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Bubble Meter is a national housing bubble blog dedicated to tracking the continuing decline of the housing bubble throughout the USA. It is a long and slow decline. Housing prices were simply unsustainable. National housing bubble coverage. Please join in the discussion.
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The best way to get the housing market thriving again is to drop prices to the point where supply equals demand. Home sellers might not like it, but it's good for buyers and it's great for Realtors.
For Realtors, the best way to make more money is to sell houses quickly, and the best way to sell houses quickly is to convince the seller to drop the price.
For Realtors, the best way to make more money is to sell houses quickly, and the best way to sell houses quickly is to convince the seller to drop the price.
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When will inflation-adjusted DC-area housing prices return to pre-bubble levels?
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Was subprime lending a cause or an effect of the housing bubble?
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- Rowhouses in Foggy Bottom
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The cover image on David Lereah’s soon to be released new book “All Real Estate Is Local” appears to be a dead end street. Fitting don’t you think?
ReplyDeletehttp://matrix.millersamuel.com/wp-content/3-2007/lereahlocal.jpg
You've got to get a picture of this up on your blog.
-John Fontain
From http://money.cnn.com/2007/03/09/news/economy/home_price_slump/index.htm?postversion=2007030911
ReplyDelete..."Celia Chen, director of housing economics for Moody's Economy.com, says she thinks it will take until 2009 for prices nationally to reach the peaks hit in 2005. Take inflation into account, she said, and a full recovery could take more than 7 years."
What the bubbleheads have and are saying.
The surge in sales and plunge in inventory continue:
ReplyDeletehttp://www.gcaar.com/statistics/2007-home-sales/dccc0207.pdf
Anon, interesting numbers. Sales do look up. Median prices are back down to 04 levels, having dropped 12% from 05 highs.
ReplyDeleteAnonymous said...
ReplyDelete"From http://money.cnn.com/2007/03/09/news/economy/home_price_slump/index.htm?postversion=2007030911
..."Celia Chen, director of housing economics for Moody's Economy.com, says she thinks it will take until 2009 for prices nationally to reach the peaks hit in 2005. Take inflation into account, she said, and a full recovery could take more than 7 years."
What the bubbleheads have and are saying."
NOT TRUE. This is revisionism. The bubbleheads have been saying "general recession which in turn causes prices to drop significantly." Prices have not dropped significantly (actually continuing to go up in many areas) and THERE HAS BEEN NO RECESSION.
Anonymous said: "The surge in sales and plunge in inventory continue:
ReplyDeletehttp://www.gcaar.com/statistics/2007-home-sales/dccc0207.pdf."
Don't forget the chart in the bottom right hand corner showing that median and average prices are down (probably "have plunged" in your vocabulary usage).
Slight increases month over month are flawed. Best Buy had a huge increase in Sales over December, it was called Christmas. Thats way you are suppose to look at Year over Year to elimate season changes.
ReplyDeleteYour "Shrinking" inventory is not looking at the Phantom inventory. All those houses that would not sell over the past few months that people pulled from the market to put back in spring are not accounted for. Not to mention the fact that they count cancelations do not get pulled from inventory.
Lance,
ReplyDeleteIf you honestly believe that you can really stick it to us Bubbleheads by going out and making an absolute fortune.
Go buy a house or three and buy a whole lot of Sub-Prime Morgage stock. It is REALLY low now but hay the markets going up right! People are going to need loans when this market gets its second wind. You will make a fortune that you can throw in all our Bubbleheaded faces.
Keep in touch I would really like to know how the investments turn out for you.
Oh, Lance. You are so touchy. Once again, you should read (for comprehension) before commenting.
ReplyDeleteI think the CNNMoney article is interesting. The main point of the article is that housing prices are not going to turn around quickly, which is certainly what I, and others on this blog, have been saying all along.
But what I found striking in this article is that even the most optimistic assessments are starting to agree with us. Check this out:
"I expect prices and sales to be modestly growing by June in most of the country," said David Lereah, the chief economist for the National Association of Realtors and perhaps the most bullish housing economist. "But we'll have to go into 2008, maybe even 2009 before we get even close to the peaks we saw in late 2005 or early 2006."
Now, if Lereah is saying 2008 or 2009, guaranteed it is going to be 2010 or 2011 at the earliest before that happens.
Lance, in response to your recession comment, there is actually some support in the article, but the analysis shows how your revisionist whining is entirely beside the point:
One bright spot, according to David Stiff, chief economist of Fiserv Lending Solutions, is that so far there hasn't been a recession or a downturn in the job market, as there was with past housing slumps.
"All previous downturns were caused by economic weakness. This one came about through overbuilding," said Stiff. But even Stiff says that controlled for inflation it could take three to four years to see price gains.
But Dean Baker, the co-director of the Center for Economic and Policy Research and a leading proponent of the theory that there has been a bubble in housing prices, says that he believes it could take five to seven years before prices get back to their highs on a nominal basis.
If prices are adjusted for inflation, he thinks that prices will never recover their recent highs.
"If you look at historical data, home prices have stayed pretty much flat in real terms, maybe being a few percentage points above inflation or income," he said. "That's why the run-up in prices the past eight years was so peculiar. And the run-up is what created the bubble."
So, Lance, it looks like you are a lone man defending your island. Problem is, at the island’s highest point, the water is already lapping at your arse.
But there can be redemption. C'mon, say it with me: "Everyone cannot afford a house that costs five times their annual income."
Please provide examples, Lance.
ReplyDeleteI know that I personally have been predicting 7-9 years (maybe more) peak to peak ever since the NAR released their report indicating that had been the typical real estate cycle on the east coast in recent decades...
National inventory has now broken 1 million homes.
ReplyDeleteWe had a bad year last year in RE and never broke that threshold. To think, its normal to have inventory gains from now until July...
Got popcorn?
Neil
ps
doubt we're in a recession? Look at what the airlines reported for February. OUCH! Usually they're a good real time indicator...
Did anyone else notice that this ad reads from the low 300's yet http://www.micacondos.com/ reads from the 200's?
ReplyDeleteThe sale doesn't start for another 7 hours and the prices are already dropping! I can't wait till they start offering 2 for 1 specials on condos... "Everything must go!"
"Slight increases month over month are flawed. Best Buy had a huge increase in Sales over December, it was called Christmas. Thats way you are suppose to look at Year over Year to elimate season changes.
ReplyDeleteYour "Shrinking" inventory is not looking at the Phantom inventory. All those houses that would not sell over the past few months that people pulled from the market to put back in spring are not accounted for. Not to mention the fact that they count cancelations do not get pulled from inventory."
It's not month over month increases. Sales are way up year over year, and inventory is unchanged to down year over year.
Sorry.
Prices are still above 2004 levels, but why let the facts get in the way.
ReplyDeleteLook, just as you were sure that surging inventory was a precursor to price drops a year and a half ago, you can be sure that shrinking inventory is a precursor to a return to normal price increases.
"Your "Shrinking" inventory is not looking at the Phantom inventory. All those houses that would not sell over the past few months that people pulled from the market to put back in spring are not accounted for. Not to mention the fact that they count cancelations do not get pulled from inventory."
ReplyDeleteTranslation: Oh please don't let it be true that the market has stabilized! I'll need to get a life if I don't have other people's misery to root for!!!
I would like to point out to all of you guys that the quality of construction of new condos and condo conversions is really cheap. The builders have focused on the cosmetics to lure the buyers in. I think this point has been way overlooked which brings me to the subject of how overpriced the units are. These two factors will end the condo boom or what is left of it.
ReplyDeleteIs this the end of the crab feasts?
ReplyDeleteI have to laugh at this pathetic attempt to create the illusion of scarcity. If you want to live in downtown Silver Spring, there are plenty of places to live, and in a few years, there will be even more.
A Redskins fan
What a great site...really justifies the internet. Learning from history--the early '90's (ancient history, right?), where commercial RE speculation was out of control, I've been leery ever since. Watching it come to residential RE is making me sick. Forget economists--look and listen. Middle of 2006, I overhear a NYC policeman tell his doctor (both talking about their problematic apartment building investments) that NYC condo buildings with "Sold" signs in the windows, are phony--developers have the signs moved around from window to window, to make it look like there's action.
ReplyDeleteHow is throwing up a million more units, planned for Coney Island, and WTC/Ground Zero, going to go ?
Do take a look at this creative bubble indicator (and a namesake to boot!)--usmarket.seekingalpha.com/article/22765.
And, yes, a like-minded economist--bigpicture.typepad.com/comments/2006/10/middle_class_sq.html.
Thanks again !
Condo inventories in DC are about to increase significantly with those large, overpriced, new-build condos in Mount Vernon Square. The buildings there will include 1,483 condos and 244 apartments. That's right -- 1,483 condos.
ReplyDeleteThe Sonata: 75
Madrigal Lofts: 259
The Dumont 401: 189
The Dumont 425: 370
Yale Steam: 149
City Vista L: 149
City Vista K: 292
TOTAL 1,483
Go to www.mvtriangle.com for more!
The fact that so many buildings that were sold out continue to sell, such as the Colombia, the Artisan, and others such as the Rhapsody are still selling, not to mention other new buildings is astonishing:
Union Row - The Flats
Senate Square
Allegro
Fennesy Lofts
Kenyon Square
555 Mass Ave (yuck)
The Matrix
The Metropole
Capitol Hill Tower (yuck x2)
Highland Park
Park Place
Logan Row
Logan Station
Lofts 11
The Moderno
The Whitman (ridiculous condo fees)
1010 Mass
Lofts of Columbia Heights
The Onyx
22 West
If you thinks there's a lot of condo inventory now prices about $400M plus for any attractive 1-bedroom unit, just wait a while and see.
Any guesses about what will happen to prices and how easy it will be to resell units you own at or near the prices at which the units are now priced (not including the undisclosed incentives)?
"Prices are still above 2004 levels, but why let the facts get in the way."
ReplyDeleteHey, I'm going by the pdf you attached. You can't use data from that source (rising sales) and then ignore the other data (prices back down to 2004 levels).
"Look, just as you were sure that surging inventory was a precursor to price drops a year and a half ago, you can be sure that shrinking inventory is a precursor to a return to normal price increases."
Sure, if inventory keeps shrinking, prices will stop falling...do you believe inventory will keep shrinking?
Anonymous said...
ReplyDelete"Is this the end of the crab feasts?
I have to laugh at this pathetic attempt to create the illusion of scarcity. If you want to live in downtown Silver Spring, there are plenty of places to live, and in a few years, there will be even more.
A Redskins fan"
I guess if you count the sidewalks and park benches, the possibilities are endless! Yep, the number of places to buy/live in over any given space of time is not fixed ... and therefore not subject to the laws of supply and demand. Keep telling yourself that Redskins. And btw, if you tap your heels together 3 times, you might even end up in Oz!
Anonymous said...
ReplyDelete“I would like to point out to all of you guys that the quality of construction of new condos and condo conversions is really cheap. The builders have focused on the cosmetics to lure the buyers in. I think this point has been way overlooked which brings me to the subject of how overpriced the units are. These two factors will end the condo boom or what is left of it.”
Same goes for new home construction. They installed all the eye candy, but with shoddy work. As the market drops, more folks are apt for a home inspection (no one is camping out on the lawns to place a bid). Now on top of the eye candy to compete with the granite counter tops next door, sellers will need to contend with the sub-standard work.
Lance said...
ReplyDelete“I guess if you count the sidewalks and park benches, the possibilities are endless! Yep, the number of places to buy/live in over any given space of time is not fixed ... and therefore not subject to the laws of supply and demand.”
Sounds like the ole’ “theyaren’tmakinganymoreland” spiel. That’s so 2004 “Lance”.
David,
ReplyDeleteI have lost your email address, so I hope you will read this. I have updated the graphs on my "Is there a housing bubble?" website.
The changes I have made are:
* Added data for 2006.
* Switched from annual to quarterly data.
* Replaced OFHEO HPI with the new S&P/Case-Shiller HPI as a data source.
The URL is:
http://www.jparsons.net/housingbubble/
Once again, Lance achieves unintended humor. That response to Redskin, combined with the previous two posts on the exploding 2007 inventory is chuckalicious.
ReplyDeleteDavid, did you intentionally hold back on the last publish just to "assist" Lance in looking foolish again?
David,
ReplyDeleteThere is a must-read article in the Wall Street Journal today entitled "Why Your Home Isn't the Investment You Think It Is." I'm a 25-year old financial analyst who has resisted the overtures of the house-owning zombies (who just want me to mortgage my future and lifestyle to keep their house prices high). This article encapsulates everything I have been preaching for two years.
The link is below, but its' a pay site.
http://online.wsj.com/article/SB117329581356629863.html?mod=hps_us_inside_today
I've done the math, and, based on the current difference between renting and owning, we'd all be far better off renting and investing our $10,000 per year savings from renting than owning a home.
I love your work. Keep it up. By the way, I'm highly insulted by Lereah's attempt to make light of your age, as if people below age 35 are cognitively impaired and don't have as much of a right to the American Dream as the next person. Replace your age with the N-word (an abhorrent term) or some other demeaning slur and see what would have happened. I wish someone would stand up for the rights of young people, sometimes.
eternitus said:
ReplyDelete"I love your work. Keep it up. By the way, I'm highly insulted by Lereah's attempt to make light of your age, as if people below age 35 are cognitively impaired and don't have as much of a right to the American Dream as the next person. Replace your age with the N-word (an abhorrent term) or some other demeaning slur and see what would have happened. I wish someone would stand up for the rights of young people, sometimes."
What is this sensitivity with the age thing!? I can remember being David's age and while I can remember thinking I knew a lot more than a lot of other people of any age, I also remember knowing that truth be told, there is no teacher like experience. Also, why do you think age has anything to do with your being denied a right to the American dream? Do you really think this is some kind of conspiracy or the like ... and not just the "market" working its magic on its own? If you really do, then you show credence to the fact that a lot of things are only learned with experience ... With one of those being that really isn't anyone in control of "the system" ... It's "the system" itelf that is in control .... and, in the end, things normally turn out okay ... There's nothing to worry about ...
Real Bob,
ReplyDeleteAgain, the number of properties with a subprime mortgage on them which are also in danger of default is well under 1% of the total of all houses/condos out there. You are quoting 2004 and 2005 mortgage intiations percentages as well as mortgages that are not "subprime" to arrive at your bogus and inflaming 40% figure.
Get your facts straight: ALT-A lenders are not subprime, and 12% of all houses/condos do NOT have subprime loans on them.
Your inflamatory 40% is bogus because it is not 40% of all houses/condos in the country as you are MISLEADINGLY insinuating. From your post, I can't even tell what it is 40% of ... Maybe 40% of the houses you looked at last summer? If you are going to post facts, post facts that mean something.
Well, it looks like the switch in many condos to rented apartments is having an effect on rents. I just got the letter listing the new possible rents for different terms and there is no change in the rent for a 12-month lease. After negotiating I should be able to change that into a small rent decrease. So much for rents catching up to those expensive loan payments plus condo fees..
ReplyDeleteLance,
ReplyDeletePlease read my (I hope) cogent defense to your comments. First, about the "magic" markets, I believe the devil is in the details, there...
First,
I'm not looking to pick a fight, but I am very sensitive about the age comment given the context in which it was used. I find it highly offensive, and, in this case, a simple ad hominem attack meant to obscure the debate.
What reason did Mr. Lereah have to bring [our] David's age into the conversation? I believe that to be fairly obvious... instead of addressing the argument at hand, he is attempting to undermine [our] David's credibility. I think 26 years is plenty of time to learn enough to have something meaningful to say - and if you'll pay attention, you might learn something from this 25-year old - I know that I have a lot to learn (we all do, really), but I'm willing to bet that I know a lot of things that you don't. We all have something meaningful to contribute. So let's just leave age out of it. An argument must be judged on its own merit... it doesn't matter who the author is. Again, I find the implications of Mr. Lereah's statement regarding age highly offensive, as it implies that I, and all of the doctors, lawyers and other professionals in my age-group(along with everyone else) are somehow unfit to comment. It's simply not true.
Second,
Believe me, through the last 7 years of my life (through college (Economics and Mathematics), and my professional experience (I believe experience is the best teacher, too!) in investment banking (formerly) and (currently) private equity), I have a thorough understanding of market dynamics, so I need no lectures in that regard. What I have come to know is that when markets become too distorted, people wind up getting hurt... badly. (A market is not "magic", it's just people buying and selling - and some people are smarter than others. Unlike the stock market, (and I'll sound cynical here) many of the housing market's participants are just ordinary folks who lack the wherewithal to make sound financial decisions, which, combined with a lack of liquidity, yields a market that may be horribly inefficient in the short-run) For more on efficient markets, I'd recommend Burton Malkiel's "A Random Walk Down Wall Street." I think you'll find that the housing market does not quite meet the criteria for an efficient (or magic, as you would put it) market. As evidence of the current distortion... while my wife and I have an excellent income (more than twice the U.S. median family income), we can only realistically afford, while still stretching somewhat, a "median" house. That tells me people are still paying way too much for houses.
While I agree that the markets will correct (in the long run), this process can take 5-10 years - that's about how long the "short-run" is here, where in stocks that is measured in days and months - ( and who really knows how long this correction will take, anyway? The preceding run-up has no precedent.) That 5-10 years translates to a huge cost to me in terms of equity I could have been building under a normal environment, so I do feel cheated and to an extent deprived of the American Dream... especially because I wasn't in a position to buy in 2002-3 (where my current income could have bought a very nice place indeed... So, you see, my age does have something to do with it...) In any case, working out, in the long-run, does not make me feel much better!
Third (This is it, I promise). It's naive to think that markets act in a vacuum. Mr. Lereah has been feeding information into the market that may not have been to everyone's benefit. When analyzing an argument, we must first analyze the arguer's motives. Mr. Lereah didn't address [our] David's point, that he is, in a manner of interpretation, a paid shill (as stated above, he tried to attack [our] David, the person, and not the argument). The folks who write Mr. Lereah's paycheck have a vested interest in seeing housing prices stay as high as possible, so those big, fat commissions remain big and fat. He has been the mouthpiece of their PR machine over the last few years (I would be too, if I were in his place, to be fair). However, we need look no further than his wallet to determine that the views he expresses are indeed biased.
Secondly, I believe a fair picture is not painted in the media, for the most part (though the Motley Fool and the Wall Street Journal have done a good job), and I'm sure pecuniary interests (ad dollars) are at play here as well (I can't blame them on this front, either). The ad dollars come from real estate agents, mortgage brokers, home builders and the like, who are harmed by bad publicity. Also, many people just don't want to hear that their house won't be worth a billion dollars in 10 years, or that they made a terrible decision in buying their house in December 2005. They want housing prices to remain sky-high as well, and keep trying to feed me the same dubious argument that I should buy at any price.
So, you see, there is a system... and it has grown over the years, as people have become more and more dependent on their "equity" to support their lifestyles...
Wow, that took forever to write. Good job if you made it that far. I apologize for any mistakes, but I had to do this between calls and other things while at work.
Lance said:
ReplyDelete"What the bubbleheads have and are saying."
NOT TRUE. This is revisionism. The bubbleheads have been saying "general recession which in turn causes prices to drop significantly." Prices have not dropped significantly (actually continuing to go up in many areas) and THERE HAS BEEN NO RECESSION."
Sorry it took me so long to respond, but that is only what a few bubbleheads have said. The gist of what BH's said remains: prices were so out of step with reality that prices were unsustainable. As the Washington real estate agent, Tom Murphy, said a while back about how it will end: either by in small hits or one big slap (my poor paraphrasing).
IMO the bubble was fueled by, all other things being equal, low interest rates, looser credit standards, exotic loans, liquidity from the internet bubble and true pent up demand for housing. In the end, a good run up in prices led some to believe that this was sustainable and you should get in and buy.
Call it what you like and say all bubbleheads say a recession is coming if you like. The most important recession in this discussion any way is a housing recession.
"Subprime mortgages make up less than one percent of all mortgages. " lance Feb 13 2007
ReplyDeleteHeh...
"You are quoting 2004 and 2005 mortgage intiations percentages as well as mortgages that are not "subprime" to arrive at your bogus and inflaming 40% figure."
That number is of course NOT bogus or "inflaming." That number demonstrates beyond a doubt that the subprime and Alt-a mortgage markets makes up over a third of the total mortgages originated last year and that the huge problems developing there will not be limited to just a handful of borrowers in the bottom few percent.
You are just upset because YOUR interest only loan is at best an Alt-A loan and you don't like the thought that these loans are now being seen as a major risk factor.
"From your post, I can't even tell what it is 40% of ... Maybe 40% of the houses you looked at last summer? If you are going to post facts, post facts that mean something."
Have you even been to college Lance? Or did you go to one of those computer networking trade schools?
You are obviously unable to carry on a discussion at the level the rest of us are if you can't see why it is of huge importance that 40% of the mortgages issued last year were in segments that are developing huge problems.
"I guess if you count the sidewalks and park benches, the possibilities are endless"
ReplyDeleteLance, come on. There are a zillion places to live in Silver Spring if you want to live in a condo or apartment. There is no scarcity, and there will be less soon, as more condos and apartments are being built and planned right now.
A Redskins fan
Lance said...
ReplyDelete“Again, the number of properties with a subprime mortgage on them which are also in danger of default is well under 1% of the total of all houses/condos out there. You are quoting 2004 and 2005 mortgage intiations percentages as well as mortgages that are not "subprime" to arrive at your bogus and inflaming 40% figure.
Get your facts straight: ALT-A lenders are not subprime, and 12% of all houses/condos do NOT have subprime loans on them.
Your inflamatory 40% is bogus because it is not 40% of all houses/condos in the country as you are MISLEADINGLY insinuating. From your post, I can't even tell what it is 40% of ... Maybe 40% of the houses you looked at last summer? If you are going to post facts, post facts that mean something.”
http://articles.moneycentral.msn.com/Investing/
ContrarianChronicles/NextTheRealEstateMarketFreeze.aspx
Next: The real estate market freeze
As a result of the collapse of the subprime mortgage market, lenders will -- gasp! -- once again require down payments, filling the market with unsold homes and driving down prices.
The unraveling of the housing market, the magic bullet that "fixed" our unraveled equity bubble, is the news. Slowly, the popular press is waking up to what I've been discussing for many months now.
Dropping like subprime flies
Essentially, the subprime mortgage industry -- which lends to consumers with credit issues -- is gone. Alt A lenders, those one rung up the ladder creditwise, will be next. Together, they comprise approximately 40% of the market. If you were to go down the list of what were once the top 25 subprime lenders, you'd see that only a handful are still standing at this point. The Office of the Comptroller of the Currency recently enacted rules that, in essence, require lenders who provide mortgages using federally guaranteed depositor funds to behave in a somewhat intelligent fashion. Subprime lender Fremont General (FMT, news, msgs), by its own admission, owes its demise in part to that rule change.
First post here.
ReplyDeleteI just have to address Lance's comments about the 40% versus 1% thing:
* Lance is correct in stating that the percentage of all homes out there that are on subprime loans at high risk of default is very small.
* Lance is incorrect in assuming that this means that the effect of the subprime market on home prices is also small.
Here's a couple bits of information. You can get the number of houses in Fairfax county, for example, here: http://www.fairfaxcounty.gov/demogrph/demrpts/hupd.pdf
Even if you only count single family homes, then you have 185,292 homes. Huge number. 1% of that (to use Lance's number) is 1,892. If you included townhomes and condos in that count, you're probably at around 2,000 or higher. The real number could be more or less than the 1% that Lance is claiming, I have no idea.
Check out the inventory for Fairfax county here:
http://askmerv.choice3realty.com/cat_fairfax_inventory.html
Inventory in Fairfax county was running at around 1000-3000 for most of the boom, and is now at around 5000. If those 2000 homes defaulted on their mortgages and went up for sale, that has a _significant_ effect on the inventory of homes for sale.
Likewise, if you looked over sales figures for the past 2 or 3 years and knew the statistics for how many homes sold that had subprime mortgages and then assumed that 10-20% of those would default, you'd also be looking at a number (probably also in the thousands) that's significant compared to the inventory of homes for sale.
It should be clear that its the homes _for sale_ that drive the price of the market, not _all_ the homes out there. Inventories of homes for sale are only 1-3% of all homes in the county at any point in time. If everyone in Fairfax county tried selling their homes all at the same time, prices would more than just "adjust"
Note: I'm not trying to use this to make any predictions. I just read Lance's comments about "all homes" too many times (examples: only 1% of "all homes" are subprimes in risk of default. remember that 40% of "all homes" are owned free and clear of a mortgage, etc.)
Eternitus,
ReplyDeleteI like your post and, believe it or not, agree with it. And please don't take this next comment badly, but I think when/if you look back at it 10 years from now, you'll realize you were at the first step of understanding that the system is bigger and stronger than any of its individual players. And with the hindsight of experience, you'll understand that no matter how valiant your youthful aspirations for wanting to right the wrong inherent in the system, that that is just not possible. Why? Because as you so rightly point out, there are interested parties on all side of it ... and those most affected now, will over time become those with the inherent interest in keeping the system as it is. Just like those with the resources, have the inherent interest in keeping things as they are now ... Yes, Lereah is paid to do what he does ... And David J. isn't. Why? Need I say more?
Anon said:
ReplyDelete"That number is of course NOT bogus or "inflaming." That number demonstrates beyond a doubt that the subprime and Alt-a mortgage markets makes up over a third of the total mortgages originated last year and that the huge problems developing there will not be limited to just a handful of borrowers in the bottom few percent."
My point was that the 40% is based on very bogus assumptions. (1) The estimated 12% of subprime loans out there thay MIGHT go belly up affects well under 1% of all existing homes out there in the country. That is beyond question. Start of with the fact that 50% of all existing homes don't even have a mortgage on them and you'll see how it is not possible for more than 1% of all existing homes in the country to be lost by its homeowners based on their defaulting on a subprime loan. (2) Alt-A loans, as the originial poster themselves pointed out, are "non-traditional" loans held by people with PERFECT credit. I.e., these are either ARM loans, or Interest Only loans, or 15 year loans, 10% down loans etc. ALL held by people with perfect credit histories. To assert that because they aren't your traditional 20% down and 30 years to pay loan that they are going to go into default requires a far far stretch of the imagination. It isn't credible. And even if it were, again, just because 30-something percent of loans issued in 2004 and 2005 were Alt-A, that does not mean that 30-something percent of all homes in the country have an Alt-A loan on them.
This 40% is either "numbers manipulation" at its finest ... or simply the result of some reporter with no financial background grasping a numbers to back up the bubble theory that the mainstream media picked up on sites like this one and has now disseminated everywhere. Either way, the 40% means nothing ... Zilch ...
"This 40% is either "numbers manipulation" at its finest ... or simply the result of some reporter with no financial background grasping a numbers to back up the bubble theory that the mainstream media picked up on sites like this one and has now disseminated everywhere. Either way, the 40% means nothing ... Zilch ... "
ReplyDeleteWow... sometimes I think you are just playing dumb, but then you put up posts like this that remove any doubt that your inability to grasp what is being discussed is no act.
The 40% number is the percentage of recent mortgages that fall into the sub prime or alt-a categories.
The reason that matters a great deal to the housing market is that the availability of those loans is RAPIDLY disappearing.
You keep trying to argue that relatively few homes will go into foreclosure, but the real story here is that with the availability of these loans disappearing, more than a third of the market will lose access to the loans that financed a large portion of the bubble.
The secondary story is the likelyhood of increased foreclosures, but you clearly don't understand the implications of that either...
I will try to make this as simple as possible, only a very small minority of the total houses in the area are for sale at any one time. If even 1% of those houses go into foreclosure and land on the market again at a steep discount, that will have a substantial effect on the market as a whole.
So yes, only a few percent of the total homes in the region are likely to be in any danger of going into foreclosure over the next year or two... but at the same time only a few percent of the total homes in the region are for sale anyways. You are describing a situation where potentially every 4th or 5th house for sale could be a foreclosure without understanding what that would mean for the market.
Forty Percenter Says:
ReplyDeleteHey, people,
Try to remember that approx. 40 % of the U.S. jobs post-stock crash (2000) have been tied to the REIC (stats that are out there, as well as empirically--forty percent of my relatives)...so people have speculated with their jobs on the job market as well, as David has illustrated...
...So, which sector turns to junk next to re-start the economy ?
real bob,
ReplyDeletedid you ever consider that the phd gave you the look he did because he didn't want to get into arguing with an idiot? i will say, he is definitely smarter than i am in that regard! btw, i have condos across the street selling for more a hundred grand more than what i paid for the rowhouse ... so i am doing fine ... real fine ... thank you. but you can keep wishing bad on others ... all you're doing is revealing your true colors!
The Real Bob said...
ReplyDelete“I work with 55 yr old phd's, brilliant men, considered world experts. It amazes me how little some of these people know about real estate and economics. I actually had one of them tell me that house prices never go down. I gave him the statistic for VA's 15% drop, he looked at me puzzled, and walked away. Age is mostly irrelevant.”
Same here Bob. The office chatter is just beginning to come to a murmur about DOM increases and rent not being able to cover mortgage as landlords have their ARM re-set. All are about 3-6 months behind on the news.
No one as of yet, has delved into the sub-prime/Alt-a market debacle. My guess is they’ll start to take note around May-June when fewer folks can get a mortgage.
Take inflation into account, she said, and a full recovery could take more than 7 years.
ReplyDeleteI have to agree with Lance here. This does not support our (the bubble believers) arguments at all. Stating this another way, she's saying inflation adjusted prices may be just as high in seven years as they are today.
In my eyes this might be one of the most optimistic statements around. Even in the best possible scenario for house owners (affordability increasing by slow price appreciation that is less than inflation), real prices will not reach these levels until the next bubble.
"btw, i have condos across the street selling for more a hundred grand more than what i paid for the rowhouse"
ReplyDeleteWhy don't you send a link to the assessment data for one of those sold condos? Please show us a condo that sold for $100,000 more than your row house. Because I think you are either lying or you confused the price the developer has on their construction with the actual price at which people will end up buying those condos.
Oh, lance, just in case you didn't know, here's the link to DC real estate assessments:
ReplyDeletehttps://www.taxpayerservicecenter.com/RP_Search.jsp?search_type=Assessment
So find a condo that recently went for more than your rowhouse.
Lance said...
ReplyDelete“real bob,
did you ever consider that the phd gave you the look he did because he didn't want to get into arguing with an idiot”
OK “Lance”, you’ve got to come through on this one.
Some PhD says “Real estate never goes down” and Bob points out the current decline. And Bob’s the idiot? What’s your train of thought here? If the PhD were to say “The moon is made of cream cheese” and Bob pointed out data that disagreed with that statement, who’s the idiot? What’s your criteria here?
Robert said:
ReplyDelete"Some PhD says “Real estate never goes down” and Bob points out the current decline. And Bob’s the idiot? What’s your train of thought here? If the PhD were to say “The moon is made of cream cheese” and Bob pointed out data that disagreed with that statement, who’s the idiot? What’s your criteria here?"
Ok ... let's see how I can explain this. The PhD says to you "I go through life with my eyes open" and you answer him "No you don't!" He gives you a strange look and then you turn to other Roberts in the room and say "What a dumbass that supposedly smart Phd is! Of course he doesn't go through life with his eyes open ... I saw him blink, didn't you?"
You see, the PhD understand the big picture and doesn't get sidetracked by the side issues that are not relevent. The PhD knows that he's talking about a longterm place to live and not a place to flip. The PhD is right in that he will come out of way ahead because "real estate never goes down" At least not if you are talking about buying a home.
Lance . . .
ReplyDeleteThe PhD is right in that he will come out of way ahead because "real estate never goes down" . . .
sometimes it seems like you are soooo blind, or maybe you just don't want to see b/c if you did see you'd be terrified.
Okay basic history, bubbles in real estate are NOT uncommon, it happens about every 15-20 years. Whether you call it a bubble, massive runup , etc it doesn't matter the effect is the same. Prices go way up, housing gets real expensive . . .market stalls, drops, and then drags for YEARS until it's primed to go up again.
On average over the past 100+ years real estate has gone at inflation plus ~1%. So yes over 100 years it always goes up. But try telling that to the poor sucker who bought at the peak of the boom in 1989-1990, or any other boom.
Sure if the poor guy was absolutely sure he was going to live there for 15+ years he prob. made out just barely okay. We are not talking about a place to flip, we are talking about a place to live. However, lives change, you thought you'd be there for 10, now your dad died and you need to move to take care of your mom after you bought 3 years ago. Sorry charlie, you just have to take a pretty good hit to get out before you can recoup buying at the top.
No, the poor PhD is the guy who thought it was such a good deal that everyone was buying, it never goes down, so he took out an IO/ARM to buy 8x his annual salary and is now watching the alligators chomping at his feet.
Considering that the comptroller of the US of A recently said . .
"The most serious threat to the United States is not someone hiding in a cave in Afghanistan or Pakistan. It's our own fiscal irresponsibility."
"We suffer from a fiscal cancer. It is growing within us. If we do not treat it, it can have catastrophic consequences for our country."
It's no surprise a PhD would get an F in basic economics. Ever see the commercials for Maxed Out?
Oh and comparing cities in the USA to London, Paris, etc. and housing prices is comparing apples to oranges. Sorry but the last time I looked we were different countries with different regulations/rules/methods of operations/economies/political systems/cultures, etc. To place them as if they should be equal is insulting to America and to say why complain it's sooo expense there . . .-well it should be easier to live here than anywhere else, b/c if you can't do it here than where can you? Unless you want us to turn into the rest of the world-heaven forbid.
Anon 8:30 said:
ReplyDelete"On average over the past 100+ years real estate has gone at inflation plus ~1%."
Your error here is that that 1% is the change in the median price of the average house. It is not the change of the "same" house. In most cases, individual and specific homes appreciate far more in value as the land they sit on gets more and more valuable as time goes on. Don't you wish your great great grandparents had had a farm on what is now Madison Avenue? As for your rant about comparing to overseas, you obviously don't have a clue what was being discussed since no comparison was made. And I'm not going to try to explain it to you what was being discussed since from your "response" I don't think you would stop to listen. No, you have your own ideas you are pursuing. Btw, you really should consider not hiding behind an "anonymous" posting name if you really want to be taken seriously.
Actually, without going into my own bona fides, I have a good friend who is a PhD economist who specializes in housing economics and is a real estate investor himself. He bought in DC (more than once) during 2001-2004, and then sold in DC in 2005.
ReplyDeleteKeith said...
ReplyDelete"Actually, without going into my own bona fides, I have a good friend who is a PhD economist who specializes in housing economics and is a real estate investor himself. He bought in DC (more than once) during 2001-2004, and then sold in DC in 2005."
Keith, your friend is a speculator. His experience has no relevance to what a homebuyer should be doing. Speculators and homebuyers have very different objectives. A speculator seeks to turn a quick profit. A homebuyer looks to buy a residence that satisfies the housing needs of him/herself and their family. A speculator times the purchase and sale of a property according to when the highest profit can be extracted. A homebuyer times the purchase and sale of a property according to his/her and their family's needs. Not the same beast ... and not relevant to whether homebuyers should have bought now, in 2001 or 2004 or whenever ...
Keith, I'll bet all my retirement funds that your economist's name doesn't begin with L.
ReplyDeleteMy wife and I were looking for a good laugh, so we walked over to MICA after running some errands to ask about pricing. The sales people apparently aren't very hungry... there were no signs in the lobby how to get to the sales office (it's on the 11th floor). After hunting for it with three other people for about 5 minutes, we gave up, but one of them mentioned 2BR units start in the $400K's! The place is a dump! The outside of the building hasn't been touched, and it looks like the whole first floor hasn't been converted/rennovated, not to mention that this is Silver Spring (not exactly D.C.; job prospects aren't hot here unless you work for NOAA or maybe the Discovery Channel).
ReplyDeleteMy wife and I were looking for a good laugh, so we walked over to MICA after running some errands to ask about pricing. The sales people apparently aren't very hungry... there were no signs in the lobby how to get to the sales office (it's on the 11th floor). After hunting for it with three other people for about 5 minutes, we gave up, but one of them mentioned 2BR units start in the $400K's! The place is a dump! The outside of the building hasn't been touched, and it looks like the whole first floor hasn't been converted/rennovated, not to mention that this is Silver Spring (not exactly D.C.; job prospects aren't hot here unless you work for NOAA or maybe the Discovery Channel).
ReplyDeleteOh, please. There's a clear sign on the front door instructing you where the sales office is located, and there are clear instructions about how to call them from the call box.
So you don't want to buy at the Mica, fine. But don't act all self-righteous because you think it's overpriced. It's unseemly.
"Keith, your friend is a speculator."
ReplyDeleteWell, no. Some of the buying and selling corresponded with life moves, but this last house he bought for what he thought was for good. But when prices got so high, he saw there as a bubble, and sold. I don't think he would advocate that under normal circumstances, but the 2005 bubble was a major opportunity for would-be sellers. That way, he not only had money in the bank, he also had geographic mobility, which is good for your career and job opportunities.
But he does also invest in real estate. But when he invests, he prefers properties that actually throw off enough rental income to justify their price. Hence, he doesn't invest in the DC area.
Well back to the original topic, what is the latest word on the market, specifically Silver Spring? I was thinking of buying a condo and will probably also look at MICA. I would be looking to hold on for 3-5 years, closer to 5 years.
ReplyDeleteI am looking to buy in the Silver Spring area. Any recent word on what is going with the market there? Whats the recent deal with MICA? I was looking to buy and sell about 5 years later.
ReplyDelete