No Housing Bubble? - Tilted Forum Project Discussion Community

Yakk · 10-27-2005, 11:44 AM

http://www.upi.com/NewsTrack/view.ph...7-082337-5292r

Quote:

Bernanke sees no housing bubble in U.S.

WASHINGTON, Oct. 27 (UPI) -- The man nominated to be the next head of the U.S. Federal Reserve shares the current leader's view that there is no housing price bubble.

Ben S. Bernanke, whom President Bush has tapped to succeed Fed Chairman Alan Greenspan, recently told Congress that current high housing prices "largely reflect strong economic fundaments."

In other words, strong demand relative to supply -- not a swarm of speculators -- is driving prices up, The Washington Post reported Thursday.

Greenspan's view is similar, if not identical. He concedes that there is "froth" in some markets but nothing to worry about.

Members of the Senate Banking Committee may draw Bernanke out on the topic when his confirmation hearing begins.

I find this shared belief disturbing. It reminds me of some of the optimistic econmists comments in the early parts of the market bubble back in the 90s...

Then again, I suppose speaking too loudly on such subjects prior to being confirmed would have massive and dangerous impacts on the economic markets.

BigBen · 10-27-2005, 12:25 PM

Quote:

Originally Posted by Yakk

....I find this shared belief disturbing....

Uh oh. Isn't two economists agreeing on the same thing the 5th sign of the apocalypse?

Shirley he must be joking...

IMHO, the 'Bubble' is probably the byproduct of consumer uncertainty and low interest rates. Pump the money into your house instead of save it. You can see your house. You can touch your house. It feels good.

I think the generation entering the housing market (as in generations past) wants to do better than their parents, and as such the houses consume a larger part of their disposable income. Is this good or bad? I am not sure.

Really, we could argue about the endogenous and exogenous variables in the housing market for ages... but I think I am going to have to agree with Ol' Greenspan on this one: Even if the market is in an inflated state, that inflation is small and not worth adjusting the whole system for, or inducing legislation on that market.

Elphaba · 10-27-2005, 01:49 PM

Quote:

Greenspan's view is similar, if not identical. He concedes that there is "froth" in some markets but nothing to worry about.

Perhaps this might be true nationwide, but I wouldn't want to have my equity sitting in one of the "frothy" markets. In other articles I have read, it is the new creative mortgage and financing terms that have driven property purchases and may become a serious problem if property values normalize.

Time magazine did a piece on the housing "bubble" not long ago and is worth a read.

FngKestrel · 10-27-2005, 02:08 PM

I'm really curious about this mainly because I'm right about the point where I want to buy a house. I feel like I'm walking face first into a minefield.

jorgelito · 10-27-2005, 02:49 PM

Even with the experts reassurances, I do feel a certain fear with the housing market. Regardless of bubble or not, housing prices just seem to be out of reach and priced ridiculously high. What I really don't understand is, if wages are basically the same, then who is buying up all the houses?

I don't know anyone straight out of college who can afford a $450,000 2BD/2BA starter home here in LA. That just doesn't seem to be reasonable. With some luck, I should be making $60,000 salary when I graduate which is almost double the average BA salary. Even then, I don't think I can afford to buy a house here.

Making things worse is many apartments are being converted to luxury condos, further squeezing the rental market.

I've move 3 times in 2 years for that reason.

How does everyone else do it?

Ben, are you talking about Canadian real estate or US real estate? Does it matter even? I don't know man, I guess I disagree with you a little on the inflation part. I think prices have skyrocketed but wages haven't really. So the inflation is relatively high to me.

Elphaba, I tihnk I read that TIme article, it might still be online (I think it was linked through cnn.com).

FngKestrel, I'm with you, it definitely feels like walking through a mine field with clown shoes on while blindfolded.

BigBen · 10-28-2005, 07:05 AM

Even if the market is inflated a bit, what would you (as secretary of treasury or president, someone who can affect the market) to bring it back to normal?

The answer, IN MY OPINION ONLY, is nothing. Any change you make to the system to combat this problem (a real problem, I am not disputing that) would be worse. I think that the market will adjust itself, and the pendulum will swing the other way.

Legislating prices, giving tax breaks to new home buyers, giving incentives to home builders to increase supply, all of these options come with drawbacks. The reason Greenspan is the most respected man in the world who holds an Economics degree is simple: He doesn't flinch and start fucking with the system when pressures present themselves. He is a long-term thinker, and his steady and predictable actions in the past have prevented unhealthy speculation in different markets. People know what he is going to do, so why speculate?

I am talking about North America housing market, not any country in particular.

I have to add, one should not be so bold as to assume that they can afford a house right out of college. Part of being a new college grad is to spend all of your money on beer and women. Worry about the mortgage in about 5 or 10 years.

Yakk · 10-28-2005, 07:22 AM

The theory I've heard is that the cost of owning a morgage on a home is not out of line with historical trends.

If you take the growth in the median income and divide by the reduction in the cost of carrying a morgage, you end up with prices not that far out of line with what we are seeing.

The differences, of course, are ignored.

1> Equity in your home becomes harder to gather under this model.
2> The increasing number of "creative" financing options that leave homeowners very vunerable to downturns in the market.
3> The high levels of speculation (25%-30%+), a bad sign.
4> Rental prices not keeping up with the increase in home prices.
5> The large number of "buy real estate and get rich!" pseudo-pyramid schemes on TV (always a bad sign -- remember the daytrade schemes during the dot-com bubble?)

Real estate is, admittedly, local. One good rule of thumb to determine if your market is overpriced:

Work out how much it would cost to rent a home. Call this RENT_COST.
Work out what your morgage+property taxes+utilities would be for the same home given a 25% downpayment. Call this OWN_COST.

Compare OWN_COST to RENT_COST.

If OWN_COST > RENT_COST, then we have a price-inversion, and stay the hell out of that real estate market.

There seems to be a lack of tools to "short" the housing market. If I believe the price of real estate in an area will go down, is there anything I can purchase that will allow me to profit if I am right?

BigBen · 10-28-2005, 09:47 AM

Quote:

Originally Posted by Yakk

...There seems to be a lack of tools to "short" the housing market. If I believe the price of real estate in an area will go down, is there anything I can purchase that will allow me to profit if I am right?

I really hadn't thought about that. Good point.

Remember that the local housing market is very dependent on the local labour market. I hear houses in Labour Shortage areas (Fort Mac, Leduc in Alberta) are absolutely insane (rumours of 250k for a 5th wheel trailer, holy shit)!

When a mill/factory/big business pulls out of a community, that will fucking kill the realty market in a community.

Hmmmm. How to "short" the housing market. You have officially stumped me. Good job.

NoSoup · 10-28-2005, 10:59 AM

I think it is very, very difficult to make make broad-based national assumptions, as the real estate market is so very different, depending on the local area.

While I don't live in a huge city, I don't live in a tiny village either. Around here, we are experiencing quite the phenomenon. As of right now, there are a huge quantity of properties on the market - and people just keep on building. Subdivision after subdivision are being put up - while there are literally thousands of homes still on the market. While I don't expect the "real estate bubble" to burst around here, I do expect to see a dip in prices until we return to a more normal inventory of homes on the market.

However, it seems that the trend around here is to buy as much house as you can afford, so there are many properties on the low end just sitting vacent. Because, at the low end, you can buy a house for approximately the same amount you can rent for around here, the rental market is doing rather badly right now. The vacency factor is phenomonal - and the huge apartment complexes have been offering crazy deals (No security deposit, 2 months free, and they pay for moving costs) to try and fill up.

It'll be interesting to see where the market goes around here.

As for my personal opinion on the national market, I don't think we have much to worry about. Granted, real estate prices have gone up rapidly recently, it was to be expected in the type of market that we had. Once interest rates increase, the rental market will come back.

I do have one major, concern, though. A HUGE percentage of people in the areas where real estate appreciated incredibly fast have interest only adjustable rate mortgages. Once those rates adjust, and the interest only payment portion is over, I think that there will likely be a slew of foreclosures, as the mindset of many people was that they'd purchase a property and sell it for a ton more in the next couple of years. With a market as saturated as it is, I think it's very possible that they won't get what the expected to from the property, and without the ability to continue paying the higher payments, will eventually be foreclosed on.

Wow, enough rambling - I gotta get back to work

jorgelito · 10-28-2005, 12:17 PM

I wasn't really thinking along political lines - I am really just focusing on housing and affordability. I didn't realize that the govt. could do something about it, I am more concerned with what I can do about it.

The median house in my area, of which I fondly refer to as the ghetto (if you saw the squalor I lived in you would know what I mean) is $450,000.

A minimum 20% down means I would have to have $90,000 cash outright, then maybe I would luck out and get a 6% mortgage or something.

Women and beer aside (always a good thing - I might just move up north and in with Ben), I don't expect to close on a house the day after graduation. I meant in a more broader sense that typically, home ownership is a pretty common goal among people, but it seems to me, that it is increasinglky difficult.

I just don't understand how anyone can afford to buy a house these days. There aren;t that many good paying jobs out there. According to some report in the real estate section of the paper, in order to afford a home in LA, you need to have a minimum income of $120,000. That is certainly not the median (as far as I know).

I was paying $2550 (total rent, not just myself) on a 3bd/2ba apartment thatwas falling apart an in violation of health codes. We had a rat problem and the health department came out numerous times. We didn't have hot water and my roomate's car got broken into twice. We lived in Brentwood! Not exactly a real slum but it might as well have been.

Basically, I want in on the action and I'm whining cause I don't know how to.
Yakk do you really think that prices are in line with historical trends? It just seems so.....out of reach and discouraging. *sigh*

j8ear · 10-28-2005, 12:37 PM

Quote:

Originally Posted by Yakk

Compare OWN_COST to RENT_COST.

If OWN_COST > RENT_COST, then we have a price-inversion, and stay the hell out of that real estate market.

The inverse however RENT_COST < OWN_COST is a very valid indicator of an abundance of speculative housing buys (inflating the sale prices), resulting in an abundance of vacant homes, and the over availability of rental's.

In fact, I think that same Time article (it might have been USNEWS&World Report though) discussed this very trend.

Fairfax and Louodn Counties, VA and even the 'burbs of Las Vegas being great examples. Lot's of new home starts, because of excessive new home purchases by speculators, who end up with vacant properties. All three have low rental costs.

Food for thought.

Man this economy stuff is mind boggling isn't it?

-bear

j8ear · 10-28-2005, 01:38 PM

Quote:

Originally Posted by jorgelito

What I really don't understand is, if wages are basically the same, then who is buying up all the houses?

Wages aren't the same. The rich and the poor have gotten much wealthier, over the last 5, and 10 years.

Quote:

Originally Posted by jorgelito

I just don't understand how anyone can afford to buy a house these days. There aren;t that many good paying jobs out there.

It would seem that indeed there are plenty of good paying jobs out there, because there is no shortage of buyers.

Home ownership is UP...WAY UP, not down, and this is so across all ecomonic classes.

New home starts are setting records, existing home sales are setting records. Prices are setting records. First time home buyers are setting records. Unemployment is unbelievably low, so low in fact that economists are actually concerned that it is too low, and could actually create economic problems in an ability to pay the wages which will be required to attract and retain quality employees. Supply and demand applies to everything, including labor.

-bear

jorgelito · 10-28-2005, 03:48 PM

I meant wages staying the same relative to inflation. Wait, I'm confusing myself. I am trying to get at inflation I suppose. You're right - this economics stuff is mind-bogling.

I also think the numbers and reports we get are confusing. I remember Al Greenspan warning of a housing bubble then just the other week saying there isn't any housing bubble. And thee's the conflicting articles too. The Time one if I remember was more gloomy while another article in a different magazine/newspaper was more optimistic.

As far as wages, yeah, I guess there must be good paying jobs if there's no shortage of buyers willing to pay so much for houses (hook me up!). But what would we consider a good-paying job? I thought that $60,000 a year straight out of college with a liberal arts BA was a reasonable, even decent salary. But apparently it's not even a living wage (at least here in Los Angeles). but maybe my $60,000 would get me a lot more in other areas.

But here's the thing: It is conceivable that the effect is a result of speculative buying. That is, people are jumping on the bandwagon and buying houses with the intent to "flip" - so they buy with zero or very little down and with an ARM. So it sort of "artificially" inflates the market no?

I think the article uses Vegas as an example that while housing is crazy, lot's of buyers, the occupancy rate is pretty low - not enough tenants - could be too many speculators.

I thought unemployemtn was around the 5% mark which is desirable right?

And then again, I suppose we would have to take regional/local markets more into account as well in terms of pricing, cost of living etc.

Whew! I'm frazzled - too much econ..hehehehe

Elphaba · 10-28-2005, 04:18 PM

Krugman is an economist weighing in on the Bernanke appointment and the "bubble." Forgive the bit of snarkiness/humor on his part, but he makes some interesting points.

As others have said already, economic at this level make my head hurt.

http://www.truthout.org/docs_2005/102805M.shtml

Quote:

Bernanke and the Bubble
By Paul Krugman
The New York Times

Friday 28 October 2005

By Bush administration standards, the choice of Ben Bernanke to succeed Alan Greenspan as chairman of the Federal Reserve was just weird.

For one thing, Mr. Bernanke is actually an expert in monetary policy, as opposed to, say, Arabian horses.

Beyond that, Mr. Bernanke's partisanship, if it exists, is so low-key that his co-author on a textbook didn't know he was a registered Republican. The academic work on which his professional reputation rests is apolitical. Moreover, that work is all about how the Fed can influence demand - there's not a hint in his work of support for the right-wing supply-side doctrine.

Nor is he a laissez-faire purist who believes that government governs best when it governs least. On the contrary, he's a policy activist who advocates aggressive government moves to jump-start stalled economies.

For example, a few years back Mr. Bernanke called on Japan to show "Rooseveltian resolve" in fighting its long slump. He even supported a proposal by yours truly that the Bank of Japan try to get Japan's economy moving by, among other things, announcing its intention to push inflation up to 3 or 4 percent per year.

Last but not least, Mr. Bernanke has no personal ties to the Bush family. It's hard to imagine him doing something indictable to support his masters. It's even hard to imagine him doing what Mr. Greenspan did: throwing his prestige as Fed chairman behind irresponsible tax cuts.

All of this raises a frightening prospect. Has President Bush been so damaged by scandals and public disapproval that he has no choice but to appoint qualified, principled people to important positions?

O.K., seriously, many economists and investors feared that Mr. Bush would try to place a highly partisan figure in charge of the Fed. And even before the revelations surfaced about cronyism at FEMA and elsewhere, there was widespread concern that Mr. Bush would try to select a John Snow type - a businessman whose only qualification is loyalty - to run monetary policy. The naming of Mr. Bernanke was a sign of Mr. Bush's weakness, and it brought a collective sigh of relief.

Obviously I'm pleased, too. Full disclosure: Mr. Bernanke was chairman of the Princeton economics department before moving to Washington, and he made the job offer that brought me to Princeton.

So should we all feel confident about the economic future, assuming that Mr. Bernanke is confirmed? Alas, no.

This isn't a comment on Mr. Bernanke's qualifications, although there is one talent, important in a Fed chairman, that Mr. Bernanke has yet to demonstrate (though he may have it). Mr. Greenspan, for all his flaws, has repeatedly shown his ability to divine from fragmentary and sometimes contradictory data which way the economic wind is blowing. As an academic, Mr. Bernanke never had the occasion to make that kind of judgment. We'll just have to see whether he can develop an economic weather sense on the job.

No, my main concern is that the economy may well face a day of reckoning soon after Mr. Bernanke takes office. And while he is surely the best politically possible man for the job (all the other candidates I would have been happy with are independents or Democrats), coping with that day of reckoning without some nasty shocks may be beyond anyone's talents.

The fact is that the U.S. economy's growth over the past few years has depended on two unsustainable trends: a huge surge in house prices and a vast inflow of funds from Asia. Sooner or later, both trends will end, possibly abruptly.

It's true that Mr. Bernanke has given speeches suggesting both that a "global savings glut" will continue to provide the United States with lots of capital inflows, and that housing prices don't reflect a bubble. Well, soothing words are expected from a Fed chairman. He must know that he may be wrong.

If he is, the U.S. economy will find itself in need of the "Rooseveltian resolve" Mr. Bernanke advocated for Japan. We can safely predict that Mr. Bernanke will show that resolve. In fact, Bill Gross of the giant bond fund Pimco has already predicted that next year Mr. Bernanke will start cutting interest rates.

But that may not be enough. When all is said and done, the Fed controls only one thing: the short-term interest rate. And it will be a long time before we have competent, public-spirited people controlling taxes, spending and other instruments of economic policy.

raveneye · 10-28-2005, 04:33 PM

Quote:

Originally Posted by Yakk

There seems to be a lack of tools to "short" the housing market. If I believe the price of real estate in an area will go down, is there anything I can purchase that will allow me to profit if I am right?

Well you could cash out, lie low, and buy your house back later at a lower price.

I haven't looked at any numbers, but it sure seems like here in Miami the house prices are starting to level out after increasing by about 20-30% per year for the last five years or so. Plus there are more houses on the market than there were a couple years ago.

My guess is that as the interest rates start rising, the prices will level out and stop increasing for several years until the economy slowly comes into balance once again with the house prices. So that if you average out the rate of increase from 2000 to 2010, it will be fairly reasonable.

But what the hell do I know, I'm no economist . . . .

Yakk · 10-30-2005, 09:19 AM

http://www.boston.com/business/artic...rs_the_buyers/

Boston's bubble bursting?

Quote:

Suddenly, area's housing market favors the buyers
Cooling of sales to crimp economy

By Robert Gavin, Globe Staff | October 28, 2005

Greater Boston's once-sizzling home sales have cooled so much this fall that realtors are reverting to a description not heard in a decade: ''Buyer's market."

From the South End to the South Shore to Cape Ann, the list of unsold properties is growing, and so are reductions in asking prices. Attractive houses in good locations with seemingly appropriate pricetags are getting scant interest. Real estate agents, who six months ago played host to streams of buyers, are now presiding over open houses that draw few if any lookers.

For the last two Sundays, John Ford, of Ford Realty Inc., held open houses at a two-bedroom South End condo on a strong residential block of Columbus Avenue with parking, patio, and hardly outrageous asking price of $570,000. Not a single person showed up. In Weymouth, a four-bedroom raised-ranch with a view of the Fore River, priced at $445,000, attracted just one couple in the first hour and 15 minutes of an open house last weekend, prompting realtor Bonnie Goodstein to exult, ''O yay! Customers!"

In Jamaica Plain, even a $70,000 price cut -- to $399,000 -- hasn't generated much interest in a two-bedroom, bi-level condo in a 19th century mansion that has been on the market for about a month. Sunday, only four people, including two curious neighbors, came to an open house.

''My seller is willing" to consider a lower price, said the broker, Anne Connolly, ''but there's no buyers to deal with."

The fall slowdown not only represents a sea change for sellers, who for years have enjoyed multiple offers and higher prices, but also indicates the region's bull housing market is at an end. Real estate agents say a long-predicted market correction appears underway as the gap between the price of housing and peoples' incomes -- now even wider than at peak of the 1980s housing boom -- has become too great to sustain the recent pace of sales and appreciation.

Certainly, few expect an '80s-style collapse, when home values plunged 25 percent or more.Today, the economy and lenders are far stronger, and mortgage rates, which topped 10 percent when the last boom went bust, are far lower -- currently about 6 percent. In the 1980s, overbuilding, unsound lending practices, and intense speculation by investors, along with higher interest rates, sparked a real-estate crash.

Still, real estate agents today increasingly are telling sellers to expect lower prices than comparable sellers received six months ago. Linda O'Koniewski, owner of Re/Max Heritage in Melrose, said her brokerage is still selling houses, but at prices 5-to-10 percent lower than what comparable homes sold for in spring.

''All trends point to a correction period," she said.

While this may be good news for buyers, a slowing housing market will add a drag to Massachusetts' already sluggish economy. Real estate has been one of the state's few bright spots, generating not only jobs when most other sectors declined, but also wealth, in the form of rapidly appreciating home equity.

Homeowners, by refinancing mortgages, can tap into equity gained through appreciation as a source of cash. In Massachusetts, cash taken from home equity rose to 14 percent of peoples' disposable income in 2004 from 4 percent in 2001, according to Economy.com, a West Chester, Pa. forecasting firm.

Real estate-related employment in Massachusetts has risen about 5 percent since 2001, compared to a decline of about 5 percent in overall employment.

''A weakening housing market will be a significant weight on economies that have benefited from the real estate boom," said Mark Zandi, Economy.com's chief economist. ''It means fewer jobs in sectors such as construction. It short circuits equity withdrawals that supported household spending on home improvements, restaurants and vacations."

Analysts said it likely will take until spring, the main home selling season, to gauge the extent of the correction.

Maggie Tomkiewicz, president of the Massachusetts Association of Realtors, agreed that the market has cooled recently, but rather than a correction, it represents a return to normalcy. She doesn't expect prices to decline year-over-year.

''The market was overheated," she said. ''A seller now needs to be more realistic" in pricing.

The realtors association reported this week that the number of Massachusetts home sales rose in September from a year ago. Median prices increased about 4 percent over the prior year but fell from August. That data, however, lags the market since it includes only sales that have closed. It can take two-to-three months from purchase-and-sale agreement to closing.

Data from listing services, which better capture current conditions, suggest a weaker market. In Boston, for example, the number of condominiums listed for sale is up 50 percent from a year ago, while the number of price cuts has more than doubled, according to Listing Information Service Inc., which tracks the Boston condo market.

Analysts say a number of factors are contributing to this weakness, including rising interest rates, slow job growth, and soaring energy costs. Widespread speculation that prices eventually could fall rapidly is exacerbating the slowdown. As these factors have depressed buying interest, they also may have pushed sellers, sensing that the market may be at the beginning of a decline, to put properties up for sale, brokers said.

The result: more supply, less demand, and sellers searching for buyers. Last Sunday, Globe reporters visited about a dozen open houses in different Boston neighborhoods and suburban communities.

In Rockport, only four potential buyers visited a three-bedroom

Cape, on the market since July despite three price reductions to $369,000 from $384,000.

''People are being very choosy," said the broker, Michelle Allison.

With growing choices, buyer psychology has changed, brokers said. In recent years, buyers raced to make offers, convinced prices would only go higher, or even bid against each other, pushing prices up. Now, many are prepared to wait, believing that prices are coming down.

At an open house in Braintree last Sunday, Jeff Brown, a 30-year-old health care professional, said he and his wife, Julie, have a price in their head, and they plan to stick to it as they shop. Last spring, Brown added, they were outbid on five homes, all sold above asking price.

Recently, after viewing a home in Norwell, listed at $645,000, Brown was told as he walked out, ''We'll take $535,000."

Robert Gavin can be reached at rgavin@globe.com.

Price corrections like this have happened in Britian, and I think maybe Australia, already.

Quote:

Originally Posted by jorgelito

Yakk do you really think that prices are in line with historical trends? It just seems so.....out of reach and discouraging. *sigh*

I have seen someone justify prices based off historical "cost of ownership" trends and median household income.

Some of the postulates looked a bit funny. But the idea is, this housing bubble isn't unexpected, assuming:
1> People spend most of their income on their housing
2> Interest rates are very low

What <1> means is that, to a great extent, a broad increase in income over the entire nation results in people, mostly, just spending more on their homes. Often an identical home, just a more expensive one.

On the other hand, the current economic upturn has been full of very slack income growth for the poorer parts of US society. In effect, most of the economic growth over the last decade or so has been captured by the rich and ultra-rich, while the poor haven't gotten any wealthier. This means that if you are on the poor end of the spectrum, housing has gotten more and more unaffordable.

You being poor means your economic decisions and problems are not addressed by the economy. You vote with dollars.

Quote:

Originally Posted by j8ear

The inverse however RENT_COST < OWN_COST is a very valid indicator of an abundance of speculative housing buys (inflating the sale prices), resulting in an abundance of vacant homes, and the over availability of rental's.

j8ear,
RENT_COST < OWN_COST
and
OWN_COST > RENT_COST
mean exactly the same thing. =)

When renting is much cheaper than owning, the housing economy is not stable.

The cost of ownership needs to be low enough that the 25% downpayment can generate acceptable returns.

So, (RENT_COST - OWN_COST) should be positive, and it needs to be high enough to give ok returns on an investment as large as 25% of the price of OWN_COST.

(RENT_COST - OWN_COST)/OWN_COST = rate of income return from owning a property.

If that rate of return is high, then you will expect the value of the property to go up. If it is negative or low, you will expect it to collapse (at least in real values).

Thanks to the low inflation rate, a collapse in real value of a property will almost certainly result in a collapse in the dollar value of a property. This is a bad situation for people with low-capitalization in their houses -- it means they owe more money for their house than it is worth.

Such a situation leads to bankruptcy, foreclosures by banks, and an increase in the supply of housing being offered at bankruptcy-auction levels, which depresses housing costs.

Ideally, the housing price economy takes this future prospect into account, and price-corrects before a complete collapse.

Quote:

Originally Posted by j8ear

Wages aren't the same. The rich and the poor have gotten much wealthier, over the last 5, and 10 years.

Nope, the rate of wage, wealth and income increase for the poorer half has been very lackluster.

Or at least this was the case the last time I looked into it.

Quote:

Originally Posted by jorgelito

I meant wages staying the same relative to inflation. Wait, I'm confusing myself. I am trying to get at inflation I suppose. You're right - this economics stuff is mind-bogling.

One way to deal with the infaltion conundrum is to treat the value of things as "real valued", or corrected for inflation.

Quote:

Originally Posted by raveneye

Well you could cash out, lie low, and buy your house back later at a lower price.

I don't want to just sell -- I want to short.

I want to put down hard money that the housing prices in a particular region will go down.

raveneye · 10-30-2005, 10:50 AM

Wow . . . . . . . when the real estate agents are finally admitting that prices are dropping, then it's happening.

It's going to be an interesting next several months as the other big markets may or may not start "adjusting" . . . including my market (Miami), and we'll be putting our house up for sale probably in January. By Boston standards, Miami is still cheap . . . .

10-28-2005, 07:05 AM	#6 (permalink)
BigBen Comedian Location: Use the search button	Even if the market is inflated a bit, what would you (as secretary of treasury or president, someone who can affect the market) to bring it back to normal? The answer, IN MY OPINION ONLY, is nothing. Any change you make to the system to combat this problem (a real problem, I am not disputing that) would be worse. I think that the market will adjust itself, and the pendulum will swing the other way. Legislating prices, giving tax breaks to new home buyers, giving incentives to home builders to increase supply, all of these options come with drawbacks. The reason Greenspan is the most respected man in the world who holds an Economics degree is simple: He doesn't flinch and start fucking with the system when pressures present themselves. He is a long-term thinker, and his steady and predictable actions in the past have prevented unhealthy speculation in different markets. People know what he is going to do, so why speculate? I am talking about North America housing market, not any country in particular. I have to add, one should not be so bold as to assume that they can afford a house right out of college. Part of being a new college grad is to spend all of your money on beer and women. Worry about the mortgage in about 5 or 10 years. __________________ 3.141592654 Hey, if you are impressed with my memorizing pi to 10 digits, you should see the size of my penis.

10-28-2005, 07:22 AM	#7 (permalink)
Yakk Wehret Den Anfängen! Location: Ontario, Canada	The theory I've heard is that the cost of owning a morgage on a home is not out of line with historical trends. If you take the growth in the median income and divide by the reduction in the cost of carrying a morgage, you end up with prices not that far out of line with what we are seeing. The differences, of course, are ignored. 1> Equity in your home becomes harder to gather under this model. 2> The increasing number of "creative" financing options that leave homeowners very vunerable to downturns in the market. 3> The high levels of speculation (25%-30%+), a bad sign. 4> Rental prices not keeping up with the increase in home prices. 5> The large number of "buy real estate and get rich!" pseudo-pyramid schemes on TV (always a bad sign -- remember the daytrade schemes during the dot-com bubble?) Real estate is, admittedly, local. One good rule of thumb to determine if your market is overpriced: Work out how much it would cost to rent a home. Call this RENT_COST. Work out what your morgage+property taxes+utilities would be for the same home given a 25% downpayment. Call this OWN_COST. Compare OWN_COST to RENT_COST. If OWN_COST > RENT_COST, then we have a price-inversion, and stay the hell out of that real estate market. There seems to be a lack of tools to "short" the housing market. If I believe the price of real estate in an area will go down, is there anything I can purchase that will allow me to profit if I am right? __________________ Last edited by JHVH : 10-29-4004 BC at 09:00 PM. Reason: Time for a rest.

10-28-2005, 10:59 AM	#9 (permalink)
NoSoup Non-Rookie Location: Green Bay, WI	I think it is very, very difficult to make make broad-based national assumptions, as the real estate market is so very different, depending on the local area. While I don't live in a huge city, I don't live in a tiny village either. Around here, we are experiencing quite the phenomenon. As of right now, there are a huge quantity of properties on the market - and people just keep on building. Subdivision after subdivision are being put up - while there are literally thousands of homes still on the market. While I don't expect the "real estate bubble" to burst around here, I do expect to see a dip in prices until we return to a more normal inventory of homes on the market. However, it seems that the trend around here is to buy as much house as you can afford, so there are many properties on the low end just sitting vacent. Because, at the low end, you can buy a house for approximately the same amount you can rent for around here, the rental market is doing rather badly right now. The vacency factor is phenomonal - and the huge apartment complexes have been offering crazy deals (No security deposit, 2 months free, and they pay for moving costs) to try and fill up. It'll be interesting to see where the market goes around here. As for my personal opinion on the national market, I don't think we have much to worry about. Granted, real estate prices have gone up rapidly recently, it was to be expected in the type of market that we had. Once interest rates increase, the rental market will come back. I do have one major, concern, though. A HUGE percentage of people in the areas where real estate appreciated incredibly fast have interest only adjustable rate mortgages. Once those rates adjust, and the interest only payment portion is over, I think that there will likely be a slew of foreclosures, as the mindset of many people was that they'd purchase a property and sell it for a ton more in the next couple of years. With a market as saturated as it is, I think it's very possible that they won't get what the expected to from the property, and without the ability to continue paying the higher payments, will eventually be foreclosed on. Wow, enough rambling - I gotta get back to work __________________ I have an aura of reliability and good judgement. Just in case you were wondering...

10-27-2005, 02:08 PM	#4 (permalink)
FngKestrel Junkie	I'm really curious about this mainly because I'm right about the point where I want to buy a house. I feel like I'm walking face first into a minefield.

10-27-2005, 02:49 PM	#5 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	Even with the experts reassurances, I do feel a certain fear with the housing market. Regardless of bubble or not, housing prices just seem to be out of reach and priced ridiculously high. What I really don't understand is, if wages are basically the same, then who is buying up all the houses? I don't know anyone straight out of college who can afford a $450,000 2BD/2BA starter home here in LA. That just doesn't seem to be reasonable. With some luck, I should be making $60,000 salary when I graduate which is almost double the average BA salary. Even then, I don't think I can afford to buy a house here. Making things worse is many apartments are being converted to luxury condos, further squeezing the rental market. I've move 3 times in 2 years for that reason. How does everyone else do it? Ben, are you talking about Canadian real estate or US real estate? Does it matter even? I don't know man, I guess I disagree with you a little on the inflation part. I think prices have skyrocketed but wages haven't really. So the inflation is relatively high to me. Elphaba, I tihnk I read that TIme article, it might still be online (I think it was linked through cnn.com). FngKestrel, I'm with you, it definitely feels like walking through a mine field with clown shoes on while blindfolded.

10-28-2005, 12:17 PM	#10 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	I wasn't really thinking along political lines - I am really just focusing on housing and affordability. I didn't realize that the govt. could do something about it, I am more concerned with what I can do about it. The median house in my area, of which I fondly refer to as the ghetto (if you saw the squalor I lived in you would know what I mean) is $450,000. A minimum 20% down means I would have to have $90,000 cash outright, then maybe I would luck out and get a 6% mortgage or something. Women and beer aside (always a good thing - I might just move up north and in with Ben), I don't expect to close on a house the day after graduation. I meant in a more broader sense that typically, home ownership is a pretty common goal among people, but it seems to me, that it is increasinglky difficult. I just don't understand how anyone can afford to buy a house these days. There aren;t that many good paying jobs out there. According to some report in the real estate section of the paper, in order to afford a home in LA, you need to have a minimum income of $120,000. That is certainly not the median (as far as I know). I was paying $2550 (total rent, not just myself) on a 3bd/2ba apartment thatwas falling apart an in violation of health codes. We had a rat problem and the health department came out numerous times. We didn't have hot water and my roomate's car got broken into twice. We lived in Brentwood! Not exactly a real slum but it might as well have been. Basically, I want in on the action and I'm whining cause I don't know how to. Yakk do you really think that prices are in line with historical trends? It just seems so.....out of reach and discouraging. sigh

10-28-2005, 03:48 PM	#13 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	I meant wages staying the same relative to inflation. Wait, I'm confusing myself. I am trying to get at inflation I suppose. You're right - this economics stuff is mind-bogling. I also think the numbers and reports we get are confusing. I remember Al Greenspan warning of a housing bubble then just the other week saying there isn't any housing bubble. And thee's the conflicting articles too. The Time one if I remember was more gloomy while another article in a different magazine/newspaper was more optimistic. As far as wages, yeah, I guess there must be good paying jobs if there's no shortage of buyers willing to pay so much for houses (hook me up!). But what would we consider a good-paying job? I thought that $60,000 a year straight out of college with a liberal arts BA was a reasonable, even decent salary. But apparently it's not even a living wage (at least here in Los Angeles). but maybe my $60,000 would get me a lot more in other areas. But here's the thing: It is conceivable that the effect is a result of speculative buying. That is, people are jumping on the bandwagon and buying houses with the intent to "flip" - so they buy with zero or very little down and with an ARM. So it sort of "artificially" inflates the market no? I think the article uses Vegas as an example that while housing is crazy, lot's of buyers, the occupancy rate is pretty low - not enough tenants - could be too many speculators. I thought unemployemtn was around the 5% mark which is desirable right? And then again, I suppose we would have to take regional/local markets more into account as well in terms of pricing, cost of living etc. Whew! I'm frazzled - too much econ..hehehehe

10-30-2005, 10:50 AM	#17 (permalink)
raveneye Born Against	Wow . . . . . . . when the real estate agents are finally admitting that prices are dropping, then it's happening. It's going to be an interesting next several months as the other big markets may or may not start "adjusting" . . . including my market (Miami), and we'll be putting our house up for sale probably in January. By Boston standards, Miami is still cheap . . . .