Lower Home Prices Can Fix What Government Can’t: Caroline Baum

[aldante]

SD Realtor,
I think you have a very keen mind and are honest.
When I talk to clients about bonds many of them do not see the down-side to bonds. That is becasue I tell them that we have witnessed a 30 year bull run in bonds. I think that your view is indeed based on your experience but that you have been selling real estate in Southern California during the best time ever to sell real estate in Southern California. I do see that you see a crash coming – can you tell when will come? Becasue if I buy a home here it is not just a one or two year decsion it is 30 year decision. When will the 20k homes in shadow inventory come on to the market in SD county? When will the 2million homes in the shawdow inventory in the country come on the market? What is going to happen to real estate in southern california when the interest rate curve doubles?
These are the considerations that many “true” buyers of real estate need to think about. As for the “flipper market” I think of them the same way I do the guy on the offramp looking for a handout – if our government did not give these people a handout they would be driving 1979 Corrola’s…not a 2009 Jag. I saw and spoke to many of the realtors in the day about how I was a real whimp for not stepping up and buying a 850k house (now around 500k) to trust many people who are bullish on the housing market anywhere.
As for trying to time when this thing breaks down, it is the most common error in bubbles for people to think “I will get out before everyone else does”. No thanks.
No one is addressing the shadow inventory, no one is talking about the fraud perpetraded on SD county by people in your profession who have never been looked at. No one is addressing that all subsities eventually stop. No one is addressing the morality of living in a “free” county yet having to pay for someone else’s mortgage. My view is that the collusion amongst realtors is so rampant -that when the truth gets out real esate here will falter again. All IMHO.

[CA renter]

[quote=briansd1]

I believe another thing contributing to the demand in real estate, in San Diego, is that returns on savings is low. So some people (especially professional immigrants from China and India who like to buy in the new developments with good school districts) who are savers see real estate as a tangible asset, a home for their family a store of value.

Once the return on savings increase (say 5% or above on CDs), the demand for real estate will drop as people will turn to store their nest eggs elsewhere.[/quote]

Bingo, Brian.

Most people are thinking of low rates ramping up spending/buying power because it makes a higher price more “affordable.”

What many people are not considering is the effects of lower rates on cash holders. If you can make 3% (net) on a rental after paying all cash, OR you can make .03% in liquid savings, guess which one the “investor” will choose when the Fed keeps rates this low for such extended periods of time?

[CA renter]

[quote=briansd1]

I believe another thing contributing to the demand in real estate, in San Diego, is that returns on savings is low. So some people (especially professional immigrants from China and India who like to buy in the new developments with good school districts) who are savers see real estate as a tangible asset, a home for their family a store of value.

Once the return on savings increase (say 5% or above on CDs), the demand for real estate will drop as people will turn to store their nest eggs elsewhere.[/quote]

Bingo, Brian.

Most people are thinking of low rates ramping up spending/buying power because it makes a higher price more “affordable.”

What many people are not considering is the effects of lower rates on cash holders. If you can make 3% (net) on a rental after paying all cash, OR you can make .03% in liquid savings, guess which one the “investor” will choose when the Fed keeps rates this low for such extended periods of time?

[CA renter]

[quote=briansd1]

I believe another thing contributing to the demand in real estate, in San Diego, is that returns on savings is low. So some people (especially professional immigrants from China and India who like to buy in the new developments with good school districts) who are savers see real estate as a tangible asset, a home for their family a store of value.

Once the return on savings increase (say 5% or above on CDs), the demand for real estate will drop as people will turn to store their nest eggs elsewhere.[/quote]

Bingo, Brian.

Most people are thinking of low rates ramping up spending/buying power because it makes a higher price more “affordable.”

What many people are not considering is the effects of lower rates on cash holders. If you can make 3% (net) on a rental after paying all cash, OR you can make .03% in liquid savings, guess which one the “investor” will choose when the Fed keeps rates this low for such extended periods of time?

[CA renter]

[quote=briansd1]

I believe another thing contributing to the demand in real estate, in San Diego, is that returns on savings is low. So some people (especially professional immigrants from China and India who like to buy in the new developments with good school districts) who are savers see real estate as a tangible asset, a home for their family a store of value.

Once the return on savings increase (say 5% or above on CDs), the demand for real estate will drop as people will turn to store their nest eggs elsewhere.[/quote]

Bingo, Brian.

Most people are thinking of low rates ramping up spending/buying power because it makes a higher price more “affordable.”

What many people are not considering is the effects of lower rates on cash holders. If you can make 3% (net) on a rental after paying all cash, OR you can make .03% in liquid savings, guess which one the “investor” will choose when the Fed keeps rates this low for such extended periods of time?

[CA renter]

[quote=briansd1]

I believe another thing contributing to the demand in real estate, in San Diego, is that returns on savings is low. So some people (especially professional immigrants from China and India who like to buy in the new developments with good school districts) who are savers see real estate as a tangible asset, a home for their family a store of value.

Once the return on savings increase (say 5% or above on CDs), the demand for real estate will drop as people will turn to store their nest eggs elsewhere.[/quote]

Bingo, Brian.

Most people are thinking of low rates ramping up spending/buying power because it makes a higher price more “affordable.”

What many people are not considering is the effects of lower rates on cash holders. If you can make 3% (net) on a rental after paying all cash, OR you can make .03% in liquid savings, guess which one the “investor” will choose when the Fed keeps rates this low for such extended periods of time?

[SD Realtor]

Aldante I am not an expert on bonds but I do believe that the bond market will drive the real estate market. I don’t have a magic number for you though. I think that as long as the long term rates for mortgages keep below 6% things are fine but once you creep beyond 7 and then 8% things will start to get hairy. Getting into double digits will be very tough on people. The problem is that I find it very hard to draw on history as a template for the future. We tried to do that for the 1990s slump and that failed MISERABLY. I do recall renting a room from my cousin back in 1983 and she had a 12% mortgage. Can you imagine that here? 12% on a 500k loan. Holy smokes. No way can that be maintained. This is the scenario you posed by a doubling of the rate curve. Now that would indeed be catastrophic for homes.

What has confounded me now for almost 6 years has indeed been the persistence of long term rates. So I have given up on trying to predict them. All I can say is when they do fall apart THAT is when we will have a dislocation in housing prices. Look back at all the posts for the past many years on this site. How many posts about tsunamis due to foreclosures, how many posts about unemployment killing the housing market? Well how has that turned out? The market is by no means healthy at all but the govt is BOUND AND DETERMINED to float the boat and will continue to do so. Will it work? I don’t know. Will they continue trying?

What do you think?

Nobody needs to tell me about shadow inventory here. I go to the auctions. I can tell you how many homes get postponed to oblivion because I am looking at them every single day. I talk to people each day who have not made a payment in months and even longer and are not even in default.

The question is not whether you should or should not buy now. I have no idea if you should or should not, that is only something you can answer. I don’t share the same feelings that the world will collapse around us that some do, however I do feel that an 80’s like interest rate environment will be necessary to restore a sound economy.

As far as collusion among realtors yeah but only the smarter ones. Just look at the foreclosure stats and a hell of alot of realtors are idiots and drank/still drink the kool-aid. Plenty of them lost their homes. What I am trying to say is that some of them are to stupid to even realize how bad things will be in the future.

As far as flipping goes we are doing it because myself and the other investors, (piggs by the way) got sick of our money sitting in 1% CDs and last year decided to do something about it. If you want to think of us in the same way you think of someone looking for a handout on the freeway ramp that is okay with me. I look at us as taking advantage of an opportunity. If the govt/wall st is going to starve inventory then I am going to be on the side of the govt. We will do this only as long as the opportunity presents itself and then we will be out. The people that are good at flipping are successful today and were successful 5, 10 and 15 years ago. What I have learned in the time I have been doing it is that it is a hell of alot of work, very risky, and if you expect to just fall into money doing it you will lose. I see people overbidding at auctions today that scorch my group on homes we want. That is the way it goes. They will probably still do okay but someday the market will roll over.

Anyways when the market does roll over it will be brutal. However if you are not well positioned with cash, you may not be as ready as you hope. Prices will fall but you will qualify for alot less and your diminished dollar will hurt. So the scale slides. Just like the 80s there will be FANTASTIC long bond opportunities and people will get the hell out of real estate and that will excasserbate things. Those will alot of cash will be well positioned for opportunity. The tough choise will be homes or other opportunities.

I don’t see this happening for awhile, a few years? It will happen though. If you are a bond expert you know better then I.

[SD Realtor]

Aldante I am not an expert on bonds but I do believe that the bond market will drive the real estate market. I don’t have a magic number for you though. I think that as long as the long term rates for mortgages keep below 6% things are fine but once you creep beyond 7 and then 8% things will start to get hairy. Getting into double digits will be very tough on people. The problem is that I find it very hard to draw on history as a template for the future. We tried to do that for the 1990s slump and that failed MISERABLY. I do recall renting a room from my cousin back in 1983 and she had a 12% mortgage. Can you imagine that here? 12% on a 500k loan. Holy smokes. No way can that be maintained. This is the scenario you posed by a doubling of the rate curve. Now that would indeed be catastrophic for homes.

What has confounded me now for almost 6 years has indeed been the persistence of long term rates. So I have given up on trying to predict them. All I can say is when they do fall apart THAT is when we will have a dislocation in housing prices. Look back at all the posts for the past many years on this site. How many posts about tsunamis due to foreclosures, how many posts about unemployment killing the housing market? Well how has that turned out? The market is by no means healthy at all but the govt is BOUND AND DETERMINED to float the boat and will continue to do so. Will it work? I don’t know. Will they continue trying?

What do you think?

Nobody needs to tell me about shadow inventory here. I go to the auctions. I can tell you how many homes get postponed to oblivion because I am looking at them every single day. I talk to people each day who have not made a payment in months and even longer and are not even in default.

The question is not whether you should or should not buy now. I have no idea if you should or should not, that is only something you can answer. I don’t share the same feelings that the world will collapse around us that some do, however I do feel that an 80’s like interest rate environment will be necessary to restore a sound economy.

As far as collusion among realtors yeah but only the smarter ones. Just look at the foreclosure stats and a hell of alot of realtors are idiots and drank/still drink the kool-aid. Plenty of them lost their homes. What I am trying to say is that some of them are to stupid to even realize how bad things will be in the future.

As far as flipping goes we are doing it because myself and the other investors, (piggs by the way) got sick of our money sitting in 1% CDs and last year decided to do something about it. If you want to think of us in the same way you think of someone looking for a handout on the freeway ramp that is okay with me. I look at us as taking advantage of an opportunity. If the govt/wall st is going to starve inventory then I am going to be on the side of the govt. We will do this only as long as the opportunity presents itself and then we will be out. The people that are good at flipping are successful today and were successful 5, 10 and 15 years ago. What I have learned in the time I have been doing it is that it is a hell of alot of work, very risky, and if you expect to just fall into money doing it you will lose. I see people overbidding at auctions today that scorch my group on homes we want. That is the way it goes. They will probably still do okay but someday the market will roll over.

Anyways when the market does roll over it will be brutal. However if you are not well positioned with cash, you may not be as ready as you hope. Prices will fall but you will qualify for alot less and your diminished dollar will hurt. So the scale slides. Just like the 80s there will be FANTASTIC long bond opportunities and people will get the hell out of real estate and that will excasserbate things. Those will alot of cash will be well positioned for opportunity. The tough choise will be homes or other opportunities.

I don’t see this happening for awhile, a few years? It will happen though. If you are a bond expert you know better then I.

[SD Realtor]

Aldante I am not an expert on bonds but I do believe that the bond market will drive the real estate market. I don’t have a magic number for you though. I think that as long as the long term rates for mortgages keep below 6% things are fine but once you creep beyond 7 and then 8% things will start to get hairy. Getting into double digits will be very tough on people. The problem is that I find it very hard to draw on history as a template for the future. We tried to do that for the 1990s slump and that failed MISERABLY. I do recall renting a room from my cousin back in 1983 and she had a 12% mortgage. Can you imagine that here? 12% on a 500k loan. Holy smokes. No way can that be maintained. This is the scenario you posed by a doubling of the rate curve. Now that would indeed be catastrophic for homes.

What has confounded me now for almost 6 years has indeed been the persistence of long term rates. So I have given up on trying to predict them. All I can say is when they do fall apart THAT is when we will have a dislocation in housing prices. Look back at all the posts for the past many years on this site. How many posts about tsunamis due to foreclosures, how many posts about unemployment killing the housing market? Well how has that turned out? The market is by no means healthy at all but the govt is BOUND AND DETERMINED to float the boat and will continue to do so. Will it work? I don’t know. Will they continue trying?

What do you think?

Nobody needs to tell me about shadow inventory here. I go to the auctions. I can tell you how many homes get postponed to oblivion because I am looking at them every single day. I talk to people each day who have not made a payment in months and even longer and are not even in default.

The question is not whether you should or should not buy now. I have no idea if you should or should not, that is only something you can answer. I don’t share the same feelings that the world will collapse around us that some do, however I do feel that an 80’s like interest rate environment will be necessary to restore a sound economy.

As far as collusion among realtors yeah but only the smarter ones. Just look at the foreclosure stats and a hell of alot of realtors are idiots and drank/still drink the kool-aid. Plenty of them lost their homes. What I am trying to say is that some of them are to stupid to even realize how bad things will be in the future.

As far as flipping goes we are doing it because myself and the other investors, (piggs by the way) got sick of our money sitting in 1% CDs and last year decided to do something about it. If you want to think of us in the same way you think of someone looking for a handout on the freeway ramp that is okay with me. I look at us as taking advantage of an opportunity. If the govt/wall st is going to starve inventory then I am going to be on the side of the govt. We will do this only as long as the opportunity presents itself and then we will be out. The people that are good at flipping are successful today and were successful 5, 10 and 15 years ago. What I have learned in the time I have been doing it is that it is a hell of alot of work, very risky, and if you expect to just fall into money doing it you will lose. I see people overbidding at auctions today that scorch my group on homes we want. That is the way it goes. They will probably still do okay but someday the market will roll over.

Anyways when the market does roll over it will be brutal. However if you are not well positioned with cash, you may not be as ready as you hope. Prices will fall but you will qualify for alot less and your diminished dollar will hurt. So the scale slides. Just like the 80s there will be FANTASTIC long bond opportunities and people will get the hell out of real estate and that will excasserbate things. Those will alot of cash will be well positioned for opportunity. The tough choise will be homes or other opportunities.

I don’t see this happening for awhile, a few years? It will happen though. If you are a bond expert you know better then I.

[SD Realtor]

Aldante I am not an expert on bonds but I do believe that the bond market will drive the real estate market. I don’t have a magic number for you though. I think that as long as the long term rates for mortgages keep below 6% things are fine but once you creep beyond 7 and then 8% things will start to get hairy. Getting into double digits will be very tough on people. The problem is that I find it very hard to draw on history as a template for the future. We tried to do that for the 1990s slump and that failed MISERABLY. I do recall renting a room from my cousin back in 1983 and she had a 12% mortgage. Can you imagine that here? 12% on a 500k loan. Holy smokes. No way can that be maintained. This is the scenario you posed by a doubling of the rate curve. Now that would indeed be catastrophic for homes.

What has confounded me now for almost 6 years has indeed been the persistence of long term rates. So I have given up on trying to predict them. All I can say is when they do fall apart THAT is when we will have a dislocation in housing prices. Look back at all the posts for the past many years on this site. How many posts about tsunamis due to foreclosures, how many posts about unemployment killing the housing market? Well how has that turned out? The market is by no means healthy at all but the govt is BOUND AND DETERMINED to float the boat and will continue to do so. Will it work? I don’t know. Will they continue trying?

What do you think?

Nobody needs to tell me about shadow inventory here. I go to the auctions. I can tell you how many homes get postponed to oblivion because I am looking at them every single day. I talk to people each day who have not made a payment in months and even longer and are not even in default.

The question is not whether you should or should not buy now. I have no idea if you should or should not, that is only something you can answer. I don’t share the same feelings that the world will collapse around us that some do, however I do feel that an 80’s like interest rate environment will be necessary to restore a sound economy.

As far as collusion among realtors yeah but only the smarter ones. Just look at the foreclosure stats and a hell of alot of realtors are idiots and drank/still drink the kool-aid. Plenty of them lost their homes. What I am trying to say is that some of them are to stupid to even realize how bad things will be in the future.

As far as flipping goes we are doing it because myself and the other investors, (piggs by the way) got sick of our money sitting in 1% CDs and last year decided to do something about it. If you want to think of us in the same way you think of someone looking for a handout on the freeway ramp that is okay with me. I look at us as taking advantage of an opportunity. If the govt/wall st is going to starve inventory then I am going to be on the side of the govt. We will do this only as long as the opportunity presents itself and then we will be out. The people that are good at flipping are successful today and were successful 5, 10 and 15 years ago. What I have learned in the time I have been doing it is that it is a hell of alot of work, very risky, and if you expect to just fall into money doing it you will lose. I see people overbidding at auctions today that scorch my group on homes we want. That is the way it goes. They will probably still do okay but someday the market will roll over.

Anyways when the market does roll over it will be brutal. However if you are not well positioned with cash, you may not be as ready as you hope. Prices will fall but you will qualify for alot less and your diminished dollar will hurt. So the scale slides. Just like the 80s there will be FANTASTIC long bond opportunities and people will get the hell out of real estate and that will excasserbate things. Those will alot of cash will be well positioned for opportunity. The tough choise will be homes or other opportunities.

I don’t see this happening for awhile, a few years? It will happen though. If you are a bond expert you know better then I.

[SD Realtor]

Aldante I am not an expert on bonds but I do believe that the bond market will drive the real estate market. I don’t have a magic number for you though. I think that as long as the long term rates for mortgages keep below 6% things are fine but once you creep beyond 7 and then 8% things will start to get hairy. Getting into double digits will be very tough on people. The problem is that I find it very hard to draw on history as a template for the future. We tried to do that for the 1990s slump and that failed MISERABLY. I do recall renting a room from my cousin back in 1983 and she had a 12% mortgage. Can you imagine that here? 12% on a 500k loan. Holy smokes. No way can that be maintained. This is the scenario you posed by a doubling of the rate curve. Now that would indeed be catastrophic for homes.

What has confounded me now for almost 6 years has indeed been the persistence of long term rates. So I have given up on trying to predict them. All I can say is when they do fall apart THAT is when we will have a dislocation in housing prices. Look back at all the posts for the past many years on this site. How many posts about tsunamis due to foreclosures, how many posts about unemployment killing the housing market? Well how has that turned out? The market is by no means healthy at all but the govt is BOUND AND DETERMINED to float the boat and will continue to do so. Will it work? I don’t know. Will they continue trying?

What do you think?

Nobody needs to tell me about shadow inventory here. I go to the auctions. I can tell you how many homes get postponed to oblivion because I am looking at them every single day. I talk to people each day who have not made a payment in months and even longer and are not even in default.

The question is not whether you should or should not buy now. I have no idea if you should or should not, that is only something you can answer. I don’t share the same feelings that the world will collapse around us that some do, however I do feel that an 80’s like interest rate environment will be necessary to restore a sound economy.

As far as collusion among realtors yeah but only the smarter ones. Just look at the foreclosure stats and a hell of alot of realtors are idiots and drank/still drink the kool-aid. Plenty of them lost their homes. What I am trying to say is that some of them are to stupid to even realize how bad things will be in the future.

As far as flipping goes we are doing it because myself and the other investors, (piggs by the way) got sick of our money sitting in 1% CDs and last year decided to do something about it. If you want to think of us in the same way you think of someone looking for a handout on the freeway ramp that is okay with me. I look at us as taking advantage of an opportunity. If the govt/wall st is going to starve inventory then I am going to be on the side of the govt. We will do this only as long as the opportunity presents itself and then we will be out. The people that are good at flipping are successful today and were successful 5, 10 and 15 years ago. What I have learned in the time I have been doing it is that it is a hell of alot of work, very risky, and if you expect to just fall into money doing it you will lose. I see people overbidding at auctions today that scorch my group on homes we want. That is the way it goes. They will probably still do okay but someday the market will roll over.

Anyways when the market does roll over it will be brutal. However if you are not well positioned with cash, you may not be as ready as you hope. Prices will fall but you will qualify for alot less and your diminished dollar will hurt. So the scale slides. Just like the 80s there will be FANTASTIC long bond opportunities and people will get the hell out of real estate and that will excasserbate things. Those will alot of cash will be well positioned for opportunity. The tough choise will be homes or other opportunities.

I don’t see this happening for awhile, a few years? It will happen though. If you are a bond expert you know better then I.

[34f3f3f]

I read a book a while back that suggested the bond market is the surreptitious driver of everything. However, my understanding is that a huge pool of cash was chasing better rates than US Treasuries were providing, and that it was MBSs and CDOs that filled this gap. The rest is history.

California is probably a bit of a unique case, and since the effects of both the subprime crisis were magnified it’s perhaps not surprising that government intervention has had an exaggerated effect.

Emotions have a habit of driving one’s point of view, but a snap shot of where we are currently still paints a sullied picture, which may not be ever-worsening, but is still never-lessening. I’m speaking of jobs and foreclosures, and hedged predictions by many eminent pro’s of a double dip. While you may ignore this at your peril, it’s not possible to say with real certainty where things will go from here.

[34f3f3f]

I read a book a while back that suggested the bond market is the surreptitious driver of everything. However, my understanding is that a huge pool of cash was chasing better rates than US Treasuries were providing, and that it was MBSs and CDOs that filled this gap. The rest is history.

California is probably a bit of a unique case, and since the effects of both the subprime crisis were magnified it’s perhaps not surprising that government intervention has had an exaggerated effect.

Emotions have a habit of driving one’s point of view, but a snap shot of where we are currently still paints a sullied picture, which may not be ever-worsening, but is still never-lessening. I’m speaking of jobs and foreclosures, and hedged predictions by many eminent pro’s of a double dip. While you may ignore this at your peril, it’s not possible to say with real certainty where things will go from here.

[34f3f3f]

I read a book a while back that suggested the bond market is the surreptitious driver of everything. However, my understanding is that a huge pool of cash was chasing better rates than US Treasuries were providing, and that it was MBSs and CDOs that filled this gap. The rest is history.

California is probably a bit of a unique case, and since the effects of both the subprime crisis were magnified it’s perhaps not surprising that government intervention has had an exaggerated effect.

Emotions have a habit of driving one’s point of view, but a snap shot of where we are currently still paints a sullied picture, which may not be ever-worsening, but is still never-lessening. I’m speaking of jobs and foreclosures, and hedged predictions by many eminent pro’s of a double dip. While you may ignore this at your peril, it’s not possible to say with real certainty where things will go from here.

[34f3f3f]

I read a book a while back that suggested the bond market is the surreptitious driver of everything. However, my understanding is that a huge pool of cash was chasing better rates than US Treasuries were providing, and that it was MBSs and CDOs that filled this gap. The rest is history.

California is probably a bit of a unique case, and since the effects of both the subprime crisis were magnified it’s perhaps not surprising that government intervention has had an exaggerated effect.

Emotions have a habit of driving one’s point of view, but a snap shot of where we are currently still paints a sullied picture, which may not be ever-worsening, but is still never-lessening. I’m speaking of jobs and foreclosures, and hedged predictions by many eminent pro’s of a double dip. While you may ignore this at your peril, it’s not possible to say with real certainty where things will go from here.

[Author]

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