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  • Ka-poom and house prices

    I'm curious what happens to house prices if/when the poom happens? If there were to be massive inflation would the prices of real estate fly through the roof?

    Can anyone point me to somewhere in the itulip theory that points or talks to what happens to house prices/real estate with regard to other asset classes such as gold (as ive been reading gold will go to 2-5K)....

    -Karim0028

  • #2
    Re: Ka-poom and house prices

    Originally posted by karim0028 View Post
    I'm curious what happens to house prices if/when the poom happens? If there were to be massive inflation would the prices of real estate fly through the roof?

    Can anyone point me to somewhere in the itulip theory that points or talks to what happens to house prices/real estate with regard to other asset classes such as gold (as ive been reading gold will go to 2-5K)....

    -Karim0028
    I think you've asked the million-dollar question, and as far as I'm aware, it has not YET been addressed on this forum.

    So place your bets!

    As per housing vs gold, I think a min call of 100oz Gold = median home price, is a CONSERVATIVE CALL. But it could be 100 oz AU = $5000 = median home price OR 100 oz AU = $500000 = median home price.

    That's why this is so tricky, ratio-wise it's realtively straight forward.

    1 ounce gold = DOW or,
    100 ounces of gold = median home price.

    The real QUESTION (and you are brilliant for asking it) is "what will the dollar price be" during/after POOM.

    BECAUSE, if the dollar price goes up to $500K for a median priced home, then real estate would be a GREAT BUY!

    BUT, if the dollar price goes to $50K for a median priced home, well, let's just say that would be a bit of a haircut from today's $218K or so median price.

    Hope this helps.

    P.S. BTW $5000 per ounce of gold and 100 ounce per median home implies $500,000 median home price. IF you by the assumptions.
    Last edited by jtabeb; 01-05-09, 09:13 AM.

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    • #3
      Re: Ka-poom and house prices

      Or put another way, when will falling housing prices be caught by rising inflation? Housing, with all of its equity busting problems, will be among the last "caught" (2010?). The length of its horizontal leg in its L price recession will be the amount of time to decide to jump in or not.

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      • #4
        Re: Ka-poom and house prices

        1. real housing prices will fall for many years.

        2. for nominal prices to level out, typical cycles take about 6 years or so peak to trough. 2005 being peak, we are talking 2011 for nominal prices to level out.

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        • #5
          Re: Ka-poom and house prices

          Originally posted by grapejelly View Post
          1. real housing prices will fall for many years.

          2. for nominal prices to level out, typical cycles take about 6 years or so peak to trough. 2005 being peak, we are talking 2011 for nominal prices to level out.
          No Argument for #1

          Not so sure about #2, have you noticed HOW FAST things are happening? What if the FED pushes the 30 year down to .5%? That's again THE problem. How far the FED can push down 30 year rates will have a big impact on when the intermediate bottom comes in nominal home prices.

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          • #6
            Re: Ka-poom and house prices

            Originally posted by jtabeb View Post
            Not so sure about #2, have you noticed HOW FAST things are happening? What if the FED pushes the 30 year down to .5%? That's again THE problem. How far the FED can push down 30 year rates will have a big impact on when the intermediate bottom comes in nominal home prices.
            I don't think it matters.

            And I don't think they can push rates down much either.

            You have to think "underwriting standards", not rates.

            Very few folks qualify for real estate purchases at today's prices, and with incomes falling and defaults rising with unprecedented consumer debt levels, it won't get better very fast.

            That is why this takes years. The current efforts of the Fed are a pipe dream.

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            • #7
              Re: Ka-poom and house prices

              Originally posted by karim0028 View Post
              I'm curious what happens to house prices if/when the poom happens? If there were to be massive inflation would the prices of real estate fly through the roof?

              Can anyone point me to somewhere in the itulip theory that points or talks to what happens to house prices/real estate with regard to other asset classes such as gold (as ive been reading gold will go to 2-5K)....

              -Karim0028
              Beautifully asked. It is the very question I have as well. I have a Palm Desert, CA (2nd) home that I need 215K to cut even that is valued to sell at 260K in today's market. I wonder if I should cut and run (sell) rather than play land lord and run a rent deficit for the next months to years. Opinions from iTulips please

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              • #8
                Re: Ka-poom and house prices

                My bet is that nominal real estate prices go higher, surprisingly higher as this all shakes out. It may be sooner then we think. Can we really have all these homes go into foreclosure and be upside down. Nope. Answers will be coming.

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                • #9
                  Re: Ka-poom and house prices

                  Originally posted by grapejelly View Post
                  I don't think it matters.

                  And I don't think they can push rates down much either.

                  You have to think "underwriting standards", not rates.

                  Very few folks qualify for real estate purchases at today's prices, and with incomes falling and defaults rising with unprecedented consumer debt levels, it won't get better very fast.

                  That is why this takes years. The current efforts of the Fed are a pipe dream.

                  With all the Fed has done and alluded to doing, why do you think its a pipe dream? To me, anything seems possible up and until american creditors pull out, but even then the charade can continue to some extent.

                  The fed can print money and buy long term T bonds and agency debt, so they can drive rates wherever they want I would suppose.

                  I seem to remember about a year ago when the housing bubble collapse was becoming widely recognized and even the MSM were pointing to a primary cause/blams being Greenspan holding rates at 1% for too long.

                  Hey, now were at zero% and for an indefinite but probably long duration. What happened to that fleeting wisdom?

                  And about 6 months ago the MSM is finally highlighting all the poor underwriting standards and collusion between players to generate all these loans that propelled the bubble, liar loans, no down payments, bad credit, etc.. What's to prevent the same from happening again, albeit under another guise - the gov just last week began funding sub-prime car loans, it's only a matter of time before the loosening of standards again.

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                  • #10
                    Re: Ka-poom and house prices

                    Originally posted by jayers4647 View Post
                    My bet is that nominal real estate prices go higher, surprisingly higher as this all shakes out. It may be sooner then we think. Can we really have all these homes go into foreclosure and be upside down. Nope. Answers will be coming.
                    I don't think that nominal home prices will go to the moon (again) for a very very long time. The rate of decline in home prices in bubble cities has been so rapid, it appears increasingly likely that they will overshoot to the underside. Perhaps you think they will then spring back up just as quickly, but I doubt it. Seems to me the only thing that would jack up nominal prices again would be revaluing the currency, as in lopping off a zero or two.

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                    • #11
                      Re: Ka-poom and house prices

                      Originally posted by vinoveri View Post
                      With all the Fed has done and alluded to doing, why do you think its a pipe dream? To me, anything seems possible up and until american creditors pull out, but even then the charade can continue to some extent.

                      The fed can print money and buy long term T bonds and agency debt, so they can drive rates wherever they want I would suppose.
                      I don't think this is true.

                      If they are too aggressive, the dollar tanks, and long bonds plummet, driving long rates up. Just a whiff of inflation (soon) and long bonds will begin to plummet...

                      Could be sooner than we think.

                      I seem to remember about a year ago when the housing bubble collapse was becoming widely recognized and even the MSM were pointing to a primary cause/blams being Greenspan holding rates at 1% for too long.

                      Hey, now were at zero% and for an indefinite but probably long duration. What happened to that fleeting wisdom?

                      And about 6 months ago the MSM is finally highlighting all the poor underwriting standards and collusion between players to generate all these loans that propelled the bubble, liar loans, no down payments, bad credit, etc.. What's to prevent the same from happening again, albeit under another guise - the gov just last week began funding sub-prime car loans, it's only a matter of time before the loosening of standards again.
                      Over half the sales taking place are distress sales. The lenders haven't even begun to deal with the overhang of foreclosures and REOs. They are expecting a bailout. This will cause the current huge inventory of houses to continue to swell. Many houses will be vacant for years.

                      Meanwhile, consumers are deleveraging. Debt levels are at all time highs and starting to fall. They are not in a mood to overstretch and buy a depreciating asset.

                      That is why this is a pipe dream, this idea of nominal increase in housing prices.

                      Consumers won't borrow like this to buy a house. For many years. At least two years and probably many more.

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                      • #12
                        Re: Ka-poom and house prices

                        Mortgages could be fixed by the Feds at 0% with 0 points and it wouldn't help existing mortgage holders in houses that are underwater. None of these people can come up with the cash differential to make the new mortgage go forward. Only a principal reduction and refi can "solve" that little problemo. Of course this could also happen but to date, vested lender interests have passed.

                        A passing comment on these fiscal musings. If any thing can happen is allowed free rein in the discussion, the discussion soon borders on Intelligent Design being applied to economics.

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                        • #13
                          Re: Ka-poom and house prices

                          Originally posted by don View Post
                          Mortgages could be fixed by the Feds at 0% with 0 points and it wouldn't help existing mortgage holders in houses that are underwater. None of these people can come up with the cash differential to make the new mortgage go forward. Only a principal reduction and refi can "solve" that little problemo. Of course this could also happen but to date, vested lender interests have passed.

                          A passing comment on these fiscal musings. If any thing can happen is allowed free rein in the discussion, the discussion soon borders on Intelligent Design being applied to economics.
                          Perhaps some of the $8Trillion promised by the Fed and Co. (and perhaps more to come) will find its way "magically" taking the place of owed principal? Afterall we are witnessing a great transfer of private debt onto the public and where it is to stop is anyone's guess - which I suppose was a point I was trying to make. Everything will "work" its way out and the public debt will be $30T. Hey, the debt is already over $10T and the bond holders just keep sucking it up. I don't understand it.

                          Couldn't agree more with your point on how the discussion can devolve once "anything can be done by the fed/gov" is invoked - but this is why these musings, IMO, ultimately become more and more speculation based on too many unknowns and what ifs (not that they're not interesting of course)

                          I prefer "Self-serving Myopic Blunderers" to "Intelligent Designers" in the case of our current economic masters.

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                          • #14
                            Re: Ka-poom and house prices

                            Originally posted by zoog View Post
                            I don't think that nominal home prices will go to the moon (again) for a very very long time. The rate of decline in home prices in bubble cities has been so rapid, it appears increasingly likely that they will overshoot to the underside. Perhaps you think they will then spring back up just as quickly, but I doubt it. Seems to me the only thing that would jack up nominal prices again would be revaluing the currency, as in lopping off a zero or two.

                            zoog's chart says it all - reversion to the mean, and probably by way of an oscillation excursion beyond it. The best the Fed and Treasury can do is drag out the decline process as long as possible, spreading the pain out over time, and hoping all the while to find some way to boost nominal incomes to ease the funding demands on US "homeowners".

                            With the death of the FIRE economy comes the death of asset based lending, and levered asset bubbles...including real estate almost everywhere around the world. Welcome to the age where a house is something you live in.

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                            • #15
                              Re: Ka-poom and house prices

                              Originally posted by GRG55 View Post
                              With the death of the FIRE economy comes the death of asset based lending, and levered asset bubbles...including real estate almost everywhere around the world. Welcome to the age where a house is something you live in.
                              Will start to believe this as the evidence mounts. To me so far, it seems like the FIRE economy, or perhaps its mutating relative, although dormant, is only down for the count.

                              The Fed now lending to Hedge funds? http://www.ft.com/cms/s/0/989db158-c...nclick_check=1.

                              Why or how do you think this will end? How many undiscovered "Bernie Madoffs" are going to get access to Fed money? Incredible! Where's the outrage?

                              The FIRE economy is surely a formidable adversary not to be underestimated.
                              What's frustrating to me is that the powers that be, instead of slaying this beast, are shielding it, feeding it, and protecting it while it metamorphs into something else (probably worse).

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