November 04, 2006

HP mea culpa - I was wrong. There was no housing bubble.

Just kidding!

But some idiots weren't when they wrote articles denying that housing was in the mother of all bubbles. Here's a sampler - have a good laugh at their expense..

Why there is no housing bubble
The sky is not falling. Yes, home prices are sky-high, but we really don't have a housing bubble that is anywhere near bursting. Here's why

There's No Housing Bubble to Go Bust - Fed Nominee Has Said 'Cooling' Won't Hurt
Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

There is no real estate bubble
I am not so bold as to say housing prices will continue to rise. In fact, they may even decline, but the current real estate market is not a bubble! The current real estate market is at worst, expensive with no room to grow, but it is by no means a bubble ready to burst.

Freddie Mac: No Housing Bubble
Amy Crews Cutts, the deputy chief economist at Freddie Mac, argued that there is no housing bubble in the U.S. today. According to Cutts, the term "bubble" is a situation in which the price of an asset or an asset class is not driven by fundamentals

NAR Anti-bubble Q&A: What are the prospects of a housing bubble?
There is virtually no risk of a national housing price bubble, based on the fundamental demand for housing and predictable economic factors.


Anonymous said...

Say it ain't so!

Anonymous said...

That does it, if you can't trust or government or a realtor, who can you trust?

I am so upset, I am going out and buying a home today. Before the prices go up and I'm priced out of the market!

That'll show em!

Anonymous said...

I saw this ad in the paper that I should buy a house, so that's exactly what I'm gonna do, and I don't care what it costs

Anonymous said...

All the sellers who don't sell this year are hoping for the great spring '07 buying extravaganza when hordes of rich buyers will appear out of the woodwork and buy all their overpriced POS(s). Ha!

Anonymous said...

I prefer living in a tent down by the river. Buying a house makes no sense.

Anonymous said...

A serious question: I am a renter and not buying anytime soon. I'll be singing a new lease in 2 months. I live in Monterey, Monterey County. Question: how will renting be affected (up/down?) once all the restes of ARMs and 'closures kick in next year? how's this going to affect CA, and especially the bay area/monterey couty?

this'll help me to decide whether to sign a long, short term lease, or go month to month.

thanks HPers.

Anonymous said...








Anonymous said...

Rents will increase. No doubt about it. As interest rates climb, fewer will be able to purchase and rental property will see a shortage.

Increase in demand and constant supply=increase in price.

FlyingMonkeyWarrior said...

Rents will increase. No doubt about it. As interest rates climb, fewer will be able to purchase and rental property will see a shortage.

Increase in demand and constant supply=increase in price.

AND Credit tighter, Dollar tanking, plus the above is why I bought from a FB two months ago.

FlyingMonkeyWarrior said...



crazy Flipper

Land Lords that don't have any money.

Anonymous said...

Rents will increase. No doubt about it. As interest rates climb, fewer will be able to purchase and rental property will see a shortage.

Isn't rent part of the CPI. So increases in rent mean an increase in interest rates, as you suggested.

So there has just been a masive housing boom with lots of new accomidation build. If the rents go up won't people adjust by living in more cramped conditions. And all those illegals will go back to where they came from (because they can no long afford to rent in the US), thus dampening the rental market.

And if you're saving to purchase a house, increases in interest rates will mean that your savings ballon while the prices of properties fall.

Oh my, I guess you would call that self perpetuating pain for the property investors.

Anonymous said...

There's a fixed number of houses, both for sale/owner and as rentals.

As people can't afford there will be more empty houses and the non-afforders will rent, pushing up rents. But then as houses can't be sold they will be foreclosed and sold or rented out somehow as any money is better than none.

So maybe short term a spike in rental demand, but longer term shouldn't be much difference.

Alot of people will be renting their 600K POS houses for 1500 a month or whatever. Around here nice houses rent for 1,500 a month and it costs about 180-200K to buy them.

Anonymous said...

Dumb masses all.

Interest rates are going DOWN, not up.

Inflation is raising prices on everything. house prices AND rents are going UP, not down.

You fools fighting the Fed will LOSE. They have a magic printing press, and Keith has an obsolete blog. HP - LOL!

Paige Turner said...

That was quite an interesting assortment of housing bubble junk food. After nibbling on the hors'dourves, I went straight for the entree: The National Ass. of Realtors. The NAR gave the definition of a real estate bubble: "As broadly interpreted, a housing bubble refers to an unsustainable gain in home prices. The premise is that a price bubble is at risk of “popping,” resulting in a loss of equity... In simple terms, it gets down to supply and demand."

As expected, the NAR points out that there can be no unsustainable gain in home prices because there is an insatiable demand for housing. The word demand is used 7 times in the article. What isn't mentioned is that the demand that stabilized the market and justified ever higher housing prices was nothing more than a frenzy of desperate people buying into a Ponzi Scheme.

Lower interest rates were mentioned as one of the props holding up the escalating prices, but liar's loans, crooked brokers, phony appraisals, negative amortization options, home equity lines of credit and lying NAR shills were not mentioned.

The overall conclusion of the NAR is that this time is different and the laws of physics can be put aside. The unsustainable gain in home prices is, in fact, sustainable.

Anonymous said...

Flyingmonkeywarrior states that ``Rents will increase.'' Sure, rents will increase when _wages_ go up. That's generally the way that it works. You see, landlords can only charge what people are able to afford.

As far as supply and demand: there are _more_ than enough places to live. I mean, they've been on a building spree in the last few years. So the supply will outstrip the demand and builders and investors have to resort to renting places that they can't sell.

In individual examples, I've already seen it. In NYC where I live, they built a building 445 Lafayette which is like every other new building ``luxury''. I'm sure that the extra $200K worth of granite or whatever justifies the fact that they're asking 2.5x the average per sq ft price in the zip code. But that said, you can rent one of the units that costs $2.9M for only $11.5K/month. That's substantially under the carrying cost of the mortgage especially if you consider:

1. There's $2K/month tax/condo fees,

2. The mortgage deduction peters out
before all of your interest.

It's a little insane---but not quite as insane as 2004/2005 because no one is buying it. Because you'd be a moron to sign up to pay 30% more on a monthly basis while tying up your funds in a heavily leveraged risky investment.

robert said...

FlyingMonkeyWarrior said...
“Rents will increase. No doubt about it. As interest rates climb, fewer will be able to purchase and rental property will see a shortage.
Increase in demand and constant supply=increase in price.”

Localy, I’m seeing a significant spike in the number of rentals hitting the market. It’s a great time to negotiate rent. Home owners are having to compete with themselves and the local rental complexes. “As interest rates climb” and ARMs re-set, owners are trying to sell, adding to the inventory. As inventory climbs and owners can’t sell, they are adding to the rental inventory. With 68.7% of the U.S. owning, that leaves ~30% of the rest of us to eat up the inventory, both rentals and sales. Inventory is close to critical mass and growing.

Metroplexual said...


I don't see the rents going up. Here's why, when folks abandone their house, get foreclosed on or whatever, there will still be an over supply of housing, these extra unit wiill be put on the market raising supply. Rents go down, atleast short term.

FlyingMonkeyWarrior said...

Well, I would rather loose a little money that rent from a Flucker (Flipper/Fooker). I have a total monthly coast of mort. taxes and Insurance that is below my local markets rental rate, a 30 year fixed and bought from a FB @ 30% below appraised value and recent comps.
Now I just hide, watch and wait.

Anonymous said...

In Re:

Jubak's Journal
Why there is no housing bubble

The sky is not falling. Yes, home prices are sky-high, but we really don't have a housing bubble that is anywhere near bursting. Here's why.

By Jim Jubak


The average price, which may better capture the action at the top of the market, climbed 34% from May 2004 to $1.3 million. Mind you, we're talking condo and co-op apartments here -- no back yard, no pool, no two-car garage.

I goggled that:

"In Manhattan, the annual median income of whites was $86,494 — greatly outpacing the $28,116 reported by blacks."

For 2 whites living in Manhattan, their combined income would be: $172,988. times 3 for a normal mortgage limit= $518,964.

Even if you DOUBLED that average combined mortgage qualification, they STILL could not come close to the average price for a unit!!

No bubble, indeed.

Anonymous said...

Chicago Fed:
"...the high prices being driven by fundamentals."

“I don’t think that the boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall,” Mr Greenspan told a private audience in Canada on Friday.

FED Fisher:
The Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.
Article from WSJ:

Fed Official Says Bad Data
Helped Fuel Rate Cuts,
Housing Speculation
November 3, 2006; Page A6
In an apparent and rare in-house critique, the president of the Federal Reserve Bank of Dallas said that because of faulty inflation data, the Fed kept interest rates too low for too long earlier this decade, fueling speculative housing activity.

A number of critics have said the Fed under former chairman Alan Greenspan kept monetary policy too easy from 2003 to 2004. But Richard Fisher's remarks to the New York Association for Business Economics yesterday mark the first time some Fed watchers could recall a sitting Fed policy maker making such comments.

Mr. Fisher said from 2002 to early 2003, inflation, as measured by the price index of personal consumption expenditures (PCE) excluding food and energy, was running below 1%. That suggested that a serious shock to the economy could turn inflation to deflation, or generally falling prices. Deflation makes it much harder for the Fed to boost growth by engineering deeply negative real, that is inflation-adjusted, interest rates.

To reduce the risk of deflation, the Fed lowered its target for the Fed funds rate -- charged on overnight loans between banks -- to 1% in June 2003 and held it there until mid-2004. It has since raised it to 5.25%.

Mr. Fisher noted that subsequent revisions show PCE inflation was actually a half a percentage point higher than originally estimated. "In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been," Mr. Fisher said.

"In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. Today...the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving...sustainable noninflationary growth."

Mr. Fisher, who took office in April last year, said in an interview that his speech wasn't meant to be a criticism of the decisions Mr. Greenspan and the FOMC made then. He said: "I wasn't at the table at the time -- it's easy to look at things with 20-20 hindsight. The point is we need to continue to improve our ability to develop and work with better data."

Jan Hatzius, chief U.S. economist at Goldman Sachs, called Mr. Fisher's remarks "pretty striking," while noting it is Mr. Fisher's style to be opinionated. He added that while he agrees the Fed's policy from 2002 to 2004 fueled speculative housing-bubble activity, it was still reasonable "knowing what you knew at the time. You take out some insurance against a really bad, low-probability outcome, and after the fact you regret having paid the insurance premium."

Mr. Fisher said inflation, at about 2.5% now, is still higher than his "comfort zone," but it is possible it "has peaked and is finally heading lower."

Fed governor Susan Bies echoed that sentiment in a speech to Drake University in Des Moines, Iowa, saying, "inflation appears poised to decelerate in coming months... but the risks to that outlook seem tilted toward the upside."

Jip said...

Nice to see you have a different picture of David L. Looks better than the old one ;^D

foxwoodlief said...

I wish I knew what was going on. I keep looking and searching and haven't seen much of a bubble burst in most of the USA or world.

I'm beginning to see signs of prices reductions in Phoenix especially on Craigslist finally, but when you really look at the numbers they are still asking higher prices than at the start of 2005. I still don't see any houses I consider a bargain.

In the bay area, or at least in Los Gatos where my family lives, homes are still selling and for top dollar, some in a matter of days, others maybe three to four weeks, but still selling and at prices I think obscene.

I know nothing of Boston, Washington, LA, Miami, other than what I read on Ben's blog, but when I look on Craig or other sites, don't see any bargains there either.

Here in Texas, market is as it was, schizoid. Some neighborhoods hot, others lowering prices, others prices have risen, others show foreclosures, same as when I first started looking in 2004 for a house in Central Texas. Austin seems to be booming, drove into a subdivision out at Steiner Ranch and was shocked at the number of $500-1,000,000 homes they are building and people actually moved in! With the high taxes here, can't imagine $12-30,000 a year in property taxes on those houses.

Rents are high. Why would I rent a 740 sq ft apartment for $750-1200 when you can buy a house and pay $1400 and have a tax deduction?

After two years of chasing a bubble dream I'm still waiting to wake up and see it popped.