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Housing Crash = Déjà vu All Over Again?!


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2018 Oct 31, 2:39am   5,676 views  51 comments

by bill   ➕follow (2)   💰tip   ignore  

A guy I trust on housing, other than Patrick, says there are signs and maybe trouble ahead

https://www.marketwatch.com/story/housing-market-now-reminds-me-of-2006-robert-shiller-says-2018-10-30

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1   BayArea   2018 Oct 31, 4:10am  

Here on the mid Peninsula, the Q3 quarter showed houses staying on the market longer and homeowners dropping prices after having the houses sit for a few weeks.

This is something I haven’t seen in years.
2   Tenpoundbass   2018 Oct 31, 8:02am  

I hope it crashes fucking so hard every Liberal commits suicide in tandem.
Conservative folks own homes, not investments with a roof.
3   Patrick   2018 Oct 31, 8:08am  

My prediction : slowly declining house prices in the sf area for several years at least.
4   Tenpoundbass   2018 Oct 31, 8:36am  

If there were a beefed up National Urban planning initiative to build at least 10 new Metro areas at least as big as the Dade Broward area of South Florida, somewhere in the US.
It would create so much work, we would be begging for Mexican and immigrant labor, houses would be at $120K median price for 1700sqft homes, so much housing stock would create so many jobs unemploymehnt would be almost non existent. Liberal Elites could come down off their goddamn high horse and realize they'll never be rich unless they produce something rather than ensuring everyone's kids and their children never live in a single family home of their own.

Change My Mind!
5   Tenpoundbass   2018 Oct 31, 8:43am  

APOCALYPSEFUCKisShostikovitch says
There's plenty of housing for flipping, which is its only legitimate use.


No they have to flip them because nobody can sustain $4,000 mortgages for 30 years.
6   HeadSet   2018 Oct 31, 8:53am  

Tenpoundbass says
If there were a beefed up National Urban planning initiative to build at least 10 new Metro areas at least as big as the Dade Broward area of South Florida, somewhere in the US.
It would create so much work, we would be begging for Mexican and immigrant labor, houses would be at $120K median price for 1700sqft homes, so much housing stock would create so many jobs unemploymehnt would be almost non existent. Liberal Elites could come down off their goddamn high horse and realize they'll never be rich unless they produce something rather than ensuring everyone's kids and their children never live in a single family home of their own.

Change My Mind!


Better idea. Phase out government back home loans. Without the 30 year mortgage, home prices would become affordably priced so people can actually pay them off. Also much greener since people would buy what they need, not what they think they can leverage.
7   BayArea   2018 Oct 31, 8:55am  

Patrick says
My prediction : slowly declining house prices in the sf area for several years at least.


Dropping how many percentage points total from last qurter’s peak?
8   Y   2018 Oct 31, 9:11am  

2.34 per annually
9   Tenpoundbass   2018 Oct 31, 9:19am  

HeadSet says
Better idea. Phase out government back home loans. Without the 30 year mortgage,


You want a healthy middle class. Home ownership should NOT be left solely up to the rent seeking investor class.

And there's literally nothing that can be done at this point to increase housing stock and jobs to afford them at the same time.
Without actually increasing available housing stock.

It's just a nonstarter that 99% of America's economic problems that Liberals exploit politically is due to the lack of opportunity and available housing.

Not having a housing boom is playing right into the Cloward-Piven strategy.

The RE Boom and mismanagement of the mortgages in tandem with the moratoriums to stop building in our existing Metro regions(With valid reason we ran out of room) was meant to create the problems we have now. Don't forget all of this was put into motion during Bush's RE Boom. We all saw the impending crash it was no secret what would happen. The only sane conclusion is this was all by design.

Since the RE Crash we as a Country have forgotten we still have a trillion acres of undeveloped land.

Remember my rants about Liberals wanting us all to live in a snow globe above Starbucks. They want the population consolidated and disenfranchised.

A massive building boom would bring our economy, immigration, and housing issues into order and make them all a non issue.

It did wonders for China.
10   HeadSet   2018 Oct 31, 9:43am  

You want a healthy middle class. Home ownership should NOT be left solely up to the rent seeking investor class.

Not sure what you mean here. The government backed 30 year mortgage did the most to transfer wealth from the middle class to the rich banker class.

You would still have loans, just that you would have more $200k Credit Union financed homes with 15 year period and 20% down, and less $350k 30 year zero to 3% down government backed loans for the same house. The $200k home could actually be paid off. Homes would also be more considered as expenses rather than investments.
11   Tenpoundbass   2018 Oct 31, 12:06pm  

HeadSet says
Not sure what you mean here. The government backed 30 year mortgage did the most to transfer wealth from the middle class to the rich banker class.


The problem is not the government guaranteeing loans for the Homeowner. The problem was it got corrupt and was used to support unrealistic housing expectations of home value and the guaranteed payout. There has to be a cap the Bank is willing to go on inflation regardless of Mass exuberance of the market.
There should be no way in hell a bank should have ever loaned $50K to $100K more than they did for the exact same house the year before.
Also those alarms of diminishing stock and rising prices should be the signal to build more and spur more growth and jobs.

(Well you can't have growth forever!)
Fuck you yes you can. China just had 10 straight years of Growth when they were losing money, and their currency was flat.
Now they are over supply The Government now needs to spend the next ten years coming up with policy to drive people out of the mega metropolitian areas like Hong Kong and some of the more over populated areas. And get them out to hundreds of towns they built that sit for the most part empty. Fill them up and get jobs out to them. China would poised to have a self contained Consumer economy. We're going to start seeing China having a standard of living that much of the world will be envious of.

They have luxury apartments just waiting for them. They will eventually figure out those apartments are worth far more occupied than out of reach due to the affordability index being out whack.
12   HeadSet   2018 Oct 31, 1:23pm  

The problem is not the government guaranteeing loans for the Homeowner. The problem was it got corrupt and was used to support unrealistic housing expectations of home value and the guaranteed payout. There has to be a cap the Bank is willing to go on inflation regardless of Mass exuberance of the market.
There should be no way in hell a bank should have ever loaned $50K to $100K more than they did for the exact same house the year before.


ALL of that "unrealistic" inflation in home value is caused by government backed loans. Take away the government guarantee and the banks would require larger down payments, serious appraisals, and shorter terms. Without the easy money sloshing around, home prices would be held in check.
13   Tenpoundbass   2018 Oct 31, 1:40pm  

Nope that model worked for over 60 years flawlessly you offer nothing but cash or fuck you. You can bank with bank of APF if you want to.

I say we bring back all post war economic policies that Bush Sr., Clintons, Bush Jr. and Obama wholesaled and destroyed.
Then we make a watch dog organization like Judicial Watch, Wiki Leaks and Erick Snowden with broad reaching oversight authority that can issue and order a criminial investigation. With even more authority than Trey Gowdy, or any of the Pathetic Whiners we have in Congress and the Senate all they do is say "Ima Gonna!" I'm a gonna do this and gonna do that, they don't do fuck but cry and say they are going to recommend some non existing body to criminally investigate these fraud, abuses and crimes.

Just imagine if Julian Assange or Tom Fitton had the unbridled authority that Robert Mueller has.

We would be as great as Ameirca was post WWII they gave a shit back then.

Every single agency we have would work like a well oiled machine bahleeb meh!
14   HeadSet   2018 Oct 31, 1:49pm  

Nope that model worked for over 60 years flawlessly

No, that government backed loan model fueled to the unaffordability you see today. Just like easy student loans drove up college costs.

you offer nothing but cash or fuck you.

No, I "offer" reasonable loans for responsible buyers. People would save up the down payment and use short term loans to a faster path of owning the home outright.
15   HeadSet   2018 Oct 31, 1:55pm  

You can bank with bank of APF if you want to.

Who is APF?
16   Nobody   2018 Oct 31, 3:01pm  

The housing price seems to be coming down. Anything that is listed in Zillow is reducing their pricing or giving deep discount.
The thing is that this is just a beginning of what is to come. I started actively looking a few months ago. Now, I decided that I need
to wait a few yearsspan as it is for real estate as usual.
17   FortWayneAsNancyPelosiHaircut   2018 Oct 31, 3:47pm  

I don't see a crash coming, because I do not see a reason for it.

Economy is doing well, there is no bubble that I see or am aware of. Now I know nothing about Bay Area, I hear it's crazy there. But LA County... everything is just expensive these days. Worst case maybe it'll slightly cool off, but not a "crash".
18   HappyGilmore   2018 Oct 31, 5:20pm  

HeadSet says
ALL of that "unrealistic" inflation in home value is caused by government backed loans. Take away the government guarantee and the banks would require larger down payments, serious appraisals, and shorter terms. Without the easy money sloshing around, home prices would be held in check.


That's not really true. If the last crash taught us anything, it's that investors will come in and buy houses in bulk before prices would fall much below rental parity.

Government loans actually help the middle class by allowing them to buy a house and build equity rather than paying rent for their entire life. House prices are set by supply and demand and the market is all housing (including rentals as one can easily choose to buy or rent. They are obvious substitutes)
19   rocketjoe79   2018 Oct 31, 5:41pm  

Good houses in my area are selling for list, marginal ones are taking price cuts.
20   Patrick   2018 Oct 31, 6:01pm  

HappyGilmore says
Government loans actually help the middle class by allowing them to buy a house and build equity rather than paying rent for their entire life.


No, government backed loans give people the ability to borrow much more than the fair price of the house. And most people will borrow as much as they possibly can, because of wife-pressure, family pressure, and a general inability to do math.

Every house has a certain "fair price", which can be calculated from what it would rent for. Just use the NY Times rent vs buy calculator with your assumptions and see what the fair price is.

Another way to put it: if a landlord cannot profitably rent out a house after paying a certain price, then you should not pay that price either.

Paying rent for the rest of your life could well be the best possible financial decision. If rent is $1/month and the house costs $400,000, you should absolutely continue to rent that puppy. See what I mean? There is a break-even point, and current SF house prices are well above that point. Rents are high, but prices are even higher.
21   HappyGilmore   2018 Oct 31, 6:20pm  

Patrick says
No, government backed loans give people the ability to borrow much more than the fair price of the house


I fail to see this. Government backed loans do not default at rates higher than any others. They require an appraisal.

Why does the availability of a mortgage cause someone to overpay?
22   cmdrda2leak   2018 Oct 31, 6:26pm  

G = (R - ((P T) - (P / 29) - I - M - D)

if(G > (P
X)), purchasing is a good investment.

R: rent
P: purchase price
T: prop tax rate
I: insurance cost
M: maint/HOA overhead
D: debt servicing costs
X: return you think you can get on some other investment

let's play:
1br apt in SF, price $1M, rent it for $3200, prop tax is 0.018 (1.8%), maintenance+HOA lets say is $8k/yr, insurance $1k/yr, and let's pay cash (no debt servicing), so that's:

G = (3200 - (( 1000000*. 018) - (1000000 / 29) - 1000 - 8000 - 0)

or:

G = 28682

that's 2.8% annual return on investment on your original $1M. Think you can do better elsewhere? probably. you can reduce your original investment by financing, and you might see a higher return, but that's just leveraging, and the D value (debt servicing overhead) will also go up and eat into your bottom line.

That's if you're renting it out. If you want to live there, the math is different, but this is your landlord's math conundrum.
23   Reality   2018 Oct 31, 6:29pm  

Supply and Demand. Government backed loans artificially increase demand and drive up price, and consequently result in more interest payment for banksters during the life of the mortgage because people have to take out longer mortgage (which also have higher interest rate than shorter mortgage). Banks borrow short and lend long, so they profit from the interest rate differential. Longer term mortgages have the highest interest rate differential vis fed window borrowing during crisis.

Investors buying up houses at market bottoms in order to produce yield on their money when the government suppresses interest rates. Government rent subsidies such as Section 8 drive up rent for everyone.
24   HappyGilmore   2018 Oct 31, 6:31pm  

Reality says
Government backed loans artificially increase demand and drive up price


Wrong--there's nothing artificial there.
25   cmdrda2leak   2018 Oct 31, 6:31pm  

and btw, this is why rent is high. if it were much lower, your landlord would not break even and would likely have to forego maintenance. even if the property is owned outright, you can see how small the margins are. forego maintenance for some years and you start to get slums. bronx 1975 kinda stuff. if prop 10 passes in California and we get vacancy control, this could happen.
26   Reality   2018 Oct 31, 7:02pm  

HappyGilmore says
Wrong--there's nothing artificial there.


"Demand" in economics means Qualified Demand, not unqualified "Want." Everyone wanting a Mansion and Olympic sized pool plus a landing strip for his/her personal jet airplane is not "Demand."
27   HappyGilmore   2018 Oct 31, 7:15pm  

Reality says
"Demand" in economics means Qualified Demand, not unqualified "Want." Everyone wanting a Mansion and Olympic sized pool plus a landing strip for his/her personal jet airplane is not "Demand."


Correct.
28   HeadSet   2018 Oct 31, 7:41pm  

Why does the availability of a mortgage cause someone to overpay?

We are not talking about mortgages in general, we are talking about government backed mortgages. The government backing allows too much easy money which is what drives up prices. Without government backing, the irresponsible borrowers would not be able to bid up prices. The only people in the market would be people who saved up the down payment and then the houses would be affordable enough to buy with a 10 -15 year loan.

Easy money always drives up prices. Think about what has happened with college costs. I also recall when I was car shopping in Jan 1991. Easy credit was everywhere and jokers were buying with 5 year loans. All the dealerships I went to were selling for above sticker price, with packs like "undercoating" and "etched glass" padding the price. These extras were non-negotiable. I decided not to buy. Then in June of 1991 we had the S&L collapse, and car loans were hard to get. Now I noticed the packs were removed and since was a cash buyer, I could deal from invoice instead of sticker. I ended up buying a $32k sticker price car for $7k below sticker. Not having to compete with Joe HowMuchAMonth was the key.
29   HappyGilmore   2018 Oct 31, 7:45pm  

HeadSet says
The government backing allows too much easy money which is what drives up prices. Without government backing, the irresponsible borrowers would not be able to bid up prices. The only people in the market would be people who saved up the down payment and then the houses would be affordable enough to buy with a 10 -15 year loan.


All that would do is create more landlords and higher rents. That would increase inequality and hurt the middle class. Housing prices would not fall much because anybody who is no longer a buyer becomes a renter and drives up the rental cost. This means investors can and will pay more for housing.

HeadSet says
Easy money always drives up prices


My beef is that government backed mortgages are "easy" money. I don't see that at all.
30   HeadSet   2018 Oct 31, 8:04pm  

My beef is that government backed mortgages are "easy" money. I don't see that at all.

The government backing frees banks to lend to people who would otherwise be considered too risky. That is, a bank would normally want a down payment and a home worth sufficient collateral before making a loan. With the government taking the risk of default, the banks can throw money around to non-savers and reckless buyers. Have you forgotten the price run ups in 2003-2008 caused by anyone who could fog a mirror getting a loan?
31   BayArea   2018 Oct 31, 8:38pm  

Case Schiller Index 269

Monthly change: -0.28%

It’s small but it is negative.

Will we see the index drop below 200?? If it does, I’m buying!
32   Strategist   2018 Oct 31, 8:58pm  

cmdrdataleak says
that's 2.8% annual return on investment on your original $1M. Think you can do better elsewhere? probably. you can reduce your original investment by financing, and you might see a higher return, but that's just leveraging, and the D value (debt servicing overhead) will also go up and eat into your bottom line.

That's if you're renting it out. If you want to live there, the math is different, but this is your landlord's math conundrum.


Don't forget to add in the mega appreciation rates that are typical of California.
33   cmdrda2leak   2018 Oct 31, 10:13pm  

Strategist says
cmdrdataleak says
that's 2.8% annual return on investment on your original $1M. Think you can do better elsewhere? probably. you can reduce your original investment by financing, and you might see a higher return, but that's just leveraging, and the D value (debt servicing overhead) will also go up and eat into your bottom line.

That's if you're renting it out. If you want to live there, the math is different, but this is your landlord's math conundrum.


Don't forget to add in the mega appreciation rates that are typical of California.


Yes, the value of the property is likely to appreciate in actual market terms, even though you're getting tax advantage to claim depreciation of the premises.

In fact, my calculations in the comment above do not take into account at all what gain an investor would realize per year if they later sold that property. It could be a tidy sum. However, they'd have to pay North of 50% taxes between state and fed on the gains from selling the property. So even if the property appreciated 20%in value, they'd only net 10%. Over that amount of time, you could probably get better returns on, say, investing the same amount in total stock market index + total bond market index blend.
34   WookieMan   2018 Nov 1, 7:05am  

cmdrdataleak says
However, they'd have to pay North of 50% taxes between state and fed on the gains from selling the property.


How do you figure? Investment property held a certain time frame would be taxed 20% max federally. If it was primary you'd get $250k (single) and $500k (married) tax free and then pay long term cap gains on the remainder of the gain after the 2 of 5 years rule (20%).

I don't see how there's a path to being taxed 50% on real estate gains. No one would invest in real estate then. Or mostly no one. I'm open to seeing this path, but I don't think it exists.
35   Patrick   2018 Nov 1, 7:53am  

cmdrdataleak says
Strategist says
cmdrdataleak says
Don't forget to add in the mega appreciation rates that are typical of California.


Yes, the value of the property is likely to appreciate in actual market terms, even though you're getting tax advantage to claim depreciation of the premises.


IMHO, the value of the property is simply the rental-equivalent value. Sure, there is momentum and speculation, but that's all sentiment, and sentiment can change on a dime.

It's very much like stocks. The price of a stock should be approximately the earnings per share divided by the current interest rate. Say that a stock earns $1/share and the current interest rate is 5%. The stock would be fairly priced at $20/share ($1 / 0.05). At $20, it would be a tossup whether you should buy the stock or just get interest.

Similarly, the price of a house should be approximately the annual rent (minus upkeep, etc) divided by the current interest rate. If the house brings in $10,000/year in profit, and the current interest rate is 5%, then the house is worth $200,000. At that price, it's the about the same to rent or to buy.

Everything else is a bet on the future, and the future is hard to predict. Maybe the company is growing so the price deserves a bump for that. And maybe the Bay Area is growing (more workers coming in than housing being built) and so house prices deserve a bump for that. But that part of the equation is extremely iffy and fickle. It's more of a lottery ticket than an investment unless you have some special knowledge that others do not.
36   Shaman   2018 Nov 1, 9:23am  

Hmm, my house would rent easily for $3200/month or $38400/year. At 4% interest that’s $960,000 that my house is worth. But Zillow lists a market price of $760,000. So is it a great time to buy?

If interest rates go to 5% then it’s worth $768,000. That would be break even territory with this math.
37   Ceffer   2018 Nov 1, 9:57am  

Calculators never factor in time it takes messing with the investment. Real Estate is not a static paper investment, and takes time that could be put to other labors or even leisure time, vs. mutual fund, so the pain in the ass factor also has to be considered.
38   Goran_K   2018 Nov 1, 10:09am  

HappyGilmore says
Wrong--there's nothing artificial there.


wtf?
39   Strategist   2018 Nov 1, 3:46pm  

cmdrdataleak says
In fact, my calculations in the comment above do not take into account at all what gain an investor would realize per year if they later sold that property. It could be a tidy sum. However, they'd have to pay North of 50% taxes between state and fed on the gains from selling the property. So even if the property appreciated 20%in value, they'd only net 10%. Over that amount of time, you could probably get better returns on, say, investing the same amount in total stock market index + total bond market index blend.


They would only pay the much lower capital gains tax upon sale. There is also the benefit of depreciation. You get a full tax write off against the income with depreciation, and then only pay the capital gains tax upon sale.
40   Strategist   2018 Nov 1, 4:00pm  

Patrick says
It's very much like stocks. The price of a stock should be approximately the earnings per share divided by the current interest rate. Say that a stock earns $1/share and the current interest rate is 5%. The stock would be fairly priced at $20/share ($1 / 0.05). At $20, it would be a tossup whether you should buy the stock or just get interest.

Similarly, the price of a house should be approximately the annual rent (minus upkeep, etc) divided by the current interest rate. If the house brings in $10,000/year in profit, and the current interest rate is 5%, then the house is worth $200,000. At that price, it's the about the same to rent or to buy.

Everything else is a bet on the future, and the future is hard to predict.


Both stocks and real estate as a whole appreciate over time. It's one step back, and two steps forward. This phenomenon has withstood the challenge of time and country where there is a steady rise in population and economic growth.

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