The housing bubble

[VoyT]

but the loss is only on paper until you go to sell. Like I said, the RE bubble is just noise. It is real, but the impact of it popping will only impact people which need to sell.

Ah, but when it comes to foreclosures, the cost is far more than the finances.
Ever have to deal with the problems a vacant house can cause in a neighborhood? We've got one in my very small subdivision. House has been empty for close to 3 years while the foreclosure process has gone on. (it finally sold to some company that has it up for sale)
The neighbors periodically have to call the cops because of break-ins: Teens using it as a hangout, in one case, squatters (and since the utilities were turned off long ago, I gotta wonder about the bathrooms.)
Fortunately, the neighborhood association arranged to have the grass cut, or we'd have the problems (and the eyesore) that go along with overgrown weeds and lawns.
We're probaby lucky this is a stable neighborhood -- in some areas, vacant houses tend to draw drug dealers.
Now multiply that one house by 10 or more (and yeah, it's possible; at leat 4 ZIPcodes in my city made CNN's top 500 foreclosure list.) What happens to those neighborhoods? What happens to the folks who remain, who have jobs and played by the rules? They get trapped in a depreciating asset?

 

[HFWR]

They get trapped in a [-]more rapidly[/-] depreciating asset?

There...

 

[VoyT]

That works, too ... LOL

 

[Khan]

Ah, but when it comes to foreclosures, the cost is far more than the finances.
Ever have to deal with the problems a vacant house can cause in a neighborhood? We've got one in my very small subdivision. House has been empty for close to 3 years while the foreclosure process has gone on. (it finally sold to some company that has it up for sale)
The neighbors periodically have to call the cops because of break-ins: Teens using it as a hangout, in one case, squatters (and since the utilities were turned off long ago, I gotta wonder about the bathrooms.)
Fortunately, the neighborhood association arranged to have the grass cut, or we'd have the problems (and the eyesore) that go along with overgrown weeds and lawns.
We're probaby lucky this is a stable neighborhood -- in some areas, vacant houses tend to draw drug dealers.
Now multiply that one house by 10 or more

You're describing Dayton Ohio. Also a big problem here with people breaking into vacant homes and stealing wire and metal pipes to sell for salvage.

 

[cute fuzzy bunny]

Shhh...I have a vacant house. You're making me nervous.

Eh, all my neighbors are watchful and armed...

 

[califdreamer]

geez, if i could understand that sentence i'd likely have a lot more money now.

What, you don't like my tortured syntax?

 

[heyyou]

There is risk associated with concentrated investments. Is there a more concentrated investment than a personal residence? Anything beyond that is gambling, not investing. So realtors don't mention that location can also hurt on the downside i.e. your house won't sell because no one is buying in your county. No one can live in an index fund, but the concentrated risk is diversified away.

 

[tryan]

I did this work in December 2004 and have not updated it.

kcowan,

Good read ... thanx for sharing! Pretty much mirrors why I've been a seller over the last few years. Sold some TOO EARLY ...... now I'll sell some TOO LATE. Did hit the peak with one sale (summer 2005) though.

Personally I believe the the next bottom will coincide with a recession. So if/when the economy slides we'll all have a couple years to take advantage of another bottom. 2010 seems a bit too soon (optimistic?) IMHO. Nice to see someone with the kaunas to take a shot at a bottom date though.

 

[honobob]

• 30% gets the national prices back to their long term trend line
• 50% lets them overcorrect and drop below the line for a couple of years

Would you explain what a "national price" is and how you used it or how someone would use it who was investing in a specific area, say Honolulu or the SF Bay area? I've always looked to the local economics. What am I missing?

 

[kcowan]

Agreed. Have a look at the paper. It shows how different the various parts of the country are. I did the work for investment planning purposes, not as a guide to buying any specific house.

BTW I found the missing charts and have updated the page here:
Cyclical Bubbles in US National House Prices

and on the subject of bubbles in general, you might be interested in my article on technology bubbles:
The Interplay of Market Bubbles and Technology

 

[lazygood4nothinbum]

What, you don't like my tortured syntax?

hi calif, sorry. i was not referring to your sentence structure which is quite in order but rather to my lack of financial comprehension. as two of my favorite writers are the james brothers (henry & william), my brain readily wraps around the most complex syntax. it is simple dollars and cents that throws me. (but i got it after i read your sentence a few more times.)

 

[califdreamer]

No need for apology, lazy. I really did wrestle a bit with that sentence.

Speaking of the Standard & Poor/Shiller index (I misspelled it the first time), it shows Los Angeles/Orange County home prices down a few percent (latest report April 07) whereas median price from Dataquick shows slight increase in home values. Explanation given was sales mix... bigger slowdown in number of sales in lower end of market.

Lead economist on UCLA econ panel was on radio today talking about the So Cal market. His take: softness here through mid 2009, prices to drift slightly down or stagnate until that time, suggested today's homebuyer should be choosy and pick a home for the long term but not to expect any super discounted prices.

My personal take: San Diego (home values down about 6% in April 07 vs April 06 according to Shiller) will continue to see more decline in home values through 2009 then stagnate for several years. LA / Orange County will drift down some, perhaps not as much as SD, then stagnate for a while.

 

[bssc]

There has been a house in our Phoenix neighborhood that was bought last October. There had been a sign out front saying that it was availble from the "Fix n Flips" company. I guess timing is everything since yesterday they finally decided to fix it, starting with the roof. I would think that 112 degree weather is not the best time to do this but I could be wrong. I also think that this just reinforces that the owner doesn't have a good sense of timing in general.

 

[Arif]

There has been a house in our Phoenix neighborhood that was bought last October. There had been a sign out front saying that it was availble from the "Fix n Flips" company. I guess timing is everything since yesterday they finally decided to fix it, starting with the roof. I would think that 112 degree weather is not the best time to do this but I could be wrong. I also think that this just reinforces that the owner doesn't have a good sense of timing in general.

Unless he got that house for a steal his is probably already going to lose money. Holding costs can kill you in that business.
Home prices have not really decreased in eastern GA, however Atlanta is in shambles. I know a guy who bought a house for 140k that appraised for 180k in December. He put it back on the market and last I heard he has it listed for 170k which will have him breaking even if he's lucky after deducting holding costs, closing costs, relator fees, etc. Still no offers so if he reduces it anymore he's coming out of pocket.
For those interested, here is Countrywide's REO (real estate owned) list: Properties Owned by Countrywide - REO Homes

If you select GA you'll see a ton in Atlanta.

 

[tryan]

Still no offers so if he reduces it anymore he's coming out of pocket.

Surprizing what some people will do. A neighboring property to one of my rentals was bank owned and a tear down. Didn't take much to realize that building at 150/sq foot the land was worthless ... just buy something up the street you can move into tomorrow. Weeell I bumped into a builder who was eyeing the place as "some place to park cash" ... apparently he had a LARGE capitol gain from a commercial job; he needed someplace to hide cash to delay the IRS hit. Best I can see he'll LOOSE 100k if the market stays flat. If it drops - some more - he needs to hold the place for a LONG time just to break even. Good news is he just tore the place down .. my lot has never looked better.