Get Over It because there will be no Housing Boom This Decade – 5 Factors That Will Drag Housing Down in the Next Ten Years.
In the midst of all the bailouts you might have missed that last month, in perma-bubble Southern California the median price of the entire regional market fell by $17,500. This was the first regional price drop since April of 2009. Now one month doesn’t make a trend of course but if you only listen to the real estate industry and banking cabal you would think that all of a sudden we are circa 2003 real estate. There is this pervasive speculative attitude once again in the air even in the face of a 12.4 percent unemployment rate. The unemployment situation was revised last month nationwide and the BLS upped the number of jobs lost in this recession from the “low†7 million to 8.4 million. So basically we were underestimating how “good†things were for an entire year (the BLS has suspect numbers because of their methodology). Yet this is part of the new economic psychology where real data is ignored in exchange for bread and circus statistics and political theatre. The reality is we are not going to see any sort of housing boom for the next decade. In fact, housing will be weak for the next ten years (at least) regardless of what the government and Wall Street attempts to do.
Factor #1– Negative Equity
The first thing to grasp is the biggest line item for Americans on their net worth chart is housing. Or more importantly, home equity:
Even with the massive stock market rally, home prices are still lingering near their trough. Employment hasn’t picked up as well so unless you depend on seeing your banking stocks going up for your livelihood this rally is simply a reflection of how disconnected Wall Street is from the actual real economy. The above chart should tell you where things are in terms of housing. With most conservative estimates, 25 percent of current mortgage holders are underwater. That is, they owe more on their home than it is worth. As we know, housing is the number one line item for homeowners so with this kind of figure most Americans are still viewing a gaping hole in their balance sheet. In states like California with Alt-A and option ARM issues, the underwater level is closer to 35 percent.   Much of this has kept the foreclosure rate elevated.
Negative equity is the number one reason in predicting foreclosures. Now this is a rather obvious statement because if you did have equity and had problems on your balance sheet all you would do is sell your home. Without this option, you can let your home go into foreclosure or try to have your lender to agree to a short sale. And you have to think about what would fix this problem. The only solution is hyper-inflating home prices to bubble levels. That doesn’t seem likely so negative equity is going to be with us for years to come because home prices reached absurd levels in this bubble. Even with a big run up in prices, it is highly unlikely we will reach peak levels.
Factor #2– Income to Housing Price Ratios
Home prices are still in bubbles in many California counties like Los Angeles and Orange County. Prices are completely disconnected from local area incomes. I remember early in the bubble that the argument revolved around the monthly payment and completely ignored actual household fundamentals. The mortgage industry thrived on this because it removed impediments from making mortgages with high kickbacks to anyone with a pulse. Most of the mortgage brokers who say they were doing a good job “helping people†are only justifying their cause in this bubble and trying to assuage their conscience. Show us a mortgage broker that did well during this bubble pushing low rate 30 year fixed rate mortgages with solid documentation. The high income broker crowd relied on crap mortgages like option ARMs and other junk to get their nice little commission checks.
Yet now with the government being the lender of first and only resort, people have to actually look at incomes even at a cursory level. And as you can see from the chart above, prices are still very high in bubble places like California in relation to income. Plus, the chart data I gathered only goes back to 1980. The bubble in California started back in the 1970s:
Even if we apply a ratio between California home prices and nationwide prices current levels are still too high even after this correction. In other words, the bubble is still here.
Factor #3– Shadow Inventory
Source:Â Wall Street Journal
“The John Burns study estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments.
This “shadow inventory” of homes expected to hit the market is enough to last about 10 months, based on the average sales rate over the past decade, the Irvine, Calif., firm says.
The problem is largely concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas, the study estimates.â€
It would appear that the shadow inventory that we’ve been reporting on for over a year has now gone mainstream. I’m not surprised that it took this long to go into the mainstream media just like I’m not surprised the BLS had to revise their unemployment figures by 1.2 million. Yet the reality is there is a tremendous amount of shadow inventory throughout the United States. California is plagued with shadow inventory.  This is not a sign of a healthy housing market.  This is more “pretending things are okay†type of thinking. The real estate industry thinks that this is some kind of panacea and we all need to start using The Secret to will our way to higher home prices. Yet all this will do is create an environment similar to Japan where the banking industry is going to suck the life blood out of the real economy for decades to come. Is this really what we want?
What if this inventory was released? Prices would drop and come in line with more historical measures but more importantly, will finally flush out this giant financial sector that has grown too big. Will many banks fail? Absolutely as they should. Yet the media is reflecting their bias to Wall Street because as we know, millions of Americans are still without work. Shadow inventory is basically banks inability to move properties in a timely fashion. They are now speculating that prices will go higher on the taxpayer’s bill. Wall Street has failed the American public. We are back stopping the system with $13 trillion in bailouts and back stops and this is the end result? The only big winner right now is the stock market and big banks. Everyone else is still battling the Great Recession out.
Factor #4– Weak Equity
Source:Â The Big Picture
Home equity used to be a source of pride for many Americans. In fact, many Americans enjoyed mortgage burning parties. Now, those parties have been replaced by home equity lines of credit and sucking every ounce of home equity out as a perpetual ATM for consumption spending and trips to Las Vegas. The chart above is a deeply troubling chart. The amount of equity has fallen to historical lows. The minor jump is a reflection of absurd amounts of government bailouts in the housing industry. Yet equity in housing is still pathetically low. At the same time, home prices are still in bubbles in many areas. So what gives? When you are required to have such a small down payment, you lose this built in equity component of the market. The above chart reflects years of 20 percent down payments and that has slowly faded away. Today, with FHA insured loans the only equity you are going to get is based on housing inflation or additional bubbles. Building equity takes time and many people are now in this ladder mentality buying world where your first home is always a “starter†as if you need a starter home.
The weak amount of equity is surpassed by the enormous amounts of mortgage debt outstanding. This debt spiral is getting bigger and bigger and we see our government leading the way. Does anyone really see us ever paying off our various kinds of debts? We’ll never pay it off! I remember on a peer to peer lending site Propser, where you became the lender to various sorts of borrowers including subprime borrowers and the initial rates seemed fantastic. The rates seemed too good to be true. 15 to 25 percent returns. I put a bit of money into play and things were looking fairly good initially like things did with subprime. A chicken in every pot! But when the defaults started rolling in, that 25 percent yield quickly became 20, 15, 10, and finally I was lucky to break even on the portfolio of loans. Welcome to the new debt world. Somewhere along the line the idea of paying a 30 year mortgage off became lost in this bubble. It was all about servicing the debt opposed to paying it off. Now we are entering a new world and many mortgages like Alt-A and option ARMs are highly toxic and will never be paid off. Even servicing the loan has collapsed.
Factor #5– Demographics
Source:Â Bio Spa
Baby boomers to a large extent drove this housing bubble. Many had purchased in the 1990s so were able to ride the mega bubble or trade up in housing. Many also sucked the equity out of their homes to fill every nook and cranny with new stainless steel fridges and flat screen televisions. As the housing bubble ramped up they saw their housing porn shows telling them to purchase granite countertops because no home is complete without putting shiny rocks in your kitchen. But as the bubble of a decade recedes, people are left with artifacts of consumption and no real wealth. It isn’t like a cow that you can live off but these items are sitting there reflecting years of consumption. Massive gas sucking SUVs sit parked in the driveway ready to suck your wallet dry at the next trip to the gas station. The above chart highlights many trends over the years with the big baby boom wave:
Source:Â Rich Price
But as more Americans wait to have families and more baby boomers start using up healthcare resources, the priorities will change. Many young couples are waiting longer to start families so the need for enormous McMansions is waning. Many suburbs relied on cheap fuel and it is hard to imagine oil going back down to $20 a barrel. So demographically things are changing. Plus, as many baby boomers downgrade, you will see a steady stream of housing hitting the market for new families. We have an excessive amount of housing inventory. This will keep pressure on housing prices for the foreseeable future.
There is this argument made about immigrants plugging the gap. This is not true. A large part of the immigrant contingent cannot afford the high priced housing. Show me data on immigrants buying up all this excess property. I’ve seen a few examples of rich immigrants buying prime property in a desirable location but show me a steady group of these people buying homes in more middle class areas. So the trend is clear. Baby boomers are also going to start pulling on Medicare and Social Security in the upcoming decade putting additional strains on the system. In other words, more money is going to go away from housing. There was an article I read recently about many college grads moving back home because they have no job. Forget about buying, these recent grads can’t even afford a rental. So the vacancy rate in rentals and housing units is at record levels. We have years of inventory to work through thanks to this historic bubble.
The decade ahead does not look good for housing. Beside the above factors, what if mortgage rates go up? It is only a matter of time given the policies of the U.S. Treasury and Federal Reserve. And are we going to see tax credits forever? Is the Fed going to buy more mortgage backed securities? We are reaching a tipping point of another crisis because so much focus has veered away from the real economy and has obsessed on housing and finance as a panacea for our economic ills. Welcome to your second lost decade and thanks to Japan, we have failed to learn what history has taught us only years ago.
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58 Responses to “Get Over It because there will be no Housing Boom This Decade – 5 Factors That Will Drag Housing Down in the Next Ten Years.”
I was talking with a friend in Arizona recently and he said there is a program being offered by the banks to allow people to move into a vacant foreclosed homes. They get to live rent free for 6 to 24 months if they pay the utilities. He said the program is state wide and the banks just want to get people into the homes. Can you believe this!!! The banks are giving away free rental housing just to keep things off the market. This is absolutely crazy!! Anyone who says there is no shadow inventory is dead wrong!! Rents are coming down and so are prices. Housing is a dead asset class for the at least the next 10 years!!
Thank you Dr Housing Blog. You’ve taught me a lot. It wasn’t long ago in Long Beach, I could buy an Own-Your-Own on the beach for $15,000. Luckily, I got in when the getting was good, and got out when it was time to get out. I didn’t know much about real estate, but I got damn lucky.
Being single at the time, I could be more stealth. (If you know what I mean.) Our present house went up dramatically and I told my wife we should sell. But women are different. I realize a home is a home, but still, it cost us a quarter mill.
There are two ways this housing crisis can be solved. Either we have huge inflation, in which case almost nobody will be underwater in a few years. Or, the prices of houses will drop to affordable levels, in which case people will snap them up. The prices have been affordable in the sub-prime areas for quite a while now. I think the middle class areas are going to drop too. Even with huge unemployment, if prices drop enough, people will buy them (Investors, people with moneyed parents, etc.)
wow ,,, all good reasons to explore options abroad also ,,,lots of deals in other places without paying the banks what amounts to usury,,, owner carry does not hit you so hard in pocketbook as you pay it off,,,,, it appears that the moneychangers have taken over the temple was how it was expressed before in a book most have read –or not–either way as you look at the amounts charged for use of money you see it is not right or equitable for the amount of work put forth
Great read. You hit on many of the major points that I’ve been trying to convey to people. I’ve been a realtor in south Orange County since 1986. I went in front of my office at office meeting in Feb. 2006 and said I was selling my homes in Orange County and I was going to rent. At the time I surmised prices would drop approx. 20% over a 4 year period. Even with that prediction I was called “chicken little” by many of my fellow realtors. At that time, I did not realize just how complex the problem was. I had watched the market drop first in south Florida and later in the west (Las Vegas, Phoenix and San Diego) In each case the inventory spiked prior to their price declines. So when January 2006 came around an inventory spike began around the third week of the month for properties under $800,000. That was my signal. After liquidating, I had alot of money to get by for a long time. I started telling my buyers what I had done and advised them to sit on the sidelines. I always said “trust the realtor who tells you not to buy”. In the last 3 months I’ve sold 4 homes: all in the sub $400,000 range. I still tell everyone there is going to be more of a correction…especially for anything over $500,000. I tell them if they are only planning on being in a home for 3-5 years to keep renting. I also tell them that when the market was dropping in the early 1990’s we had a least 2 dead cat bounces before reaching the bottom. That’s where we are now.
I want to thank you very much for all the hard work to do to inform others about our “true” state of affairs. Because of you and other bloggers adressing this topic it helps me to better serve my clients.
@marty mcreynolds – great comment, it’s good to hear about economic conditions on the ground from someone who’s been there and knows what’s going on.
Hi, thank you for your website, it helps us a lot. We are thinking of coming out to California to live, from Texas, just due to this issue. But, we don’t want to buy yet, mainly due to the help we get from your website. I was wondering what you thought about the areas by Santa Barbara. There are so many foreclosures, not on the market, in Goleta, CA. and the prices for the resales seems the same as in 2006 when it was in a bubble time. Just wondering if you think those houses will come down to normal levels, we hear from Realtors, of course that the area around Santa Barbara is immune to the crisis and the houses in that area since its a smaller area will never go down. Do you agree with that assumption? Just curious. Thanks again , great website.
Great post DHB! @ marty mcreynolds: great insight, connections — especially in reference to the dead cat bouncing a couple of times. (There is support in a recent LA Times article that the next spike in foreclosures will hit in Q4 2010.) There are many of us who have used this blog and supporting commentary to adjust our assumptions regarding the housing market. Keep up the good work.
Carolyn,
unless you have a great job opportunity right now in CA or you think the Texas housing bubble might pop AND YOU should sell asap, i advise waiting.
we sold our house in Michigan and moved back to CA in Oct 2008. We nearly doubled our income by moving to CA but health benefits are not as good. Housing is still $$$. If I was looking at it from a strictly $$$ POV there is still time before prices really get lower. OTOH being here has given me an opportunity to learn about areas, schools, etc. We really miss our old house at times house hunting really stinks because there are houses for 350k that range from 1700 sf old, needs updating, low tax base to 4300 sf newer homes, with upgrades, high tax base. Basically prices have not reached a uniformity that makes sense, some are still hanging on with a prayer on prices and values.
hth.
Thanks for the article.
I am reading from Australia where our housing market has continued to rise since ’07, with the nation’s median home price at A$400,000 which is about US$350,000. Our average earnings to median price ratio is about double of yours! We are wondering if we are in a bubble. Our differences are interesting to consider. Despite many similarities we have: large and selective (mostly by qualifications or money) net immigration; no oversupply of housing; a national unemployment rate of 5% at a historically high participation rate of 65%; our banking system was well regulated by government and so they were not allowed to get into counterfeiting as yours did, (ie pretend that dodgy debt was an asset – however sliced, diced and labelled – which could be leveraged up by loose credit) resulting in still reasonably available private bank mortgages; and we never went into recession largely because Oz is now a giant resource and commodity exporter. The comparable cost of building a new home is quite high, especially when the high cost of land in close proximity to cities is included, (most ozzies still want to live in detached houses and not in a stack of dog boxes). The alternative cost of building a new house seems to support our prices for established homes. So on balance it seems we may have a small correction but are unlikely to crash as you have.
This makes me wonder what your building costs are? If your prices are below the cost of building a new house, doesnt this imply that prices will rise to at least that level once your excess supply (overhang of stock) is bought up, as there seems little point in building if the same dwelling type can be bought below build cost? I’d be interested in your views, and good luck to all you folks.
I agree with the article that housing is a losing prospect over the next 5 years. More realistically it’s like 15 to 20 years before the climb out starts. I heard on the radio last week (I think it was Bob Brinker’s show) that Citibank is thinking about flushing their foreclosed shadow inventory market to shore up their balance sheets. If this is true, won’t most other large banking institutions follow the same policy? This move would set up for a major correction in prices across the country. Do any of the readers or the Doctor have more information on this topic?
This is a well written CYA piece of propwrite in support of a really bad political agenda. Your ratios are all skewed due to no one examining what was affecting income / earnings data and employment data. Mortgages had to expand in product depth to compensate for globalizational job losses as well as the gross impact of immigration on wage earnings; both of which having had the negative effect of pulling down wages as home values kept pace with the dollar valuation. Had wages expanded in concert with the dollar decline, then house affordability would have remained constant. Propwrite agenda pieces such as this use mortgages as convenient scapegoats while painting over the failure of both political parties to stem job losses and immigrational impacts. Its far more effective propoganda to incite mobs than to address real systemic problems resulting from corrupt economic policies. Furthermore, since primary and secondary economic function jobs were/are being sent overseas daily, we were told America would become a tertiary economy, a service economy. In such a situation, the self employed thrive, and that required limited proofs for mortgages, all of which being subject to federal banking portfolio management. it was just a compensatory loan to bail out the ramifications of the shift of jobs overseas and immigration at home driving down wage earnings. Additionally, you fail to mention mortgages being issued by the banks would perforce been subject to portfolio management approval by the government, which was always granted. To hide their corrupt jobs policies benefiting the few, the government merely subsidized housing loans to the many. Now the fed has withdrawn money from circulation, a traditional credit crunch, so that the few can pick up the pieces of the many more easily. Scapegoats are easy to find when you don’t have to look in the mirror. This mess is nothing new, it is just far larger than any tried for years. If you want to know more, read about Andrew Jackson and his battles with Biddle and the Bank of the United States. You won’t, of course. Mobs rarely do.
Stevo…
You guys have a big ass bubble.
Period.
It’s all about the price to rent ratio.
Building costs have fallen considerably. I know construction workers that used to make $25-30/hr that would LOVE to build you a house for $10/hr.
Stevo is exemplifying the skewed mentality of the people in the anglo-saxon world. What paramount importance is put there into the real estate owning and selling and buying and all over again…Yes, Stevo you have a huge bubble, watch and see how it rolls out. Ha-ha-ha. There are only 2 scenarios for you – sudden crash, which I don’t believe because you resource based economy is very well linked to the expanding China and India and second scenario (mostly because of healthy banks and low unemployment, where banks and sellers will be reluctant to sell at lost. Sales will be happening at necessity, postponed and dragged out…) basically you are going to have gradual prolonged slump, where loses are spread over time and they are not exposed, which is politically correct also… but certainly a long drag to normality, where economic fundament waits for you.
I wonder if your realtudrs have the popular saying about the land that “they are not making any more of that� Does it works around there in your waste deserts? Ha-ha-ha! I read a article in the Economist in the weekend that the prices in USA has propped lately about 5%, but in UK they have gained about 10% for 2009, almost the half of what they lost at all. Really!? So in the developed world first prices has gone up wildly in USA, UK, Canada, Australia, Ireland, and they when down (or will) in the same places!? Ha-ha-ha! Why are people in those countries not learning if this has been already happening few more times? Japanese have learnt, it seems…ha-ha-ha I know doc you are not going to publish this. It is bit racist, but very true and sincere from the heart. ha-ha-ha.
@Comment by nsite5
February 18th, 2010 at 11:02 am
“Mortgages had to expand in product depth…”
.
Argues that nonsensical underwriting (what poster calls “product depth”) “had” to be provided by the innocent banksters.
.
That makes no sense. It’s was the nonsensical underwriting (so called “product depth”) that fueled the mania. Without it, there would have been no bubble. Does your car start without gas in the tank? Of course not. The housing bubble could not have taken off without the fuel known as inane underwriting.
.
No inane underwriting; no bubble. That simple.
.
Turn downs; not idiotic approvals – turndowns would have kept prices from accelerating upward only to come back down to where they should have been in the first place. The banksters provided the fuel and flicked matches into it (e.g. the idiotic 1 percent negams that plagued the radio dial for years).
.
Poster sounds very GoldmanSachs’ish
Excellent again DHB, but one has to wonder why anyone would dump the shadow inventory when FDIC is covering foreclosures @ 80% ratio’s on PREVIOUS appraisals. Banks come out like bandits, they make it on the front, middle and end while FDIC continues to churn and burn through currency as fast as bank fees can go up. I think Dylan Ratigan has the correct idea in moving your funds out of these entities and into local credit unions with no exposure to housing. Time to starve the beast.
read something today about the banks paying no dividends and having share prices having contracts with government that pays them full value plus for each defaulted housing loan whereby plus is a great piece of profit and commissions
read something today that cited a 68 percent inflation causing the need for 68 percent interest rates to maintain purchace power parity and a stable dollar of currency which was the fed mandate at its creation……
Hi Renee, Thanks for responding. Luckily we don’t have a house to sell in Texas. I think your also right, we won’t buy until prices come down more in Goleta or Santa Barbara, and just rent to get to know schools, and the area. Our business can go anywhere, so that part is not an issue. Thanks again, I agree, the prices will come down more, my opinion too, but a lot of people in that area indicate they will not. I guess we will see. thanks gain.
Comment by T Paine:
I see you have a response to Mr nsite5 which I think is code for insites. I had a hard time following this guy. It reminded me of the left wing rags published in Cali during the Nam “conflict”. In a word obtuse. It has always left me wondering if I were just dense because I could not understand the logic. Kind of like a child trying to grasp the adults world. And at the same time it doesn’t make coherent sense. Left confused you feel obligated to follow. So I went back to his post and read this: “Additionally, you fail to mention mortgages being issued by the banks would perforce been subject to portfolio management approval by the government, which was always granted.” Just what the hell does that mean? First it is nonsensical grammatically. “would perforce been” ??? This contradicts his claim that self employed get loans without needing proof of funds; “the self employed thrive, and that required limited proofs for mortgages”. Huh? As I recall in reading about banking and repealing Glass Stiegall (sp?) and all the new changes that oversight of banking and loans was reduced if not outright removed.
So Mr propwrite bad political agenda mumbo jumbo over intellectualized nut job no one looks in a mirror for a scape goat.
Thank you Mr Paine for cutting to the bone of that crap. KISS keep it simple stupid. Here’s an adage for that “If he’s making it too confusing for you to understand he’s pulling the wool over your eyes”. And when it comes to politicos you can substitute the word scary for confusing, ala G W Bush.
Now that the gov’t has assumed the role of mortgage holder and guarantor, we can expect this to escalate into a much bigger, stupider mess.
I agree with pr. poster on inflation bringing all underwater values whole….think about it.. goverment buying up most loans…cash for gold..All of you are thinking that life is going to go on in an orderly fashion..very wrong…something big is coming,as there is no other way to continue this economy..the dollay will be sacrificed..and anything REAL will be of value.housing is the bedrock of all wealth in america….do you all really think they are going to let the cash cow enterprise wither on the vine..please ..we are almost there ,,the EVENT draws near.
Comment by bill
February 19th, 2010 at 8:55 am
I agree with pr. poster on inflation bringing all underwater values whole….think about it.. goverment buying up most loans…cash for gold..All of you are thinking that life is going to go on in an orderly fashion..very wrong…something big is coming,as there is no other way to continue this economy..the dollay will be sacrificed..and anything REAL will be of value.housing is the bedrock of all wealth in america….do you all really think they are going to let the cash cow enterprise wither on the vine..please ..we are almost there ,,the EVENT draws near.
Bill you are catching on quick i wish the rest of us would wake up also we may not be able to see exactly what they are doing till too late to save ourselves ,,,you might want to remember if the govt owns all the housing then none of us will be owners only renters ,,, if they kill currency then how will you pay rent ,or if you own taxes ? no my friend they will control all at that point ,,, it seems as if the price of food is already correcting in our county revolution comes when we get hungry and only then food will be good currency but i dont want to be here when reduced to that,,,,,lucky enough to have a 30 fixed (still paying too much to the bank wish i had never done it ),,also a 15 yr owner carry,,and through hard work and due diligence i actually have one paid off in another state i advise anyone to try to save avoid banks and look for an owc loan you get better interest and terms,,,,,,oh and if you can forget all the hype that we are the best cause our govt blew that one,, and i am now looking in other countriesfor retirement options,,, better political climate in my eyes this place is run for benefit of bankers not the public,, terrible shame or sham or both ,,not sure dont care looking elsewhere beeman
Jammr
+1
beeman…you are one of the few who are looking forward..out of the box…mainstream has been conditioned by a certain number a years of complacency,…this is all gone now..the game is cutthroat,every man for himself,lie ,,,do whatever it takes to improve your wealth…there is no regard for the kids and what they will face..I too am thinking abroad.I believe IT… THE EVENT..,…IS WITHIN THE YEAR..it could take an additional year..but I do think these bankers and such are not thinking of the american spirit ,,,the public when put to the wall will call an ace an ace..at that time .
I live in SB, have done so since 2005, and have stayed out of the market from day 1. I was mocked and ridiculed by people who bought, and by realtors. I remember being berated by a prominent realtor at a friend’s birthday party.
So much of people’s wealth here is tied up in real estate that they willfully ignore the reality on the ground that prices are not affordable. Similarly, the RE industry is the primary print advertiser, so the local media caves thereto, and they constantly harp about what a great time it is to buy.
Use your head. I have a good job, make upwards of $125K a year, and I can only afford a 1 Bedroom condo.
I’m 35. I know nobody here who is my age or younger who has bought a place without help from their parent’s wealth (much of which came from the equity bubble). Almost everyone here who owns a place is over 50, and almost nobody younger than that owns.
Buy at your own risk…. this market is the biggest bubble in America still. There’s no reason a tract house in Goleta should cost you $600K. Sorry.
Google this property: 287 South BARRINGTON Ave Unit G4, Los Angeles 90049 (or I can save you a trip to Google: listed at $400k, 1 bed, 1 bath, 550 sq ft). I rent in this complex, in a unit the exact same size, for $1,300 per month. I know Brentwood is nice, but come on! This complex is also in year 51 of a 100 year lease for that land, I bet the realtor won’t mention that to prospective buyers!
@ Josh: Our experience is the same. No one I know bought a house without help from their parents. And I can’t tell you how many have given me a hard time for not buying.
Anyone counting on inflation is barking up the wrong tree. We have massive credit contraction, states on the brink of default, unemployment, underemployment and collapsing home prices. We are in a classic deflationary spiral.
All United States currency has been unbacked, counterfeit
since the 1913 Federal Reserve Act. The American dollar is not even backed by paper because nearly all the counterfeit money is only in digital data form!
We will see housing bottom, really bottom by 2012 Dec. Its 100 years of total fraud and expext worst to come years ahead. Yes, owning the housing will not be the American dream or will be the main piority, but I can bet you the food, water, gas, gun, & ammo will be the best thing to own…… Trust me I am not the dooms day person but it is what it is people….. Oh yeah, don’t forget to own some gold & silver!!!
Dr. Housing Bubble is the only blog worth reading for me you call it right all along
Josh — not going to get better for long time really hope the 125k is worth what they are putting you through
Bill– we cant eat paper or gold my money is in tools and materials , able to do things ,working alternate energy and off grid living ,,,,if i can fix it it could be worth an extra chicken
Lloyd — think slavery if no money you can spend and govt owns housing
jammr and
mr Paine — you guys called it on that propagndist for the banks ,,,way to go
Carolyn —really glad your not locked into payments in Texas ,keep hanging in there this site gave me best info in years cali will come down to affordable levels in some places hopefully enough where you want to live
we all should pay attention to,,,,,,,,, Zippythepinhead he has the best idea lets all keep our money in a credit union or even under your pilloow but NOT IN A BANK LET THEM STARVE and go under i keep a minimum of assets in a financial institution,,Zippy has good advice
if you get the shadow inventory on the books then the ceo might lose his head or worse in alot of banks ,,,,as in az housing for utilities the banks are finding they cant afford the inventory on their books ,,good program might think about az as a place to save lil cash not paying for house in meantime hmmm self employed means a little harder to get credit i have provided full docs for the one i was able to get BTW PEOPLE WAKE UP credit rating has absolutely nothing to do with ability to pay a loan ,integrity is what it is about ,,,,FICO only say WE CAN SUCK YOU DRY to the bankers ,,,,bypass the banks and keep your wealth out of their slavery arrgh i can go on far too long i am sorry folks
DHB ROCKS
I just pray to God……that we can get off the grid completely…….Maybe a class action against the Federal Reserve…would be a good idea…..if that’s possible……..we are hanging on by the seat of our pants in Ohio……the big rust hole….of the nation…….we are trying hard to get our teenager through highschool……in a really good area…..that the values have been fairly stable…….only because of the Cleveland Clinic………as one of the previous bloggers said……..I was a former realtor that saw the bubble coming……..I have told my kids that watch for any year ending in 7,8,9……wasn’t really lucky with the stock market….until reading a little bit of Steve’s articles……I am not sure we if will be able to recover our IRA’s……….being a boomer it really sucks that we have a bunch of renegades running Wall Street……I could kinda understand where Stack was coming from…….and went to in the end………however we can’t take the law into our hands……and be kamikazi’s ………Japan said a long time ago they would take us from the inside out…….with our economy……..China….and the others …..are after our kids with drugs……..so we end up with a gang of halfwhits, and alchoholics…….overprivileged …spoiled kids……and most of them are in politics…..and the government………..My mom always said that if the big three go down we are finished……..1929…2009…..notice the 29 in both numbers…….the elite are right on schedule……hopefully we can weather through the killing off of the middle class……..or a lot of us are going to be farming….
astute observation. The way I heard it so long ago was ” If you can’t dazzle ’em with your brilliance. Then baffle ’em with your bullshit”.
Hello Alan: I totally agree with you but 1929 and 2009 (29) have nothing to do with Elite number but they are right on the schedule. Matter of fact, in Sept 11, 1990 Geroge W Bush Sr quoted saying “Good chance of New World Order” well, 11 years later 2001 on Sept 11 was the 2 towers collapsing….Elite’s numerlogical # is 11 years cycle which they believe the (Sun God=Lucifer), which also the Venus cycle of the solar system. Therefore, my good guess is that on Sept 11 2012, thats when the new destruction of event will occur ……so it will not be end of the world like 2012 but human kind will enter new age bring us closer to the New World Order…..Remeber everyone….11 is Elite’s favorite number one above God or greater than God….. Anyhow…ya besides this comment, we will enter decade of crisis with decade of higher taxes leading to economic crisis……
people,people..WAKEUP……Prectier..is dead wrong..he omits the (crack-up)boom in his thesis..although in the long run he is correct…..this is how it will go down …..first massive inflation(when the banks are forced to lend the reserves that sit in thier coffers) illegally in my view.They will under estimate the rate of super inflation coming…they will think the fed has things under control.. false…once that money is released, hot money from abroad will pour into the american economy foolishly thinking of a recovery..the gretest inflation buble of all time will then be blown..think Argentina..Iceland..these were trial runs for the elite…they caused these to happen to gauge how they will play thier big payday..think items of real value…. this will be the way to play this coming period ..should last 1or 2 years before a blowoff top and THEN you will all have the delation you so fear..the trick is …do NOT get sucked in to the recovery lie..The super inflation will start slow… seemingly managable,,but then quickly spiral…read gerald celente..peter schiff..barton biggs,.jim willie…fleckenstein…gaspirino….and more tun off cnbc ..you see this whole blog is moot ..could be usefull after the (big event) think bank holiday…revaluation alla mexican peso..new currency.. somethig ill ..along these lines comes this way..the economy will not be allowed to languish for much longer..they will PLAY THIER FINAL CARD…you see… real estate on a 30 year fixed is a steal ..imho
Hi Josh Kammerer, Thanks for the email. It’s pretty much exactly what my husband and were thinking too, so thank you for your comments. We actually did fall for it in New York in 2006 and bought a home which was way overpriced. When we had to move in 2008, we had to lose a lot of $, so we are now really waking up and not falling for what all the realtors and media are saying about great time to buy. We are just going to lease a house in Goleta and wait to see if the prices ever do come back down to reality. If they don’t, then we will just save our $ and someday use it to buy a nice condo somewhere when we retire. It’s amazing though how much the realtors do try and trick you into purchasing the homes, it’s rather sad. Maybe in 2 or 3 years Goleta prices will come down, we are hoping, but if they don’t no big deal.
Doc, I follow your blog and absorb all your information so much so that realtors don’t like me! Of the 4 that have approached me the last few months, none have seriously pursued me to become a potential client after I tell them what the good Doc says. I house hunted with one realtor and the realtor practically didn’t give me the time of day since I didn’t want to throw in an easy $20k to the listing price. When will the “fix and flip” circus end?! It’s rather annoying….
This country is in much worse shape than it was in the 70’s. We still had industry back then and we didn’t have anywhere near the debt levels.
Things are going to get much worse and I wouldn’t invest in real estate for probably another decade, unless some miracle happens.
The worst of the recession is in front of us. You are just witnessing an artificial recovery due to government intervention. A lot of bad things will be happening. Buy precious metals and stock up on supplies!
Something is coming, it’ll be another stock market crash and it’ll blow the idea of a potential recovery out of water. Look at the long line of incumbents announcing that they won’t be running for another term. Even they realize that they don’t want to be in a position to be blamed for what is coming. Food prices are rising due to bad food policy and the above average cold weather in 2009/2010. If they kill the US Dollar, well history has shown in Germany during the 1930’s and in Italy during the 1940’s that the people rise up and kill their political and corporate leaders. How much power does the government have these days, not much, they are quickly realizing that America is going to be ungovernable by the end of this year or next year at the latest.
A lot of us should be going back into farming. I’m shocked at our farming statistics. One example, ten years ago the average age of a farmer was 47, today it’s 57. Our Government Food Policy is guaranteeing that we will have a food crisis in the next 1-3 years. We live on 3.5 million acres of land, most of which has desirable weather that we can grow enough food to feed the entire world 8 times over. Starvation has always been caused by government policy. We could create millions of jobs in agriculture just by changing our food policy and encouraging new farmers. Gardening will be huge in 2010 with food prices continuing to rise.
The Federal Reserve is caught between a rock and a hard place. They wrecked the US economy and the USA (Europe & British possessions) is sinking fast. The old formula for getting the US out of one of the Fed’s fiat crashes is to create a world war. That formula worked in the 1940s but will not work now due to advanced technology. Nuclear weapons are obsolete. The bankers’ hopes of creating a world war involving Russia and China will be their undoing. It will be a very short war with two options (1)the chances of anything being left alive in the USA, London, Australia is near zero. The real estate will, however, be left intact. (2) the chances of having an electronically functioning USA near zero. Both Russia and China have explained the details and the the consequences. It all depends how insane or suicidal the war mongers feel. The Pentagon will gladly destroy the United States for their banker handlers.
please..tell me.. anyone,how in the hell,can anyone think the banks ,politicians,and fed,will not inflate….it is the get out of jail free card..it will not be good for seniors…but most political decision makers NEED this economy to function..they have two choices inflate and continue the game..or let deflation take hold and game over for decades..it seems dr. housing bubble looks at the problem always through the rear view mirror…although he has been correct to date…he makes a shallow prediction on future housing trends..he fails to address the velocity of newly created dollars that are already baked into the cake..think about it… they increased the supply of existing dollars in the world by over double in 8 months time and contiue to add to the float immensely monthly….the promise to extract that capitol to avoid inflation is a scam of the highest level..this is common sense;;;look at the big picture ..how can anyone think this group of idiots is going to SUDDENLY get religion…sheesh..think ahead and position yourself…the economy is about to go off the cliff;;;unemploment benefits are ending …stimulous is not working..THE INFLATION CARD WILL BE PUT IN PLAY’ to think otherwise is just silly…china and japan are positioning as we speak.please point out where I am wrong anybody PLEASE… when elliot spitzer was cleverly taken out I new all moral fiber in the system was gone…although not without his faults he was the last sheriff in the corral.
Bill, I’m not a Princeton economist, and I’m not great at explaining this, but I think part of the part of the problem with the hyper-inflation theory is that our money supply consists of our currency and our credit. The government is obviously printing a ton of money–all that stimulus money that went to the bankers and those who hold banking stocks and bonds. (note that the government didn’t send every citizen a check for $10k.) But that is only part of the equation. The other part is that we are in a massive and continuing credit contraction and this offsets all the dollars that they are printing. Our banking system is based on reserve lending. So for each dollar they have in the vault (or in a loan) they can loan out 10 dollars in credit. The problem is that all their loans (mortgages) are going bad…and there are many more that will go bad in the next couple of years. So if they have few loans, they can loan out little money. And to make matters worse, they can’t make all of the crazy (alt-A, options ARM) loans that were able to for the past ten years. This dramatically shrinks the pool of people who they can lend money to and dramatically shrinks the amount of money in play. Add to this high unemployment, and high state budget deficits which will lead to higher unemployment, which will also lead to more foreclosures and worse credit which will lead to lower tax revenues which will lead to more state budget deficits, etc…which will all lead to less money in circulation. So the government can print a bunch of money, but unless it gets to people who can spend it, the money isn’t in play, and even with all the money they print, they will have a hard time counter-acting all the credit that went away.
WP….the contracting credit is a small deflating cycle in an otherwise massive global super infllation cycle that is running its course. …when the overall economy starts showing massive cracks.. witch is really now getting underway..the elite will open the spigots of easy money once again….massaged numbers will lead one and all to believe we are out of the woods …other inflated currencies will rush into the hopefull recovery..this will seem like boom time…do not believe it…it will be just the pent up inflation hitting the streets…soon all will know what is transpiring and rush out of paper and into anything REAL……THE ENTIRE GLOBE IS PRINTING …THIS MASSIVE CREATION OF NEW NOTES WILL TAKE OUR SMALL DEFLATION AND OBLITERATE IT OVERNIGHT..this will happen..rules are changed for survival..this is the time now that the wealthy are stealing from the middle class….you see this WAS planned and they change the rules of the game when it suits them..anyone who thinks this just happened is a fool….they allowed the alts,no dock loans and such to be executed..they knew this would lead where it has ..so as they could cleanup on all the loose hands..our job now is to anticipate thier next dastardly move…nobody makes money in a neverending deflation…INFLATION HAS BEEN CHOSEN.
I have long worried about the deindustrialization of the US–coming as I do from the Rust Belt and all that dislocation/horror. But this may not be a terrible thing. Y’all might enjoy
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The Olduvai Theory: energy, population, industrial civilization
http://www.hubbertpeak.com/Duncan/Olduvai.htm
http://www.hubbertpeak.com/Duncan/OlduvaiTheorySocialContract.pdf
http://dieoff.org/page224.htm
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The opportunities in this major shift are nothing like they were in the past. Not even remotely. Charles Hugh Smith, Robert Duncan, David Pimentel and others for decades have been standing on the highest point in the mast, calling out the shoals through the fog.
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It seems to me that Funkies (currency) will get less important, but not in a universal/unilateral way. Just as many communities in the US today run more on barter than money, this will become more or less widespread in other places.
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The goal is to keep clear in your own head how much you want to cling to Funkies and Funky-related social order. Many people do just fine on very little money in the middle of gentrification; others want the “shiny rocks in the kitchen” as DHB puts it. Still others will mortgage everything away for the dream of a bigger number with more zeroes.
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As for moving to California, that assumes the highway, power, water, and emergency services grids will continue to operate as they have. Me, I think it’ll be desert again in another 20-30 years as bioregional solutions return all that water to the places CA has always stolen it from. I base that on the growing discontent in the PNW that we are forced to give our hydro to an international grid. A more intelligent system would be regionally sustainable systems linked in a more equitable system of trading of surpluses. What does California have to trade on its own, other than sun and dreams? The whole Imperial Valley depends on others’ water just as all of LA depends on others’ energy.
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rose
Hey Bill…you may be right. The inflation/deflation thing is something that can’t really be proven until after it happens. I agree with a lot of what you are saying. I just think that over-inflation already happened in the 2000’s…it was all a phony economy brought on by lax regulations and demographic trends, and deflation is starting to take hold as all the BS shakes out. Obviously our government does not want inflation at any cost and will try their best to stimulate the economy out of it. I just think they will have a hard time doing so short of writing everyone a check for $100k ala George Bush. I don’t doubt that inflation is possible, I just haven’t seen anything to indicate it. What I have seen on the deflation side is >
>
massive foreclosure (and many more coming,)
>
massive job losses (and more coming–LA City Council voted to ax 4000 jobs by July–CA in a 20 bil hole that will most likely double in the next couple of years,)
>
massive credit contraction and the end of easy lending (I don’t really see how the banks can go back to their ponzi loans in the wake of the current bailouts, not to mention all of the people with damaged credit)
>
interest rates already at about the lowest they can possibly be
>
All this and still no inflation…
So what are they going to try next to get the economy going?
It should be an interesting year!
Doctor – Geat job! It would be interesting to see your “California Household Income and Home Prices” graphic include data that go back to 1968 or 1970 to match your (immediately following) “California and National Median Home Prices” graphic. I’m guessing you wouldn’t see home price to household income ratios above four as you do after 1980 (2.5 – 3 ?); since home prices in California clearly diverged from the nationwide median price by the mid 1970’s…… (what were the reasons and/or conditions which accounted for this large divergence beginning during that timeperiod?)
WP ..its late.. but here goes.. all of academia is scrounging for solutions to slowy let the lava out of the volcano at pompei …the people hear the rumbles in the distance and instinctively know something is afoot…some are getting on boats.. (bankers..law enforcment seniors)..but the people hold out for hope,,,the only thing they do not know is that the bankers made a deal with the devil..the lava about to bury them are dollars that will have no value in the near future..I agree,,,the inflation has started in some catagories..I DO MEAN STARTED…TALK TO PEOPLE IN ARGENTINA…the US is a mirror image of argentina before the crisis…only istead of us pulling the credit from them it will be china and japan and india pulling it from us…. they will all rush for the exit to get out of the dollar first…collapsing the value of the buck..hense the hyperinflation…..
If you do not look ahead at the unsustainable jobs-TAX equation and dismiss the outcome of a government without funding ….you miss the entire story here…THE FED IS MONETISING ITS DEBT..if that does not scream unsustainability…leading to a worthless dollar ..I do not know what does…inflation will not fix our immediate situation..it will make it worse ..but if you can ride it out with things with real value…food ..a roof over your head..a skill to barter..you can make this coming event less painful…you see people will end up renters for life..if they do not prepare for this beast..you have been warned
Guys – Let’s cut the inflation crap. The doctor has great analysis on the housing market, but you guys are taking it a couple of steps beyond into bs territory. There is no huge inflation coming. The Fed will simply tighten money supply if there are signs of inflationary pressure. That is the end of it. Mortgage rates will still go up once the government stops guaranteeing mortgages, but so what if housing drops another 50%? We have now socialized most bank losses. Covering banks losses will not result in increased money supply, so there is no inflationary pressure, only higher taxes which will be offset by lower housing cost.
The inflationists are desperately hoping that inflation will save the (nominal) value of their overpriced houses and gold. Inflationism is really the next step for the marginally-rational bubble deniers . . . there is no bubble, there is a bubble but it will deflate slowly, the bubble popped but not in my area, prices are too high now but inflation will make them seem low next year, etc. BTW, Bill, you have your Argentina’s confused — in the 5 or 6 years following the 2001 default and float of the peso, there was very mild inflation (when measured in pesos) and deflation (when measured in dollars). There was very high inflation in the 70’s and 80’s, but that had nothing to do with foreign creditors “pulling the credit.”
Tom.. do you know that the majority of people think the bailout tarp dollars amount to about 700 billion…what they do not know is that the 700 billion rolls over after each 100 billion is spent…creating a NEW additional 100 billion to keep the tarp account at 700 billion…check it out..dont take my word for it..23.7 trillion dollars have now been allocated and that is not even counting the unfunded liabilities such as social security medicare ect.you really need to do the research check the FACTS ..these people think you are ignorant..infact they are counting on it..I hate to spoil a party but this is some deep shit. google john williams shaow stats read the people I reccomended..these people are the only ones that predcted this mess..2 YEARS TOPS IS ALL THEY CAN KEEP THIS TITANIC FLOATING..I am not a sky is falling guy ..I am a #s guy and most have no idea what the fed and obama have done …they are all in as they say..this will end badly ..they have no control of outside events…………..I think I am done here..
the argentine peso in 2001 colapsed by 73%…in the following 2 years most debts were inflated away due to runaway inflation…it started when the 1 to1 peso dollar parity was pulled.. a bank holiday was declared ..a 1.4 peso to dollar exchange rate was established..this quickly was tossed and the peso floated..soon 4 pesos bought 1 dollar..things still spiraled down from there…the imf partly to blame..got payed in full…SEE HOW THINGS WORK…get the facts…A VERY MILD INFLATION STEVE….I think not..
Bill — you clearly don’t know what you’re talking about when it comes to Argentina. A little knowledge is dangerous. Yes, the government let the peso float in 2001 and it dropped against the dollar (down to around 4, where it is today), but there was no real inflation following the default/devaluation. Dollar loans from national banks were peso-ized based on pre-float parity. People stopped paying dollar loans that were not converted, and creditors who tried to collect in dollars were often subjected to rough justice in the courts. People stopped buying imported goods because they couldn’t afford them. Domestic industry resumed after all but stopping during convertability. Yes, there was some severe trauma, but the country as a whole is far better off now than it was during the Menem era, Los K’s efforts notwithstanding. Stop spreading misinformation in an effort to scare people into your belief system.
run for the hills..you ask..hell no..will the argentine expierience visit our great land…yes..in a similar way,although not exact..imho…we are to witness a similar devaluation…via bank holiday..what is to pop is the bond bubble.. the proceeds will be slushed back to real estate..the strength of the new dollar will be tied not to a promise.. as before.. but to a piece of REAL estate..kind of makes sense…we can no longer fool the world with our full faith that we will pay back..thats over..as in argentina the banks ..will have lost thier credibility…in buenos aries .property priced in dollars 18 months after the devaluation moved back to pre crisis value. after initialy losing 40 %…sound familar..after the (bank holiday)..property priced in pesos zoomed 4 fold…so…if you owed 100,000 pesos on a new home pre crisis ..you now could sell today for 400,000. pesos (old pesos) you see realestate became the last go to asset for the masses with money to shelter…you WILL see that here….this game is a frog in a pot..the water is about to boil
Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.
Here is an example of what I am talking about:
Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)
Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
“Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM.”
The Center for Responsible Lending says YSP “steals equity from struggling families.”
1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees. 2. This is an average of $5,000 per loan. 3. The median value of the properties was $135,000. 4. Clearly, this type of lending represents a major ripoff for consumers.
http://merkley.senate.gov/newsroom/press/release/?id=A09C6A80-537A-4EB1-83C5-31925F046B6F
steve..knowing friends who have lost thier life savings in the devaluation I must disagree with your (devil may care attitude) yes they are better off now ..but what about the great THEFT..for some…I wish not to scare but to open some eyes.I have a strong belief we will survive but some may not want to be out in the storm
steve…;THERE WAS NO REAL INFLATION AFTER THE DEVALUATION….is that what you said…really…are you DAFT man…THe devaluation WAS THE INFLATION…SHEESH….now that I have cleared the air on that,I would like to talk about common sense..you see common sense is available to all….it is just that some people like to try to tell other people that things are way too technical ..or there are too many variables…or let us take care of the details…guess what…most americans are hard working blokes that can see through what these idiots are pulling…the lives of our childeren are being enslaved by a certain group of greedy creatin…I have to ask …in september of 2008 were you counting your 401k balance…..dreaming of all your good fortune…I bet you were…I was telling everyone I knew to liquidate..look ahead man ..sorry… dont mean to get personel
WP…I believe the next thing that they will try is the bank holiday..it just falls in line with the trials that have been put into motion (argentina..iceland)…greece was hatched and forced out into the open as a diversion and to buy time for the buck….the elite exist and are two steps ahead of the trend …the clowns in office are just mislead actors playing parts for a larger purpose…some knowing some not.. my advice….take out a fixed 30 year loan on the best house you can afford to keep up the payments on …LIVE IN IT..GET OUT OF THE STOCK AND BOND MARKET,…TAKE THE TAX HIT…shelter your money in canadian mining certificates …oil …metals…and fertilizer companies…think preservation of capital…to sit and whine that housing is doomed for a decade is just silly…this presumes that the money changers are just going to lay to waste…if there is one thing I know … at all times in all economies money WILL BE MADE and time is just about up for sheering the sheep,,the game will continue,,think bank holiday..look at what citibank is doing in texas…..july 2010 .draws near
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