printing presses to non-government organisations, it all becomes clear (make no mistake, the federal reserve is a collection of private banks).

 
At 7:41 AM, Anonymous Anonymous said...

You wrote about Overpriced & -20F Minnesota in Winter:

At 9:41 PM, Anonymous said...
Anon 8:42, great to live in MN..
I can still afford it there, prices look totally sane to me. Is MN a different country or a my lost in the see of the bublishious new real estate economy town with a nasty 40F weather in late May the name of which last I heard was Boston, gotto get my happy pill and enjoy it.

IMHO:

I beg to differ. Minnesota has one of the most expensive Real Estate in the Midwest, especially the Twin Cities - Minneapolis/St. Paul. Over optimistic thinking is the prevalent mood in this state.

Reasons for Minnesota RE t/b concerned:

1- Pending major layoff at major transport company could affect high wage jobs numbering nearly 1,000.

2- Uncertain future of major manufacturing plant could affect incomes of thousands of high wage employees.

3- nearly 80% homeownership rate for Minnesota. In some Minneapolis/St. Paul cities, homeownership rate is already at nearly 90%!!!! You heard that right, 90 PERCENT. Who's left to buy?

4- Minneapolis/St. Paul - Twin Cities have RE cost that are much higher with higher cost of living and more expensive to do business to operate than Metros/States around it (Wisconsin, North/South Dakota, Iowa, Nebraska)

5- Community College per credit costs that are 2x the national average as compared to other states ($60-70 vs. $130 for Minnesota). Send your kids to college here...lol.

6- Rents are cheaper than mortgage payments in the Twin Cities. In fact some property owners / management companies are offering free Plasma flat screen TVs with some rental leases! These are the same apartments with consistently dark windows at night because there are no tennants..lol. Housing shortage...not.

7- Traffic & Congestion galore and road construction that is barely keeping up with demand. It gets even worse in Winter - stuck in traffic with below freezing weather...now your windows may not open...lol!

Folks, you can get all of this and then Humidity & Heat & Mosquitoes in July/August and all the maintenance you have to do because of the extreme weather is a bonus folks...lol!

Whoever speculates with property up here with an 80%
(90% in some suburbs)homeownership rate should know they may possibly be no buyers left when they decide to sell...lol.

Just my two cents....

 
At 11:53 AM, Blogger Ben Jones said...

Until this blog is fixed, I will be blogging here:

http://thehousingbubble2.blogspot.com/

 
At 12:18 PM, Anonymous Anonymous said...

You guys and gals are silly. Internationally the dollar is devaluing 5% to 18% per annum. You are thinking about American buyers, not international. They are coming in and value investing in housing in America. I posted this on http://www.talkbackforum.com/ and that's where I found a link to this site.

BTW, with India now pushing on the same pay rates as the cheaper states in the USA, the massive offshoring will start to slowdown. As soon as the retards/crooks in Congress level the tarriffs with our domestic manufacturer tax load then the houses here will sky-rocket compared to where they are now.

 
At 11:47 PM, Anonymous Anonymous said...

One thing I've noticed, everyone who is in denial about the bubble thinks their geographical area is "different". I live in Las Vegas, and as you all probably have heard, this time last year was complete mania! It has slown considerably, however there are over 100 high rise condo projects going on, and considerable mania over those. I look in the paper, there are so many home for rent. We could buy a 1200 sq. foot home for 470,000 or rent for 1000. Who are all of these idiots who are keeping this thing going! Word here is all the investors have headed to Reno, utah, Phoenix in search of cheaper prices. "Our area is different" "It's different this time" Sounds pretty familiar, doesn't it. Shame on Greenspan for encouraging this freak show. My husband's coworker makes 14 dollars and hour and he has mortgages on 4 homes!!!!!!!!!!!! If that isn't messed up, I don't know what is!

Thanks for you comments (I make my husband read this website, when he starts talking about us buying our first house)

 
At 11:08 AM, Anonymous Anonymous said...

Fundementally it proves that there is NOTHING fundemental. Everything was just a big vulgar joke.

 

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