You are all wrong…

[no_such_reality]

The amount of people “waiting to buy” when the bubble crashes is something I’ve never seen before.

There are an awful lot of people waiting to buy, we’ve also never seen prices so far deviated from underlying incomes and rents and that causes me concerns on few fronts:

1. How many are like me, capable of buying but not choosing to because renting is 1/4th of the TCO of home buying.

2. How many need prices to drop to be able to afford.

3. Latent demand is obvious from the amount of people touring. Is it possible that a majority ‘real’ buyers are out of the market?

4. So many vacant houses. Who did all the buying the last two years and what is their staying power?

The last is my biggest concern. I read posts like the renter that is in the middle of a rent skimming fight between ex-lovers and their RE Agent owning multiple houses in the OC Scam

Or the articles on Temecula Murrieta scam

Or like at all the pattern fraud on Bubble Trackers Inventory blog. Like the junk happending down in Ladera Ranch, nicknamed Fraudera Ranch in the blogs.

Or the failing flipmeisters on OC fliptrack.

And I wonder, what percent of the housing sold over the last one, two, three years wasn’t bought to be owned? I wonder about their staying power. And I wonder about the how many are apparently just grifting like the semi-landlords of our renting poster.

[Cow_tipping]

Duck wrote

People who have unfortnate events happen in their lives don’t “deserve” to get burned.

The fact though, unfortunate events do happen, but the ones who are smart and good at managing money will have that happen very very rarely. The stupid and greedy will fall prey to it every cycle. It evens out.
I had bad things happen to me. Accidents, job losses etc, but that did not break me or break my marriage or anything. Its like this … you wife will put up with you sitting home a few months if when you were employed, you didn’t throw your money around, went around and cheated on her and was an ass. So unfortunate events happning one time in a few years you’ll get through it. if it happens to you every other day and you dont build yourself enough between 2 of those, your averages are working against you a lot cos you’re exposing yourself to a lot of risk. That is foolish.
Cool.
Cow_tipping.

[JJGittes]

Sales of existing homes jump:

http://www.breitbart.com/news/2007/02/27/D8NI4NIG0.html

This seems consistent with my casual observations of homes around me in coastal north county (encinitas, carlsbad). It seems that many have gone pending in the last 4-6 weeks.

Dead cat bounce? Micro rally? Whatever, there is some buying going on.

[(former)FormerSanDiegan]

davelj –

Although I agree with your primary points, I think there is a bubble in the definition of asset bubbles. If the criteria Jerry Grantham uses demonstrates that there have been 28 asset bubbles in 70 years, then we should expect an asset bubble every 2.5 years. That means that we have on average two asset bubbles about every business cycle. This cheapens the definition, IMO.

[davelj]

That’s 28 asset bubbles GLOBALLY over the 70 year period and includes all financial markets – stocks, commodities, bonds, property, etc. I can count a bunch of bubbles in just the last 20 years right off the top of my head: (1) Nasdaq, (2) S&P, (3) late-80s/early-90s CRE, (4) late-80s Japanese stocks, (5) 80s Japanese real estate, (6) Residential real estate late-80s, (7) Emerging markets stocks mid-90s, (8) Asian currencies mid-90s… I could go on…

In fact, I’d say that there’s probably a bubble in some asset market somewhere on earth almost 100% of the time. We’ve just had the misfortune of having several of them at the same time over the last 10 years. (Thanks Alan!!)

There is no bubble in the definition of bubble – two standard deviations is two standard deviations; it’s math.

[bob007]

I am not the same poster as Bob2007.

[Cow_tipping]

Housing has intrinsic value ???
It does, if you’re living in it or renting it out.
If its sitting vacant, and has been bought with overleveraged money … it doing nothing but costing you interest, maintenance, Mello roos, property tax, utilities and HOA dues.
Now in the past 99.9% of houses were bought to live in, and when they moved due to other circumstances, they became rentals. if that is the case, and they are succesfully rented they ahve intrinsic value. Vacant houses are much much much worse than stocks. Stocks are bought with money you have sitting around … stock tanks, and you lost all of it. Ironically, that limits your losses.
You buy a house with 100K of your money and 900K of the banks. The house drops to 900K, you are making payments on the 1 mil, then property tax, insurance, utility bills, HOA dues and mello roos bills come in … guess what, you are now several thousand under. Then lets say, it drops further another 50K … you are now 150K under …
Yea … not only did you lose your shirt, you lost your future shirts and undies too … OK you walk away … bank takes the 850K house and spends 50K on selling it at an auction for 850K … that is so lucky for you … but you’d now have a 1099C for 100K. You’ll pay taxes on that.
Intrinsic value … yes … but not in all cases.
Cool.
Cow_tipping.

[(former)FormerSanDiegan]

davelj –

The fact that we are continually in a bubble somewhere in the world cheapens the term. But, I guess it’s just semantics.

There is no bubble in the definition of bubble – two standard deviations is two standard deviations; it’s math.

The computation is math. The selection of the threshold at 2 standard deviations is arbitrary.

[4plexowner]

The selection of 2 standard deviations isn’t arbitrary

It’s based on analyzing the 28 bubbles prior to their bursting and seeing at what level the danger zone started – 2 std deviations was picked based on this analysis

You make it sound like someone pulled ‘2 standard deviations’ out of their ass and decided to run with it – hardly the case here

Read Grantham’s work if you are really interested

“Extraordinary Popular Delusions and the Madness of Crowds” is another good book explaining bubble dynamics – it was first published in 1841 and is just as applicable today as it was then – bubbles haven’t changed any in the last 160+ years – the only difference is that today’s credit/housing bubble is the biggest bubble in the history of the world

[davelj]

That’s right 4plexowner. The odds of a two-sigma event (on the right hand tail of the normal distribution – as in a bubble) NOT being representative of a bubble condition (assuming that the calculations were done properly) is around 2.2%. Consequently, there’s is always the chance – obviously quite remote – that we’re not in a property bubble. But it’s a horrible bet. If you consistently bet against Grantham’s methodology you’ll be broke in short order… for what it’s worth.

[davelj]

One other thing about the housing bubble… and it’s a point I made as a research analyst back in 2000 regarding the Nasdaq bubble…

The surest gut-level (as opposed to mathematical) indication that there’s a bubble afoot is that too many people with average amounts of human capital are making too much money. [I’m defining human capital as the sum of education, intelligence, experience, instincts, etc.]

During the Nasdaq Bubble – perhaps I should say “last” Nasdaq bubble (as opposed to the current mini-bubble) – every idiot with an internet connection that could spell “Microsoft” was making money in the stock market. Waiters and cab drivers gave out stock tips… day traders were, well, daytrading… It was ridiculous. Total boneheads appeared to be making money hand over fist (“appeared” being the operative word). And people that had merely half a clue – like young venture capital investment bankers three years out of Stanford Business School – were minting money like they were George Soros. Well, markets don’t work that way – they giveth and then they taketh away. I knew that these people weren’t “supposed” to be making that much money and that eventually the market would take most of those “lucky” gains away. And it did. Just like it always does. Sure, some lucky people get out in time and a few actually are brilliant. But the majority, without knowing it, are just waiting to take it in the arse.

This real estate bubble is exactly the same. Think about all these flipper TV shows, all the DVD courses and seminars, all the people who have made “easy” money in real estate over the last five years. Most of these people couldn’t spread a cashflow statement if it was done for them. It’s not meant to be, folks. Again, markets don’t work like that. That’s why, barring all of the statistical data, I know this real estate thing has to end badly. There are too many idiots sitting on too much wealth they shouldn’t have.

[(former)FormerSanDiegan]

4plex – I think my primary point is lost. For the moment forget the term bubble, and ignore the current housing bubble …

If someone tells me that we have had an economic event (let’s call it a “zonk”) at a rate of once every 2.5 years over the past 70 years, then I would assume that these “zonks” are typical and perhaps necessary cyclical economic events. If someone told me that the current housing situation has the same characteristics as one of these “zonks” I would not be inclined to lose a lot of sleep over it. Since on the surface these “zonks” happen all the time.

… back to reality …
The problem is that when the current housing bubble is cast in the same category as these other bubbles that happen every couple of years makes it seem less daunting than it actually is.

[(former)FormerSanDiegan]

The odds of a two-sigma event (on the right hand tail of the normal distribution – as in a bubble) NOT being representative of a bubble condition (assuming that the calculations were done properly) is around 2.2%.

Almost. The odds of a +2 sigma event occurring is around 2.2 %, based on a Normal distribution.
The odds of a +2 sigma event NOT reverting to the mean (by Grantham’s measure) is 1/28 = or 3.6%.

(One is not quite enough samples, but you get my drift).

Anyway, I agree that the odds that we are NOT in a RE bubble that will revert to the mean in terms of rents, salaries and prices is small.

[Anonymous]

Oh Josh,
Sounds like you’ve been hanging with the wrong “gay people”.

[Cow_tipping]

DesperateBuyer on February 26, 2007 – 7:08pm wrote …

The amount of people “waiting to buy” when the bubble crashes is something I’ve never seen before.

and later in the same post wrote …

Indeed, the only bubble is the group of “housing bubble” message boards, which I do predict will prove to have no intrinsic or lasting value. Instead they will only serve to scare some people away from buying a house and living the miserable life of a renter. A true shame in my opinion.

The people waiting to buy are on the bubble blogs only. Which leads me to the next point …

Yes House bubble blogs are the next bubble. The bubbles will die in the order of their creation. House bubble first and the bouse bubble blog bubble next.

So the demise of the house bubble will initiate the demise of the blog bubble which will lose its subscribership when the participants decide to buy. Logical …
Yea I knew you’d come around.
Cool.
Cow_tipping.

[Author]

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