Thursday, June 01, 2006

OFHEO 1Q Housing Data is Out

Office of Housing and Equal Opportunity released their 1Q 2006 data this morning (pdf).

Calculated Risk has this post about the report.

79 comments:

  1. If this report offered an opportunity to dramatically highlight specific words and phrases, it would have been posted in the body of David's post.

    Instead, it indicates that residental homes are holding their value overall, and thus the body of the report is ignored on this blog. Here is an excerpt:

    HOUSE PRICE INCREASES CONTINUE;
    SOME DECELERATION EVIDENT
    OFHEO House Price Index Shows Annual Rise of 12.5 Percent

    WASHINGTON, D.C. – U.S. home prices were 12.54 percent higher in the first
    quarter of 2006 than they were one year earlier. Appreciation for the most recent
    quarter was 2.03 percent, or an annualized rate of 8.12 percent. The quarterly
    rate is about one percentage point below the rate from the previous quarter and is
    the lowest rate since the first quarter of 2004. The figures were released today by
    OFHEO Acting Director James Lockhart, as part of the House Price Index (HPI), a
    quarterly report analyzing housing price appreciation trends.

    “These data show average housing prices still growing stronger than some might
    have expected,” said Lockhart. “They do indicate, however, that price growth is
    moderating in some parts of the country, particularly in areas where prices have
    been rising the most.”

    House prices continued to grow considerably faster over the past year than did
    prices of non-housing goods and services reflected in the Consumer Price Index.
    House prices rose 12.5 percent, while prices of other goods and services rose
    only 4.2 percent.

    bryce

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  2. I was quite surprised by the Q1 HPI numbers because they seem to conflict with the Q1 NAR numbers released in mid-May. The NAR numbers show falling prices for the past two quarters, but the HPI shows a housing market that is still growing strongly.

    No matter what kind of spin people try to put on it, the HPI still shows housing prices rising at a rapid rate, both nationally and here in the DC area.

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  3. it is a lagging indicator

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  4. "it is a lagging indicator"

    Thanks, I was waiting for the bubblehead spin on this data.

    But I am sure if this report showed a decrease in prices it would have been proof of the crash, and not dismissed as a lagging indicator.

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  5. >But I am sure if this report showed a decrease in prices it would have been proof of the crash, and not dismissed as a lagging indicator.

    Duh. And it would be right.

    That's what a lagging indicator is. It is an idicator that shows events well after they happen.

    So if a crash starts, it would show up in this indicator well after the crash is on its way.

    For eg:, assuming a lag of a quarter, it could be indicating Q4 2005 now. And if a crash started in Q1 2006 , it would show up in the Q2 2006 data.

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  6. “Anonymous said...
    If this report offered an opportunity to dramatically highlight specific words and phrases, it would have been posted in the body of David's post.

    Instead, it indicates that residental homes are holding their value overall, and thus the body of the report is ignored on this blog.”

    Hey, you missed a few highlights:………..




    With the purchase-only index’s appreciation rate lagging the appreciation for the usual HPI by more than two percentage points, the question arises: “What is the source of the difference?” As will be discussed in this Highlights section, the answer apparently is related to the increasing proportion of mortgages that are “cash-out” refinances………

    An obvious source of the valuation differences stems from the possibility that the homes with the different types of mortgages differ in material ways. For example, homes with “cash-out” appraisals may be houses that have appreciated the most. Valuations for “cashout” appraisals may thus appear higher than others merely because they signal a select group of homes.

    If the composition of mortgage types in the HPI modeling sample (the “matched pair” data) varies over time, these systematic differences can affect the house price trends reflected in the HPI. Over the last year, the representation of mortgage types in OFHEO’s sample has changed significantly and thus may be responsible for the divergence in the appreciation rates shown for the purchase-only and usual HPI. Between the first quarter of 2005 and the first quarter of 2006, the proportion of cash-out refinances grew from approximately 43.3
    percent to 50.0 percent of the OFHEO sample.
    The proportion of “rate-term” refinance mortgages fell from 31.2 percent to 17.3 percent of the sample.

    Given these significant compositional changes, the relevant question then becomes: “Is the difference between the usual HPI and the purchase-only HPI primarily related to the decline in rate-term refinances or does it stem from the increase in the popularity of cash-out refinances?” Such a determination can be made by constructing a third house price index— one that employs the usual HPI data but extracts cash-out refinances.

    The cash-out refinancings thus seem to be driving higher appreciation rates for the HPI relative to the purchase-only index. Figure 1 illustrates the strong connection by analyzing differences at the Census Division level.

    In conclusion, the empirical evidence suggests that the growing prevalence of cash-out refinances over the last year has had the effect of increasing measured appreciation rates for the HPI. Homes with cash-out refinances likely are disproportionately those that have experienced the most appreciation. Thus the HPI dataset, which includes appraisals used for cash-out refinances, may have relatively more rapidly appreciating houses than the purchase-only index.

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  7. WOW! Think I'll cash out for a new H2 to go with my Escalade!

    Man this house truly is an ATM! Free money just keeps pouring out!

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  8. The Q1 NAR data and the Q1 HPI data measured the exact same quarter: January - March 2006. They disagreed with each other for two quarters in a row. That can't be explained away by saying that the HPI is a lagging indicator, because they measure the SAME QUARTER.

    If you want a leading indicator, the best leading indicator to look for is inventories. That, I think, weighs in David's favor.

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  9. Here is a trailing indicator:

    My liquid investments are up nearly $1,200 TODAY. I was buying into the market downturn.

    How did the renters make out with their massive liquid equities portfolios today?


    Seymour Johnson,
    Homeowner and Market Investor

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  10. I should clarify that only year-over-year inventories are meaningful because more houses go on the market during the spring. As for prices, quarter-to-quarter is fine. Inventories are seasonal, prices are not.

    On a different note, David made the rules of this blog clear. If he deletes your comment, it's because you violated the rules he has already made public (such as insulting others).

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  11. Seymour Johnson wrote:
    "How did the renters make out with their massive liquid equities portfolios today?"

    Actually, I made $2,638.69 today. Although, I'm sure that, like me and the rest of the market, you lost a fair amount during the past month.

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  12. dcbubble admitted today that the DC housing bubble is a myth:

    During the three-month period ending March 31, DC housing prices jumped ... ok not jumped ... but rose 1.47 percent, according to the Office of Federal Housing Enterprise Oversight. Over a one-year period, prices were up a much sharper 20.84 percnet, said the OFHEO.

    Most striking though is the fact that houses have gone up about 5.2 times their value since 1980. This statistic illustrates the paradym shift that has happened here in DC over the last 25 years or so. As a point of comparison, over the same period homes in the state of Virginia went up only 3.5 times their value and homes in Maryland rose four times their value.

    In a nutshell, the paradigm shift argument states that capital disproportionally shifted to DC over the past few decades as the city revived and gentrified. Contrary to the title of this blog, the housing market in D.C. is not a bubble waiting to burst.

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  13. Has anyone noticed that the people on here who hurl insults are too cowardly to let anyone know who they are. Instead they hide behind their anonymity.

    Posting as anonymous is fine in you just want to leave a brief comment without going through the trouble of typing your name and password. But if you're going to insult others, at least be man enough to let others know who you are.

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  14. "Has anyone noticed that the people on here who hurl insults are too cowardly to let anyone know who they are. Instead they hide behind their anonymity.
    "

    Uh, you're anonymous too, moron.

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  15. I guess those who remain anonymous find it easier to be trolls under a bridge- type out little fantasies and live out their delusions.

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  16. I've been called a Troll. I know it is an insult (David are you here?) but what the heck is a troll anyway?

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  17. James, are you the guy who traveled to West Virginia with David last weekend?

    Seymour Johnson

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  18. Troll is not an insult when used appropriately. "Troll" is an internet term for people who intentionally pick fights online. It comes from the word "trolling". Think of fishing. You put bait on a line and then troll it through the water. Online, trolls intentionally try to bait people into engaging in an argument.

    If someone says you are a troll, it means they think you are intentionally trying to start a fight. If you're willing to use the same handle every time, I doubt you are a troll.

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  19. "I guess those who remain anonymous find it easier to be trolls under a bridge- type out little fantasies and live out their delusions."

    Yeah, the name "Skytrekker" has so much more connectivity to reality than does the name "anonymous".

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  20. "James, are you the guy who traveled to West Virginia with David last weekend?"

    Nope, I've never met David. I only started visiting here a few weeks ago after creating my own housing bubble site.

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  21. "Nope, I've never met David. I only started visiting here a few weeks ago after creating my own housing bubble site."

    Oh. you're the guy who posted all the refined data about the "Washington DC Area" that contained no actual data about Washington DC.

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  22. "Oh. you're the guy who posted all the refined data about the "Washington DC Area" that contained no actual data about Washington DC."

    If you're talking about the site I think you're talking about, then no that's not me. You're talking about the guy who graphed several DC suburbs, but not actually the city itself, right? That's someone else. My charts are only of entire metro areas.

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  23. James,

    I've noticed that well articulated arguments for the over valuation of housing assets, with appropriate RE industry and/or government links, tend to end most conversations.

    Are you trying to end the debate? :)

    My $0.02.

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  24. "Are you trying to end the debate? :)"

    I would never dare do such a thing. I think in time the market will end the debate one way or the other.

    BTW, I've noticed some similarities between today's housing bubble and the stock market bubble of the late 1990s (and they are probably true of all bubbles):

    1) People who believe that there is no bubble (including some prominent economists and financial experts) will have no shortage of explanations as to why the recent abnormal price increases are reasonable.

    2) People who believe that there is a bubble will predict its imminent end many, many, many times before it finally does end.

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  25. hey james: you have no money so your wife doesn't think you're a man.

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  26. I have money and your wife knows I'm a man.

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  27. hahahahaha! anonymous can't keep his wife!

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  28. "After the 1989 peak, real home prices proceeded to fall 20% over the following seven years"

    James, I was still in college in NYC in 1989. But if my home in DC depreciates by 20% over the next seven years, I'm still up over $120,000 from my purchase price based upon the most recent comparable sale on my block; a home that went to settlement last month.

    OUCH. That's just so NOT painful.

    bryce

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  29. Its true HPI is a lagging indicator. When I need a leading indicator I look no further than David Lereah. My money goes where DL says it should. Following the NARs data and analysis has made me over $200k in equity on a $40k investment in less than 5 years.
    They aren't making any new land.
    Demand is greater than supply.
    Its different this time.
    Get with the program people!

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  30. "James, I was still in college in NYC in 1989. But if my home in DC depreciates by 20% over the next seven years, I'm still up over $120,000 from my purchase price based upon the most recent comparable sale on my block; a home that went to settlement last month."

    Well, then it sounds like you are in good shape. It all depends on when you buy your home. In the beginning stages of a bubble, people can buy and make a lot of money. In the middle stages of a bubble, people can buy and make some money. In the late stages of a bubble, people can buy and lose big-time. It's the people who buy at the end who get screwed. The problem is knowing in advance when the bubble will end. Also keep in mind that today's peak is MUCH higher than it was in 1989, so the market has much more it can fall.

    "They aren't making any new land."

    When you can't build OUT, you can always build UP. Also, there's a lot of vacant land in the U.S. You just don't see it if you live near the city.

    "Its different this time."

    That's exactly what people said about the stock market in 1999 and 1928. I mean word-for-word, that's exactly what they said. In the late 1990's, there were many people who were saying that it was "the new economy". These people argued that the Internet was the greatest technological advance in history and because of it we would no longer have recessions. So, they argued, the stock market would not fall. (The automobile, airplane, and television are obviously as great or greater inventions than the Internet.)

    In the late 1920's, people argued that it was a "new era" and that stocks were worth what they were selling for. Whenever you hear people saying that "It's different this time," that's a pretty strong indicator that there's a bubble.

    If you bought 5 years ago, it is unlikely you will lose money. If it's really different this time, you should use your equity to make more real estate investments. If you think that unlike stocks, real estate can't fall, look at what happened in Japan.

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  31. DC home values up 5 times since 1980. As a point of comparison, over the same period homes in the state of Virginia went up only 3.5 times their value and homes in Maryland rose four times their value.

    Look no further for proof that DC is a more enticing city than it was 25 years ago.

    http://dcbubble.blogspot.com/2006/06/dc-housing-market-flat-and-not-sinking.html

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  32. "Also, there's a lot of vacant land in the U.S. You just don't see it if you live near the city."

    Uh, you mean where the economic activity is?

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  33. James, you give no reason to think that it *won't* be "different" from 1999 NASDAQ or 1928 wall street. All you seem to bring to the table is a very superficial knowledge of some history.

    The fact is, people can afford these housing prices, and the numbers show that they continue to pay them. You can shout "bubble" all you want, but you're wrong so far, no matter how blue in the face you get trying not to admit it.

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  34. Was the rise in prices the same in Japan or more, or less than here?

    How is this different from the late 80's? I was here. Prices doubled in 2 to 4 years. There were bidding wars. I don't think anyone had invented the "escalation clause".

    There are alot of smart people on this board. How and why will this be worse than the last 2 "normal" cycles?

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  35. This is essentially what I've been saying all along; (excerpt from James' link concerning the situation in Japan)

    "....few people are shopping for homes in the distant suburbs. That has led to severe declines in property values in these outlying areas, leaving many people with homes that are worth less than the balance on their mortgages..."

    bryce

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  36. Wow is this getting ugly.

    The polarization of the issue has hardened even more. Foreclosures are on the rise in some of the most overheated markets. Inventory is growing more and more every day. The government oversite agencies are issuing more and more rules regulating the use of I/O and Neg Am loans to control the flow of easy money to bad credit risks.

    Every business article you read has a caveat about how the cooling housing market is impacting the economy.

    If you're a housing bull, put your head down and charge forward. If your a housing bear watch for the downturn indicators. Same thing as with the stock market.

    I am a bubble believer. This economy has been too addicted to creating money through a pyramid scheme of escalating housing prices. This will not continue, there is a ceiling for everything and even housing prices are subject to Newton's laws. Wasn't it just a few years ago "things were different"? Wasn't everybody going to quit going to the malls and start buying everything online?

    Reality has a way of coming back around and reminding everybody nothing is guaranteed and you don't get something for nothing.

    As interest rates return to their historical norms of between 7.5% to 8.5% there will be a significant correction is areas where people used exotic loans to buy into the market.

    Personal attacks only prove there is no significance to a persons opinion. Bully tactics usually mean someone doesn't have a real postion to work from so they try to shout their opponent down.

    Keeping on hoping the Jones's can sell their house to greater fool than them, every cycle has an end and we have come to the end of this housing cycle. Best of luck to everyone.

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  37. If people could afford today's home prices, the dramatic rise in interest only, ARMs, negative amortization, and the creation of the 50 year loan would not have happened.

    This cycle has the potential to be worse because of these types of loans. Before (late 80's), if you bought in at a high price with a fixed 30 year loan, even with a dip, if you stayed in your house, eventually (and as the cycle came around) inflation would allow you to get out of the loan without having to write a huge check at closing.

    Now however, many people are not protected from rising costs with a fixed rate loan. Their fortunes will ride up and down with inflation. They essentially bought not only at a high price, but a high price that's not tied to today's dollars. Banks eagerly let them do it because they could make lots of money doing so.

    Sure, this is all my opinion. But I look at this circumstantial evidence and see cause for concern. Furthermore, I look at this evidence and note that, when I buy a home, I better be darn sure the price is something fixed and that I want to pay - because I can no longer assume that the house will appreciate like gang busters.

    My $0.02.

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  38. "housing prices are subject to Newton's laws."

    Uh, no, that was about gravity. Are you some kind of imbecile?

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  39. "If people could afford today's home prices, the dramatic rise in interest only, ARMs, negative amortization, and the creation of the 50 year loan would not have happened."

    This is an objectively false premise.

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  40. "DC home values up 5 times since 1980. As a point of comparison, over the same period homes in the state of Virginia went up only 3.5 times their value and homes in Maryland rose four times their value.

    Look no further for proof that DC is a more enticing city than it was 25 years ago."


    According to his comments on his site, DCBUBBLE is only talking about the city, not the entire metro area. I think we have to make it clear which we are talking about. I talk about the metro area because I live in Alexandria.

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  41. Folks, there were plenty of ARMS in the eighties and also neg.am loans. I was conducting closings for a living then. I had one-year arms on 3 of my first 4 houses; all in the 80's.

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  42. This comment has been removed by a blog administrator.

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  43. va_investor;

    In 1882 I was a carpenter in a union here in No. Cal. There were 869 other carpenters who were ahead of me in the job line. Every one of them unemployed at the end of the late 70's housing boom fueled by balloon loans. I remember that housing downturn very well.

    Bulls don't like negative talk it pushs the market down. Here in Northern California things have peaked. In my opinion there will be about a 10 to 20% correction and a price plateau lasting about 5 years with appreciation at or below the rate of inflation.

    There is no entry level market left here.

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  44. Anonymous said; "Uh, no, that was about gravity. Are you some kind of imbecile?"

    No, but thanks for proving my point about personal attacks and those who perpetrate them.

    Everything is subject to gravity, even prices. If they go up to high, downward pressure will pull them back. I thought even idiots recognized the use of metaphors...I guess I was wrong on that one.

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  45. "housing prices are subject to Newton's laws."

    Uh, no, that was about gravity. Are you some kind of imbecile?


    He's using an analogy. The performance of asset prices tends to revert to the mean over the long run. When stock prices outperform corporate earnings for an extended period of time, they eventually come back down. When real estate prices grow faster than personal income for an extended period of time, they eventually correct themselves as well.

    "If people could afford today's home prices, the dramatic rise in interest only, ARMs, negative amortization, and the creation of the 50 year loan would not have happened."

    This is an objectively false premise.


    No it's not. Getting these kinds of mortgages is stupid when interest rates are low and going up. The reason people are getting these mortgages is because they can't afford a traditional 30-year fixed mortgage.

    How is this different from the late 80's? I was here. Prices doubled in 2 to 4 years.

    No they didn't double in 2 to 4 years. Nominal prices doubled over a decade, then they basically sat flat for another decade. I've got the data here.

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  46. "In 1882 I was a carpenter in a union here in No. Cal."

    I think he means 1982.

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  47. Yes I did mean 1982. Typo's happen to the best of people.

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  48. "Everything is subject to gravity, even prices. If they go up to high, downward pressure will pull them back. I thought even idiots recognized the use of metaphors...I guess I was wrong on that one. "

    Yeah, metaphors, false analogies, whatever. Same difference.

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  49. James, you give no reason to think that it *won't* be "different" from 1999 NASDAQ or 1928 wall street. All you seem to bring to the table is a very superficial knowledge of some history.

    You should read the book "A Random Walk Down Wall Street". It's got a lot of discussion of market bubbles. The same patterns repeat themselves every time, and people always think "It's different this time."

    You can shout "bubble" all you want, but you're wrong so far, no matter how blue in the face you get trying not to admit it.

    It seemed like I was wrong for several years in the late 1990's as well, but I was eventually proven right. I correctly recognized the 1990's stock market bubble for what it was, and I see the same thing happening in housing today.

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  50. "No it's not. Getting these kinds of mortgages is stupid when interest rates are low and going up. The reason people are getting these mortgages is because they can't afford a traditional 30-year fixed mortgage."

    False. But thanks for playing.

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  51. "they basically sat flat for another decade. "

    Your "bubble" was pretty clearly a correction for that anomalous time of no appreciation.

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  52. anonymous;

    Why is it you're right and everyone else is wrong? Do you have some special insight which brings you to this enlightenment that none of us have?

    Or maybe you are a Real Estate person who feels "victimized" by the market bears who see the picture differently than you. Maybe the slow down is making you nervous, can't afford the lease payment on your German car anymore? Or maybe the thought of having to go back and work the swing at 7/11 has you a little upset.

    Whatever it is just saying "your're wrong" and slinging insults and being disparaging doesn't prove or disprove your position it just makes you out to be a jerk.

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  53. False. But thanks for playing.

    Of course you supply no supporting information to back up your claim. Anybody can say "false" to anything if they don't bother to explain why.

    Your "bubble" was pretty clearly a correction for that anomalous time of no appreciation.

    It's like an ink blot. Everybody sees what the want to see. :) For the same data over the course of a century, look at the red line here.

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  54. ok... so some don't like the gravity analogy... wah... the concept is still valid. Law of supply and demand then... when people make an average income of $40k in a community, demand for $500k, $600k, $700k, $800k, $900k sh#t holes is going to fall. Maybe some of these economically challenged people still WANT said sh#t holes, but their income, or um... lack thereof will prevent them from acquiring them. Which means there will be no market to support the prices. When sellers have to sell... there will be nobody to pay the price they feel entitled to.

    Many borrowers DID opt for risky financing simply because these loans were used as an affordability tool... admitted by the phucked lending institutions. What does that tell you? Buyers already couldn't afford the houses they signed up for... what happens when people buy things they can't afford?

    These people who really could not afford their own financial folly WILL hit the rocks... they will have the too much house hangover... and they will be forced to sell.

    Where are they going to find the big fat fools to hold their bag for them?

    They were the last of the dregs of the fools overpaying for property they couldn't afford... prices WILL come down. There will be too much supply and not enough demand for what they are supplying.

    Personally, I don't care who is a bull, who is a bear. Fundamentals always win out in the end. This country is a bubble supporter in general. In every bubble there are winners and there are losers.

    This one will be no different. But go ahead and try wishing really really hard, and we will see if perhaps this one will be different just because you happen to be in the game.

    In every bubble the last bulls in the pen are the biggest losers because they are too foolish to spot the pattern in the first place, and then they rely on magical thinking based on nothing more than what they HOPE will happen because they have something personal at stake... their money, their job... etc.

    Too bad, so sad... if you really want to make it... get to the parties a little earlier. Apply yourself to something... get good at something and be able to spot an opportunity on the upswing. Remember, it is one thing to be thought a fool, it is another thing to open your mouth and remove all doubt.

    anyone spouting bull pro-real estate rhetoric at THIS stage of the game has really only revealed themselves to be woefully lacking in awareness of economic fundamentals.

    Good grief... it doesn't take more than economics 101 to call this market pattern.

    Game over.


    p.s. (if there are spelling errors... I don't give a flying fat rat's ass. If you are a person who cannot grasp a concept if every word isn't spelled perfectly, then I think I found your trouble.)

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  55. David,

    I think you should turn off anonymous commenting. The vast majority of the "anonymous" posts are worthless and distracting and so turning them off would only increase the overall quality of the threads.

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  56. James,

    I bought properties in 1985 and 1986 that doubled by 1988. I conducted closings for condo towers where people had slept outside all night to buy one. I saw the back to back flips going on.

    I flipped a new townhouse in 1988. Actually owned it 12 days and sold it for 40% more than my purchase price.

    The same type of crazy stuff was going on then. How is today's correction going to be materially worse?

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  57. Here's something to look at. The Dow Jones U.S. Home Construction Index charts the stock prices of home builders. Since stock prices generally reflect expected future earnings of a company based on all currently available data, the Home Construction Index gives a sense of what Wall Street expects the housing market to do in the future.

    The U.S. Home Construction Index is at a 52-week low. You can view the chart for yourself here. If you view a 10-year chart, you will see that it tracks the flat 1990's housing market and the post-2000 housing bubble pretty nicely.

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  58. Still doesn't justify a catastrophic decline predicted by many here. Again, I think we will see something similar to the 90's.

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  59. va_investor

    I tend to agree with you, there will not be a catastrophic collapse of the entire real estate market in the US. There will be areas where the market will retract 10, 20 maybe eve 25%. But the areas which are most vunerable are areas such as N. California where foreclosures are trending up and inventory is growing everyday.

    There are too many people in the game today. People who should have invested in other things decided to become landlords and buy houses. This created an artificial shortage and a mania fed real estate boom.

    Now alot of these people are finding out negative cash flow cannot be supported longterm on anticipated future gains.

    People who anticipated future gains and leveraged themselves into purchases they cannot support on the longterm are now starting to fall off.

    This is all cyclical and will play itself out. How is the big guess now....a soft landing as the RE people want or the crash and burn many on the other side are predicing.

    My guess is it will be somewhere in the middle like it always is.

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  60. Hem,

    I agree with you - normal cycle. 20-25% decline in single family and up to 40% on condo's.

    Flat prices for five years and then the start of another boom.

    Jams,

    You provided a one year chart, but I would really like to see sixty years. Or 30 anyway.

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  61. "Still doesn't justify a catastrophic decline predicted by many here. Again, I think we will see something similar to the 90's."

    I think a lot of the catastrophic declines predicted here are highly exaggerated. Generally for real estate, inflation-adjusted prices fall, but nominal prices just sit flat for years. Also, the length of time it takes to sell a house greatly increases.

    There are exceptions to this rule. I used Japan as an example. Also, I lived in Hawaii during the 1990s and there were people there who had mortgages that were larger than what their house was worth because nominal prices had fallen.

    The current boom/bubble is so much larger than anything previous that the probability of a nominal fall is greater than usual. I don't claim to be psychic, so I won't pretend to know exactly what WILL happen. I just weigh the probabilities.

    This boom/bubble was largely created by abnormally low interest rates. Falling interest rates tend to push prices up. Rising interest rates tend to push inflation-adjusted prices down. Even David Lereah says that. Interest rates are now rising. There is also about a one-year lag between the Fed's interest rate changes and the effect on the economy, so the housing market is now feeling the effect of the 3.0% fed funds rate from late spring 2005. They were still historically-low at that point. Today's Fed funds rate is close to its long-term average (5.0% vs 5.5%).

    The U.S. as a whole has never been in a housing bubble like this before, so it's hard to know what will happen. Prices might stay flat for a long time. They might fall. Nobody knows for sure.

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  62. "You provided a one year chart, but I would really like to see sixty years. Or 30 anyway."

    If you're talking about the Dow Jones U.S. Home Construction Index chart, you can adjust it to show ten years or "All Data" if you wish. If you want to see thirty years, sorry, but I cannot provide that which does not exist.

    When a stock or an index hits 52-week lows, it is generally accepted to be a bearish sign.

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  63. James,

    I still don't get how this any more of a bubble than the late 80's early 90's.

    I watched the declines start in New England and come down the coast. Florida was dead for years. California and Hawaii were socked too. I don't know about the rest of the country - except Upstate New York was terrible.

    I think that there is more info today. We are able to see inventory numbers. Perhaps more transparency makes things look worse? I have no crystal ball either, but don't see a reason that this correction will be worse than past ones.

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  64. The difference is the magnitude. The old saying, "The bigger they are, the harder they fall" applies. Percentage-wise, real prices for the DC metro area increased about twice as much in this boom than in the 80's boom.

    Here are the real (inflation-adjusted) housing price changes for the Washington, DC metro area:

    80's boom, peak-to-peak: up 38%
    Current boom, peak-to-peak: up 73%

    80's boom, trough-to-peak: up 47%
    Current boom, trough-to-peak: up 118%

    It may be a little misleading because it includes Australia and Britain which have increased more that the U.S., but this chart from The Economist shows the magnitude of today's housing boom compared to that of late-1980's Japan. (I assume the chart shows nominal prices.) To help you compare how DC compares with Japan, Washington's 2005 prices would be at roughly 209 on that graph.

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  65. Good work James. Worrisome chart. I hope it doesn't happen here. Were there any extraordinary circumstances there in Japan? I wonder if rents were affected.

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  66. I screwed up. If the graph shows real prices, DC would be at 209. If the graph shows nominal prices (which I assume it does), DC would be at 260.

    "Were there any extraordinary circumstances there in Japan?"

    There is a major difference (I hope!), Japan's whole economy tanked at the same time. The stock market fell as well as housing. I don't think that will happen here, but in the 80's I don't think anyone thought it would happen in Japan. The danger for the U.S. is that much of the job and economic growth in recent years has been housing-related. Some people fear a falling housing market could hurt the entire economy. I'm more optimistic, though.

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  67. i had 14 years in what is politely called "risk management",got my first re license in the 70's managed property for more than a decade,and have been a loan broker for a bit more than a year...i grew up in a real estate family dad was an expert witness,and appraiser.i know bad paper,and in the last year or so i have seen a greater quantity of poor quality of paper than at any time since i was reviewing placements at a major collection agency...there were $2 million dollars in student loans from a beauty college placed,at $2k each.over a 2 year period,$1800 was collected,total.the quality of the demand for housing is very important...demand is of course desire plus the ability to pay,or at least qualify for,a loan.the complete abandonment of lending standards has left lenders in very bad shape,many borrowers would not be able to keep these loans current even without the interest rise...they were given 100% financing,at a 50% or greater debt to income ratio,and a no income no assets loan.lat year i could get an unemployed person with good credit a million dollar 100% loan..no problem.there is a huge amount of bad paer out there the borrowers have no skin in the game,and baby it is over

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  68. So Tom, what is your prediction for the next ten years? And the next ten?

    I, too, grew up with real estate.

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  69. I still wonder why there are so many angry housing heads on a housing bubble site. There are so many of you here. If you don't agree, why do you bother reading the site? My guess is you're obviously worried about something or else you wouldn't even know such a site existed.

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  70. Anon,

    Would you prefer an "echo chamber" to a reasoned debate?

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  71. p.s. most of the anger seems to eminate from the "bubbleheads".

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  72. No, the anger is from the housing heads - a person confident in their investments would not be spending time trying to justify a purchase on a housing bubble blog.

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  73. VA Investor,

    I would disagree, most of the anger seems to come from the housing heads.

    Bubbleheads often make ridiculous statements like "hahaha die with your loan" or else they cheer negative news which in reality is bad for everyone. Typically it's the responses to these statements where you see the anger.

    Personally, I'd prefer the market to level off for a few years rather than drop. An optimistic down turn view perhaps? This way, if anyone is forced to sell, at least they're treading water. Meanwhile, those that want to buy have a breather to catch back up with an over zealous market.

    No doom and gloom, but also no $100,000/year income for shuffling paperwork.

    My $0.02.

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  74. I am not angry, worried, or concerned. I do have a vested interest in housing - but I am set.

    I am curious as to why there are so many angry renters hoping others (owners) get crushed in a huge implosion. Why can't you just be happy for the smart or lucky ones and get on with your lives?

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  75. VA Investor,

    I think a lot of people think that other's success limits their own ability to succeed. The "pie" is only so big so-to-speak. This is unfortunate.

    I only get frustrated when the lucky ones assume they're the smart ones. :)

    My $0.02.

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  76. Personally I believe people make their own luck ,as a general rule. I have been told how "lucky" I am so many times over the past 20yrs that I can't possibly count all the times.

    Yeh, luck.

    I suppose it is a little easier on the psyche to attribute one's lack of success to the extraordinary "luck" of others.

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  77. Three cheers for VA Investor.

    Seymour Johnson

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  78. I always have and always will blame my failings on others. It's just easier that way.

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  79. Mytwocents,

    Your pie analogy was quite astute. I think you are right.

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