Part 2 – Refuting the UCLA Anderson Forecast

[powayseller]

What is a housing bubble, and when did it begin?

See Part 2 over at ocrenter’s site.

Any comments? Do you agree that prices made sense until 2003? I’ve read sdrealtor thinks so.

Rich, anyone else?

This part isn’t about where prices will go,but defining a bubble, and when the bubble started.

[Bugs]

2002 is when the prices exceeded the prior peak (in 1990), so that’s when prices started getting unreasonable in my book.

[powayseller]

Thanks, Bugs. Do you think beginning of 2002? What median price should I use for the rest of the analysis, in your opinion?

My next part is about employment. What level of employment for contractors should we assume in 3-5 years? Will we revert to 2002 levels? Or are we so overbuilt, that we need to go back to 2000 levels or before?

[sdduuuude]

Overbuilt isn’t the only question.
Will people be able to afford all the remodels?

[PD]

The Cedar fire may have had an impact, too. Something like 3,000 houses burned and all of those people had to find a place to live and/or rebuild their destroyed home.

[powayseller]

Whereas Thornberg tells people not to sell their homes and move in with their parents, one of PIMCO’s Executive VPs did just that! Sell the home that is, and rent.

Now why does Thornberg link selling a home to moving back in with mom and dad? He’s ridiculing the idea, that’s why!

Read the bio of the PIMCO VP. Very impressive.

sdrealtor, I am dying to hear your take on my analysis of this conference. Ask your buddies who were there, what they think. Everyone’s speechless, since it’s so obvious how bad Thornberg really is at his forecast, and it took a housewife to expose him.

[PD]

I thought it was a very good article. We bought in August of 2002. At the time, we thought we could be at the top of the cycle and were a little worried. We created a huge spreadsheet with every factor we could come up with, and determined that if the house depreciated 1%, we would break even. It worked out. Whew..

[Anonymous]

Orange County’s median debt-to-income ratio was at their long-term average in 2003 (~ 34%) and exceeded it in 2004. And so, I agree with the statement.

[pencilneck]

I started thinking about buying around 1999, but before buying I thought I would study real estate cycles for a year or so. By early 2001 I was convinced that we had reached the top of the market from a cyclical perspective.

I still believe that 2001 should have been the top of the market according to normal local real estate cycles. Of course the cycle was disrupted, but then no cyclical systems last for ever…

[lostkitty]

2001 was when I started thinking prices were ridiculous and left CA for NY.

[john67elco]

heres a great blog (for bay area) but very interesting

here

I love this part “Many of these ARM loans have exceptionally deadly repayment terms, and so are known as “neutron mortgages”. Like the neutron bomb, they destroy people, but leave buildings standing”.

“You say housing market will keep rising? Then your stupid for not buying as many homes as you can right now!!!!!!!!!

[Anonymous]

Sorry for the absence but I have been unable to log onto the system for some time and had to create a new account to do so. When i get a chance I’ll read your analysis and give you my thoughts.

My initial thought is that it’s funny you paid a couple hundred dollars to here what I was telling you all along for free on this board…that prices seemed fine until late 2003. I don’t know that I agree with how Anderson got there but I still feel that way.

[powayseller]

Your username was deleted by the system?

Why do you think that prices made sense until 2003?

What do you think about my Part 1 analysis?

[sdrealtor]

I forgot my password and was unable to log-in. When I signed up I used a false email to protect identity. Just remembered the password so I can use the old account.

As I have said in the past, it’s nothing I can put my finger on statistically but rather the feeling among my peer group (professionals with incomes between 100K to 200K) that we could afford the payments based upon conservative 30 yr financing on homes we liked.

I’ll get to part 1 when I have time…sorry but I’m swamped

[Bugs]

Using the historical trendline, 2001 was when we made the transition from being in the red (undervalued) relative to the trendline to being in the black. I reckon we passed the point of the first standard deviation in late 2002 or maybe early 2003. Up until that point everything was still in the normal ebb and flow of the long term trends and could be considered reasonable. It was what happened later that got out of hand.

I think if you’re going to use any baseline you should go back to the trendline itself because so far the prices have always returned. That puts it back to the present value of the 2001 prices.

[Author]

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