February 10, 2008

HousingPANIC Stupid Question of the Day

How will we know when the housing panic is over?

And when do you think that will be?


Anonymous said...

So many variables it is really hard to say when housing recovers.

Remember, a 30 year mortgage was designed by the banks at a time when it was normal to work in a factory for 30 years. I'm not sure what kind of mortgage product is appropriate today. Probably none. Housing costs should probably be 1/10 of what they are now for middle class people so they can pay cash. However, IMHO, Peak Oil is going to squash many peoples hopes and dreams.

We have completely gone off the deep end on housing design and production. Instead of building small, affordable, energy efficient housing we built houses that quite possibly no one will want in three years. Since it is almost impossible for anyone to get a loan right now, and that is quite rightly going to get a lot worse over the next three years, the current owners are either going to be stuck there or walk. My SWAG is that banks push some form of damage control through once the elections are over which seals the door on walking away. This will effectively lock in the people most likely to continue to pay on their energy intensive house even as energy costs accelerate and more cost effective housing becomes available.

People will take gravel roads and no HOA fees if it brings housing costs down to an affordable level which is 2.6 - 3 times gross income. While this is the oldest multiplier that anyone with half a brain remembers you never hear it spoken out loud any more. Why? Because most people who own homes would FREAKING LOSE IT if it was even mentioned.

"Yes, I know you paid $700,000 dollars for your house Jack but the average income in our area is $45,000 dollars per year so your house is really worth only $117,000 - $135,000 dollars. Jack? Jack? JACK!?!?!"

Anonymous said...

When we move to the currency of the Amero.

old gringo said...

How will we know? When the guy they appoint to run RTC2 steps down.

Anonymous said...

When you see Greg Swann doing gay porn

Budvar said...

"When you see Greg Swann doing gay porn"

2 weeks to go then?

Amtex said...

The first post of these comments by anonymous is excellent. Nicely stated.

Anonymous said...

When Greg Swann's house falls into foreclosure

Marky Mark said...

When the cover of the Time shows a dead house and when you tell your friends you are going to buy a house - they look at you like you are crazy and tell you housing is the WORST investment you can make...

Marky Mark

Anonymous said...

I think it being "Over" is not a singular point in time but is a process instead. And I think that process is just starting now.

I expect this spring market to be a bust, like last spring. But this is the consensus opinion and expectation now.

The last strong market holdouts like San Fran and NYC are folding now. And ARMs will continue to reset for the next 12 months, but financial controls are being put in place to cusion the blow. It's an election year, so suicidal home debtors will be soothed by the faux poltical promises and happy talk.

Bottom fishers with longer term horizons will begin to come into the market as start taking some of the best deals now. That's usually were the smart and easy money is made.

People who invest in value plays like Ross, Buffett, etc. are staring now.

Now's the time to look for bargains. Don't pull the trigger yet, but be looking. This summer or fall maybe the best time to buy, where there is maximum selection and some really good deals.

This year in the MSM real estate and homes will be hated as the worst investment ever. A contrarian sign to buy, buy, buy!!

Just dont expect to flip. Real estate as an investment class will underperform for years to come.

Paul E. Math said...

Talk of a 'bottom' presupposes a pattern with a decline on one side and an incline on the other side. Because prices aren't ever coming back up, the concept of a 'bottom' is inappropriate. When we stop hearing the msm and the reic talk of a 'bottom' will be another indicator that this whole this is 'OVAH'.

Anonymous said...

Yesterday, the house across the street listed at the drama price of $325,000. Two doors away the neighbor's house is listed for $472,000. The second house, which has been listed for five months, is smaller, but very similar to the first.

The newly listed house last sold in 2002 for $210,000, it's competition in 2004 for $310,000.

The house I live in, which is much nicer that either of those for sale since it is a full gut rehab with an addition, rents for $1500.

Although I'm not personally losing money on this, I do feel empathy the people involved. The family with the old listing here wasn't flippers, they just needed a place to live and believed the hype. Now they're likely flat broke. If they are lucky.

It will be over when as many decent people are sucked dry as possible. We aren't close.

Anonymous said...

Drops in US Ramen sales.

LauraVella said...

Average median household income here in Alameda is $56k a year.

I'm sure there's couples who make more than that however, they probably also have 2 kids to raise, a pet, car payments a mortgage payment, insurance, high food bill...

Even combined, if a household brings in 150k a year ...how can they support a family and save money for retirement with homes going for $650+ in the nicer areas of Alameda?

I dont see certain necessities going down in price, mainly taxes, PG&E, food and insurance, however, I do see housing prices dropping
like a rock, as they do in every economic downturn.

I see many homeowners sprucing up their homes, getting ready to put them up for sale in the spring.

In July, mortgage limits are extended to I believe $749K. That will get some people into a higher priced home, but with lending requirements tightning so quickly, I dont know if it will help or not.

We have a long way to go, but I see prices lossing 200K across the board by the end of this year, and a slow decline of 5% a year for another 5 years...

I agree with the first post by Anon, that the 30 year mortgage will everyone worked in factories..now, no one works for a company for 30 years, unless you work for the government. I agree with him that prices need to be 1/10 of what they are now.

Stuck in So Pa said...

Paul E. Math said.........When we stop hearing the msm and the reic talk of a 'bottom' will be another indicator that this whole this is 'OVAH'.

Or when the entire housing industry is "cut to the bare bone." Cut muscle, nerves, organs, etc., and there's still plenty of screaming. When you are down to the "bare bone" there is nothing left and the industry is numb and silent.

That silence will tell us that we are at bottom. How long we stay stuck at bottom is anyone's guess (Japan anyone!)

devestment said...

I think there will be a lot of waiting to see the outcome of the election hopefully followed by governmental financial responsibility which would drive prices to reasonable levels. In my business (useless escapist crap and metals) sellers are outnumbering buyers.

rom said...

18-24 months of flat pricing followed by 24 months of slight increase (beating inflation).

The educated people I know (RE attorneys, Lenders, Title officers) are predicted the following:

2008 - toilet
2009 - down but not as bad
2010 - flat(ish)
2011 - still flat
2012 - going up

Anonymous said...


When the cost to purchase, will all costs and savings associated, is less then the cost of renting.

Thats all you need.

If you are paying more to buy then to rent, then you are not buying a home or investment, you are buying a trophy.

SeattleMoose said...

Have been predicting 2013 for a bottom but that is based on past data. It is possible that this one will be more like Japan in which case the bottom will continue to be "tomorrow" and "soon".


Anonymous said...

average "investment secular bear" is seventeen years and given housing was being sold the same way as wall st, stocks rather than as long term living units...so it will be......and a long term bleed until memory is forgot........

serindippity said...

How will we know when the HousingPANIC is over?

It's actually remarkably simple:

when the Case-Schiller CME housing futures predict a rate of appreciation equal to the inflation rate.

I don't know where I can find this computation; it's not trivial because raw futures prices have embedded interest rate assumptions as well. You have to back that out.

when? I haven't a clue.

Anonymous said...

1. When crowds no longer gather at real-estate postings in windows
2. People stop bragging about their home remodeling
3. Contractors seek other work
4. Real-Estate agent seen as poor career choice
5. People say their home is not an investment just a way to enjoy life
6. Jumbo mortgage rates are no longer discussed at cocktail parties
7. Prices are 3x personal income not the current 6x
8. Commodities or Equities are seen as the hot new investment area
9. This blog is no longer popular
10. Personal finance magazines advise new couples to rent

Jay said...

"prices aren't ever coming back up"

I think Paul Math nailed it. In fact, I think there may be a fundamental societal shifting and sorting just beginning that will see house prices for the middle class continue to drop as wage arbitrage continues to poison the average guy's (and gal's) wages.

Kaley said...

"It will be over when as many decent people are sucked dry as possible. We aren't close."

So true. J6P will hang on to the dream of his faux wealth for as long as he can. He is the true blood donor that's keeping this housing-Frankenstein alive.

But, one by one people will wake up from the dream and their 'look at me I'm rich' houses and cars and designer handbags will suddenly look silly to them -- like 'stuff' and not status. When that illusion-bubble pops, it will be over except for the clean-up.

Anonymous said...

Agree, love the first post, Anonamous!!

It will take a long while for people to realize their houses are not ever going to be worth 2005 prices. Sellers will hold on as long as they can, but RE bubbles never pop overnight, they take years to unwind.

It is so true that if energy prices keep going up, and supplies down, we will also see a HUGE shift in attitudes toward housing. You will have to make a mint to heat and cool your average McMansion, and most people won't want or need them--

I live in Northern VA, where we had in some areas 200% price appreciation over the last several years. Another 30% decline is definitely not out of the question now... It sounds like a lot at first, but even that kind of hit would only make a dent towards bringing prices back into line with the Historical mean, or any other metric that makes fundamental sense.

We are going to stay leasing our house for another year at least before we buy. Hopefully the builders in this area will stop building the monstrosities that are currently sitting empty in huge numbers, and build houses eventually that actually make sense!!

One can dream...

Anonymous said...

When after I buy a house (2012 or 2013) people will ask me why I did such a dumb thing. Then I will know that the housing bust is over.

Anonymous said...

When the median price for a home is 3X median income. In other words when balance is restored to the market.

Anonymous said...

Cramer's U recovery ...

notice he suggests the recovery will be slow, tough, gringing. So the bottom of the U part could be a loooooong time!!

Keep you're powder dry!

Anonymous said...

Simply comparing to the 1990 down turn which lasted till about 1998, I would say 2013 will be a good time to buy. This one is much worst though so maybe longer. Yes you may find what seems like a deal in year or two. But to turn it for profit will require holding for many years to come. Why not let someone else do that for you.

Wait until the actual recovery starts before buying. So what if you miss it by 6 months or so. How much more would that cost? Pennies verses holding costs, and the headaches of being a landlord.IMO

Ed said...

Anon #1...if $700K home start selling for $135K, we have more to worry about than housing bottoms.
And the 30 year mortgage was not the banks' doing due to some 30 year career in a factory. FDR created Fannie Mae in the 30s which led to the 30 year conventional loan.

The bottom will be here when most people say housing is a bad investment. There are still plenty of 'now is a great time to buy' types out there. Probably the majority still. At some point ayone who thinks buying r/e is a good idea will be mocked by the majority. That's when it will be time to start loading up on r/e.

When that will be is anyone's guess. Could be this year, could be 2015.

Anonymous said...

when homes get affordable under traditional lending standards

Anonymous said...

I'm not sure when it will recover, but I think we'll know that we're at the bottom by observing the cars on the road. Where are the clunkers? Seems like all the cars on the road are brand NEW! When people stop buying new cars every couple of years, we'll know something's over.

redondo_beach_dude said...

1. When it costs less to rent than to own.
2. When houses are 3-4 time gross income, or roughly 1997 prices in this area.

Anonymous said...

keep dreaming renters about 3X income ratios and whatever other fantasies you have

redondo_beach_dude said...

Oh, and I believe we're going to have a long bottom, not a V bottom... plenty of time to pick and choose.

Frank@Scottsdale-Sucks.com said...

When the cost to purchase, will all costs and savings associated, is less then the cost of renting.

Thats all you need.

If you are paying more to buy then to rent, then you are not buying a home or investment, you are buying a trophy.

Exactly - that's the basic formula. Common sense. P/E. Whatever you want to call it.

As for us personally, we plan to buy sometime next year. Even if we haven't totally hit bottom by that time, we don't particularly enjoy renting and being unable to get dogs, etc., things like that.

We just heard from another friend in Scottsdale today who is moving to take a job in San Diego. The jobs in Scottsdale have all but dried up.

Anonymous said...

I am a renter and right now in the Chicago area, prices are not exactly going down. Last night I went to my niece's birthday party. All of the adults were talking about the economy, real estate, etc... Everyone felt that "oh, now is the time to buy real estate, there are lots of bargains out there, etc...". Well they are not contrarians like us HP'ers. So based upon the social mood, we still haven't hit bottom yet.

Anonymous said...

I don't believe real estate prices will go down drastically. The government will come up with some sort of a scheme to avoid all of the mortgages to reset and come up with some idiotic idea to stop prices from sliding. So as HP'ers, we can hope for price declines, but I don't think it will happen.

Anonymous said...

This 3X median income is foolish. Look at 3X median income of buyers not of the whole populaion. $65K in Alameda includes all the $7 an hour McDonald's workers who will be renters for life. It also includes the old geezers living on social security who won't ever buy anything again.

Median income is about 50% higher for thoe who own vs. those who rent. So your $65K median is more like $100K median for those who buy. And $100K income and $650K homes isn't that out of line. A little high, but the bay area has always been higher than everywhere else.

If you think home prices in the bay area are going to me $200K (3 times $65K) you are smoking some funny shit and I would like some myself.

Anonymous said...

when experienced tradesmen are working at home depot again AND local governments significantly drop (i) property tax rates and (ii) all the various construction permiting fees.

Andrew Hac said...

This nation and most of its citizens, residents, dwellers have no ethic, no moral, no responsibility. What it has in plenty is greed, self-centerness, ignorance, pompousness.

The housing bubble is a shiny mirror in which the Americano can look at itself and ponder upon what may the future brings upon this land of the Snapper Turtle.

A nation that mostly comprises of pigs feeding, chomping at the trough.
A nation with most of its dweller obese, fat, diabetic, and plain ugly like a chimpanzee.
A nation where a Walmart cashier can buy a house for $500K.
A nation in which its citizen's brain a lower than a snapper turtle.
A nation which rules by turkey and skunk.

The Americano nation is as toasted as a roasted armadillo skewered from mouth to ass sizzling, popping, oozing with melted golden fat over a bed of white hot charcoal.

Anonymous said...

I remember in 1990 we had newer 4/2 houses on 1/2 acre lots in Houston going for under $40,000. Basically, prices will drop to where households can afford a 30 yr fixed.

Anonymous said...

The people in my graduate classes are starting to say that it is better to rent because workers will need to be more mobile in the future. Although we all dream of working from home, that will never happen for the masses. I heard the same thing back in 1999 and not a thing has changed. A few people are allowed to work from home for a few days a week, but the majority still have to come in to the office for some reason. Basically, that's the reason why I never bought a house. You can rent a nice house or condo anywhere in the world and not have to worry about the expenses of owing the banks. If this view starts to gain popularity, who will the baby boomers sell to?

Macaca said...

businessweek's cover had a graphic of a melting house last week, so the MSM is starting to crack a bit.

Anonymous said...

So your $65K median is more like $100K median for those who buy. And $100K income and $650K homes isn't that out of line.

Two flaws in your argument, Mr FB:

1. There is no way $100K gross can afford a $650K house. I make $80K and I've run the numbers on a $300K house and I would be eating Ramen 3 times a day.

2. Since 68% of households "own" vs rent, would you claim that 68% of households in NorCal make $100K or more? That's very very unlikely.

Anonymous said...

Nominal prices in bubble areas might hit highs again in 10 years due to the greenback being raped, but real prices are gone forever.

Anonymous said...

Here in the make believe land of Phoenix who knows?? Right now as I type this i'm seeing my second ad for House auctions which are becoming more popular here. However i don't believe the housing market is anywhere near bottom, the house based economy hasn't crashed and burned yet.

Paul E. Math said...

Anon 11:01pm, I disagree that the 3x income formula is foolish. There has always been a relatively stable ratio of average home prices to average incomes. This ratio is not average home prices to average homebuyer incomes, they are average overall incomes.

Sure, perhaps incomes are more skewed than they once were so perhaps 3x is a little low. But it is not as 'foolish' as the 6x and 7x that you find in many bubble markets.

Anonymous said...

I hear "good time to buy" all the time. When you probe, they don't seem to realize just how far prices shot up and just how small the recovery has been.

Rent does not need to be exactly on par with mortgage. Pre-bubbs, renting at 90% of cost to own made sense if you could stick it out for five years give or take. Not so hot if during those years the house continues to depreciate. I'm not talking about "investment property", just a place to live.

Anonymous said...

And $100K income and $650K homes isn't that out of line.
Are you kidding me? You cannot afford a $650 house with $100K income.
$400-$450 is kinda OK, but $650 is way overpriced for this income.

Anonymous said...

Hey Andrew Hac,
Who are you?
Is it your profile?
Andrew Hac Nguyen

Veronica Lodge said...

RE: How will we know when the housing panic is over?

The panic will subside when the prices of houses start to go up again. However, due to an extremely tight money supply, home values will have fallen far below year 1999 prices.

And when do you think that will be?

I calculate that home prices will fall twice as fast as they went up starting in the year 1999.

The 7 year climb will turn into a 3.5 year fall. We're already 1.5 years into the decline, so the bottom will be reached around the middle of 2010. However, prices will remain stagnant for at least 2 more years and even after that, prices will barely move up year after year.

As far as the housing panic is concerned, by 2012 there will be nobody in a panic to sell or buy. Those who qualify will be able to own and those who don't qualify (or those who qualify but don't want to buy) will rent.


WINGS said...

Andrew Hac is a foreign devil mocking the great Americano.

Andrew Hac is a hac on a rack, sizzling over an open fire. From chin to chine the skewer runs through him.

He pops and sizzles on the open fire as hot coals force the dribbling fat of his lard ass to bubble and froth.

If it wasn't for the Americano, his lazy, cowardly turtle-lizard ass would be speaking a cross between hybrid Nazi German, and Islamo fascist Farsi.

I turn the spit upon which he roasts and toasts, his wits tunneled out by the molten hot skewer which has lobotomized him.

Partake, ye Middle Eastern sand rats, in the great feast of the gristle infested rat named Andrew Hac.

Enjoy, for we Americanos dance on his ghostly foreign grave and leave the burnt cellulite for the vultures!

Anonymous said...

Buzz-saw needs to give andrew Hac a hair cut!

Big Cheese said...

Mmm, armadillos and snapper turtles - getting hungry now.

I just read the book 'Richistan' that was published last year. 11 million Americans with net worths' over 1 million, 3.5 million Americans with a net worth over 6 million. That's a lot of money out there and a lot of people who will be sitting pretty with tons of cash to snap up (sorry Andrew Hac) the bargains.

Oh and 400 people with over 1 billion USD net worth. Not too bad, that's a lot of distressed assets that can be picked up.

We HP'ers are barnacles on the ass of a bottom feeder. People on this thread are skeptical of us having net worths over 1 million but that is still chump change (lower Richistan as the book calls it) compared to the big dawgs.

The people in debt are going to be the worst hit but don't think that everyone is in this situation.

-Big Cheese

www.DollarPANIC.blogspot.com said...

O.K. Let's examine Keith's original questions.

Question 1. How will we know when the housing panic is over?

Question 2. And when do you think that will be?


The first question is easy -no brainer- "When overall supply equals overall demand".

As to the second question, lets examine the situation. The USA is sitting on a mulit-year supply of vacant housing. The baby-boomers are just starting to retire by the boatload and will want to downsize or move to a warmer climate; thus adding to the already overwhelming supply. New college grads and other young renters who are to dumb to wait for housing prices to fall further are going to be saved from their own stupidity by the new CREDIT CRUNCH and tighter mortgage lending standards.

Soooo, my crystal ball says.................................................................................... The year 2018 will be the year nominal median housing prices finally make the turn.

But wait; theres more... reading the fine print down below the smoke on the lower part of my crystal ball it says: DISCLAIMER: If B52 Ben orders the bomb doors opened... all bets are off!

ate-up said...

Hey Andrew are bruinging Armadillo or Snapper Turtle to our BBQ?

Bring both!!
Blowfly's comin' and DOPES hasn't got back to me yet.

8ish OK?

DaveO said...

"keep dreaming renters about 3X income ratios and whatever other fantasies you have"

Where were you before 2002 when 3X income ratio was the norm? Either you are quite young or have a short-term memory.

The 3X rule (or actually 2.5X rule as I have been taught since way back in 5th grade) is nothing new, and is not a fantasy that us at HP just made up. Here's the general guidelines about how much house one can afford (from http://tinyurl.com/2al7vk):

General Guidelines to Keep in Mind

Wondering what kind of monthly mortgage payment you can afford? Here are a few general rules to give you a ballpark of what you're getting yourself into. Most lenders agree that your total housing costs should not total more than 28 percent of your gross monthly income. "Total housing costs" include mortgage payments, insurances, property taxes, and homeowner's fees. Your gross monthly income includes your primary job plus any overtime, disability, social security, child support, a part-time job, unemployment; virtually any money coming in each month. This means if before taxes you make $3,000 each month, your monthly housing costs should not total more than approximately $840.

Another guideline most lenders adhere to: your monthly housing costs plus any other long term debt (car payments, student loans, large credit card balances) should not total more than approximately 36 percent of your gross monthly income. So if my gross income is $3,000 monthly, and my housing costs total $750, my monthly car payment, student loan payment, and credit card payments should not total more than $330.

For a general idea of your buying power, you can multiply your gross annual household income by 2.5. This means that if your gross annual income is $50,000, you may be able to qualify for a $125,000 loan. Of course your credit and employment history can affect that number, but it is a good rule of thumb to keep in mind as you eyeball your general price range. You can visit a mortgage lender for a more exact figure.

Anonymous said...

when i can buy at year 2000 distressed prices in bubble town not just year 3008 distressed prices, and not be stressed

Anonymous said...

i stopped heating but for a small and safe space heater years ago, and cooling but for a desk fan but for last years 110 degree heat which tripled costs ...i average 40 bucks a month but for average summer 120 bucks....as i must figure how to vent a small airconditioner so i can bring the yearly average down to 40 again

Anonymous said...

but i read somewhere that the average household income was 54,000 and it took two wage earners so average housing couild be given the strange divergant informations 75,000 tops?

stuckinthecity said...

Anonymous said...
I am a renter and right now in the Chicago area, prices are not exactly going down. Last night I went to my niece's birthday party. All of the adults were talking about the economy, real estate, etc... Everyone felt that "oh, now is the time to buy real estate, there are lots of bargains out there, etc...". Well they are not contrarians like us HP'ers. So based upon the social mood, we still haven't hit bottom yet.

February 10, 2008 10:35 PM

Second City Bubble

If you don't mind I will plug my blog.....

Anonymous said...

What is this the "negotiation" stage? Yes, it can go WAY lower down to 3x incomes, or lower. Why? What has supported housing prices this high is the "expectation" that housing is a good investment and that prices can only go up. Is that Bay Area (cali) 1000sq foot, 40 year old, sh-- box worth $500k if the "expectation" is that housing is a bad investment and can or will go down? People in peak areas are kidding themselves, they have to believe there is something "special" about their area that will defy economics. I have 2 family members that own in the Bay Area and I grew up in the Bay Area and there is nothing "special" about it to justify the housing prices there, it was ALL loose lending and speculation. It's a nice place to live, but the incomes do not match it.

What is a house worth when the "expectation" of losing money meets the "reality" of much tighter lending standards. My prediction for the bottom is:
1) When being labelled a house "flipper" is something that can get you lynched.
2) When the very concept of a home being an "investment" or anything other than a place to live is is openly mocked and ridiculed in the mainstream media.

On a side note a lot of people I know have moveed passed the "denial" phase.

Anonymous said...

The big fall is yet to come. When the baby boomers collective realize that their housing "investments" aren't going to give them the comfy retirement they dreamed of and flood the market in a panic to unload their "investments" then we will see the true bottom, someone predicted 2018 and I would agree with that.

AboveItAll said...

When bank representatives sent to the foreclosure auctions start letting bids that are smaller than the mortgage take the house, then the bottom has been reached.

I predict 2013 as when the prices essentially stop falling. Nominal prices in bubble areas might hit highs again in 2018, like another poster said, but real prices are never going to equal that peak again.

Within a few years, baby boomers trying to sell their houses and downsize will make real price appreciation essentially flat for half a century. For cripes sake: it's a depreciating material possession, not an investment. That part about appreciation and building equity, that was all spin. No matter how many or how often one drinks the koolaid, it is still koolaid.