Housing Bubble Bursting?

[Mr Rex]

Bubbles, burps, or balloons. Call it what you want. For every action, there is an equal and opposite reaction. RE and stock market are alike in one way, it can never go completely away in the current system. Stock market had a incident (Bubble, burp, balloon) based on over exuberance, prior to 9-11, with 9-11 becoming another "pin" in the side of the balloon. RE market will respond likewise, where voer exuberance exists, a correction. Some folks lost in the Stok market, but is anybody following the market lately? Even with gas prices as they are? The real estate market will never go away, so if you are a RE appraiser, you might as well take Mad magazine advice. What me worry?

 

[Randolph Kinney]

Apology

I apologize to Mike N. & Mike S. It was rude and crude of me. I hope we can now go forward and not look back a personal wounds inflicted by one side or the other.

Randy

 

[Fred]

George.

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

Actually, it was a question and not a statement. Not a criticism though, I can’t answer the question with compelling evidence either.

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

No way, Jorge. Sometimes, the “interim profits” last for centuries. Since someone somewhere is predicting every possibility at any point in time, you can always look back and find someone who was “absolutely right.” That’s called random chance.

In the words of Shiller, “I do not know the future, and I cannot accurately predict the ups and downs of the markets.”
George, thinks you can.

Moh

Real estate market collapse unlike stock market collapse is not going to be sudden and doesn’t make popping sound.

I guess you are officially downgrading your forecast to collapse. :icon_smile: Does that mean I was right for the last four years in saying this was not a bubble?

These are all indicating that real estate collapse is coming

Moh, the end of the world is coming too. I wonder which will come first.

 

[Pamela Crowley (Florida)]

The moderation options with this new forum format offer a variety of choices we didn't have before. Instead of locking this thread, there are some posters that will be banned from being able to post in this thread any more. There are ways to write to express your opinions that do not include making it personalized.

 

[Steve Owen]

All the ill will in the world won't change the marketplace.

Actually, if a large number of people develop ill will toward a segment of the market or certain type of investing it will change the marketplace... in less than a heartbeat.

On the other hand, if you intended "all the ill will in the world will not change the basic principles of economics." I would certainly agree with that.

 

[Randolph Kinney]

Update from FDIC

Brad once indicated to me that a soft landing had occurred in the 1991 recession because it was so short in duration. However, the effect of that decline and the spill over from the 80's did cause some regional real estate markets to decline appreciably.

FDIC has updated the last report it did on "bubbles" and "busts".

[FONT=Arial, Helvetica]Housing Bubble Concerns and the Outlook for Mortgage Credit Quality[/FONT]

http://www.FDIC.gov/bank/analytical/regional/ro20041q/na/infocus.html

A commentary of that update report follows:

The FDIC report notes that the increase in home prices in 2004 outstripped the improvement in underlying economic fundamentals. For example, rental rates increased by only 2.7 percent nationwide in 2004 and 2.4 percent in 2003, far below the 11 and 7 percent increases in sale prices in those two years. Also, housing prices in 2004 increased at nearly twice the rate of personal income (5.8 percent). Personal income grew 4.2 percent in 2003.

The FDIC also quotes the National Association of Realtors housing affordability index for first-time homebuyers which uses home prices, incomes, and interest rates to measure the ability to enter the housing market. That index slipped 3.8 points in 2004 to 77.7. This index equals 100 when median family income will qualify for an 80 percent mortgage on an existing median priced single family home.

FDIC makes a pretty good case through its numbers that the home sale market is overheated but says little beyond "it hardly ever happens" to explain what the future might bring.

The Corporation which insures and to an extent regulates the nations' banks has good reason to hope that it won't soon encounter the kind of real estate downturn that most recently occurred in 1990-1993. At that time the Corporation was forced to close some 300 banks, largely in the Northeast and California. This was merely the frosting on the massive savings and loan mess which forced closure of over 750 S&Ls throughout the Midwest and Southwest. FDIC initially had nothing to do with managing that ugliness which had its roots in agricultural and energy based loans although they did ultimately assume responsibility from the Resolution Trust Corporation for final liquidation of the assets of the failed S&Ls.

But the FDIC still had its hands full. The failure of the banks was largely due to their unbridled enthusiasm for real estate and FDIC inherited billions in real estate secured loans and bank owned (foreclosed) properties from the banks it closed. Clearing it all up took almost a decade and nearly bankrupted the bank insurance fund.

It would have been helpful had the FDIC drawn some parallels between the current housing market bubble and the boom of the mid to late 1980's which was followed by a significant housing crash. The market of today is quite different on a number of counts than what happened then, a topic that is worth exploring.

Because of the differences, there is reason to hope that the current situation will gradually run out of steam so that nobody gets hurt. Then again, maybe the two FDIC reports coming in such quick succession are a form of whistling past the graveyard.

P.S. The FDIC report quotes the definition of a bubble used by Shiller:

Karl Case and Robert Shiller define a bubble as "a situation in which excessive public expectations for future price increases cause prices to be temporarily elevated."2 Under this definition, an asset bubble can be said to exist when prices have risen faster than the underlying supply and demand fundamentals would suggest. The speculative element is a key feature of any asset bubble, as expectations of further price gains, rather than fundamental factors, begin to drive appreciation. Typically, these episodes are identified only in hindsight, when panic selling bursts the bubble. This sequence of events has been observed in many historical episodes with assets such as equities, land, and even tulip bulbs. There is an important distinction, therefore, between a "boom," when prices increase at a historically rapid pace, and a "bubble," when unsustainable factors lead to a boom/bust price path. A boom is required for a bubble to form, but a boom does not necessarily mean that a collapse in prices is imminent.

 

[JSmith43]

Hey Mike N & Mike S: I assume you are not banned from the thread, but if you want a thought expressed and you are banned just PM my way.

Everybody likes me. I won't get locked out:new_bdaysmile:

 

[Fred]

Karl Case and Robert Shiller define a bubble as "a situation in which excessive public expectations for future price increases cause prices to be temporarily elevated

That down-defines the old meaning ob "bubble" right out of existence. Using that standard, of course, every market is perpetually in a bubble or down-bubble.

Brad once indicated to me that a soft landing had occurred in the 1991 recession because it was so short in duration. However, the effect of that decline and the spill over from the 80's did cause some regional real estate markets to decline appreciably.

Interesting. I thought the early 90s RE recession was pretty long and severe. Of course, back then, bubble still meant bubble.

 

[The Warrior Monk]

There was no soft landing here during the last cycle. I started appraising in 1990, and had the data to prove a 20% drop between 1989 and 1990.

Lots of people were using their homes as credit cards, and weren't thrilled to learn that the dive in prices gave them a negative equity position, even if they put 20% down.

 

[Mike Simpson]

"...but I disagree that it's unfair to point out that so far your sole point of reference is your own personal performance."

Sorry George...I've given a mountain of data, explanation, and analysis and stated where I gathered the information in the past. We simply cite our "personal performance" as evidence that we've been able to read these markets differently than others and profit from it.

"Hey Mike N & Mike S: I assume you are not banned from the thread, but if you want a thought expressed and you are banned just PM my way."

That's funny Roger! Judging from past history...you'd expect the two of us to be "banned" for being attacked. All you have to do is disagree with the status quo, and you're privately invited to "move on."

Wonder what ever happened to the "Definition Of A Crusader" thread? Mysteriously disappeared when the new changes came about a couple months ago.

Thought Police...honestly!

-Mike