View Full Version : Housing Bubble Correction
Housing Bubble Correction
Fifteeen Years to Revert to the Mean
January 20, 2005
"If there is a real shift downward in housing demand, it would have a dramatic impact across the entire economy," said John Benjamin, a professor of finance and real estate at American University.
Millions of Americans have become dependent upon rising home values to support home-equity loans and mortgage refinancings, which can be used to pay for cars, remodeling projects, clothes and more.
"We live in a consumption economy that is financed by debt," which in turn largely rests upon our home foundations, Benjamin said.
The labor market, too, depends upon feeding the hunger for housing.
Since the beginning of the economic recovery in November 2001, employment in housing and housing-related industries has accounted for 43% of the increase in private-sector payrolls, according to Asha Bangalore, an economist for Northern Trust Corp.
- Experts ask: Is there a housing bubble? (http://www.jsonline.com/homes/buy/jun05/330733.asp)
Housing bubbles don't collapse suddenly. They go through a long series of self-reinforcing deflationary stages that typically last five to seven years. Given the extreme and unprecedented nature of the current housing bubble, I expect a ten- to fifteen-year downturn to follow this boom. The government will step in with all manner of supports and bailouts along the way, similar to those that created the bubble in the first place, so the exact trajectory of the decline is impossible to predict. Here I estimate how and over what time period the decline may occur.
http://www.itulip.com/forums/../BLShousingpricesvsemployment.jpg
Chart 1: Correlation of Housing Prices to Employment
Chart 1 above shows that housing prices are strongly correlated to the unemployment rate. Housing prices fall as unemployment rises, and vice versa. Given that 43% of all jobs created since 2001 are housing (bubble)-related, a decline in housing-related payrolls can be expected to reinforce housing price declines in the bust part of the cycle. The rate of home equity extraction is a good proxy for the housing market itself. Home equity extraction tends to rise in line with property values and declines on the way down; no home owner wants to borrow against a deflating asset, and no bank wants to secure a loan against one either.
http://www.itulip.com/forums/../homeequityextraction.jpg
Chart 2: Home Equity Extraction - Past and Predicted
We'll use home equity extraction as our yardstick to project the bust. Thanks to my friend Paul Kasriel (http://www.safehaven.com/article-3227.htm) at Northern Trust for the original of Chart 2, which shows home equity extraction from 1950 until 2005. I have modified it to show a possible trajectory of home equity extraction decline in seven steps, A through G, from now until 2020. While I'm fairly confident in the length of the entire process, the length and timing of each step is subject to a wide range of error.
Step A: You are here. Whether the rate of home equity extraction implodes from here (as shown) or decreases more gradually is a matter of debate, although in past boom-bust cycles, the bust rate of decline has been significantly more rapid than the boom rate of growth. What is not debatable is whether the rate of home equity extraction will revert to the mean rate of about zero, from the current rate of more than $250 billion annually. It will.
In fact, the rate of home equity extraction will tend to overshoot the mean to reach an extreme negative rate of equity extraction (building equity) that's twice the rate of positive extraction that occurred during the boom phase. This relationship occurred in the previous two cycles, which bottomed in 1982 and 1995, respectively. This implies negative equity extraction of minus $500 billion per year at the cycle trough. Chart 2 shows a more optimistic prediction of negative $250 billion occurring between 2015 and 2020. This more prosaic estimate accounts for government efforts to mitigate the impact and minimize the overshoot, by offering specialized loans, making direct purchases of securitized mortgage debt, and so on.
Step B: As housing prices begin to decline, sales will continue, though more slowly and less frequently. Old habits die slowly. One year into the decline, housing speculators will have left the market, but home owners will generally still believe that prices will either resume their rise or at least flatten out, not continue to decline. Remember the first year of the stock market bubble decline, when most people hung in there until they'd lost all of their money? The first lesson of behavioral finance is that the most common mistake made by market participants is to hang on too long and fail to cut losses.
While home owners at this stage will borrow less against their houses, and loans will be more difficult to come by, the average home owner will still make frequent trips to Home Depot or hire contractors to make home repairs and improvements, believing they'll "get their money back" in an increase in the value of their home at least equal to the cost of fixing it. Some home owners will put their home up for sale—if they purchased early enough in the boom so that they can still realize a profit, even selling at five to twenty percent below the peak price.
Step C: After prices have declined for two years, large numbers of buyers who purchased near the top of the market will begin to feel the psychological effects of being underwater on their mortgage. They will be less inclined to borrow money, or to spend money fixing up their home, as home improvement value increases will be swallowed up by general market price declines. There will still be profits to be made by those who bought very early in the previous boom cycle, but fewer people will have this option.
As transaction volumes continue to fall, demand for housing-related employment will decline too. The first signs of labor market distress will start to show up, as more and more of that 43% of the private sector who found jobs in the housing industry are no longer needed. Coincidentally, major employers—such as the U.S. auto industry—will be going through major restructuring, adding to pressures on housing prices in some areas. Some home owners will need to sell at a loss in order to move to regions of the country where the labor picture is better, and will do this if they have enough equity and are not paying cash out of pocket to cover their remaining mortgage obligations. These sales will further depress home prices.
Step D: Three years into the decline, marginal home buyers will learn what owning a home really costs, versus renting when housing prices are declining and jobs are more scarce. Rent is a fixed cost, whereas home ownership presents many variable costs, including increased interest payments on ARMs (http://www.palmbeachpost.com/business/content/business/epaper/2005/05/16/c1bz_armed_0516.html), and rising tax, insurance, and energy costs. Also, upkeep for the average home typically costs five to ten percent of the price of the home, annually. As prices fall, homeowners will have less access to home equity loans. Many will not be able to afford repair and maintenance expenses. Homes in some neighborhoods—and in some cases, entire neighborhoods—will begin to look neglected, further depressing prices.
Step E: Five years into the downturn, rising unemployment will begin to more seriously affect the market, as indicated in Chart 1. As unemployment rises, homeowners will leave housing bust regions to move to areas where there are more jobs. Many houses will be sold at a loss, or even abandoned, as the market price falls below the loan value. Given the choice between paying cash out of pocket to sell their home or leaving the keys with the bank, many home owners will make the latter choice.
Step F: Ten years into the downturn, real estate will be widely regarded as a terrible, "can't win" investment. McMansions (http://www.tracypress.com/local/2005-06-07-homes.html) will be subdivided for rental as multi-family homes.
Step G: Ten to fifteen years after the start of the decline in housing values, prices will bottom out, setting the stage for the next boom. Time to buy.
(This article was written by Eric Janszen and originally published (http://www.alwayson-network.com/comments.php?id=P10732_0_4_0_C) on the AlwaysOn Network, January 15, 2005)
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Schwab bringing the message to the masses June 26
"
* Housing affordability in free-fall.
* New and existing home inventories surging.
* Adjustable rate mortgage holders to get pinched.
* Real estate now a big chunk of household net worth.
"
http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/recent_commentary/shelter_from_the_storm_the_housing_markets_getting _ugly.html
the peak was nailed by time magazine, with its june 13, 2005 cover:
Home $weet Home
Irvine, Calif. – June 26, 2006 – RealtyTrac™ (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its May 2006 U.S. Foreclosure Market Report, showing 92,746 properties nationwide entering some stage of foreclosure during the month, an increase of less than 2 percent from April 2006, but still a 28 percent increase from May 2005.
As the housing market goes through the ten to fifteen year, seven step decline originally predicted January 15, 2005, I'll update this post when I believe we're transitioning from one step to the next.
At this time most housing markets that experienced bubble growth in the US are exiting Step B and entering Step C.
http://www.itulip.com/images/ituliphousing082406.gifStep C: After prices have declined for two years, large numbers of buyers who purchased near the top of the market will begin to feel the psychological effects of being underwater on their mortgage. They will be less inclined to borrow money, or to spend money fixing up their home, as home improvement value increases will be swallowed up by general market price declines. There will still be profits to be made by those who bought very early in the previous boom cycle, but fewer people will have this option.
As transaction volumes continue to fall, demand for housing-related employment will decline too. The first signs of labor market distress will start to show up, as more and more of that 43% of the private sector who found jobs in the housing industry are no longer needed. Coincidentally, major employers—such as the U.S. auto industry—will be going through major restructuring, adding to pressures on housing prices in some areas. Some home owners will need to sell at a loss in order to move to regions of the country where the labor picture is better, and will do this if they have enough equity and are not paying cash out of pocket to cover their remaining mortgage obligations. These sales will further depress home prices.
We are now 12 to 18 months into a ten to fifteen year decline. We are starting to see major press stories covering the decline. Not in the Real Estate section, of course, but in the Business section of the newspaper. After prices decline for another year, you will stop seeing stories in the press. Why? Housing price declines won't be "news" anymore. They will be a fact of life that everyone accepts.
When I was first researching for iTulip.com back in 1997, I'd go to the library and read newspapers on microfilm from the 1930s, looking for stories on The Great Depression during The Great Depression. To my surprise, there were none. The Depression wasn't news. The Depression simply "was." More interestingly, as you'd expect there were many ads for inexpensive property in the classified ads section (home prices declined an average of 80% as the banking system imploded), but at the same there were ads for commercial flights to California from New York. "Cross country in only 24 hours!" And for the equivalent of about $10,000 in today's money. This at a few thousand feet, the bumpiest altitude, in a very noisy propeller plane without radar.
A good number of our readers sold their homes a year ago or more and are now renting. One of these readers who writes in from time to time wrote in last week to tell us he and his wife just renewed the lease on their rented home for another year and are keeping an eye on home prices in the neighborhood with an eye toward buying when the prices appear to be bottoming out. Prices are going down, but the declines appear to be picking up pace, so they'll wait.
The most common worry expressed by these folks is the continued loss of purchasing power of the money they made as capital gains from selling their home. While the prices of homes are declining, the prices of items on the menus of local restaurants, for example, keep going up. Invest in printing companies?
I wrote in September 2001 when gold was trading at $270 (http://www.itulip.com/gold.htm) that I believed gold was a good hedge against the inflation I predicted to occur following government efforts to reflate the economy after the stock market bubble decline. I maintain that a $2000 to $2500 price at the top of the cycle is reasonable, but caution that diversification across precious metals is necessary. I have done well with gold since then, but better with silver and platinum.
Jim Nickerson
09-16-06, 09:54 AM
Posted yesterday on Financialsense.com is an article by Kurt Richebacher titled "A Tightening Farce" http://www.financialsense.com/editorials/daily/2006/0915b.html
Present American folklore has it that a protracted slump in house prices is impossible. Let us say for many people it is unthinkable. And that is precisely one reason why this housing bubble could go to such unprecedented excess. The little historical knowledge we have about bursting housing bubbles is from a study published by the International Monetary Fund in its World Economic Outlook of April 2003. It presents past experience in a very different light. Here are some excerpts on decisive points:
Richebacher lists 4 points he thought pertinent from the above study, the last of which is
The authors then give a fourth reason, which was true in the past, but in which the situation in America today radically differs:
"Housing price busts were associated with tighter monetary policy than equity price busts, reflecting the fact that most housing price busts occurred during either the late 1970s or the late 1980s, when reducing inflation was an important policy objective. The disinflation increased the real burden of debt, which exposed inflation-related overinvestment and associated financial frailty."
Richebacher argues that credit in the USA has not been seriously tightened so far by the Fed.
It seems to Richebacher is arguing that the housing bubble may not be over; however, I am not very good in devining the meaning of many things regarding economics. What might anyone else gather from Richebacher's article?
NATIONAL FORECLOSURES INCREASE 24 PERCENT IN AUGUST
By RealtyTrac Staff Foreclosures Up Nearly 53 Percent from August 2005, 38 Percent Year-to-Date
IRVINE, Calif. – Sept. 13, 2006 – RealtyTrac™ (http://www.realtytrac.com/), the leading online marketplace for foreclosure properties, today released its August 2006 U.S. Foreclosure Market Report, which shows 115,292 properties nationwide entered some stage of foreclosure during the month, a 24 percent increase from the previous month and an increase of nearly 53 percent from August 2005. The report also shows a national foreclosure rate of one new foreclosure filing for every 1,003 U.S. households, the second highest monthly foreclosure rate reported year to date. [emphasis added]
Jim Nickerson
09-22-06, 10:41 AM
I found Shedlock's anecdotes on housing bubble collapse informative and scarry if one considers the couple with 3.4million bonars in mortgages.
http://www.safehaven.com/article-5936.htm
I found Shedlock's anecdotes on housing bubble collapse informative and scarry if one considers the couple with 3.4million bonars in mortgages.
http://www.safehaven.com/article-5936.htm
scary indeed. you wonder about how the fed pumping liquidity down the road is going to help the people who worked in the closed restaurants, the mortgage holders going under, etc. i have to say i don't feel sorry for the couple with us$3.4million in mortgages - stupidity i can be understanding about, but stupidity coupled with greed doesn't generate a lot of sympathy from me. there will be a lot of casualties; plenty of deserving objects for sympathy or, perhaps, help.
Jim Nickerson
09-22-06, 05:27 PM
scary indeed. you wonder about how the fed pumping liquidity down the road is going to help the people who worked in the closed restaurants, the mortgage holders going under, etc. i have to say i don't feel sorry for the couple with us $3.4million in mortgages - stupidity i can be understanding about, but stupidity coupled with greed doesn't generate a lot of sympathy from me. there will be a lot of casualties; plenty of deserving objects for sympathy or, perhaps, help.
jk, this morning I read my wife the info about the couple who had 3.4million in mortgages and the two words I used to describe them were "stupid" & "greedy." No telling how much of this sort of utter foolishness exists, and who is ultimately going to have to bail out them out? A lot of people who had nothing whatsoever to do with the whole situation. Before all this is over, everyone is going to grow quite sick of reading and hearing about it.
Hey, what happen to Thelonius? Becoming accustomed to that cuddly bear is going to take some time. Are we now to believe you are a bear?
jk, this morning I read my wife the info about the couple who had 3.4million in mortgages and the two words I used to describe them were "stupid" & "greedy." No telling how much of this sort of utter foolishness exists, and who is ultimately going to have to bail out them out? A lot of people who had nothing whatsoever to do with the whole situation. Before all this is over, everyone is going to grow quite sick of reading and hearing about it.
Hey, what happen to Thelonius? Becoming accustomed to that cuddly bear is going to take some time. Are we now to believe you are a bear?
in the "roubini is eyeore" thread i noted that jim cramer must be tigger, i didn't know who was rabbit, but that when my positions go against me i feel like pooh, "a bear of little brain."
OVERAGES of: homes + stocks = 1.3 GDP
Referring to Real Dow & Real Homes here
http://homepage.mac.com/ttsmyf/RDandRJShomes.html
I recently reckoned each as ca. 1.85x historical trend.
In trillions, for late/end 2005, USA: GDP = $13.0; homes = $21.5 (= 1.65 GDP); stocks = $15. (= 1.15 GDP).
The sum of the two above trend overages = 1.3 GDP.
(I reckon all the above is a little rough, not a lot.)
OVERAGES of: homes + stocks = 1.3 GDP
Referring to Real Dow & Real Homes here
http://homepage.mac.com/ttsmyf/RDandRJShomes.html
I recently reckoned each as ca. 1.85x historical trend.
In trillions, for late/end 2005, USA: GDP = $13.0; homes = $21.5 (= 1.65 GDP); stocks = $15. (= 1.15 GDP).
The sum of the two above trend overages = 1.3 GDP.
(I reckon all the above is a little rough, not a lot.)
How long to save this much: OVERAGES = 1.3 GDP?
I sought to express 1.3 GDP in terms of the US personal savings rate -- of ‘back in the old days’ when it approached 10% of personal income -- I use annual personal savings rate = 8% of GDP = 0.08 GDP per year. 16.25 years times 0.08 GDP per year equals 1.3 GDP. Time-consuming!
from a reader at bill fleckenstein's site:
This morning's press release announcing a "4.1% increase" in new home sales came as quite a surpise in light of other data points in the housing area. As expected the TV shills were touting this great number and its goldilocks implications.
A reading of the actual press release reveals that the 4.1% increase is based on a comparison of the August ESTIMATE of 1,040K to the July REVISED number of 1,009K. The July estimate number was 1,072, thus the REVISED July number is down 5.8% from the estimate and the July reported 4.3% drop from June is now a 9.9% drop from June. Using the apples to apples comparison of August estimate vs. July estimate, new home sales DROPPED 3%.
and from another reader:
On the residential real estate front, numbers came in for our ABS traunches. Payment shortfalls (delinquencies / defaults) continued at about the same pace as last month (some traunches better others worse), but there WAS one new (and welcome) development: actual foreclosures jumped. Looks like the servicers are getting more aggressive on the foreclosure front (probably due to greater concern about losses now that prices aren't going up). In the past (as prices were rising) the incentive was to be patient (work with the borrower / drag their feet on actual foreclosure) because losses would be lower the longer you waited. NOW, however, the reverse is starting to look possible and that appears to be spooking servicers.
Another interesting data point, losses on foreclosures on 2003/2004 loans are coming in at about 20% despite substantial price increases since then...I wonder what they'll look like on 2005/2006 loans? 40-50%?
and
Here is a link to a Reuters article on MSN titled "Home Loan Demand Falls Despite Rate Plunge."
http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=OBR&Date=20060927&ID=6056444
Jim Nickerson
11-09-06, 10:07 AM
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BE0BAC1E9%2D2DA6%2D4FE9%2DB35D%2 D8BEF092CE8BD%7D&siteid=myyahoo&dist=myyahoo
This is a nice article discussing the relationships between the Housing Market Index and the SPX, which suggests the SPX could fall to 530 by Fall of 2007.
Jim Nickerson
11-18-06, 12:06 AM
What Will Collapse Housing Prices?
http://www.investorsinsight.com/images/spacer.gif
By Gary Shilling
This is from John Mauldin's site http://www.investorsinsight.com/thoughts.aspx
It seems to be a thorough discussion on housing collapse and the fallout.
I think it is worth reading.
Schilling, page 7: "So, the Fed won't ease until housing is clearly collapsing and the resulting recession prospects obvious. This point may come early next year, but the Fed's patriotic rate-cutting then will come too late to reverse the downward housing spiral. Given the prospects for a severe U.S. and global recession, however, an eventual return to a 1% federal funds rate is indeed likely."
Deflation and Treasury's
"A major global recession initiated by a collapse in U.S. house prices will probably usher in the chronic deflation we've been forecasting. Crude oil and other commodity prices will nosedive along with all fears of inflation. This deflation of 1% to 2% annual declines in major price indices will be the good deflation of tech-led, productivity-soaked excess supply, much like the late 1800s and the 1920s when concentrations of new technology propelled supply faster than demand increased. Nevertheless, a complete breakdown in housing and stubborn mortgage debt burdens could spawn the bad deflation of deficient demand, as in the 1930s in the U.S. and in Japan more recently, as consumer spending becomes moribund.
Regardless, the next year or so will probably be miserable for most stocks, but great for Treasury bonds as these ultimate safe havens rally as their yields follow inflation rates down. What we luckily identified as "the bond rally of a lifetime" in 1981 when Treasury bond yields peaked at 14.7% will continue toward our ultimate target of 3% yields. If this occurs over two years, so two years of interest are added to capital appreciation, the 30-year Treasury bond will enjoy a total return of about 50% as its yield falls from the current 4.8% to 3.0%. The 30-year zero coupon bond will return even more, around 80%."
Jim Nickerson
11-29-06, 12:28 PM
Results of the Housing Decline, November 28, 2006 by Mike Shedlock
Illinois, U.S.A.
http://www.whiskeyandgunpowder.com/Archives/2006/20061128.html
Quoting Mike Morgan. "The crash of the housing industry is only now getting started, as it will spread virally to all of the boats it floated during the rising tide. Housing has touched every single segment of our economy, and it will darken all of those segments as the industry collapses to the worst levels we've seen since the Depression. The NAR and other groups producing numbers have been great cheerleaders, but when you're pumping out misleading numbers, I don't care how beautiful or loud the cheerleaders are, the situation is a no-win Catch-22 for the homebuilders no matter how one looks at it."
Another quote from the article.
"In a conference call titled 'How Bad Is Subprime Collateral?' Tom Zimmerman, head of ABS research for UBS, and David Liu, head of mortgage credit, discussed how much higher loan delinquencies and foreclosures are for 2006 subprime loans compared with similar subprime loans from earlier years -- the result of deteriorating underwriting quality from lenders combined with a slower housing market.
"Still, despite the adverse conditions, 'I guess we are a bit surprised at how fast this has unraveled,' said Zimmerman. While it's 'not a secret that subprime collateral has performed pretty disastrously so far,' he said, 'I must say we were a bit surprised by the magnitude with which' the loans 'deteriorated this year.'
"The rate of subprime loan delinquencies of 60 days or more -- meaning borrowers are that far behind in their payments -- has climbed to about 8%, up from about 4.5% a year ago.
"These 60-day-plus delinquencies jumped up fairly sharply in the past few months, to 3.63% for the 2006 loans in October, up from 2.95% in September and 1.62% in July, according to UBS research."
Jim Nickerson
12-31-06, 11:32 AM
Barron's Alan Abelson's column for 1/1/07 quotes Doug Kass, a hedge fund manager whose fund does nothing but short stocks.
Apparently Kass was short homebuilders, but not at the moment.
...because he feels he had too much company. Short interest in the stocks as a percentage of the average day's volume has mounted steadily, and short positions in many of the home builders' stocks have spiked, he reports, in some cases to as much as 15% of the float (which, for the happily uninformed, is the number of shares available for trading).
But he's still very much of a mind that the worst is still to come in housing. One interesting light he sheds on the supposed modest increase in new home sales, for example, is that the Census Bureau does not adjust for cancellations in its compilation of house sales, which in a soft market like this one not only overstates sales, but understates inventory.
Usually, cancellations run only about 15% of orders for publicly owned home builders. However, cancellations have soared this year. And Doug thoughtfully sent along the third-quarter rate for each of the leading home builders. Here they are: Centex (http://online.barrons.com/quotes/main.html?type=djn&symbol=ctx) (ticker: CTX), 37%; DR Horton (DHI), 40%; KB Home (http://online.barrons.com/quotes/main.html?type=djn&symbol=kbh) (KBH), 53%; Lennar (http://online.barrons.com/quotes/main.html?type=djn&symbol=len) (LEN), 31%; Pulte Homes (http://online.barrons.com/quotes/main.html?type=djn&symbol=PHM) (PHM), 36%; Beazer (http://online.barrons.com/quotes/main.html?type=djn&symbol=bzh) (BZH), 57%; Hovnanian (http://online.barrons.com/quotes/main.html?type=djn&symbol=HOV) (HOV), 35%; MDC Holdings (http://online.barrons.com/quotes/main.html?type=djn&symbol=MDC) (MDC), 49%; and Standard Pacific (http://online.barrons.com/quotes/main.html?type=djn&symbol=SPF) (SPF), 50%.
Obviously, just as a house is not necessarily a home, an order for a house is not necessarily a sale.
LargoWinch
12-18-08, 01:20 PM
I am re-reading all the old threads from EJ, Ed. and al.
I noticed that regarding the following comment from EJ on the housing bubble in ... 2002! that it appears that the Fed deleted its research. Quote from the article:
" The Fed wrote a recent piece on how housing isn't a bubble (http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.pdf),"
Unless it has been reposted by the Fed, I think this is quite convenient...
babbittd
12-18-08, 01:37 PM
Largowinch: (mccarthy.pdf)
Jonathan McCarthy's archive (http://www.newyorkfed.org/research/economists/mccarthy/pub.html)
Is it one of these two papers?
Is There a 'Bubble' in the Housing Market Now? (http://www.newyorkfed.org/research/economists/mccarthy/athens_bubble_paper.pdf) http://www.newyorkfed.org/images/v2/icons/pdf.gif
With Richard W. Peach
Is Your Bubble about to Burst? John A. Tatom (ed.), Networks Financial Institute: Indianpolis, IN. September 2006, pp. 18-37
Are Home Prices the Next 'Bubble'?</ATITLE>
With Richard W. Peach
FRBNY Economic Policy Review Volume 10, Number 3 (December 2004), 1-17
Now for some reason the report from 2004 isn't linked on McCarthy's NYFed archive page, but a google search for the title revealed it immediately: Are Home Prices the Next 'Bubble'? (http://www.newyorkfed.org/research/epr/04v10n3/0412mcca.pdf)
I am re-reading all the old threads from EJ, Ed. and al.
I noticed that regarding the following comment from EJ on the housing bubble in ... 2002! that it appears that the Fed deleted its research. Quote from the article:
" The Fed wrote a recent piece on how housing isn't a bubble (http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.pdf),"
Unless it has been reposted by the Fed, I think this is quite convenient...
Here's a piece pf research from the San Francisco Fed (http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html) that references the McCarthy research:
McCarthy, J., and R. Peach. 2004. “Are Home Prices the Next ‘Bubble’?” (http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.pdf) FRBNY Economic Policy Review.
http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.pdf
But the link there doesn't work either. These guys were cranking out this bullshit in volume in those days.
LargoWinch
12-18-08, 02:06 PM
Thanks Ed. much appreciated.
I feel like reading something containing some humour since the news can get quite gloomy these days.
babbittd
12-18-08, 02:37 PM
Here's a piece pf research from the San Francisco Fed (http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html) that references the McCarthy research:
McCarthy, J., and R. Peach. 2004. “Are Home Prices the Next ‘Bubble’?” (http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.pdf) FRBNY Economic Policy Review.
http://www.newyorkfed.org/research/epr/forthcoming/mccarthy.pdf
But the link there doesn't work either. These guys were cranking out this bullshit in volume in those days.
Fred, it is there, maybe they moved it. Look at my post previous to yours.
Are Home Prices the Next 'Bubble'? (http://www.newyorkfed.org/research/epr/04v10n3/0412mcca.pdf)
babbittd
12-18-08, 10:12 PM
By the way, how does 61% over the course of 22 months sound for a haircut?
This is the current graph from Zillow.com that represents a recently sold 4 bed, 3 bath, 2,400 sq. foot single family home (built in 1990), surrounded by wide-open greenbelt, in one of the best climates that can be found in the entire United States, in the hills, but not far from the coast in Mendocino County, California. The dollar signs represent the most recent sales on record in Jan./Feb. 2007 and Nov./Dec. 2008:
http://www.zillow.com/app?chartDuration=5years&chartType=detailed&cityRegionId=27960&component=ZestimateChart&countyRegionId=2796&lastSaleDate=1227168000000&nationRegionId=102001&neighborhoodRegionId=-1&page=Charts&service=chart&showCity=false&showCounty=false&showHome=true&showNation=false&showNeighborhood=false&showPercent=false&showSales=true&showState=false&showZip=false&stateRegionId=9&zipRegionId=98241&zpid=19213043
...the "Zestimate" is $328,500 - so much for their metrics.
santafe2
12-23-08, 11:30 PM
NATIONAL FORECLOSURES INCREASE 24 PERCENT IN AUGUST
By RealtyTrac Staff Foreclosures Up Nearly 53 Percent from August 2005, 38 Percent Year-to-Date
IRVINE, Calif. – Sept. 13, 2006 – RealtyTrac™ (http://www.realtytrac.com/), the leading online marketplace for foreclosure properties, today released its August 2006 U.S. Foreclosure Market Report, which shows 115,292 properties nationwide entered some stage of foreclosure during the month, a 24 percent increase from the previous month and an increase of nearly 53 percent from August 2005. The report also shows a national foreclosure rate of one new foreclosure filing for every 1,003 U.S. households, the second highest monthly foreclosure rate reported year to date. [emphasis added]
Although "improving" over last month these stats are now more than twice as bad as jk posted in 2006. There were 259,085 houses moving into foreclosure or one in 488 homes in November 2008, again according to RealtyTrac.
http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=5543&accnt=64847
My favorite death watch is Nevada. Last month, 1:76 homes moved into foreclosure. And this was an improvement from October when 1:74 homes moved into foreclosure. That's a 6-7 year run rate and every home in Nevada will have gone into foreclosure. It's not likely to get that bad, but that's the current rate.
The population of Nevada has increased more than 30% since the 2000 census, more than any other state. Many of these people were in the building trades and clearly, Nevada has enough housing. Will the population shrink by the 2010 census? What will they do with all this housing? How will they attract people to Nevada?
Although "improving" over last month these stats are now more than twice as bad as jk posted in 2006. There were 259,085 houses moving into foreclosure or one in 488 homes in November 2008, again according to RealtyTrac.
http://www.realtytrac.com/ContentManagement/pressrelease.aspx?ChannelID=9&ItemID=5543&accnt=64847
My favorite death watch is Nevada. Last month, 1:76 homes moved into foreclosure. And this was an improvement from October when 1:74 homes moved into foreclosure. That's a 6-7 year run rate and every home in Nevada will have gone into foreclosure. It's not likely to get that bad, but that's the current rate.
The population of Nevada has increased more than 30% since the 2000 census, more than any other state. Many of these people were in the building trades and clearly, Nevada has enough housing. Will the population shrink by the 2010 census? What will they do with all this housing? How will they attract people to Nevada?
Unfortunately, our prognosis is that Las Vegas becomes a ghost town. First it gets hit with the depression, then an anti-gambling moral movement. State lotteries will be abolished, too.
babbittd
12-24-08, 09:05 AM
Unfortunately, our prognosis is that Las Vegas becomes a ghost town. First it gets hit with the depression, then an anti-gambling moral movement. State lotteries will be abolished, too.
The state lotteries I can understand, being banned that is. And the writing is on the wall for many casinos to file bankruptcy over the next few years, but Vegas a ghost town? My curiousity is high on this one.
santafe2
12-24-08, 11:52 AM
Unfortunately, our prognosis is that Las Vegas becomes a ghost town. First it gets hit with the depression, then an anti-gambling moral movement. State lotteries will be abolished, too.
I'm traveling to Las Vegas in January for the International Builders Show. The sardonic irony of having this show, in Las Vegas in late 2008, will be lost on almost everyone in attendance. I was able to get a flight for $73 each way and a room at the Tropicana for $45 a night. Not only was the room inexpensive there was no restriction on the number of nights I had to book. I went to my first Las Vegas trade show 18 years ago and a similar room was $150 a night with a five night minimum. I'm prediciting a lot of hope and fear but not a lot of new contracts.
You may be correct with regard to the ghost town comment. I was thinking 'a shell of it's former self', but the shear breadth and pomposity of the buildout over the last 20 years may preclude survival of the shell.
I've no comment on the uber-moral movement as the only thing I'm sure about is that I don't have a clue what's inside most people's heads. But, the average American is going to be looking for someone or something to blame over the next decade or so. Why not gambling, it makes as much or as little sense as anything else.
I have some well presented US Census information on the distribution and size of the religious, the extremely-religious and wacky, Jesus came in a space ship religious. It certainly does nothing to discredit the possibility that super morality could again become law. I'll post this information in another thread as I have time over the long weekend.
I'm traveling to Las Vegas in January for the International Builders Show. The sardonic irony of having this show, in Las Vegas in late 2008, will be lost on almost everyone in attendance. I was able to get a flight for $73 each way and a room at the Tropicana for $45 a night. Not only was the room inexpensive there was no restriction on the number of nights I had to book. I went to my first Las Vegas trade show 18 years ago and a similar room was $150 a night with a five night minimum. I'm prediciting a lot of hope and fear but not a lot of new contracts.
You may be correct with regard to the ghost town comment. I was thinking 'a shell of it's former self', but the shear breadth and pomposity of the buildout over the last 20 years may preclude survival of the shell.
I've no comment on the uber-moral movement as the only thing I'm sure about is that I don't have a clue what's inside most people's heads. But, the average American is going to be looking for someone or something to blame over the next decade or so. Why not gambling, it makes as much or as little sense as anything else.
I have some well presented US Census information on the distribution and size of the religious, the extremely-religious and wacky, Jesus came in a space ship religious. It certainly does nothing to discredit the possibility that super morality could again become law. I'll post this information in another thread as I have time over the long weekend.
Good luck with your trip to Vegas. We look forward to your Report from the Front.
...What will they do with all this housing? How will they attract people to Nevada?
I heard a rumour they were going to start advertising it as a ski destination...
http://www.inquisitr.com/wp-content/las-vegas-snow-pictures-5.jpg
Hey, if Dubai can do it, why not Vegas...:rolleyes:
I heard a rumour they were going to start advertising it as a ski destination...
http://www.inquisitr.com/wp-content/las-vegas-snow-pictures-5.jpg
Hey, if Dubai can do it, why not Vegas...:rolleyes:
In Dubai they burned oil to make snow -- indoors. :cool:
In Dubai they burned oil to make snow -- indoors. :cool:
I know. I've been there. Tough to call it "dirty" oil after this transformation, isn't it...:rolleyes:
http://z.about.com/d/urbanlegends/1/0/A/E/ski_dubai3.jpg
I know. I've been there. Tough to call it "dirty" oil after this transformation, isn't it...:rolleyes:
http://z.about.com/d/urbanlegends/1/0/A/E/ski_dubai3.jpg
Your pic? Perfect for the iTulip holiday newsletter, no? :D:D:D
Your pic? Perfect for the iTulip holiday newsletter, no? :D:D:D
Sorry but no. It was a one day biz trip and I didn't take my camera. The photo is from SkiDubai stock. But I am sure they won't mind the publicity. :D And why are you working so late on Christmas Eve. Wasn't Thanksgiving enough of a marathon for you good folks? Go home and have some rum and eggnog...:cool:
Got to work tomorrow anyway, sick people don't take a day off it turns out. On a related housing issue, without risking starting a new thread, on top of the 55% of refis that are going belly up, turns out those of us with good credit may not be able to get that shiny new mortgage. A friend of mine in my development here in S. Florida who put 20% down and has a credit score near 800 was told today that his house is too underwater versus his current loan to qualify for their refi terms. The current appraised value didn't exceed 80% of his original loan. Ouch. Starting to wonder every day if it's worth paying my current mortgage.
Got to work tomorrow anyway, sick people don't take a day off it turns out. On a related housing issue, without risking starting a new thread, on top of the 55% of refis that are going belly up, turns out those of us with good credit may not be able to get that shiny new mortgage. A friend of mine in my development here in S. Florida who put 20% down and has a credit score near 800 was told today that his house is too underwater versus his current loan to qualify for their refi terms. The current appraised value didn't exceed 80% of his original loan. Ouch. Starting to wonder every day if it's worth paying my current mortgage.
Ouch is right. As I've posted before I watched something very similar up close during the 1980's resource bust in Western Canada. The real trouble started when banks stopped renewing mortgages [fixed rate mortgage terms rarely exceeded 5 years in Canada back then]. The market fell steadily for about 5 years before it bottomed. What was really surprising looking back at the data is that house prices stopped falling a few months before the 1986 oil price collapse when Saudi opened the taps to discipline other OPEC members for cheating on quotas.
One recollection of that period was driving around the city 'burbs and turning a corner onto a street and seeing virtually every house on the block with a "For Sale" sign planted on the lawn. Yep, the houses were all built at the same time, approaching the 5-year old mark, and too many couldn't get renewed. Three blocks over everything was fine because those folks still had another 6-12 months to renewal and had not yet lost all hope...
There's another iTulip member [WorldTraveller?] who was in Texas [Houston?] during the same period, where much the same was happening as oil busted.
Ouch is right. As I've posted before I watched something very similar up close during the 1980's resource bust in Western Canada. The real trouble started when banks stopped renewing mortgages [fixed rate mortgage terms rarely exceeded 5 years in Canada back then]. The market fell steadily for about 5 years before it bottomed. What was really surprising looking back at the data is that house prices stopped falling a few months before the 1986 oil price collapse when Saudi opened the taps to discipline other OPEC members for cheating on quotas.
One recollection of that period was driving around the city 'burbs and turning a corner onto a street and seeing virtually every house on the block with a "For Sale" sign planted on the lawn. Yep, the houses were all built at the same time, approaching the 5-year old mark, and too many couldn't get renewed. Three blocks over everything was fine because those folks still had another 6-12 months to renewal and had not yet lost all hope...
There's another iTulip member [WorldTraveller?] who was in Texas [Houston?] during the same period, where much the same was happening as oil busted.
I'm glad that you referenced that time period in Texas. It's one of the things I use to gauge the potential depression here. People down here are completely oblivious to the fact that it may take 10-20 years for houses to regain their value, if ever. They act like I'm crazy when I say there is a precedent (Texas) for such a thing. They also seem to forget that property values went nowhere in Florida during the 90s due to Andrew. Just fortunate my employment niche is holding up, for now. Take care and happy holidays. Always appreciate your posts.
santafe2
12-25-08, 12:11 PM
Sorry but no. It was a one day biz trip and I didn't take my camera. The photo is from SkiDubai stock. But I am sure they won't mind the publicity. :D And why are you working so late on Christmas Eve. Wasn't Thanksgiving enough of a marathon for you good folks? Go home and have some rum and eggnog...:cool:
Here's the real thing. It snowed as much as 8" on Christmas day in the Middle East. This picture is from this morning in Gaza.
912
Here's the real thing. It snowed as much as 8" on Christmas day in the Middle East. This picture is from this morning in Gaza.
912
Wow! Thanks for the pic.
Apparently this is the first coast-to-coast white Christmas in more than 50 years in Canada. Wonder if Starving Steve has dug himself out of his East Sooke cabin yet?
Let's see now. Chinese electricity production down 8%. Less coal being burned. Voila, global cooling??? :rolleyes: Maybe the world needs an "inverted" carbon tax, at least during the coming depression? :)
Merry Christmas.
And ax; a tip of the hat and many thanks to all those, like you, working through the holidays on our behalf.
Wow! Thanks for the pic.
Apparently this is the first coast-to-coast white Christmas in more than 50 years in Canada. Wonder if Starving Steve has dug himself out of his East Sooke cabin yet?
Let's see now. Chinese electricity production down 8%. Less coal being burned. Voila, global cooling??? :rolleyes: Maybe the world needs an "inverted" carbon tax, at least during the coming depression? :)
Merry Christmas.
And ax; a tip of the hat and many thanks to all those, like you, working through the holidays on our behalf.
My pleasure. Aside from a little early Christmas morning trauma, was one of the easiest days in a long time. Paying for it today though...
santafe2
01-01-09, 12:16 AM
Wow! Thanks for the pic.
Apparently this is the first coast-to-coast white Christmas in more than 50 years in Canada. Wonder if Starving Steve has dug himself out of his East Sooke cabin yet?
Let's see now. Chinese electricity production down 8%. Less coal being burned. Voila, global cooling??? :rolleyes: Maybe the world needs an "inverted" carbon tax, at least during the coming depression? :)
Merry Christmas.
And ax; a tip of the hat and many thanks to all those, like you, working through the holidays on our behalf.
You're welcome and very best of the holidays back to you.
As for the warming/cooling discussion, I'm much less inclined toward the "everyone has an opinion" camp after reading a few papers over this last week off from work. I'll spend more of my iTulip time in 2009 organizing this point of view but I'm sure warming is the long term direction.
dbarberic
03-25-09, 08:05 AM
I would love to see an iTulip update to where we are on this chart:
http://www.itulip.com/homeequityextraction.jpg
I would love to see an iTulip update to where we are on this chart:
http://www.itulip.com/homeequityextraction.jpg
Appears that we are between steps E and F and the process is running 18 months ahead of forecast.
http://www.itulip.com/images/MEWQ42008KennedyGreenspam.gif
thedanimal
03-25-09, 09:41 AM
Appears that we are between steps E and F and the process is running 18 months ahead of forecast.
Emphasis mine. WOW.
Appears that we are between steps E and F and the process is running 18 months ahead of forecast.
http://www.itulip.com/images/MEWQ42008KennedyGreenspam.gif
Interesting. Locally I feel like we are still at B, but we have always lagged behind in the Pacific NW. With discussions of an impending balance of payments crisis (http://www.itulip.com/forums/showthread.php?p=83348#post83348), I get the feeling we may suddenly catch up to the national picture.
Appears that we are between steps E and F and the process is running 18 months ahead of forecast.
Three questions, if I may...
1.) When can we anticipate step G bottoming out since we are currently running 18 months ahead of schedule?
2.) What major markets will look most attractive and which markets will shape up to be the worst?
3.) What is the general consensus of the actions being taken politically and how will they effect this process?
Thanks all,
Ken
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