Housing Bubble 2.0?

Discussion in 'Economics' started by Tsing Tao, May 29, 2013.

  1. Tsing Tao

    Tsing Tao


    US Housing Bubble II: Euphoria And Other Shenanigans
    Wolf Richter

    The good old days are back. Those days during the last housing bubble when money grew on trees: home prices jumped 10.9% year over year, according to the S&P Case-Shiller 20-city Home Price Index, based on data through March 2013. On a monthly basis, the index rose 1.2%. Prices are now back to 2003 levels. The usual suspects: Phoenix soared 22.5% year over year, San Francisco 22.2%, Las Vegas 20.6%. You can’t lose money in real estate. I’m already hearing it again.

    Flipping houses is back in vogue. People are jabbering about it on their cellphones while crossing streets without looking. Entire articles have been written about it, backed with reasonable-looking numbers, such as RealtyTrac’s “25 Markets Where Flipping Homes is Most Profitable.” The top three? Orlando, Las Vegas, and Phoenix. Visions of 2005!

    The smart money is once again running national radio ads on how-to-flip-houses shenanigans. Pull out your credit card, call that 800-number, and get rich quick. On NPR, an “economist” said this morning that the housing market was “on fire.” That’s the sort of hard “data” that puts real gloss on NPR’s perspicacious coverage of the US economy. And everybody fingers the “tight” inventory – as hundreds of thousands of vacant and for-sale homes have evaporated, and as bidding wars are breaking out over what’s left. Or so it seems.

    But vacant homes don’t evaporate. Private-equity funds have poured tens of billions into gobbling up vacant single-family homes in specific markets. And now some of them are planning IPOs as a way of dumping this stuff into funds that unsuspecting worker bees hold in their 401(k)s. It’s called an exit, and they have to do it before it blows up in their faces. Meanwhile, they’re hoping to rent out at least some of these vacant homes on their books, but vacancy rates of single-family homes are sky-high in these markets, with the stock of vacant homes having simply been moved from the for-sale list to the for-rent list where it languishes unnoticed by the gurus. That’s what free and unlimited money will do. I’ve hammered on this theme before.... Housing Bubble II: But This Time It’s Different.

    Euphoria even shows up in the numbers. The Conference Board Consumer Confidence Index rose in May to 76.2 up from 69.0 in April, the highest level since February 2008. Not everyone was euphoric. Which was why the index hasn’t hit the stratosphere yet. But those among the respondents who benefitted from the Fed’s money-printing binge and the bubbles it engendered in corporate bonds, farmland, housing, the stock markets, even junk bonds... they felt flush; and just like in 2006 or 2007, when “Merger Monday” had become a day of the week, they felt wise for having made smart decisions. Forgotten were the fiscal cliff – whatever that had been – the payroll-tax hike, and the sequester. For the lucky ones, these inconveniences were drowned out by euphoria.

    The Walmart crowd wasn’t so lucky, however, and if it hadn’t been for their presence, the index would have been soaring. So there were some hiccups: only 10.8% of the respondents thought that jobs were “plentiful”; while dismal, and a reminder of reality, it was up from an even more dismal 9.7% in April.

    Everybody loves bubbles. People either don’t remember the wealth destruction and wealth transfers that took place when the last bubble blew up, or they think they, but not others, can get out in time, whether it’s through an IPO, a quick stock sale, or a real estate transaction. Governments love bubbles because they generate a flood of tax revenues – and even California is having illusions of a surplus. Central banks, and specifically the Fed, create bubbles and then deny their existence until afterwards when they bail out their cronies that hadn’t been able to get out in time – while others are left holding the bag. It’s an amazing show, with fireworks, suspense, dramatic plot twists, and a rousing score. And we get to watch it over and over again.
  2. clacy


    I'm definitely seeing it in my area. Bidding wars, houses getting multiple offers in the first day or two of listing.

    I think there are lots of home owners that have wanted to sell for quite some time that are coming out of the wood work because the market is moving. That supply, along with rates inching up, should tame the market from moving into bubble territory.
  3. Here in MN also.

    Drove past 3 separate homes that were priced well on the first day they were listed, called Realtor on day 2 to setup a showing . He said , " sold with multiple offers" .

    feel like I'm competing with blackrock to buy a damn house.
  4. Some context of past....

    from circa 1895-1942 housing was in a bear market.

    We may have a long way to bottom yet.

    The FHA 3.5% down mortgage never really went away since the bubble popped so cheap money has still been available it is just that credit scores and documentation got stricter.\

    A real depression like de-leveraging is a 60-80% drop in value. IMO

    Speaking from a MN standpoint, most prices have seen a good 40% drop from the peak.

    OIl going from 145 to 35, now that is a de-leveraging

    Housing in a bounce for sure, but are you going to buy into it ??:) I'm now having some second thoughts.
  5. Bob111


    don't fight the fed. and fed said long time ago-buy a f** house.
    dunno about flipping. imo-it's a pretty bad idea regardless. because you have to pay too much money to various leaches during the process. about 10%? to buy and sell. you need at least 20% jump to make some money off it.i'm wrong? just buy some real estate ETF or something.
  6. Concerning being a landlord and inflation. You can really get screwed in some places that only allow you to raise rents once a year at the CPI rate. If we ever do get runaway inflation the landlords will take the hit in those areas.
  7. I think it's an "echo bubble" albeit with different bagholders this time around. At the end of the day, it is still predicated on dumping the junk on the unsuspecting idiot that doesn't know how to crunch the numbers.

    Simply put, there aren't enough qualified renters to fill all those vacant homes that have been bought in bulk. It's just another crisis we may (or may not) hear about in the coming months...once this hopium induced "everything is great again" mindset subsides.
  8. My neighbor Mr. Ricky said that housing was a great investment and that housing has never gone down.

    If I have $5,000 how big of a house can I buy?
  9. wartrace


    I can only comment on the Nashville area market. Median price last year 167,000 and this year 187,000. Median household income is 48,500. The median home price was overvalued last year using a 2.5X historical median income valuation and now they are really overpriced.

    Low interest rates are fueling this and maybe a family making the median income CAN afford the payments and everything will work out swell. Those that have a need to sell in the next 20 years might find out that they will not break even when interest rates return to the historical norm.
  10. hajimow


    Great vision.
    Many people are buying a house not because they can afford it. They buy it because they are SURE it will go up. I did the same thing in 2002. You will buy a house when you have a house and after 6 months they will tell you your house is valued 5% more and then you smile and after a year they tell you your house is valued 10% more and you feel more relaxed and confident but you don't want to sell your house because you are living there. After 6 months, economy goes down and you lose your job and you need to sell your house. You realize the house value is 20% below what you bought. You also have to pay 5% to realtor. You are forced to sell 25% below what you bought just 3 years later !!!!. You have to sell it because you are out of job and feel miserable.
    #10     May 30, 2013