Housing analysis - Bubble 2.0

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Submitted by kev374 on May 29, 2017 - 10:30pm

What do you think about this analysis? She makes some pretty convincing arguments..

https://www.youtube.com/watch?v=mA6CW7Ejq1g

What is not discussed is how the Fed is going to handle it if their balance sheet stops performing. Also what is going to happen to the $19 Trillion existing debt? And with Trump's plans to supposedly add $10 Trillion more?

Submitted by flu on June 1, 2017 - 1:06pm.

spdrun wrote:
Skelldumps have happened at least 4 times in the lifetimes of anyone over 30. 1987, 1991, 2001, and 2008. A dump where skells get burnt and the smart profit isn't a once in a lifetime thing, more of a once in a decade thing.

1985-1991 was know as the Savings and Loan crisis... Again, loose lending standards, and loans available to less than credit worthy entities.

2001 was hardly a real estate "correction".... That was when the .dot com bursted AND a 9/11 terrorist attack....The bulks of any sort of RE "correction" was in the Bay Area tech heavy location, and even there it wasn't anywhere close to the 40-50% off some of you think happened.... I was there, and homes weren't selling at 40-50% off except maybe east palo alto.... It's was more like this:

Again, my guess is that steep discount across the board seems to happen when banks get crazy with their loans and offers it to the most unqualified people that have no business of borrowing/buying.....I don't think we're there yet in the current cycle.... Trump/GOP might change that if they deregulate banks... But, it doesn't appear to have happened yet... Loan standards still look pretty strict. And if that were to happen, I'm thinking we'll get crazy people with no concept of moral hazard doing the exact same thing again...overpaying even MORE for homes they really can't afford....

The question is whether you (and kev's) strategy of trying to time the markets every 10 years or so and put all your eggs into those precisely timed entry points you and kev think is so obvious will benefit you more than doing the long slow trickle thing that most other people do to build wealth, essentially missing out on any sort of opportunity that happens in between, which tends to be longer periods of time I think. You and kev might be one of the exceptions that do better...Or you might be like most others that tried market timing and did considerably worse. Only time will tell. Your life and your nest egg....

Submitted by The-Shoveler on June 1, 2017 - 1:23pm.

IMHO just looking at the demographics (largest bulge in population about 26-28), I think it might be possible (unless war etc...) that we may not see another recession until 2020 maybe 2024.

Anyway IMHO.

Submitted by spdrun on June 1, 2017 - 1:25pm.

(a) This is high-end, not the entire market
(b) A % decline can hide more severe local declines. i.e. if 5% of properties are distressed and sell at a 30% discount, this will only push the mean price down 1.5%.

Submitted by flu on June 1, 2017 - 2:07pm.

spdrun wrote:
(a) This is high-end, not the entire market
(b) A % decline can hide more severe local declines. i.e. if 5% of properties are distressed and sell at a 30% discount, this will only push the mean price down 1.5%.

Since when is all of SF high end? Alternative facts maybe?

Submitted by spdrun on June 1, 2017 - 2:15pm.

The graph posted is for "high price tier homes."

Submitted by flu on June 1, 2017 - 2:34pm.

spdrun wrote:
The graph posted is for "high price tier homes."

There's plenty of other graphs in bay area that shows the same trend.

Submitted by carlsbadworker on June 1, 2017 - 9:47pm.

I would like to offer my contrarian view against the sentiment of "move on, there is no bubble here". While overall there is some data to prove such hypothesis,I think we are over-estimating our ability to predict the future due to our failure to provide detailed documentation of past predictions. For example, while many people predicted housing decline in the previous bubble, how many predicted 50% drop in some areas? How many predicted current level of S&P again? We tend to over-emphasize one directionally correct prediction and think we can tell the future, but it is such a complex system that often behaves unpredictably.

Mark Twain has said the only difference between fiction and reality is that fiction has to be believable. Reality constantly defies the normal human narrative, and I will argue that the data in front us currently are not strong enough to argue either for or against the bubble. So don't be too sure of your prediction.

Submitted by harvey on June 1, 2017 - 9:51pm.

I don't have to be too sure of my prediction, or even have to make a prediction, to conclude that some predictions are just dumb.

Submitted by flu on June 1, 2017 - 10:17pm.

.

Submitted by flu on June 1, 2017 - 10:33pm.

I guess the question is. Which came first, the chicken or the egg....

Is home prices high because supply is limited by people who bought early under favorable terms and not selling because rent is high, often more than owernship payments...

Or

Is rent prices high because a lot of people can't afford/qualify to own, and therefore rental demand outstrips supply...

Or

Is this just a vicious cycle that keeps feeding on to itself...

Submitted by ocrenter on June 2, 2017 - 4:25am.

Very fuzzy video. Both literally and in substance.

The wage disconnect with housing price she pointed out is very tempting evidence. But wage stagnation simply means you have more renters for the investor class' properties.

Submitted by flyer on June 2, 2017 - 6:17pm.

As many others, we've always purchased properties during down cycles, so the bubble concerns have never been an issue, but, this, from Dr. Housing Bubble, is an interesting take on the subject:

"The housing market is running on opioid induced euphoria and the tentacles of mania are deep into every large metro area. You would think given all this unchecked optimism that mortgage originations would be near a record level since you would assume people are out buying in mass. Yet that is not the case.

What is happening is people are fighting over the scraps with low inventory and are bidding prices up to ridiculous levels. And there is data to back this up which is important because people are living in an alternative reality. Loan origination volume hit a three year low this year. What? How is that possible when all the cheerleaders are out in the streets preaching the good gospel of buying real estate? Well the reality is that a good portion of the market is still driven by investors. If you need a loan, you can’t afford prime property."

Submitted by Reality on June 3, 2017 - 12:22am.

flu wrote:
Here's food for thought. If loan standards are still strict, what is allowing people to purchase expensive RE here in SoCal....

Or are we now assuming lending standards aren't so strict....

Here's food for thought. There's no inventory. Of course prices are high. It doesn't matter how strict loan standards are, since not many buyers are needed who can qualify.

Or do you think this is a hot market? Would you say the market for gasoline was hot when the price was $5 per gallon???

Submitted by flu on June 3, 2017 - 5:23am.

Reality wrote:
flu wrote:
Here's food for thought. If loan standards are still strict, what is allowing people to purchase expensive RE here in SoCal....

Or are we now assuming lending standards aren't so strict....

Here's food for thought. There's no inventory. Of course prices are high. It doesn't matter how strict loan standards are, since not many buyers are needed who can qualify.

Or do you think this is a hot market? Would you say the market for gasoline was hot when the price was $5 per gallon???

Well, you answered your own question.

Why is affordable inventory so low? Why aren't people compelled to sell?

Do they need to?

Are they under financial distress?

Are their payments unmanageable?

Are people's in those sketchy loans with rates resetting, making their monthly payments unbearable?

Or are most people in a historical low fixed loan payment for a long long time that won't ever change? And with eventual inflation over 10,15,20,30 years, that fixed locked in fixed payment will get eaten away with inflation and/or a weakening USD?

Or are they even making payments? How many people own outright?

How many people put a lot down, versus barely anything down? Do they have a more skin in the game than those that recently bought with 0%-5% down.. Are the majority of the purchases done by people with more skin in the game or less skin in the game?

Are people's property taxes rising so fast, their monthly operating expenses is outpacing their wages/income? Or is Prop 13 keeping that in check?

If older people are about to die, are there advantages to selling or more advantages to letting heirs inherit it as part of their estate? What happens to their heir's cost basis? Is it stepped-up? What happens to depreciation recapture? Does that get reset too? What happens to their property tax basis and what does Prop 13 say about that? Is it carried over or does it get reset? What about estate taxes? Any possibility that might change and be more favorable?

Is it cheaper to rent?

How low can landlords lower their rents before they are red and losing money and have to sell?

Submitted by The-Shoveler on June 3, 2017 - 7:38am.

Wow that's a lot of stuff to think about flu LOL.

In my simple mind I just narrow it down to are they building enough new homes to keep up with household formation. and are they building low or high end?

IMO it will take a few years yet to catch up to demand.

Submitted by flu on June 3, 2017 - 8:19am.

The-Shoveler wrote:
Wow that's a lot of stuff to think about flu LOL.

In my simple mind I just narrow it down to are they building enough new homes to keep up with household formation. and are they building low or high end?

IMO it will take a few years yet to catch up to demand.

I don't bother to think about, since if/when real estate corrects and I want to buy more, it will just happen but since keeping keep bringing this idea out whether its a bubble or not using just one or two things... ( home prices are high and/or inventory low)... just thought i'd throw out all the other things people probably aren't considering but they should.

You bring up another thing though.... It's not that builders aren't building homes...They aren't building enough affordable starter homes....Why aren't builders building more affordable starter homes in SD and instead building more expensive, fatter margin homes?

Submitted by spdrun on June 3, 2017 - 11:01am.

Other consideration: San Diego County has a significant proportion of immigrants, quite a few of them undocumented. They (currently) rent a lot of property, don't know about owning.

Immigration policy will be significant in the next year or two.

Submitted by flu on June 3, 2017 - 12:38pm.

spdrun wrote:
Other consideration: San Diego County has a significant proportion of immigrants, quite a few of them undocumented. They (currently) rent a lot of property, don't know about owning.

Immigration policy will be significant in the next year or two.

And actually if Trump does deport some illegal aliens out of this country, then yes spdrun, you can probably find a few good deals on homes specially catering to undocumented workers on the low end near the border. That would be right up your alley, enjoy watching others screwed and equally miserable while you try profit off of it. At least though now you are admitting you would want this too happen, unlike before on a different thread you mentioned you wouldn't want to take advantage of these people.suffering, which I thought was sort of out of character and inconsistent from the rest of your viewpoints.. You can be aspire to be exactly like Trump aas a slumlord.lol

Meanwhile, didn't Trump crew just finish a tour in China promoting visas in exchange for $500k+ investments?

Submitted by spdrun on June 3, 2017 - 12:58pm.

Incorrect.

Actually, I have no interest in buying such a property. Just objectively stating that immigration policy may affect rents. Not only in Chula Vista and San Ysidro, but also in parts of Oceanside and Vista.

I'd sooner buy a home of a former Trump supporter who will be affected by his economic mismanagement, and rent it to a hard working refugee family. To be honest, I'm not a big fan of Americans -- I get along with 1st and 2nd gen immigrants much better.

Zero love for Trump or his policies here, but facts is facts.

Submitted by flu on June 3, 2017 - 1:06pm.

spdrun wrote:
Incorrect.

Actually, I have no interest in buying such a property. Just objectively stating that immigration policy may affect rents. Not only in Chula Vista and San Ysidro, but also in parts of Oceanside and Vista.

I'd sooner buy a home of a former Trump supporter who will be affected by his economic mismanagement, and rent it to a hard working refugee family. To be honest, I'm not a big fan of Americans -- I get along with 1st and 2nd gen immigrants much better.

Zero love for Trump or his policies here, but facts is facts.

I am not buying it...I think you would be looking for any opportunity.

Yes, rent in that segment might be affected. Landlords that depend on renting to undocumented workers would be affected.

Submitted by spdrun on June 3, 2017 - 2:07pm.

I dislike authority and authoritarians too much to want to profit from their actions. I loved Obama because he was the first President in a long time to question authority and the law itself.

Private prison and military contractor stock is profitable, but I won't touch it.

On the other hand, if a bad cop went to prison and got sued into bankruptcy, I'd jump at the chance to buy his home. Why? Because profitable investments that humiliate people in authority are the best kind.

Submitted by SK in CV on June 3, 2017 - 4:34pm.

flu wrote:

Yes, rent in that segment might be affected. Landlords that depend on renting to undocumented workers would be affected.

For what it's worth, that's me. The landlord, not the undocumented worker. I have a good size apartment complex that is probably 40-60% undocumented. (I'm guessing a bit, it could be more) I haven't had a vacancy for more than 5 days in the last two years. No change in the waiting list since the beginning of the year.

Submitted by flu on June 3, 2017 - 4:52pm.

SK in CV wrote:
flu wrote:

Yes, rent in that segment might be affected. Landlords that depend on renting to undocumented workers would be affected.

For what it's worth, that's me. The landlord, not the undocumented worker. I have a good size apartment complex that is probably 40-60% undocumented. (I'm guessing a bit, it could be more) I haven't had a vacancy for more than 5 days in the last two years. No change in the waiting list since the beginning of the year.

Well there you go spdrun....any more alternative facts?

I wonder what min wage will look like in a few years too. What are we at now? $15/hr in some places now?

Submitted by spdrun on June 3, 2017 - 7:53pm.

Robots don't need health insurance.

Submitted by jjkonop on June 7, 2017 - 8:12am.

the analysis looks quite profound. though I'm thinking there will soon appear some outside factors that will change the picture. like self-driving cars, bitcoins or robots

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