Mish is scared like hell: Obama went on record saying that he's interested in Krugman's ideas, and Krugman has been repeating that the stimulus package as originally advertised is too small and ineffective (too large a part going to tax cuts). Mish is a known advocate of Austrian school - essentially anti-Krugman.
He's scared, because he's been hoping for deflation and depression; with Krugman involved in stimulus design, we might avoid both.
At the micro level, entry-level SFRs in many areas have dropped to the point where buying makes economic sense. I'm very bullish there as the flurry of activity proves that Americans aren't entirely financially illiterate :)
I am bullish in the longer-term (5+ years). But not bullish for the next year.
Here's why:
From an affordability perspective (monthly payment to income ratio), the San Diego market is less expensive today than almost any point in the past 30 years. We are also now below the average price to income over the past 30 years.
I can see prices going lower and perhaps 2-3 years before we experience 2008 prices again to the upside. But long-term trends tend to win out. So, if I had sufficient cash to deploy (which I don't) I would buy a SFH each year starting this year for the next 5 years. Since I don't have sufficient cash I will wait for a safer point. Perhaps late 2010, unless I too find myself in line at the local soup kitchen.
Submitted by peterb on January 12, 2009 - 12:19pm.
This is the first year of a global economic contraction. The debt bubble that's deflating right now has caused prices to be driven down harder than almost any other time in history. Anyone who thinks this thing is near over, had better study the facts and history a little harder. $30T lost in the equity markets and $3T lost in real estate in the last year. A few trillion by the govt will barely put a dent in this problem. Spending without regard for market driven productivity got us here, more of it will not solve the problem.
Submitted by leucadiarenter on January 12, 2009 - 12:59pm.
AK wrote:
Yeah, it's ugly at the macro level.
At the micro level, entry-level SFRs in many areas have dropped to the point where buying makes economic sense. I'm very bullish there as the flurry of activity proves that Americans aren't entirely financially illiterate :)
AK - Curious what areas/homes you are talking about, you have any examples? Thanks...
AK - Curious what areas/homes you are talking about, you have any examples? Thanks...
The low end in Oceanside, Vista, and Escondido has been massacred to the point that the buy/rent equation balances out. Many Piggs aren't looking in these areas, but plenty of other buyers are ... sales stats are way up and I'm hearing reliable first-hand reports of bidding wars and shoulder-to-shoulder crowds at open houses.
Chula Vista has taken a big plunge too, but I guess buyers are taking a long, hard look at the tax rates, M-R, and association fees in the newer developments.
I think the chart posted at bubbleinfo.com says it all:
Submitted by temeculaguy on January 13, 2009 - 12:00am.
Like many posters have already pointed out, I'm bullish when the buy/rent ratio is lined up. Once the buy/rent decision is a wash in your micro market, who the hell cares. We are getting close to the point to where no person in their right mind would buy and that is exactly the time to do so. Fortunes will not be made by positioning yourself into an investment that looks good to everyone, they will be made when the fundamentals are correct and the rest of the sheeple are too afraid. The outlying areas, I'm bullish now, the intermediate areas like north county inland and downtown are getting close, and the north county coastal/ 52 and 56 corridor, maybe another year, maybe never, the economic news is all bad and those areas are still defying gravity, much to the dismay of half of this site.
Totally agree with TG. If your mortgage is < or = rent and you're buying a home, not an investment, then I'm bullish. If you plan to buy and rent it out and your PITI cost is <50% of rent, I'm bullish there too. The lower the mortgage vs rent, the more bullish I am. As SD Realtor have point out before, areas that have extremely low Sale/Supply ratio or Pending/Supply ratio are very bullish to me as well. When you have 2 months supply, I think that's pretty bullish signal.
Submitted by sdrealtor on January 13, 2009 - 12:56am.
I am bullish on places like Oceanside, Vista, Mira Mesa, Escondido where prices have rapidly recalibrated and purchases today should look like they were sound decisions in 3 to 5 years. At the opposite end of the scale I am very bearish downtown where sellers and buyers are so far apart it is laughable.
In my area, I am neutral if you can find a good deal on a fabulous property that meets your needs and you can well afford I say go for it. It is getting harder and harder to find a good one. Neighborhoods that had 100 sales per year between 2001 and 2007 have had 40 last year and will likely fall below 20 next year. In general, I think it will take 5 to 7 years for purchases in my market to look sound.
Submitted by Aecetia on January 13, 2009 - 11:23am.
I am realistic. I think there are going to be continuing price declines this year and next. How much depends on what happens with loan rates and if the credit market eases up some for those with less than stellar credit scores. I have seen a number of blogs also predicting a spring bounce, but I think once again, that depends on loan rates. I do think there is a lot of money sitting on the side lines waiting for great deals.
Submitted by sdnerd on January 13, 2009 - 11:39am.
I wouldn't say I'm feeling particularly bullish but I must say I'm starting to question the depth of future price declines in the areas & prices I'm looking (East CV, RB West, 56 corridor, etc @ 600-800k).
I absolutely don't see prices moving upwards for years; not until there is wage inflation and that's in the distant future.
However, the infamous ARM recast graph is starting to concern me less and less. As an example, I have an IO loan that adjusts soon and at today's index it's going to drop nearly 1.5% to the 3.% range. I'm actually looking forward to the recast at that rate despite the additional principle payments which are negligible.
If you believe the world governments are going to keep rates low until such time as wage inflation kicks in (which I think they are going to have to do) then a large portion of that second wave of ARM adjustments may not be as bad as it looks.
In that scenario I can see several years of flat/slowly declining prices with inflation eating away.
So I think everything goes back to the job market. That's really the key to everything.
Assuming the lady and I are still employed towards the end of this year, I suspect we'll end up buying assuming we can get something that's taken it's fair share of price declines. Especially if rates are still in the 5.x range which I suspect they will be.
Submitted by carlsbadworker on January 13, 2009 - 1:34pm.
I think rent has very direct correlation with income. So with unemployment rate rising, the rent will surely drop. However, unless you are predicting 20%+ unemployment rate, there is not much rooms for rents to drop especially in low-price area. Also I always ignore the current house rent price but prefer to use 3-bedrooms apartment rental price. I have never seen apartment rental goes down by much although they sometimes offer promotions to effectively lower their rents. But that's all temporary, and if you expect to live in the house yourself, you should be able to ride it out.
So I agree with ANN above, although I would change his formula a little bit. I think it is prefect safe to buy if PITI < 3-bedroom-rents for self use. But for investment, I think I would like to see mortgage < 50%* rents (assume 20% down), we are not there yet. That's my floor of real estate market price in doomsday scenario (i.e. another 25-30% drop in town like Temecula). If I still have job at that time, I would happily pick up an investment property at that time. If I don't have a job at that time, I would have wished that I had bought now when I still have verifiable W2 income to get the best mortgage rate. I will just use my remaining cash to ride out the down turn instead of being able to have a rental property to my name.
The economy will recover one day or another. I believe at least we agree on that, right?
carlsbadworker, the only problem with 3-bedrooms apartment is that they're very rare. As a personal use, I think compare to rent of similar house is better, since you have to live somewhere and you have to compare apple to apple in regards to the place you'll be living in.
San Diego, I think, is a long way from <50%*rent, if it ever get there. However, places like Fresno is already there.
Submitted by carlsbadworker on January 13, 2009 - 4:11pm.
sdduuuude wrote:
One day, I guess.
What is it about "Japan had 0% rates and still lost a decade" that people don't understand ?
The reason that Japan had 0% rates but it still has deflation is because the famous phenomenon known as "carry-trade". The rest of the world's economy was booming at that time. So naturally, people took money from Japan central bank and invested it elsewhere. So the printing press does not work as a tool to fight deflation over there.
I would argue the same circumstance does not exist now for US economy. Therefore, the printing press will show its full blown effect one day.
San Diego, I think, is a long way from <50%*rent, if it ever get there. However, places like Fresno is already there.
I seriously doubt we will see that kind of figure for single family homes in any reasonable middle class neighborhood in San Diego. It has not happened at any time in the past 40 years. For apartment buildings and condos in marginal areas I would expect to see these kinds of situations develop. Also might happen in the barrio for SFRs.
Submitted by sdduuuude on January 13, 2009 - 6:08pm.
I think that "one day" bit is the key to life right now. Shiff thinks soon. Mish says later.
We have massive debt defaults that Japan did not and in Japan, borrowed money was invested elsewhere. Now, few are borrowing at all to invest anywhere. Same effect, no ? The Fed is practically begging people to borrow and spend and they aren't doing it.
I'm thinking it'll take 3 years or so but wouldn't be terribly surprised if it takes 5.
Submitted by patientrenter on January 13, 2009 - 6:16pm.
I'll piggyback on this thread to ask a question I've been mulling for a while:
You've all seen the Shiller charts that show this real estate bubble was the biggest in recorded human history. That's right, what happened to real estate prices in just the last 10 years - in San Diego, in California, in the USA, in much of the rest of the world - was bigger than anything ever recorded.
Given that, do you think that the traditional measures of the bottom of the cycle - sales, price/income etc - will be average, or much different from the average bottom of the cycle? (As one reference point, the bottom of the last cycle in So Cal was 1996, not 2001....) If you think it's going to be different, how different?
Submitted by Rich Toscano on January 13, 2009 - 6:21pm.
carlsbadworker wrote:
The reason that Japan had 0% rates but it still has deflation is because the famous phenomenon known as "carry-trade". The rest of the world's economy was booming at that time. So naturally, people took money from Japan central bank and invested it elsewhere. So the printing press does not work as a tool to fight deflation over there.
Actually, Japan's low rates didn't translate to an increase in the money supply. And they didn't start quantitative easing (central banker euphemism for money printing) until 2001 -- ie a decade after the bust started. So as far as the "printing press" goes, Bernanke and crew have already done what it took Japan over a decade to do.
At this point I think it Depends on Where (which market) more than anything else (that’s as far as I will take this one).
Location Location Location etc…
Got employment??
David Lereah. Oh wait I guess even he isn't anymore.
http://globaleconomicanalysis.blogspot.c...
Mish is scared like hell: Obama went on record saying that he's interested in Krugman's ideas, and Krugman has been repeating that the stimulus package as originally advertised is too small and ineffective (too large a part going to tax cuts). Mish is a known advocate of Austrian school - essentially anti-Krugman.
He's scared, because he's been hoping for deflation and depression; with Krugman involved in stimulus design, we might avoid both.
Yeah, it's ugly at the macro level.
At the micro level, entry-level SFRs in many areas have dropped to the point where buying makes economic sense. I'm very bullish there as the flurry of activity proves that Americans aren't entirely financially illiterate :)
I am bullish in the longer-term (5+ years). But not bullish for the next year.
Here's why:
From an affordability perspective (monthly payment to income ratio), the San Diego market is less expensive today than almost any point in the past 30 years. We are also now below the average price to income over the past 30 years.
I can see prices going lower and perhaps 2-3 years before we experience 2008 prices again to the upside. But long-term trends tend to win out. So, if I had sufficient cash to deploy (which I don't) I would buy a SFH each year starting this year for the next 5 years. Since I don't have sufficient cash I will wait for a safer point. Perhaps late 2010, unless I too find myself in line at the local soup kitchen.
esmith,
You should be scared...very scared indeed if you really understood how little time there is before it all implodes.
Three Words: Bond Market Dislocation.
Don't let anyone tell you that it can't happen.
Watch what China says and does.
This is the first year of a global economic contraction. The debt bubble that's deflating right now has caused prices to be driven down harder than almost any other time in history. Anyone who thinks this thing is near over, had better study the facts and history a little harder. $30T lost in the equity markets and $3T lost in real estate in the last year. A few trillion by the govt will barely put a dent in this problem. Spending without regard for market driven productivity got us here, more of it will not solve the problem.
Sure. We could have a bond market dislocation. China could declare a war on us and drop a nuke on San Diego. We could be invaded by aliens.
I think I'll go stock up on canned goods and gasoline.
At the micro level, entry-level SFRs in many areas have dropped to the point where buying makes economic sense. I'm very bullish there as the flurry of activity proves that Americans aren't entirely financially illiterate :)
AK - Curious what areas/homes you are talking about, you have any examples? Thanks...
You obviously are not paying attention.
The earth's polarity could be reversed in 2012.
esmith - Mish is not "hoping" for deflation and depression, merely predicting it given the Fed-induced train wreck that is our economy.
This one scares me more than the one you posted:
http://globaleconomicanalysis.blogspot.c...
When you can point out more things that you or Krugman called correctly in the last year than Mish did, I'll listen you you instead of him.
"even though every such attempt in history has failed" [from Mish link above]
but this time is different!
AK - Curious what areas/homes you are talking about, you have any examples? Thanks...
The low end in Oceanside, Vista, and Escondido has been massacred to the point that the buy/rent equation balances out. Many Piggs aren't looking in these areas, but plenty of other buyers are ... sales stats are way up and I'm hearing reliable first-hand reports of bidding wars and shoulder-to-shoulder crowds at open houses.
Chula Vista has taken a big plunge too, but I guess buyers are taking a long, hard look at the tax rates, M-R, and association fees in the newer developments.
I think the chart posted at bubbleinfo.com says it all:
http://www.bubbleinfo.com/2009/01/thanks...
My guess is that the buy/rent equation will prop up the low end unless rents start dropping, or unemployment reaches stomach-churning levels.
Like many posters have already pointed out, I'm bullish when the buy/rent ratio is lined up. Once the buy/rent decision is a wash in your micro market, who the hell cares. We are getting close to the point to where no person in their right mind would buy and that is exactly the time to do so. Fortunes will not be made by positioning yourself into an investment that looks good to everyone, they will be made when the fundamentals are correct and the rest of the sheeple are too afraid. The outlying areas, I'm bullish now, the intermediate areas like north county inland and downtown are getting close, and the north county coastal/ 52 and 56 corridor, maybe another year, maybe never, the economic news is all bad and those areas are still defying gravity, much to the dismay of half of this site.
Totally agree with TG. If your mortgage is < or = rent and you're buying a home, not an investment, then I'm bullish. If you plan to buy and rent it out and your PITI cost is <50% of rent, I'm bullish there too. The lower the mortgage vs rent, the more bullish I am. As SD Realtor have point out before, areas that have extremely low Sale/Supply ratio or Pending/Supply ratio are very bullish to me as well. When you have 2 months supply, I think that's pretty bullish signal.
I am bullish on places like Oceanside, Vista, Mira Mesa, Escondido where prices have rapidly recalibrated and purchases today should look like they were sound decisions in 3 to 5 years. At the opposite end of the scale I am very bearish downtown where sellers and buyers are so far apart it is laughable.
In my area, I am neutral if you can find a good deal on a fabulous property that meets your needs and you can well afford I say go for it. It is getting harder and harder to find a good one. Neighborhoods that had 100 sales per year between 2001 and 2007 have had 40 last year and will likely fall below 20 next year. In general, I think it will take 5 to 7 years for purchases in my market to look sound.
I am realistic. I think there are going to be continuing price declines this year and next. How much depends on what happens with loan rates and if the credit market eases up some for those with less than stellar credit scores. I have seen a number of blogs also predicting a spring bounce, but I think once again, that depends on loan rates. I do think there is a lot of money sitting on the side lines waiting for great deals.
I wouldn't say I'm feeling particularly bullish but I must say I'm starting to question the depth of future price declines in the areas & prices I'm looking (East CV, RB West, 56 corridor, etc @ 600-800k).
I absolutely don't see prices moving upwards for years; not until there is wage inflation and that's in the distant future.
However, the infamous ARM recast graph is starting to concern me less and less. As an example, I have an IO loan that adjusts soon and at today's index it's going to drop nearly 1.5% to the 3.% range. I'm actually looking forward to the recast at that rate despite the additional principle payments which are negligible.
If you believe the world governments are going to keep rates low until such time as wage inflation kicks in (which I think they are going to have to do) then a large portion of that second wave of ARM adjustments may not be as bad as it looks.
In that scenario I can see several years of flat/slowly declining prices with inflation eating away.
So I think everything goes back to the job market. That's really the key to everything.
Assuming the lady and I are still employed towards the end of this year, I suspect we'll end up buying assuming we can get something that's taken it's fair share of price declines. Especially if rates are still in the 5.x range which I suspect they will be.
At least that's my current thinking these days.
TG. Your rent/buy decision point is important, but the assumption of stable rents may be deteriorating.
http://www.latimes.com/business/la-fi-re...
I'm starting to think people will be more scared later than they are now, maybe even in Temecula.
Could take many months for Return of the Pain Train , but if rents slip, there goes the neighborhood.
I think rent has very direct correlation with income. So with unemployment rate rising, the rent will surely drop. However, unless you are predicting 20%+ unemployment rate, there is not much rooms for rents to drop especially in low-price area. Also I always ignore the current house rent price but prefer to use 3-bedrooms apartment rental price. I have never seen apartment rental goes down by much although they sometimes offer promotions to effectively lower their rents. But that's all temporary, and if you expect to live in the house yourself, you should be able to ride it out.
So I agree with ANN above, although I would change his formula a little bit. I think it is prefect safe to buy if PITI < 3-bedroom-rents for self use. But for investment, I think I would like to see mortgage < 50%* rents (assume 20% down), we are not there yet. That's my floor of real estate market price in doomsday scenario (i.e. another 25-30% drop in town like Temecula). If I still have job at that time, I would happily pick up an investment property at that time. If I don't have a job at that time, I would have wished that I had bought now when I still have verifiable W2 income to get the best mortgage rate. I will just use my remaining cash to ride out the down turn instead of being able to have a rental property to my name.
The economy will recover one day or another. I believe at least we agree on that, right?
carlsbadworker, the only problem with 3-bedrooms apartment is that they're very rare. As a personal use, I think compare to rent of similar house is better, since you have to live somewhere and you have to compare apple to apple in regards to the place you'll be living in.
San Diego, I think, is a long way from <50%*rent, if it ever get there. However, places like Fresno is already there.
One day, I guess.
What is it about "Japan had 0% rates and still lost a decade" that people don't understand ?
Someday (soon, I hope) our economy will evolve into something viable and sustainable and we'll recover :)
One day, I guess.
What is it about "Japan had 0% rates and still lost a decade" that people don't understand ?
The reason that Japan had 0% rates but it still has deflation is because the famous phenomenon known as "carry-trade". The rest of the world's economy was booming at that time. So naturally, people took money from Japan central bank and invested it elsewhere. So the printing press does not work as a tool to fight deflation over there.
I would argue the same circumstance does not exist now for US economy. Therefore, the printing press will show its full blown effect one day.
San Diego, I think, is a long way from <50%*rent, if it ever get there. However, places like Fresno is already there.
I seriously doubt we will see that kind of figure for single family homes in any reasonable middle class neighborhood in San Diego. It has not happened at any time in the past 40 years. For apartment buildings and condos in marginal areas I would expect to see these kinds of situations develop. Also might happen in the barrio for SFRs.
I think that "one day" bit is the key to life right now. Shiff thinks soon. Mish says later.
We have massive debt defaults that Japan did not and in Japan, borrowed money was invested elsewhere. Now, few are borrowing at all to invest anywhere. Same effect, no ? The Fed is practically begging people to borrow and spend and they aren't doing it.
I'm thinking it'll take 3 years or so but wouldn't be terribly surprised if it takes 5.
When do you think that might happen, CBW ?
I'll piggyback on this thread to ask a question I've been mulling for a while:
You've all seen the Shiller charts that show this real estate bubble was the biggest in recorded human history. That's right, what happened to real estate prices in just the last 10 years - in San Diego, in California, in the USA, in much of the rest of the world - was bigger than anything ever recorded.
Given that, do you think that the traditional measures of the bottom of the cycle - sales, price/income etc - will be average, or much different from the average bottom of the cycle? (As one reference point, the bottom of the last cycle in So Cal was 1996, not 2001....) If you think it's going to be different, how different?
The reason that Japan had 0% rates but it still has deflation is because the famous phenomenon known as "carry-trade". The rest of the world's economy was booming at that time. So naturally, people took money from Japan central bank and invested it elsewhere. So the printing press does not work as a tool to fight deflation over there.
Actually, Japan's low rates didn't translate to an increase in the money supply. And they didn't start quantitative easing (central banker euphemism for money printing) until 2001 -- ie a decade after the bust started. So as far as the "printing press" goes, Bernanke and crew have already done what it took Japan over a decade to do.
Rich