Wednesday, April 05, 2006

Main Points of Housing Bubble

What has happened in the bubble markets in the past 8 months?

In the vast majority of the bubble markets there are four significant trends that have happened in the last 8 months:
  • Rapidly rising inventory
  • Slowing number of housing unit sales
  • Slight decrease in housing prices
  • Rising awareness and acceptance of the bubble theory. [As well as a move away from the 'boom will continue' to a 'flattening of price.']
So what can we expect over the next year in the US with regards to the housing market?
  • YoY price DECLINES in most bubble markets.
  • YoY sales DECLINES in the bubble markets
  • Rising interest rates
  • Rising number of foreclosures
  • Much less speculation
  • Less condo conversions
  • Loss of housing related jobs [construction, real estate agents, mortgage brokers, home renovation, appraisers etc.]
  • Tighter lending standards


  1. Read this:

    40% of home purchases in 2005 were either investment or vacation homes. Yikes.

  2. i am a structural engineer (buildings)..r u wishing me bad luck..and i didn't even buy a u telling me i get fucked both ways!

  3. Will the prices fall down enough to be within reach of an average DC metro family? That's a long way down! Maybe tons of HUD houses available in the market will be the only way an average DC metro family can attain the "American Dream". At this point I call this the "American nightmare".

    Another interesting statistic would be how many home owners could afford their homes at today's prices?

  4. I wouldn't bet on foreclosures anytime soon. The trend is to offer new products to consumers on less favorable terms, which allows the bank to hide its loss(es) and gives it more time to dump it on the secondary market.

    More troubling will be the point when rising interest rates depress prices to the point where properties aren't worth the paper the bank holds on them.

    At some point the feds are going to have to step in...

  5. I think the probability of a decline in home prices is high, but I also think that the fears about such a decline are overblown. Price in the DC metro area increased by 20% (approximately) in 2005. Thus, even if the market dropped by 20% over the next year or two, a very substantial decline, the only people who would be underwater on their house would be those who bought in the last year. That's not a very large number of homeowners compared to the overall market. Plus, most of those homeowners would not be in a rush to sell and take a loss. There would be a few that might get caught in cash crunch when their ARM reset, but now we are talking about a subset of a subset. The doom and gloom talk just seems a bit overblown.

  6. Actually as been pointed out the bank that gave them the mortgage stands to lose unless the owner put up 20% to cover the loss.

    And if you have banks with lots of mortgages that are worth more than the properties they will not be able to meet their captilization requirements from the SEC/Fed/Comptroller of the Currency/FDIC.

    Which is a big part of what happened to S&L's in the 80's.

  7. People don't understand banks. Didn't everyone watch "It's a Wonderful Life" last Christmas? The bank doesn't loan out $80,000 on a $100,000 mortgage. I loans out $80,000 FOUR times on FOUR $100,000 mortgages. A 20% decline and how much of the lenders money is left? That's right none of it! There are four houses out there worth $320,000 backing up $320,000 face value of loans. That's -if- we were in a normal world of 20% downpayments. Any guesses if I'm describing anything close to the reality of the last few years?

  8. robert cote
    My guess would be -> Banks were out of touch with reality.

    Another guess -> like today's CEOs banks make decisions that gives them short term gains with no regard to long term consequences.

  9. "Another guess -> like today's CEOs banks make decisions that gives them short term gains with no regard to long term consequences."

    Golden parachutes for CEOs.

  10. Golden parachutes for CEOs.

    It's matter what happens the CEOs always walks away with ton's of gold.

  11. I aint going for it. I've been a bubblehead since Oh f*cking two and every year at this time things seem to be going in our favor, everyone does the crazy miner dance, and then people start buying property again.

    Inventory is up, but still WAY below panic levels.

    Sales are down, but only from insanely f*cking historic levels.

    Prices, same as above.

    Any YoY price declines in '06 will be few, far between, and monthly blipish in nature.

    Volume could tank, but who gives a f*ck if prices stay the same or go higher, which they can, have, and do in a declining volume market.

    F*ck condo conversions. Anyone who buys one of those deserves the mud flap pounding they'll get.

    Less speculation I agree with, but less is not good for our team.

    Job loss is a non-issue. Those f*ckers will just go back washing dishes, folding burritos, and selling stolen shit at swap meets.

    Lending won't be tightened for shit.

    Interest rates will coming DOWN the end of this year.

    Unemployment will remain low.

    Game ohvah for '06. Maybe next year.

    Anybody hoping for another S&L situation should get some skooln on what the issue were then. One word will make the skull of a 80's developer expand and contract rage: Recapture.

  12. Like every other speculative episode in history this will come to an end. The question is: when?

    2006 is the year the bubble burst in the bubble markets. The boom is over.