For almost six years, Bubble Meter has been trying to warn people about the housing bubble. Unfortunately, we were wrong all along. There never was a housing bubble. I apologize for the error.
You might think I'm being sarcastic, but I'm not. You see, the belief in a housing bubble rests on housing prices substantially outpacing inflation. If housing prices don't outpace inflation, there can be no bubble. I foolishly assumed that I could trust the inflation numbers published by the U.S. Bureau of Labor Statistics. Bubble Meter's readers have informed me that doing so is pure ignorance.
I admit was wrong. The army of economists crunching the inflation numbers at the BLS are just tools of a corrupt and wicked government. The true inflation numbers come from a guy with no graduate degree in economics who is chief economist at the Shadow Stats website. He sells the true numbers for $175 per year. You know he's not a snake oil salesman or a con artist because he tells you what you already believe. Con artists would never do that. This guy says the government is under-reporting the real inflation numbers. The real inflation numbers are much higher, and have been for decades.
If the true inflation numbers are much higher, then inflation-adjusted housing prices must therefore be much lower. It's a simple rule: higher inflation = lower inflation-adjusted housing prices = much smaller or non-existent housing bubble.
For example, in 2001 when I first spotted what I thought was a housing bubble (silly me), nominal home prices had increased about 8.5% from the year before. But, according to Shadow Stats, inflation was 9.1%. Real home prices actually fell 0.6% that year! What a fool I was for thinking housing prices were rising too fast. They were actually falling!
If the Shadow Stats inflation numbers are right, then home prices must now be deeply undervalued. I say buy, buy, buy!
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"Sales of previously owned U.S. homes fell unexpectedly sharply in February and prices touched their lowest level in nearly nine years, implying a housing market recovery was still a long off." Welcome to the second leg down of the housing crisis. It's a shame too because I have been looking for some indicia to tell me that we were near a bottom but consistently the data disappoints me.
ReplyDeleteSo, I'm with you, I believe there is a bubble, and I think it's nuts in DC, but when do you think declines will pick up in side the beltway? I'm still trying to get a grip on the picture in my CH/Petworth neck of the woods...and while I see houses closing for 10-15% under initial listing prices, I don't yet have a solid picture of a statistically significant sample of resales which are during and then after the bubble.
ReplyDeleteThere does seem to be a steady supply of Greater Fools, but I increasingly note the lament, "I wish I had the downpayment" which suggests that maybe tight credit is starting to cramp even the immuno-zones.
you have no idea how relieved i am.
ReplyDeleteSimilar conclusions can be made when pricing gold and the S&P when measured in (shadow) inflation adjusted dollars. When you look at the graphs, it just doesn't look right.
ReplyDeleteYou're reasoning is wrong on many levels. A speculative bubble does not rely on inflation. You can have a speculative "investment" bubble during a deflationary cycle if demand outpaces supply.
ReplyDeleteThe entire US Economy is in a major bubble and I disagree with you and state that we did have a bubble, despite the CPI not accurately reflecting the true rise in the cost of living.
The GDP Bubble:
http://www.wtffinance.com/2011/03/the-gdp-bubble-and-why-debt-to-gdp-is-misleading/
Don't Be Fooled By Official Inflation Numbers
http://www.wtffinance.com/2011/02/don%e2%80%99t-be-fooled-by-official-inflation-numbers-and-anticipated-future-inflation/
On a second thought, I agree, there never WAS a housing bubble, there still IS.
ReplyDeleteThink of how cheap oil must be!
ReplyDeleteI just put up a tool to graph home prices over time in your city to another city in the US. My wife sells real estate here in Lawrence, Kansas and I hear stories about what people think about our local market. Using HPI data I draw comparative graphs so it's easy to visualize how different trends and bubble have affected different cities.
ReplyDeletehttp://homepricegraph.com/
Today a new report from Robert Shiller's outfit, MacroMarkets, found that of 111 housing market experts and economists surveyed, nearly half foresee a double-dip in home prices happening this year, "and not a single panelist expects national home prices to recover to the pre-bubble trend in the coming 5 years." In December, only 15 percent projected a new post-crash low would materialize for home prices. We are now less than 1 percent away from that mark, according to the survey.
ReplyDeleteHappy New Year!
More terrible housing data released this morning. Where's Mr. Bottom? Did he take a leave of absence because the housing market news has shown more air being released from the bubble? Tell me we are at a bottom fool!!! Where are all of those know-it-all housing advocates? Get back in your holes! Silence is daunting at times.
ReplyDeleteThis housing bubble *is* inflation. Why? For most people, their top expenditure is shelter, whether that's a monthly mortgage payment or monthly rent. As we know, housing prices have increased dramatically, and rents have gone up since the housing crash started driving demand for rentals. So any measure of inflation that is intended to be meaningful to taxpaying citizens should include shelter. And when you include shelter, "inflation" tracks the housing price run-up much more closely.
ReplyDeleteRegardless of the inflation theory, with prices in most cities at the lowest level in the last decade, shouldn't it be buy, buy, buy, anyways!
ReplyDeleteDavid Tsegai
Im still here Freddy, here in the only market I care about - DC - which bottomed in March 2009.
ReplyDeleteJust think Freddy, back then DC case shiller price index was at 165. Today, it is over 185 (up 12%). OH how SAD for you!!! Too bad you missed the bottom so badly.
That said, I LOVE your enthusiasm! Care to back it up? If DC case shiller at 165 was not the bottom, care to tell me what will be the bottom? 160? 150? 140? Also, when will we hit it? 2012? 2013?
Cmon freddy - back up your chastizing with some projections of your own. My old buddies Noz (bottom is 130) and NonPartisan (bottom is 100) have run away, and I would LOVE a new toy to play with.
Personally, my projection is that you do not directly answer the question (i.e. DC will hit _____ by the year _____) - instead you will either go silent or flail about a bit doing anything you can to avoid answering. So whats it gonna be Freddy? Ball is in your court...
Partsy, you get too excited too quickly. The double dip has just begun so hold onto your pants. I know one thing Partsy. You sure don't feel as good as a homeowner now as you did 5 years ago. You are nervous Partsy. All of the things that you believe about housing in DC that has kept you from losing your sanity may not be true. Here's a prediction. I predict that 5 years from now your home will have remained within the value it is today. Check your underwear Partsy. You dirty little boy you!
ReplyDeleteSo we'll have a disastrous double dip but be back at today's price in five years? Does this double dip mean we revisit the lows of 2009 (165) or that we crash right thru them? When do we hit the new low and when do we turn back up again?
ReplyDeleteIt should be a fairly quick process if the entire "cycle' will take only 5 yrs. How does our regional drop in unemployment and increase in population and job creation factor into your analysis?
So on the one hand you call the bottom callers "fools", and yet, when pressed for a prediction of far down we go, you say "5 years from now, your home will have remained in the same value it is today".
ReplyDeleteHow is that not the bottom?
James,
ReplyDeleteDoes the fact that the Wash., D.C. metro region is bumping up against 20 yr highs in the Affordability Index enter into your thought process? Were prices at ridiculous levels in 2004-2006(07)? Sure. That is no longer relevant is it? Why the need to argue what has come and gone?
Here and now: safe time to buy or a fool's game?
My my Freddy! Thats alot of flailing about, but nothing real specic is it? As Lynn noted, on the one hand you say the double dip has "just begun", but on the other you say prices will remain the same 5 years from now. And as anon noted, if prices do stay the same throughout (i.e. right around 185 where they are now), how is the March 2009 level of 165.94 not the bottom.
ReplyDeleteSo many questions, yet so few answers. Perhaps you havent really thought this through for yourself. Tell you what, I will help you with a "fill in the blank exercise". Here are DC case shiller values since late 08. Fill in the blanks:
Dec 08 - 175
Mar 09 - 166 (this was the bottom)
Jun 09 - 173
Sep 09 - 181
Dec 09 - 179
Mar 10 - 175
Jun 10 - 186
Sep 10 - 186
Dec 10 - 186
Mar 11 - ???
Jun 11 - ???
Sep 11 - ???
Dec 11 - ???
Mar 12 - ???
Jun 12 - ???
Sep 12 - ???
Dec 12 - ???
If the double dip "has just begun" and if anyone calling bottom is a "fool", then clearly that 166 level set in Mar 2009 is in big trouble.
So heres your chance Freddy. Show me - show us all - why Mar 2009 was not the bottom by filling in the blanks above.
Can you do this Freddy? Can you answer with specifics, or will you continue to flail about? My guess is the latter, but we shall see...
John Williams of ShadowStats is a very well respected member of the economic community. To state that he has no "graduate degree in economics" is very misleading an intellectually dishonest since he does have an economics undergraduate degree from an ivy league school (Dartmouth) as well as an MBA.
ReplyDeleteWhich begs the question; "Who the hell are you and why are you trying to discredit a legitimate, well respected individual?" It reflects very poorly on you, not him or his good works.
rjwjr
Hey partisan, Noz and Nonpartisan would have been right if the government didn't step in a create a bottom for home prices. The homebuyer’s tax credit, record low interest
ReplyDeleterates, government mortgage-assistance programs and the presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have saved the day. But the day of reckoning is coming so kiss our asses!
Gosh, you should stay away from analyzing anything. CPI includes housing, but not always the same housing! When house prices rose, CPI excluded them (instead included lowering rent prices). Now, rent prices are rising, while home prices are following, and voila - CPI now includes home prices in it's index, to the tune of 40% (versus 0% just a few years ago).
ReplyDeleteShadowStats is the only legitimate (and truly make-sense) indicator out there. CPI is only for government consumption. Consider that government uses CPI to determine how much it will increase pay in various benefits to a good chunk of US population.
If you must post naive and childish analyses, please then state a disclaimer that you are not an expert and that you seek help from a wider community to learn more about the subject.
The gov't been gaming the CPI for a long time and you are correct - it's all about the transfer payments and benefits.
ReplyDeleteUhh, No. Noz and Nonpartisan's predictions were based upon abject pessimism. Short of a dirty bomb going off in DC, they had no chance to prove correct.
ReplyDeleteAlso all the things you cite did not "save the day". Look nearly anywhere else in the country (17 of the 20 Case Shiller markets) and prices are falling right now. The only places that are not are SF, SD & (possibly BOS) which are stagnating, and DC which is going up.
The day of reconing is coming ehh? OK, tell me, tell us all what that day of reconing is going to mean for DC prices by filling in the blanks:
Dec 08 - 175
Mar 09 - 166 (this was the bottom)
Jun 09 - 173
Sep 09 - 181
Dec 09 - 179
Mar 10 - 175
Jun 10 - 186
Sep 10 - 186
Dec 10 - 186
Mar 11 - ???
Jun 11 - ???
Sep 11 - ???
Dec 11 - ???
Mar 12 - ???
Jun 12 - ???
Sep 12 - ???
Dec 12 - ???
Show us how prescient you are, and (if you turn out to be correct) I will begrudingly kiss your ass... As god as my witness, I will come back here and say: "sam was right and I was wrong".
So whats it gonna be Sam? Are you going to step up and fill in the blanks? Or, are you going to be like so many dozens of keyboard cowboys before you on this blog... all of you are filled with bravado when dealing in the abstract. Yet, when pressed for specifics, you duck the question and slink away quietly.
So whats it gonna be Sam? Ball is in your court...
Your attack on John Williams/Shadowstats is clearly part of the problem and not part of the solution.
ReplyDeleteRare websites like Shadowstats.com, nowandfutures.com, and especially iTulip.com are signals of financial and economic truth in a world awash with far too much noise.
Prices in most cities are NOT at the lowest level in decades.
ReplyDeleteFor the readers coming from iTulip, I'm going to have a follow-up post on Monday.
ReplyDeleteThe CPI includes rent and owner-equivalent rent. It hasn't included housing prices since the early 1980s.
ReplyDeleteLynny,
ReplyDeleteThe probem with your limited perspective on hosing is that you draw conclusions based on a few variables. first, you claim that the affordability index supports current values--where? If you lump the entire area in one statistical pool, then you are more foolish than I originally thought. Second, tell us what are the factors in the affordability index. Do you know?
Do I really have to school you Lemmy? Factors are median income, interest rates and home prices.
ReplyDeleteGoogle the Home Affordablity Index for the D.C. region. If you can't find it or don't understand it, get back to me. The numbers go back 20yrs.
"Sam said...Noz and Nonpartisan would have been right if the government didn't step in a create a bottom for home prices"
ReplyDeleteAnd Lance would have been right and median home price would have been 2 million bucks if the government had only printed enough dollars... Whats your point?
Lynny,
ReplyDeleteOhhhh so interest rates are part of that calculation. So if interest rates are low, purchasing power is more, and if interest rates increase, purchasing power declines? And if the Federal Reserve begins selling mortgage-backed securites that it has purchased in the last two years, instead of buying them, private investors must step in a become the lifeline of the housing market. Deep down in your intellectual thought process, do you think these private investors will want a higher return on their investment than the Federal Reserve? Does that mean mortgage rates will certainly climb? And does that reduce the number home purchasers in the market and the net effect is lower prices? Educate us Lynny. Tell us all about what you have learned as a real estate agent/used car saleswoman. Does that profession require a high school diploma? Can you get real estate license from a Cracker Jack box? School me flunky!
Gee whiz Lemmy, I didn't know you planned to sell right away. Do you think interest rates factor into business spending? You're right. Best leave them out of the equation. Could you look at the 80's and tell us what happened to prices then? You do know that rates went to 17 or 18%? Probably best for you to keep renting. I mean, why get a 5% mortgage when prices are so high? Ooops! That was 2005 and 2006 when they were so high. My bad.
ReplyDeleteLynny, the prices in the 80s were within historical norms. Today's "local" prices are not!
ReplyDeleteNice non-answer! Did prices cater when rates doubled? Are you saying that rates don't matter?
ReplyDeleteMoron, you are essentially stating that all of the variables that were in effect in the 80s are true today. That's not the case! Listen, go find some uninformed home purchaser and sell them a house they cannot afford. Real estate agents bear a significant amount of responsibility for destroying an asset class that at one time was a solid investment. And with your limited knowledge of the housing market, you will perpetuate the continued destruction.
ReplyDeleteLemmy,
ReplyDeleteChill dude! Why are you answering for James? I am quite sure that he does not need your help. And quit spinning the questions around please. A simple answer to my simple questions about the DC market is all I want. What I've heard from you so far is that the affordability index is no longer relevant. Is this a "new paradigm"?
monty: it is not anymore nuts in DC than it is on either coasts. The Wash DC area prices have ALREADY dropped ~30% from its peak in 2006--just like it has in other metro. areas. It just recovered much faster. The reason for the recovery: a 6% percent unemployment rate and very high median incomes.
ReplyDelete