A great many people like it when houses go up in price. During a rally the bulls become intoxicated with greed and obsessed with owning real estate as an investment. However, once houses become an investment, the prices of houses begin to behave like an investment, and volatility is introduced into the system. You do not want houses to trade with the volatility of a commodities market. It causes more harm than good.
Price volatility is a very disruptive feature in a housing market: the upswings are euphoric, and the downswings are devastating — and there are downswings. Declining house prices are emotionally and financially draining both to individuals and to the economy as a whole. The upswings create massive amounts of unsustainable borrowing and spending, and the downswings create economic contraction, foreclosures and personal bankruptcy. Is the ecstasy of the rally worth the despair of a crash? I think not, but we shall see.
There are technical reasons for a market crash (foreclosures, credit tightening, etc.) and I have discussed those in great detail in earlier analysis posts; however, market psychology plays a large roll in how and why it all plays out. The technical factors cause shifts in psychology among the market participants which exacerbate market moves. Today I will examine the psychology of market bubbles drawing parallels between the commodity futures market and the real estate market. In this post want to clearly illustrate how and why the psychology of market participants will facilitate the ongoing price crash.
In a commodities or securities market, you simply cannot have a rally, unsupported by valuation measures, without a crash back to fundamental value. It is very clear the rally in house prices was not caused by a rally in the fundamental valuation measures of rent or income. This was documented in How Inflated are House Prices? and The Anatomy of a Credit Bubble. Many people forgot the primary purpose of a house is to provide shelter — something which can be obtained without ownership by renting. Ownership ceased to be about providing shelter and instead became a way to access one of the worlds largest and most highly leveraged commodity markets: residential real estate.
Trading is a very difficult endeavor. The vast majority of active traders lose money, and most don't last very long. I paid my dues to the market, but I am one of the survivors. In the process, I spent many, many hours looking at charts and watching the chaotic gyrations of market prices in real time. I have also become keenly aware of my own emotional reactions and those of other market participants. It was these experiences, more than anything else, that kept me from participating in the real estate bubble. I have learned (painfully at times) that traders who "chase the market" lose money. I was not going to chase the real estate market.
The Psychology of the Bubble
The above graph is an excellent depiction of the psychological stages of a market bubble. It is fairly easy to put timeframes to each of these stages as displayed by our local housing market:
- Take off: 1998-1999
- First Sell Off: 2000
- Media Attention: 2001-2002
- Enthusiasm: 2003
- Greed: 2004-2005
- Delusion: 2006
- Denial: 2007
- Fear: 2008
- Capitulation: 2009-2010
- Despair: 2011-2013
- Return to the Mean: 2014
Obviously, the past is easier to document than the future, so we may reach future stages sooner or later than shown above, but we will reach them. I have made my opinions on timing and depth of the decline known in Predictions for the Irvine Housing Market.
The Stages of Grief
Markets are the collective actions of individuals, and the psychology of the markets can be broken down to the psychology of the individual participants who make it up.
When prices first drop and the market enters the denial stage, the individual market participants feel confusion and attempt to avoid the truth. This is motivated by fear they may have been wrong to purchase when they did, and they might lose money. They seek ways to quell these fears through drinking even more kool aid. Bulls in the denial stage will not come to a blog like this one because we will not feed their denial. Some will stop by, try to convince us we are wrong, and move on. The only person they are really trying to convince is themselves.
When the markets enter the fear stage, the little voice inside of each buyer gets louder and louder. This boils over into anger, frustration, anxiety, etc. The individual desperately is seeking ways to maintain denial — perhaps they read Gary Watts Real Estate Outlook 2007 — but reality becomes stronger than denial. As a mechanism to break down the denial they imagine the possibility that reality they are trying to deny is the truth. This leads to depression and detachment as reality is too painful to accept.
Finally, "as the going gets tough, the tough get going," and the individual seeks ways to get out of the problem through emotional bargaining. Some will take action. Perhaps it is lowering an asking price, taking the property off the market and doing some renovations to "add value." Some will not take action, and they lapse back into denial because the market is "coming back soon." Note that these psychological stages all occur in the fear stage of the market. Those owners who chose to lower their price as part of their bargaining may get out with minimal losses (assuming they lower it enough to actually sell.) Those that chose other courses of action, lose much more money.
Each individual only reaches acceptance when they sell their house. This is when we enter the stage of market capitulation. Collectively, everyone in the market accepts prices are going to drop further, and they need to get out: Now! Of course when everyone knows prices are going to drop, and everyone is trying to sell, there are no buyers. This puts prices into free-fall until buyers are ready to buy again.
Since buyers in the aftermath of a bubble tend to be the risk adverse who did not participate in it, they will make cautiously low offers on properties. This cautious buying together with desperate sellers causes the market to drop below normal valuation standards. The market enters the despair stage. Here the market participants think nobody wants the asset, and nobody ever will again. Of course, nothing could be farther from the truth as those who recognize the fundamental value of the asset are buying it in preparation for the next cycle.
Why does it happen this way?
Now that we know what happens, the next logical question is why does it happen. To fully understand this, one must look into the mind of the market participants at key stages in the process, examine their circumstances and see the decisions they must make. While we go through this exercise, I am going to compare and contrast the thought process of a trader with that of the general public.
The first and most obvious difference between traders and the general public is their holding time. Traders buy with intention to sell for a profit at a later date. Traders know why they are entering a trade, and they have a well thought out plan for their exit. The general public adopts a "buy and hold" mentality where assets are accumulated with a supposed eye to the long term. Everyone wants to be the next Warren Buffet. In reality this buy-and-hold strategy is often a "buy and hope" strategy — a greed induced emotional purchase without proper analysis or any exit strategy. Since they have no exit strategy, and since they are ruled by their emotions, they will end up selling only when the pain of loss compels them. In short, it is an investment method guaranteed to be a disaster.
A bubble rally is usually kicked off by some exogenous event. In a securities market, it may be a very large order hitting the trading floor, and in a real estate market it can be a dramatic lowering of interest rates. Whatever the cause, a series of events is set in motion which repeats with a remarkable consistency. It repeats on multiple timeframes in all financial markets.
At the beginning of the enthusiasm stage, prices are already inflated, so there is cautious buying from traders looking for trends and momentum. Prices rise steadily and more attention is drawn to the market. The market sentiment turns very bullish. Buyers are everywhere and sellers are scarce. The general public takes notice and begins to participate in larger numbers.
In the greed stage, the bullish sentiment reaches a feverish pitch and prices rise very rapidly. Everyone in the market is making money and everyone believes it will go on forever. The greed stage is where the behavior of traders and the general public really start to diverge. Traders recognize it isn't going to go on forever because prices are unsupported by fundamentals: They sell. The general public is convinced prices can rise forever: They buy — from the traders. (If you don't think this happens in the housing market, I suggest you read Still Renting from Pimco trader Mark Kiesel.)
Think about this for a moment: most people who are bullish already own the asset, but for prices to continue to rise, there must be more buying. For buying to occur, someone who was either bearish or ignorant of the rally must be convinced to buy. In other words, a greater fool must be found. (Remember the National Association of Realtors $40M add campaign?) Once everyone is made aware of the market rally and is convinced to buy, you simply run out of new buyers. Once there are no more potential buyers, prices can only go down.
Right now, we are in the denial stage. Prices have not dropped enough to cause real fear. Denial is apparent in polls like this one: Out of touch with realty reality where 85 percent believe their home will rise in value during the next five years, and 63 percent believe a house is a good investment. That is serious denial.
It is also apparent in the number of homes purchased during the greed stage that are held for sale at breakeven prices — even if this is above market. When the inventory is large, and houses stay on the market for a long time, prices are too high. Sellers who refuse to lower their prices to take a small loss are in denial about the current state of the market. They believe bids will increase and some buyer will come along and pay their price — after all, that is the way it was just 2 years ago.
Buyers who bought in the enthusiasm stage are still ahead, so they feel no urgency to sell. They have made good money already and they will hold on with hopes of making a little more. Since they believe the asset will appreciate again (and they have no exit strategy), this group of buyers does not sell.
In contrast, the few traders who still hold positions liquidate and go back into cash. Successful traders recognize denial as a signal to exit their positions to lock in profits or prevent further damage.
So why can't prices rally here? There are two reasons: First, the pool of buyers is depleted as discussed above, and second, the excesses of the bubble are causing a contraction in credit terms. There are fewer buyers, and those who might want to buy can't borrow the large sums needed to push prices higher. Market psychology hasn't really turned yet, but technical factors are getting in the way. This same phenomenon occurred in our last credit induced financial bubble which resulted in the savings and loan fiasco of the 1980's and it helped facilitate the decline of the early 90's. What is Past is Prologue.
This fall and winter, we are likely to see a liquidation of bank held inventory. Banks will try to get their wishing prices through the prime selling season, but by the end of the year, there will be pressure to get these non-performing assets off their books. The fire sale of bank foreclosures and the continued tightening of credit will drive prices down an additional 5% to 10%. This will cause some major problems for owners of residential real estate.
At this point, successful traders have all exited the market, although a few knife-catchers jump back in during the bull trap and become bagholders. Greed stage buyers are now seriously underwater. Comps are selling for 10% less than their breakeven price, and there is little hope that prices will rally. Some will sell at this point and take a loss, but most will not.
People who bought in the enthusiasm stage come up to their breakeven price and face the same decision our greed stage buyers faced earlier: sell now or hold out for a rally. Even though there is reason to fear, most will not sell here. They will regret it later, but they will hold on.
- The most important psychological change in the market as we enter the fear stage is the belief that the rally is over. Price rallies are self-sustaining: prices go up because rising prices induces people to buy which in turn drives prices even higher. Once it is widely believed that the rally is over, it is over. Market participants who once only cared about rising prices now become concerned about valuations. Since prices are far above fundamental values and prices are not rising, there is little incentive to buy. The rally is dead.
- Another major psychological change occurs in this stage after people accept the rally is dead: People reassess and change their relationship to debt. During the rally, debt became a means to take a position in the housing commodity market. Nobody cared how much they were borrowing because they never intended to pay off the loan through payments from their wage income. Everyone believed they would pay off whatever they borrowed in the future when they sold the house for more than they paid. Once prices stop going up, people realize they are simply renting from the bank, and the only way to get ahead and build equity is to pay off a mortgage. The desire to borrow 10 times income diminishes rapidly as people realize they could never pay off such a large sum. What started in the denial stage as an involuntary contraction of credit, in the fear stage becomes a voluntary contraction of credit as people simply do not want to borrow such large sums.
So why can't prices rally here? There are even fewer buyers in the market and a reduced appetite for debt due to the change in market psychology. There are more and more sellers are either choosing to sell or being forced to sell. Since there are more sellers than buyers, prices continue to drop.
During the fear stage, a majority of buyers during the rally go underwater on their mortgage. Most will endure the pain and stress. In the past, since the bubbles of the 80's and 90's were built on conventional mortgages, people just held on. In this bubble, people used exotic loan financing terms, and they simply cannot afford to make the payments. They will borrow from other sources until finally the entire system reaches a breaking point and they implode in foreclosure and bankruptcy.
The transition from the fear stage to the capitulation stage is caused by the infectious belief that the rally is over. There is a tipping point where a critical mass of market participants either decide to sell or are forced to sell. Once this point is reached, selling causes prices to decline further. This convinces even more people the rally is over which begets even more selling: a downward spiral. The capitulation stage is the counterpart of the greed stage. Sellers are everywhere and buyers are scarce.
In securities trading, the mechanism for compelling people to sell at a loss is anxiety and emotional distress, and the mechanism for force is a stoploss or a broker's margin call. In residential real estate, people are also compelled to sell by anxiety, and the mechanism for force is foreclosure. We know foreclosures are going to be particularly bad in this bubble due to the exotic financing and adjustable rate mortgage resets.
Each market participant has a different threshold for pain. Some give up early; some give up later; some stubbornly try to hold on, but in the end, by choice or by force, everyone sells out and capitulates to the forces of the market.
From a perspective of market psychology, it is difficult to tell when the capitulation stage ends and the despair stage begins. Both stages have an extremely negative bearish sentiment. The general public is still selling. What makes the despair stage different is that buyers who focus on fundamentals like rental savings or positive cashflow return to the market and begin buying (Remember Rent Savers and Cashflow Investors from How Inflated are House Prices? ) These buyers are not concerned with appreciation, they simply want an asset which provides a cash return on their investment. They are not frightened by falling prices because their financial returns are independent of the asset's market valuation. It is the return of these people to the market which creates a bottom.
Houses should not be viewed as a commodity to trade. Most people lack the financial sophistication to successfully trade in commodity markets. Buying and hoping prices go up is not a successful strategy (as a great many are about to find out). Volatility in housing prices is harmful to the community as the financial and emotional costs of the inevitable price crash are just too great. Everyone pays a price. Renters like myself who chose not to participate are forced to wait to obtain the security of home ownership at an affordable price, and buyers who endure the crash… well, their pain is obvious.
I don't know how to solve this problem, but I suspect government intervention will only make it worse. Part of the problem is embedded into the local culture (remember Southern California’s Cultural Pathology?) Perhaps after the pain we are about to witness is over, people will learn their lessons and break the cycle; however, human nature being what it is, I doubt it.
People have commented on the confidence I have in my analysis of the market. To be very honest, most of the analysis came later. Early in this bubble I witnessed inflated prices begin to rise. My years of experience trading the markets told me it was a beginning of a financial bubble. I didn't know exactly what was causing it, I didn't know how high it would go or how long it would last; I just knew it would prove to be a bad time to buy. Even after watching prices go up significantly from there, I knew it wasn't going to last. I had seen the cycle too many times before. I was witness to the insanity as it unfolded, but it has only been in the last year that I became more interested and really researched the details of causes of this bubble. I have greatly increased my depth of understanding of this phenomenon, but I have never doubted my initial instinct; I still don't.
Thank you so much for this and your other insightful analyses. I feel like I am getting an free financial education, and I am grateful. I am very happy that I am not currently invested in SoCal real estate! There are a lot of readers that truly appreciate your contributions, I assure you.
One request, could you start tracking the median home price in Irvine? The OC Register breaks out zip codes, but not Irvine in aggregate. I know here people don’t like medians, so maybe if you have the data you could track average and price/sq-ft?
I don’t think median is so bad, because even though it is confounded by market mix, it still gives you an apples-to-apples comparision over time.
Thanks for the easy and logical analysis.
I remember reading stories in the business media of flippers who had moved from LV to Phoenix around the end of 2004. They would simply ride into town, go visit a few developments, place their bets on 10 future homes to be built, then flip’em 6 months later for a huge gain on their initial $10,000 per home deposit. Most of the time, the homes were flipped before completion, therefore no mortgage payments (or carry cost) were ever made. They never even had to qualify for a mortgage.
However, there is a positive side to the above, and that is this; the housing bubble is now creating a lot of bag holders … from the flippers to the insurance companies and foreign banks that are holding the mortgage paper. Therefore, when this is over, it’s going to put a nasty taste in the mouths of those that were left without a chair when the music stopped. By 2011, when we’re in the thick of this meltdown, I don’t think housing will be looked at as a glorified investment. In particular, Orange County housing.
It is possible for the median to increase while the cost to buy is actually declining. Less homes have been selling at the bottom of the food chain, therefore the 50 percentile has increased or maintained by default.
I wish DataQuick and the Register would report the average & median cost per square foot for sales and listings. That would indicate a more honest picture of what is actually happening right now.
IR, when I referred to your excellent analysis as “easy”, I wasn’t being dismissive. It’s easy to follow and understand. Your writing skills are outstanding.
I knew what you meant, thank you.
IR, clear, concise, level headed and painfully correct. The funny thing is when the next mania of whatever thing is next (tech stocks, RE, tulips, beanie babies, etc) the same people will make the same mistakes instead of examining this current situation on how to spot a bubble and use it to their advantage. Greed, ignorance and/or stupidity is a dangerous combination that creates manias like this. Thanks to blogs like this, I have learned alot about economics and the cold hard data side and the hot emotional side. When cold air and hot air collide, you get a tornado similar to the current housing market.
The biggest thing I have noticed is the extreme arrogance of Southern California residents. This makes a bad situation even worse.
I am convinced God hates Southern California….
I’ve always appreciated your presentation of the fundamentals.
However, it is when you begin to forecast that I start to “quietly ignore” what you are saying. Not to bash you or anything like that, but I have also traded the market for over 10+ years and luckily, or not, survived the stock bubble era. In that time, I learned to follow great analysts. They would present much and important data which was critical in observing/trading the markets, but it is when these analysts start making predictions or saying what the market “should” do. ie. “According to our analysis, xyz stock should be trading at a PE of 30 next year and a price of $50.” Love the analysis, never the prediction.
In this particular thread, I took note of your timeline. You have the bubble beginning in 1998 and peaking in 2006 and completing in 2014. However, two important aspects of most bubbles is reversion to the mean and that the decline is much rapid than the rise. But then I thought, perhaps the housing bubble is different due to liquidity, “sticky prices”, etc. Because didn’t home prices swell in 88-90, but swoon for 3 years or up to 12 years depending on the location. Well, if you start making exceptions here, then you have to make exceptions there, then why not everywhere.
I know your’s may not be a “prediction”, and it is rough, and only what “may” happen. But since it was worth your time to post it, I thought it was open to discussion.
Anyways, love your analysis. But I think it’s almost impossible to predict its ramifications.
I’m continually amazed by the stickiness of prices even today and by the resilience of the equity market given certain fragile conditions. So is this a sign of strength, enough to resist and prevent a crash? Or is the crash going to be that much greater if/when it arrives?
Great blog…you got me hooked!…
When it comes to the securities markets, I don’t even try to make predictions. There are just too many variables. In fact, I only tune in to CNBC or read other market analysis to get a sense of market sentiment — to be ready to do the opposite. For instance, after the selloff on June 7, I saw the talking heads say they thought the market would not bounce and would instead continue to sell off hard. I went long the next morning to take advantage of all the people who were going to be short squeezed.
I just trade what is presented to me and manage my money well. IMO, successful trading is 80% money management and 20% analysis and execution.
What always strikes me about housing markets is its ability to trend for long periods. They have a macro volatility which is easily observable. I don’t tend to see a great deal of micro volatility, e.i. you don’t see “V” tops or “V” bottoms like you would in stocks. It is probably analogous to steering a boat. You can turn the rudder, but the boat doesn’t change directions all that quickly.
I don’t have any more foreknowledge than anyone else on this subject, but based on what I am seeing develop in the market, I don’t think prices will be “sticky” in 2008 or 2009. IMO, the stickiness we are seeing today is a result of seller denial and the banks holding their foreclosure inventory. There is just too many overextended homeowners who will feed the foreclosure beast. I think, we will see a quick drop to take out the buyers from 2004 and 2005, followed by several years of “stickiness” as the inventory is cleared through the system.
I could very easily be wrong, particularly on the timing and depth, but I feel pretty confident about the direction.
I don’t think lower prices are going to influence too many buyers. I think potential or the lack of potential buyers will be more influenced by the non-availibility of money to borrow as a direct result of CDO repricing. And I don’t think it is a matter of if, just when.
Not considered in this in-depth analysis is the number of households as opposed to the number of homes. Isn’t this a factor? e.g. If Irvine has 100 households already living there or desiring such, but only 85 homes with only 15 of those homes for sale, won’t the median value be above the median income?
I guess it all comes back to the psychology of an area. If there’s a real or perceived scarcity, and households are willing to stretch beyond traditional ratios, then that area will sell at a premium above what the median household income would suggest it “should.”
That is why California has traditionally paid too much for homes. It’s part of the “there’s no more land” fallacy. Look around, how many new developments does TIC have at the moment?
Portola Springs, is a ghost town and all you see is empty space all the way back to Orchard Hill. Has the Marine Base conversion even started? What about Anaheims Central Park West? Okay, that’s not Irvine, but it is OC. Or Huntington Beach’s plaza of power just south of the pier? They’ve got the foundation hole dug…
Ever notice the strawberry and vacant fields dotting the landscape all over OC? Fountain Valley has a new “luxury” home development going in along the vacant lot next to the 405. Kind of like the big one in Santa Ana next to the 5.
There’s no shortage of land, there is a shortage of permits and affordable housing.
For me, and I think many buyers on the sidelines, there’s one primary driver to buying, that’s the rental cost and hassle factor. At the moment, rent is way cheaper than buying. The hassle factor isn’t too bad.
It’s important to compare like for like and that’s were it gets sticky in a down market. Rentals tend to get neglected, they tend not to get updated. At the present, the home wanting public is very jaded with the granite, stainless, tiled tumbled stone bathrooms, the “we’re rich” pathology is running deep.
“I could very easily be wrong, particularly on the timing and depth, but I feel pretty confident about the direction.”
Absolutely no doubt about that. Some things are indisputable. Increasing inventory/foreclosures, tightening of credit – these things, in a vacuum, lead to lower prices.
But there are many other factors, so I just wonder how much of the negative factors will be mitigated.
I, like you, am a contrarian. We seem to be similar psychologically in this area – more congnizant of risk and where the crowd is leaning. I find myself being too cute sometimes, trying to outsmart the crowd because the crowd is not always wrong.
The next 1 1/2 years will be extremely interesting.
A house provides shelter, it does not per se create a good or service that is tradeable. Though just like gold, it now has a futures exchange based on the Case-Shiller Index and can be traded like any other security.
Commercial real estate, multi-family residences (a.k.a. MFR and apartment buildings), and residential income homes (rentals) are on the other hand assets that provide a good or service that is negotiated. We use fundamentals and valuation to compare apples to apples, though more like big, fleshy McIntoshes vs small round bitter Granny Smiths.
I think the comparison is still useful as it is the comparison that renters make when they decide whether to buy; and, it is the comparison investors make when they decide whether to purchase a rental property. The comparison falls apart when we look at the greater picture. A shovel can be used to create a ditch for many different customers (or used to whack the WTF re agents on the head). It is, in it’s simplest form, a capital good that helps to create a good or service. The ditch plants a tree that bears fruit that is eaten and the economy is better off.
An individual’s house creates a mortage that results in more loans that allows banks to tax others. I won’t go further about money expansion and the history of usury… It’s enough to say that a world full of mortages is not *necessary* to directly or indirectly improve the economy.
Well put, IR, a house is at most a hedge agaist inflation and a tax haven that happens to give us pride of ownership.
The reason RE is so predicatable is because the steps needed to conduct a transaction. When stock trades are measured daily in billions, and a good majority of them being traded in and out by one entity versus homes that take months to complete a transaction and has larger fees, contracts, closing, etc. I can enter and exit the stock market in one day if I choose.
Stock markets are like prediction the direction of large schools of fish vs the path of a bunch of whales. When you can make a decision that fast, the changes are more sudden and unpredictable. Here, we have a long boiling market that has both long term and short term reasons for popping. Same thing happened with stocks, but the fundamentals here are different because this was cooked by banks and loose easy credit.
Long term was the banks and mortgage companies making. The short term was the collapse of these shaky structures and the well of “liar buyers” drying up.
There are greater fools in both markets, but at the end of the day in stocks- I don’t need to bring a checkbook to my broker when I cash out and upside down (assuming no margin accounts).
I like your analysis, but as far as the time line, since financing was weard this time around, do you think the decline will be the same as previous cycles or alot faster?.
what I have noticed as far as inventory, we have reached high levels early in the cycle, sellers (the smart ones at least) are dropping prices fast. I think in general we are at or near 2004 pricing (just in the second year of the decline) and we yet have to see the effects of tight credit, rising interest rates, forclosures and psychology (as you mentioned).
I’m currently looking for a nice 2 year rental, so I’m not in a hurry but I wonder about how the next 12-24 months will look like?
I dont know, it just seems scary how fast things are happening this time around, any thoughts?.
MD = MMG
I think I answered this question below.
Nice article Irvine,
I think the economic fundamental that underlies the bubble poping is debt exhaustion. The debt is so big theri is zero chance of servicing it. Its not always apparent that is the cause but in hindsight becomes obvious.
When we looked at the exotic funding the trends became clear. What did all the Option ARM, ARM, Neg AM products have in common? They are loans to use when you can’t completely service a debt load. You could see a buisness using these as temporary loans to fend off some kind of cash crunch but for financing a long term purchase? No. They served to push prices much higher but the obvious market forces conspired against them.
Inventory saturated and prices flattened. People had to service the debt and the game ended. The temporary loans had become permanent.
That ARM reset peaks out at Christmas this year so it should be a real strange time. 2008 will be an election year so figure government spending will reach epic highs to keep things from crumbling. Then watch out in 2009! The second wave will keep shaking out property and supress prices for even longer.
The people living on the edge of their financial lives will begin to disintegrate. People who are above water now that bought pre 2002 will see their equity evaporate. SHould retrace to 2000-2001 prices by 2011…
I’d also note that the credit suisse chart is old and the second wave has probably grown substantially since then. The conditions far more chaotic. Employment is begining to squeze. The longer this goes on the worse the debt situation becomes.
I see the emotional factors as secondary (accleration) in all of this. Like the dotcom bubble or the telecom bubble the fundamentals said overvalued and unsustainable. Eventually it became apparent. Emotions followed and accelerate effects.
The other economic aspects like rejection of debt means the deflationary mindset is begining to take hold. It will be interesting to see if values like hard work, saving, quality become back in vouge after all the years or flipant, cheap, debt and hip.
Great work. Wish I could write that clear.
As a true opportunist, I beleive that unless I am getting a good break on current prices, there is no sense buying now and holding the bag later. I think it makes sense to keep my eyes open for foreclosure related sales that offer the discount to current prices to substantiate a purchase at the current point in time.
What do you think about my strategy?
Really impossible to say with great confidence or we’d all be rich.
Basically the wild cards…
Inflation… always visible in retorspect
Tax Changes… AMT changes could push things
Desirability Index… public sours on living in desert w/mexicans
Population Growth/Decline…. we are close to a inflection point
I’m thinking inflation eats part of the debt (supports prices), tax changes erases part of debt…
So instead of a 50% decline by 2012-14 more of a 35% drop depending on how you calculate it.
Do you just average drops for all properties or do you weight that vs sq ft? Distance from the coast?
REAL LIFE EXAMPLE:
I was in Valencia this weekend with my fiance visiting her sister who just listed her home. She is also engaged and will be moving to sacramento in october. She purchased the home for 265k in 2002. She currently owes less than 200k. The realtor just listed the home 2 weeks ago for 515K. The next door neighbor (and I mean like 4 feet away) is listed for 495k. This home has nicer flooring and an upgraded kitchen. It also has been on the market for over 3 months!
What could possibly compel the realtor to such lunacy? Well we all know that it doesn’t take much intelligence to be a RE agent, but this is ridiculous. I advised them to immediately fire the agent and hire a new agent listing the property for 425k. Realistically, I couldn’t see the property being worth more than 350k.
A price appreciation from 265k to 350k in five years equals a 6.0% annualized rate of return. This should be considered a very good return based on historical averages. A value of 350k represents a 32% price reduction in the 515k listing price.
She is one of the smart ones, who didn’t suck out the cash, but many of people did as we all know. We can see close to 50% price drops from current listing prices and these homes will still have appreciated over the long run. That’s how out of hand housing has gotten.
I’ve posted this before but I think that this monster will take some time to get going full force. We think it is bad now, but we can’t see the event in its totality.
With rates formerly at historic lows and the advent of negatively amortizing pay options, homedebtors have been able to hold on to their WTF asking prices. The foreclosures that are occurring are heavily weighted with sub-prime borrowers and the early neg am loans that were originated in 2003-2004.
The monster’s head lies within the 100% purchases and refis and neg ams that were originated from late 2004/early 2005. These are prime borrowers that have no idea of the armageddon-style massacre that awaits them.
We think that it’s happening quickly, but if we take a step back and imagine the depth and breadth of this apocalyspe we’ll realize we’re at the tip of the iceberg
Your analyses are excellent. “How Inflated are House Prices” and “Analysis of a Credit Bubble” provided me the sought-after logical reasons to explain why I am still renting.
Now we need to send this analysis “Houses Should Not be a Commodity” to everyone who has re-setting loans, just so they know in a clear, logical manner what they are in for!
I would agree with your analysis…..if you want to sell a house in CoCal in the next three months…..price it 30% below the comps of 2006. If you are not willing to price the house so that it will sell…..why bother putting it on the market in the first place.
Vacant house scam story from the LA times
It’s Real Estate Fraud Week at LA Land: Chapter Two — Why Is My House On Craig’s List?
Wow! Good stuff as always, Sue. Thanks.
re: Marine Base conversion, see article below. I wonder how many years it’ll be an RV park for.
Parking can take the fun out RV ownership
The former Marine base at El Toro has become a haven for oversized vehicles, but as park development progresses, they will have to move.
I like your strategy, I will do it myself… two or three years from now.
I once showed a home which was supposed to be vacant. I found people were sleeping on the floor and taking shower.
I called the listing agent and he said the owner is out of the country and not aware of anyone should be living in the house.
I supposed people with access to the lock box can run empty houses as hotels.
Great analysis. What about the bubble in places like San Antonio that have seen appreciation, but no mania phase? It still seems to be going up there–but more slowly than last year. Are they bubbled as well and going down too, or not? Thanks!
How you can be sure were mean going? Try to comment Moscow real estate trend in this way!
About a year ago, I was out making all cash offers, 24 hour close of escrow. Yeah, they were low ball. Cash meant NOTHING. Sellers were nearly mocking me. Those same homes are still on the market and have gone down in value. Savings account rates have increased and I have more cash. When cash again begets a discount, we will be trending toward normalcy.
Hmm… dropping to ’01? Hey, I think I’ll take a credit line on my house then and buy me a nice fourplex in Costa Mesa then.
Figure than on the dispair cycle interest rates will be low and my house will still be worth enough to get the downpayment for that sweet fourplex.
And get monthly cash.
OTOH, maybe I can quite my job, take my 401K and invest in a 16plex in Costa Mesa. I might be able to retire and live off the income.
Of course, because of prop 13, I’ll still be locked in.
Now, for your post… good one. I dunno about the rest of the country, but in my corner of the world, TR, TRidge and environs, you gotta look at what percentage of homes were refinanced to the hilt or bought new with exotic financing.
Anyone sitting on a fixed loan today, will likely stay put. Only those with untenable loans will be forced to sell or walk away.
As far as how low they can go… simple. Look at the “book value” of the house. How much will it cost to build. One of my neighbors told me that he’s been quote 400 sq/foot to rebuild. I told to wait. We paid about $250 sq/foot to rebuild our house and we used top materials and parts throughout, so I figure that as the housing boom slows down the cost of building will go down as well.
So, figure about $250 per square foot of structure plus the land. At the very least the land will run above $1M per acre, so with 7 lots per acre that comes out to around $175K per lot. Figure on adding anywhere from $50K to $150K for the view.
So, a home that is new or has been rebuilt recently: 2500 sq foott should have a book value of $800K. That puts it squarely in the median show in the graph above.
Older homes will take a hit of course. Figure that a 2500 sq ft, home a paint coat away from the Brady Bunch Era will sell for around $725K.
Those homes in TRidge come out to around $1.1M
So you are suggesting that if somebody wants to buy a house, for the purpose of living in it for many years, waiting 2 or 3 years would be the best bet?
I disagree. I want and love volatility. Houses should trade like commodities. That’s what makes the market.
I’m a full-time speculator. As my uncle used to say, “Don’t gamble but if you must gamble, do it right and don’t screw around.” In other words, do your homework, look for an edge, and wait for the whites of their eyes. So bring it on and let the blood run in the street.
Irvine, can you comment on the NUMBER of home sales transactions each year during the price rise, then also by year during the price decline. My point of view is that, even with relatively severe percentage price declines during the down years, if the number of home sale transactions by year during the down years is noticeable lower than the number of transactions by year during the price rise phase, you are still seeing a “bullish” market behavior overall. I also think that it is useless to talk about a national, regional, or city-wide trend in home prices. These things are LOCAL. Buyers need to research the price resiliency of their target neighborhoods over time. The home sales in the less desireable neighborhoods aren’t necessarily a harbinger of the price behavior in the “better” neighborhoods. That’s why they’re “better”!
Irvine, If you’re a home owner and you don’t plan to sell in 2007 or 2008, you DON’T CARE what home prices are doing in the meantime. A couple of speculators in trouble in the meantime doesn’t indicate to me what I’ll be facing in 3 to 5 years. Don’t evey try to predict it. The long-term prediction continues to be “bullish”!
“The long-term prediction continues to be “bullish”!”
We may not agree on this point. You may wish to read: Appreciation is Dead.
I suppose it depends on how you define “long-term.” 20 to 30 years from now, fundamentals will support the current home prices, so if you are willing to wait that long, you will be right in the end.
Tonye, book value of a home does not constitute the numbers that you are using. When you are looking at the cost of constructing a home, a better measure of the cost of constuction is the actual cost of construction. This should take into account the cost of materials and the labor to construct a home. That is the true cost.
Now we can look at the land cost and add it to the cost to build to come up with a value. Ahhh, but here is the problem, the LAND is where the money is… Because the cost of building a home remains relatively stagnant no matter where you are, the cost of land is the only other variable capable of increasing dramatically in price. Because land has no hard costs associated with, it is our discretion what value we give it. It seems that you give land a value of over $1 million an acre, but that depends on who you are and where you live. What happens if I tell you that land is worth $200,000 an acre? What kind of logic can you use to dispute my claim?
It is the land value in the Boise, ID area that has increased dramatically in the last few years, as the price to build a home has changed very little.
The only method that I can find to figure out what the price should be, is to look at lot costs for the last 30 years and give them a reasonable rate of return to carry them forward to today. Then, apply the cost per square foot to build a home (whatever the size) and place it on the lot. You then should have a value that your brain should be able to rationally support.
Just because the price of land is currently over $1m an acre, doesn’t mean that is the actual value. I believe it is this kind of logic, and the idea that people “figure” things to be worth x, y, or z, that created this whole problem in the first place.
In thinking about this, another problem in the price of homes is that every single home that is owned today must be bought by someone who has never owned a home. People get old and die and young people must enter the market to replace them. If we have housing prices that are above what first time homebuyers can afford, the market is asking for a big problem. “Home swappers,” at least as they are called out here, can play in the market all they want, but they don’t effect each other in any real way. If you own a home and it appreciates by $400k and you buy another home in the area, the equity is simply swapped about and the two parties move on.
However, an older person eventually sells to another swapper, but they leave the market. Now they have to be replaced. I think we are running out of first time homebuyers who can enter the market, at least in my area, and this will FORCE the market to correct.
“20 to 30 years from now, fundamentals will support the current home prices”
Well, with this statement you show yourself to have a very extreme point of view.
Could you address my other question about the number of home sale transactions that took place in the period of rising prices versus those taking place in the period of falling prices.
What an inane reasoning are you giving for your bullish sentiment? Have you ever studied economics? I don’t think your question deserves any intelligent response. First study some demand and supply economics. Also brush up on price elasticity for houses, macro-economic indicators that govern the market place. I am confident that once you study these pieces of economics theory, you will realize how baseless your conclusion is.
With due respect to your views, I don’t agree completely with your conclusion that all one can do is wait for the next 3 years and then buy a house. I would encourage keeping your ears to the ground at the year end and trying to re-assess this situation as it emerges.
(1) I calculated the “book value” of the home based upon the construction cost plus the value of the lot. Note that I tried to lower the construction costs to a more reasonable price given that construction is slowing down so labor and parts should become cheaper.
The price that I came up with was what we paid using top notch materials back from 97 to 99.
I also used the land price for my area back in ’94.
And, yes, I did the numbers for my part of TR. As I noted other places with views will go up, but the cost will be in the lot.
So, what’s interesting is that in a real depressed value, the cost of the house is higher than the cost of the land. This is representative of other parts of the country where land is cheap.
(2) The problem with “moving up” is that you get reclassified in the real estate tax rolls. Sure, you could take your 500K equity and buy into a larger home for the same monthly mortage payment, BUT, your real estate tax will kill you. Indeed, I pay like $3700 per year, and that takes into consideration the huge rebuild we did a few years ago.
Another issue with “moving up” is that price increases go at percents but the mortgage payment is absolute.
For example, we bought our house for 200K eons ago. Homes in the Terrace at the time were going for 300K. Now, that was a 100K difference.
(Prices are relative.. don’t throw cabbage at me, OK?)
Today, if I hadn’t so upgraded the house, my tax would be like $2500, and I could possibly get about $800K and a home in the Terrace would go for about 1.3M. A difference of $500K.
So, I’d be looking at a mortgage about 400K more and a tax increase of over… ooops! 12500 per year… That’s like 1000 bucks a month more. Bigger mortgage and bigger tax bite!
OTOH, after putting in over $330K in upgrades, I could possibly sell at 400 sq/foot at about 1.2M. OK… let’s just take that number for a sec….
And a similar home in the Terrace (actually smaller but with a view) will go for about 1.4M.
Now my mortage won’t go much higher but my tax still skyrockets…
From a long term homeowner, homes should only appreciate at inflation and no more. Otherwise “moving up” is a recipe for financial ruin.
(3) I dunno about first time buyers. Historically, as the whole market goes down, coastal areas close to work hold up much better than areas way inland. As the market corrects, you will see people start to buy West of the 405 while East of the 5 they will be hurting still.
Of course, first TRidge, Quail Hill and the newest parts of Newport Coast are gonna feel some serious pain.
“I would encourage keeping your ears to the ground at the year end and trying to re-assess this situation as it emerges.”
I will, and I do, but the situation is very fluid right now, and the market is volatile. The clouds over the market will need to clear a bit before I would be comfortable in buying. Plus, even the lowest prices house comparable to what I am renting is still at least 50% overpriced. It will take a while to drop far enough for me to even consider buying.
I apologize if I sounded dismissive. I just know that any house purchased this year will not be as good of a deal as what will be available 2 or 3 years from now.
Let’s take a step back. I don’t think you fully comprehend how inflated house prices are.
Try starting here: How Inflated are House Prices?
And this one: The Anatomy of a Credit Bubble
When you see what determines a houses fundamental value, project the growth into the future, and see where it intersects today’s prices, you see that we are at least 20 years ahead of where prices should be.
To answer you question: The volume of sales transactions has nothing to do with determining value. Sales volume may tell you about the strength of the market, and a dramatic drop in sales portends of a future price decline, but in and of itself, sales say nothing about value.
yeh, you capitalist moron…..it’s people like you who have made houses too expensive for normal people to live in….
Death to Capitalism!
America will Scarf up the world & sh*t on it!
Boy Plunger – Although I am only a part time speculator, I am with you; Buy when blood is running in the streets.
I tend to disagree with your statement that borrowers with fixed mortgages will stay put.
Sure there is a certain percentage who bought at peak prices and used their earnings from their prior home sale to help get them a manageable loan.
What about the speculators with a fixed rate loan on a $600K condo who are stretching themselves? They might be able to afford their mortgage, but it’s stretching themselves dangerously thin. Most people won’t be comfortable throwing that much money away every month when the value of their home is on a downward spiral for three, four, and five years in a row.
What about the people with RE-related jobs who are suddenly out of work? A fixed mortgage is no help when your income gets cut off. What’s the percentage of jobs in Southern California that are related to Real Estate?
Hmmm…. let me say that people who have nice low fixed interest mortgages and who can are not treating their house as a speculative investment and who do not lose their jobs will not have much incentive to sell.
The point being that people with nice low fixed interest mortgages will not be forced to sell because their loan got adjusted and suddenly they won’t be able to refinance based upon equity nor pay the new payment.
Is that better?
I think you are too bearish. Yes, appreciation is dead for now, and will be for a while. But not for twenty years!
Depreciation will be most severe (50%) in new development where builders got carried away building McMansions where a normal market would have supported more modest home.
Depreciation will be moderate (30%) in older neighborhoods were the number of distressed owners with high payments ought to be lower (assuming that not everybody refinanced and cashed out).
Depreciation out on the boonies -Riverside, Moreno Valley, Antelope valley will be scary.
I should assume that long term home owners should be able to handle a 30% drop in the next two to three years OK.
Locally, I figure that both TR and TRidge will be in lock step (TRidge perhaps 10% more than TR due to being newer) in 2010 and appreciate at a reasonable rate for a while.
I hope the last bubble doesn’t happen again.. but think, my house doubled in price between January 87 to Summer 89. And then it was in a plateau -more or less- for about five years.
So these things tend to run in cycles. I just got lucky to get in just before THAT cycle.
It isn’t that appreciation will be dead for 20 years, it is that it will take 20 years for todays prices to be supported by fundamentals. If we have a 50% drop back down to current fundamentals, appreciation would return after the crash as wages grow — albeit at a rate matching inflation not the 7% people are used to. If we have no correction at all, prices will stagnate 20 years before fundamentals catch up.
Overall, I think there is a good shellacking coming for the market. 50% isn’t going to be limited to the new buildout. All those formerly “rough” neighborhoods in South Coast Metro that have more than doubled since 2000 are done for, Anaheim, Buena Park Cypress …
HB, Seal Beach, Costa Mesa, old Irvine they’ll close in on 50% Maybe only 40%. Their proximity issues are countered by age issues. Dated floor plans, dated everything, and step updating costs and hassles. The boom went so big in areas like Eastside Costa Mesa, go ahead try getting a permit to add-on or rebuild your property anymore. Hassle central.
South OC? I wonder if they won’t lose 50% just on the bank REOs liquidating out the fraud properties.
Premium properties, that will probably only go down 30%. But premium is finicky. House, lot, view, location, all need to contibute to premium. None of this “ocean view’ premium when you have to look out a corner bedroom window at one angle to see a tiny sliver of blue.
As an ex-stockbroker and ex-realtor I was lucky enough to experience the dot-com boom and bust (from afar), giving me the foresight to spot a bubble.
Once rent failed to pay off the mortgage on investment properties, that signalled the start of a bubble. All I kept saying to people is ‘you can never tell how long its going to last, or how high its going to go, you can only say that its overvalued and consequently is going to pop.’
I have always compared it to the dot-com scenario.
People bought shares in loss-making companies with the aim of making money from capital growth. And the only basis of future capital growth was that of past capital growth.
Now look at the property market.
Investors buying properties where the rent doesn’t cover the mortgage (loss-making business).
They buy with the intention of capital gains, and, as fundamentals do not support this happening, they base their belief on past performance.
People really are stupid !
Yes and no. Some areas, TR, TRidge, Newport, Laguna, are by definition “up market, premium areas”. True, the cheap condos in TR can be seen as a mistake today because they are not as nice as the rest of the housing stock, but then you got the same in Laguna.
But, by and by, I still think that the newer areas will be hit the most, regardless of where they are. Premium or not. This is because most people bought at the peak in those areas and have the most onerous mortgages and Mello Roos taxes -in general.
And you can not flatly state price fluctuations per city. This is a neighboorhood by neighboorhood, or village by village in Irvine. As you note, parts of Costa Mesa were overpriced to the hilt.
Have you seen the prices in Hungtington Beach? Now that’s even scarier than Irvine -for example. Homes in Huntington Harbour are through the roof but then you got homes by Adams that have no right to be worth a million… and just you try to get earthquake insurance in liquefaction land ( this appies to most of Irvine btw, the hills are immune to that).
I still hold to a 30% decline. But then, I think I might not realize how overpriced my home might have been at one point. I figured all I could get at the peak was like 420 bucks per square foot, but even today there are homes that are still original going for almost 500… so perhaps I understimated the bubble. If so, your 50% is my 30%.
I think this article and this website are very interesting. To me, so much of what you are writing about makes sense to me. A lot of it are things that I have thought about myself, but I don’t know the industry enough to really back up my opinions.
My question – do you know of any good rebuttals to this sort of evaluation of the housing market?
I have not found a good rebuttal to any of the bearish arguments. Mostly what I see from the bulls is “prices will go up because prices must go up.” I have read everything from foreign investors will prop up our market to the FED will hyper-inflate the economy to support prices, etc. If any of the arguments were good at all, I would take the time to examine it in a posting and see if I could refute it. So far, nothing I have seen has been worth the effort as it is all bad. If you find what you think is a good bullish analysis, please post it or email it to me. I would like to see it.
Sounds good. I showed your site to a friend of mine who is a homeowner in the Inland Empire. He thought your site was just fear mongoring.
I’ve never read the theory of housing prices should be in line with rent prices, but it makes a lot of sense to me.
I think we’re talking much the same. And while I say cities, I realize it’s neighborhood by neighborhood.
It may sound trite; however, the market we are heading into is going to be about separating the wheat from the chafe. Sadly, I think the vast majority of buyers in this run up will discover the units they snapped up because they were only thing on the market or only thing they didn’t get out bid on is chafe.
I also tend to look at the bottom end as a boat anchor on the market. The upper end (quality wise) will hold better probably only losing 30%. On an individual house by house hunt, you may get one if the timing aligns just right at 50%, but in general, the market will be 30%ish for that level.
The other end of the spectrum may literally be 1/3 of peak prices. Yes, 60-70% loss. I’ll show what I mean by the other end and would love people’s view on what rental value, owning value is for the properties I highlight.
Let’s start with a property like 23304 Orange Ave #1, Lake Forest MLS #P573079. (http://redfin.com/stingray/do/printable-listing?listing-id=672774)
It’s a 1/1 condo, no garage, built 1980. Asking $310K. Association is $250/month. Rental value at the moment is $1150 and falling.
To a cash flow investor, what’s the value of the above unit? Last sold in 2004 for $255K. Peak would probably have been over $300K. Previously sold for $74K in 1997.
I look at real apartment buildings like this one in North Hollywood (http://walshgroupmm.com/2007/05/18/32-units-in-noho.html) and I see GRMs in the 9/8 range. Do the buildings look similar?
The second property is in the same complex as the first, it’s a 2 bedroom, 1 bath, no garage. It’s 23300 Orange Ave #1(http://redfin.com/stingray/do/printable-listing?listing-id=674691) Last sold for $374,000 in Aug ’06. 2 bedrooms in Lake Forest are showing rent prices of about $1450 however that is typically 2/2s with garage and indications of price incentives are showing. This is 2/1, no garage. Previously in 1999, this unit sold for $95,000. Before that at bottom, it sold for $65,000 in 1997.
If I take bottom plus 5% a year, I get a target price of $105K. If I use 1999 +5%/year, I get $130K. If I use a GRM of 9 on 12 full months at $1400, I get $140K. Frankly, I think the $1400 is wishing price rent. So I’d guesstimate this place around $130K, maybe less since it’s a 2/1 without garage.
No let’s move over to 23252, a 2b/2ba in the complex for sale at $395K. Neighboring units sold for $380-$390Kish. Again, no garage, it claims a storage space… What’s rental value? $1400 on a good day?
Finally, the last of the complex, the 3/2s. They have recent sales at the $430-450K range. Let look at http 23266 Orange Ave #1. ://redfin.com/stingray/do/printable-listing?listing-id=638482 Again, carport, it says HOA $145, but Unit #2, says HOA $276. Rents at the 3 bed level get a bit dicey since so many listings are actually SFRs. This is a small 1130 square foot condo. Circa 1980 tile, cabinets, etc. Giving the 1/1s, 2/1s and 2/2s in this equivalent apartment complex, what’s the extra bedroom and 100 square feet going to add? $20K, $10K?
Look over at the Wish Upon a FallingStar thread and what do you see? A 1/1 condo with 850 sf, wanting $419K. Rents in Irvine, exorbitant. However, what does Woodbridge have that a person looking a one bedroom, one bath apartment want? A community geared to family?
Depending on where this end lands, the next value grouping adds a little premium to that. The next value level, a little more. The bottom will have a little less pull on each level up. Frankly, I’m not sure what the premium will be at the 3/2 SFR level. On one level, they’ll compete with the above units as rentals. On another level, they’re a premium as escape from the above units “apartment” life.
I want to thank you for blending Psychology 101 with a wealth of experience in Real Estate. We all know business is first Psychology and than specialized knowledge and I have my own niche that is well documented and you have my respect
As quickie follow-up. I notived on a foreclosure link from another blog.
There are two other places pushing $200K now. One is at $236K the other $245K. Of course, the original (23304 Orange Ave #1, Lake Forest MLS #P573079. (http://redfin.com/stingray/do/printable-listing?listing-id=672774) ) is still at $310.
The unit at 23302 #10, at $245K, is schedule for auction at the courthouse Monday (7/16/07) at $224K. http://recontrust.com/property_results.asp?county=Orange
We can hope for a run of heavy inflation to bail us out of the real estate mess and when you combine that mess with the similiar national war debt it is pretty obvious we are facing a situation like the situation in the end stages of the Viet Nam war into the early 1980’s.
Back then, if I recall correctly, we had a crappy stock market…….I went to college back then and I have always thought I should have put the money in the market and screw the education……..but real estate was climbing………
It seemed to climb to a bubble in the late 1970’s out here in Ca and then we had a bust in about 1983 or 84 in the aftermath of Volker raising interest rates…………the inflation rate was dropping and the stock market took off…………….
Real prices might not go up much for a while but dollar denominated prices would……..for example, if you consider the value of OC real estate in Euros………..it has taken a real hit………..
And one other kicker……….the Chinese, as I understand it, still have draconian currency controls so the average Chinese cannot take his funds out of China……….this will relax at some point in the next few years and when it does………….don’t you think the average small industrialist in Shanghai would rather live in Newport Coast and send his kids to the hoity toity private school? I mean the dream of everyone in the world is to get their kid into Harvard and marry them to the child of a hedge fund manager……I remember Nguyen Thieu, Premier of Viet Nam, and his daughter……graduated from Penn and married a banker with one of the big firms………..or the average warlord in Iraq who has amassed a few hundred million of our tax dollars???
When the Chinese can buy in OC………what will happen???
Oh great blogger in OC………..I await your answer eagerly……….
Somebody has been reading the Illuminatus Trilogy!!
I’m so old I read it when it first came out.
Also, materials costs for houses and such may not go
down because the Chinese are continuing to buy all the
materials in the world.
At one point in Miami, a couple of years ago, pool companies
couldn’t get concrete, because the Chinese had bought all
the concrete in the world.