Where are the legions of greater fools that were supposed buy the overpriced properties during this season in the bubble markets? Many of the greater fools are missing in action. [I am not implying that each and every single buyer who buys now is a greater fool]
Demand has fallen as there are significantly less greater fools showing up to buy properties this spring. Spring is the busiest season for real estate and typically when prices rise the most. The hope was that with the spring season a large amount of buyers will swoop in, raise demand, and significantly bid up prices.
Real estate 'guru' Blanche Evans wrote on January 23rd "What about housing? There's a lot of positive news that suggests that housing may have had its "rest." Spring might catapult housing into another record year." It didn't happen. Not enough greater fools showed up this spring.
Inventory continues to increase in the bubble markets as prices are either declining slightly or remaining flat. The false hope of the 'spring boom' is being shattered by the harsh reality of a declining housing market. This year, there has been a noticeable decline in the amount of greater fools buying in the bubble markets.
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hmm, it's no longer a seller's market, greater fools think it's a buyer's market, but really it's a renter's market
ReplyDeleteNow this is the type of hard-hitting, factual piece David has been promising!!
ReplyDeleteAll I see from here is a big fat nothing. No crash and burn yet- only hopeful bitter renters.
ReplyDeleteYou're slipping, David.
ReplyDeleteI see on www.mpdc.dc.gov that year to date homicides in the third district have gone to 10 from 3 at this time last year. I can't believe anyone would pay those prices to live in the so called up and coming areas like Shaw or Logan or U St. If you look in the newsroom all these homicides are occuring where housing prices are $400K and up. There are better options in NYC in my opinion. We have hardly had 10 homicides here in Montreal so far this year for a whole city of 1.7 million, never mine one small part of a small city. DC is a dump.
ReplyDelete"DC is a dump."
ReplyDeleteYeah, but it's OUR dump. And we like it just the way it is, thank you very much.
:)
I suspect that several of the housing bulls on this forum neal down by their beds at the end of each day and say a prayer like this:
ReplyDelete"Dear God, please let me find a greater fool to take this condo off my hands. What can I say - I got caught up in the hysteria. But I don't deserve to suffer a loss on my flip. So please God, just this one time, find me a greater fool. I promise I'll never flip again. And if you find me a greater fool, I'll be able to stop pretending everything is alright on Bubble Meter."
To the housing bulls: stare long and hard at this chart of Fairfax County inventory
ReplyDeletehttp://virginiamls.com/charts/FairfaxCounty.htm
Supply and demand are real. We happen to have built this thing we call capitalism around them.
What do you think happens to prices when supply shoots up and demand drops?
I think we have a "normal" housing cycle playing itself out. Ho Hum.
ReplyDeleteNot having any plans to sell in the next 15 or 20 years, I really don't care what happens to prices. I'll buy if I come across a bargain.
va_investor,
ReplyDeleteI don't believe you. I find it implausible that someone so secure and not even interested in seliing in 15-20 years would visit this site with any regularity.
NOVA Fence Sitter
Greater Fools committed their capital long ago... a few stragglers remain, but otherwise this market's finito santiago.
ReplyDeleteit'll be a grand ol redistribution of wealth!
NOVA,
ReplyDeleteI am here because I don't work and I am bored. I love real estate and this is my fix.
I think it is entertaining to chime in with my thoughts on the subject. It would take another Great Depression or worse to wipe me out.
When price gains are built on the greater fool theory, eventually they stop.
ReplyDeleteThe question at this point is really which endgame scenario unfolds:
1. Prices stagnate for a decade.
2. Prices drop rapidly. Where each seller attempts to just slightly undercut his neighbor to get his sale first.
My personal opinion: live by the sword, die by the sword. Housing markets left fundamentals years ago. There is no fundamental floor beneath prices today. The euphoria that drove them up is going to drive them down.
"I think we have a 'normal' housing cycle playing itself out. Ho Hum."
ReplyDeleteHome construction companies likely don't view as "normal" this timely appearance of captilaism's faithful sidekick, the S curve:
http://finance.yahoo.com/q/bc?s=TOL&t=1d&l=off&z=m&q=l&c=HOV,PHM,LEN,KBH,CTX
(Apologies for the long link.)
Bill,
ReplyDeleteSo what is this "S" curve you keep going on about. I was an econ. major over 25yrs ago and can't remember "S" curves.
Heres a random article googled that defines an S curve in fancy terms:
ReplyDeletehttp://www.dfj.com/cgi-bin/artman/publish/warren_aug00.shtml
S curve refers to rises and drops in over long term in markets. Looks like the S curve you studied in mathematics stretched out and repeated on a stock market chart.
Suggest renters look at HUD's definition of "low income" in the immediate metro DC area.
ReplyDeletehttp://www.huduser.org/Datasets/IL/IL06/dc_fy2006.pdf
http://www.rentalsoftware.com/MrLandlord.htm
ReplyDeleteThis is a real product; not a joke.
I would think that the greater fools=investors. Since investors have withdrawn en masse from the market,as a result there is no action on the real estate front! Proof? ...Out of every dozen or so properties we were looking at, half of them were investor properties and the realtor who showed us the properties had a couple of properties to boot! All properties however were still on the high side and we are waiting for the prices to drop.
ReplyDeleteSimply put, if you bought in the last 1-2 years, thinking that you would sell at the two year point to avoid taxes on the gains, and now you don't have a buyer, and you are watching homes pile up, then look in the mirror - YOU are the greater fool.
ReplyDeleteEnough, enough! What fools we have out there! No one EVER said the price of house would keep going up 20% year for year forwever. The soft landing we are experiencing is exactly what every educated person out there expected .. Except, of course, for those educated folks who tried to "time" the market and having failed to do so, are now valiantly hoping in vain that the clock will turn back and they'll have that chance ... just once more ... to change the decision at the point where they went wrong last time. Sorry, bubble heads, it ain't gonna happen. If you're really looking for that ideal time again to buy, you're are going to have to wait for that next boom in the market. Hopefully, next time you will have the smarts to participate in it, instead of constantly ranting how unfair it is ... 'cause no one is listening to you. Green buys influence, whining does the opposite.
ReplyDeleteRents have been too cheap in this area over the last years. They have been going up quite a bit over the last months after having been pretty constant for the last 3-4 year.
ReplyDeleteIf prices drop another 10% (having already dropped 10%) and rents go up another 10% (having already gone up 10%) the market will begin to look attractive to real investors again and long-term investors will start buying (next fall.)
Of course, the "follow the flock" buyer will wait for the "bottom" trying to time the market, again coming late to the party.
2-3 years and the market will be back.
PP
PP:
ReplyDelete"Of course, the "follow the flock" buyer will wait for the "bottom" trying to time the market, again coming late to the party.
2-3 years and the market will be back."
FINALLY, someone looking and analysing reatly and NOT hopes!!!!!!!
Lance: What financial expertise do you have? How much capital do you have at risk? Examing your thoughtfully composed and grammatically perfect senteces, I'd hazard to guess that your barely graduated from a junior college.
ReplyDeleteThat would put your net worth squarely around $50K.
How much money did you make in "Pets.com"?
How funny! I just love the bravado from the RE bulls. Rah, rah. I tell you a secret, this is going to be the biggest real estate crash in history, nay, the biggest economic crash in history. What we are looking at is the biggest real estate crash ever in the history of the world. Why ten years from now they'll be giving houses away to anyone who promises to live in them and pay the taxes and insurance. I have taken a look at some of these modern day "investors". Why a stiff breeze would knock them off their perch and there is a tsunami of epic proportions coming. Those who are in deep debt doo doo will be carried away by the flood and will end up in servitude for the rest of their lives, if they manage to stay out of prison for mortgage fraud this is. Save your money folks, don't tie yourself down too heavily to any location or onerous debt level that you cannot easily manage. You housing bulls, check the foreclosure numbers in 6 months, a year, two years, this thing is going to get ugly and then you will probably say: "yeah, I knew this was coming. Don't say you weren't warned. 'nuff said.
ReplyDeleteThis news just came out yesterday: May 2006 housing starts were down 3.8% year-over-year.
ReplyDeleteHere are the details: http://housingbubble.forumsplace.com/post-67.html
bugsy wrote:
ReplyDelete"this is going to be the biggest real estate crash in history, nay, the biggest economic crash in history."
I disagree. While I think we are at the peak of the largest financial bubble in U.S. history, which should be followed by the biggest housing market bust in U.S. history, I doubt it will be worse than the Japanese housing bubble and bust of the 1980's-1990's.
"ten years from now they'll be giving houses away to anyone who promises to live in them and pay the taxes and insurance."
Now that's just extreme exaggeration.
james,
ReplyDeleteMaybe so, but they are already giving away land in some areas of the country if you will just promise to live on it. Doesn't seem like that much of a stretch to me. They may not be giving away penthouse apartments in Manhattan, but you get my drift, overbuilding is rampant. Time will tell. I don't think they spent all this time filling the tub to the overflowing without fully intending to pull the plug at some point, do you?
Housing construction of new homes up in May. Hmmm, no mention of it in this blog. I wonder why?
ReplyDeletehttp://biz.yahoo.com/ap/060620/economy.html?.v=17
joe06
james,
ReplyDelete"I doubt it will be worse than the Japanese housing bubble and bust of the 1980's-1990's.
Then you would know what happenned to the japanese stock market.
And the monetary policies implemented by the Bank Of Japan.
And the rest of the economy. If US was'nt importing so much cheap
stuff from Japan, they would be in Depression.
Once the US consumer cant buy any of their stuff,
Japan will be in Depression anyway.
Housing Bubble is very much intertwined with the rest of the
economy as it is the source of wealth creation.
Further, with the economy tanking we could have a net out
migration from the US. With that free homes could be a possibility,
though dont start counting on it just yet.
I agree with bugsy on the economic impact this will have.
joe06,
That means we will just have even more oversupply of homes.
Take a look at this study and see what you think? I disagree with the remarks.
ReplyDeletehttp://www.mortgagenewsdaily.com/6192006_House_Price_Study.asp
And nobody much cares that David didn't give any evidence for his statement that spring buying has been weak?
ReplyDeleteDC_Too said...
ReplyDelete"Anon: That this blog has become infested with idle realtors is evidence enough, wouldn't you agree?"
I doubt that there is even one realtor on here. I know I wouldn't bother with trying to point out the obvious to the conspiracy believers if I were one. It's like believing the government would participate in a chat as to whether 9/11 was a conspiracy. Nah ... the only people you are going to get on here are those who are interested in proving/disproving the conspiracy. The realtors would have no interest in being on here 'cause it's not like they're going to get new business from those bubbleheads that either can't or won't buy ... and they're not going to get new business from those of us homeowners that have already bought.
http://tinyurl.co.uk/ja4v
ReplyDeletehttp://tinyurl.co.uk/95xy
Arlington, DC, Baltimore and Alexandria are shrinking??? What? With all those new jobs? Supply < Demand...huh?
I'm confused.
Let's see. We are going to have a huge economic upheaval and only the renters will survive. Makes sense to me. After all, they are saving soo much money.
ReplyDeleteThe poor homeowners will be in bread lines and the renters will be "kings of the universe". This despite all the data showing (not counting home equity) that owner's are better off in every financial category as well as better educated.
Is this what happened in Japan?
va_investor
ReplyDelete"This despite all the data showing (not counting home equity) that owner's are better off in every financial category as well as better educated."
With all you infinite wisdom you would have been the shoe-in for Bernanke's position..not. Looks like Bush just passed on you..LOL
va_investor said...
ReplyDeleteMost people are screwed to one degree or another, homeowners, renters, it doesn't matter. Depressions tend to affect a wide swath of the population, and its effects are far reaching.
"Let's see. We are going to have a huge economic upheaval and only the renters will survive. Makes sense to me. After all, they are saving soo much money."
ReplyDeleteThat's not the issue. No one here is saying only renters will survive. If the housing market crashes, we all suffer.
Though home owners who bought recently and need to sell fast for some reason - and speculators - will be extremely hurt.
Rising interest rates helps those who've saved money in money market accounts. Stock market is more dicey with higher rates.
We're talking about real estate speculation here. Stop throwing out red herrings to avoid the issue.
Anonymous 6:59) said...
ReplyDelete"Arlington, DC, Baltimore and Alexandria are shrinking??? What? With all those new jobs? Supply < Demand...huh?
I'm confused."
Yeah, you are confused. I guess you haven't been following the discussing on how the District (and to a lesser extent the adjacent inside the beltway areas) are changing. In the District, the tenement with the 5 welfare mothers and their combined 25 kids is being redeveloped and sold to the K Street lobbyist for use as a home for him, his wife and 2.5 kids. Ditto all the project housing that has been razed in places like Arlington's Courthouse area and replaced by luxurious high-rises inhabited by well-paid, single professionals. You need to look at the area as a whole to understand the tremendous growth going on and how that is affecting prices because of the limited availability of land as a whole ... An availability that is being stretched even futher in that those with the means are buying the more vauable inside the beltway land creating more competition for the limited land available in the relatively less desireable outside the beltway areas. Unfortunately, the marketplace is not nearly as simple as bubbleheads would like it to be. Yeah, taking facts out of context and disregarding the facts that don't agree with your position makes it easier to win your argument, but in the end the marketplace itself won't disregard these other factors ... and your simplified conclusions will look pretty "simple" (and wrong) with hindsite. 'course I guess then you can just blame some unknown "conspiracy" to help you understand what rolled over you.
I did not mean to imply every buyer is a fool.
ReplyDeleteIn the District, the tenement with the 5 welfare mothers and their combined 25 kids is being redeveloped and sold to the K Street lobbyist for use as a home for him, his wife and 2.5 kids.
ReplyDeleteSo where are these displaced people going? WV? Obviously not the burbs, because those areas are shrinking too. I have no data to back this up, but I suspect that home-buying families are leaving the area for better quality of life, not displaced welfare mothers.
Wasn't there a report recently that the D.C. area had the greatest job growth in the Nation?
ReplyDeleteI read an article a while back saying that parts of the country that were experiencing the highest housing price increases were generally experiencing net population outflows, as people looked for more affordable housing elsewhere. After all, if you can get a job in Atlanta, Georgia that pays almost as much as DC, but housing is half the price (which means your mortgage payment is half the price), why not move?
ReplyDeleteProperty values on H Street N.E. are soaring, and for proof check out the $42 million paid by a developer for the modern office building at 4th and H streets, long a city workers hive. Now plans call for 234 residential units and ground-floor retail, plus a height increase to nine stories.
ReplyDelete[http://www.hillnews.com/thehill/export/TheHill/Features/Hillscape/062106.html]
", agreeing to buy custom-made doggie dishes (as reported in the Wall Street Journal) for buyers, in N. VA?"
ReplyDeleteN. VA is not the city of Washington.
Every day we go through the same thing on here. It's become boring and David's posts have become predictable.
ReplyDeleteActually, that was Loudoun County which is experiencing it's own private hell right now. Not that it's not a harbinger of things to come. But the exurbs may take the brunt of this.
ReplyDeleteI pointed out that David forgot to support his assertion that the spring buying season has been weak with, you know, FACTS, and he deleted the post.
ReplyDeleteDavid's deletions are over the top.
ReplyDeleteDon't you think most of us have the intelligence to disregard inane comments. Apparently, David thinks we need his protection.
ReplyDeletedc_too,
ReplyDeleteIt harms the integrity of his blog when he edits so heavily. I'd rather sift through the comments myself than have to rely on David's opinion regarding relevance and insults.
"steinravnik said...
ReplyDelete"I pointed out that David forgot to support his assertion that the spring buying season has been weak with, you know, FACTS, and he deleted the post."
Go to MRIS.com and look at sales for the past 10 years. Or if visuals help you, go to my blog, I have it graphed out for 10 years. Sales are weak compared to a year ago, and are at the weakest level this year since 1997.
"
Stein,
you're having trouble following again. We're talking about David's assertion that spring has been weak. He "forgot" to support it with any facts, and you haven't helped him.
"Too funny. Where are your facts, Sunny Jim, showing a brisk spring season? "
Not out yet, because the stats show closing, not contracts. Then again, I didn't write a diatribe on a blog about a brisk spring season.
No go back to your rental home in the ghetto. It's funnier when you give your financial advice from there.
"the weakest level this year since 1997."
ReplyDeleteWhich was a strong year, moron.
"Of what value are anonomously posted insults, anyway? If anything, it suggests that fear may be beginning to set in among those whose livelihoods are linked to the bubble."
ReplyDeleteLike the fear you feel every time you walk outdoors in your neighborhood?
"The realtors would have no interest in being on here 'cause it's not like they're going to get new business from those bubbleheads that either can't or won't buy ...."
ReplyDeleteYeah...sure...I know for a fact that there are a couple od "realtors" that as of this minute are surfing the net, logging in to their "space" or otherwise pretending to be busy....They might be actually **busy** tomorrow and friday, though, when they start to prepare for weekend openhouse traffic (or lack thereof).
Good Lord! What an echo chamber of inanity this site has become. There is attempt at reasoned debate. There is only renters looking to other renters for validation as to their economic choices. And of course, anyone who doesn't subscribe to the bubble dogma is either a real estate agent, a flipper, or a hurting investor. You get more reasoned debate from an elementary school child.
ReplyDelete"the weakest level this year since 1997."
ReplyDeleteWhich was a strong year, moron.
For the Washington, DC metro area, 1997 was the weakest year in roughly the past two decades. I have the inflation-adjusted data here:
http://mysite.verizon.net/vodkajim/housingbubble/washington.html
steinravnik,
ReplyDeleteThat widely-publicized 5% number is compared to the previous month. But May 2006 housing starts are DOWN year-over-year.
James,
ReplyDeleteThere you go again, posting the relevant facts and essentially ending the discussion. I thought we wanted discourse? :)
My $0.02.
Stein, twocents and James,
ReplyDeleteI am glad that the builders may have learned something from past mistakes. I talked to a paver recently. He said projects are getting "erased" (cancelled) left and right.
Problem is, some projects are too far along to get cancelled. We just have to work through the inventory - same as before.
dc_too,
ReplyDeleteand, so?
How much lower dc? Enlighten us.
steinravnik wrote:
ReplyDelete"I will link to your blog."
Thank you. It is nice to see that your blog is active again, especially since the mysterious demise of OverPricedDC.
VA Investor,
ReplyDeleteI think you and I came to similar conclusions through different methods. You said a 40% drop for some of the highest priced condos based on past cycles.
I said, take the 98-01 median price line trend and add 4%/year + 20% of base price for basic asset class appreciation (due to easier lending as a result of a more competitive banking industry).
I believe my estimate was closer to a 45% drop off but they're in the same general ballpark.
Whether prices drop to get to this point or stagnate doesn't really matter to me. I just envision this point as when the market will be close to rational again.
My $0.02.
dc,
ReplyDeleteYou are right about the lenders. In the early to mid 90's if you said you were an "investor", the lenders treated you like a criminal. You could only have 5 mortgages or you couldn't get financed unless you were buying a personal residence.
Even then, I had a Lender's underwriter refuse to believe I was going to occupy a house. This with perfect credit and job history etc.
Typical "closing the barn door...".
Eight percent doesn't scare me. As I said before, I'll just go with history and say declines of up to 25% for houses and 40% for condo's. Absent another 9/11 or worse economic shock.
If you guys are seriously interested in what may happen during a housing bust, in 2003 the International Monetary Fund wrote a report titled "When Bubbles Burst". It discusses the bursting of asset price bubbles, and how housing busts differ from stock market busts.
ReplyDeleteThe IMF writes, "...equity price busts occurred on average every 13 years, lasted for 2-1/2 years, and were associated with GDP losses of about 4 percent of GDP. Housing price busts were less frequent, but lasted nearly twice as long and were associated with output losses that were twice as large, reflecting greater effects on consumption and banking systems, which are typically heavily exposed to real estate...."
"...the average equity price decline amounted to 60 percent.... the price corrections during housing price busts averaged 30 percent, reflecting the lower volatility of housing prices and the lower liquidity in housing markets."
Here's the full report:
http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter2.pdf
It looks like I don't need to read the report. Neither does mytwocents.
ReplyDelete"For the Washington, DC metro area, 1997 was the weakest year in roughly the past two decades. I have the inflation-adjusted data here:
ReplyDeletehttp://mysite.verizon.net/vodkajim/housingbubble/washington.htm"
I know reading is hard, but why can't you read a graph? It's just pictures.
"Beware False Housing Hopes
ReplyDelete"Sure, construction starts rose in May. But the key indicator of permits fell for the fourth consecutive month and homebuilders are gloomy."
I have a new post on my blog to discuss this."
Stein,
Yesterday, you were saying the housing starts numbers were bad for the housing market. Surely this is good news then.
"Yesterday, you were saying the housing starts numbers were bad for the housing market. Surely this is good news then."
ReplyDeleteOne item is being overlooked in the discussion on housing starts. Builders have an incentive to build - even if there are fewer buyers right now, rising inventory, and building defies business sense. Why?
Because builders who don't build are unemployed. And no one willingly fires themselves.
Housing start numbers will drop again. Builders are using cheap money still available in a last gasp before the housing market starts to "correct" itself, leading to lower start numbers and more layoffs once the low summer sales numbers come out.
anonymous wrote:
ReplyDelete"I know reading is hard, but why can't you read a graph? It's just pictures."
What the hell are you talking about? Do you not know the difference between inflation-adjusted and nominal prices?
Or are you unfamiliar with either the term "roughly" or "two decades"? (To be precise, 1997 was the weakest of the past 19 years.)
ReplyDeleteOr are you looking at change in strength (measured by YoY price change), rather than absolute strength (measured by the equilibrium price)?
ReplyDelete