Housing - no way near a bottom

House prices are always a function of Government money pump and inflation. Of course they go up [in the long run], but in devalued units of currency.

In the short run, however, the real estate market can be brutal for leveraged buyers [which is almost everybody]. When Japan's RE market was at its low, I read where commercial values had declined >90% from peak.

 

while it might not be the bottom..I am seeing some really good deals from aggressive sellers in my area ( they might not be good deals in a year when prices perhaps are lower )...houses that went for 550k 2 years ago and sold 3 times in 2 months are now being sold for 350k and took 2 years to sell ( meaning it is a buyers market with alot more choices and time to figure what to do). Before you didnt have much inventory and or time to think you just had to buy high and sell higher .... what this means to me is, if you make a good purchase you will make money.....

 

PohPoh, a deflation in everything. I know this is very much a contrary opinion, but I think history is on my side. Debt bubbles resolve with deflation.

If the government tries to inflate, the bond market will see this and totally break down. At that point, they won't be able to sell their OWN debt except at higher and higher interest rates.

That said, when the deflation gets painful enough and the politicians are forced to “do something!” by an angry electorate, they’ll probably adopt a populist “screw the rich bondholders” approach. Over a weekend all the outstanding t-bills, notes and bonds become 50 year zero coupon bonds. THEN, they can inflate like mad.

Impossible? Well, never underestimate the power of the economic illiterates who represent the common idiot voter. The fact we have minimum wage laws is enough to tell anyone watching that idiots are in charge. The fact they have broad support also tells you idiots are voting for them.

 

SM, the main reason I'm bearish is that the trend is down. I know, too easy, but as you've no doubt read on ET and elsewhere, usually that's the right answer. In addition, I don't see the huge debt overhang we have being easily erased without a lot of painful liquidation. That means lower prices. With regard to your points:

Easy to get a job? Sure, if you want one in the service industry or selling real estate (grin). This ties to consumer confidence, which I think will start to plunge as more and more people are forced to retrench. The spending binge we've seen the past few years has emanated from people ringing the home equity cash machine, and I think those days are gone.

With regard to offshore investors buying due to the weak dollar, I have a contrary view there, too. In almost all cases, by the time foreign investors "discover" a great "deal" offshore, the move is usually over or nearly so. They tend to be the last suckers on board.

I think the dollar has made an intermediate term low. Just look at the bearishness! This is a pure contrarian play. Why should the dollar rally? Beats me. What I do know is it's valued against all the other shitty paper money out there so anything can happen. I'm sure the bastard economists will be able to explain it all as usual, AFTER the trend change becomes obvious.

I think the looming disaster is being masked by the amount of time it DOES take for it to become obvious. There was a LOT of inertia in RE built up over decades. Like a large ship, it doesn't turn on a dime. In my view, though, it IS turning, and from north to south. Again, the trend, my friend.

The preoccupation with reasons is something people, (including me), seem to be unable to resist, but the real reasons are only clear after the fact - rarely before. For me, the only "reason" I needed was the ability to recognize the extreme sentiment conditions always accompany major tops and bottoms. In 2005, we were there in RE. At the time, the news was uniformly bullish. Of course, at the time, that's also the only thing people wanted to hear, so the media delivered.

Another reason I don't think we're at a low is many folks, including posters on ET, already think there are "opportunities" here and there. At the real bottom, the sentiment will be so gloomy virtually no one will recommend buying RE, and those who do will be ridiculed, just like RE bears have been since the top. That's fine, it's just how things work.

I remember how precious metals collapsed after universal bullishness reigned in 1980. Near the top I needed some money so I took five rolls of silver dimes I had and sold them for a $1 each at a local coin shop. My motivation was to get some cash, but it also gave me my first experience of selling at the top of a mania. I still get a warm, fuzzy feeling when I think about that "trade". As I watched the metals come way down in price, it made me start looking at things in a different way. Then came 1982. T-bills paid 8% and the DJIA was way below 1,000. "You'd have to be NUTS to buy stocks!" was the common belief. "You can make 8% risk-free!" You know the rest. Sure wish I had some money back then.

Best regards, SM, I appreciate the thoughtful discussion. Sure wish we saw more of it on ET.

 

Loads of S&Ls went belly up, the government bailed out the industry to the tune of over $500 billion. The stocks got raped. Sentiment was very bearish in the early 90s. So that's most of the preconditions that occured before it was good to buy again.

The difference this time is that the bubble sectors are even more overstretched than in 1990. In 1989 you could easily get a mortgage, but you still had to put down a deposit. As Jim Rogers recently pointed out, in 2005-06, homebuilders would give YOU a deposit for "buying" one of their homes. That is a pretty unique situation in the history of real estate markets, and indicates that the aftermath will be even worse this time, in the bubble areas.

 

So you're calling the bottom, just like Abbey Cohen and Joe Battipaglia in late 2000 and 2001. That's what permabulls do, they stay bullish until the end is nigh, then finally throw in the towel. So, your bullishness just tells me there's a long way further down for prices to sink.

In an effort to save you from losing money, I will just ask you this - since you were wrong last year when you said everything is fine, do you not think that perhaps you might be wrong again to say that it's time to buy now?

 

Actually I was comparing like with like - I was citing previous real estate busts, not stock market busts.

Interest rates and wages/employment are usually the main drivers of RE prices, I agree, although there are other factors. The reason this time is different is because a large portion of demand came from pure speculation based on incredibly lax lending standards. If people could get $1million+ portfolio loans with *nothing down*, and even in some cases getting cashbacks for buying, then their demand for real estate literally had nothing to do with income, employment, wages, or anything else. It was driven purely by their speculative excess, and lax lending standards of the creditors. There is a blog by a 20something unemployed guy who bought over 2 million in real estate with no income or deposit at all, in fact he was given 50k on closing.

So, traditional analyses based on normal lending standards which require deposits & proof of income, are not really applicable as much in the areas badly affected by speculation and loose lending. There the marginal buyers (speculators who can't hold on) will be foreclosed and sold out, and the only big buyers are going to be genuine value investors or first-time buyers. Neither segment is going to pay anything like today's prices, especially since lending will be tightened significantly in the aftermath of this crash.

Also, remember that we have only seen subprime fallout so far. Just wait until it spreads to the main banking sector.

 

The US economy was strong in 1929. Japan's was strong in 1989. I don't think the whole US housing market will suffer that fate, because it did not have the crazy levels of speculation and overvaluation circa Japan 1989, and it won't have the crazy hard left policies of the 1930s.

However, the speculation in places like Florida and California seems comparable with that in London circa 1989/1990, or Hong Kong 1996-97. Actually it may be higher since this time deposits became optional. Prices went down anything from 25-50% in those real estate busts, so I can certainly see that happening again.

 

when did i ever say things were "fine"?

 

"another 5-10% down and thats it especially in desirable areas"

Looked like a bottom call to me.