Perspective on the Home Price Rally

Submitted by Rich Toscano on July 31, 2009 - 11:34am

I noted earlier in the week (and incessantly before that) that home prices have a seasonal tendency to rise in the spring and summer even during the midst of a multi-year price decline.

That sounds like a good enough excuse to make a chart.

continue reading at voiceofsandiego.org

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Submitted by an on July 31, 2009 - 12:02pm.

Based on your graphs, it seems like we are at similar stage of the decline as 1994 in the last decline. Looking at December 1993 vs the actual real bottom of early 1996, the difference is ~ 2% difference. So, not a huge decline. ~90% of the decline is between 1990 and 1993. Only time will tell, but can we see 90% of the decline between 2005-2008 as well?

Submitted by Eugene on July 31, 2009 - 12:14pm.

The 1990's bust was a two-in-one bust. First leg down was due to the overheated market, then in 1991 and 1992 came defense spending cuts. So, the initial 1991 2.3% bounce and the subsequent 10% drop are two unrelated events.

Submitted by FormerSanDiegan on July 31, 2009 - 1:30pm.

Time to party like its 1994 !

Submitted by jpinpb on July 31, 2009 - 2:26pm.

You have the graph through 1996. I don't think we really saw the re market get moving and begin to flourish again until 2000. Did it more or less flatline for 4 years?

Submitted by Rich Toscano on July 31, 2009 - 2:30pm.

jpinpb wrote:
You have the graph through 1996. I don't think we really saw the re market get moving and begin to flourish again until 2000. Did it more or less flatline for 4 years?

Nope, it was at new all-time highs (ie having surpassed the 1990 peak) by mid-1998.

You can kinda eyeball it on the longterm cs graphs but I checked the numbers to make sure.

rich

Submitted by jpinpb on July 31, 2009 - 2:37pm.

Ah. I see on the other graphs home price to income ratio and home price to rent ratio seem to start its ascent in 1998 or thereabouts.

Submitted by moneymaker on July 31, 2009 - 5:15pm.

Nice info, by looking at the percentages does that mean this drop is 3 times worse by comparison, atleast in the lower tier so far, ouch! Do most Piggs think the upper tier will eventually drop by atleast as much as it went up?

Submitted by deriving drunk on July 31, 2009 - 7:58pm.

Prices are still about 45% above 2000 levels. When cost of money is taken into account that shrinks some.

Considering the area under the curve was many times larger for this bubble compared to the last, it seems there is greater downside risk percentage-wise, even now.

What are all the relevant factors? Population, inventory, financing availability/rates, employment, income levels, psychology of course.

Place your chips...govt has your back. Gives you a clunker for your cash.

Submitted by peterb on August 1, 2009 - 9:49am.

Thanks Rich. Very useful to see how it really plays out over the seasons! I remember, 1996 to 1998 saw a good solid rise. Places I was tracking went up ~25% from 1996 to 1998.

Submitted by rocket science on August 1, 2009 - 10:06am.

Looks like Rich isn't the only one to use the term head-fake in his assessment.

Another take on it.

The Mother Of All Head Fakes

Submitted by zk on August 1, 2009 - 11:37am.

Eugene wrote:
The 1990's bust was a two-in-one bust. First leg down was due to the overheated market, then in 1991 and 1992 came defense spending cuts. So, the initial 1991 2.3% bounce and the subsequent 10% drop are two unrelated events.

And the 2000's bust is a two-in-one bust. First leg down was due to the overheated market, then in 2008-20?? came the deepest and longest recession since the great depression.

Submitted by Eugene on August 1, 2009 - 1:58pm.

zk wrote:

And the 2000's bust is a two-in-one bust. First leg down was due to the overheated market, then in 2008-20?? came the deepest and longest recession since the great depression.

The recession will end (there's a good chance that it's already ended, it just hasn't been announced yet).

Defense spending, on the other hand, did not come back.

Submitted by Arraya on August 1, 2009 - 3:31pm.

We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

Submitted by Eugene on August 1, 2009 - 4:14pm.

Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

People's beliefs are a large part of physical reality. They influence saving and spending, and this current recession's proximate cause was the drop in consumer spending.

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

Submitted by rocket science on August 1, 2009 - 5:49pm.

Eugene wrote:
Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

Ignore the man behind the curtin with the unemployment numbers or that other silly stuff.

Submitted by greekfire on August 1, 2009 - 9:48pm.

Great insight as usual, Rich. I particularly like the "Two Housing Busts" graph. Thanks for the renewed dose of reality.

"How banal, yet how sagacious!"
Greekfire

Submitted by Eugene on August 1, 2009 - 9:48pm.

rocket science wrote:
Eugene wrote:
Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

Ignore the man behind the curtin with the unemployment numbers or that other silly stuff.

You don't have to believe me, but you can't ignore the causal link between fear, consumer spending, and unemployment.

Submitted by an on August 1, 2009 - 10:40pm.

rocket science wrote:
Eugene wrote:
Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

Ignore the man behind the curtin with the unemployment numbers or that other silly stuff.


You mean, the same man who's pumping TRILLIONS of dollar into this "problem"?

Submitted by peterb on August 1, 2009 - 11:32pm.

Rich, it may prove interesting to overlay an unemployment graph over this housing price graph. Keeping in mind that the govt is far more restrictive in it's calculation of what constitutes being unemployed these days.
Even better if you could go back to 1980.

Submitted by CA renter on August 2, 2009 - 2:20am.

Eugene wrote:
Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

People's beliefs are a large part of physical reality. They influence saving and spending, and this current recession's proximate cause was the drop in consumer spending.

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

So the greatest amount of public and private debt ever held had nothing to do with this recession? Only psychology?

Submitted by peterb on August 2, 2009 - 8:52am.

Or more importantly, the borrowers ability to sustain the maintenance of the debt. Default is the result.

Submitted by capeman on August 2, 2009 - 1:20pm.

Eugene wrote:
Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

People's beliefs are a large part of physical reality. They influence saving and spending, and this current recession's proximate cause was the drop in consumer spending.

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

I wouldn't bet your retirement on that thesis. You're extremely likely to get hosed. This IS not a psychological (consumer/inventory driven) recession. It IS a credit driven recession and nowhere near enough of the bad debt has been defaulted on to call a recovery while the gov't has taken on even more bad debt to cover it up.

Submitted by deriving drunk on August 2, 2009 - 2:59pm.

In the grand scheme, trillions may not be enough to beat deflationary forces. At least for now. Timing is everything...

Submitted by an on August 2, 2009 - 3:04pm.

deriving drunk wrote:
In the grand scheme, trillions may not be enough to beat deflationary forces. At least for now. Timing is everything...

In the grand scheme of things, trillions might just be the start. It wouldn't surprise me if they'll pump trillions after trillions until we're out of this recession.

Submitted by deriving drunk on August 2, 2009 - 5:56pm.

I wouldn't bet your farm on the ability of the Federal Reserve in collusion with Treasury and the large banks and lenders to engineer a hearty or sustainable bubble reflation. Haven't we seen this movie before?

And if they can reflate a half-deflated bubble, to what end? Are owners going to extract equity from their inflated home value to compensate for lack of real income or a too-high DTI? Are owners going to sell and downsize or move to Iowa to realize any gains? Who is going to buy at the lower end to sustain the property escalator? Again, haven't we seen this movie before?

The debt loads are enormous and are crushing all efforts to reflate. GDP will be positive only because of massive deficit spending. Real incomes and unemployment will worsen. How is the Fed going to unwind it's credit facilities of our Free Enterprise System.

As always, those who have the income and/or assets to make it through the downturn will be fine. Lord knows there are plenty in SC. But I think their reach and breadth is overexaggerated.

Submitted by deriving drunk on August 3, 2009 - 9:17am.

Re: the trillions being pumped into the system...

Dylan Ratigan, formerly of CNBC and formerly one of the few good guys on that disgraceful network, comments on this and "the greatest theft ever"

http://www.youtube.com/watch?v=UhfvE9bNls4

Maybe they can pump another few trillion more to pump up your house values, maybe not...

Submitted by surfer00 on August 3, 2009 - 10:51am.

I'm afraid this is where the inventory is that is creating the tight market.....

http://market-ticker.denninger.net/

NOTE: I see this morning that Colonial Bancorp was taken over today. They are mentioned in this article.

Submitted by surfer00 on August 3, 2009 - 10:56am.

I'm sorry, the above link wont take you where I wanted you to go. Here's and excerpt...

So what's going on here?

Simple: An enormous number of banks are holding loans at or close to "par" that really aren't. They're holding mortgages at massively-inflated values, even on defaulted properties, and this is why you are not seeing more foreclosure sales - that is, why inventory is being held back. If they sell it the accountants will force recognition of the loss, which will render them instantly insolvent, but so long as they "extend and pretend" they are marking these loans way, way above recovery value. The upshot of this is that these firms' balance sheet claims on asset values are massively inflated, regulators know it, and they're intentionally ignoring it.

I have been sounding the alarm on this for more than a year; it has in fact been the focus of multiple petitions to Congress and the cause of thousands of dollars of personal expense faxing letters and Tickers to members warning them of the danger of letting this sort of accounting misdirection continue.

The claim of banking sector health and "successful rescue by Treasury and The Fed" is in fact false. No such thing has occurred. What's going on here is nothing more or less than intentional false claims of asset "valuation", which is repeatedly exposed when the FDIC is finally forced to seize institutions, exposing the lies. Then, suddenly, 20, 30, even 40% losses on alleged "asset books" come out into the light and the taxpayer eats them.

The bank executives and accountants that played this game with the books should have been arrested and the bank thrown into receivership over a year ago.

Oh by the way, just as with all such "extend and pretend" games (otherwise known as fraud when practiced by anyone without a "government can cheat all it wants and nobody goes to jail" card) the longer you play this game, the longer you wait to do the right thing, the more money it costs you (in this case the Taxpayer gets the inevitable bill.)

For those of you who say that the FDIC is "not the responsible party", that's nonsense. OTS/OCC are the agencies that perform primary regulation for any federally-chartered bank but the FDIC is the agency that is responsible for resolution, and they are always working together in this regard.

Yes, the FDIC has a "backup credit line" (a big one at that!) from Treasury, but the fact remains that about 75% of the FDIC's "insurance fund" has been depleted over the last year due to massive and intentional failures to enforce Prompt Corrective Action, with the most-expensive and most-outrageous (thus far) being IndyMac, where OTS was found (by the government's own auditors!) to be complicit in backdating deposits to "cook" capital ratios!

Riddle me this folks: What possible positive purpose can come from the FDIC refusing to seize these institutions when their capital ratios are either negative or clearly going to become negative? These banks have all been train wrecks that I and others have written about for more than a year; Colonial was referenced in a Ticker on the 14th of July of 2008, with my first warning on them more than two years ago in April of 2007.

What do I think?

I believe the FDIC is broke and knows it; that under the law they should have seized these three banks (and many dozens more, including some really big ones) some time ago, but doing so will force them to tap the Treasury "emergency" credit line. They're well-aware that this could instill quite a bit of panic in the public (never mind Congress!); as such they, along with OTS and OCC are conspiring to (once again) hide the truth and pray for an economic recovery before they are forced to act as the law demanded months or even years ago!

This is nothing more than an attempt to keep this graph from looking dramatically worse than it already does and keep the "green shoot" lie alive to pump the stock market so that Americans "feel better." Big banking and other executives are taking advantage of this lie by selling shares into an overheated market (which they have been doing, by the way: Insider sales are at levels last seen just before the top in October of 2007!)

Submitted by ibjames on August 3, 2009 - 10:57am.

Eugene wrote:
Arraya wrote:
We have now entered the "tinker bell" recovery. If we all hold hands and "believe" enough it will come true. Physical reality be damned!

People's beliefs are a large part of physical reality. They influence saving and spending, and this current recession's proximate cause was the drop in consumer spending.

I've been saying all winter that the recession was psychological, that it was caused by fear rather than objective factors. People are starting to wise up to this idea. They are starting to see that there's no Great Depression in the cards. Add rising house prices, pretty soon spending patterns will return to pre-Lehman levels, and there you have it - recovery!

Eugene, stick to sdlookup forums to babble please..

Submitted by peterb on August 3, 2009 - 11:01am.

Govt believes strongly in the axiom that "time will heal all wounds". So delaying tactics are the order of the day. I believe this was the strategy of the japanese from 1990 on. At least they kept their unemployment at 5%. I dont think we'll be that lucky.

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