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The Housing Bubble - To Die or Not to Die


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#1 Fartpolio Manager

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Posted 17 December 2002 - 10:56 AM

Once again strong housing starts... Proof Positive that people still think it's better to have a bubble home they can live in than buy bubble stocks...

Once again... housing bears... WRONG.

#2 Guest_soup1_*

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Posted 17 December 2002 - 11:02 AM

Fart: all in due time. Having said that I do own a home. But it aint some fancy mcmansion.

#3 Fartpolio Manager

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Posted 17 December 2002 - 11:08 AM

Fart: all in due time. Having said that I do own a home. But it aint some fancy mcmansion.

Due Time? First interest rate hike by Fed... that's when housing tanks...

E-wavers on housing .... WRONG

Thin analysis... lousy correlation to housing market.

#4 DrStool

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Posted 17 December 2002 - 11:10 AM

Like I said in the interview, the key to the housing bubble is the mortgage purchase index. It is downtrending, but hasn't yet broken down. The housing market is gradually weakening. Housing starts data are substantially in arrears and reflect the tail end of the July - October mortgage application bulge. Construction generally starts about 4 to 6 weeks after the application. That's how long it takes to get the underwriting approval. Given the extreme leverage, and the poor quality of the credit driving the bubble, the residential real estate market is headed for the worst crash in the last 70 years. We are in the endgame now.

But let's discuss this over on LOB, not here.

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#5 Guest_soup1_*

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Posted 17 December 2002 - 11:12 AM

Well said doc. I would not want to have a mortgage in this enviroment.

#6 Fartpolio Manager

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Posted 17 December 2002 - 11:17 AM

Not to belabor the point, but FM would like to point out that mortgage applications are also driven by interest rates... net result of rate increase is (eventually) fewer applications... therefore, mortgage applications secondary.

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Posted 17 December 2002 - 11:21 AM

Speaking of the housing market, there is no such thing as "the housing market". ;) This is not the semiconductor sector where everybody trades in unison. There are multiple housing markets, depending on location, property type, price range, etc. Do not expect the bubble to burst simultaneously in all of them.

BTW, doesn't wndysrf have a birthday today?
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Regards,
Vesselin

#8 Guest_soup1_*

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Posted 17 December 2002 - 11:23 AM

fart: more dependent on the 10 year, and then that pseky litle thing called income to service the debt.

#9 DrStool

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Posted 17 December 2002 - 11:28 AM

Except that applications declined in the last week in spite of lower rates in the same period. Any way you look at it, housing demand is waning. New purchase applications have been in a declining trend for 6 months, during the period when rates collapsed. The bubble is finished. By the time prices start down it will be too late. The way the real estate market works, transaction activity dries up first. The drop in transaction values comes many months, even year or more later, as sellers finally face reality. Initially though everthing just sits there.

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#10 Bearwithme

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Posted 17 December 2002 - 03:31 PM

Every once in a while.. I can be extremely insistent, and this is one of those times.

When the pension funds and other mortgage holding entities start to realize they are getting borked from all the non-performing loans and they then tell the "lenders" to tighten up on their loan regulations since a bazillion dollars of current loans are non-performing the whole thing will implode, and probably a lot worse than even Stoolies think.

A good friend of mine just closed on a house for a woman that just went bankrupt less than a year ago.

Loose as a goose lending practices, a crashing economy, deflation... is there anyone brain damaged enough to think this isn't a bubble?

#11 GTNWORSE

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Posted 17 December 2002 - 03:54 PM

Hey Guys,
Had to add my 2 cents as a homeowner who just can't bring himself to sell and rent.
Does it not make sense that the housing market will behave similiar to the Naz. Everyone knew it was a bubble, and kept on screaming about it, but it continued to go up. When Bullish sentiment was sky high and no one was Bearish any longer......splat.
If that is the case we still have some life in home prices, at least here in So. California.
Remember: You get to live in it, tax free capital gains, tax write off, and the perception of limitless appreciation!

#12 Guest_yobob1_*

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Posted 17 December 2002 - 04:25 PM

Ever notice that the ones who deny the existance of the housing bubble seem to be the ones with the McMansion that's had it's equity sucked dry by quadruple refinancing in 2 years?

Houses are not stocks or bonds. You can't just call up the borker and say sell. If you wait until the market shows unmistakeable signs of going soft, it may well be too late. You might sit and wait and then in desperation drop the price, only to find that everyone else dropped their price too. All the while your imaginary equity goes up in smoke.

One of the thing that most people who deny the existance of the bubble point to is the lack of overbuild. They base that on days of inventory. You must remember that days of inventory is based on the sales rate as well as the number of units available. So when the sales rate drops you get an automatic invnetory increase without driving one more nail. Secondly most forget to count the rental units as inventory. Pick up your paper and look at the number of single family homes for rent. Seem like more than you remember? Sure, all these new homeowners aren't falling out of the sky they're vacating rental units. So what happens to the landlords who because of their get rich with real estate plans can't make the payments on their rentals because they're vacant? That's right they go back on the market. Apartments are running increasingly higher vacancy rates also. The ovebuild is there folks, and it's very real. It's just in a stealth mode, but will burst onto the scene soon enough. Try and act surprised.

#13 SusanJBear

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Posted 17 December 2002 - 05:01 PM

Ever notice that the ones who deny the existance of the housing bubble seem to be the ones with the McMansion that's had it's equity sucked dry by quadruple refinancing in 2 years?

There's practically a correlation, the more a person gets upset that housing is due for a collapse, the more they have invested (leveraged) in real estate.

A friend at work recently tried to rent an apartment with his wife, and the landlord was quite excited about them as good tenants. Apparently the landlord started babbling on about buying an overpriced place (friend's word, not landlord's) here in So Cal, then urged my friend with "you should buy a house too!"

My friend mistakenly replied that he had considered it, but felt that real estate was due for a crash. The landlord got upset, denied that real estate could go down.

My friend did NOT get the apartment.

I think there must be a word for it. When a market is at its peak, and there is bear-baiting going on, and people are saying things like "you should do what everbody else is doing..." it's like the suckers at the top are trying to feel out everyone who refuses to join the party. Some sort of "exclusion anxiety". Is there a word for that?

#14 EasyAl

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Posted 17 December 2002 - 06:05 PM

While the real estate market depends on local condition, it seems that the schemes that are used to artificially pump up the real estate price are beginning to exposed. Early last week, WSJ had an article on home builders rising price of their homes and donating money a few percent of asked home price to some charities, who, in turn, give the money to some people as the gift for (3%) down payment for the home. I remember the article states that 7% of new home sales in Denver took place this way. This type of loans is mostly insured by FHA (where your tax dollar is at work). Some sample studies by FHA showed that the default rate for the gift down-payment mortgage had close to 20% of default rate. Doug Noland had a good artilce last Friday which details the this inflating scheme.

Another mechanism for inflating home price is to make appraisers to value home higher than it really is. Mortgage lenders nowdays making money by originate the loans and few of them keep the loans they originated. They do not suffer if loan goes bad. So, both home owners and lenders are pushing appraiser for higher estimate. Again, WSJ had an article last week titled Rising Home Prices Cast
Appraisers in Harsh Light
. A few weeks ago, a New York Times article reported that the default in one of neigborhood in Indianapolis got so high that government has started to proscute some lenders and appraisers.

Finally, it is worthwhile to note that a low interest rate also reflects an expectation of low inflation for next few years. Low inflation, invariably, also suggests slow growth of the wages. Some researchers have noted that Housing Affordability Index (HAI), which is used to assess whether homes are reasonably priced, is misleading. On this subject, Dean Baker has written a paper titled The Housing Affordability Index: A Case of Economic Malpractice.

#15 DrStool

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Posted 17 December 2002 - 06:45 PM

As usual, Easy sums it up better than I ever could. I'd just like to add that I have been a professional real estate anal cyst for 15 years, I was in and around the real estate business for most of my profesisonal life going back over 30 years. I have participated in localized bubbles and busts both.

I have never seen anything remotely close to the institutionally sponsored insanity that I have seen in the past year or so. This is not just a local phenomenon. It is an institutionalized governemtn sponsored pyramid scheme. This crap is going to come undone soon and when it does, it's going to be one hell of a collapse. As yobob said, once the recognition phase is here, it will be far too late.

All that being said, I will continue to pay the mortgage on the home I have lived in for 12 years. The smart thing to do would be to get my equity out, but I'm just too lazy to move. The fact that a large number of people feel the same way does not matter. As with anything else, prices are set at the margin. I like most homeowners will simply sit and watch my equity shrivel and maybe disappear.

But it's all relative. All the other houses will get cheaper too.

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