Housing Bubble Bursting?

[The Warrior Monk]

As to a bubble, that does not mean much except to you. To you, it means a catastrophic decline in the value of real estate. It may not be catastrophic to everyone. It may be an investment opportunity.

Thanks for emphasizing my point.

I think there is a definite bubble occuring, though it's a little more obvious in my market. But what is done with the information is just as important.

If you're planning to ride the equity curve up, I think that it's fairly obvious that on a whole, it's not a great idea at this point. Pockets of opportunity exist, but that's not the original point of this thread. As the NASDAQ was crashing and burning, you could have still made money in tech stocks, provided you picked the right ones...same with RE.

I'll readily admit I'm a doomsayer; 20%-30% sounds in my market seems reasonable based on past cycles. It might even be more, because the financing is riskier this time around.

I'm also a doomsayer when it comes to lower-end residential appraising. But I don't sit around and whine, nor have I run out of the profession. I have entirely changed my focus toward commercial, which will result in my most profitable year ever.

Being a doomsayer doesn't matter; it's how that information is used to your advantage that matters.

 

[Couch Potato]

To summarize the 29 pages: There are glass 1/2 empty people and glass 1/2 full people and everyone in between, it would seem.


Regarding the future:

Some think there is no cheese,

Some think there is less cheese,

Some think the cheese has been moved,

And, one poster that was ambivalent about cheese

Many have had a go at arguing their points about how to best handle the alternate scenarios they believe are here and now or just around the corner.

Interestingly, many disagree about what happened in the past, and/or why.

I'm done:new_all_coholic:

In the posts here, most of the cheese is Swiss with a good bit of Limburger, but in appraisal we should stick with Cottage.

 

[Brad Ellis]

Steve,

There are in reality many forms of insurance. Some are not called insurance but serve the same need. Higher interest rates do that effectively. Although the loan balance is not insured qwith an 80/20, the concept is that the increased price on the second provides some haven for default if one looks at a universe of loans. If you can make enough of them- and carefully enough-your gain on sale more than offsets the portion that go south.

Really no different from PMI in a way. It is all simply about how much you get vs. how much you stand to lose. The risk is blended into the pricing vs. the cost of an insurance policy.

Moh,

Of course the scenario you lay out could happen to some loans. At the same time, the overwhelming majority will not default even when rates and living expenses go up- including gas. Lots of these folks have the abiliy to change priorities. Sometimes one spouse will take a full time vs. part time job. There are just so many variables. Individual loans are underwritten to determine the rates and then go into portfolios that are priced according to the risk they present. And the risk is NOT represented by the whole loan but, rather, by the portion of that loan that would be lost if foreclosure occurs. That is currently about 10-12%.

Now some borrowers face steady incomes while others are at the start of their careers. UWs know that. So does the secondary market. There is decades of data and experience out there.

Brad

 

[George Hatch]

Brad,

Because you address the wider picture, I think the points you make are the most compelling I've ever seen from from your side of the discussion.

Still, I still get the overwhelming impression that most of your points are an extension of the "it hasn't happened yet" line of reasoning, albeit on a much broader scale than what the Mike-n-Mike show puts out. If I read you correctly, you're basically saying that we can trust the main players in the banking industry because they have a lot of resources to work with and they know what they're doing. To be sure, that is a compelling argument, but I don't see that it touches any of the components that drive the economy or the real estate markets, particularly not in those markets that are overextended.

I mean to say, what happens in those markets when the ARMs reset en masse and the people who couldn't qualify for the fixed are now faced with paying a point over whatever the current fixed is? What happens when the fixed mortgage interest rates hit 8% and what's the likelihood of that happening? Excluding real estate-related occupations, there has been no job growth in the income brackets that would support mortgage payments in our region - so what happens when the RE market slows down and a lot of those people move on to regular jobs that don't pay nearly so well? I assume that you're seeing the local spike in foreclosure activity and the REO sales that we haven't seen in the last 12 years - what do you make of it?

 

[Fred]

Because you address the wider picture, I think the points you make are the most compelling I've ever seen from from your side of the discussion.

And the "compelling" points on the other side are what - that popping sound no one heard, which would accompany sudden and total deflation that no one can find.

 

[George Hatch]

Again, a restatement of "it hasn't happened yet, so it that means it won't happen".

Let's wait until the cycle is completely over before we decide that the New Paradigm (and its restated cousin, the Soft Landing) has been proven and the Bubble has been disproven. We're nowhere close to the end yet.

Shiller was 4 years early with Irrational Exuberance, during which time he was mocked while people made money in the stock market. Those interim profits don't change the fact that he was proven absolutely right and the New Paradigm was proven absolutely wrong, nor does it restore the losses people suffered as a result of hanging on to that New paradigm for too long.

 

[Mike Simpson]

"If some of you keep making personal remarks instead of sticking to the subject of this thread, it will be locked. That would be very unfair for the rest of us."

I think B.B., hit upon this point in another thread...some here seem to hold contempt (even bordering on hatred) for those who'd disagree with them, and that's bleeding through on some of these more acerbic posts. It's strange, but this topic always seems to bring out the worst in some people. Despite recent historical data...some just cling to this Bubble notion like a Pit Bull. And they continue to be wrong.

There's a couple here who've been offering their opinions & insights regarding myself & Neff's knowledge of markets other than our own. They presume to know (when they can't know) the extent of our knowledge, and understanding of other markets. They evidently assume they know where we've been & the markets that we've studied (they don't). They further surmise to know our investments (they can't), and even make snide comments regarding our taxes.

All the ill will in the world won't change the marketplace. Malice & spite can't affect us.

-Mike

 

[moh malekpour]

And the "compelling" points on the other side are what - that popping sound no one heard, which would accompany sudden and total deflation that no one can find.

Steven,
Real estate market collapse unlike stock market collapse is not going to be sudden and doesn’t make popping sound. Real estate market is not like stock market that you can go to your Internet and see a big stock crash appears all a sudden on your TV screen or on your local paper. Real estate transaction takes weeks and months and its market results also takes weeks and months to show up. Real estate market collapse is gradual and silent but its damage is larger than stock crash because it is a larger asset, involves more people and it is about real money and real asset not paper asset. So, if you are waiting for a big word CRASH on your computer screen or hear a popping sound from your TV, radio or computer speaker to symbolize that real estate market has gone down, you are wasting your time. What you can hear or see is a series of constant real estate market reports and articles and eye witness news and MLS reports day after day indicating that real estate market is cooling off, going down, MLS inventories are getting larger, sales volumes are getting shorter, marketing times are getting longer. These are all indicating that real estate collapse is coming but it is not going to be sudden and it is not going to make a popping sound that you are waiting for.

 

[George Hatch]

Mike,

You seem to hold a misconception. A discussion on whether there is or isn't a bubble is not a referendum on the manner in which you have chosen to make a living or a vote of confidence in your personal goals and ethics. There can still be some local bubbles and we can still salute your success at the same time - they are by no means mutually exclusive.

I'd agree that it's wrong to make assumptions about your status and expertise, but I disagree that it's unfair to point out that so far your sole point of reference is your own personal performance. By that definition, you could be having a downturn even when everyone else was making money and that would make everyone else wrong for saying its a good time. That's where lies basis of the comments about your myopia.

Whether or not you guys are successful in your own markets does not address the wider question about the existence of overextended markets and the potentials for those markets to suffer declines that are as sharp as were their increases. Likewise, it doesn't matter how many of us are doing well either. For instance, I make just about as much money when times are 'bad' as when they're good. It doesn't matter much to me on a personal level what happens, but then again my performance is also irrelevant. The fact that I can do well while other people lose doesn't mean they aren't losing.


You guys are taking it personally when it isn't personal. We would have to care one way or another about your personal performance in order for it to be mean spirited and it should be pretty obvious that we don't, just as you have no reason to care how well or how poorly any of us are doing. It ain't malice and ill will you're finding personal offense in, it's apathy. Deal with it. If you want to argue a point without getting personally wounded perhaps you should find a point of reference to work from that's not personal. Argue the economic elements that are relevant to the discussion rather than your personal successes that aren't.

 

[moh malekpour]

Mike,
Please try to understand that we are real estate professionals here discussing about real estate market. We are not discussing about you or Mike Neff and the way that you guys are doing your business unless you express your own opinion about your own business constantly that deserve a response. So, please don’t put yourself at the middle of this discussion because you are not the real estate market and you are not the center of attention. You might be an investor in real estate market but there are millions of investors like you out there and you cannot speak for all of them.