Steve, you get a very different take than I do about Roach's comments. I see carefully worded plain English, all of Steven Roach's commentary is like that. His contrarian economist commentary is excellent, insightful, and gives contrast and balance to whitewash economists like NAHB's David Seiders. I doubt Roach will be "gone by the end of the year". And please show me a link that shows him "calling a top for years". As for your comment about shorting the homebuilders...who said anything about that??? Since you signed a quote at the end of your post the other day, I have one as well. We all make our own choices...OWP "You have brains in your head. You have feet in your shoes You can steer yourself any direction you choose. You're on your own. And you know what you know. And YOU are the guy who'll decide where to go." Dr. Seuss Oh, and here are some other people that "just don't understand the real estate market", perhaps you can straighten them out as well. UCLA forecast warns boom is unsustainable By Mike Freeman UNION-TRIBUNE STAFF WRITER June 21, 2005 A prominent economic forecast released today stepped up warnings that the housing market is overheated and due for a correction. The University of California Los Angeles Anderson Forecast, which has been bearish on the housing market for a couple of years, warned that the market is at risk, largely because of the breakneck pace of price gains. "There is no reason a house should be worth 40 percent more today than it was two years ago," said UCLA economist Christopher Thornberg, co-author of the report. "And this housing market is heated far beyond the point of sustainability." The quarterly Anderson Forecast, a widely read prediction of state and national economic conditions, said the housing boom has helped drive the U.S. economy, creating jobs and fueling consumer spending. But the future of housing looks dim, according to the economists who produced the forecast. They portrayed housing as so top heavy with appreciation and investment that it could topple, dragging the overall economy down with it. The chairman of the Federal Reserve, Alan Greenspan, also expressed concern about the housing market this spring. While he said a nationwide housing bubble is unlikely, he did think the housing market had become "frothy" in some regions. Despite the warnings, the housing market has continued to soar. In the first quarter, housing starts nationally were on pace to reach 2 million in 2005. Last week, KB Home, one of the nation's largest home builders, reported a 78 percent rise in profits for the second quarter. The company said demand in its major markets broke its record for new orders in a single quarter. The UCLA economists say that level of building is not sustainable given population growth. They predict housing starts will begin to decline late this year. They will hit a rate of 1.6 million units by the middle of next year and level off, causing a noticeable decline in U.S. economic growth. "There's no stimulus that would push the housing sector higher," said Michael Bazdarich, a senior economist and co-author of the forecast. "It would be a miracle if housing just holds these present levels." California has been a national leader in the housing boom, with statewide home prices increasing 81 percent from 1997 to 2005, according to the forecast. Recently, there have been signs of a slowdown in some regions. In San Diego County, for example, the median price of a home reached $488,000 in May, up 7.5 percent from May of last year. That's the smallest year-over-year gain, in percentages, in five years. Some housing experts say that slowdown in appreciation is the sign of a healthy market. They contend that most steep downturns in housing prices have been the result of an industry upheaval that led to widespread job losses, such as the shrinking of the aerospace industry in Southern California in the early '90s. This time, the economy continues to add jobs, which should translate into sustained demand for housing. "I don't think anybody is surprised by the fact that price appreciation is starting to level off, because it was just not sustainable at its current rate," said G. Christopher Davis of the Paul Merage School of Business at UC Irvine. "But that doesn't mean there's a bubble. It means we're seeing the market take a breath." Davis added that population increases are what's fueling the state's housing market. "You have to differentiate California from the rest of the country because of the tremendous in-migration we have here," he said. But based on economic fundamentals, the UCLA economists think that slowdown is likely to continue and could accelerate. "We're having mediocre employment growth and mediocre income growth," Thornberg said. "The type of home prices we're seeing typically would not be supported by mediocre employment and mediocre income growth." But Thornberg contends people who make up the bulk of California's new residents aren't home buyers. "What we have in California is population growth of low skilled immigrants who can't afford an apartment, much less to buy a house," he said.
Since I've been in Alaska for the past 2 years, I'm not as much plugged into the housing market 'down South.' In Juneau though, it has been absolutely crazy. A friend of mine owns a simple Ranch style home that has appreciated in value over $100,000 in 3 years or so. His 2 BR, 1.5 Bath Ranch home is worth nearly $300,000 now. Also condo's have appreciated just as fast. Assessments have been going up so fast that sellers are just posting them $10-$20k above 2-3 month old assessments - and selling them. There is much unrest from those of us who do not own a home and see the market rocketing out of our reach. I am a young professional that makes almost twice the median salary for our borough - as is my wife. We still cannot afford anything that I would pay for here. Yes some condo's are in the $150,000 range, but to be honest I'd rather live someone's basement than buy those things. My disgust is tempered by knowing that I can leave with great job experience and go to a place where the property values are more in-line with disposable incomes. Juneau is tricky though. There are no roads in here, so transporting materials is more costly. Labor costs are outrageous. Construction laborers easily make $16-$18 per hour with little to no experience. There's only a handful of construction companies in town, and I'm sure they work for the highest bidder... which there are many. Oh and they are all union as well... so tack on even more labor cost. The land can be hard to deal with in places so the site preparation costs are sky high. If you had the time, know-how, and contacts... you could easily build a house for half of what you could sell it for. At least. Okay, I'll breathe... what I keep coming back to is this... I make more money than most people in town, how can I not afford even a modest home (even a simple attached home with a single garage)? Here's some theories... Everyone else is simply older and bought their home for $70,000 10 years ago. So they might only make $25,000-$30,000 a year, but they only pay $400 for mortgage. People are buying as speculators. Natives get $20,000 for a down payment if they are first time home buyers... just for being Native (American Indian). $10,000 of it is free and the other $10k doesn't have to be repaid for 5 years... interest free. My wife and I joked that we should adopt a Native baby so we could get that bonus and buy a house, after we laughed, we started talking about it more seriously. *Sigh* Juneau is the capital and there is a lot of 'state money' that is doled out (to people and businesses) and not really accounted for by traditional standards/practices. Maybe my median wage calculations are a little short. I think I just needed to vent a little bit about this issue. If you don't believe me that starter homes here +$250K check this out... Juneau Realty Listings.
Interesting 4 years later. Looks like those starter homes are down to 139k. Even less if you go with manufactured housing