Housing Bubble Bursting?

[Mike Simpson]

"I started appraising in 1990, and had the data to prove a 20% drop between 1989 and 1990."

That's ridiculous!

If I'm banned...who's gonna contest this nonsense?

 

[The Warrior Monk]

"I started appraising in 1990, and had the data to prove a 20% drop between 1989 and 1990."

That's ridiculous!

If I'm banned...who's gonna contest this nonsense?

If a market can go up 20% or more for several years in a row, why can't it go down 20% during a one year time frame? Are prices unidirectional???

 

[Couch Potato]

Real Estate Values Go Down Ocasionally

It is not ridiculous for some areas, but historical fact. Things got ugly for a while in CA partly related to the problems in Japan. (Where real estate prices have been falling for the past 15 years.)

 

[moh malekpour]

Steven,

Moh
Quote:
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. Does that mean I was right for the last four years in saying this was not a bubble?

Bubble, Crash and Collapse are symbolic metaphors used in economic and real estate markets definitions.
Please don’t get fixated on the word Bubble and don’t play game with metaphors. Lets get real and define them here.
Bubble = A rise in the price of an asset not based on its current real value but on the basis of speculation and expectation that the price will rise in the future. When the expectation ceased, the price will fall or the bubble will burst or the market will crash or the market will collapse.
Crash = fall or break down of the market.
Collapse = Break down of the market.
So the bubble burst or crash or collapse is the same thing.
Now, why the bubble burst or crash or collapse of Real Estate market is different from the stock market? I am going to use your imagination to explain the difference.
I am sure you have taken bubble bath at home. When you are in your bathtub to take a bubble bath, you may see one large bubble at the middle of your bathtub or you may see many smaller bubbles that are spread all over the bathtub. The single large bubble is a symbol of stock market bubble because it is the only one and those smeller but numerous bubbles that are spread all over your bathtub are symbols of real estate bubble because they are located in different locations and have different but smaller sizes. If you touch the larger and single bubble, it would burst, collapse or crash right away. The burst is sudden and quick and may make a little hissing sound too and you can be done with it right away. But you cannot burst all those smaller bubbles that are spread all over your bathtub all together at the same time. You got to do them one by one but when you touch one of them, it will burst and the other one move to your direction and you touch that one and the next till all of them are collapsed. That is why the bubble burst or crashes or collapse of stock market is sudden and noisy but the collapse of real estate market is gradual and silent.

Quote:
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.

I have no logical reason indicating the end of the world but I have every reason indicating that I am going to be charged 15% on my credit card if I don’t pay my balance by Monday. This is the logical indication of charging 15% on the credit card. It is predictable and real just like real estate market collapse. If you can prophesize and give me a logical and rational reason that the end of world is coming, please let me know.

 

[George Hatch]

Not believing in the loss, huh? Try this little tidbit on for size and see if maybe you might want to revise your opinion.

 

[Couch Potato]

Some things are easy to predict.

Not believing in the loss, huh? Try this little tidbit on for size and see if maybe you might want to revise your opinion.

What do you suppose will happen next on that chart?

 

[Mike Simpson]

"(Where real estate prices have been falling for the past 15 years.)"

Sorry Greg...you asked for it...

THAT'S RIDICULOUS TOO!!!

I lived in Japan for a short period back in '96.' I was working as a "consultant" for a construction company that built homes in Japan. I met on several occasions with their appraiser and real estate agents & discussed the Japanese housing markets for hours through a translator

Homes were so expensive that many people bought using a 100 year mortgage transferrable to heirs. Prices weren't falling at that time...they were climbing, and they're not falling now!

I'm certainly not making many friends here am I?

"Are prices unidirectional???"

I don't even know what that means.

"If a market can go up 20% or more for several years in a row, why can't it go down 20% during a one year time frame?"

Prices don't just tank because, they've risen ("what goes up...must come down" is a song by Blood Sweat & Tears, and has nothing to do with housing markets). There's a plethora of reasons markets rise and fall, and falling markets have historically recovered relatively quickly.

Look...I don't think any of us contesting Bubblemania have ever said, 'prices can't come down' (I certainly haven't). What we've tended to challenge is the more outrageous predictions, and the fact that these dire prognostications have continued--unabated--for one, two, three, four years now.

We keep hearing from those that dwell in the Tower Of Bubble that we'll just have to wait, and see (and wait...and wait...and wait). I've been predicting for the past two years that we'll continue to see these threads into the following year. I'm going to now make another predication (I've actually made it before); Bubblist will now begin spinning the data in an attempt to prove they were right all along. We'll continue to see the kind of negative news--that we've seen all through this Bull market--cherry picking a story here, and a story there to substantiate their viewpoint.

I'll keep making money based on my understanding of the markets...no more lender pressure...no more request for free comp searches...no more getting stiffed...no more falling fees...no more...no more...no more...

-Mike

 

[Fred]

Bubble, Crash and Collapse is symbolic metaphors used in economy and real estate.
Please don’t get fixated on the word Bubble and don’t play game with metaphors. Lets get real and define them here.

I think the ones tossing it around are fixating it. When I was studying finance and investment and such stuff, the word “bubble” was reserved for things like the Tulip Craze and the South Sea Bubble. You say the word applies to real estate, but until 2002, I NEVER heard the word bubble applied to real estate, not even for the 1920’s Florida land scams.

If you think people buying houses the last five years were “speculating” and are going to all sell any minute, then where do suppose they will live?

 

[Randolph Kinney]

Scenarios for the Next U.S. Recession

The FDIC has on its web site an article dealing with the cause(s) of the next recession. Here is the link:

http://www.FDIC.gov/bank/analytical/fyi/2006/032306fyi.html

Despite a favorable outlook, there are at least three widely acknowledged areas of near-term concern that could pose risks to the economy going forward: a spike in energy prices, a decline in home prices, and a retrenchment in consumer spending arising from record consumer indebtedness. The consequences that any of these developments might have for economic growth could range from modest to severe, depending on how events play out over the next few years. It should be noted that these three areas are by no means the only potential sources of risk. Financial market panics, natural disasters, terrorism, war, and even changes to policy are among many other potential sources of disruption to the currently benign economic and banking environment. It is difficult to assess many of these risks before they occur, but in 2005 the FDIC did examine so-called “stroke-of-the-pen” risk, or risk that arises when tax, monetary, accounting and other policy changes produce unintended consequences for the economy and banking.1

As a comment on energy, I believe everyone is aware gasoline prices are up (over $3 per gallon here). Oil has closed at $75 a barrel.

The risk of a housing slowdown is another area of concern going forward. The recent housing boom has been unprecedented in modern U.S. history.2 It has been suggested by many analysts that the housing boom has been a significant contributor to gains in consumer spending in recent years. Indeed, a number of the FDIC roundtable panelists pointed to the apparent connection between rising real estate wealth during the past four years and the sustained strength in consumer spending during that period. Because consumer spending accounts for over two-thirds of U.S. economic activity, any shock to consumer spending, such as that which might be caused by a housing slowdown, is a concern to overall economic growth

As a comment on the refinance market, the price of a house is flat to down in my market from last year. It is going to be difficult for the consumer to finance his spending with HELOC's with rising interest rates.

There are concerns, however, that changes in the structure of mortgage lending could pose new risks to housing. These changes are most evident in the rising popularity of interest-only and payment-option mortgages, which allow borrowers to afford more expensive homes relative to their income, but which also increase variability in borrower payments and loan balances. To the extent that some borrowers with these innovative mortgages may not fully understand the potential variability in their payments over time, the credit risk associated with these instruments could be difficult to evaluate. In addition, the degree of effective leverage in home-purchase loans has risen in recent years with the advent of so-called “piggy-back” mortgage structures that substitute a second-lien mortgage for some or all of the traditional down payment. Meredith Whitney noted at the roundtable that the recent use of revolving home equity lines of credit in lieu of down payments has enabled an increasing number of first-time buyers to qualify for homes that they otherwise could not afford.

Overall, Ms. Whitney’s research suggests that a group that includes approximately 10 percent of U.S. households may be at heightened risk of credit problems in the current environment. This group mainly includes households that gained access to mortgage credit for the first time during the recent expansion of subprime and innovative mortgage loan programs. Not only do many borrowers in this group have pre-existing credit problems, they may also be more vulnerable than other groups to rising interest rates because of their reliance on interest-only and payment-option mortgages. These types of mortgages have the potential for significant payment shock that occurs when low introductory interest rates expire, when index rates rise, or when these loans eventually begin to require regular amortization of principal including any deferred interest that has accrued (see Chart 2).

As a comment, the rise of these new mortgage products pose a significant risk as noted in the article.

Many analysts argue that home prices in the hottest coastal markets, especially in the Northeast and California, could be poised to decline in the near future. For example, PMI Mortgage Insurance Company analysts place essentially even odds that home prices will decline during the next two years in a dozen cities in California and the Northeast.4 Should home prices either stop rising or begin to fall in these areas, local banks and thrifts would need to look to non-residential loans to support revenue growth.

As a comment, more people are concerned with house prices having more potential to decline in the near future.

Historically, regional housing price declines have tended to be associated with a slowdown in small business activity, with banks making fewer commercial and industrial loans in addition to suffering mortgage and consumer portfolio stress.

During the past 50 years, the nominal value of U.S. housing wealth has declined only once in a meaningful way—in 1990, in the midst of the bi-coastal residential real estate bust.

 

[George Hatch]

"(Where real estate prices have been falling for the past 15 years.)"

Sorry Greg...you asked for it...

THAT'S RIDICULOUS TOO!!!

I lived in Japan for a short period back in '96.' I was working as a "consultant" for a construction company that built homes in Japan. I met on several occasions with their appraiser and real estate agents & discussed the Japanese housing markets for hours through a translator

Homes were so expensive that many people bought using a 100 year mortgage transferrable to heirs. Prices weren't falling at that time...they were climbing, and they're not falling now!

Umm, the statistics compiled by the Japanese Real Estate Institute say otherwise, (and I've seen this in other sources, too). Actually, I think they have been coming out of it for the last couple years or so, but the trip from top to bottom took 15 years. It surely wasn't a soft landing for most people.