Housing analysis – Bubble 2.0

[kev374]

What do you think about this analysis? She makes some pretty convincing arguments..

What is not discussed is how the Fed is going to handle it if their balance sheet stops performing. Also what is going to happen to the $19 Trillion existing debt? And with Trump’s plans to supposedly add $10 Trillion more?

[Anonymous]

What’s up with the video quality?

I stopped about 30 seconds in after she held up a piece of paper with a graph, made no mention of any numbers, and then concluded “real estate is clearly back in bubble territory.”

[Coronita]

[quote=harvey]What’s up with the video quality?

I stopped about 30 seconds in after she held up a piece of paper with a graph, made no mention of any numbers, and then concluded “real estate is clearly back in bubble territory.”[/quote]

people want to believe what they want to believe, especially if they are sitting on the sideline in the opposite direction of the trend…imho…

[SK in CV]

[quote=kev374]

What is not discussed is how the Fed is going to handle it if their balance sheet stops performing. Also what is going to happen to the $19 Trillion existing debt? And with Trump’s plans to supposedly add $10 Trillion more?[/quote]

Is this supposed to mean something? What exactly does it mean for the Fed “balance sheet [to] stop performing”?

This is “an important question” to someone who has no idea what assets are on the Fed balance sheet.

[Anonymous]

Didn’t you know?

The Fed’s balance sheet is in the finals on The Voice.

But what if it stops performing?

[SK in CV]

[quote=harvey]Didn’t you know?

The Fed’s balance sheet is in the finals on The Voice.

But what if it stops performing?[/quote]

Gwen Stefani will use her final save?

[Escoguy]

I would love to see a very comprehensive “bear case” for housing based on data.

Specifically for SoCal and San Diego.

Imagine there is a recession, what would be the key factors which would impact housing:

1. how high would unemployment go?
2. would there be another lending/banking crisis?
3. what would vacancy rates be?
4. how much would prices decline?
5. how much would incomes drop?
6. how many businesses would close up/ never to return?
7. what would trigger a recession

In my personal view, many recessions were directly related to energy prices in the 1970s/early 1980s. Even the 1990-01 recession was partly related to Gulf War 1.

In my opinion, the 2002 recession was a combination of 9/11 and the tech bubble bursting. If it had only been one of those two, then perhaps it would have been more regional. Much like Texas in 1986-87 oil industry or Michigan in 1981-82 (auto industry).

I lived through both of those and while it seemed dramatic at the time, within a few years Texas had recovered. Michigan took longer but that was partly due to the complex and unproductive relationships between automakers and unions at the time. I think it is different now.

I can see the tech “bubble” deflating some, but the profits of the Googles today are much more stable than back in 2000 with the dot com bust.

With fracking and OPEC capacity, I don’t see energy being a problem in the next 3 years, beyond that perhaps prices will rise but EVs may then play a greater role.

Perhaps if Putin/ISIS/Assad/Iran/Hezbollah all decide to live together in peace than we may see another “peace dividend” for those who remember that phase from the 90s, that would impact defense spending and thus San Diego. But again doesn’t seem likely in the next few years, in fact, after the DT was in Saudi, it made me think about getting back into that business.

Alas, a slightly weaker dollar is helping the manufacturing company I work for with our international exports, nice to see foreign customers paying a touch faster when the currency works in their favor. A strengthening dollar would be a headwind but likely not enough to cause a recession. Yes, SoCal still has manufacturing believe it or not.

If the DT admin gets it’s way, perhaps some of the govt biotech spending will go down, but there seems to be pretty strong resistance to that, so give this a low probability for now.

In my sober assessment, I still think there is too much demand pent up to see excess supply being a problem. More likely, blue color labor wages won’t rise fast enough to keep housing affordable (not saying anything new here).

So for now, I see the cycle just kind of sputtering out as people get bored and realize there is more to life than how much the house appreciated last month/this year. It will be a healthy thing if we all kind of move on and let real estate be boring for a while. Just black and white numbers on a spreadsheet with reasonable down payments.

For my friends who think of buying, my concluding is basically, be sure when you buy that you will actually make/save money in a non-speculative way. I.e. assume perhaps 2-3% appreciation. If things go down, be prepared to ride it out.

The ones who lost the most in the last downturn were those with funny mortgages and those who took money out.

Thanks for indulging me.

[Rich Toscano]

I feel like people aren’t making enough fun of the video.

[Anonymous]

I just couldn’t watch it all.

But I did find that it’s sorta entertaining to move the slider to a random point in the video and grab a nonsensical quote:

“Liquidity is what’s greasing ALL of the wheels and making EVERYTHING go up.”

[(former)FormerSanDiegan]

I like her style.

Rich, you have some competition. Her hand-held charts just feel more homey, kinda like a 2nd grade teacher reading a book and then showing us the pictures. So much easier to consume than reading Piggington’s complicated explanations and crisp, clear charts with legible axes and legends and citing of sources. Those are just way to exact and precise to be digested.

[kev374]

[quote=flu]
people want to believe what they want to believe, especially if they are sitting on the sideline in the opposite direction of the trend…imho…[/quote]

funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.

Her style may be unusual and there may be some conjecture but I do agree with the overall sentiment that things are getting very frothy in many markets. Then there are many upcoming wildcards – rising interest rates, a possible recession and incomes that are falling in real terms.

[Coronita]

[quote=kev374][quote=flu]
people want to believe what they want to believe, especially if they are sitting on the sideline in the opposite direction of the trend…imho…[/quote]

funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.

Her style may be unusual and there may be some conjecture but I do agree with the overall sentiment that things are getting very frothy in many markets. Then there are many upcoming wildcards – rising interest rates, a possible recession and incomes that are falling in real terms.[/quote]

I’m still waiting for all those people who recently took out a stated income ARM jumbo loans start defaulting on their $1+million mortgages….Oh wait, they don’t really exist in mass quantities do they, because for practical purposes, lending standards are still pretty tight such that you can’t easily take a stated income $1+million loan when your salary is $100k or less, unlike what happened before….

The nice thing about the equity markets and the economy of the past few years is that generally it has been good, and those windfalls allowed people to eat away at debt…That’s one of the reason why I don’t carry any mortgages on anything anymore except 1…..Again, minimizing risk for a rainy day by taking unexpected windfalls to reduce outstanding debt, “just in case”. And for those folks that are locked in a historical low 3%ish 30 year fixed or <3% 15 year fixed, it would probably cost them more to move and rent than to stay. Deal of a lifetime for those folks.

Those primary homes make excellent rental properties and assets to pass on to heirs with extremely favorable tax benefits....Especially with CA property tax rules and with federal rules regarding "step-up" cost basis upon death...
essentially wiping out depreciation recapture and resetting capital gains cost basis of those properties for your kids, i believe....

No worries. Even if home prices were to correct 20%, it probably still wouldn't be a good time to buy, since home prices could probably still fall an additional 40+%, just like last time... 🙂
.

[Anonymous]

[quote=kev374]funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.[/quote]

It’s like that guy who has accurately predicted 14 of the past 3 recessions – and the naysayers still dismiss him!

[Coronita]

Here’s food for thought. If loan standards are still strict, what is allowing people to purchase expensive RE here in SoCal….

Or are we now assuming lending standards aren’t so strict….

[kev374]

just because lending standards are tight does not mean speculators do not exist. The speculators this time around have been private equity and foreign investors, this is a widely known fact. It’s a repeat of the past but just the actors are different.

It’s not a matter of IF but when the next recession occurs and rents start softening. Oh yes, all the experts here proclaim that rents never fall – that is utter BS. I know during the last crash my rent fell by 30% in south OC, rents were crashing as well. What happens to all the rental investments, the rental backed securities held by private equity? Will they start bailing?

I am not saying that I know what is going to happen, but completely dismissing the possibility that prices are over inflated is completely short sighted.

[Author]

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