patrick.net

wI'm pretty bullish on the economy which I think will effect housing. Even if there's no inflation when the economy improves either rents or housing prices should go up.

Hmmm....I see more newly joined bulls. What happened to our seasoned bulls?

shrekgrinch says

Expat64 says

House prices always go up. You can’t make more land. It’s a great time to buy. Interest rates are low. Foreclosures and distressed sales don’t count. Real estate is all about location and each house is unique in its specific location so it will go up in price. The Bernank has our back. Lereah will return! And, it’s a great time to buy or you will miss out.

Please tell me you’re being sarcastic.

Seriously, I am thinking he is sarcastic.

Tim Aurora says

While I do not want say that there will not be an inflation, the following reason is why Housing market will com back in 4-5 years

* There is a need of ~1 million unit a year and currently the builder are not even constructing half of it. That will continue for a few years till the current inventory is low enough to rebound. Builders ( and associated infrastructure such as roads and schools ) will not be able to ramp up very fast and that will cause a good rebound

* Foreclosed activity started 4 years ago. The associated population can renter the market in approximately 6 years time. That gives another 2-4 years before we start see these folks coming back

* Unemployment will ease in another 3-4 years which in turn will have two effects

** Unemployed folks who are now living in their parent’s basement and apartments will enter the housing market.

** Increased confidence means folks will start moving up.

these are conditions that should see prices rising nominally with inflation (over the long term).

they will not cause prices to "come back" to rates of appreciation seen during the bubble.

I think housing will keep on going down simply because too many can't afford it, and average person out there isn't making the money hence no inflation. Housing bubble was a trend that could not go on.

It's Herbert Stein's Law "Trends that can't continue, won't.".

Housing is just consumer item, there is no reason to be bullish or bearish on it. It's like a price of potatoes, not an investment.

I expect normal 2% yearly inflation, and housing deflation since it is ballooned.... which is very reasonable considering the fundamentals. All the other stuff about inflation and more housing bubbles that's borderline conspiracy theories insecurity in people.

When there is no salary increases in sight how can the money that's going to buy homes keep coming from banks or thin air to support the still bubbly prices? Heck! there will be inflation every where but the home prices.

MYTH #5
Boomers will crash the market
http://money.cnn.com/galleries/2007/moneymag/0710/gallery.retirement_myths.moneymag/5.html

thunderlips11 says

I pray for inflation, it’ll be the best thing.

I hope you're wrong. I lived through years of high inflation and also stagflation, and neither one of them are pretty. That is some history I would rather not live through again.

rob918 says

I hope you’re wrong. I lived through years of high inflation and also stagflation, and neither one of them are pretty. That is some history I would rather not live through again.

amen.

ChrisLA says

rob918 says

I hope you’re wrong. I lived through years of high inflation and also stagflation, and neither one of them are pretty. That is some history I would rather not live through again.

amen.

Unfortunately, stagflation seems to be a likely forward course.

ChrisLA says

It’s like a price of potatoes, not an investment.

I'm waiting for Apocalypsefuck to come here and tell you otherwise.

If I thought there was going to be high (5%+) inflation for a sustained period within the next decade I'd be a housing bull too.

There isn't really much of a reason to be a bull otherwise.

I've been predicting this for years on this board, and so far I've been right: moderately high inflation of commodity prices, that will NOT translate into overall (headline) inflation in the US. The economy is very different than it was in the 70's (globalization, greatly diminished unions, nose-bleed household/fed/state/local gvt debt being three major differences)

>they will not cause prices to “come back” to rates of appreciation seen during the bubble.

Thank you. I know that there are plenty in that camp but I am looking at the subset who believes real (as opposed to nominal) appreciation will take place.

I think it depends on specific property.

The housing market is artificially depressed right now and houses are selling below replacement cost. So there are definitely some deals out there that will show real returns.

American in Japan says

Thank you. I know that there are plenty in that camp but I am looking at the subset who believes real (as opposed to nominal) appreciation will take place.

The same subset who rationalized the last bubble, will rationalize the next bubble.
How they do this... is pure emotional greed.

toothfairy says

The housing market is artificially depressed right now

like i said...greed... and its cousin denial...

Does this look like housing prices are 'artificially depressed right now' ?

Interest rates at mid 4% mean the monthly cost of a home in the year 2000 is about the same monthly cost as it is in 2011 in alot of hard hit areas. Even if say the price was higher by 60k in 2000 the 4.875% interest rates wipe out that difference since rates were around 7.25% in 2000. People paid more interest on the lower priced home. The monthly payments are starting to even out in areas that dropped 40% or more.

toothfairy says

The housing market is artificially depressed right now and houses are selling below replacement cost.

Below replacement cost does not mean they are under priced. If houses always sold for more than their replacement costs, then building a home would be a guaranteed business to be in. Build a home, and you're guaranteed a profit.

Ah... wouldn't that be nice if every business you decided to invest in was guaranteed to turn a profit?.....let me close my eyes and imagine that happy dream for a moment......ah, that was nice.

Too bad the world doesn't work that way.

atempt to run up prices is there but it will be short run because weges are going nowhere

"People paid more interest on the lower priced home."

Ok, I just want to make sure I have my math right. Doesn't this also mean you paid less for the house, pay less in property taxes and get a bigger tax refund?

Houseless but not homeless says

Ok, I just want to make sure I have my math right. Doesn’t this also mean you paid less for the house, pay less in property taxes and get a bigger tax refund?

And had a the opportunity to refinance when rates went lower.

Glad to see all the responses. Some of you need to read what I wrote at the beginning, though. There are conditions... Most who think housing prices will go up in the next 2-3 years, see only *nominal* appreciation. I have read a lot of their comments on other posts. I want to focus on *real* appreciation.

A very large percentage of boomers have their mortgage paid off. They don't have to sell to fund their retirement. All they need is a reverse mortgage.

I recently retired and bought a 3400 sq ft. house. One story, 10' ceilings, 5 bedrooms, etc. The largest house I have ever owned. I love it.

Somebody offered that the shadow inventory is 11 million houses. I think that number is way too high. Of course, only the........Shadow........knows for sure.

The number may be that high, but it includes 2nd homes owned by people, and also homes in places where people don't want to live (relatively speaking).

MarkInSF says

toothfairy says

The housing market is artificially depressed right now and houses are selling below replacement cost.

Below replacement cost does not mean they are under priced. If houses always sold for more than their replacement costs, then building a home would be a guaranteed business to be in. Build a home, and you’re guaranteed a profit.
Ah… wouldn’t that be nice if every business you decided to invest in was guaranteed to turn a profit?…..let me close my eyes and imagine that happy dream for a moment……ah, that was nice.
Too bad the world doesn’t work that way.

I'd add that "replacement" cost is a faulty number. If housing is "artificially" repressed at the moment, then you also must consider that housing costs have been "artificially" inflated for the past several years. This includes construction material, labor, land, and government fees. While some of this is starting to come down, particularly material, the price/sq ft to build is still quite high. And of course high school drop outs are still wishing for $30-40/hr(though 1 out of 10 will now accept $15/hr or so).

So replacement cost remains a ridiculous grasping at straws argument.

bayview6 says

A very large percentage of boomers have their mortgage paid off. They don’t have to sell to fund their retirement. All they need is a reverse mortgage.
I recently retired and bought a 3400 sq ft. house. One story, 10′ ceilings, 5 bedrooms, etc. The largest house I have ever owned. I love it.
Somebody offered that the shadow inventory is 11 million houses. I think that number is way too high. Of course, only the……..Shadow……..knows for sure.

A large number of people dont. Otherwise it would not have taken several months for hundreds of people I work with to grab onto a recent offered golden parachute that was truly golden.

As to the shadow inventory being unknown...that of course is true if the statement is strictly adhered to. However, very reasonable estimates can be made by finding the number of bank owned + foreclosure + preforclosure. For some unknown reason, there are a small subset of internet posters(likely desperate realturds) who like to say that there is no correlation between people who are behind on their mortgages and those properties eventually being forclosed on. Rubbish. Of those who miss two or more payments, somewhere in the neighborhood of 80-90% ultimately end up being foreclosed on. Therefore, a reasonable estimate of shadow inventory CAN in fact be made.

Simply dismissing 11 million shadow inventory without providing any sort of reasonable estimate as to what shadow inventory is...making a ridiculous assertion like you have...is, well, ridiculous. Honestly you look like a boob.

Well. First off I think I have demonstrated how ludicrous economic indicators are. What this gentleman might be asking is. Hey there is no deflation going on. Prices on other things are still very high. So nothing really happening. Everything seems to be ignoring this housing blowout. The stock market. (Which is really kind of a flim flam). In my opinion. People prices. Tomato's, Automobiles etc.

See we were told something. THAT THE ENGINE OF THE ECONOMY WAS HOME BUYING. That was number one. Number two was AUTOMOBILE MANUFACTURING AND BUYING. Well the decimation of both of those industries seems to have made little difference. That makes economic indicators and the behavior of the so-called indicies. HIGHLY SUSPICIOUS. In my estimatation. See if your in the so-called financial industry. You have to turn your head at all of this. Because they contraidict themselves almost every day now.

This is a little side note to the really hip. If you understand what MBS's were. What they did. You know there were a complete scam. They sold them to other nations even. No one will buy them anymore. That led to all of this. See home buying did not magically melt down. They aren't lending to every dick and harry. Anymore. Because without MBS"S being sold. It's not worth taking the losses they incur by doing that. So they cut off your credit is what it amounts to. If you don't get that you really need to read closer. The whole stock market is comprised of scams like MBS's.

See you have to understand. Not everyone is finacially sophisticated in this country. So they might accept something like well a subprime blowout. However the real deal is Fannie and Freddie and a whole lot of banks went under. They don't do subprime. They really don't. I have been in the home investing business for over 18 years.

If you knew. You would understand. Subprime is such a small, small part of lending. It is very ludicrous to someone who knows. See. That is a slap in the face to my intelligence. To even forward that kind of nonsense to my senses.

See what this really is. They just do whatever the hell they want when they feel like it. Those indicators and fast talking con's on MSNBC just pump out whatever the latest one is. See. Thats what this gentleman thats writing this is asking. He understands. He's saying does anyone else see this. NO RISE OR FALL IN THE CPI OR PPI. Hey I do.

Which shows me that financial paper is nothing but a lot of crap and a real fast moving con game. Put forward by the interest money soaked financial news. Any anything else masked as being independent. Which we all know no one else on earth could afford to run and maintain.

The little engine that made the economy grow, blew out. Home buying. The biggie boomie Auto industry that fueled all our growth. Blew out. Ford showing a profit through this whole crisis. Is just stupid. Who's buying a car for 13k. When everyones running for there lives financially?

Yet people are buying stock? Well. Looks financially sound to me. It defies freaking gravity. But hey there a sucker born every minute.

In fact. The MBS scam. Which they mask as subprime which is insulting. The dow or the do do as I like to name it at 12k. Just shows me they put up any damn number they want there. Want to buy stock? Find out what a lot of nations found out. MBS's robbed them blind in many cases.

We bought all of their debt. Now we own them just might mean something else. HAHAHA.

American in Japan says

Glad to see all the responses. Some of you need to read what I wrote at the beginning, though. There are conditions… Most who think housing prices will go up in the next 2-3 years, see only *nominal* appreciation. I have read a lot of their comments on other posts. I want to focus on *real* appreciation.

In CA it is incredibly unlikely to see any kind of appreciation, depreciation for the next few years is probably the only thing. My neighbors house is still at 500k, when right before the bubble it was around 250k and at the height of the bubble 675k. It's a bubble here, and CA usually lags behind other states coming out of such messes, it will be a while, we have a lot more late night watching flipper crowd here with entitlement mentality which is hard to let go of.

Can't say much for other states, as I don't live there.

>I’d add that “replacement” cost is a faulty number. If housing is “artificially” repressed at the moment, then you also must consider that housing costs have been “artificially” inflated for the past several years. This includes construction material, labor, land, and government fees. While some of this is starting to come down, particularly material, the price/sq ft to build is still quite high. And of course high school drop outs are still wishing for $30-40/hr(though 1 out of 10 will now accept $15/hr or so).

Good point.

@Chris LA

>My neighbors house is still at 500k, when right before the bubble it was around 250k and at the height of the bubble 675k. It’s a bubble here, and CA usually lags behind other states coming out of such messes...

Agreed.

chrisLA--
I agree prices should stay somewhat where there at now but inflation has been on the up everywhere I look, shouldn't that hold prices on homes? or will we see what happened in the late 1970's ?
With an election in 2012 and Obama armed with a billion dollars worth of our laundered taxdollars mostly thru union and corporate bailouts we are in a new age of corruption.

dodgerfanjohn says

As to the shadow inventory being unknown…that of course is true if the statement is strictly adhered to. However, very reasonable estimates can be made by finding the number of bank owned + foreclosure + preforclosure. For some unknown reason, there are a small subset of internet posters(likely desperate realturds) who like to say that there is no correlation between people who are behind on their mortgages and those properties eventually being forclosed on. Rubbish. Of those who miss two or more payments, somewhere in the neighborhood of 80-90% ultimately end up being foreclosed on. Therefore, a reasonable estimate of shadow inventory CAN in fact be made.

Here's an estimate of shadow inventory being 1.8 million units, not 11 million.

http://www.housingpredictor.com/2011/shadow-inventory.html

I guess you didn't notice that the guy who posted the 11 million shadow inventory number didn't supply any source to support his ridiculous number. Seems the boob is you. Honestly.

Houseless but not homeless says

Ok, I just want to make sure I have my math right. Doesn’t this also mean you paid less for the house, pay less in property taxes and get a bigger tax refund?

Your monthly payment is still a 30 year fixed at an equal monthly payment... sure less property tax is great.. but that's less property taxes to write off also.... More interest to write off is good, but more property tax to write off bad?

I'm not saying it's a great deal to buy now.. But the actually monthly payment comparisons are getting closer to over a decade ago by comparison with these ultra-low interest rates... can't deny that!

Sure houses were a lot cheaper in the 90s also... BUT you paid as high as 10% interest rate on that house. Of course the home will be cheaper otherwise no one could have afforded it.

The government is is a really tough spot where they can't raise interest rates or the housing market would totally crash... And they have to do it very slowly after years of stable prices and lower unemployment.

My biggest fear in buying now is I buy a nice home in the area I'm looking where prices are down 40%.... Then I'm ready to move in 10 years interest rates are well over 10% and that new buyer would have to pay $2882 in principal/interest a month to own the home I had a fixed mortgage at $1738 in principal/interest a month at a decade ago.

Without inflation I'd have zero chance of moving up to a nicer, bigger home in 10 years... So I'm trying hard to find a place that has a very large yard and great schools so I can always add on and stay put in my ultra-low fixed 4% fixed mortgage.

Usually real estate is not a good inflation hedge. In times of inflation, commodities go up...things we HAVE to use on a day to day basis. Oil, food, etc. Real estate doesn't HAVE to be bought (it can be rented), therefore it ends up being less of a priority for day to day living, which lowers it's demand in proportion to other things.

Bayview, that article includes only properties that are MORE than 90 days delinquent.

Bizarre cutoff since 2 missed payments is a solid indicator.

one thing no one has mentioned - the government saves the banks time and time again.
they will find a way to hyperinflate so that rents go sky hi and then the equivalent to own will go down in relative terms.
if you are paying 10K a month in rent, your fixed mortgage at 5% or whatever will look pretty good as your costs may only be 5K to live there.

never underestimate the government to serve the interest of the banks. what is their interest? prices up.

how will they do this? not sure, we'll see, won't we?

pht4 says

one thing no one has mentioned - the government saves the banks time and time again.

they will find a way to hyperinflate so that rents go sky hi and then the equivalent to own will go down in relative terms.

if you are paying 10K a month in rent, your fixed mortgage at 5% or whatever will look pretty good as your costs may only be 5K to live there.
never underestimate the government to serve the interest of the banks. what is their interest? prices up.
how will they do this? not sure, we’ll see, won’t we?

Government can't stop earth quakes,tsunami etc., same way they can't stop the home price slide..which very inflated with the supporting foundation of pure avarice and NOT real money generated through economic activity. If you print too much money then we won't be the USA anymore...the country with best life style in the world...think about it....go ask APOCALYPSE...K what is the truth. :)

bayview6 says

A very large percentage of boomers have their mortgage paid off. They don’t have to sell to fund their retirement. All they need is a reverse mortgage.

Last article I read said 65% of 55-64 year olds still have a mortgage, 18% of those are underwater. Obviously some are near payoff, but from people I've talked to a lot aren't even close. This doesn't include home equity loans on top of mortgages or on paid off homes. That doesn't qualify as a very large percentage paid off ready for a reverse mortgage to me.

thunderlips11 says

This is more like the Great Depression, a period after an asset bubble fueled by easy credit. Bubble bursting was not the cause of the “70s stagflation” - most households did not own a single credit card, and the national debt was low and manageable (it would only start to explode in the 80s), and most people paid CASH for just about everything.

This is an interesting perspective thunderlips. My concern is that the price inflation that started last fall for oil and and other commodities has not yet found its peak, or current equilibrium for that matter.

It seems like you are arguing that there will be little or no wage inflation, in contrast to what occurred in the 70's. I am inclined to agree - this is highlighted by the socio-economic differences between then and now that you commented on. And this argues against strong inflation across all asset classes... and more to the point of this thread, against strong (nominal or inflation-adjusted) house price inflation.

nathanielbwest1 says

Usually real estate is not a good inflation hedge. In times of inflation, commodities go up…things we HAVE to use on a day to day basis. Oil, food, etc. Real estate doesn’t HAVE to be bought (it can be rented), therefore it ends up being less of a priority for day to day living, which lowers it’s demand in proportion to other things.

However, people need to eat, and most Americans need to drive to the food store and either their job or the unemployment office to get money to buy the food. And food/gas prices are still going up. Sure, as gas prices go up, people will drive less (demand goes down) - but this, in part, is how oil price spikes tend to reduce GDP and promote recessions, leading to/maintaining high levels of unemployment. So then prices for oil and other things should level-off or drop during a economic leveling off or downturn... but will they with so much fed money/credit sloshing around for speculative investment? With actual oil supply disruptions in the middle east? With 'helicopter ben' driving the money supply? And could he ACTUALLY raise interest rates in the near future, BEFORE oil/commodities price inflation gets worse?

So I see a case for continued rising prices for many household essentials, AND a case for persistent high levels of unemployment. Hence, stagflation at least for the near term, unless oil and other commodities prices are contained.

BTW, I'm no economist - any clarification on these issues would be appreciated.

bob2356 says

bayview6 says

A very large percentage of boomers have their mortgage paid off. They don’t have to sell to fund their retirement. All they need is a reverse mortgage.

Last article I read said 65% of 55-64 year olds still have a mortgage, 18% of those are underwater. Obviously some are near payoff, but from people I’ve talked to a lot aren’t even close. This doesn’t include home equity loans on top of mortgages or on paid off homes. That doesn’t qualify as a very large percentage paid off ready for a reverse mortgage to me.

Bob, it would seem to me that 35% is a large percentage. However, since about 35% of ALL houses don't have a mortgage I suspect that the age 62+ crowd without a mortgage is a lot higher than 35%. In addition, Bob, you should also consider the fact that a senior with significant home equity can also get a reverse mortgage. If you combine those two groups together I think you will come up with a very large percentage.

The point being that seniors that are underwater or without significant equity in their home probably will not be able to retire early, and those without a mortgage or have significant equity can fund their retirement without selling their house.

Drop off the key lee and set yourself free. Material costs are dropping? If your using cash. You will work for 6 months just to pay a stove off. Apparently in other peoples estimation. Their time is not worth a damn. Mine is. I don't know about others.