Friday, January 26, 2007

SL's Water Cooler - January 2007 (part 5)



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22 comments:

Lander said...

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James said...

Many of you are wondering, "Why hasn't the real estate bubble really burst yet"? Sure, the price of homes are off, but so far, it's been a soft landing.

There's a reason why the price of homes can't go too much farther down: liquidity. The world is awash in paper currency. This chart

http://tinyurl.com/2btlju

shows us that the U.S. money supply (M3) is growing at 10% a year. TEN PERCENT. The Fed is flooding the world with paper dollars. Think about it: what else could explain why the stock market can't go down, the price of oil at $55 even when there's a glut, and the price of gold above $600? And isn't there something wrong with our currency when the government considers making the penny the new nickel because the copper in a penny is worth more than one cent?

That 3br 2ba suburban house that fetched $600K in 2005 will fetch $600k again soon. Too bad the value of $600k will be a lot less, though. With the Fed printing money on overtime, you have to measure the housing bubble not in dollars, but in liquidity-adjusted dollars. The United States is going to solve its excess debt crisis by inflating the currency... just like a South American country.

Sippn said...

Check this oneout on new home sales from Calculated Risk - puts it in perspective.

http://photos1.blogger.com/x/blogger/2825/754/1600/797677/NHS6dec06.jpg


Again - Are we coming down Everest to the valley or on to K2?

paranoid renter said...

James,

This is what a lot of folks have been pointing out (e.g. globaleconomicanalysis.blogspot.com). However, the risk here is that other countries need to continue to find dollars attractive or they will find some other currency to replace the dollar (e.g. Euro). If that happens, we could see a collapse of the dollar.

There are too many variables. However, if you look at what's happening in the US in general (transfer of wealth from poor to rich) things are becoming more and more like they are in developing nations. In those situations, the income of the common man seldom limits the price of assets such as real-estate. There are already micro-instances of where this is true. For example a place like Santa Barbara, CA. There is nothing in or around that area that justifies high home prices but they have been that way forever because there are super rich people that want to live there. We are just starting to see some of that happen in places like Roseville (but on a much smaller scale). There are cash-flush folks who want to live here (not as rich as the folks in Santa Barbara), but they don't need a high income to afford their house in Roseville.

These are interesting times.

Anonymous said...

The Wall Street Journal. “Amid a continuing glut of homes for sale in most of the country, buyers should have plenty of choices and lots of bargaining power. In Miami-Dade, the number of existing condos on the market is enough to last 27 months at the current sales rate, says consultant Jack McCabe. The oversupply will grow, he says, as about 8,000 condos are expected to be completed this year and 12,000 in 2008.”

“‘It’s going to get bloody down here,’ Mr. McCabe says. He estimates that condo prices in Miami-Dade fell between 8 percent and 10 percent last year and will drop 20 percent in 2007. Eventually, he predicts, hedge funds and other investors will step in to buy surplus condos in bulk at huge discounts.”

Is Miami-Dade one of those places rich people want to live.

anon1137 said...

Roseville has about as much in common with Santa Barbara as Stockton has with SF. In 5 years, you can bet that median home prices in Roseville and Stockton will have dropped more than in Santa Barbara and SF. Location is still the most important factor in real estate values and that's never going to change.

patient renter said...

"Many of you are wondering, "Why hasn't the real estate bubble really burst yet"? Sure, the price of homes are off, but so far, it's been a soft landing."

James: I think we've seen plenty of progress considering appreciation only went negative ~7 months ago. In other areas of the country such as parts of Florida, real prices have dropped up to 50% from their peaks! Overall though nobody (except those who don't pay attention to history) expects that the bubble would have burst by now. Maybe in a few years if nothing else has happened we'll be asking the question you posed, but for now, everything is progressing downwards just fine.

waiting_for_the_fall said...

I think the bottom won't be for another 4 or 5 years, since the top was in 2005.
We just have to be patient. The time to buy will be when it's cheaper to buy than to rent, with a 20% down payment.

paranoid renter said...

>>>>>>>>>
I think the bottom won't be for another 4 or 5 years, since the top was in 2005.
We just have to be patient. The time to buy will be when it's cheaper to buy than to rent, with a 20% down payment.
>>>>>>>>>

There are so many people waiting on the sidelines to buy that this will absolutely not happen. If prices fall that much, we will be in a severe recession, people will lose their jobs, and rents will fall as well. In fact, the rental market is affected a lot more in a recession.

paranoid renter said...

>>>>>>>>
Roseville has about as much in common with Santa Barbara as Stockton has with SF.
>>>>>>>>

You need to look at how many people in Roseville either own their home outright, or have a mortgage that can be paid of even with a single blue collar income. There are many of those and that's why I don't think Roseville prices will fall as much. Lincoln, Citrus Heights, etc. will be hit much harder. Roseville has an excellent school district too, so it will be among the last to fall and the fall will be the smallest. Most of the desireable areas are already built up.

waiting_for_the_fall said...

There will be a severe recession. Take a look at the yield curve and the stock market bubble. It's almost like history repeating itself from 1920's. But when will the crash happen?

I think the stock market crash will happen when Iran gets hit with Neutron bombs. The only real question is: who's going to do it, us or Israel? Whichever one hits them, it will be before the end of next month. There's a big Arabic holiday in February and Iran wants their nuclear enrichment completed by then.

patient renter said...

There's an interesting post on Mr. Lockwood's blog today.

"However, sometimes it seems as though people who’ve figured out that October 22nd, 2008 at 9:32 PM is the “right time to buy” are waiting until that precise moment — or whatever moment they’ve decided on. Often they also seem pretty determined to share that date with others."

John is clearly beating around the Bush here about what it is that people are doing when they claim to be waiting it out for now. Why would someone possibly choose to wait it out? Is it because they think for some odd reason that some magical date in the future will be the right time to buy? John knows very well the reason why many people have chosen to wait it out. His careful exclusion of this reason (falling prices) and his replacement with the idea that people are picking arbitrary dates to buy is pretty lame.

Obviously nobody is picking dates and waiting to buy just for the sake of that date coming to pass. We're waiting for lower prices, and so far we're getting them. This is the sort of pathetic misrepresentation of a situation that would make me want to avoid doing business with someone like this.

The man is running a business though, so I'll respect him by leaving my comments here rather than on his blog.

Sippn said...

Location, location, location


http://sacramento.bizjournals.com/sacramento/stories/2007/01/29/focus1.html?f=et180&b=1170046800^1407796&hbx=e_vert

"The high-end homes continue to move."

"The losers, at least so far, tend to be places with a glut of new homes, such as Elk Grove and Lincoln."

" midtown has a scant three-month supply of homes"

patient renter said...

Some big news:Vacancy rates are now at an all time historic high, 2.7%.

"This is big news. The vacancy rate for ownership units has hovered near 1.5 percent for 50 years. It had never previously crossed 2.0 percent. The most recent Census Department estimates means that there are more than 2 million ownership units sitting vacant. In most cases, this means that an owner is paying a mortgage on a home for which they are collecting no rent. Few homeowners can afford to pay a mortgage on a house in which they don?t live for very long.

This record vacancy rate is likely to mean considerably more downward pressure on house sale prices in the months ahead. It will likely mean downward pressure on rents as well, as some vacant units will eventually be put up for rent."

http://www.prospect.org/deanbaker/2007/01/housing_vacancy_rate_hits_new.html

http://www.census.gov/hhes/www/housing/hvs/qtr406/q406press.pdf

anon1137 said...

Thanks for that link to the SBJ article, Sippn. That explains probably 75% of why my point of view differs from many on this blog. The zip codes I track have shown little, if any, weakness in prices. For example, the Sacbee MLS shows 12 homes for sale at >$1M in E Sac and 4 of them are in escrow! This is not a dead market out here - we're still partying like it's 2005. I don't see any slowdown until the economy has a major stumble.

Lander said...

I've updated the NOD graph to incorporate DataQuick's revised Q3 figure. See post for more details.

Anonymous said...

Sippin,,,,anon where do you get your facts? I see home after home in Morgan Greens (Roseville) being discounted between $200K-400K. So how can you explain "the high end stuff is moving????" That's all BS regurgitated from RE agents.

Sippn said...

Didn't read the article, did you?

Morgan Greens is tract - fake high end, all tract being discounted.

Morgan Creek is custom - doing better, but still Morgan Creek is a bit out on the edges.

High end from East Sac to the west edges of Carmichael - all moving $700-$2 mil and in short supply. Folsom above $900k, selling about 1/week since 1/1/7. Even Lincoln had 3 pendings in the golf course area in the past 2 weeks ($1.8-2.4 mil).

Anonymous said...

Sippin, I meant Morgan Creek. BTW, high end does not equate to non track housing. Those are not mutual exclusive just b/c it's your opinion. Even if the high end stuff is "moving" it doesn't mean it's smart at this time. Bank maybe own your examples by year end. A fool and his money are soon parter.

joyce said...

Anyone know what zoning RE in Elk Grove means.

jeff said...

Savings rate plunges to a 74-year low, this ought to help push a few more people to the streets who were sitting onthe fences financially http://tinyurl.com/2r6zp2

drwende said...

California leads list of states with levees in danger of failing

the list
A number of Delta levees show up, but nothing I can identify as Natomas or West Sacramento.