[powayseller]

I’m not using CR’s numbers in my analysis, but merely quoting what he wrote. This downturn will be much worse, so I upped it.

But instead of quoting 60% vs. 80%, I would like to hear your data on why house prices are NOT down 10% so far, or whatever percentage it is to be back at 2004 levels.

[powayseller]

Chris, every asset bubble in history has reverted to its mean. Can you find any exceptions? For your statement that we will have a 30% drop, would mean it is different this time. NASDAQ is still below the 2000 peak.

And the Fed won’t care about a million or 2 mil homeowners losing their homes, because they look at national numbers. They let the stock market lose $7 trillion. Millions of people lost their retirement savings. This time, millions of people will lose their retirement equity.

The only reason to save housing would be because housing drives the economy. But with rising oil and commodities prices, inflation will stay high and they cannot lower rates. Remember that 7% is our usual interest rate, so we should not expect the once-in-a-lifetime 1%-5% rates to come back. The low rates were an anomaly. I don’t think our economy could handle another big bubble like this, because our trade deficit would really get big, and would foreginers keep buying our dollars if that happened?

I predict a 50% drop, to get back at a wage/median price ratio of 7. I don’t see wages going up by more than 3% annually, so it’s housing that will take the loss. With lending standards tightening after this mess, who can afford 10% of $400K? How many Americans have $40K laying around? Prices will have to drop a lot so people can afford to buy houses with 30 year fixed rate mortgages. Without exotic lending, you cannot have prices more than 3.5x wages; you qualify for a mortgage 3.5x your annual salary under the old lending guidelines.

We will return to the 7 multiple, and it won’t be achieved by wages getting higher. So Chris I ask you, what makes it different this time?

[powayseller]

it’s tomorrow

[powayseller]

Here’s one that is 10% BELOW 2004 prices. It was an REO.

http://www.zillow.com/HomeDetails.htm?city=POWAY%20&state=CA&zprop=52513582

Ten percent below 2004 levels, so that puts this home at mid-2003 price?

Does anyone else know of homes selling at 2003 prices?

[powayseller]

Bob C. wrote :
“In reality, each home is worth less today than it was in 2005. Most are priced at 2004 values.”

But in all honesty, why don’t you just sell your house if you can’t handle the ride down? It’s just going to get worse. Remember last downturn, years 3-5 were down 20% in the median per year! This one will be worse. If you can’t handle the equity loss, either sell now or stop reading the forums.

Arguing with me won’t change the market.

[powayseller]

sakina, as I keep explaining to people, the median is a 2 year lagging indicator. Jim’s explanation of falling prices is applicable to specific homes, not to the entire market, becasue the higher end home sales skew the median up. Don’t confuse what a particular home will sell for, with the median. The 10% drop figure is not in the data, but you will get this by talking with realtors, who are telling you what clients can get for their home. You can contact some realtors if you don’t believe me, and get your own examples. Ask for sales prices of homes which sold today, and compare what the person paid for that house in 2004. ocrenter has some on his site too. There’s another guy who tracks downtown condos. I personally got 5% less for my house last December, before the big downturn started. So it’s not hard for me to believe another 5% drop has been added. But those of you just reading median data stuff, can be easily misled. So it is important to *not* rely on the median.

I don’t know how accurate Case-Shiller index is. If it goes against what is happening in the field, it wouldn’t be useful either. I can’t comment on that, because I haven’t researched it, but Rich feels it’s better than the median. But probably it’s not perfect either.

[powayseller]

sduude, how much of a price drop is it to go back to 2004 prices? 15%? 20%? Please correct me.

[powayseller]

reanalyst, running out of cheap oil is a big problem, and should have been planned for by our leaders. Peak oil has been known about for decades, yet they are short sighted and don’t put money into alternative energy or drilling our own oil. If oil gets to $200/barrel as Dr. Leeb suggests, he says our economy will collapse, and it is one crisis that we cannot monetize out of. You see the problems already created by rising oil prices, and it will only get worse.
If we get our own oil, but have to pay $200/barrel to extract it, then it is basically going to cause an economic collapse. Have you read any books about oil supply and rising demand from China and India?

I stand by my point that as long as we cannot produce the goods and services we need for our own people, and have to take on debt to maintain our lifestyle, we are not a superpower, but a debtor nation.

Becoming a superpower once again means paying off the debts and creating products that the world wants to buy from us, so we are net exporters.

For now, we are getting weaker by the day. I think the next superpower could be Europe, Chindia, or Russia. They are more productive and export more than they consume.

But time will tell. I am concerned about the dollar falling 20% over the last few years. When I went to Germany in 2000, 1 dollar was 1 euro. Now you need $1.20 to buy one euro. Our dollar is getting weaker. So doesn’t that make us a weaker power?

This is an economics discussion, and in this regard, we are turning into losers. Who has the political will to change it?

Rich was guessing the Fed will inflate itself out of this mess. Why not do the right thing? To become truly strong, let the excesses correct. The politicians are too short sighted. They worry only about the next election. If they were long sighted, they would have kept Carter’s programs for alternative energy, planned for the SS and Medicare crisis, cut back spending to pay off the deficit.

[powayseller]

sduude, I have posted my data on this forum before, multiple times, so those who like to skim threads, don’t expect me to rewrite it. You are free to search for it. Why are you so angry? Do you own a house?

If you can’t find my posts, check Jim Klinge and Bob Casagrand’s sites; they write clearly that prices stopped rising in 2004, that we are back to 2004 prices in many neighborhoods, and that to me shows a 10% decline. If not, what would you call a reversion to 2004 prices? That part was a guess, so you’d have to correct me: if prices are back to 2004 levels in certain neighborhoods, how much of a drop is that?

The median might show we are down 2%, but the median is a lagging indicator. Lagging by 2 years I am finding out. The Case-Shiller index you present starts in 2004, so it doesn’t give us much historical data. If you look at the price of each individual home, it is back to 2004 prices in many cases. It is the shift in distribution of homes sold that is causing the median to rise. I’ve explained this many times.

So each individual home is worth most likely the 2004 value. I still predict a 50% minimum nominal drop, and I would be wrong if the Fed lowers interest rates. But who will buy the new mortgages at at time when investors are scared to death of real estate? I suspect in 5 years the banks will want 20% down and proof of income, which will eliminate the possiblity of prices higher than 7 x wages. We have a long way to drop, and I stand by my 50% drop.

I can see you are angry; probably you have a lot to lose if my prediction comes true. But please try to keep your temper in check. I’m just presenting the data and my vision for the future, not causing this bubble to be created.

In all of history, every asset bubble reverted to its prebubble price. Every single one. Instead of yelling at me, prepare yourself. Sell your house and rent.

[powayseller]

sduude, realtor Jim Klinge on bubbleinfo.com. Check out his story on how to price your home Your Value Minus 20% , shows we are down 20% in North County.

Rich, how many asset bubbles can the Fed blow before the dollar becomes really devalued? How can they lower rates with commodity prices on a multi-year run according to Jim Rogers? Ben Bernanke slipped at his testimony the other day, and I caught it. He said, “Inflation is going to moderate over the NEXT COUPLE YEARS”. He realizes it’s a long term problem.

He was blasted by questions from senators concerned about rising interest rates and he defended his position, saying he had to stop inflation now, because if he didn’t, he would have to raise rates much more later.

A recession is necessary to cleanse the excesses. Circumventing it will cause problems elsewhere in the economy.

So maybe we won’t get the 80% drop, but if we don’t, we need to be careful what other asset bubbles or excesses are created in an attempt to avoid the true correction.

Again, to get a big drop, we don’t need that many desperate sellers. 30,000 annual sales set the price for all 1 million homes in San Diego. And only a few of those set the price for all the listings.

Again, SD North County is down 20%, and in the last correction, Calculated Risk shows the largest drops came in years 3-5 (20% each of those years).

Rich, why didn’t the Fed stop the bubble pop in the 90’s housing bust? We had S&Ls that had to be saved. They let housing drop for 5 years. Why won’t they let it go down for 5% this time?

The Fed allowed the stock market to lose $ 7 trillion in value.

They will let the housing market go too. Why not?

[powayseller]

2. Banks originate these loans because they are profitable and then sell them to reduce their risk.

What can you say about the investors who purchase these loans? Why don’t they demand a risk premium? Who holds these? Is it your mom’s pension fund, your own retirement account, your bank’s portfolio? Isn’t MBS and GSE debt the most widely held debt? Don’t GSEs own this by the billions of dollars? How much is know about the end lenders of these loans?

[powayseller]

Yes, I think you are right. Thanks.

[powayseller]

I have family in Chula Vista, and they tell me the commute on the freeway has gotten so bad. It used to take him 10 minutes to get to work, and now sometimes it’s 45 minutes. With the new development planned, it will just get worse. Also, they don’t like living so close to the border anymore, although they are satisfied with the schools.

[powayseller]

Even healthcare is outsourced. I read a story last week, that doctors/hospitals in India and other places are putting together travel packages for elective surgeries: heart bypass, plastic surgery, and other very expensive procedures. These hospitals are the best in the world. You can get a quadruple b ypass in India for 1/10 or less of the US price.

So only emergency and office visit stuff is safe. More people will go to India and china and Mexico for dental work and elecetive surgery.

What about euros, oil, water (shrinking supply of clean water while demand keeps rising), precious metals? Diversify, since it is not possible to know which sector is safe.

Eurobank is FDIC insured, and you can buy euros and toher currencies.

[powayseller]

Thanks, I definitely won’t qualify for the $600 limit. As I said, a housewife’s job is cleaning the house, and I frown upon the laziness of housewives who hire people to clean their homes. How do their husbands let them get away with it? Do the husbands hire someone to do their office work, ie. I don’t feel like making those sales calls today, and evaluating those budget proposals, so I will use my personal money to hire someone to do that while I kick back and read the paper, and that means no family vacation this year. How well would that go over?

Back to the wages issue. I remember paying cleaning people $10/hr about 6 years ago, while I was working for a few months. So that’s about a 80% raise. Who else got an 80% raise in the last 6 years? How do they get that pricing power?

[Author]

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