Housing Bubble Bursting?

[Fred]

Randolph

No attack Steven, just facts

Is that what you are doing? No attacks?

Steven, you have talked in circles now to such an extent I am lost trying to follow which chart was bogus and that you label as phony (spotted in 2 seconds) that you think I posted and that you discredited.

Those “crop circles” on that graph are the circles you are seeing.

Does this mean you gave up trying to refute the idea that long-term rates (like prime, T-rates and mortgage rates) tend to go up and down together?

I am waiting for your apology or another fine sophomoric analysis with its sophomoric conclusion.

I’d be concerned that sophomoric is too high a level for the bubbleheads. I’d use the same guideword for communicating and the idea of apologizing for being right: KISS.

The chart says it used the price of a “standard house.” Even a form-filler ought to have some idea how suspect that is to begin with – comparing an 1896 house with a 1996 house. Maybe your guy would do transportation, too. He can compare the price of a horse in 1896 with the price of an SUV in 2006. Mabye we are in a car "bubble" too.

On that chart, the population changes 366% percent and the line relatively flat, while the home prices change only 83% and fly off the page. Duh!! If the population and prices were graphed on the same scale, population growth would dwarf the price index.

 

[Fred]

Moh

From 1890 to 1921, there was a normal fluctuation.

Normal fluctuation (?) In your view, is a 30-year price decline from 100 to 66 is normal? Besides, the 1893-1926 period was one of rising prices. But, the chart has prices going down during this period.

Also, the chart shows prices flat from 1921, the beginning of the Roaring 20’s, all the way through the Great Depression, but the depression wais a period of falling prices.

Moh, you and the others can and will still believe in this bubble hype no matter what. Would it kill you to admit the charts are screwed up?

I ought to get a copy of this book, but I am not paying for it. I have a bookshelf dedicated to this type of garbage. I’ll put it next to the 1970 book written by a PhD “proving” we were on the verge of a major deflation and on the other side I'll have the one that argued that the Dow Jones at 3,000 was ridiculously overvalued in 1991 by historical norms and how the impending crash would take the averages down to 700. I enjoyed them very much at the time, knew they were totally specious and read them as the comedy of errors that they are - just like Randoph's graph.

Who is blinder than the zealots?

 

[Randolph Kinney]

The chart says it used the price of a “standard house.” Even a form-filler ought to have some idea how suspect that is to begin with – comparing an 1896 house with a 1996 house. Maybe your guy would do transportation, too. He can compare the price of a horse in 1896 with the price of an SUV in 2006. Mabye we are in a car "bubble" too.

On that chart, the population changes 366% percent and the line relatively flat, while the home prices change only 83% and fly off the page. Duh!! If the population and prices were graphed on the same scale, population growth would dwarf the price index.

This is sophistry at its best.

I can observe that you are only opinionated and offer little in the way of analysis. Is this how you claim your discrediting works? No data, just sophistry? I am not impressed with that, I am underwhelmed to say the least.

Like I said before, this is entertaining. :happy:

 

[moh malekpour]

Steven,

Normal fluctuation (?) In your view, is a 30-year price decline from 100 to 66 is normal? Besides, the 1893-1926 period was one of rising prices. But, the chart has prices going down during this period.

Read what I wrote. I said,

From 1890 to 1921, there was a normal fluctuation. from 1921 to 1944, we had two world wars and depression

you changed what I said. The chart shows that the market had normal fluctuation from 1890 to 1921. Then, it went down sharply because of two wars and depression from 1922 to 1944 and it was not only housing market, everything including stocks were down.

Moh, you and the others can and will still believe in this bubble hype no matter what. Would it kill you to admit the charts are screwed up?

it is very unlikely but is possible that the chart has been manipulated. I just give it a benefit of the doubt that is genuine and if it is, you don't have to agree with me, just show that chart to a child and tell him it is a movement of aperson on a sidewalk and ask him to describe the movement of that person. That child will tell you that the person had some fluctuation movements from one side to other from 1890 to 2001 but in 2001, that person got drunk and went all the way to the upside.
If you can challenge the chart with document, then you have something to say.

 

[Randolph Kinney]

Does this mean you gave up trying to refute the idea that long-term rates (like prime, T-rates and mortgage rates) tend to go up and down together?

Steven, you do know that the prime is a short term rate, subject to change whenever the FED changes the FED funds rate?

Honestly, if you can confuse yourself, twice, by saying the prime rate is a long term rate, you have blown your credibility again. Look it up, quote your source, tell me again about the definition of a long-term rate, specifically the prime rate.

Prime rate, fed funds, COFI
By Bankrate.com

The prime rate, as reported by the Wall Street Journal's bank survey, is among the most widely used benchmark in setting home equity lines of credit and credit card rates. It is in turn based on the fed funds rate, which is set by the Federal Reserve. The COFI (11th District cost of funds index) is a widely used benchmark for adjustable-rate mortgages.

The fed funds rate is the primary tool that the Federal Open Market Committee uses to influence interest rates and the economy. Changes in the fed funds rate have far-reaching effects by influencing the borrowing cost of banks in the overnight lending market, and subsequently the returns offered on bank deposit products such as certificates of deposit, savings accounts, and money market accounts. Changes in the fed funds rate and the discount rate also dictate changes in the Wall Street Journal Prime Rate, which is of interest to borrowers. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Many small business loans are also indexed to the Prime rate. The 11th District Cost of Funds is often used as an index for adjustable-rate mortgages.

Steven, here is a comparison graph showing the FED funds rate, prime rate, short term mortgage rate (ARM) and 30 year fixed rate mortgage. I believe this should illustrate my point, again, that the short rate does not mean long rates follow.

Your turn Steven, waiting for more sophistry.

 

[JSmith43]

OK, class: Your homework assignment is to check points along the home cost chart. Since we don't have the source data for the "basic home", nor the inflation data used to index the basic home, I propose the following:

Do we have a volunteer to appraise a 120 year old standard home?

OK. First, the volunteer appraiser does a retrospective appraisal effective 1/1/1890.

Repeat for additional years. Let me know if the data gets better as you go along.

To what length does the author go in his book to outline the scope of his work? IMO, it would be a laborious, but necessary task to follow along with his assumptions about the underlying data for each particular time interval, the assumptions wrapped into any constant dollar conversion, etc.

The quality and quantity of data probably varied considerably along that time line, not always getting better as time went forward. WW 1, WW2, Lots of questions

 

[hastalavista]

I and at least one other forumite that I know of sat in on a conference where Prof. Shiller made a presentation and used that chart in his discussion. Prof. Shiller also has a chart that tracks housing costs and goes back to the 1600's (I believe) for home prices in Amsterdam.

Prof. Shiller is a world-renown economist, and is partner in the new home-price index contracts available on the Chicago Board of Exchange. I earned an "A" in my only course in economics, and that's as far as I went. So, my comments below must be taken in that context:

1. How relevant is information pre-WWI (or, WWII)? There was significant available land (maybe the cost approach would have worked back then), and almost no financing available. If you wanted to build a house and couldn't afford it, you'd join a co-op with some other like-minded people, contribute $X amount on a regular basis, and when there was enough in the pot and you were next on the list, you'd get the money.

2. From WWII to 1997, the trend has moved in a more or less stable (compared to the previous 50+ years) range. This was during the baby-boom and suburbanization of the country. What land was available around the major urban centers prior to WWII is pretty much gone now (in terms of any sizable developments).

3. What happened between 1997 and 2006? Well, looking at Shiller's chart, between 1997 & 2000/01, it looks just like the "booms" in the late '70's & '80's. But in 2001, it went through the roof?

Now, Prof. Shiller left the question to the "2001" skyrocket unanswered in his presentation. At the end, there was a Q&A period, to which (at the risk of sounding like an idiot in front of a very large group) I did stand up and note that the chart leaves out two significant events that could explain the big increase:
A. The tech bubble bursts, and a lot of money ran out of Wall Street and into real estate and other non-stock investments.
B. We are attacked on our own home soil, and the government pumps money into the system, lowering the cost of funds- additionally lowering already low interest rates.
Could not those events partially explain the rise in home values as a "flight to hard assets" (just like gold?)?

Unfortunately I could not understand his response, but I think he left that question unanswered.
(I did get an autographed book, though!).

My impression is that Shiller's convinced there is relevance in looking at 100-year data trends. To be fair, he will be the first one who states that the data pre-WWII is limited.
But I see no real relevance of pre-WWII data to today's market, as the dynamic of purchasing a home pre-WWII is so dramatically different than now, the predictive value of 70+ year old data in a meaningful analysis of future trends isn't worth much.

 

[Fred]

Randolph,

Honestly, if you can confuse yourself, twice

No, that's you trying to confuse things.

If you belive interest rates don't move together, then you have blown the credbility you would have had left, if you didn't already blow it posting and defending that goofball graph. If you can't see the interest rates moving together on those other limited graphs, try looking at the correlation coeffecient. Looking at all those wiggling lines must have you intoxicated, if your head wasn't already swirling from bubble psychosis.

If I had listened you bubble bozos when you first started posting here and sold, I would have missed out on the value of my house more than doubling.

 

[Fred]

Read what I wrote. I said,From 1890 to 1921, there was a normal fluctuation. from 1921 to 1944, we had two world wars and depression

Yeah Moh, I know. Now that you had a chance to look it over, you might have noticed tha WWI did not occur between 1921-1941. Of course, in bubble babble, realty doesn't matter.

And you also described as 'normal" the period during which the housing index fell from 100 to 66. Well, if you think that period of prolonged decline is "normal," no wonder you think there is a bubble now.

 

[JSmith43]

almost no financing available.

Interest rates and available financing terms combined with underwriting rules for the available products can explain a whole heck of a lot since they define what is possible.

An obvious view is that the market was restricted during certain periods and the lower rates, FICO based risk analysis, increased qualifying ratios, etc, released the pent up demand.

I didn't start paying attention to financing terms for RE until the early '70's and I believe 28/36 were the qualifying ratios, 20%+ down was the norm and mortgage insurance was a novelty. In fact, in the '60's, I think the lenders discounted the woman's income since they were likely to get pregnant and leave the job force (allegedly ).