November 28, 2006

A rapid change in mindset is always the end of a financial mania or Ponzi Scheme


That's why the sudden death of the Late Great US Housing Bubble is playing out so text-book perfect.

From housing cheerleading (Time Magazine etc) a year ago, to articles like this today from CNN.

Nobody, except a complete idiot or masochist, would be out buying a home today given the radical change in the collective consciousness.

Thanks HP'er Karin for the great photoshop!

Home prices post record drop in October - Median price sinks 3.5 percent from a year earlier, trade group see more price declines ahead.

The price of existing homes sold in October fell for the third straight month and posted the biggest drop on record, an industry group said Tuesday, adding it expects weakness in pricing to drag on into next year.

The National Association of Realtors said that the median price of a home sold in October was $221,000, the same as in September, but down 3.5 percent from October 2005.

Where not to buy

California's Central Valley - Bakersfield, Fresno, Merced, Sacramento, Stockton
Southwest Florida - Fort Myers, Naples, Punta Gorda, Sarasota
The Jersey Shore - Atlantic City, Ocean City
Phoenix
California's Inland Empire - Riverside and San Bernardino counties
The Bottom 10 - Stockton, CA, Merced, CA, Reno/Sparks, NV, Fresno, CA, Vallejo/Fairfield, CA, Las Vegas, NV, Bakersfield, CA, Sacramento, CA, Washington, D.C., Tucson, AZ

30 comments:

kilobar said...

I listened to Bernanke's speach and he thinks the worst in housing is behind us. HAHAHAHAHAHAHAHAHA!!

Anonymous said...

said with a straight face or a gun to his head?

Anonymous said...

Yet, "substantial uncertainties" surround the Fed's outlook, Bernanke said in prepared remarks to the National Italian American Foundation in New York.

The slowdown in the once sizzling housing market could turn out to be deeper than expected, putting an even greater drag on overall economic activity. Or, Bernanke surmised, economic growth could rebound more strongly than expected, which could lead to a flare-up in inflation.

http://biz.yahoo.com/ap/061128/bernanke.html?.v=6

borks my bitch said...

I want to know what kind of idiot is out there buying a house. Our local idiot Bork even knows better.

Anonymous said...

But Greg Swann researched it!

Anonymous said...

I have a question its something i have noticed here in California. It fits with this report. With the bond market in full rally mode thinking housing is in the total crash which it isnt yet. They have driven Yields down which from what I have seen here has spurred more (believe it or not) home buyers hence the higher sales number this month and the small price drop in the west. Until the bond market pulls back alittle i dont think we will have a full crash. idiots still think its a great time to buy with rates low and lots of homes to chose from. I think the fed will not cut rates until this time next year, but if the bond market keeps acting like its the next meeting the soft landing scenario will play out.

Edgar said...

Part of the reason median housing prices are staying so high is because they keep building upper end $hit. The story is the excess inventory. Stupid idjits.

Anonymous said...

Hey, the auction market will undermine the realtors. There's no need to worry about the world's oldest profession.

Anonymous said...

It will crash - no matter what the bond market says.
I think everyone that wants, needs or has even been inside a house, now owns one ...
Bond markets predict recessions and its predicted one as recently as last month, this months improvement in the bond market ... rememeber that its 12 months ahead. maybe Sept 2007 will be worse than Oct 2007. I think housing it toast, the rest of the economy will contract but not severe enough to call it a reccession. Just my guess.
Cool.
Cow_tipping.

Edgar said...

In this video interview Princeton University economist Paul Krugman actually uses the word "bubblicious". Unfugging believable.

LauraVella said...

Great photoshop job! I love the teeth taking a big bite from the hand that feeds it.

I was in the bay area last week-believe it or not, saw some sale pending signs!

These people are nuts I tell ya.

LauraVella said...

LOL, just noticed the fire burning in the background house.

That reminds me...

On the local news here in Reno, a mysterious fire burned down a historic home on Arlington Ave here two days ago. I happend to drive by yesterday and saw the temp fencing all around the property and a firetruck out front. It was a large beautiful home, the owners were in the process of remodeling - nothing like a bonfire in the middle of the living room to give you that cozy Thanksgiving feeling!

Said it was arson on the nightly news...

foxwoodlief said...

Keith, I thought your general thought was that it wasn't good to buy anywhere in the world with the current bubble. If the major markets have a major meltdown it will affect even the more modestly priced areas too.

Still, I believe that even those areas deemed "safe" to buy have thier own pockets of bubble prices. Even here in Austin there are areas that defy logic. I was at an estate sale on Saturday and thought the house in North Central (Allendale) was maybe $225,000 and the flyer said, $420,000! It didn't even have a garage and was maybe 1500 sq ft and a fixer! Take the payment on that with 20% down and a 3% tax rate and say are you crazy? Then you can go ten miles out and find a 3000 sq ft house for $165,000 in foreclosure.

The markets everywhere are schizophrenic and crazy. I do think if you have the cash there are bargains out there and homes that are affordable but I also agree with most Hpers that if you really want flexibility, rent or buy a lot to build on when you can pay cash.

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Anonymous said...

There is absolutely no possibility for a soft-landing or even a hard landing. A crash landing is already happening, it's just that most people can't (or won't) recognize it. Historic manias can only be met with historic busts, there has never been an exception to this and there never will be. Look for a 50-80% decline in housing over the next few years. BTW: the fed lowering interest rates right now will have no effect. Manias are built on perception and psychology and die upon these same things.

keith said...

anyone see a major problem with this:

A recent study by Wells Fargo Financial shows that 72 percent of respondents to a survey believe the equity in their home is their most important investment. Among homeowners who have a home equity loan or line of credit, 82 percent say their home equity is most important.

Anonymous said...

"Manias are built on perception and psychology and die upon these same things."

Agreed, however, the vast majority still see a "brick 'n mortar" value of a home. What that tells me is that we're really at the nascent stage of the crash where there's plenty of denial in the mist.

It's when the conceptual construct of the home reverses and becomes like a noose around one's neck then that's when we'll see a rout in housing and drops in the 20%, 30%, and 50% zone.

devestment said...

If you are in Real estate services, the building trade, furniture trade, household trade, lending trade, restaurant trade, you are about to take a BIG PAY CUT. I know many of you made debit held investments based on yesterdays income. Well guess what, yesterdays income is going bye bye.

Anonymous said...

What is conspicuous by its absence on the overvalued areas list is irvine/orange county California. I wonder if there is there a possible conspiracy by the de facto owner of Irvine (the Irvine company), Doug Bren etc. to keep their town out of the news?

Anonymous said...

So, if housing is O.K. (sales up in October), but inflation is still at uncomfortable levels, then there really is no excuse for the FED not to raise rates.

Anonymous said...

I beleive that a portion of the irrational exuberence in the US housing markets is attributable to the FED's unprecidented interest rate reductions post 9-11. In an effort to prevent the national economy from falling into recession, the unintended consequence was near historically low mortgage rates.

Unfortunately, that also coincided with historically lax underwriting standards. The net result is that way too many people got qualified at an interest rate that had only one way to adjust, and they just barely qualified at that rate.

Because everyone in the pipeline only cared about closing the deal in front of them to get paid, who was looking out for the homeowner? No one.

That's the sad part in all of this. When the poor guy making $50,000 a year was allowed to qualify for a 450,000 Option ARM because the rate was 1.25%. In reality the APR (then) was 4.95% and the fully indexed rate was north of 6%. These people only knew that: A) real estate ALWAYS goes up and B) interest rates ALWAYS go down.

Time bomb.

Tick tick tick

Anonymous said...

where not to buy, speaking as a South Florida resident, if this isn't one of the "worst" areas I can't imagine what it is like in the other areas

Anonymous said...

Yes, South Florida (Floriduh) is probably all things considered the very worst bubble place to buy. Surprised its not on the list! It has a middle class exodus, just today on Drudge a member of congress was calling Miami a Third World Country. Add a weak economy in the best of times and a penchant for fraud and you have the best bubble popping show around. My bet-So Fla the worst hit by the pop!

Paul E. Math said...

Young people who would be potential first-time buyers need to be educated on the benefits of renting and the drawbacks of home-ownership. Once young people begin to believe that owning a house is not cool then there will be no hope for the housing market.

There needs to be more stories of losers like Casey Serin until we all associate real estate investment with gullibility and failure. Donald Trump needs to declare bankruptcy again.

Changes in the collective consciousness build slowly until some significant even occurs, a 'tipping point', as Malcolm Gladwell calls it. Like boots or hearts, when a mass psychological phenomenon starts, it really falls apart.

hyman69 said...

keith, tell us how bad the dollar is in the u.k. for tourist services. food, lodging,shopping ect.

Shakster said...

Kieth-

personal experience says that when the home equity vanishes(Realization) will be the period of joe sixpacks highest anxiety.

Anonymous said...

borks my bitch!

We have a new winner in the best name category!

Congratulations!

NYC_COP said...

Keith,

I have not been keeping track of the falling prices. I know the median home price just fell 3.5 % and I believe it fell 10% last month. What was the decline prior to that? It seems that all of those cheerleaders out there that were predicting a mere 10% to 20 % overall decline are in for a shocker.

Thanks

foxwoodlief said...

Keith, I thought your general thought was that it wasn't good to buy anywhere in the world with the current bubble. If the major markets have a major meltdown it will affect even the more modestly priced areas too.

Still, I believe that even those areas deemed "safe" to buy have thier own pockets of bubble prices. Even here in Austin there are areas that defy logic. I was at an estate sale on Saturday and thought the house in North Central (Allendale) was maybe $225,000 and the flyer said, $420,000! It didn't even have a garage and was maybe 1500 sq ft and a fixer! Take the payment on that with 20% down and a 3% tax rate and say are you crazy? Then you can go ten miles out and find a 3000 sq ft house for $165,000 in foreclosure.

The markets everywhere are schizophrenic and crazy. I do think if you have the cash there are bargains out there and homes that are affordable but I also agree with most Hpers that if you really want flexibility, rent or buy a lot to build on when you can pay cash.

Anonymous said...

hello

the market sets the price , not what you want it to be- you have to dig a litlle deeper to see if a particular property or area is worth it

Also, your OWN extreme bias is showing by what you left out of your post-

"House prices down 3.5%" ok, but why didnt you give the rest of it 102 metro areas had gains, while 45 (less then half the first number ) declines-

it obviously didnt fit your view to add those stats, which hurts your credibility big time

and you said where is overvalued, but you didnt add the part by the consulktants who put that out where most other areas are fairly or even undrvalued..

this seems more of a venting ground for those who wish housing to collapse from here then a fair discussion which is just as bad as the realtors who spouted things alwys go up in arizona or whatever..

can someone tell me where the more unbiased blog discussion is on either point of the bubble discussion thanks..