Sizing the Housing Bubble

[wabmester]

From the economist last year.
http://www.economist.com/finance/displayStory.cfm?story_id=4079027

Since that was written last year, I just checked on markets in Oz and London.   Oz is taking a small hit, and London took a small hit last year, but they already have another run-up after their interest rates were cut:

Article

This thing is going to unwind slowly....

 

[Sam]

Does any one have a similar graph for Houston, TX?  I'm curious.

Thanks,
Sam

 

[wabmester]

Does any one have a similar graph for Houston, TX?  I'm curious.

I haven't seen one, but I believe most of TX (and places like GA) have been pretty flat for years, with relatively constant inventory levels.

 

[ShokWaveRider]

I haven't seen one, but I believe most of TX (and places like GA) have been pretty flat for years, with relatively constant inventory levels.

From what I can tell, Houston TX is one of the cheapest places to buy a home in the country providing you can afford the property taxes.

SWR

 

[veritasophia]

Most agree that housing is bound to revert to the mean. If this spawns a recession, and if this drags on like it did in Japan, what does that say of the stock market? Will it be flat for a decade, will it crash? Would some of you economically savvy people explain the effect of a major housing bubble burst on the stock market?

 

[wabmester]

If the housing decline causes a recession, then we'll see an initial drop in the stock market as forward earnings expectations are reset.   After that, you get whatever the economy gives you.

The bigger question is whether we've really worked out all the excesses of the 2000 peak from the market.   The 2003-2006 rally (and housing bubble) was induced by *lots* of stimulus.   Now that the stimulus is gone, do we continue the 2000-2002 decline?    That's sort of the secular bear theory.

And in the meantime, we've created a humongous debt burden ... just as boomers are about to retire....

The market may do fine, but it'll be swimming up stream pretty hard if it does.

Personally, I want to hedge my bets.

 

[d]

Personally, I want to hedge my bets.

you can!  futures and option contracts based on residential real estate indexes trade on the Chicago Mercantile Exchange -- 10 major markets (boston, NY, LA etc) plus a composite. this isn't my cup of tea, so i wouldn't hazzard a guess as to how well it might work, but someone might be able to advise.

 

[audreyh1]

And in the meantime, we've created a humongous debt burden ... just as boomers are about to retire....

That's just it - I bet a lot of boomers don't retire. They're in too much debt, they haven't saved enough, etc., etc. They'll keep working and helping the economy.

Audrey

 

[Alex]

I dont see a bubble where I live in so-cal and neither do alot of experts. All Real estate, like politics, is local. I live in an area that is very desireable so I am not worried. If prices drop, so what? I'm not sellling for a few more years anyway.....

 

[73ss454]

No doubt that we have a bubble in NY. I've been trying to sell my home on Long Island and have no luck at all. We've done all the usual things, lowered the price, open house, agent open houses. We can't even get anyone to look. The prices all around us are also droping and no one is selling.

Today we offered an additional 5K bonus to the selling agent and lowered the price to a price range to stir the pot. This may bring in some low ball offers but I'll listen.

 

[lazygood4nothinbum]

from yahoo news:

Markets seldom disappoint both bulls and bears for long. But over the coming years the US housing market looks likely to do just that, according to a study by Harvard University.

"Although housing prices are stretched, it is hard to see the catalyst for a crisis in the market," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard. "The overvaluation looks pretty well balanced by longer term supports for house prices, so we may just see a few years with little action. Houses will revert to being something to live in rather than money makers."

So why will non-home-owners be deprived of the crash they have been waiting for?

http://tinyurl.com/hwedl

 

[katfish]

I'm watching the real estate on the waterfront(bayfront) here in South Jersey.
It seems as if almost everbody has their homes for sale. The prices, for some of these bay shacks, are unbelievable. They are still moving them, but slowly.
I don't think we are going to see a price drop on prime(waterfront) real estate
here, or South Florida. Most are looking for second homes, and willing to pay
up for the view..

 

[tryan]

I agree with most here that the question is "when" rather than "if" the bubble will deflate. BUT I see this as a great opportunity. The best buys I made were made between 1992-1995. So save your pennys and wait with a smile.

Everything is cyclical.

 

[Nords]

Global Insight (a research firm paid to provide data to support preconceived opinions) says there's a widespread bubble, except in a few choice areas like College Station-Bryan (wherever the heck in Texas thatis, Houston, and Dallas-Fort Worth. In fact eight of the ten cheapest areas are in Texas...

http://globalinsight.com/gcpath/1Q2006report.pdf

Please don't mistake my link as a serious research study. Global includes factors like "Finally, we calculate a 'constant' term for each metropolitan area. These control for historically observed differences in metro area price-to income ratios that is not explained by the other three determinants. The numbers range from -3.1 to +3.2 and reflect a variety of difficult to quantify, but nonetheless important, factors that influence prices. Such factors that influence metro area constants would include pollution, climate, expected property price appreciation, cultural amenities, school systems, miscellaneous costs, (e.g. tax and utility rates) and geographic location."

However this study is being picked up by the wire services and will be widely quoted in the media... so it's a self-fulfilling prophecy.

 

[cute fuzzy bunny]

Cool. Lets all move to texas!!

 

[wabmester]

http://globalinsight.com/gcpath/1Q2006report.pdf

Interestingly, price appreciation continues to be strongest among more over-valued markets.

Yup, that's momentum "investing" -- a sure sign of speculation. We should see the same momentum on the way down.

These reports and articles are kind of interesting, but I prefer watching this thing unfold in real-time on the blogosphere.

For example, this site tracks inventory and price reductions:

Bubble Tracking

Here are the top 5 markets leading the correction based on percentage of price reductions:

Sacramento Metro:
1/30: 30.5%---> 6/13: 39.7%

Phoenix Metro:
1/30: 28.0%---> 6/13: 39.0%

Orange County:
1/30: 22.8%---> 6/13: 37.0%

Riverside County:
1/30: 27.3%---> 6/13: 36.5%

San Diego County:
1/30: 26.3%---> 6/13: 35.3%

 

[Sam]

... College Station-Bryan (wherever the heck in Texas thatis,  ...

College Station is about 100 miles north-west of Houston.  Home to the Texas A&M University, and former George Bush Library.  Thanks for the Global Insight report.

Sam

 

[Alex]

sorry, but simply hoping for something real real hard doesn't make it true. The best time to buy is often when everyone is saying not to. When the mailman, waitress and blogosphere are all talking about a housing bubble, I know there isn't one. Bubble Schmubble....

 

[Martha]

Wab, the Phoenix data looks scary, with inventory at amazing levels and sales lower than last year. Our condo units are still selling steady and still putting $6000 to $8000 in our pocket each month. What would be a nightmare is for a sudden slow down so that some units are condo and some stuck as apartments. Bad juju.

On the upside, the buildings were bought as apartments so a condo conversion was not priced into its purchase price. For one building we already have been paid our investment plus about 10%. The other is a more recent conversion so we still have money into it.

 

[wabmester]

Wab, the Phoenix data looks scary, with inventory at amazing levels and sales lower than last year.

I think now is a good time to sell, and it looks like a lot of other sellers feel the same way. That's why inventory is growing so fast. YoY demand doesn't look like it has slackened much.

These things rarely happen quickly. I've read that Japan had a 15-20% drop about 18-24 months after their peak, so assuming we peaked last year, this is the time to sell.

 

[blanston]

sorry,  but simply hoping for something real real hard doesn't make it true.  The best time to buy is often when everyone is saying not to. When the mailman, waitress and blogosphere are all talking about a housing bubble, I know there isn't one. Bubble Schmubble....

Alex- I think you were right the first time. When you yourself chopped 30% off your own equity position! Good luck in Southern CAl. Hope it is not San D iego !

 

[Alex]

Alex- I think you were right the first time. When you yourself chopped 30% off your own equity position! Good luck in Southern CAl. Hope it is not San D iego !

In my case, I really don't see a bubble. I believe that all real estate is "LOCAL". I live in northern LA county in a highly desireable area with excellent schools and low crime rates. I am 35 minutes to downtown even in rush hour traffic. I am not worried. Bubble? Schmubble!

 

[wabmester]

PIMCO Manager is now a renter

PIMCO is based out of Newport Beach, CA. The guy probably made a small fortune selling his house.

 

[Brat]

I hope he signed a multi-year lease.

 

[haha]

PIMCO Manager is now a renter

"Amy wasn’t thrilled about moving, but my sense is she will look back on our sale and view it as a good one. In the end, the fundamentals should win out. "

My sense, honed from some experience with women, is that Amy with the help of the courts will have Mark cash her out. She will look back on Mark, and view him as good any vehicle to get where she wanted to go, but she henceforth will prefer going without ol' Markie.

Ha