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  • Housing to fall another 25% - Updated Case-Shiller

    Click the chart for a larger picture.
    Case-Shiller-UPDATED.jpg
    Chart courtesy of the NYT, as modified by Steve Barry

  • #2
    Re: Housing to fall another 25% - Updated Case-Shiller

    They didn't include the inevitable overshoot. Looks like war time drops values further too...

    Comment


    • #3
      Re: Housing to fall another 25% - Updated Case-Shiller

      Originally posted by Jay View Post
      They didn't include the inevitable overshoot. Looks like war time drops values further too...
      Careful Hawkeye, you may be one of the first to go.

      Comment


      • #4
        Re: Housing to fall another 25% - Updated Case-Shiller

        Jay,

        This is an interesting point, especially when put in the context of Las Vegas or parts of Florida. If we look at the carnage overbuilding created in those two areas alone, one has to wonder what the overshoot will look like there, not to mention what the pricing will look like at the bottom.

        Conversely, in several markets, the ones that were largely insulated from the correction (Boston comes to mind) I think they are going to be in for one heck of a readjustment, perhaps delayed, but painful nonetheless.

        Comment


        • #5
          Re: Housing to fall another 25% - Updated Case-Shiller

          I am curious what the impact will be on Pension Plans.

          There are some lots of really over the Top R/E Development Projects back by Funding provided by high net worth and Pension Funds.

          My two favorite White Elephants:

          http://www.carnegienewport.com/rhodeislandgolfclub/ - It a new summer Resort - built on the Site of a former Aluminum Company - Real Estate in this Development goes from $1 Million - $2 Million - a Summer resort in Rhode Island - and the closet Airport is TF Green - this project was started in 2004 - I think.

          Down town Princeton-NJ is jus beinning to Market - $1.2 Million - $2.2 Million Apartments and Town Houses. Remember - this is Down town Princeton New Jersey - there is No water view - the closet Airport is 1 Hour away - there are lots of wealthy Professors - but, I suspect most of them can do math well enough to know a bad Real Estate Deal. http://www.palmersquareresidences.com/

          Amazing times.

          Comment


          • #6
            Re: Housing to fall another 25% - Updated Case-Shiller

            Originally posted by dummass View Post
            Careful Hawkeye, you may be one of the first to go.
            Awesome response. And yet so true...

            Will I get my own Radar?

            Comment


            • #7
              Re: Housing to fall another 25% - Updated Case-Shiller

              Originally posted by KenD View Post
              Jay,

              This is an interesting point, especially when put in the context of Las Vegas or parts of Florida. If we look at the carnage overbuilding created in those two areas alone, one has to wonder what the overshoot will look like there, not to mention what the pricing will look like at the bottom.

              Conversely, in several markets, the ones that were largely insulated from the correction (Boston comes to mind) I think they are going to be in for one heck of a readjustment, perhaps delayed, but painful nonetheless.
              Foreclosures are just starting. When it becomes widely socially acceptable to walk away, and it is getting there, all hell will break loose. Agree on Boston. The fall won't be as hard though, as the peak wasn't as high, and the economy is much more diversified.

              Comment


              • #8
                Re: Housing to fall another 25% - Updated Case-Shiller

                Originally posted by KenD View Post
                ...in the context of ffice:smarttags" />Las Vegas or parts of Florida. If we look at the carnage overbuilding created in those two areas alone, one has to wonder what the overshoot will look like there, not to mention what the pricing will look like at the bottom...


                http://www.bus.wisc.edu/realestate/davis-databases/

                http://www.lincolninst.edu/subcenters/land-values/data/LANDDATA.msas.2010q1.xls

                I'm a total novice with these numbers and have to struggle to understand half of what you guys are saying much of the time (please do not get on my case if I am misreading this) but looking at land values on the above referenced links (assuming structural costs are somewhat more fixed) the data shows 2010Q1 Miami MSA values already back down at its 2001Q2 level and Tampa MSA back down to its 1984 values. So why assume that 25% still to drop (as proposed in the original post) will be Florida's carnage? Haven't we suffered enough?

                The referenced numbers show in the second link above (if I am reading this correctly) that Baltimore has so far dropped only to its 2005 values, still 50% over its 2001 value.

                Assuming the great delusion kicked off in 2001, the following shows where various other MSAs are currently selling and how far they’d have to drop to erase their bubble gains…

                Hartford currently selling at 2004 prices, dropping 32% brings it back to its 2001 value.

                Buffalo at 2003, a 20% drop brings it back to 2001.

                Houston continuous rise, 25% .

                Los Angeles 2003, 35% .

                New Orleans 2005, 32% .

                New York 2003, 33%.

                Norfolk 2005, 55% .

                Oakland 2003, 18%.

                Philadelphia 2004 levels, 50%.

                Portland 2003, 18%

                Providence 2003, 39%

                San Antonio 2006, 31%

                Santa Ana 2004, 43%

                DC 2002, 28%

                And again, Miami is already down to 2001 land values (granted it can overcorrect) but Tampa? It would have to double its current prices to rise back up to those 2001 values.

                So my question is: just how much of that national 25% figure might be exected to come out of Florida’s hide?

                Comment


                • #9
                  Re: Housing to fall another 25% - Updated Case-Shiller

                  Originally posted by housingcrashsurvivor View Post

                  http://www.bus.wisc.edu/realestate/davis-databases/

                  http://www.lincolninst.edu/subcenters/land-values/data/LANDDATA.msas.2010q1.xls

                  I'm a total novice with these numbers and have to struggle to understand half of what you guys are saying much of the time (please do not get on my case if I am misreading this) but looking at land values on the above referenced links (assuming structural costs are somewhat more fixed) the data shows 2010Q1 Miami MSA values already back down at its 2001Q2 level and Tampa MSA back down to its 1984 values. So why assume that 25% still to drop (as proposed in the original post) will be Florida's carnage? Haven't we suffered enough?

                  The referenced numbers show in the second link above (if I am reading this correctly) that Baltimore has so far dropped only to its 2005 values, still 50% over its 2001 value.
                  Assuming the great delusion kicked off in 2001, the following shows where various other MSAs are currently selling and how far they’d have to drop to erase their bubble gains…

                  Hartford currently selling at 2004 prices, dropping 32% brings it back to its 2001 value.

                  Buffalo at 2003, a 20% drop brings it back to 2001.

                  Houston continuous rise, 25% .

                  Los Angeles 2003, 35% .

                  New Orleans 2005, 32% .

                  New York 2003, 33%.

                  Norfolk 2005, 55% .

                  Oakland 2003, 18%.

                  Philadelphia 2004 levels, 50%.

                  Portland 2003, 18%

                  Providence 2003, 39%

                  San Antonio 2006, 31%

                  Santa Ana 2004, 43%

                  DC 2002, 28%

                  And again, Miami is already down to 2001 land values (granted it can overcorrect) but Tampa? It would have to double its current prices to rise back up to those 2001 values.

                  So my question is: just how much of that national 25% figure might be exected to come out of Florida’s hide?

                  It depends a lot on what set of numbers you use to gauge the relative values. These Lincoln Institute numbers are new to me, but seem well-researched. There are the FHFA (formerly OFHEO) indexes which track more individual communities than any other database I know of. There are general numbers from the census bureau. There are the NAR reports. There are the Case-Shiller indexes.

                  It could be debated forever which set is most "correct", and one could cherry-pick to argue that a certain city has X-percent to drop or has reached bottom. The national numbers are only a very rough guide. I think there are indeed cities and towns across the country which have probably bottomed out. Many of those never had frenzied gains in the first place. Other places are still over-valued to various degrees. I think it is also unknown whether and to what extent housing markets will overshoot below what might be considered "fair market value". In markets that experienced considerable overvaluation during the housing bubble, I think it is likely they will overshoot. But will they fall as far below as they rose above the long-term historical norms? I cannot say for sure.

                  At any rate, I primarily track the Case-Shiller numbers in the ongoing thread I update quarterly. I use January 2000 as the base point, although different cities started the housing boom at different times. The raw Case-Shiller numbers are indexed at 100 in January 2000 so it made sense to start there. Using their data and my calculations, as of June 2010 Tampa is still 38.58% above January 2000, and Miami is 46.92% above. You can see then that there is a wide variance in the results depending on the dataset you use. What's right, what's wrong?

                  Comment


                  • #10
                    Re: Housing to fall another 25% - Updated Case-Shiller

                    Thanx for all the good info Zoog. Still, it seems the more I try to understand economics, the less I know about it.

                    For those of us without a background in bubbles, who were pretty much taken for a ride for quite a few years, it is hard to now value anything that can be halved so readily.

                    So I tried to seek out what I hoped were fundamentals when purchasing, looking at area purchases going back as far as I could (generally about 20 years), adjusting for inflation and discounting for what I feared might be further declines.

                    In that I also looked at rent to price ratios, utilizing rents currently commanded, which have already dropped along with housing values. I'm not sure I trust the Lincoln study on this point as it shows from 1960-1999 an average ratio of 19:1. That seems a little high to me though I really don't know. If it is correct, then I am even more comfortable with my purchase now. I bought in an area that, according to Moody's, had a peak bubbly 2007 ratio of 21.4:1 when its 15-year average was 14.5:1 and which dropped to 17.5 in 2008 and where it is currently 14.6:1 based on Census-determined rates & NAR-reported June 2010 sales. I read also (sorry but I forget the source) which showed this area's ratio to be 12.4:1 in 2000, before the bubble took hold.

                    I recently paid at a ratio of 7.5:1 even after significant improvements so you can see why I'd have trouble imagining a 30something% drop from here. Though I've already seen values drop in half on my other properties and I'm pretty sure my neighbors here are living in their house for free so I guess anything is possible. What a long strange trip it's been.

                    Comment


                    • #11
                      Re: Housing to fall another 25% - Updated Case-Shiller

                      Originally posted by housingcrashsurvivor View Post
                      Thanx for all the good info Zoog. Still, it seems the more I try to understand economics, the less I know about it.

                      For those of us without a background in bubbles, who were pretty much taken for a ride for quite a few years, it is hard to now value anything that can be halved so readily.

                      So I tried to seek out what I hoped were fundamentals when purchasing, looking at area purchases going back as far as I could (generally about 20 years), adjusting for inflation and discounting for what I feared might be further declines.

                      In that I also looked at rent to price ratios, utilizing rents currently commanded, which have already dropped along with housing values. I'm not sure I trust the Lincoln study on this point as it shows from 1960-1999 an average ratio of 19:1. That seems a little high to me though I really don't know. If it is correct, then I am even more comfortable with my purchase now. I bought in an area that, according to Moody's, had a peak bubbly 2007 ratio of 21.4:1 when its 15-year average was 14.5:1 and which dropped to 17.5 in 2008 and where it is currently 14.6:1 based on Census-determined rates & NAR-reported June 2010 sales. I read also (sorry but I forget the source) which showed this area's ratio to be 12.4:1 in 2000, before the bubble took hold.

                      I recently paid at a ratio of 7.5:1 even after significant improvements so you can see why I'd have trouble imagining a 30something% drop from here. Though I've already seen values drop in half on my other properties and I'm pretty sure my neighbors here are living in their house for free so I guess anything is possible. What a long strange trip it's been.

                      I keep thinking about this alot... So, i will attempt to provide my point of view... I've been reading EJ for about 3 years and have noticed the bubble in prices since about 04-05 and began looking at price to rent ratios along with interest rates and the way properties were being financed.... As EJ mentions we are entering a transitional time, lower incomes, etc...

                      When looking at RE i attempt to look at financing cost in addition to previous sales values (this holds the least value in my view), rental income to price, etc... One thing to make sure not to do, is dont look at everything from the prism of current values/rent, you must assume that rent will fall with the addition of rental unit availability (maybe not now, but some time in the future) and decreased income of renters, etc...

                      Another thing to really keep in mind is that we are going to be entering a period of high interest rates and for the most part housing is a leveraged asset... How many people do you know who can pay their house purchase in cash?

                      So you have the following trends

                      1) Lower income generation, and if people cant earn, that leads to less demand for purchase as well as ability to rent, unless we all go on Section 8..

                      2) Higher interest rate environment; if currency collapse or debt crises then as EJ predicts 24% interest rates... I doubt any bank will lend. Who can buy? Really, only those with cash...

                      3) Overall increase in energy and living costs aside from housing, ie. gas, food, electricity, etc...

                      4) Overall shift in psychology on housing, kids/teenagers that remember their parents getting foreclosed then evicted out of their homes wont be jumping on the bandwagon any time soon to go into debt to buy a house... Same psychological shift that happened in the 30's.

                      Couple this with the fact that income and expenses are a zero sum game... If energy costs go up, along with interest rates, income either stagnates or stays the same then you really dont have many other options to pay the monthly "nut" or even inflated rents.

                      If you look at a chart of interest rates for the last 30-60 years we are at the bottom or approaching the bottom of this interest rate cycle and interest rates are markets as well, just like gold or anything else, when you hit bottom the only place you can go is up....

                      So, i think you gotta ask, whats the price of a house at 10/15/24% interest rates? We've been accustomed to valuing houses in a declining interest rate environment and thats not whats coming...

                      Obviously, if prices drop enough folks will probably just start buying cash, for instance at 100k or so, alot of folks could cash out their retirement funds and purchase outright.... I dont think you will hit that time frame until interest rates skyrocket like they did in the 80's.... I think that will be the real time to buy..

                      I havent quite figured out how to figure inflation into this picture, but eventually, i believe RE will get to a point where it drags along the bottom and you will practically have to yell at folks to buy a house bc it becomes soo undervalued (same way most folks never paid attention to gold at 250 until it started climbing to 750-800); but my guess is that inflation tempers the lows a bit...

                      Markets have a tendency to punish beyond belief, folks keep saying it cant go lower until of course it goes lower... I made that mistake with a stock once after the dot com bubble stock went from 80 to 20, i thought how long can it go, and i kept buying all the way down to 13 then i couldn't take the pain anymore and sold my entire position, the low for the last 10 years was 12 dollars I literally sold at the bottom... Oh well, live and learn, i was 18.... Markets are like that I think housing will be no different.. You will have bounces but the bottom usually drags on for a while...

                      I may be mistaken, but i would love some input on this line of thought bc this is something i am trying to figure out as well... I base this line of though based on EJ's writing and what i saw in other third world countries, like Egypt, where most transactions take place via cash and back in the late 80's you could buy a 2000sqf apartment for about 15K USD in the middle of Cairo... Egypt in the 50's used to have a high standard of living, strong currency, etc... It stagnated and the standard of living dropped SIGNIFICANTLY until about the mid 80's and apartments there now cost more than houses here in the states...
                      Last edited by karim0028; 09-04-10, 04:32 PM.

                      Comment


                      • #12
                        Re: Housing to fall another 25% - Updated Case-Shiller

                        A corollary to your line of questions is, what to do with cash in a high-inflation environment?

                        I think RE will play an important option among the answers.

                        Buying for equity gain. Expect to go very long. Seemingly forever is a possibility.

                        Investing in a rental. The costs are knowable at the time of purchase. The rental price markets aren't but the rest is. If it can be made to cover your cost, and rents don't collapse, it's an inflation fighter. Heed Hudson on this one. The old model of rents covering costs, with the payoff coming in equity, is not advisable.

                        Paying cash for a house to live in. If you buy into this, buy and forget if prices continue to fall. Think of it as a long-term inflation hedge and a roof over your head, at what was a low price at the time you bought. I suggest Friday night cocktails as a regular thing.

                        Comment


                        • #13
                          Re: Housing to fall another 25% - Updated Case-Shiller

                          Originally posted by don View Post
                          A corollary to your line of questions is, what to do with cash in a high-inflation environment?

                          I think RE will play an important option among the answers.

                          Buying for equity gain. Expect to go very long. Seemingly forever is a possibility.

                          Investing in a rental. The costs are knowable at the time of purchase. The rental price markets aren't but the rest is. If it can be made to cover your cost, and rents don't collapse, it's an inflation fighter. Heed Hudson on this one. The old model of rents covering costs, with the payoff coming in equity, is not advisable.

                          Paying cash for a house to live in. If you buy into this, buy and forget if prices continue to fall. Think of it as a long-term inflation hedge and a roof over your head, at what was a low price at the time you bought. I suggest Friday night cocktails as a regular thing.

                          I think in high inflation environment gold and silver and commodities go alot higher.... Once fear and panic set in about the currency (even if it happens or not), every idiot and their mother will be looking to buy gold so they can have something to hold onto... Fear-mongering will be the norm in TV ads - "buy gold, secure your future, country will collapse", etc, etc... They will buy the highs (just like the 80's) and at that point you can sell your gold and buy into RE, since that will probably be around the high of the interest rates....

                          In other countries, they do buy RE for hedging.. Parents buy their kids apartments to get married into, sometime buying out 20 years in advance... But, over there they pay cash and rarely do interest rates matter, since you cant get a loan on a property....

                          Also, in the 70's inflation era employees could continually ask for raises to match inflation... Now, how elastic are pay increases going to be? Why would i give you much of a pay raise here when i can hire someone in asia for a quarter the price.. Unless some new industry comes along to give employees with that skillset the pricing power, why would an employer not outsource?

                          But, there just seem to be alot of headwinds for RE right now... Still to many people trying to call the bottom.... Usually bottoms dont happen till everyone you know is trying to DISSUADE you from buying... I think we will eventually get to a point where most RE is cash flow positive and when you look at the upcoming interest rate hikes, i just dont think we are there yet...
                          Last edited by karim0028; 09-04-10, 05:40 PM.

                          Comment


                          • #14
                            Re: Housing to fall another 25% - Updated Case-Shiller

                            Originally posted by karim0028 View Post
                            ...along with interest rates and the way properties were being financed...
                            Originally posted by karim0028 View Post

                            if financing affects price ceilings, don't material costs presume price floors or is your argument for depression and not for inflation?

                            when looking at re i attempt to look at financing cost in addition to previous sales values (this holds the least value in my view)...

                            mindful that an area or a house deteriorated or improved affect prices over time, little value when past prices show whether large amounts of appreciation have already been realized then to now or where to buy in at, say, a pre-bubble, early 1990s price, nearly twenty years later?

                            ...rental income to price, etc... One thing to make sure not to do, is dont look at everything from the prism of current values/rent, you must assume that rent will fall with the addition of rental unit availability (maybe not now, but some time in the future) and decreased income of renters, etc...

                            if the assumption is that there will be more rentals because people are losing their houses, then isn’t the assumption also that there will be more renters for the same reason. And if income decreases, won’t there will be even less owners and ever more renters?

                            ... How many people do you know who can pay their house purchase in cash?

                            what is the percentage of us housing stock which is owned free & clear?

                            1) lower income generation, and if people cant earn, that leads to less demand for purchase as well as ability to rent, unless we all go on section 8..

                            2) higher interest rate environment; if currency collapse or debt crises then as ej predicts 24% interest rates... I doubt any bank will lend. Who can buy? Really, only those with cash...

                            section 8 & economic collapse & bears? Oh my! Outside of digging a hole, how does one plan for that? Can't i just live in my bullion? Should i accept bullion for rent or will i then have to trade rents paid to me on the black market for my bread?

                            3) overall increase in energy and living costs aside from housing, ie. Gas, food, electricity, etc...

                            am i the only person who remembers complaining when a slice of pizza went up to $.25, back when i couldn't afford to buy my own whole pie?

                            4) overall shift in psychology on housing, kids/teenagers that remember their parents getting foreclosed then evicted out of their homes wont be jumping on the bandwagon any time soon to go into debt to buy a house... Same psychological shift that happened in the 30's.

                            who knows what children will take away from this experience or how they might apply that to their futures? Will they instead only buy what they can actually afford? Will they learn to not atm their most valuable possession? Are a huge majority of them missing meals and living in cars or are they more distracted by moving to a new school, making new friends, setting up a new home?

                            what is the critical mass that would create such lasting changes as you propose? How indelible upon memory is the real estate market? When catastrophe hits an area does the population tend to abandon their city or do they rebuild right there?

                            couple this with the fact that income and expenses are a zero sum game... If energy costs go up, along with interest rates, income either stagnates or stays the same then you really dont have many other options to pay the monthly "nut" or even inflated rents.

                            if i rent out a room in my owned home, will that help me afford the inflated price of a slice of pizza?

                            ...when you hit bottom the only place you can go is up....

                            unlike the stock market which can go sideways for long periods?

                            so, i think you gotta ask, whats the price of a house at 10/15/24% interest rates? We've been accustomed to valuing houses in a declining interest rate environment and thats not whats coming...

                            how does anyone know for certain what's coming when they are still figuring out what came? How can i make decisions based upon unknowns?

                            ...eventually, i believe re will get to a point where it drags along the bottom and you will practically have to yell at folks to buy a house bc it becomes soo undervalued...

                            if the income from one of my houses would pay mortgage costs on both of my houses, what other event should i have waited for which would have signaled a better time to buy?
                            ...

                            Comment


                            • #15
                              Re: Housing to fall another 25% - Updated Case-Shiller

                              Originally posted by housingcrashsurvivor View Post
                              [size=2]...
                              if financing affects price ceilings, don't material costs presume price floors or is your argument for depression and not for inflation?
                              Again, i welcome the debate, so please dont take my responses as me saying im right and you are wrong or anything like that... I am just like you trying to reason out my thoughts and a healthy debate helps everyone...

                              1) Financing affects price ceiling on purchase price and material costs going up helps put a bottom on house prices, but the real price of a home i feel comes down to how much rent it can command... As an investor why would i put money into a house (that depreciates, costs money to maintain, etc) when i can get a better return in stocks, bonds, whatever.. The way i see it; in normal markets all assets compete for capital based on ROI, risk, supply and demand, etc.... As far as can tell , there is a lot of hidden supply still about to come on the housing market... All of these In an inflationary environment with lower standards of living (meaning lower real income), the price of a house might stay the same, but if a currency devaluation happens or a fiscal crisis occurs wouldnt you be better off in something else?

                              I mean, look at a country like Argentina, Latvia or iceland or any country that has come to a lower standard of living (granted theirs was sudden and due to foreign currency debt, ours is not exactly the same thing) through a debt crisis, or devaluation or something along those lines... The end result being a lower standard of living for the population... Their RE markets collapse.. If you own the home outright you may be better off, but if you invested in gold or silver or foreign currency you probably came out better off than plowing cash into RE...


                              when looking at re i attempt to look at financing cost in addition to previous sales values (this holds the least value in my view)...

                              mindful that an area or a house deteriorated or improved affect prices over time, little value when past prices show whether large amounts of appreciation have already been realized then to now or where to buy in at, say, a pre-bubble, early 1990s price, nearly twenty years later?
                              Fix up costs add to the value of a house... But, if the house is overvalued, then it ends up netting down to where the value should be.... Go ask anyone in phoenix if the granite floors they put in brought their home values up? In the late eighties or 90s' RE had several things going for it... Strong bubbly economy, interest rates going lower, stock market boom, low house prices... My parents bought a house in Minnepolis in 97/98 for 50K (and put in another 30K in fix ups) at the time no body was chasing housing, houses were on the market and if anyone cared they bid.. It was a place to live....

                              .. How many people do you know who can pay their house purchase in cash?

                              what is the percentage of us housing stock which is owned free & clear?
                              I believe its 25-30% owned free and clear

                              2) higher interest rate environment; if currency collapse or debt crises then as ej predicts 24% interest rates... I doubt any bank will lend. Who can buy? Really, only those with cash...

                              section 8 & economic collapse & bears? Oh my! Outside of digging a hole, how does one plan for that? Can't i just live in my bullion? Should i accept bullion for rent or will i then have to trade rents paid to me on the black market for my bread?
                              I am not being overly pessemistic I am just trying to see & list the headwinds as i see them, if you disagree outline where you see flaws, dismissing it doesnt negate it ;)... Just bc i say RE has headwinds doesnt mean it goes to zero in a hyper-inflationary seventh circle of hell , it just means that relative to other investments it doesnt seem to be the optimal thing to be invested in at the moment.....

                              3) overall increase in energy and living costs aside from housing, ie. Gas, food, electricity, etc...

                              am i the only person who remembers complaining when a slice of pizza went up to $.25, back when i couldn't afford to buy my own whole pie?
                              Again, its all relative... Your income might have nominally gone up, but real income may have gone down.... If expenses rise in real terms as a percentage of nominal and real income, something has to give, no? How else can you afford something? If you make 5K/month but your electric bill goes up from 200 to 500/month i believe that would be housing negative, bc, if income (for the time being) stays where it is at and your expenses suddenly rise you only have so much income to pay your total expenses... Either in aggregate you eat and go out less or in aggregate your ability to afford the house you are in just went down.... Again, keep in mind pay raises arent as elastic as energy or other expenditures... Not everyone can go to their boss and ask for a raise every day.... When gas prices spike to $4/gallon in 08, i dont know about you but i didnt get a raise... Just made me in aggregate poorer and everyone else i work with felt the same way.....

                              Again that is at a certain point in time... a year later your income might go up and you can again afford the home, but at that point in time and for probably 8 or 9 months you could possibly be scrimping and saving every last cent to get by or maintain the same standard of living...

                              4) overall shift in psychology on housing, kids/teenagers that remember their parents getting foreclosed then evicted out of their homes wont be jumping on the bandwagon any time soon to go into debt to buy a house... Same psychological shift that happened in the 30's.

                              who knows what children will take away from this experience or how they might apply that to their futures? Will they instead only buy what they can actually afford? Will they learn to not atm their most valuable possession? Are a huge majority of them missing meals and living in cars or are they more distracted by moving to a new school, making new friends, setting up a new home?

                              what is the critical mass that would create such lasting changes as you propose? How indelible upon memory is the real estate market? When catastrophe hits an area does the population tend to abandon their city or do they rebuild right there?
                              With the average student in non-bankruptable debt up to their eyeballs and for the time being diminishing job prospects, the pool of buyers is dwindiling... It doesn't mean no one is going to buy, it just means that the pool of buyers shrinks... As for psychology, at work i know 4-6 folks that are walking away from their mortgages, professionals that make in excess of 100K/year, not broke, just figured out they were shit out of luck in every gaining their original purchase price... Now, it is discussed regularly at lunch, nothing to be ashamed of... That is a shift in psychology, housing is not going to be seen as a "great investment", it will be just a house, shelter and eventually CAP rates will have to start making sense for an investor to buy....

                              couple this with the fact that income and expenses are a zero sum game... If energy costs go up, along with interest rates, income either stagnates or stays the same then you really dont have many other options to pay the monthly "nut" or even inflated rents.

                              if i rent out a room in my owned home, will that help me afford the inflated price of a slice of pizza?
                              Sure, i didnt say that it doesnt provide an income... RE will always provide an income... But, will it be the best investment going forward that provides the best real returns, i doubt it... An imbalance 10-20 years in the making doesn't usually correct in half the time or rebound that quickly... And there is usually a bottoming out period that lasts a while....

                              .
                              ..when you hit bottom the only place you can go is up....

                              unlike the stock market which can go sideways for long periods?
                              Sure interest rates can go sideways for a while, but in the end they will rise and very possibly rise sharply... Why, bc of the exact thing EJ has been talking about for the last 5 or 6 years... Eventually the market will puke at accepting such low yields with the supply of treasuries being put up for sale going up each year.... It might not happen tommorrow, but i cant fathom why anyone would lend the US govt money for 30 years for such low yields when the supply is damn near infinite... What is not sustainable will not be sustained... Eventually something will give....

                              http://www.chartsrus.com/chart.php?i...?ticker=FUTTYX

                              Take a look at the link above for the 30 year treasury yield... I will leave you to make your own conclusions on where the yield will go... As i see it the downward trendline from the 1981 top has already been broken (around 99/2000, around the same time gold bottomed out) and for the last several years or so we have been in a bottoming formation.. We may have another attempt to test the 08 lows but, after that it is most likely bottomed and going higher.... Even if we go lower on yields, do you really think people will continously loan money to a govt that continues to spit out nothing but debt?

                              so, i think you gotta ask, whats the price of a house at 10/15/24% interest rates? We've been accustomed to valuing houses in a declining interest rate environment and thats not whats coming...

                              how does anyone know for certain what's coming when they are still figuring out what came? How can i make decisions based upon unknowns?
                              No one can be 100% certain about the future... But, you can look at history and try and learn/anticipate... I LOVE EJ's analysis, he doesn't blindly predict, he looks at data and makes possible scenarios... I am NO EJ, like i said i am just trying to figure out my way as well by asking questions and trying to find answers that make sense based on my analytical ability and what makes sense...

                              With regard to interest rates... Why would you continually keep lending money to a stupid spend thrift? Like EJ says these things are political as well as economic, but i gotta figure something is gonna give... The only thing you can count on is; eventually each side will do what is best for it.... When it happens it will usually go to extremes, just like they did in the 80's... Why? Bc its human behavior, herd mentality, fear mongering, etc... Am i predicting? No, i am simply looking at history with the data at hand....

                              ..eventually, i believe re will get to a point where it drags along the bottom and you will practically have to yell at folks to buy a house bc it becomes soo undervalued...

                              if the income from one of my houses would pay mortgage costs on both of my houses, what other event should i have waited for which would have signaled a better time to buy?
                              I honestly dont know... It depends on your individual circumstances.. But, that doesn't sound like a bad deal.... But, we are at that point talking about different things, you are talking about your individual situation (and/or a deal you may have come across) and i am referring to a market in general... What you are doing sounds like a business deal, a business person buys/sells where ever he sees an opportunity to make money and can usually make money in any market.... The concept of buy low sell high never goes out of style You can use the same concept to trade any market... When referring to a market i believe you have to look at it overall, not individual things... Ie. its like asking i can buy gold at $500 dollars when todays market price is 1250, should i do it? Well, yeah..

                              All i know is that my belief is that higher interest rates will/should provide headwinds for RE, i am trying to figure out how inflation will factor in to prices, but i am not there yet, bc i just dont know how inflation wil relate to incomes, psychology, housing sentiment, etc...
                              Last edited by karim0028; 09-05-10, 04:50 PM.

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