There are growing indications that there is a slowdown occurring now. It is quite likely that we will see an increasing amount of stagnation throughout the summer. By October, the price stagnation in many areas will become price declines. It will be clear by then that the price appreciation of the past is not happening. Selling will follow as investors speculators and others try and get a peak price. For the most part they won't be able to get the 'peak price' . Inevitably, they will start lowering prices. The bubble is nearing its end.On a future recession, I wrote on December 19, 2006:
Additionally, an economic recession in very likely to occur in the US within the next 7 monthsExample #3 involves homebuilders stocks On June 20th, 2005 I wrote:
So how accurate were my three predictions? What else can be found in this blog's archives?Other homebuilders were also lower Monday along with the broader market. Lennar (NYSE:LEN - News) was down 2% to $61.89, and KB Home (NYSE:KBH - News) was falling almost 3% to $75.19. Toll Brothers (NYSE:TOL - News) was losing 3.5% to $100.91, and Hovnanian (NYSE:HOV - News) was slipping 0.7% to $65.73. Pulte (NYSE:PHM - News) was down 3% to $83.22.
The market is finally reacting to the growing indications that the bubble is about to burst. Keep yours eyes on these shares and watch them tumble even more. Remember there are about 15 million unoccupied housing units in this country.
Posts
I really think you need to include more stories on the collapse of the subprime lending market. New Century for example is toast, and now companies are going to overreact and are thus now greatly tightening their lending standards. I belive these changes are going to have profound effects on the whole supply and demand equation in housing for years to come.
ReplyDeleteI honestly don't care.
ReplyDeleteBut it's your blog and you've taken a lot of heat, so I'll give you your moment.
It appears that you need to change careers and become an economist. Perhaps then you will be able to afford your own home.
ReplyDelete--A faithful reader
David,
ReplyDeleteI have always believed you have been spot-on. I believe time will increase your vindication.
The interesting thing about the house-builders (Home is a marketing term used by Realtors, so I try to avoid it) is that, when you look at their stock prices relative to their earnings, at the time, the ratios were very low. This means that the market was actually predicting that the companies' earnings are unsustainable long before the slowdown in 2006. (While some of my less fortunate friends were mortgaging their futures on 20% yearly appreciation for eternity)... Further proof that the stock market is infinitely more efficient than the housing market.
eternitus
I would be curious what other people think about the next 6mos, 1 yr and 2 yr w/r/t regional (DC) prices and sales.
ReplyDeleteI predict that we will see a bounce in inventory, prices and sales this summer. We will see prices higher than the winter and probably even YOY price increases.
I think that the new regs/restrictions on Subprime/Alt-a will affect demand at the bottom end of the market (i.e. cheaper houses), so median prices and mean prices will reflect more sales of the remainging middle & upper range homes. At the same time inventory of lower-end houses will build. Overall unsold inventory at the end of summer will be 10-20% more than it was last summer. Reflecting the higher prices, sales this summer will alkso be higher.
In the fall, prices will fall again as owners become more concerned with selling their houses before the slow winter. This is when the build-up in inventory that results from the Alt-A/Subprime fall-out begins to take its toll on prices. Despite the increases in summer prices, we will still see YOY price declines in the fall.
But that's just my guess!
Don't become an economist (per afr)
ReplyDeleteI know plenty of economists who couldn't afford a half-decent house if they had to buy for the first time.
If you really want to own a decent house and have a passable lifestyle with vacations and maybe dine out once or twice a year, I'd recommend a combined family income of $150k per year. Most economists are professors, and most don't make enough to fit the bill
eternitus
eternitus said:
ReplyDelete"I know plenty of economists who couldn't afford a half-decent house if they had to buy for the first time."
Before getting so down on your situation, know that most people (economists or not) couldn't afford a half-decent house if they had to buy for the first time. And that has been the case as far back as I can remember. (The whole 3 times salary rule of thumb is not worth much. It's your housing monthly costs as a percentage of income that matter in the end ... and that percentage has stayed constant over the decades.) Also, know that it takes more than a decent salary to buy a decent house. It takes accumulated wealth. Some people are fortunate enough to have family wealth to draw on, but most of us get it over time. I remember being in your situation thinking I was being cheated out of "builing equity" because I couldn't afford that first purchase. I also know that looking back it eventually all came together. In the last 5 years alone, I'm sure I built more equity than people I know who first bought their homes 20 years ago. I guess what I'm trying to say is, don't panic, time is on your side. And, perhaps most importantly, don't waste your time fighting the system. Learn to live within it instead. That will get you much further in life.
Lance writes, in part:
ReplyDelete"In the last 5 years alone, I'm sure I built more equity than people I know who first bought their homes 20 years ago."
And you say there isn't a bubble.....
There is no bubble, bubie! We're getting the soft landing most have predicted. Prices will trend sideways for a while then begin to slowly build -- and eventually, it'll be flipper dipper city once again. And you can take that to the bank by golly.
ReplyDeleteStock tips for Housing Heads: ITB (iShares DJ US Home Construction) and IYR (iShares DJ US Real Estate). If it's a buyer's market, why not put your money where your mouth is?
ReplyDelete"In the last 5 years alone, I'm sure I built more equity than people I know who first bought their homes 20 years ago."
ReplyDeleteLance, The Housing Bubble Gaveth and the Housing Bubble will taketh away.
-John Fontain
Okay, so maybe I'm buying...
ReplyDelete"Baker, perhaps the most pessimistic of the prognosticators (he is someone who sold his Washington, D.C. home a couple of years ago in anticipation of it falling in value), saves most of his concern for the markets that had the most speculation - Las Vegas, Arizona and parts of Florida. Meanwhile New York, Boston, and coastal California, and even D.C. should hold up OK, he says."
Lance,
ReplyDeleteAn illustration of the externalities that irresponsible behavior in the real estate sector cause to the economy at large (which you have failed to respond to):
March 13, 2007
Stocks Plummet on Subprime Lending Woes
By THE ASSOCIATED PRESS
Filed at 6:00 p.m. ET
NEW YORK (AP) -- Stocks plunged Tuesday, driving the Dow Jones industrials down more than 240 points to their second-biggest drop in almost four years, as troubles piled up for subprime lenders.
Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector on more news that lenders New Century Financial Corp., Accredited Home Lenders Holding Co. and General Motors Acceptance Corp.'s residential unit are facing financial problems. The Mortgage Bankers Association bolstered the belief that the struggles are widespread after it said new foreclosures surged to an all-time high in the last quarter of 2006.
All three major stock indexes were knocked down about 2 percent.
''The market's still jittery, and they're starting to get full-blown concerns over a bleed in the larger subprime mortgage market,'' said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.
more here:
http://www.nytimes.com/aponline/business/AP-Wall-Street.html
Lance,
ReplyDeleteAs usual, this makes very little sense:
"(The whole 3 times salary rule of thumb is not worth much. It's your housing monthly costs as a percentage of income that matter in the end ... and that percentage has stayed constant over the decades.) "
The 2.5 to 3 times your salary rule of thumb is built around the lending industry practice of a debt-to-income ratio of no more than 36% and a loan-to-income ratio of no more than 28% (33% for aggressive borrowing).
The multiple range of 2.5 to 3 x salary is the typical result of the loan you can afford if you use these lending industry practice percentages.
The percentage of income going to loans has sky rocketed over the last few years creeping north of 50% for some borrowers. You yourself have argued that someone making $40,000 a year could afford a $200,000 condo (approx numbers from my recollection of your post).
So, you are out right contradicting yourself that these percentages have stayed the same over the years. If they had stayed the same, then the 2.5 to 3 x salary multiple would still be relevant.
And again, this all speaks to the loan that a borrower can afford under traditional lending practices, not to the price of the asset being purchased. Since I'm sure you'll want to distract the argument talking about inherited wealth, former equity, cashing in baseball cards or some other nonpertinent item...
My $0.02.
Anonymous said...
ReplyDelete"Lance writes, in part:
"In the last 5 years alone, I'm sure I built more equity than people I know who first bought their homes 20 years ago."
And you say there isn't a bubble....."
And is it a "bubble" when you get a bigger raise one year than you have the other years before?
james said...
ReplyDelete"Stock tips for Housing Heads: ITB (iShares DJ US Home Construction) and IYR (iShares DJ US Real Estate). If it's a buyer's market, why not put your money where your mouth is?"
This statement illustrates how you still don't understand that buying a home is an expense and not an investment. If house builder's stocks are down, that probably mean they are in trouble and you can probably get a better deal from them. Their loss becomes your gain. And when you buy a house, you are not being equity in future shares of profit made from building a house. Not the same thing. And if you truely can't understand the difference, then you are probably ready to buy a house yet. Buying a house is a complicated transaction. And not for those who get easily confused.
caveat emptor said:
ReplyDelete"All three major stock indexes were knocked down about 2 percent."
The sky is falling! It feel a whole 2 percent!
I notice Lance has failed to respond to this news story again:
ReplyDelete"March 13, 2007
Stocks Plummet on Subprime Lending Woes
By THE ASSOCIATED PRESS
Filed at 6:00 p.m. ET
NEW YORK (AP) -- Stocks plunged Tuesday, driving the Dow Jones industrials down more than 240 points to their second-biggest drop in almost four years, as troubles piled up for subprime lenders.
Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector on more news that lenders New Century Financial Corp., Accredited Home Lenders Holding Co. and General Motors Acceptance Corp.'s residential unit are facing financial problems."
Whats up lance? I thought it was only paranoid chicken little bubbleheads that were worried about the effects the subprime collapse is going to have...
It seems the investing world at large is becoming very very aware of the potential damage the end of the housing bubble might have...
(wasn't VA_Investor here just a couple days ago crowing about how there isn't yet a recession? Think she will be saying the same thing in a year's time?)
"The 2.5 to 3 times your salary rule of thumb is built around the lending industry practice of a debt-to-income ratio of no more than 36% and a loan-to-income ratio of no more than 28% (33% for aggressive borrowing).
ReplyDeleteThe multiple range of 2.5 to 3 x salary is the typical result of the loan you can afford if you use these lending industry practice percentages."
Yes, but that varies by interest rates.
If the 30-year rate is 6%, you can have a debt-to-income ratio of 28% on a fully amortizing 30-year mortgage that's almost 4 times your income.
Mind you, that still might mean housing prices are overvaulued in the area. But maybe not as much as we'd get just by assuming the 2.5 to 3 times income rule.
MyTwoCents said...
ReplyDelete"Lance,
As usual, this makes very little sense:
"(The whole 3 times salary rule of thumb is not worth much. It's your housing monthly costs as a percentage of income that matter in the end ... and that percentage has stayed constant over the decades.) "
The 2.5 to 3 times your salary rule of thumb is built around the lending industry practice of a debt-to-income ratio of no more than 36% and a loan-to-income ratio of no more than 28% (33% for aggressive borrowing)."
Nope, wrong rule ... The 3 times salary rule of thumb I was referring to was Robert's "you shouldn't pay more for a house than 3 times your salary" ... i.e., you make $50,000 per year, you shouldn't buy a house for more than $150,000.
Lance said...
ReplyDeleteAnd is it a "bubble" when you get a bigger raise one year than you have the other years before?
No, that's called inflation (i.e. cost-of-living adjustment) and an improvement in human capital (i.e. you gain work experience).
However, the housing bubble was not caused by inflation. And if you didn't remodel your home, there's no improvement in "housing capital", so it should not increase in value much faster than inflation.
Most homeowners have just been living in their home without remodeling it, and have seen its growth in value far outpace inflation. That's a bubble.
This statement illustrates how you still don't understand that buying a home is an expense and not an investment.
ReplyDeleteI thought this stupid statement was already torn to bits a while ago on another thread.
If house builder's stocks are down, that probably mean they are in trouble and you can probably get a better deal from them. Their loss becomes your gain.
Err.. which is it? Should I buy because a house is an expense or because home builders are getting f***ked and I can get a better deal? And what is to guarantee that they will not continue getting f***ked and I will get a better deal still in future?
And when you buy a house, you are not being equity in future shares of profit made from building a house. Not the same thing.
Huh?
And if you truely can't understand the difference, then you are probably ready to buy a house yet.
Not only did I not understand the difference, I didn't even understand what you are trying to say.
Buying a house is a complicated transaction. And not for those who get easily confused.
Ok. I get it now. Its too complicated. I won't buy. Thanks.
You've done well on the housing market, but your recession prediction seems excessively pessimistic.
ReplyDeleteIntrade is giving only a 27% chance of a recession in 2007. Or at least that's the way the market betting is going.
In contrast, the Shiller market agreed with you last year that the housing markets were headed for a dive although the CBE is reporting somewhat higher figures (that is, smaller decline) for late 2007 housing now than it did some time ago.
James said:
ReplyDelete"Most homeowners have just been living in their home without remodeling it, and have seen its growth in value far outpace inflation. That's a bubble."
Most of the value of a home is due to 3 things: location, location, and location. As such, it matters relatively little if the home has been remodeled or not. The real increase in value comes from factors related to whether where the house/condo sits is desireable or not. DC is the perfect example of how things have changed for the better. The change in many neighborhoods has been so great to send the value through the roof based solely on the difference in the neighborhood. Take Logan Circle for example. 10 years ago there were shoddy looking auto repair shops where you now have Whole Foods. Instead of people sitting out dining al fresco at the sidewalk cafes on P St., you had bums drinking out of beer cans on street corners. Anyone who owned there are now living in a whole other world ... and the value of their property has gone up irrespective of whether they have remodeled or not. While this change is very visible in DC, there are other less noticeable changes occuring in cities like Washington and countries like the US that make their locations more valuable. These changes have to do with the transition from national economies to a pan-global economy. There is a lot of wealth being created and that wealth is flowing first to cities and countries important in the new scheme of things. That wealth causes the relative value of favored locations to rise accordingly. Houses/condos in these areas will go up in value because of their location irrespective of whether remodeling was done or not. So, no, that is not the illusionary incrase in value creation that you imply when you say bubble. This is real value creation.
"The sky is falling! It feel a whole 2 percent! "
ReplyDeleteOh good, Lance isn't concerned... I thought for a second there we might have something to worry about but since he doesn't think it is a big deal it is clearly a non-story.
Meanwhile... the real experts who aren't computer technicians who try to moonlight as global economy gurus remain unconvinced that all is well.
"TOKYO - Asian stocks plunged Wednesday after Wall Street chalked its second-biggest drop in four years and rattled already nervous markets worldwide.
Overnight, the Dow fell 242.66, or 1.97 percent, to 12,075.96 amid concerns about U.S. sub-prime lenders, who provide mortgages to people with poor credit.
The tumble extended weeks of international trading turmoil rooted in deepening concern about a wilting global economy. Concern about U.S. sub-prime lenders and lackluster retail sales pushed the Dow Jones industrials down 1.97 percent overnight.
Investors continued the sell-off in Asia, where stocks in Tokyo, Seoul, Singapore, Hong Kong and Kuala Lumpur were all down more than 2 percent. Markets in Sydney and Shanghai lost about 1.76 percent and 1.85 percent respectively.
At the Tokyo Stock Exchange, the region's biggest bourse, the benchmark Nikkei 225 index fell 512.04 points, or 2.98 percent, to 16,666.80 points. Foreign investors who bought up stocks during the recent rally led the selling, traders said."
The housing bubble was pushed up mostly by the Fed's interest rate cuts in 2000-2001. The bubble has been pricked in part by the Fed raising interest rates back to normal levels (as well as other factors like housing affordability and a change in herd behavior).
ReplyDeleteThe funny thing about Lance's explanation is that in the late 1990's, people came up with similarly convoluted explanations as to why stocks were worth such high prices. It's amazing how people can come up with ways to justify any financial bubble.
Lance, even if people here disagree with you, they should treat you with respect. In the end, the market's going to do what the market's going to do. It's your money on the table. Good luck.
We treat him with the respect he deserves, probably quite a bit more….
ReplyDelete“anon said: "With the coming tightening in lending standards ... "
Do you know something we don't know? What is your authoritative source for the "fact" that lending standards are going to be tightened? “ Lance July 1 2006
(I guess Lance is about to admit he was wrong about that huh?)
“I hope you have a very long term lease on your home, you'll need it 'cause rents are what are starting to rise now. You think the rise in selling prices was something? Just wait till the rise in rents kicks in. Everyone I've been talking to says renters are desparate. It's 20 - 40 renters for each "for rent" ad placed in Craigslist. Rents are gonna go up up up! I hope you own a waterproof tent? ... and a little piece of land to put it on.” Lance June 29
“David said...
its just the start of the decline in the bubble markets. Much better deals are coming in the coming years."
You should put this quote up on the masthead of your blog (with a date of posting, of course) ... Something we can discuss in coming years ...” Lance June 28
(I agree... lets scroll down a little bit to find one of yours to put next to it...)
“Or is it "bubblesense" to instead wish upon a falling star that prices will suddenly and magically fall even thought that has NEVER happened in US history before? "Bubblesense" ... I like that new word! It's aking to "Bubblespeak" and "Bubble-economics"! "You click your heels, wish upon a star, and all your dreams come true!" Ignorance truly is bliss, isn't it?!” Lance June 28
(Never happened in US history huh?)
“I have specifically said that in the short term (2 - 3 yrs?) I think condo prices are going to go down by as much as 15% on average and house prices stay where they're at, again on average.” Lance June 26
(There we go... I think we should put this quote next to David's)
“Also, our home-loan lending industry is one of the finest in the world. Having learned from the lack of controls and oversight back in the 20s, in today's controls and oversight see to it that very very few buyers who bought won't have been qualified to carry whatever their payments are capped at. I.e., when people get qualified for their loans, they get qualified using the highest interest rate that the loan can ever go to. For example, even if loan rates are 5% when someone buys and rates in general rise, the increase is capped at something like 10% ... and it is that 10% that the buyers would have been qualified at. And I don't believe for a moment that we have a substantial amount of loans out there where the lender was either fraudulent or just simpley didn't verify application information in accordance with either the law or good business practice. I could go on and on as to why the bubbleheads' chickenlittle beliefs are based on complete misunderstanding of many many things ...” Lance June 26
That last quote is one of my absolute favorite Lance quotes... blinding stupidity mixed in with a lot of arrogance. Charming...
We treat him with the respect he deserves, probably quite a bit more...
ReplyDelete“anon said: "With the coming tightening in lending standards ... "
Do you know something we don't know? What is your authoritative source for the "fact" that lending standards are going to be tightened? “ Lance July 1 2006
(I suppose Lance is about to admit he was wrong on this one)
“I hope you have a very long term lease on your home, you'll need it 'cause rents are what are starting to rise now. You think the rise in selling prices was something? Just wait till the rise in rents kicks in. Everyone I've been talking to says renters are desparate. It's 20 - 40 renters for each "for rent" ad placed in Craigslist. Rents are gonna go up up up! I hope you own a waterproof tent? ... and a little piece of land to put it on.” Lance June 29
“David said...
its just the start of the decline in the bubble markets. Much better deals are coming in the coming years."
You should put this quote up on the masthead of your blog (with a date of posting, of course) ... Something we can discuss in coming years ...” Lance June 28
(I agree, only lets get one of Lance's quotes to go next to it...)
“Or is it "bubblesense" to instead wish upon a falling star that prices will suddenly and magically fall even thought that has NEVER happened in US history before? "Bubblesense" ... I like that new word! It's aking to "Bubblespeak" and "Bubble-economics"! "You click your heels, wish upon a star, and all your dreams come true!" Ignorance truly is bliss, isn't it?!” Lance June 28
(never in history huh?)
“I have specifically said that in the short term (2 - 3 yrs?) I think condo prices are going to go down by as much as 15% on average and house prices stay where they're at, again on average.” Lance June 26
(There we go, lets put this quote next to David's...)
“Also, our home-loan lending industry is one of the finest in the world. Having learned from the lack of controls and oversight back in the 20s, in today's controls and oversight see to it that very very few buyers who bought won't have been qualified to carry whatever their payments are capped at. I.e., when people get qualified for their loans, they get qualified using the highest interest rate that the loan can ever go to. For example, even if loan rates are 5% when someone buys and rates in general rise, the increase is capped at something like 10% ... and it is that 10% that the buyers would have been qualified at. And I don't believe for a moment that we have a substantial amount of loans out there where the lender was either fraudulent or just simpley didn't verify application information in accordance with either the law or good business practice. I could go on and on as to why the bubbleheads' chickenlittle beliefs are based on complete misunderstanding of many many things ...” Lance June 26
(This is one of my favorite Lance quotes... blinding stupidity mixed in with a great deal of arrogance. Oh yeah... and we are all of course waiting for him to admit he was wrong...)
Lance,
ReplyDeleteYou've mentioned wheres the doom and gloom. Take a look at the news paper or watch the "local" news channel, ah' any channel will do.
Lance said:
ReplyDelete"If house builder's stocks are down, that probably mean they are in trouble and you can probably get a better deal from them. Their loss becomes your gain."
Lance,
It was not too long ago when you were arguing the EXACT opposite. You said that when times are great you can get a great deal because the sales rep for the home builder will be making more on his commission and so can incent the buyer with a slightly sweeter deal.
So, is it always a good time to buy or does one of these two scenarios favor the buyer?
My $0.02.
PS - Why are you cheering for the homebuilder's pain?
Most of the value of a home is due to 3 things: location, location, and location.
ReplyDeleteOkay, Lance, I'll give you Logan's Circle. Now explain the 200% increase (that's three times the original value) in places like Manassas, Leesburg, even all the way out in West Virginia.
Or what about the 200% increase in formerly nice neighborhoods of DC? Are they all of a sudden three times as attractive?
What about the huge increases in the entire U.S. market? How does "location, location, location" hold here?
I get it. There's a bubble in the U.S. housing market (and Europe and Asia and Australia...) but that had no part in price increases in D.C. proper. This is the one area that was not impacted by the real estate mania gripping the world. It's different here!
Anonymous said...
ReplyDelete""The sky is falling! It feel a whole 2 percent! "
Oh good, Lance isn't concerned... I thought for a second there we might have something to worry about but since he doesn't think it is a big deal it is clearly a non-story.
Meanwhile... the real experts who aren't computer technicians who try to moonlight as global economy gurus remain unconvinced that all is well."
Anon,
The REAL experts will come back in today, tomorrow, next week, or next month and pick up valuable equities at discount prices ... after the herd mentality "a la bubblehead" has run its course.
Smart equity investors, like smart real estate investors and homebuyers, realize that over the long haul value doesn't get wiped away by the fickleness of short term "investors".
And James,
Btw, no, it's not my "money", it's my "home" ... You've never quite understood the difference between spending money on a home and betting money on investments, have you? I can't help but feel sorry for you (and your family) if that is the case, as you'll constantly be looking for that
"one better" investment you can make while risking the roof over your and your family's head. Good luck. I'll leave you with one piece of advice though ... the "house" always wins in the end ...
Lance: " the "house" always wins in the end ... "
ReplyDeleteAnd you ain't the house, Lance.
if you didn't remodel your home, there's no improvement in "housing capital", so it should not increase in value much faster than inflation.
ReplyDeleteKeep in mind that the housing market, particularly in certain metropolitan in inner-ring suburban areas, benefits from an increasing population combined with a reluctance to increase housing supply. It's logical that under those circumstances, values would increase faster than inflation.
Lance,
ReplyDeleteThank you for all the money.
Anon said:
ReplyDelete"I get it. There's a bubble in the U.S. housing market (and Europe and Asia and Australia...) but that had no part in price increases in D.C. proper. This is the one area that was not impacted by the real estate mania gripping the world. It's different here!"
I guess you didn't read (or at least understand) what I wrote. There are major changes occuring in how the world does business ... It's called moving toward a "pan-global economy". Part of that change is that those cities and countries most expected to benefit from the changes become more valuable as human resources (and their monetary resources) flow to them. I don't think you'll find that housing prices went up 200% in Angola ... But they did in places like London, NYC, western European countries, etc. where the movers and shakers of this new pan-global economy are most likely to be found. There's a lot of new wealth being generated out there in this new pan-global economy, and it alone will push up the prices of housing in those places where those controlling that new wealth do business and/or reside. That is simple economics. BHs like to pretend that prices went up simply because some imaginary "real estate industrial complex" manipulated them. What they conveniently forget is that without the people actually having the wherewithal to pay these prices, the price rises wouldn't have happened. And no, I don't believe for one sec that the so-called "easy money" loans could account for all that wherewithal ... or even a substantial proportion of it. To put things in perspective, almost all second homes and investment properties purchased of late have been purchased for cash ... and not borrowed money. Again, to put things in perspective, 40% of all primary residences out there are paid for (i.e., they don't have a mortgage on them.) Yes, I'll concede that easy access to loan money will have had the effect of raising prices higher than they otherwise would have been, but I think it is unreasonable (and wishful thinking) on the part of BHs to attribute all (or even the bulk) of the very high increases in prices to this. I think it is more reasonable to ask yourself: "What is the effect of the "easy money" now being enjoyed by groups such as the traders in London who were estimated to have received a total of $17 Billion dollars in Christmas bonuses alone this year?" The economists posting here are quick to point out the effect of something like 12% of all loans in 2004 and 2005 being from subprime loans. Why aren't they mentioning the effects of a group of people having an extra $17 billion dollars to spend in one city alone ... among the many cities/countries benefiting from the pan-globalization of the economy? What are the trickle down and spin off effects of such great wealth accumulation? And more importantly, what are the ramifications in terms of the vast redistribution of wealth in terms of who owns what percent and what that will do to housing prices in "desireable" neighborhoods/cities/countries? Come on. I've heard so much about the effects of a few otherwise disadvantaged folks being given a chance to own their own homes and how that has inflated the price of homes for everyone else. How about focusing on how this massive redistribution of wealth between the haves and the have nots has affected prices by a magnitude far greater than what a few paltry subprime loans to people buying bottom-of-the rung homes could possibly do.
Lance said . . .
ReplyDeleteafter the herd mentality "a la bubblehead" has run its course . . .
ROTFLMBO . . .
herd mentality = bubblehead . . .
wow . . . just wow I don't know if there is anything I can say to respond to this insane thinking.
Herd mentality generally means those who just go by what everyone else tells them and they catch on to a good thing at the last second and propel it to the extreme. Considering that the VAST majority of people still believe that houses never goes down or "it will pop back up in a year" . . I doubt that BH are the herd.
No BH were the cast-off lone cow that saw greener grass . . a few more have come over but it is hardly a herd.
No lance. . herd mentality was 04-05, buy now or be priced out. . . housing prices being bid up and gone in days . . etc. That was the herd. Now when short selling becomes common, then we might have reached the other extreme.
I don't know it could get nasty . . .considering about 3 months ago there were only about 80 homes in foreclosure and now there are over 170+ in Prince William Co. (ala foreclosuredeals.com). This could get interesting.
Lance . . . what's the difference between "betting money on investments" and "betting" money that housing always goes up and taking out IO/ARMs-just to stretch to get that house . . . nothing . . well except that with a house you are HIGHLY LEVERAGED and stand to lose a lot more than "betting on investments"
The person who took out the 500k IO/ARM while making 80k is the herd who risked financial security for a house.
James said:
ReplyDelete"Lance, even if people here disagree with you, they should treat you with respect."
Ok ... Sorry if my last response to you was harsh. I should have phrased it in a way showing more respect for your views. I'll never agree with your decision to gamble with your home, but it's a free country after all.
Easy money leads to asset bubbles and easy debt- throughout history this is a known outcome.
ReplyDeleteTo all those who have said its 'different this time' have learned nothing.
caveat emptor said...
ReplyDeleteAll three major stock indexes were knocked down about 2 percent.
The great thing about overall stock market declines like this is that they bring down the good with the bad, thus creating buying opportunities.
While many sub-prime mortgage companies are shutting down, there are high-quality, well-diversified financial companies with earnings yields that are double the long bond yield.
To paraphrase Warren Buffett, be fearful when others are greedy, and greedy when others are fearful.
Looking at sale prices of homes in Fairfax County (since Jan 2007,) it appears that homes are selling for 100 times 2006 taxes. Is this a new rule of thumb for buyers?
ReplyDeleteLance said:
ReplyDelete"I don't think you'll find that housing prices went up 200% in Angola ..."
Depends on where in Angola. Angola is an oil rich country, where the cost of living is astronomical. Try to get into a fleabag hotel in Luanda and it will cost you about $300 a night. Angola is not a good example. It has experience a significant boom, one driven by the boom in oil prices.
anon said:
ReplyDelete"Depends on where in Angola. Angola is an oil rich country, where the cost of living is astronomical. Try to get into a fleabag hotel in Luanda and it will cost you about $300 a night. Angola is not a good example. It has experience a significant boom, one driven by the boom in oil prices."
But how can this be?!?! Is it not the same "fleabag hotel" it always was? (I.e., the owners haven't renovated it, have they?) How can they possibly expect to rent out the rooms there for more just because there has been an economic boom?!? Hasn't anyone told them that the BHs don't allow for any appreciation over "inflation plus 1%" UNLESS they do renovations? Ah, that's what happens when central command economies are no longer in vogue! Who would think that the "free market" should play a part in providing efficient allocations of limited lodging/housing facilities!?!?
;)
Lance said;
ReplyDelete"But how can this be?!?! Is it not the same "fleabag hotel" it always was? (I.e., the owners haven't renovated it, have they?) How can they possibly expect to rent out the rooms there for more just because there has been an economic boom?!? Hasn't anyone told them that the BHs don't allow for any appreciation over "inflation plus 1%" UNLESS they do renovations? Ah, that's what happens when central command economies are no longer in vogue! Who would think that the "free market" should play a part in providing efficient allocations of limited lodging/housing facilities!?!?
;)"
Stop laughing at your own jokes. As we all understand, I said the price rises resulted from the oil boom (and lack of hotels to meet demand).