San Diego Housing Bubble News and Analysis

Do you think the NAR is getting the public ready to accept the housing bust? They have to gradually prepare us. This survey could be the way they did it. After all, the questions were posed by NAR, and their purpose was to show the serious situation of housing.

Does NAR want to pressure the Fed to lower interest rates? David Lereah talks about the problems of rising interest rates.

This report has government bailout written all over it. When I first saw the title of the post I was expecting to read some wacky survey by the NAR that showed how people thought home prices were reasonable, or something crazy like that. However, seeing the information that they came up with and how some of the data is summarized, it smells like they are trying really hard to work a political angle here (e.g., home prices being a voting issue, people wanting more affordable housing, etc.).

It's hilarious that they mention nothing of the fact that the grossly over-priced homes are due partly to the actions of realtors themselves, one of the main groups who directly benefit from exhorbitent home prices! Now they are taking an indirect (and most likely orchestrated) approach to drumming up government support for affordable homes. I particularly like how their survey showed that high home prices has led to a decrease in productivity! Classic!

Now I see. They are preparing to ask for government grants for affordable housing, as a way to boost sales.

Or bailouts for mortgage owners in over their heads. Last thing NAR wants is a wave of foreclosures.

~LAMoneyGuy

Geez, they really can't win, can they? We complain about it when they spin the data and we look for ulterior motives when they don't.

I don't trust the PR machine either, but that doesn't have to mean that everything they put out is tainted. Could you consider the possibility that maybe they played this one straight down the middle and aren't trying to spin anything?

It could happen. Maybe they're trying to give their members the straight scoop so they can plan accordingly.

Maybe Bugs, but it would be a sudden reversal. Sudden. Why?

Bugs, it's nice to see that you give the benefit of the doubt when posting. Maybe you just have a longer fuse than the rest of us. But you must consider the organization producing the study, the people on this post reading it, and the overall context of the housing situation. When you read 99 articles and they all lean one way, and then suddenly you get 1 that leans (or appears to) the other way, how do you expect us to react? Try replacing the word "houses" with something like guns (or another item such as gas), and replace the NAR with the NRA (National Rifle Association). How would you perceive the study, then, when the NRA says that the high price of guns is a voting issue? The point here is that the very group that probably benefits the most from high home prices has come out with a study that APPEARS to be self-defeating. Wouldn't you be at least a little skeptical?

Sometimes a politician leaves the microphone on. Sometimes eyewitnesses come up with different descriptions of the suspect. Sometimes one hand doesn't know what the other hand is doing. Even an idiot is sometimes right and even a liar sometimes tells the truth. In the real world these things just happen.

Of course I'm skeptical, but I'm trying to look at the information itself to see if it jibes with what I've already seen and I try to question it's source separately. I'm accustomed to seeing conflicting and contradictory indicators out there and the only rational way for me to reconcile those strays is to realize it's not all going to come out in shades of either black or white.

This could indeed be a conspiracy by NAR to open a new marketing angle from which to profit. I may be very suspicous of their motives. However, I've learned that hard way that the more I publicly dally with accusations I can't back up, the more likely it is that I'm going to occasionally be proven wrong on those accustations in an equally public manner. Much easier to stick to the information first and deal with it's sources as a secondary point of interest.

In my opinion.

Open mics are an accident, preparing questions for a phone survey are not.

This survey was metiuclously planned and executed, and then the results were marketed and published.

So the question is: why did the NAR reverse course on it previous message that housing is hot, there'll be a soft landing, and this is a good time to buy? I remember last month Lereah first mentioned that rising interest rates could hurt housing, sort of hinting that the Fed should stop raising rates to save housing and the economy.

The Senators questioning Bernanke brought this up. Sarbanes had been lobbied by the NAHB, and showed a chart that showed new home starts falling off a cliff. He said that the NAHB explained to him that the drop in housing sales is causing rents to go up, raising the CPI, causing the Fed to raise rates to reduce CPI, lowering housing sales and creating a vicious cycle. From this comment I realized that the industries are definitely lobbying these senators.

Bernanke's response was the CPI is only one indicator they use, and that the PCE is more accurate since it excludes rents. He emphasized repeatedly that they look at many factors, not just the CPI. They consider the markets, anecdotes, statistical modeling, prediction of future events, surveys of consumer perception of inflation, and many data inputs of wages, productivity, purchasing prices... So he's really not a dufus who just looks at CPI, he's too smart for that.

It's a plea to stop the fed raising rates.

All of it's geared towards saying "Voters will lose their homes unless rates stop rising"

They are trying to get political pressure applied to the Fed to stop the rate hikes.

Yes, I think you are right. Thanks.

Chris Johnston

The government is not going to bail out housing, or any other asset class bust. They cannot micromanage every little thing, and they won't. I just urge everyone not to get too carried away with extreme predictions. Remember we have never had anywhere near the types of % drops you are talking about. You are predicting something that has never occurred previously. That is a "it's different this time argument.

We do have a tough time ahead, but it will not be a world ending depression and housing is not going to drop 50%. Be prepared if we do get a 30% drop to be ready to go in and buy, that would be a gift if we get it.

I have stated this many times before, but I will again. If we get a 50% drop, it will be the worst depression in history. Many of the people in this forum will not have their jobs in that scenario, so would not be able to buy a home anyway.

I know it is easy to get carried away with extreme predictions. I fight that constantly as a trader. What that does to you mentally is make you hesitant to pull the trigger on something once it moves alot, because you think it is going much further. If we do get a 30% drop, trust me, it will be very hard to buy a home because the economy and general mood will be so bad, it will be a scary time.

Keep a level head, monitor what is happening, and follow your gameplan. If you do not have one, get one and stick to it come hell or high water.

Just a side note, the 30 yr Bond has staged a very nice rally off the lows, and is on the verge of breaking it's downtrend. If it does break out, we have a solid backdrop for a declining long rate environment, and fall stock rally. We still need to go aways, but there has been some big time buying here in the last 2 weeks. If it goes a bit further and sticks, we have reversed the uptrend in long rates.

I will be watching this closely and keep everyone informed on the latest.

Chris, every asset bubble in history has reverted to its mean. Can you find any exceptions? For your statement that we will have a 30% drop, would mean it is different this time. NASDAQ is still below the 2000 peak.

And the Fed won't care about a million or 2 mil homeowners losing their homes, because they look at national numbers. They let the stock market lose $7 trillion. Millions of people lost their retirement savings. This time, millions of people will lose their retirement equity.

The only reason to save housing would be because housing drives the economy. But with rising oil and commodities prices, inflation will stay high and they cannot lower rates. Remember that 7% is our usual interest rate, so we should not expect the once-in-a-lifetime 1%-5% rates to come back. The low rates were an anomaly. I don't think our economy could handle another big bubble like this, because our trade deficit would really get big, and would foreginers keep buying our dollars if that happened?

I predict a 50% drop, to get back at a wage/median price ratio of 7. I don't see wages going up by more than 3% annually, so it's housing that will take the loss. With lending standards tightening after this mess, who can afford 10% of $400K? How many Americans have $40K laying around? Prices will have to drop a lot so people can afford to buy houses with 30 year fixed rate mortgages. Without exotic lending, you cannot have prices more than 3.5x wages; you qualify for a mortgage 3.5x your annual salary under the old lending guidelines.

We will return to the 7 multiple, and it won't be achieved by wages getting higher. So Chris I ask you, what makes it different this time?

But with rising oil and commodities prices, inflation will stay high and they cannot lower rates. Remember that 7% is our usual interest rate, so we should not expect the once-in-a-lifetime 1%-5% rates to come back. The low rates were an anomaly.

Your certainty continually amazes me. What you state is plausible, not certain. I would go as far as to say that it's not even probable.

I'm not certain of how things will play out on a macro level but you ought to consider these questions.

Is it inflationary if noone is borrowing regardless of commodity prices?

Will growth in demand for oil and commodities continue in the face of the severe recession you predict? Please explain how you get to $200 oil in a recession.

Is it possible that the higher interest rates of the 70's through the 90's are the anomaly?

I don't know the answers and neither do you.

PS
You really have to cool the rhetoric. Even if know 50-80% drop were going to happen, NO ONE would believe you! So stop the wild exaggerations because they will just turn off most people because it is too extreme.

The NAR Survey is a not too subtle threat to Fed that Congress will be bullied to lean on Fed to CUT rates, thats right cut rates, not just leave them alone. As PS as stated the PCE is lower than CPI because it has a lower weight on housing. Most of the economists on WSJ panel excuse the CPI figures by flippantly exclaiming that rents are causing most of the increase and that rents don't matter since housing prices are coming down!! Look for these SLIMEBALLS to lobby replacing the rent with NAR home prices in the CPI. That way, CPI will be go down and we can get a rate cut. Feds will be happy since it means less money on COLA for SS,etc., NAR will be happy that housing stops dropping hard and ANALysts will be happy that stocks will stop their nosedive. As a homeowner and stockholder, I would be HAPPY to see ZERO percent rate like in Japan!! Then we could see Dow 32K,etc. [we can dream]

I am glad that you, as a homeowner and stockholder, would love to see our economic system artificially buoyed so that you can continue to enjoy hefty profits. Who do you think will have to pay for our excess consumption? If you want to dance, you have to pay the band...eventually.

To tell PS to cool the rhetoric just shows how much you have become de-sensitized to the outlandish increases in home prices over the past decade. To recap, a 50% reduction in current prices would bring us back in line with the historical mean. I repeat, historical mean...not a rock-bottom, price-you-only-get-in-a-depression price. Are you telling realtors to cool their rhetoric when they say that a home is worth 300% more than it was just a few years ago! No, because you, along with the realtors and others, have a financial interest in home prices being so high. But you know what, middle class people like me aren't buying it anymore...literally.

Compare a 300% markup to a 50% drop and then tell me who needs to cool their rhetoric.

A 300% mark up is rhetoric. My house in a very desireable area, neighborhood, location and lot is about 8 years old. After throwing in what it took to put the landscaping, pool, paint, window treatments etc it was never up much more than double. I'd say that was pretty much the way its been across the board around here. Last time I checked, that was a 100% markup not even close to 300%.

BTW, if my house fell 50% it would be back where I got it in 1998 when things (construction costs, restaurants, movie tickets, gas, health insurance, daycare etc.) were a helluva lot less expensive around here. I just have a real hard time seeing that. If it happens, it would be fine by me as it would allow more nice young families to move into the type of neighborhoods they should be living in.

rankandfile
You havent read enough of my posts to get my sarcasm [zero rate,etc]. You are correct that there is no reason for a house to double in last 4 years with wages up only a few % a year, actually below inflation. Its all because of the ARMs. Dont get me started on health insurance going up 10-15% annually for 5 F'in years.

No inflation here, as we watch Mr T wring the necks of NAR and Congress and Fed for LYING. [damn russians must be hacking my computer again]

SD wages are ridiculously low, about the same as most other cities that have a much lower cost of living. The UT has had articles in the last few years about bus drivers and other lower income people moving to vegas. Why are lower income people still living here and renting at ridiculously high prices? Everyone wants to live here?!? OK, no one wants to get kicked out of towm, esp if they grow up here, even if it would be better for their family. If we didnt purchase our first condo (later to a house) in 99, I know I would have been extremely sad (understatement of the year) and would have seriously thought about leaving myself. If one had the misfortune of graduating from college in last 5 years even with a good job one is totally hosed and cant afford jack. All because one is 5-7 years too young!! It would take 20 years of wages to save up the 250K the median went up in last 5+ years.

There, I think that neatly summarizes your frustration. Shouting is not going to help you get your point across. Your posts are generally great. But us bubbleheads have been so wrong for 4 years, that we have to stick to actual facts instead of rhetoric. That's why I keep asking PS to tone it down. She takes good data and then extraplates it to the point that she is like the NAR in reverse.

Prove to me that it *won't* go down 55%.

Read the Bubble Primer, and see what we need to get back to a median of wages/prices ratio of 7. We are at over 14 today.

Why would wages suddenly rise? No, I doubt it. Competition from China and illegals have kept downward pressure on wages and those forces are not going away soon. Healthcare costs keep rising so any extra pay that employers can offer, is passed on to the benefits portion of compensation, not to the wages.

That leaves prices. Prices will come down to revert to a ratio of 7.

I have to agree with sdrealtor on this. 300% is rhetoric. Maybe this happened an Santa Monica, but not here. I also bought in mid 1998 in n. county, and at the tip top peak (which I think was spring 2005), it was maybe a 140% gain, not accounting for improvements. Now, its less. Overstating things either way cheapens the debate.

zillow shows San Diego homes are up 275% (Poway homes only 200%, Chula Vista 275%, National City 340%, Solana Beach 400%, Del Mar 240%) in the last 10 years. We might disagree on their accuracy, but unless you think they are always biased in the same direction, that is a good guide.

The homes I looked at in spring 2000 were in the mid 300's, and had been in the high 200's the year before. By 2004, they were in the high 700s to low 800s. That is a tripling, is it not?

I am sure some houses did not gain as much as others, but I don't really know enough about real estate to explain why one person's home went up 140%, while the other went up 300%.

The homes I looked at in spring 2000 were in the mid 300's, and had been in the high 200's the year before. By 2004, they were in the high 700s to low 800s. That is a tripling, is it not?

PS, your math is off. Let's assume $280k for your high 200's and $820k for your low 800's.

820-280=540

540/280=193%

A tripling in price is a 200% gain.

You need a quadrupling for a 300% gain.

280 x 3 = 840. Tripling.

The new number is 840, an increase of 300%.

The difference, or the equity gained, is 560 or 200%.

zillow uses the former, since they show the market value of the home over time. In this case, a home that moved from 400K to $1.16m went up not 190%, but rather 269%.

Thanks for checking my math. Sometimes I make mistakes.

The new number is 840, an increase of 300%.

No!

Increase = New Price - Old Price

Percent Increase = Increase/Old Price

Increase is the same as equity gained.

So a tripling in value is an increase of 200%

I used the wrong word, Jim, but just go back and look at my math. I did it correctly.

The new number is 300% of the old number, but the difference is 200%.

What I wanted to show you is that today's prices are 3x the price of 1999, or 300% of that number. Sorry if the words were inaccurate.