Housing Bubble Bursting?

[Fred]

George,

The idea that most of us have predicted a date and time for the turning market is another straw man argument

Isn’t that backwards? Timing and depth is what no one has been offering for the last four years.

Arguing that the direction of a market will change is inherently a market timing argument - or it is a non sequitur. You might as well say the Cubs will win the World Series, but you don’t know when.

The bubblers sound like members of the Madame Defarge society out for a little Sunday schadenfreude, with plummeting prices taking the place of the crashing guillotine. :icon_smile:

 

[Pamela Crowley (Florida)]

Who knew 3-4 years ago that ARMs, 100%+ LTV mortgages, negative AMs, no documentation needed, we'll lend anything to anybody whether they actually exist or not, lending practices would become so prevalent? Toss in many regulators turning a blind eye to proliferation of fraud in all areas residential real estate involved and so many coming into it with the "everybody is doing it and getting away with it" attitudes...

Could the amazing price increases have happened without all that???

Could they be sustained without all that?????

There were numerous things that came into play to cause this real estate boom that were never a part of previous booms and never before available. Yes, it has been a 'new paradigm' and NONE of us really know what the repercussions really will be yet.

 

[Pamela Crowley (Florida)]

Here's a couple more new articles:

http://www.news-press.com/apps/pbcs.dll/article?AID=/20060423/RE/604230431/1014/BUSINESS

As market cools, appraisals hard to gauge
Home values drop, and decisions await sellers

How much is your house worth?

Homeowners, real estate agents and appraisers alike are finding it hard to tell as prices and the number of sales plummet in Southwest Florida's volatile real estate market.

And if you figure you'll just ask for a wildly inflated price and negotiate down, forget it. With 12,000 homes listed for sale in Lee County, buyers aren't even bothering to look at houses that aren't already priced to sell.

Meanwhile, some experts say lenders and agents continue to pressure appraisers for higher estimates than what a house is worth as prices continue to fall because they still want the deals to go through.

"I could look at sales six months ago and they're at one level, but this year there might be 28 homes on the market, none pending, and one closed sale in the last six months," said real estate agent Brett Ellis of RE/MAX Realty Group, of how he determines an asking price for potential clients.

In the absence of recent comparable sales, he said, "You have to look at your competition. Now your choices aren't just that subdivision, it's all over town. And you have to be aggressive. You're constantly trying to find your way into the market. Just because you're the lowest in the market today doesn't mean three more won't hit the market tomorrow."

http://www.denverpost.com/opinion/ci_3732349

Hard lesson in state's risky mortgages
Colorado has the rough distinction of having the nation's highest ratio of foreclosures to homes. Families must now pull themselvers out of the hole.

Colorado lenders and brokers have led the nation in risky mortgage schemes, luring homeowners to dangerous low-rate and interest-only loans. Now we lead the nation in foreclosures.

Go figure.

The danger signs were clear last summer: Denver ranked fourth in the nation in interest-only loans, and more than two-thirds of homebuyers were borrowing more than 80 percent of the price of their homes. About 43 percent of all loans in 2004 were interest-only - double the national numbers.

Plus, home construction was outpacing population growth, a gap that had economists worried that too many Coloradans were overextending themselves.

Colorado's highly educated and adventuresome populace is partly to blame, because they're more likely to know about different mortgages and more willing to play the market. And, Earth to legislature: It surely doesn't help that Colorado is one of only two states (Alaska being the other) that doesn't license mortgage brokers.

:icon_eyecrazy:

 

[moh malekpour]

Steven,

Isn’t that backwards? Timing and depth is what no one has been offering for the last four years.

Please don’t mix timing with depth. Timing is not depth; market timing is a superficial act. It is based on randomness and coin flipping. There are two approaches to the real estate market: 1-to flip a coin and rely on your luck or randomness. This approach is speculative, non scientific and close to gambling
2- to use reliable data, facts, signs and evidence. This approach is scientific and has a high reliability.
Most of us have reliable data from our local MLS, NAR and The Fed plus the rule of the cycle of real estate market to give us all kinds of signs, evidence and reasons that what is on the offing sooner or later. What do you have to offer that negates what we are saying except your coin?

 

[Steve Owen]

Everybody likes me. I won't get locked out

(Okay... I'm probably banned now.)

Seriously, I hope Mike and Mike didn't get banned. I don't remember exactly what was said and who said it (and I'm too lazy to look back through and see), but some of it did sound kind of personal. Still, I think the two Mikes add a lot to this discussion. It's important for us to remember that there are people who make a living investing in real estate in various ways... and their opinions on some of these subject's are likely to be different than the typical appraiser's.

That's really what I was getting at with my comments about promoters. And BTW, my comments about promoters were in no way intended to be derrogatory. Promoters are an important part of the economy... they often take risks that most of us would not be willing to. However, they do tend to only see (or at least only express) the optimistic and rosy side of things. I am convinced that the best of them can actually see the down side. And, I'm also convinced that if they did, they would do their best to hide it from you. As appraisers, that is important to remember... it's mainly just a matter of speaking a different language.

Okay... this might be a bit off topic. Back to the track... I still don't see any historical evidence of a downturn in this market. There does seem to be a bit more FSBO activity and possibly slightly larger inventories. However, average days on market have not changed much. There is no obvious downward price pressure in SFR's. And, so far, we have not seen a large increase in foreclosure or REO activity. Still, as appraisers we tend to look to the data, which is necessarily somewhat behind. A few of the best realtors have started talking about it being a bit harder now than it was last year... so, we'll see.

George had it right... the bubble pop, if it comes, will likely be a localized event. Of course, if bubbles start popping in CA, NY and FL, it will have an effect on the overall economy.

 

[Mike Simpson]

"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."

MAN! Some of you certainly have A LOT more time than I do to look for articles & graphs to substantiate your viewpoints. I've been reading em here for four years now & watching em on the tube for going on...what?...six years now!

Problem with your graph George is it doesn't tell the whole story. It's cherry picked information (in my opinion), and presented to worry readers (fear sells).

I wasn't in Tokyo...I was in Sendai City. The company I worked for was building homes in six of Japan's largest cities @ the time. You can believe me or your chart, but it is interesting some would contest the Japanese economy & lifestyle based on nothing more than negative news stories--despite evidently not having been there. I could find equally rosey news articles to backup my contentions...but, based on history...that'd be a total waste of both our time.

However, here's what was taking place at the time based on my experiences...sorry no graphs: We were building "American Style" homes in 1995, with American materials & American construction standards. They were subsidized by the Japanese Government & prices started in the mid $300k range for 900-1200 SF 3 bdrm/2-2.5 bath homes (quite a price back then...especially when we consider they were subsidized). Rising prices in Tokyo resulted in "slosh over" into many other nearby cities...including Sendai City (Note: Tokyo, Yokohama & Sendai City have grown together over the years and are now effectively one city).

No Brad...I'm not familiar with how the Japanese economy, or their lifestyle was before my visit. I have several friends there I've remained in touch with since '95.'

Let me just say this before I've got to get back to work; The news stories presented here...the charts...the graphs...the accusations...aren't any different that what was being presented 4 years ago.

It's obvious to most everyone the markets are changing...they always have, but these dire predictions made by some never materialize...why?...some of you have worked yourselves up too much. The reason you've been wrong thusfar is..."you've been living in a bubble!"

By-the-way...since some of us are telling anecdotal stories...here's mine; I have a client that lives close to George & I know the So.Cal market better than most of you will ever realize. This guy just sold his 3bdrm/1bath 1600 sf, 1950's rambler for $970,000 after less than a week on the market!

-Mike

 

[Steve Owen]

Shiller didn't forecast a date for the dot.bomb but he did forecast the result, and that's primarily what we're working on here. If you guys don't think there's any merit in trying to understand the "why" of where we are right now and how it might affect where we're going that's your perogative. There's nothing wrong with that - appraising is primarily about reporting the "what" of right now. By the same token, I don't think it's unreasonable for some of us who want to look deeper to do that.

In fact, I had not even heard of Shiller at the time... and I predicted the dot.bomb myself. No, I didn;t predict the date, but I knew what would happen. And, I knew it in time to save myself some trouble by liquidating most of my assests that were at risk.

How did I figure this out?

Simple. A local bank hired an economist from back East, one of the ivy leage outfits to come to talk to us about the new economy. All of the local business leaders were there. At the end of his speech there were questions. One of the local business guys asked him a question that was basically "what about PE ratios." The response was that PE ratios didn't matter when you were investing in those kinds of companies because what you were buying is talent. (Basically, the "this changes everything" argument). Well, I knew that was nonsense... you have to have a way to make money, and I already suspected that a lot of these whiz kids didn't. I didn't have too much exposure to the "thin air" investments, but I did go back through everything to try and determine what would get hurt when the bottom fell out. I shifted a bit and was mostly (not entirely) right.

The point of all of this is... how do you tell? How did we know there was trouble in paradise when the stock market was going crazy over IPO's of companies that didn't have a plan for profit? Because, otherwise rational people were buying it and saying stuff like "I know it's crazy, but some other fool will buy it next week and pay more."

The way you will know that you have a problem in your local housing market will be that it will express itself in people doing things that don't make sense (like buying on interest only ARM's when rates are poised to increase). That's the easy part. Figuring out how severely that will affect your local market will take considerable additional research. (Or, you could just hang around and watch.)

 

[DTB]

Not banned. Yet. LOL

Just finished reading my Sunday Tribune in our small burg by the big water. Had a reprint in it from the LA newspaper, how the bubble hasn't burst and median price for LA has reached new heights.

Maybe the market didn't get the memo.

I also wanted to be the first to predict that in the future- since no one can be precise- my holdings will be much more valuable than they are today.

 

[Bobby Bucks]

As for determining who got locked out, it’s going to take one of our cost approach zealots to perform a little extracting.

 

[George Hatch]

Mike,

For the record, that graph includes Tokyo and 6 other cities.