August 30, 2006

Scary bubble chart of the day

58 comments:

Anonymous said...

Well, that one pretty much sums it up.

Are there still some visitors here that honestly beleives its now time to "invest" in a house again only after these few initial weeks of falling prices?

Dragasoni said...

Wow, we're starring right into the eyes of the best bubble in history! This one can't possibly end good...

-Dragasoni-

Anonymous said...

yep... its going to be a rough couple of years ahead i reckon... gonna buy up stock in tomato soup cause thats going to be a main food source for many that go upside down and inside out... to bad we got to this point...

Anonymous said...

The correction may not go back down to the mean as showed, there could be a new mean and housing market may correct by half (50%)of the latest rise as in the 1940 to 1945 bubble correction.

Anonymous said...

corrections usually overshoot the mean on the way back down

Anonymous said...

corrections usually overshoot

That, again is the norm and true. This is a very extrodinary situtation, and may be the new historical mean.

Anonymous said...

Anon 1:58:39,

I agree that it will not go back to the 80's mean. It will correct relative to the current average personal income. Still, it's not favorable to those who bought at the peak.

SeattleMoose said...

Its gonna be mean....

Anonymous said...

That is not a chart; that is a rollercoaster!

Joey said...

Just as it was overenthusiasm and euphoria that drove it up, it will be trepidation and fear that will drive it down.

A smart marketer can make a whole lot of money in this environment if you can remember that.

devestment said...

I was offered a fixer in Glendale yesterday for $615K with a $700K house right across the street. They will take $550K. What will this do to the comps in that neighborhood?

East of LA said...

this is by far my all time favorite housing bubble graph!

trailer trash said...

{{Anonymous said... Are there still some visitors here that honestly believes its now time to "invest" in a house again only after these few initial weeks of falling prices?}}

Here is a true story from the city of Alameda, CA. A young couple I know leveraged their way into an $849,000 house that was built in 1895. They currently are making payments on a house in Oakland, so they obtained a bridge loan to cover the double mortgage situation. (The Alameda house had been on the market for 10 months before they bought it and, unfortunately, I don't know the original asking price. However, comps in the area indicate that $849,000 is approximately what it was worth 6 months ago.) They closed escrow on August 9 and on August 24, they put the fully-staged house back on the market for $1.1 million. Now, the house looks like a Levitz showroom.

Apparently, some Realtor convinced these wannabe power-flippers that he could quickly re-sell this house for a 250,000 profit. If this house-flip deal is such a sure thing, why didn't the Realtor buy it himself?

Anonymous said...

It might fall way below historical means and here's why...

For one, right now, housing is considered an asset class like bonds, equities, Monet oil paintings, custom jewelry, ancient wall carvings, etc. It's already been sociologically removed from its instrinic value, a place to live in.

As a result of this bubble, townhouses and condos were built at levels upheard of in America's brief history creating an overcapacity of units in practically every metropolitan region.

When the slowdown hits for real, all this supply will be converted to rentals and very quickly, landlords will be underbidding one another for decent tenants while simultaneously, people will be losing jobs, no HELOC cash flow for customer spending, etc. Of course, rich districts like Bel Air, CA won't be affected since most of those units are owned by multi-millionaires thus it'll be bifurified housing with relatively stable rich distincts vs non-rich districts (everyone else who works for a living).

The end result will be the loss of RE as an asset class which will cause the prices to plummet like no other. Once people no longer see RE as a dollar mattress but a liability (maintenance, taxes, structural depreciation, etc) then we'll see a brand new world of asset classes with RE falling out into the land of financial waste products (see Tulips or Cabbage Patch kids). And when that happens, it still won't be worth it for anyone to buy because secular bear markets take a long time to iron themselves out. At that point in time, they'll probably be a new entreprenuerial class of slum lords who'll own all the dilapidated RE of the 00s. And I don't think many people here on HP are tough guys who're willing to take on such a career track.

Anonymous said...

Too bad they did not overlay the adjusted annual wage increase on top of this graph. I wonder if you would even see it?

panicearly said...

that could be an ekg of a heart attack!

Anonymous said...

Keith:

I wonder if you can find a way to post the stock market chart PRECEEDING the crash of 1999/2000. It would be really interesting tosee them side by side, since some economists would say that this housing rout (bubble) will be worst than the stock market crash.

Anonymous said...

utah prices keep going up

borkafatty said...

NIZE NOTES:

The Personal Credit Crisis Begins


Below, we detail a conversation we had with a Beverly Hills mortgage broker, who sees many credit problems developing in the housing market. And now, as if on cue, Jesse Eisinger at WSJ reports on the credit crisis from his look at the numbers:

As homes sales have fallen and borrowing costs have edged higher, the mortgage business has slowed down. The big question is whether credit-quality deteriorates. While customers have been able to pay off loans in high numbers for years, the markets are seeing the first glimmerings of problems among customers with poor credit.

That's to be expected. But there are signs that problems will emerge among higher-quality borrowers over the next several months.

Almost as if they are following a script, the mortgage companies that cater to those with poor credit -- so-called subprime customers -- see trouble first, and they're already warning about emerging credit troubles.

Last week, H&R Block, the big tax preparer, alerted Wall Street that its Option One Mortgage unit, which focuses on the subprime market, would have to set aside about $60 million, or 19 cents a share, because borrowers were falling behind on their payments.

Customers of Countrywide Financial, which has products across the credit-quality spectrum, are paying loans off more slowly, as are those at subprime companies Impac Mortgage and Accredited Home Lenders. Mortgage companies, such as regional bank Fremont General, have begun putting money aside to account for loans going bad.

So far, late payments and defaults are relatively low. But the housing downturn is just in its early stages. In one of the first signs of concern in the market for credit-worthy customers, First Horizon National said yesterday that mortgage volume was falling so rapidly that it would miss earnings estimates for the current quarter. Less than 5% of First Horizon's loans are to customers with poor credit...

If the problems spread beyond customers with poor credit, they'll infect the world of exotic mortgages for supposedly credit-worthy customers first. Along with the companies that offered mortgages to customers who didn't produce much documentation of their income and assets, the more vulnerable will be banks that sold huge numbers of option adjustable-rate mortgages.


How bad will things get? Our Beverly Hills mortgage broker friend tells us that he fully expects so much product on the market from foreclosures that Beverly Hills homes now going for $3 million will eventually be sold for around $800,000.

depressed said...

now i have the definitive evidence to justify killing myself to my wife and kids. thank you, hp!

housing_economist said...

with prices having diverged from the long-term trend range by some 60-80% (largely as a result of adjustable rates falling from 6% to below 3.4%), house prices are still being listed as though rates and carrying costs were at '03-'04 lows. thay ain't no more, folks!

also, with the nominal gdp (and most gross state products) having grown only 5%/yr. since '00, and prices now up 50-70%+ during that period in many areas, one can extrapolate that, at the current 5% GDP trend, prices will go nowhere in the best case for 7-10 years but be down in real terms by 35-40% during the period and as much as 20-25% in nominal terms.

now, if we have higher inflation, it will take less than 7-10 years. if, however, we have a debt-deflationary scenario, as Japan did, then the 7- to 10-year scenario is much more likely with nominal and real price declines converging at the down 35-40% level (and much more in the most bubbly areas).

in any case, the next 7-10 years are going to be bad for real estate and the global economy.

iow, we're f@@ked.

Marinite said...

this is by far my all time favorite housing bubble graph!

You are welcome.

Anonymous said...

LOOK AT THAT F@&!&ING THING!!!!

I'm sure that mythical "soft landing" is right around the corner.

Wet_Chet said...

Does anyone know how Schiller defined a "standard" resale house?

1stMillionAt33 said...

That's a great plot. Just cannot be more obvious. The consequences of the housing bubble will be really bad.

Anonymous said...

David Lereah: 'To the MOON!'

Brahhahahaha

Common sense: 'LOOK OUT BELOW!!!!'

Anonymous said...

I am increasing the lenders in my housing bubble put portfolio. My Sept LEND positions bought in June jumped250% when the stock gapped dowhn.

My lender put positons include LEND, CFC, TMA FMT, NDE, BBX, RF, NYB and FHM.

The lenders are getting squeezed by decreased margins (yeield curve), lower numbers of loans and increased defaults. I think that medium term at the money puts (Jan-Mar 07' look like a good leverage to reward situaton.

Bill

Anonymous said...

I am increasing the lenders in my housing bubble put portfolio. My Sept LEND positions bought in June jumped250% when the stock gapped dowhn.

My lender put positons include LEND, CFC, TMA FMT, NDE, BBX, RF, NYB and FHM.

The lenders are getting squeezed by decreased margins (yeield curve), lower numbers of loans and increased defaults. I think that medium term at the money puts (Jan-Mar 07' look like a good leverage to reward situaton.

Bill

BubbleShanker said...

This sums up what I have been saying for 2 years, we need to go back to at least 1997 levels, period! Facts are facts, and now it is backed up by an out of control cup & handle.

a.creampuff said...

Depressed,

Please do not kid around about things like that. No matter how bad the economy gets, or what your banking account may look like, there's always a way. I don't know your personal situation, but if you are in fact feeling that blue, seek help.

I am surprised no one else on this board responded to your post, because they are good people. What's got you down, really?

a.creampuff said...

I have been telling people to look up a similar chart to this. It cuts to the heart of the problem.

Anonymous said...

It's a bird! It's a plane! No, it's the housing bubble at its peak and about to fall.

Anonymous said...

you are all flat out wrong. I think.


This is NOT a housing bubble chart. This is an actual non-cpi inflation rate chart.

this chart tracks the actual rate of inflation before the government manipulates it through the CPI



there is no housing bubble. there is only a dollar-value bubble

panicearly said...

cream puff is right depressed,

you need to disconnect your ego,
from your house your money or your possesions.
i lived with 3 sisters, my mother and father with just my dad working at $14k/year in the early 80`s and we were happy.
now im fairly rich, got all the material crap that one needs, a lot more than one needs, and lately been thinking what the fuck. something is missing. its family...

pack some sandwhiches and go enjoy some parks. live according to your own financial reality and dont compare to no one.

Anonymous said...

I'm with panicearly and creampuff. The happiest days of my life were in my early 20s, just married. We were flat broke, living on Ramen noodles and store brand soda.

I have an uncle who is a top executive at a fortune 500 company, several houses, all kinds of cars, private jet. He never seems very happy and his kids are all screwed up on drugs or in horrible relationships.

Money is not an honest measure of success. If you are really concerned about your financial future, talk to your family and friends. Don't give up all hope.

Anonymous said...

I agree with Panicearly completely. If all of us would just emulate Panicearly's example, the world would be a better place.

Imagine, if tomorrow, all of us will say - no more to huge mortgages, no more to 2nd jobs to finance debts, no more SUVs and more importantly, no more to "keeping up with the Joneses" attitude, the word bubble will disappear in the dictionary. Funny but true. It is our attitude and the culture we live in that took us where we're at.

Panicearly, you should take the lead. I will vote for you.

devestment said...

from:Wednesday, August 30, 2006 3:49:44 PM

Golly, no one asked for the address of the house in Glendale, California for $515,000. Come on, that’s $200,000 less than 6 months ago. Where are the pontificators now?

InfidelSix said...

Ok, I'll play. What's the address?

I even live in Glendale. There are some nice areas, a lot of ok areas, and a lot of crappy areasas well.

Anonymous said...

"The happiest days of my life were in my early 20s, just married. We were flat broke, living on Ramen noodles and store brand soda."

Well... speak for yourself.

Those were the most miserable days of my adult life. I hated living on frozen dinners, noodles, and Uncle Ben's rice dishes and driving dilapidated cars which broke down on the exit ramps of expressways. Oh... how it sucked!

My happiest days was when I was a successful consultant, earning a solid six figure income, and travelling around the world. Though I'd spent a huge chunk of it partying it up, I always kept a little in reserve which got me through the '01/'02 recession where I had $0 billable work. Fortunately, volunteering for various pro-bono assignments got me back into the fold of full time employment.

So yes, money had brought me happiness and I even have a long term international GF as a result of my adventures abroad. She lives in the States now. I'll never trade that for a Ramen Pride roughing it out lifestyle, while sharing a two bedroom apart w/ three guys discussing the intricacies of football pools.

Anonymous said...

Dang! Great graph.

Pretty much says it all.

Good job!

Anonymous said...

this graph is quite misleading. Yes, there is a phenomenal rise in prices but that doesn't mean it's an unjustified rise. That assumption doesn't take into account the demographic changes that have been the cause of the spike in home prices. Today the demand is very high and the supply is low. Especially in OC, new industry and development has created opportunities thereby increasing the population and creating very strong demand for Real Estate.

Anonymous said...

In my previous comment when I said supply is low you may counter with the argument that inventories are rising. This is only because people have gained so much equity in their homes that they want to cash out and make quick money. If they don't get their asking price which would result in a sizable gain for them, they will just pull their property off the market which will cause a lack of supply again and the cycle will repeat.

Anonymous said...

I believe the real estate market is number cause of inflation! Last 40 years two people need to work to survice. How the average worker can live on $25,000 when the average house price is $200,000! So the gasoline spike is nothing to the real estate spike!

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indiaBPOking said...

America is turning out to be one big rollercoaster ride...a twist and a turn and then a scary plunge!

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Anonymous said...

ok people, use your brains. remember inflation. the wwii boom leveled off for 50 years (except for couple spikes). when you adjust for inlation, the current boom is less than half as big as the wwii boom. 1940 dollars are worth $14 now. a $30k boom in 1940 would translate to $400K boom today.

Anonymous said...

take that chart and spread it out over time and it will not have the huge bubble effect-that also needs to take into yearly inflationn compounded and what the interest rate was for each year-would be nice to see the correlation between 30 yr fixed mortgage rate and availability of credit!-the banks have wrestled control away from the NAR just by [1] tightening credit/refusing credit
[2] not meeting apraisers valuations
the banks control/manipulate the markets always have always will-we could not find anyone writing FHA loans in 2005-no one wanted to jump thru the hoops for so little money! the YSP is way outta line still and it sucks our USA mortgage rates are pegged to the London Interbank offered Rate-international banking controls the scheme-until they open up the spiggots will homebuying restart with fervor-oversupply of housing has not helped-at least the homebuilders took a bullet for their greed trying to out sell eachother-when the troops come home there will be a run on housing again housing prices should appreciate at 4.5% percent annually to keep up with inflation-so a house value should double every 10 years if you are on one of the coasts or on water-this is al bulsheet smoke and mirrors by the banks-time to buy in certain cities where there are jobs and lack of space-SAN FRANCISCO-NYC-SEATTLE-PORTLAND-MIAMI-etc etc
nothing has changed in those locals if you want a house within 5 miles of downtown-happy house hunting-dont believe the hype-the only reason is banks taking away credit and keeping the interest rates high-6%
no need to double their investment in ten years