National Home Prices Double Dip

[Samson]

I do not disagree with you at all. Another episode of Government trying to social engineer outcomes leading to unintended consequences. Which mostly involve screwing the average joe. That said, it was just a transfer of wealth .. to the politically connected.

Conspiracy Theory.

There is no "Transfer of Wealth." From where? To whom? What shell game was played?

No one REALLY lost anything, unless EVERYONE walks away from their house, and that's not gonna happen: You GOTTA LIVE SOMEWHERE, right?

Sure there's plenty of people who will use any excuse to run from their committment, but I don't think the critical mass of these will outweigh those that will say, "Yeah, this sucks, but it isn't the end of the world: I'll need to get another job; kids will need to work to get through school; we won't be flying to France for vacations."

Well, from the taxpayers to the underwriters. It was called TARP.

There was also a transfer of wealth from people who just wanted a home, to flippers. Come on, when the most popular cable TV show in America is called 'Flip This House', what do you think is going on? It is a classic bubble. The speculators that got out fast enough did just fine.

Absurd.

"Classic Bubble?"

There is nothing that has ever come close to this in comparison.

I think "Flip This House" is entertaining.

"Roots" was entertaining: It didn't Eliminate Racism.

The Superbowl is entertaining: Everyone doesn't play football

 

[percysunshine]

Hi,

I've been thinking about the housing thing today after the news broke, and I have a new goofy, uneducated, came-up-with-it-today, no formal training, theory...

Housing is now going through a "Reverse Bubble." (I looked this term up, since my brilliant mind came up with it, and apparently it is occasionally used by amateurs like me.)

Here's my theory: The population continues to expand - this is a mathematical certainty. But building new houses costs a LOT more than you can buy a "used" house now. Eventually, all these houses are going to be purchased, and then there will not be too many houses left. So we have to start building them. For like, double to triple to quadruple, etc... what we're used to paying. Suddenly, all the existing inventory is going to go through the roof.

I mean, I just bought a giant 6 bedroom brick house for $20,000 -- but I had to insure it for $750,000 because nobody could EVER even come CLOSE to rebuilding it for $20k.

So that's it. Very simplistic.

I wonder how long it will take?

Kevmo

You did what? A house only needs to be insured for the amount of money that is borrowed to purchase it.

I think your insurance agent is laughing right now.

 

[percysunshine]

Conspiracy Theory.

There is no "Transfer of Wealth." From where? To whom? What shell game was played?

No one REALLY lost anything, unless EVERYONE walks away from their house, and that's not gonna happen: You GOTTA LIVE SOMEWHERE, right?

Sure there's plenty of people who will use any excuse to run from their committment, but I don't think the critical mass of these will outweigh those that will say, "Yeah, this sucks, but it isn't the end of the world: I'll need to get another job; kids will need to work to get through school; we won't be flying to France for vacations."

Well, from the taxpayers to the underwriters. It was called TARP.

There was also a transfer of wealth from people who just wanted a home, to flippers. Come on, when the most popular cable TV show in America is called 'Flip This House', what do you think is going on? It is a classic bubble. The speculators that got out fast enough did just fine.

Absurd.

"Classic Bubble?"

There is nothing that has ever come close to this in comparison.

I think "Flip This House" is entertaining.

"Roots" was entertaining: It didn't Eliminate Racism.

The Superbowl is entertaining: Everyone doesn't play football

Well, believe what you want.

 

[Kevmo]

I mean, I just bought a giant 6 bedroom brick house for $20,000 -- but I had to insure it for $750,000 because nobody could EVER even come CLOSE to rebuilding it for $20k.

So that's it. Very simplistic.

I wonder how long it will take?

Kevmo

You did what? A house only needs to be insured for the amount of money that is borrowed to purchase it.

I think your insurance agent is laughing right now.

Well, I wish you were right Percy. I suppose I could be paying too much, but research has shown that a $20,000 insurance policy would cost about $50 / year. And if it burned down they'd say, "Ok, well, um. We could maybe rebuild the garage! -- but certainly not out of brick."

Kevmo

 

[Annie]

Hi,

I've been thinking about the housing thing today after the news broke, and I have a new goofy, uneducated, came-up-with-it-today, no formal training, theory...

Housing is now going through a "Reverse Bubble." (I looked this term up, since my brilliant mind came up with it, and apparently it is occasionally used by amateurs like me.)

Here's my theory: The population continues to expand - this is a mathematical certainty. But building new houses costs a LOT more than you can buy a "used" house now. Eventually, all these houses are going to be purchased, and then there will not be too many houses left. So we have to start building them. For like, double to triple to quadruple, etc... what we're used to paying. Suddenly, all the existing inventory is going to go through the roof.

I mean, I just bought a giant 6 bedroom brick house for $20,000 -- but I had to insure it for $750,000 because nobody could EVER even come CLOSE to rebuilding it for $20k.

So that's it. Very simplistic.

I wonder how long it will take?

Kevmo

You did what? A house only needs to be insured for the amount of money that is borrowed to purchase it.

I think your insurance agent is laughing right now.

Ummm, no laughter by insurance agent, nor would Kevmo be laughing if his home had a kitchen fire and he was insured for only $20k. Just think about that. You know, just think about costs of cabinets, flooring, appliances, and counters. Haven't addressed contents or smoke damage or paint.

For the $750k he is guaranteed rebuild of same structure and replacement costs of contents of same type. The later is the reason it's smart to videotape every couple of years the various rooms of your home-it's documentation for 'type' of goods. If lacking that documentation the insurance companies look at the type of home, ($750k is pretty upscale, even if bought for 20k), so they would rate furniture and reasonable assumption of decorating at the higher end. If the 'rebuild' value was $250k, they'd assume 'good-better' type of contents. First house, top Karastan for carpeting, Stiffle lights would not be ruled out. Second they would, without documentation of prior purchase.

Two years ago I had a toilet overflow from the tank. 2nd floor. It ran for about an hour or a bit less. Damage from that one incident was just over $30k. Walls in affected parts of 1st floor and basement had to come down to studs, all carpeting and flooring on 3 floors removed and replaced, bathroom vanities replaced. Decorating had to be done. My family had to be put up and fed in comparable housing for nearly a month and half.

The only laughter by an agent would be yours should you argue for a 'mortgage only' coverage of home; assuming you had a mortgage on $20k purchase which is unlikely. So genius, would you skip insurance without a mortgage?

 

[editec]

If you're simply satisfying a morgage holder, the amount of insurance you'll buy has to cover the mortgage amount.

If you're protecting yourself from catastrophic loss, you'll buy enough insurance to REBUILT.

Median homes prices are still out of line with median salaries.

AFAIC, that means home prices are apt to continue to stagnate or even fall.

Of course RE market values are still always still based on local factors rather than national factors.

 

[sparky]

Unless a fiat system completely looses the confidence of it's participants and folds (which has historically been the case since fiat's have been around) wealth , much like energy, cannot be destroyed.

It can, imho, be manipulated , or assume other forms of value


sorts that chart such economic trends abound>


http://www.bepress.com/bejm/advances/vol5/iss1/art1/

We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods during the past 25 years and a panel of U.S. states observed quarterly during the 1980s and 1990s. We impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating consumption to income and wealth measures. We find a statistically significant and rather large effect of housing wealth upon household consumption.


which invokes further study into the specific fiscals that apply>




The CDO played a pivotal role in financing the housing bubble that peaked in the U.S. during 2006. The CDO provided a key link between the global pool of fixed income investor capital and the U.S. housing market. In a Peabody Award winning program, NPR correspondents argued that a "Giant Pool of Money" (represented by $70 trillion in worldwide fixed income investments) sought higher yields than those offered by U.S. Treasury bonds early in the decade. Further, this pool of money had roughly doubled in size from 2000 to 2007, yet the supply of relatively safe, income generating investments had not grown as fast.


This trend has limited the mortgage credit that is available to homeowners. CDOs purchased much of the riskier portions of mortgage bonds, helping to support issuance of nearly $1 trillion in mortgage bonds in 2006 alone. Rating agencies were strongly criticized by regulators and other experts, including economist Joseph Stiglitz, for their role in enabling the origination of enormous amounts of low-quality debt packaged in CDOs with erroneous, high-quality credit ratings

Collateralized debt obligation - Wikipedia, the free encyclopedia

 

[007]

Two observations from the graph: it doesn't look like housing cost are done correcting; it would have been impossible to look at that chart before the crash and not see a bubble.

Seems that way but predicting the future is a lot easier than being proven right. It's a lot safer to say that when prices plunged that way in the past they kept going down and then leveled for a few years before coming back up. Sure, there's no law that says it has to be that way, it's just a lot easier to believe that what's happened before is going to happen again, rather to believe that this time is different.

"prices plunged that way in the past??"

The point of the thread is that prices for homes have NEVER plunged anything like this in the past.

We are in Uncharted Water with Gilligan at the Helm.

... and the Minnow will be lost.

 

[Toro]

Conspiracy Theory.

There is no "Transfer of Wealth." From where? To whom? What shell game was played?

No one REALLY lost anything, unless EVERYONE walks away from their house, and that's not gonna happen: You GOTTA LIVE SOMEWHERE, right?

Sure there's plenty of people who will use any excuse to run from their committment, but I don't think the critical mass of these will outweigh those that will say, "Yeah, this sucks, but it isn't the end of the world: I'll need to get another job; kids will need to work to get through school; we won't be flying to France for vacations."

Well, from the taxpayers to the underwriters. It was called TARP.

There was also a transfer of wealth from people who just wanted a home, to flippers. Come on, when the most popular cable TV show in America is called 'Flip This House', what do you think is going on? It is a classic bubble. The speculators that got out fast enough did just fine.

Absurd.

"Classic Bubble?"

There is nothing that has ever come close to this in comparison.

I think "Flip This House" is entertaining.

"Roots" was entertaining: It didn't Eliminate Racism.

The Superbowl is entertaining: Everyone doesn't play football

It is a classic bubble. This has happened around the world before. It also happened during the tech bubble but it manifested itself through the stock market instead of the housing market.

Bubbles mis-allocate resources. Someone wrote earlier that nothing was gained, nothing was destroyed. I disagree. Bubbles create excess capacity, i.e. too many homes. In bubbles, capital gets sucked into unproductive activity, and the returns on marginal capital fall below the cost of capital. This destroys wealth as capital gets destroyed.

Generally, in the aftermath of bubbles, asset prices do not fall from extremely over-valued to fair value. They usually fall to under-valued, sometimes dramatically so. This is no different.

However, there are signs that the housing market is either bottoming or close to a bottom. In some areas, you are starting to see bidding wars for homes. Home prices to rent in some places have become very low, and other gauges of affordability are at all time records of affordability. In the worst markets, it appears that homes have bottomed. In other, class A markets, prices are picking up. The decline in home prices seems to be occurring in places where there was a delay in price declines, such as Minneapolis and Seattle.

 

[expat_panama]

...this is not the traditional graph I looked at it again this graph is probably adjusted for sq. footage differences and amenities which the original graph wasn't. 1896-1923 was the period in which the transition was made from full frame to nationwide balloon frame...

Your having a link would be a big help. What your saying makes sense to me at first glance but the data we're looking at says it didn't happen that way. There are lots of things happening that don't appear to make sense and as you've probably noticed too many clowns on these threads suffer from bloated egos that overwhelm their desire to connect with reality.

Please work with me on this. You say there was a '20's housing bubble. The facts we have say there wasn't. Our continuing to look for more information doesn't change the reality indicated by the facts we have.

 

[expat_panama]

...my predictions:

Middle Class

Category A: The generation that bought first homes 2000-2008 will be immobile.

Category B: The generations that could buy homes after 2008 will instead rent (probably from the first category).

Like I said to Doc, making predictions is so much easier than being prepared for what most people don't expect. We've seen that the home price drop since '05 is the biggest ever. Before we say how far it's going to continue we need to look at whether it's dropping now:

Both home prices and number sold are up from where they were several months ago.

 

[Samson]

making predictions is so much easier than being prepared for what most people don't expect.

How can anyone be prepared for the unexpected without making predictions?

 

[Samson]

Well, from the taxpayers to the underwriters. It was called TARP.

There was also a transfer of wealth from people who just wanted a home, to flippers. Come on, when the most popular cable TV show in America is called 'Flip This House', what do you think is going on? It is a classic bubble. The speculators that got out fast enough did just fine.

Absurd.

"Classic Bubble?"

There is nothing that has ever come close to this in comparison.

I think "Flip This House" is entertaining.

"Roots" was entertaining: It didn't Eliminate Racism.

The Superbowl is entertaining: Everyone doesn't play football

It is a classic bubble. This has happened around the world before. It also happened during the tech bubble but it manifested itself through the stock market instead of the housing market.

Classic = It's happened before.

This has never happened before in housing.

Therefore there's no precedent.

Whether or not it has happened before with OTHER goods or services (Tulips) is immaterial. No parallel can be drawn between a "Tulip bubble," or "tech bubble" and "housing bubble."

However, it does make for great pundentry.

 

[editec]

Well the tech bubble and the housing bubble actually are rather sumilar.

Animal SPIRITS and cheap money were at the root of both of them.

Not the whole story, of course, but the whole story would take thousand of pages of detail to fully describe.

 

[Toro]

Absurd.

"Classic Bubble?"

There is nothing that has ever come close to this in comparison.

I think "Flip This House" is entertaining.

"Roots" was entertaining: It didn't Eliminate Racism.

The Superbowl is entertaining: Everyone doesn't play football

It is a classic bubble. This has happened around the world before. It also happened during the tech bubble but it manifested itself through the stock market instead of the housing market.

Classic = It's happened before.

This has never happened before in housing.

Therefore there's no precedent.

Whether or not it has happened before with OTHER goods or services (Tulips) is immaterial. No parallel can be drawn between a "Tulip bubble," or "tech bubble" and "housing bubble."

However, it does make for great pundentry.

Yes it has happened before. It just hasn't happened here on such a widespread scale. Rogoff and Reinhardt cited 15 housing bubbles in developing countries over the past 70 years. Most recently, Sweden had a housing bubble in the 1990s. In pockets of this country, there was a housing bubble in the 90s also. It just wasn't national. R&R also detailed how economies recover after the bubble collapses, and this recovery is right on script. They also detail 60+ bubbles since WWII if you include emerging markets.

Kindelberger had done extensive work on how bubbles operate as has Minsky. They are all very similar. There is an acceleration in credit, there is widespread euphoria, and there is usually a shock, one that is often external that can dramatically affect the system.

Asset bubbles are just a manifestation of human behavior. And human behavior doesn't change.

 

[expat_panama]

...How can anyone be prepared for the unexpected without making predictions?

Making predictions is easy, and while it's necessary it's not sufficient for preparing for things others don't expect. The predictions also have to be anchored in reality enough to ensure that more often than not the predictions actually come to pass. That part's hard.

 

[william the wie]

...this is not the traditional graph I looked at it again this graph is probably adjusted for sq. footage differences and amenities which the original graph wasn't. 1896-1923 was the period in which the transition was made from full frame to nationwide balloon frame...

Your having a link would be a big help. What your saying makes sense to me at first glance but the data we're looking at says it didn't happen that way. There are lots of things happening that don't appear to make sense and as you've probably noticed too many clowns on these threads suffer from bloated egos that overwhelm their desire to connect with reality.

The quick check would be to use search: case-shiller; housing prices. third from right at the top of the screen. Just click and get buried in information, charts and whatnot quick.

Please work with me on this. You say there was a '20's housing bubble. The facts we have say there wasn't. Our continuing to look for more information doesn't change the reality indicated by the facts we have.

Bubble formation does not necessarily correlate with unit price, just look at computers and cell phones. Real estate (or stock or bond or precious metal) bubbles are formed by declining production costs pumping demand. In the 1920s the production costs that fell were actual construction costs in the 90s and oughts the costs of financing fell. The rated tranche CDO developed by Fink and Raneiri in the 1980s ran wild until the development of the standard CDS synthetic CDO was created in the first half of 2005 by a consortium of bankers. This enabled the sale of AAA insured bonds on anything including RTO leases, pawn shop receivables and other things besides houses but that was not the bubble nor housing prices. That reduced the costs of funds lent by huge amounts. The creation of the shadow banking system of money markets, hedge funds and other investment vehicles

The bubble was nearly 70% homeownership as opposed to the traditional 40-50% that has been pretty standard forever. For homeownership to make sense the house must be held a minimum of five years make back the transaction costs of buying and selling of 10-15%: brokerage, escrow, finance, inspection and appraisal costs mostly. The percentage of people who can reasonably expect to meet those conditions are now a whole lot less than the traditional 40-50% of the population due to changes in the economy since 1900.

 

[Samson]

The predictions also have to be anchored in reality enough to ensure that more often than not the predictions actually come to pass. That part's hard.

REALLY.

So, being prepared for the unexpected means expecting the expected.

Thanks.

 

[uscitizen]

The predictions also have to be anchored in reality enough to ensure that more often than not the predictions actually come to pass. That part's hard.

REALLY.

So, being prepared for the unexpected means expecting the expected.

Thanks.

Umm if you realize something is coming it is not unexpected to you anyway.

 

[Samson]

The predictions also have to be anchored in reality enough to ensure that more often than not the predictions actually come to pass. That part's hard.

REALLY.

So, being prepared for the unexpected means expecting the expected.

Thanks.

Umm if you realize something is coming it is not unexpected to you anyway.