Debate: House prices will not reach their bottoms until

[Coronita]

Here’s something interesting…

We’re baaaaack…

Super-size me…

http://finance.yahoo.com/news/mcmansions-return-big-houses-come-180729716.html

[Coronita]

Good news though if you’re a landlord or came out of these recession unscathed or positive….Or both…

Millennials Will Have A Hard Time Entering The Housing Market

http://finance.yahoo.com/news/millennials-hoping-homeowners-rude-awakening-190100593.html

[SK in CV]

[quote=flu]
Just look at how this fiscal cliff is being handled. Everyone’s trying to be “delicate” about it… Neither side wants to fall of the cliff and actually cut spending..They’re talking about deficit reduction when they really should be talking about debt reduction….

[/quote]

No, they shouldn’t be talking about debt reduction or even talking about cutting spending. They should be talking about improving the economy and maintaining the status quo until the economy improves. We do not have a debt crisis. We don’t have a spending crisis. We have a prolonged economic downturn. We currently have an annual deficit of about $1 trillion. A moderately growing economy, all by itself, would cut that down to about $400 billion a year. If we have a growing GDP, increasing debt by $.4T per year is not a big deal, particularly at current interest rates. It’s comparable to someone making $200K a year, with 3 to 5% raises every year, increasing their mortgage payments by a couple hundred dollars a month. I’m not claiming it’s a good idea to do it. Or preferable. But it is sustainable.

There are lots of huge financial decisions that this country has to make. But dealing with a debt crisis is not currently one of them.

[Coronita]

[quote=SK in CV][quote=flu]
Just look at how this fiscal cliff is being handled. Everyone’s trying to be “delicate” about it… Neither side wants to fall of the cliff and actually cut spending..They’re talking about deficit reduction when they really should be talking about debt reduction….

[/quote]

No, they shouldn’t be talking about debt reduction or even talking about cutting spending. They should be talking about improving the economy and maintaining the status quo until the economy improves. We do not have a debt crisis. We don’t have a spending crisis. We have a prolonged economic downturn. We currently have an annual deficit of about $1 trillion. A moderately growing economy, all by itself, would cut that down to about $400 billion a year. If we have a growing GDP, increasing debt by $.4T per year is not a big deal, particularly at current interest rates. It’s comparable to someone making $200K a year, with 3 to 5% raises every year, increasing their mortgage payments by a couple hundred dollars a month. I’m not claiming it’s a good idea to do it. Or preferable. But it is sustainable.

There are lots of huge financial decisions that this country has to make. But dealing with a debt crisis is not currently one of them.[/quote]

My point is that this country has spent to the point beyond which we are now heavily in deficit spending there’s no point even in talking about reducing the debt. And the economy shouldn’t be growing. It’s overgrown…I don’t see the point in artificially proping up an economy that will sink back down once the stimuli is taken away. Can’t stimuli away to N=N+1 forever….

But i don’t mind if that’s the direction the country wants to go, and we want to enslave the millinials in a lot of debt. Sure as hell won’t be my kid.

[SK in CV]

[quote=flu]
My point is that this country has spent to the point beyond which we are now heavily in deficit spending there’s no point even in talking about reducing the debt. And the economy shouldn’t be growing. It’s overgrown…I don’t see the point in artificially proping up an economy that will sink back down once the stimuli is taken away. Can’t stimuli away to N=N+1 forever….

But i don’t mind if that’s the direction the country wants to go, and we want to enslave the millinials in a lot of debt. Sure as hell won’t be my kid.[/quote]

The economy shouldn’t be growing? I don’t get that. It doesn’t have to be propped up in perpetuity. It needs to be held up until moderate growth returns. At which time spending SHOULD be cut, taxes SHOULD be raised, and debt SHOULD be paid down.

[Coronita]

[quote=SK in CV][quote=flu]
My point is that this country has spent to the point beyond which we are now heavily in deficit spending there’s no point even in talking about reducing the debt. And the economy shouldn’t be growing. It’s overgrown…I don’t see the point in artificially proping up an economy that will sink back down once the stimuli is taken away. Can’t stimuli away to N=N+1 forever….

But i don’t mind if that’s the direction the country wants to go, and we want to enslave the millinials in a lot of debt. Sure as hell won’t be my kid.[/quote]

The economy shouldn’t be growing? I don’t get that. It doesn’t have to be propped up in perpetuity. It needs to be held up until moderate growth returns. At which time spending SHOULD be cut, taxes SHOULD be raised, and debt SHOULD be paid down.[/quote]

Imho, not the way it is “growing” right now…

Small tidbit…What is the point of expanding capacity at GM and Chrysler if the point is just to sell cars to people who can’t otherwise qualify, and must get a subprime loan in order to get into a new car. Me thinks those people should have no business getting a new car to begin with, and GM should have no business for getting back into subprime financing in order to meet it’s sales numbers…..The majority of those subprime buyers are gonna be back to square one..Unable to pay…Just like before…And then what? Another taxpayer bailout for GM/Chrysler?

This isn’t “growth”… This is a copout…..

http://www.ijreview.com/2012/07/11761-high-risk-subprime-loans-inflate-gm-sales-figures/

“High-Risk Subprime Loans Inflate GM Sales Figures”

http://www.huffingtonpost.com/2010/07/22/gm-to-buy-americredit-cor_n_655464.html

“GM To Buy AmeriCredit Corp. For $3.5 Billion To Expand Subprime Lending ”

http://dailycaller.com/2012/08/01/under-fire-gm-may-put-customers-under-water/

“Under fire, GM may put customers under water”

“GM Financial reportedly provides just more than 8 percent of GM’s financing, but government-owned Ally Financial Inc., formerly GMAC Inc., provides many of the remaining loans.

Taxpayers are still owed $44.5 billion from bailouts to GM and GMAC, according to a special inspector general’s report released July 25.”

http://www.autoblog.com/2012/06/05/chrysler-sales-growth-fueled-by-subprime-loans/

Automotive News reports Chrysler owes some of its recent sales success to a resurgence of subprime loans. Chrysler has a history of working with customers burdened with questionable finance histories, and lenders have begun to loosen credit restrictions. As a result, 29 out of every 100 auto loans for new Chrysler models went to buyers with a credit score under 680 in the first quarter of this year. Experian Automotive classifies loans tied to that credit score as subprime. What’s more, nearly 21 percent of Dodge sales through May went to buyers with annual interest rates of 10 percent or more on an average term of 71 months.

Do we really think that without these subprime loans (that are inevitably going to either fall flat on ones face or be be proped up by more governement bailouts), that GM/Chrsyler can really grow “organically”?

Welcome to the new American Economy….Same as the old American Economy.

[no_such_reality]

flu, that looks like a really long way of saying, Government spending is replacing real growth with house of cards growth.

Or it’s just fancy clothes and dates on a credit card.

[Jazzman]

[quote=anxvariety]House prices will not reach their bottom until interest rates rise.

General statement, interested in different perspectives.[/quote]
The major complaint from buyers is lack of inventory. How much either low inventory or low interest rates are responsible for the current lift in home prices is anyone’s guess, but that they have is pretty much a given. So if either change I think it’s conceivable appreciation could at least halt in its tracks. I don’t think the recovery is robust enough to build the momentum needed to be without props, and I guess we’ll see what the long term effects of low rate dependency will be.

What’s more important in this current market is whether you are unhappy with the lack of choice …and possibly also whether you personally feel home prices should have corrected more than they did? That is a major psychological barrier to entry for some of us, and is the reason I left CA. Home prices still seemed unrealistically high to me in many places, and I would certainly resist being goaded into acting now if you have any reservations. Sometimes instincts are a better guide than a calculator.

An interesting aside, I read in the WSJ at the weekend the Spanish government demanded that lenders release foreclosures onto the market to allow a correction in prices. I can’t see that happening in the US 🙂

[Coronita]

[quote=no_such_reality]flu, that looks like a really long way of saying, Government spending is replacing real growth with house of cards growth.

Or it’s just fancy clothes and dates on a credit card.[/quote]

I’m an enginerd, not a writer. But yes, that’s what I was trying to say. But that’s the entire problem.

Cars, specifically new cars, is a discretionary item. So to prop this up, government buys more GM/Chrysler cars and we start selling to people here in the U.S. who can’t normally afford/qualify to buy? How is this any different that what has happened before? Maybe I’m just crazy to think this strategy of “growth” is completely insane.

Anyway, didn’t mean to take this thread in a detour….

But the other issue right now is inventory is just bad.

[Coronita]

[quote=Jazzman]
An interesting aside, I read in the WSJ at the weekend the Spanish government demanded that lenders release foreclosures onto the market to allow a correction in prices. I can’t see that happening in the US :)[/quote]

What will happen in FC will be sold in blocks to big investment groups with money, who can then sell the homes on the retail market to normal people at close to market prices….

Investment/corporations 1:, Individuals: 0

[(former)FormerSanDiegan]

[quote=anxvariety]

I am not in/on a lease, the question isn’t particular to Coastal CA – opinion is that both are mostly irrelevant. How can one argue that change in interest rates will not affect prices?[/quote]

If you look at the past 40+ years of data …increases in interest rates do not correlate with decreases in property values.

[SK in CV]

[quote=FormerSanDiegan][quote=anxvariety]

I am not in/on a lease, the question isn’t particular to Coastal CA – opinion is that both are mostly irrelevant. How can one argue that change in interest rates will not affect prices?[/quote]

If you look at the past 40+ years of data …increases in interest rates do not correlate with decreases in property values.[/quote]

Gotta be careful with the difference between correlation and causation. You’re right that higher interest rates haven’t correlated with lower property values. (As a practical matter, we haven’t seen interest rates do anything but go down for the last 30 years, save for some minor fluctuations.) Particularly in the last 30 years the Fed has been manipulating interest rates to counter inflation. So higher interest rates were used to stop prices from going up, or at least to stop them from going up as fast. So when price acceleration slows, interest rates drop.

Interest rates DO affect prices. The stronger correlation than interest rates v prices, is that between changes in interest rates and the rate of change in prices.

[Jazzman]

All things being equal, you’d expect price to rise with low rates (and that seems to be happening now), but prices are affected by supply among other things, and I’d guess the supply (expansion) of credit as well. With so many distorting factors, it doesn’t follow that declining interest rates over the last forty years, hasn’t had some affect on prices, or that somehow the reverse is made true, and therefore we should all buy now. With no savings, no equity, still over-priced homes, and a dependence on low cost mortgage debt is it any wonder we’re still scratching our heads over conventional wisdom?

The other baffling notion is that price is no longer relevant, since the net income (aka affordability) is what counts. So why the fixation with price at all, since it no longer sits to the right of the ‘equal’ sign? After all, your job’s salary isn’t advertised as a lump sum. On the other hand, if memory serves me correctly a home is a manufactured product, has a shelf life, and the parts that go into its making depreciate. I think it is a mistake to ignore this. If this is all about wealth building, you’d be better off investing in a good education in the long term, than an inflatable home.

[sdduuuude]

Rates won’t rise until prices come off and continue to distance themselves from the bottom for an extended period of time.

[bearishgurl]

[quote=Jazzman]All things being equal, you’d expect price to rise with low rates (and that seems to be happening now), but prices are affected by supply among other things, and I’d guess the supply (expansion) of credit as well. With so many distorting factors, it doesn’t follow that declining interest rates over the last forty years, hasn’t had some affect on prices, or that somehow the reverse is made true, and therefore we should all buy now. With no savings, no equity, still over-priced homes, and a dependence on low cost mortgage debt is it any wonder we’re still scratching our heads over conventional wisdom?

The other baffling notion is that price is no longer relevant, since the net income (aka affordability) is what counts. So why the fixation with price at all, since it no longer sits to the right of the ‘equal’ sign? After all, your job’s salary isn’t advertised as a lump sum. On the other hand, if memory serves me correctly a home is a manufactured product, has a shelf life, and the parts that go into its making depreciate. I think it is a mistake to ignore this. If this is all about wealth building, you’d be better off investing in a good education in the long term, than an inflatable home.[/quote]

I disagree with some of these assertions:

Price is ALWAYS relevant. And prices are better now in SD County than they have been in eight years (ten years in some areas).

Your job’s salary IS advertised as a “lump sum” in the form of gross annual pay.

PART of the value of a home (if not a condo/PUD) is manufactured. The other part of the value lies in the value of the RE is sits on. In CA coastal communities, this “land value” can constitute 90%+ of the value of the “home” which sits on it. Without the “fog-a-mirror-get-a-mtg millenium boom” we now have in our rear view mirror, homes WOULD HAVE appreciated slower and steadier EVERYWHERE in the country. Instead, in most areas, they went up in “value” drastically and then summarily crashed when the “loose lending” party was over.

If one has to “invest” in a “good education” in the form of taking out a typical 6-8% (nondischargeable) student loan, then they are destroying their future “wealth building” activities and also, if young, destroying their ability to support a family while still young enough to have one. If they invest in RE and can’t make the payments anymore, they can give their lender a deed in lieu or allow their home to go into foreclosure. After three to seven years, they may be able to qualify for another residential mortgage.

The only way to “recover” from an unpaid student loan is to pay it off (incl ALL deferred interest) or die. And dying is only successful in this regard if the borrower had a gov’t-backed student loan. Those with “private” student loans (the majority of SL borrowers) will have claims upon their estate entered by their SL lenders and Sallie Mae.

I understand you were frustrated because you couldn’t find what you wanted for <=$1M in coastal CA, Jazzman, so decided to "retire" elsewhere. But because YOU thought the RE you looked at (and made offers on?) was overpriced (and likely sold to someone else) doesn't make it so. RE is worth only what a buyer will pay for it. Not EVERYONE who is a RE buyer today has "no equity" and "no savings." That's why you were in such "good company" out in your coastal CA trenches-of-choice as an "all-cash buyer." If the $800-$1M listings in coastal CA were listed in a climate of 7.5% + fixed MIR's, you, as an all-cash shopper, would be running up against the same problem (except you and your "competitors" would likely have MORE cash to shop with, due to higher interest rates paid to savers). In a higher interest-rate RE shopping climate, a buyer who needs a mtg is simply bumped down to shopping the next lower "tier" of properties (size and/or area). It doesn't mean they won't buy. It means they will buy what they can afford. If they don't like what's on offer in their price range, they will rent in SD County or move to a lower-cost county or state and attempt to buy a home there. The homes in the choice areas you were shopping in were never meant to be a "mass-consumer product." They are purchased by buyers who fully appreciate their uniqueness and exactly where they are located. If you don’t appreciate these factors enough to pay the price to own them, then they are not for you.

That’s the way it’s always been and it will never change.

[Author]

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