I enjoy looking back on some of the nonsense and denial among the bulls. I came across this one recently: Was there a Housing Bubble?
If you can’t see a housing bubble in February of 2008, you are truly blind. Here is my favorite piece of analysis, “Prices will probably drop some more but personally I don’t expect to
ever again see index values around 110 (referring to Case-Shiller). Do you? If we don’t see the
massive drop back to “normal” levels then the run up in prices should
be described as a shift to a new equilibrium – much as happened during
World War II – see the chart. (It’s an important question to ask what
changed and why?). In the shift to the new equilibrium there was some
mild overshooting, especially due to the subprime over expansion, but
fundamentally there was no housing bubble.”
His argument or observation shows the wanton ignorance of real estate economics displayed by most purchasers during the bubble. He examines a chart showing a stable, 50-year trend in house prices, and makes the assumption that this is not based on fundamentals, and there is some new fundamental out there that is going to establish an equilibrium at some higher price level. He asks and fails to answer the key question “What changed?” The answer is a wild expansion of credit and a total abandonment of lending standards while simultaneously embracing unstable loan programs. In short, a bubble. His failure to recognize what happened is why he cannot fathom a price drop back to the fundamental price levels stable for the previous 50 years.
It reminds me of a bullish post I saw over at the OC Register Blog some time ago. One of the posters was chiding Peter Schiff by saying that anyone who predicts a 50% decline in home prices has lost all credibility because such a price decline was simply not possible. Oh really? I remember the indignation of the poster — or was it ignorance — I guess it is all the same for bubble bulls.
Let’s take a trip down memory lane. Tell us about the most ridiculous bullish comments you heard during the bubble, or post links to bullish articles and prognostications that have proven to be totally wrong.
I might be wrong
I might be wrong
I could’ve sworn I saw a light coming on
I used to think
I used to think
There was no future left at all
I used to think
Open up, begin again
Let’s go down the waterfall
Think about the good times and never the bad
Never the bad
What would I do?
What would I do?
If I did not have you
Open up and let me in
Let’s go down the waterfall
Have ourselves a good time, it’s nothing at all
It’s nothing at all
Nothing at all
Never look back
Never look back
I Might Be Wrong — Radiohead
Actually, I don’t remember much superbubblicious discussion. At closing towards the end, people would ask me what I thought. I said I had no crystal ball, and in the short run there was a possibility that it might go down, but in the long run, I thought Miami-Dade was nearly built out, and things had to go up. Actually as to single family houses with decent sized lots–decent defined as at least 2ce you guys accept in Irvine–the built out part is true. What i didn’t take into account is the fairly large number of people who bought more than one house in the hope of appreciation, who had no cushion, and didn’t have their own residence anywhere near to being paid for.
The towers—ppfffffttttt!!!!!
I didn’t take into consideration the effect the towers have on everything else either. True, they are competing for a certain (now, non-existent) market, but that mkt competes with all the other markets.
I was saying what I really thought at the time. After all, real estate here had only gone down once since I’ve been in Miami, in the early 80s.
I did tell people that.
People did want to know how come I didn’t buy, and I said, which is also true, that I’m just sooo conservative, and don’t like to go into debt at all.
I feel a tad guilty, but what for? Would anybody
have refused to close because of my opinion? Nope.
From my collection of OC real estate web page clippings:
————————————————
Thursday, December 15, 2005
Bullish on O.C. prices
Real estate experts predict values will stay strong and weigh in on foreclosures, risky financing and housing crunch.
By MATHEW PADILLA
The Orange County Register
Orange County’s home prices won’t drop next year and could rise 3 percent to 15 percent, according to a panel of local experts.
A majority of the 10 experts on a Register-sponsored real estate roundtable predicted Tuesday that prices will increase more than 3 percent next year, while four of them said prices will remain flat.
The panelists included economists, real estate executives, consultants, a researcher and a broker – all with knowledge of the local real estate market.
Their optimism is more or less in line with the UCLA Anderson Forecast’s recent prediction of a 6.9 percent rise in home prices in 2006. The gurus at Chapman University are more bearish; they forecast a 4.2 percent dip in prices next year.
Gary Watts, an economist and broker in Mission Viejo, was the panel member most bullish on Orange County. He said home prices will shoot up 15 percent next year.
Walter Hahn, a consultant and real estate economist in Irvine, said the county should keep seeing double-digit gains in home prices until the next recession.
“We have a tremendous amount of income and wealth,” Hahn said.
The county is attracting high-paying technology and professional-services jobs, he said, and those workers can afford Orange County’s prices.
The area’s weather and beaches are luring executives and workers, and they continue to demand more homes than there are for sale. Result: higher prices next year.
Still, some panelists see home prices moving sideways as interest rates rise in 2006.
Speculators betting on quick home-price appreciation are investing outside the county, said Scott Anderson, a broker with Platinum Properties in Newport Beach.
In addition to home prices, the panelists weighed in on risks and benefits of creative financing, prospects of widespread foreclosures, and solutions to the housing crunch.
The prevalence of easy money is a concern, and much of it originates in Orange County, according to Scott Simon, who heads the mortgage investment team at the Pimcobond firm in Newport Beach.
“This is the hub of creative credit in the world,” Simon said.
Simon said some lenders have dramatically increased the amount of interest-only loans they make in recent years. The trend has helped increase the percentage of Americans who own homes, but has led to a number of buyers borrowing too much, he said.
A day of reckoning for some buyers could be in the offing, according to Simon and some other panelists.
Several panelists said homeowners most at risk of foreclosure are those who bought homes since 2003, have no equity, and have adjustable mortgages with very low rates. Most buyers before 2003 have built up a fat cushion of home equity to fall back on if mortgage rates rise, they said.
The number of homeowners at risk of foreclosure probably is in the range of 7,000 to 8,000, said Chris Cagan, director of research and analytics with First American Real Estate Solutions in Santa Ana. That total would represent 7 percent to 8 percent of local buyers over the past two years, he said.
Cagan said that if all of those at risk defaulted, it would add about two months’ supply of homes for sale to the market, not enough to sink it.
Anyone waiting for a major spike in foreclosures to buy a discounted home should forget it, said broker Watts. “They’re not going to see it,” he said.
Roundtable members expressed concern that the county fails to produce enough affordable homes for its workers – a problem both for workers and for employers.
High home prices have been a slow drag on economic growth here, according to economist Hahn.
Some relief is coming from homebuilders constructing houses and condominiums in developed areas, what the industry calls “infill.”
The trend should help restore some balance between homes and jobs, but more solutions are needed, panelists agreed.
“Just about every homebuilder has opened up a redevelopment arm (for infill),” said Raphael Bostic, an economist with USC.
Lucy Dunn, who heads the Orange County Business Council, said some regulations that put a brake on development should be streamlined.
In order to allow more land to be developed, she said the public needs to reconsider how much open space it wants.
“Not every piece of property can be saved,” she said.
Contact the writer: (714) 796-6726,or mapadilla@ocregister.com
I do have some hope on the it’s different meme.
Forget foreigners, but what about the snowbirds who suddenly discover that they can’t afford to heat their homes anymore?
You can turn the ac to 82 instead of 78 if you want; you can turn on the ceiling fans; you can sweat. But you can’t let your house go below freezing.
thats what Phoenix, Vegas and Carona are for!!!
On the face of it, it would seem that warm climes would be attractive to snowbirds like myself. Believe me, winter was COLD here in Chicago last year, and I thought of all those empty towers in Miami quite often as the arctic breeze wafted through every crack, while I huddled on the sofa under blankets.
Yet, it is easier and cheaper to warm up in the cold than it is to chill in the torrid heat, and my memory of St. Louis summers is enough to put me off full time residency in the south. I went out from heat prostration twice there, and if you have never experienced heat stroke, you can’t imagine what a relief the relatively cool summers are here.
So as dearly as I love Miami and always will, it is a second home, a place for a few weeks respite from February in Chicago. I just can’t see myself fronting the cost of air conditioning in the summer.
We will move to smaller dwellings, and many of us will forsake single family with 2500 sq ft for 1600 sq ft condos in cities and small towns and small town-type inner suburbs. Many of us will ante up the money for geothermal installations, figuring that the steep upfront cost will pay itself back many times over in the future.
I can’t think what middle income and lower middle income folks were ever doing owning 3,000 sq ft houses and 3 cars out in the exurbs, anyway.
We might even be forced to go back to burning coal.
We will surely be wearing more sweaters and utterly un-sexy nightclothes and thick socks.
But, for some reason, the northern climes have always been where industry flourished, and when heavy industry returns to this country due to stratospheric transportation costs, I believe that it will locate in Detroit, Chicago, St. Louis, Milwaukee, Syracuse, Rochester, Indianapolis, Cleveland, Cincinnati, Pittsburgh….if only the stone-brained political and business leaders of these places stop trying to pretend it’s still 1965, and totally kiss the old industries goodbye.
We have not found ac to be particularly expensive.
We have 2 zoned 2 story house and ac the floor we are on only.
So we run from ac’ed house to ac’ed car? 6 months or more of the year we are not using ac at all, and have the windows open. Merritt Island has a few cold days where we must heat, but really not very many. You guys run from heated house and job to heated car, I think ‘way more than 6 months a year.
But if you are particularly sensitive to heat then Fla’s not for you.
I have a friend in Wast Va. She has a wood stove and that, and the way the house is designed, heats the house
As to coal, the mining industry is continuing to use incredibly destructive means to get at the coal. The gov’t honchos are of course bought off so they can take the entire tops off mountains.
The midwest is unliveable from Jan-March(low-mid 30’s). About three months give or take a couple of weeks.
Fl(humidity), AZ, NV and SoCal IE and desert(110 degrees) are unliveable from June-September.
About four months give or take a couple of weeks.
While I was looking at some of my archived web pages for this topic, I came across this clip which I consider fairly accurate. Interesting that this was published a full month before the “bullish” article I posted above.
———————————-
Outlook sours for real estate
Many indicators point to a major slowdown in home prices.
November 15, 2005: 5:47 PM EST
By Les Christie, CNN/Money staff writer
NEW YORK (CNN/Money) – NEW YORK (CNN/Money) – Did homeowners who sold in September get out just in time?
The latest report on third-quarter home prices, released Tuesday by the National Association of Realtors, showed continued strength. But increasingly there are signs that prices have plateaued.
[Poster’s note: I had to trim this article, removing stuff that originally appeared here, to fit within the maximum post length].
The signs include:
Builder pessimism
The builders DeKaser surveys are less optimistic than they were even a few months ago. Separately, one leading builder, Pennsylvania-based Toll Brothers, announced last week that expected demand for 2006 would be down, resulting in moderating price increases and fewer sales.
New-home sales declining
DeKaser also notes that the number of new homes sold have fallen sharply since peaking in July at an annual rate of 1.3 million units.
DeKaser calls new-home sales (rather than existing-home sales) the canary in the coal mine. “Developers tend to be more sensitive to market conditions,” he said. They have cash flow issues, payrolls, and loans that put more pressure on them to sell.
Ordinary home sellers are often more selective than developers, even taking properties off the market if they don’t get the price they want. Developers have to drop prices to move inventory.
Inventories rising
Supplies of new homes are way up, to nearly 500,000 units, from 350,000 a few months ago. “That’s an all-time high for new homes,” says DeKaser. The higher the inventory, the more likely prices will fall.
Sell times are up
Houses are sitting on the market longer. New homes now take about 4.1 months to sell and existing homes 4.7; both figures are up substantially.
What to expect
In a recent survey, NAR members say they predict home prices to rise only 5 percent in the next 12 months. Nearly half of the realtors predict prices will rise less than five percent and 6.4 percent actually expect prices to fall.
“You can’t expect double-digit price increases to go on forever,” said Walter Molony, spokesman for NAR. “We’re seeing a market in transition in which there’ll be an easing of price increases in the future.”
While DeKaser expects a slowdown, he predicts an “orderly transition” for the most part, with some exceptions. “There will be busts in some markets,” he said. “Mostly, we’ll come out of it unscathed.”
For the most part, DeKaser doesn’t envision losses on that scale. He thinks home prices will decline 1.7 percent during the fourth quarter of 2005 and stay almost flat all the way through 2007.
But history shows that some over-valued markets could fare much worse.
Molony points out that the most severe drops in real-estate prices are usually triggered by an underlying economic crisis. After oil prices went into a six-year decline in the late 1970s, housing prices in oil cities experienced steep drops.
In Oklahoma City, prices plummeted 26 percent in real dollars from 1983 to 1988. With inflation, the “real” loss was more than 40 percent.
Houses in many oil patch cities are worth less in real dollars than they cost more than 20 years ago.
———————————————-
I like that chart the bull references. http://www.marginalrevolution.com/photos/uncategorized/2008/02/12/house_his_2.gif
You could really look at it and say, hmm, since the 1950s, things are really predictable even giving the shift in values of the country. It hovers around 110. The base enabler is financing and the Government sponsorship of ownership through tax benefits and FHA style programs.
When you look pre-world war 2, you see the effects of tight credit markets, disinvestment and economic slowdown and lack of jobs, a index of 70.
Hey No_Such_Reality
You NAILED it!
No way can a dopey realturd dispute that.
Charts dont lie, but people (realturds) do.
Knowledge is POWER.
addendum:
That chart above just show how far DOWN the real estate market is going to go, and the condo market is going to be even worse!!!!!!!
Think: Regression back to the mean.
You have to be an abolute IDIOT to be buying between now and 2010. Just save your money and wait till all the Alt-A and Option Arm garbage “washes” through the “system”.
It says that chart is inflation adjusted. That, I assume means that the chart is also deflation adjusted during the great depression…
I just realized, by reposting complete or partial excerpts from other web sites I might be violating some laws. Sorry about that IR, I understand if you remove my previous posts. I’ve been archiving content rather than links, because I don’t trust the media to always make these pages available.
However, I see the OC Register article is still available here:
http://www.ocregister.com/ocregister/money/abox/article_891975.php
Looks like the CNN page can be found here:
http://money.cnn.com/2005/11/14/real_estate/buying_selling/prices_going_south/
Also, looking over some old, archived web pages, I am reminded how one could not look at a real estate themed web page without seeing a large banner ad or side bar ad for mortgage rates with some kind of catchy animated gif and a set of something representing each state (apparently you were supposed to click on your state although like most of these ads clicking anywhere takes you to the advertiser).
I wonder if anybody archives famous (or faddish) banner ads. I usually try to avoid looking at them (and with Firefox I’m now able to do that), but back in the days of the bubble, those ads may have been contributing to the bubble. I wonder who was behind that style of ad and how successful they were (in the short term).
You are usually fine quoting part of a post or article and giving the URL. It’s posting the whole thing, and especially without a link, that overdoes it.
I have a web page clip that represents the continued denial of NAR in the face of plummeting sales that “everything’s going to be okay”.
Mysteriously, I’m unable to find this (or pages like it) with the CNN search tools that refer to the “National Association of Realtors”. It’s as if they never made a statement about the bubble. Or could be I’m just not using the search tools properly (so please correct me if you can find this).
Here’s excerpts from the article I hope are legal. And if it is legal for me to post the whole thing, I can do that too.
————————————————
A little softness at home
Realtors say existing home sales, while still historically strong, at the slowest pace in almost two years.
By Chris Isidore, CNNMoney.com senior writer
February 28, 2006: 11:49 AM EST
NEW YORK (CNNMoney.com) – The pace of home sales slowed slightly in January, according to a trade group report Tuesday that showed a growing softness in the closely watched real estate market.
Jeoff Hall, the chief U.S. economist for Thomson Financial, who doesn’t see the recent run-up in real estate sales and prices as a “bubble” that could pop, nevertheless believes there will be downward pressure on prices going forward.
“I do think there’s an oversupply of homes on the market, both new and existing. Demographics suggest as well that supply and demand will tilt to more oversupply,” he said. “I think it is a buyer’s market now and it will be even more of a buyers’ market six months from now.”
Realtors President Thomas Stevens disputed Hall’s view about a buyer’s market, arguing that the increased inventory is merely alleviating what had been an overly tight supply.
“We see the momentum of double-digit (percentage) appreciation being sustained in home prices,” he said in his statement. “Even when home sales slow, they still supply solid returns.”
But the Realtors’ report acknowledges the latest reading is another sign of cooling in the real estate market.
“In the wake of interest rates peaking in November, I expect we are in a bit of a trough that may be followed by a modest rise and then a general plateau in the level of sales activity,” said David Lereah, the Realtors’ chief economist, in the group’s statement. “Existing-home sales should stay below the record levels experienced over the last two years, but they’ll maintain a historically high pace.”
Imagine those Marquee towers in Irvine in a few years, and see link below…
http://link.brightcove.com/services/link/bcpid452319854/bctid1126133172
You can see some of the crashing condo projects in Thailand left over from the Asian Financial Crisis.
snicker.
Wow, that’s BRUTAL. I wonder if those Thais were sleeping out in front of the RE office prior to those condos going on sale as well, like the dopes in Florida.
Glad I was lucky to discover Peter Schiff back in 2004. Whew
But that could NEVER happen here! That’s Thailand not the good ol’ US of A.
(That’s the Kool-aid answer.)
That video is frightening. Now I’m starting to wonder if my 401K has an all-cash option.
bwwwaaaahhhhhhahahahahahhhahah !
“http://link.brightcove.com/services/link/bcpid452319854/bctid1126133172 ”
Will Irvine be the conerstone to the biggest ponzi scheme in history ?
You want bubble story? I probably got the biggest one so far (this RE bubble is nothing compared to this one)……..you guessed it: the infamous tech/dotcom bubble and I’m in the middle of the epicenter: San Jose, California.
I don’t have to go into details since you all probably know THAT bubble. The ones that are the worst offs are the ones that still owes AMT on ISOs that they exercised but decided to hold for long term cap gain (great strategy….NOT!)…imaging millions or even hundreds of thousands of worthless Washingtons in debt to IRS.
Interesting you should bring up the issue of taxation on cap gains on stock options exercised, without the holder selling the stock.
The arbitrations against financial advisors and stockbrokers who failed to warn their executive clients who excersized their stock options but failed to sell their stock, thus owing steep gains based on the price of the excercise on a steeply deteriorated asset, are still going on.
Even people with the best brains and credentials often fail to perceive the really obvious consequences of a seemingly profitable financial situation because they are so blinded by the dollar signs in their eyes.
So we can’t be surprised that so many common home owners sort of overlooked possible tax consequences while they were pulling all that equity out of their houses, that they thought was free manna from heaven.
2 questions for those more knowledgeable:
1. Where do you think the ‘bottom’ will be on the graph he posted? ( http://photos1.blogger.com/blogger/6089/1833/1600/shiller.gif for another look)
2. Can we tie this graph to the current Case/Shiller index? Effectively taking the graph to ‘current’ (well, april 08) rather than 2006.
Famous talk of bubble era:
*This is the best time to buy
*You will be Priced out forever
*No more land is being created
*Home prices never fall
Now post bubble bust:
*This is the best time to buy
*you cant predict bottom
*home values will start going up shortly, in 3-months
*Gov. will bail us out
For those who are upside down, yet optimistic:
*Eventually the prices will come back up, I have no regrets that I am upside down 30%.
*Wow, 40% discount, I am buying another one.
Fact of today:
*You may not get a loan at all.
*If you do, you may not have a job in a year from now.
*We are in the worst state of economy ever and inflation is just at the tip of the iceberg. $146/barrel crude represents $7-8/gallon of gas, why its at $4.5/gallon is a mystery to me.
Bad times are in front of us, staring at us before the big strom. Some big world bank is about to fail in next 3 months.
Enjoy your life while you have good times, spend time with the family and get ready for the bumpy ride ahead.
I concur 100%. Enjoy the last few months of the US being on “top” because from here on out, the US standard of living is going DOWN.
Enjoy it while it lasts.
And make sure your investments are in order to ride the DOWNSIDE of the markets.
There have been 5 or 6 Hindenburg Omens within the last few months, and I expect a CRASH in the markets soon.
I suspect MANY 401ks will be wiped out.
And protect yourself, because no one else can or will.
That is pretty much the way I see it.
It’s not a bubble. It’s a froth. Classic.
“Prices will probably drop some more but personally I don’t expect to ever again see index values around 110. Do you? If we don’t see the massive drop back to “normal” levels then the run up in prices should be described as a shift to a new equilibrium – much as happened during World War II – see the chart. (It’s an important question to ask what changed and why?)”
Moron. If it is important to ask what changed and why, (which it is), it is just as important to ask why the access to easy money was not change.
And yes, I do expect see those index values around 110, and even much less on an inflation adjusted basis. Because on a long term basis, the only thing that has changed is the value of a dollar and anytime the value of a commmodity with a accessible supply increases more than the value of other commidities, the value of that commodity will eventually decrease. Duh!
Someday I hope someone will write an analysis of the difference between the way things look and the way they really are in Orange County. On the surface of things it looks like everyone in OC is rich – newer cars, flashy clothes, full shopping carts, etc., but the reality is quite different. I wish someone with a real knowledge of local economics would explore this theme. It’s fascinating both from a statistical and a cultural perspective.
culture in OC?
Oct 20, 2004 – Greenspan contended that many measures of household debt overstate the size of debt burdens. While home mortgages have soared, the value of the properties has increased as well.
“Taking into accounts this high level of assets,” Mr. Greenspan said, “all in all the household sector seems to be in reasonably good shape”
http://nytimes.com/2004/10/20/business/20debt.HTML
And for hours after the Titanic hit the iceberg, taking into account its large size, it was still more afloat than underwater. Greenspan would have been conducting the band.
Way off topic, but … you can still get get the koolaid to fly…
http://ca.news.yahoo.com/s/capress/080706/koddities/lawn_chair_balloonist
I know that other markets are supposed to be irrelevant to local places like Irvine, but you must know that on the other side of the hill prices are really cratering — like $179,000 for big new houses in Perris, and $279,000 for Corona.
Do they even have high speed internet access in Perris ?
Overheard in the Vons parking lot (at Lincoln & Anaheim in Anaheim) last year:
Yuppie screaming into his permanently-grafted cellphone “YES, PRICES ARE DROPPING! BUT ANYTHING LESS THAN A MILLION WILL STAY STABLE! IT HAS TO! IT HAS TO! IT *HAS* TO!”