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Drudge linked, Economist on housing bubble: We never left the bubble, its bubble inception
Posted on 1/22/18 at 9:58 am
Posted on 1/22/18 at 9:58 am
He didn't short the bubble in 2008, so take his 'prediction' for what it's worth
Just going to say before quoting any more: The enormous, extreme growth in real estate cost over the last 20 years has been driven in large part because the fed has decided to see what would happen if they just eliminated interest for 20 years. (my opinion).
People buy houses based off of what payment they can afford, not what the sticker price is. When interest rates are effectively 0 for decades, the sticker price goes up to reflect the lower interest rate. If interest rates ever go up significantly, as they are soon to do, current sticker prices become out of reach of most people, because what they could afford at 4% interest, they could never afford at 8%. So current homeowners take a bath and can't sell their homes at the current inflated prices, because no one can pay.
quote:
U.S. home prices are surging to new records. Homebuilder stocks last year outperformed all other groups. And bears? They’re now an endangered species.
Stack, 66, who manages $1.3 billion for people with a high net worth, predicted the housing crash in 2005, just before prices reached their peak. Now, from his perch in Whitefish, Montana, he says his “Housing Bubble Bellwether Barometer” of homebuilder and mortgage company stocks, which jumped 80 percent in the past year, once again is flashing red.
Just going to say before quoting any more: The enormous, extreme growth in real estate cost over the last 20 years has been driven in large part because the fed has decided to see what would happen if they just eliminated interest for 20 years. (my opinion).
People buy houses based off of what payment they can afford, not what the sticker price is. When interest rates are effectively 0 for decades, the sticker price goes up to reflect the lower interest rate. If interest rates ever go up significantly, as they are soon to do, current sticker prices become out of reach of most people, because what they could afford at 4% interest, they could never afford at 8%. So current homeowners take a bath and can't sell their homes at the current inflated prices, because no one can pay.
quote:
“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” said Stack, whose fireproof files of newspaper articles on bear markets date back to 1929. “People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish.”
quote:
Homebuilders, which have focused on pricier homes since the market bottomed in 2012, are now getting ready for a wave of first-time buyers left with little to choose from on the existing-home market. Investors are rushing to builders of starter homes, because lower-priced homes in the U.S. are in the shortest supply. Shares of LGI Homes Inc., which targets renters with ads that trumpet monthly payments instead of prices, rose 161 percent last year. D.R. Horton Inc., the biggest builder, powered by its fast-selling Express entry-level brand, gained 87 percent.
Overall, the S&P 500’s index of homebuilders increased 75 percent last year, about four times as much as the stock market as a whole. A subset that includes just the three largest builders was the best performer of the 158 S&P groups.
18
Posted on 1/22/18 at 10:00 am to cokebottleag
Housing market falling out again would suck. Many are still recovering from the last one.
Posted on 1/22/18 at 10:00 am to cokebottleag
quote:
because what they could afford at 4% interest, they could never afford at 8%. So current homeowners take a bath and can't sell their homes at the current inflated prices, because no one can pay.
Common Sense
Posted on 1/22/18 at 10:01 am to cokebottleag
Well that sucks. I think the interest rate on our mortgage is 3.25 or 3.75. Bought our house 5 years ago, and were looking to upgrade due to our growing family, in a couple years.
Posted on 1/22/18 at 10:05 am to cokebottleag
Not planning on selling or moving anytime soon, so the secondary fallout will be the worst for me.
Posted on 1/22/18 at 10:06 am to cokebottleag
I 100% believe this, because damn near every house being built in DFW is 2500 sqft + McMansion, 500k+ .
There's like zero inventory for first-time homeowners that/s not in the fricking ghetto.
There's like zero inventory for first-time homeowners that/s not in the fricking ghetto.
Posted on 1/22/18 at 10:13 am to cokebottleag
quote:Only in enclaves, Seattle, Manhattan, etc. In many locations housing is flat X years.
housing bubble
Posted on 1/22/18 at 10:16 am to cokebottleag
Home prices skyrocketing have been a real surprise with some of the demographic trends. Millennials weren't supposed to care about owning a home.
In Cali and Florida, at least, a lot of the demand and price is driven by foreigners seeking refuge in hard U.S. assets.
In Cali and Florida, at least, a lot of the demand and price is driven by foreigners seeking refuge in hard U.S. assets.
Posted on 1/22/18 at 10:23 am to cokebottleag
There will be some differences regionally, though. The new tax code will absolutely push anyone close enough to retirement out of NY/NJ/MA down to Florida sooner rather than later because of the lack of state taxes and lower property taxes. However, these are popping up as condos, over 55 communities (how is that shite legal?) and zero lot line gated communities. In 10-20 years there is going to be a glut of housing because of the boomers dying off at a massive rate.
Posted on 1/22/18 at 10:29 am to cokebottleag
I'm looking at you DFW property values. I just don't understand people who invest in properties with artificially high valuations due to rates. Isn't the play here to be patient until the fed is done raising the benchmark? I'm approaching thirty and can't understand why people are buying at my age right now. And it's happening quite a bit.
Posted on 1/22/18 at 10:30 am to cokebottleag
Here in BR, the prices have gone insane post-flood. You ain’t getting into a decent house/area in BR for under 200k
Posted on 1/22/18 at 10:36 am to cokebottleag
Cant wait. Looking to pick up something on the cheap in the mountains.
Posted on 1/22/18 at 10:52 am to cokebottleag
This isn’t close to the same as the previous housing bubble.
That bubble was created because:
A. Mortgage Lenders were told to relax lending requirements for the purpose of allowing less fortunate people to “live the American dream of owning a home!”, and as a result, anyone with a 450+ credit score could get a mortgage.
B. Lenders created new types of loans to accommodate this. You could do 100% financing, and even add in your closing costs to the loan. You could even do an 80% mortgage, and then a separate 20% second mortgage, and this would allow you to bypass PMI.
C. On top of this, you could get astronomically low premiums for 7-10 years (ARM - adjustable rate mortgage), while the vast majority of your premiums went towards interest rather than principle, but then be prepared for a balloon payment after your deferred term. However, don’t fret, you can simply refinance and do it all again.
D. Banks/mortgage lenders were selling these mortgages to Fannie and Freddie. Except this was a full blown Ponzi scheme in the works. The tranch rating companies were being paid off/bribed to grossly overrate the quality of the mortgage tranches (groups of loans packaged together). Fannie and Freddie were hiding super shitty loans that were already either in default or in arrears in tranches with higher quality loans to mask and hide their embezzling of federal dollars to their crony banking friends.
E. Eventually, too many Fannie and Freddie tranches went upside down. More money was going out than interest payments coming in. This triggered an audit and federal oversight found the Ponzi scheme and blew it up. Stocks plummeted and banks, lenders, and market wire houses lost their arse.
Needless to say, NONE of that is happening right now. The current housing market is not being driven by anything of the sort.
You can’t buy a home with shitty credit anymore.
You can’t do an 80/20 loan anymore.
Banks and lenders are refusing to do 7-10 year ARM’s with balloon payment mortgages.
Ratings companies are heavily regulated and audited.
Fannie and Freddie aren’t running a Ponzi scheme anymore and also under extremely heavy oversight with all new sets of rules and regulations.
The housing market took 8 years to fully recover. And it’s doing really well right now because the average homeowner lives in a home for 9-10 years. And all those people who bought homes during the 05-07 home buying boom are jumping into new homes.
In addition, a lot of lumbering regulations have been relaxed and lumber is cheap and home building materials are in large supply. And the economy is kicking arse and building companies have extra cash on hand to invest in building new neighborhoods and development communities.
Plus the average home buyer who has been penny pinching for a decade is feeling good about the direction of the economy and they are deciding to spend some of their savings and equity from the home they built 10 years ago.
That bubble was created because:
A. Mortgage Lenders were told to relax lending requirements for the purpose of allowing less fortunate people to “live the American dream of owning a home!”, and as a result, anyone with a 450+ credit score could get a mortgage.
B. Lenders created new types of loans to accommodate this. You could do 100% financing, and even add in your closing costs to the loan. You could even do an 80% mortgage, and then a separate 20% second mortgage, and this would allow you to bypass PMI.
C. On top of this, you could get astronomically low premiums for 7-10 years (ARM - adjustable rate mortgage), while the vast majority of your premiums went towards interest rather than principle, but then be prepared for a balloon payment after your deferred term. However, don’t fret, you can simply refinance and do it all again.
D. Banks/mortgage lenders were selling these mortgages to Fannie and Freddie. Except this was a full blown Ponzi scheme in the works. The tranch rating companies were being paid off/bribed to grossly overrate the quality of the mortgage tranches (groups of loans packaged together). Fannie and Freddie were hiding super shitty loans that were already either in default or in arrears in tranches with higher quality loans to mask and hide their embezzling of federal dollars to their crony banking friends.
E. Eventually, too many Fannie and Freddie tranches went upside down. More money was going out than interest payments coming in. This triggered an audit and federal oversight found the Ponzi scheme and blew it up. Stocks plummeted and banks, lenders, and market wire houses lost their arse.
Needless to say, NONE of that is happening right now. The current housing market is not being driven by anything of the sort.
You can’t buy a home with shitty credit anymore.
You can’t do an 80/20 loan anymore.
Banks and lenders are refusing to do 7-10 year ARM’s with balloon payment mortgages.
Ratings companies are heavily regulated and audited.
Fannie and Freddie aren’t running a Ponzi scheme anymore and also under extremely heavy oversight with all new sets of rules and regulations.
The housing market took 8 years to fully recover. And it’s doing really well right now because the average homeowner lives in a home for 9-10 years. And all those people who bought homes during the 05-07 home buying boom are jumping into new homes.
In addition, a lot of lumbering regulations have been relaxed and lumber is cheap and home building materials are in large supply. And the economy is kicking arse and building companies have extra cash on hand to invest in building new neighborhoods and development communities.
Plus the average home buyer who has been penny pinching for a decade is feeling good about the direction of the economy and they are deciding to spend some of their savings and equity from the home they built 10 years ago.
This post was edited on 1/22/18 at 10:54 am
Posted on 1/22/18 at 12:14 pm to cokebottleag
I'm at 5%. Bought at $185($177k plus closing etc) in 10/2008, and the market puts me about $270k now.
I was looking at a cash out refinance to get some extra cash for paint and some improvements. Is now(within the next 6 months) a bad time to do that, or is it better to keep the low balance? I plan on being here a while. I'm in AZ
I was looking at a cash out refinance to get some extra cash for paint and some improvements. Is now(within the next 6 months) a bad time to do that, or is it better to keep the low balance? I plan on being here a while. I'm in AZ
This post was edited on 1/22/18 at 12:15 pm
Posted on 1/22/18 at 12:28 pm to cokebottleag
NOLA is the biggest housing bubble in the country. There is no way in hell to sustain the housing prices.
Posted on 1/22/18 at 2:28 pm to cokebottleag
Are mortgage interest rates variable? I thought if you bought at 4% it stays that way throughout the mortgage at a fixed interest rate regardless of what the Fed does.
Posted on 1/22/18 at 4:53 pm to cokebottleag
quote:
If interest rates ever go up significantly, as they are soon to do, current sticker prices become out of reach of most people, because what they could afford at 4% interest, they could never afford at 8%.
They'll go back up soon. Once the economy starts picking up even more than it is now the Fed will have no choice. My first house was 7.25% with a 750 credit score.
Posted on 1/22/18 at 5:23 pm to cokebottleag
He's not wrong though. I lived in the UK at the time. Some places didn't even lose value, just stopped going up at astronomical rates.
And yeah, cheap credit does inflate house prices. But you know what I think inflates them more, and makes cheap credit relevant? Multiple generations of people who just don't give a frick about being in debt because they never do even a basic household budget. So all of a sudden you've got people competing for homes that they don't just live in, but are a status symbol, and then there's the schooling issue on top, not sure how that affects you guys over there in LA but here in Texas it's a fricking nightmare that if they ever solve will stick thousands of young home owners with negative equity overnight. So now we've got legislators a political incentive NOT to give a shite about the fact that schooling quality varies so wildly, which is just going to make the whole problem that much worse as the cycle feeds off itself.
But then Texas is a constant bubble anyway based on what I read in Friday Night Lights.
And yeah, cheap credit does inflate house prices. But you know what I think inflates them more, and makes cheap credit relevant? Multiple generations of people who just don't give a frick about being in debt because they never do even a basic household budget. So all of a sudden you've got people competing for homes that they don't just live in, but are a status symbol, and then there's the schooling issue on top, not sure how that affects you guys over there in LA but here in Texas it's a fricking nightmare that if they ever solve will stick thousands of young home owners with negative equity overnight. So now we've got legislators a political incentive NOT to give a shite about the fact that schooling quality varies so wildly, which is just going to make the whole problem that much worse as the cycle feeds off itself.
But then Texas is a constant bubble anyway based on what I read in Friday Night Lights.
Posted on 1/22/18 at 5:28 pm to cokebottleag
Government action supports the bubble.
The bailouts did nothing to correct the problem. It will happen again
The bailouts did nothing to correct the problem. It will happen again
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