Housing - no way near a bottom

We all know it depends on supply and demand. And that depends on jobs and availability of credit. I was simply commenting on the incredible availability of credit in a deficit-ridden debtor country.

There is only a tentative relationship between the indomitable American spirit and the stupidity of paying $700,000 for a $400,000 house.

 

It's $292 / sq ft...

Sounds absurd to some of you non-townies, I'm sure...

But it actually sounds cheap to me, at least in this neck of the woods..

 

Also, if you plan on staying in the area for 20-30 years, it shouldn't make much a difference where housing prices go.....

if a 700K house goes to 350, then the 1.4 mill house will go to 700K..
and if you are making the kablinky, it's all good...

 

LOL! So does that mean that if I don't throw in the towel, there will be no bottom? Free houses for everyone!

Just two comments:

1. If you think I'm a "cheerleader", then at least know that I'm a conditional cheerleader. I'm bullish on real estate if its done intelligently. All my posts reflect that. My position isn't so much that "its not bad", as it is "its not as bad as they make it out to be and there is good reason to think it can end soon".

2. 1929? Japan? Come on. Even if you believe we are in for a severe retracement comparing these borders on the ridiculous and robs you of your credibility. Some of what you say has merit, but the world economy is strong, U.S. consumer sentiment is up, interest rates are down, the dollar is cheap, home ownership is near an all time high and foreclosures are *still* historically low. These are facts, and they are not the key ingredients of the disasters you mention.

SM

 

Actually, I think this supports his point that it's going to be awhile before it's over.

 

SM, for me the key is the trend, which still appears to be down. The stats you cited in your post, which, along with good ol’ demographics, have been used by optimists for months (years?) in an attempt to support their hope that everything’s gonna be alright. The problem is that the stats you cite are:

1. Distorted in order to make the government look good either by misinterpreting data (e.g., the birth/death model in employment reports); disregarding data (people who have supposedly “left the workforce” - employment stats again) or by simply ignoring or improperly weighting components (CPI).

2. Are probably irrelevant. What does consumer confidence mean when it comes to housing? Are people saying to themselves, “I feel confident, let’s go buy an overpriced house!” No, they’re starting to express classic deflationary psychology, which is, “If we wait, the price will be lower six months from now.”

3. So the dollar is weak? How does that translate into buyers for housing? Doesn’t a weak dollar mean the rest of the world thinks our economy sucks because our politicians are funding a war and buying the votes of morons with borrowed money?

4. You’re equating what I believe was the largest debt fueled buying binge in history with a strong world economy. They’re not the same thing, but I suppose some economic data might imply it is. Ooops, well, see #1.

5. In the past and do not reflect current conditions. What economists NEVER anticipate are dramatic changes in people’s behavior to compensate for new economic realities. The fools simply look back at the last few months of data and project it into the immediate future. SM, show me just one time a consensus of economists actually forecast a change in trend early enough for it to be useful? Name just ONE! What you’ll discover is they haven’t, but they’re very good at saying, “No one could have seen THIS coming!” The bastards are worse than preachers. At least we already know religious “leaders” have no better freakin’ idea than we do what they’re talking about.

SM, more and more houses are coming on the market for sale almost everywhere in the country. They are competing with reduced pricing from builders, who in many markets are STILL building out their “pipeline” (more supply). No one will loan to marginal buyers, so they’re out (less demand). Banks are trying to liquidate REO for what they can get (more supply). Buyers are starting to wait for lower prices (less demand). Pretty much everyone who wanted a house, bought a house in the last couple years (less demand).

Interest rates are low? Sure, but here's the thing. Most everyone is in debt so far they can't afford to make another monthy payment on a new truck, boat, or plane. You can lower their interest rate to zero (and automakers have) but they still can't force people to buy. There goes the last prop under the economy. (Funny, no economists are forecasting this one, either.)

Finally, just because a forecast appears radical doesn’t mean it isn’t correct.

 

You think we are heading into a deflationary spiral?
Or just a real estate deflation?

 

last weekend overheard a commercial on the radio.

a developer in Florida is selling condos and will lease your condo from you for the next 3 years if it is not rented.

this information tells me that a cost of that condo is at least (36 payments x interest only) less.

 

I have always wondered what property prices did in Hiroshima

From say 1929 till today?

 

A fair and balanced response deserves a fair and honest answer. I'll hit them one by one.

1. These stats have always had the same bias. The government has always been under pressure to show the same thing. There is some merit to the way unemployment is reported and how they don't track people who have "fallen off the radar", but those people are a small percentage, and intuitively, you do agree that its pretty easy to get a job, right?

2. When consumers are confident, they spend. When people spend, businesses hire and compete for good workers. And when that happens, there is money to buy housing instead of rent. This is why the depression post-1929 was so bad.

3. When the dollar is weak, foriegners can buy our housing cheaper relative to their currency. This is already happening on upper echelon properties in some coastal areas. But also, when the dollar is weak, it takes more money to buy the land, materials and labor to make new houses, and thi makes the existing houses worth more dollars as a substitute.

4. The U.S. debt fueled buying binge devalues our currency since we have a fiat money supply. This creates the condition outlined in #3. If our dollar hadn't devalued so much, I'd be much more inclined to say that the pendulum should swing the other way (falling housing prices) as fast as they rose, but IMHO, the dollar eroded and it justifies the number of dollars used for the purchases. Yes, condo flippers and Californians who paid way too much will still get burned, but I believe most housing prices won't retrench much.

5. I agree with you. That is part of my beef. I'm not saying things are rosy, but I don't believe they are as bad as they are being reported. When you read articles about the foreclosure rate in the newspaper, they compare the foreclosure rate today to the rate last quarter. But if you look at the statistics, the foreclosure rate is about 0.7% right now and 1% is more typical. Home ownership is very very high historically, so looking at losses that have occurred recently is a fallicy (fallicious?) because of how great things were...any bozo could buy a house, and now we're moving back to an era where only the responsible can. Its irresponsible to enter into multiple condo contracts or to buy a shack at any price because its 2 miles from the Pacific Ocean. So far, there is no indication that things aren't moving to where they normally are.

SM