[Rich Toscano]

I responded to that bit of utter nonsense too:

http://voiceofsandiego.org/articles/2007/08/16/toscano/888conspiracytheory081607.txt

I’m done with Chamberlin though… debunking his ongoing stream of irresponsible misinformation could become a full time job and there are better uses of my time. Anyone who still reads him and takes him seriously after the last column, in which he made clear that he doesn’t even understand a simple concept like the effects of inflation, deserves the bad advice they are getting.

Feel free to document his ongoing pearls of wisdom in the forums but I’m letting my SDDT subscription lapse and I will no longer subject myself to the psychic pain of reading his “money in the morning” column every day.

[Rich Toscano]

I responded to that bit of utter nonsense too:

http://voiceofsandiego.org/articles/2007/08/16/toscano/888conspiracytheory081607.txt

I’m done with Chamberlin though… debunking his ongoing stream of irresponsible misinformation could become a full time job and there are better uses of my time. Anyone who still reads him and takes him seriously after the last column, in which he made clear that he doesn’t even understand a simple concept like the effects of inflation, deserves the bad advice they are getting.

Feel free to document his ongoing pearls of wisdom in the forums but I’m letting my SDDT subscription lapse and I will no longer subject myself to the psychic pain of reading his “money in the morning” column every day.

[Rich Toscano]

I responded to that bit of utter nonsense too:

http://voiceofsandiego.org/articles/2007/08/16/toscano/888conspiracytheory081607.txt

I’m done with Chamberlin though… debunking his ongoing stream of irresponsible misinformation could become a full time job and there are better uses of my time. Anyone who still reads him and takes him seriously after the last column, in which he made clear that he doesn’t even understand a simple concept like the effects of inflation, deserves the bad advice they are getting.

Feel free to document his ongoing pearls of wisdom in the forums but I’m letting my SDDT subscription lapse and I will no longer subject myself to the psychic pain of reading his “money in the morning” column every day.

[Rich Toscano]

I responded to that bit of utter nonsense too:

http://voiceofsandiego.org/articles/2007/08/16/toscano/888conspiracytheory081607.txt

I’m done with Chamberlin though… debunking his ongoing stream of irresponsible misinformation could become a full time job and there are better uses of my time. Anyone who still reads him and takes him seriously after the last column, in which he made clear that he doesn’t even understand a simple concept like the effects of inflation, deserves the bad advice they are getting.

Feel free to document his ongoing pearls of wisdom in the forums but I’m letting my SDDT subscription lapse and I will no longer subject myself to the psychic pain of reading his “money in the morning” column every day.

[Rich Toscano]

Hi Adam — I always appreciate if someone wants to dig into the data better, but I’m not quite sure I understand the issue here because the disparity you cite seems pretty explainable.

One answer is that a disproportionate number of foreclosures are in the low end areas, and a disproportionate number of sales in the high end areas — so it makes sense that the number of total REOs sitting there per total sales would be lower than the number of SOLD REOs vs sales (ie, more REO inventory is stacking up).

Another answer if I’m understanding is that you are tracking closed REO sales, while I am tracking recorded NODs and NOTs. The lag time between an NOT and REO closing is probably 2 months bare minimum (3 wks to get from NOT to REO, another month or more to close the sale), and probably a lot longer with that. With NOD it’s far longer than that by many months.

RE. the data sources: I’m not sure what foreclosure.com is. I get the data from the San Diego Daily Transcript, who gets it from the country recorder’s office. I used foreclosureforum.com for the historical data (since they had it in tabular format) but extensively spot checked and found a 100% accuracy rate between foreclosureforum.com and the Transcript. So since both sites are independently getting this from the country, I’m pretty sure they are reporting what they get from the county correctly. I don’t have any explanation for why the county numbers would be different from your title database.

Rich

[Rich Toscano]

Hi Adam — I always appreciate if someone wants to dig into the data better, but I’m not quite sure I understand the issue here because the disparity you cite seems pretty explainable.

One answer is that a disproportionate number of foreclosures are in the low end areas, and a disproportionate number of sales in the high end areas — so it makes sense that the number of total REOs sitting there per total sales would be lower than the number of SOLD REOs vs sales (ie, more REO inventory is stacking up).

Another answer if I’m understanding is that you are tracking closed REO sales, while I am tracking recorded NODs and NOTs. The lag time between an NOT and REO closing is probably 2 months bare minimum (3 wks to get from NOT to REO, another month or more to close the sale), and probably a lot longer with that. With NOD it’s far longer than that by many months.

RE. the data sources: I’m not sure what foreclosure.com is. I get the data from the San Diego Daily Transcript, who gets it from the country recorder’s office. I used foreclosureforum.com for the historical data (since they had it in tabular format) but extensively spot checked and found a 100% accuracy rate between foreclosureforum.com and the Transcript. So since both sites are independently getting this from the country, I’m pretty sure they are reporting what they get from the county correctly. I don’t have any explanation for why the county numbers would be different from your title database.

Rich

[Rich Toscano]

Hi Adam — I always appreciate if someone wants to dig into the data better, but I’m not quite sure I understand the issue here because the disparity you cite seems pretty explainable.

One answer is that a disproportionate number of foreclosures are in the low end areas, and a disproportionate number of sales in the high end areas — so it makes sense that the number of total REOs sitting there per total sales would be lower than the number of SOLD REOs vs sales (ie, more REO inventory is stacking up).

Another answer if I’m understanding is that you are tracking closed REO sales, while I am tracking recorded NODs and NOTs. The lag time between an NOT and REO closing is probably 2 months bare minimum (3 wks to get from NOT to REO, another month or more to close the sale), and probably a lot longer with that. With NOD it’s far longer than that by many months.

RE. the data sources: I’m not sure what foreclosure.com is. I get the data from the San Diego Daily Transcript, who gets it from the country recorder’s office. I used foreclosureforum.com for the historical data (since they had it in tabular format) but extensively spot checked and found a 100% accuracy rate between foreclosureforum.com and the Transcript. So since both sites are independently getting this from the country, I’m pretty sure they are reporting what they get from the county correctly. I don’t have any explanation for why the county numbers would be different from your title database.

Rich

[Rich Toscano]

Hi Adam — I always appreciate if someone wants to dig into the data better, but I’m not quite sure I understand the issue here because the disparity you cite seems pretty explainable.

One answer is that a disproportionate number of foreclosures are in the low end areas, and a disproportionate number of sales in the high end areas — so it makes sense that the number of total REOs sitting there per total sales would be lower than the number of SOLD REOs vs sales (ie, more REO inventory is stacking up).

Another answer if I’m understanding is that you are tracking closed REO sales, while I am tracking recorded NODs and NOTs. The lag time between an NOT and REO closing is probably 2 months bare minimum (3 wks to get from NOT to REO, another month or more to close the sale), and probably a lot longer with that. With NOD it’s far longer than that by many months.

RE. the data sources: I’m not sure what foreclosure.com is. I get the data from the San Diego Daily Transcript, who gets it from the country recorder’s office. I used foreclosureforum.com for the historical data (since they had it in tabular format) but extensively spot checked and found a 100% accuracy rate between foreclosureforum.com and the Transcript. So since both sites are independently getting this from the country, I’m pretty sure they are reporting what they get from the county correctly. I don’t have any explanation for why the county numbers would be different from your title database.

Rich

[Rich Toscano]

Hi Adam — I always appreciate if someone wants to dig into the data better, but I’m not quite sure I understand the issue here because the disparity you cite seems pretty explainable.

One answer is that a disproportionate number of foreclosures are in the low end areas, and a disproportionate number of sales in the high end areas — so it makes sense that the number of total REOs sitting there per total sales would be lower than the number of SOLD REOs vs sales (ie, more REO inventory is stacking up).

Another answer if I’m understanding is that you are tracking closed REO sales, while I am tracking recorded NODs and NOTs. The lag time between an NOT and REO closing is probably 2 months bare minimum (3 wks to get from NOT to REO, another month or more to close the sale), and probably a lot longer with that. With NOD it’s far longer than that by many months.

RE. the data sources: I’m not sure what foreclosure.com is. I get the data from the San Diego Daily Transcript, who gets it from the country recorder’s office. I used foreclosureforum.com for the historical data (since they had it in tabular format) but extensively spot checked and found a 100% accuracy rate between foreclosureforum.com and the Transcript. So since both sites are independently getting this from the country, I’m pretty sure they are reporting what they get from the county correctly. I don’t have any explanation for why the county numbers would be different from your title database.

Rich

[Rich Toscano]

Hi Stan – Great point about rents. I would also add another point if you are assuming static rates and inflation: if rates and inflation can both be assumed to be low, the “real” burden of your debt will stay higher through the amortization. In contrast, if rates/inflation are high, you are paying more interest, but you are basically paying off your mortgage faster as inflation eats away at the real burden of your principal.

But, what I was more attempting to get at was the fact that rates and inflation are NOT static. So discounting future income using today’s 10-year Treasury doesn’t really take that into account, if I am understanding you correctly.

And again, I’m kind of muddying the waters here by trying to figure out not one guy’s decision to buy or not, but rather what represents a fundamentally justifiable, sustainable level of pricing. For this latter, it seems to me that one must take the long view on rates. Or, that one should ignore rates altogether, because A) they haven’t had much impact historically and B) since their future direction is unknown, they shouldn’t figure into pricing. Or something.

I’m pretty exhausted and out of it this evening so the above may or may not make sense. Thanks for sharing your insights.

Rich

PS – Ray – In bonds, you care not just about the current rate but about future rates. I’m arguing that the same is true in housing.

[Rich Toscano]

Hi Stan – Great point about rents. I would also add another point if you are assuming static rates and inflation: if rates and inflation can both be assumed to be low, the “real” burden of your debt will stay higher through the amortization. In contrast, if rates/inflation are high, you are paying more interest, but you are basically paying off your mortgage faster as inflation eats away at the real burden of your principal.

But, what I was more attempting to get at was the fact that rates and inflation are NOT static. So discounting future income using today’s 10-year Treasury doesn’t really take that into account, if I am understanding you correctly.

And again, I’m kind of muddying the waters here by trying to figure out not one guy’s decision to buy or not, but rather what represents a fundamentally justifiable, sustainable level of pricing. For this latter, it seems to me that one must take the long view on rates. Or, that one should ignore rates altogether, because A) they haven’t had much impact historically and B) since their future direction is unknown, they shouldn’t figure into pricing. Or something.

I’m pretty exhausted and out of it this evening so the above may or may not make sense. Thanks for sharing your insights.

Rich

PS – Ray – In bonds, you care not just about the current rate but about future rates. I’m arguing that the same is true in housing.

[Rich Toscano]

Hi Stan – Great point about rents. I would also add another point if you are assuming static rates and inflation: if rates and inflation can both be assumed to be low, the “real” burden of your debt will stay higher through the amortization. In contrast, if rates/inflation are high, you are paying more interest, but you are basically paying off your mortgage faster as inflation eats away at the real burden of your principal.

But, what I was more attempting to get at was the fact that rates and inflation are NOT static. So discounting future income using today’s 10-year Treasury doesn’t really take that into account, if I am understanding you correctly.

And again, I’m kind of muddying the waters here by trying to figure out not one guy’s decision to buy or not, but rather what represents a fundamentally justifiable, sustainable level of pricing. For this latter, it seems to me that one must take the long view on rates. Or, that one should ignore rates altogether, because A) they haven’t had much impact historically and B) since their future direction is unknown, they shouldn’t figure into pricing. Or something.

I’m pretty exhausted and out of it this evening so the above may or may not make sense. Thanks for sharing your insights.

Rich

PS – Ray – In bonds, you care not just about the current rate but about future rates. I’m arguing that the same is true in housing.

[Rich Toscano]

Hi Stan – Great point about rents. I would also add another point if you are assuming static rates and inflation: if rates and inflation can both be assumed to be low, the “real” burden of your debt will stay higher through the amortization. In contrast, if rates/inflation are high, you are paying more interest, but you are basically paying off your mortgage faster as inflation eats away at the real burden of your principal.

But, what I was more attempting to get at was the fact that rates and inflation are NOT static. So discounting future income using today’s 10-year Treasury doesn’t really take that into account, if I am understanding you correctly.

And again, I’m kind of muddying the waters here by trying to figure out not one guy’s decision to buy or not, but rather what represents a fundamentally justifiable, sustainable level of pricing. For this latter, it seems to me that one must take the long view on rates. Or, that one should ignore rates altogether, because A) they haven’t had much impact historically and B) since their future direction is unknown, they shouldn’t figure into pricing. Or something.

I’m pretty exhausted and out of it this evening so the above may or may not make sense. Thanks for sharing your insights.

Rich

PS – Ray – In bonds, you care not just about the current rate but about future rates. I’m arguing that the same is true in housing.

[Rich Toscano]

Hi Stan – Great point about rents. I would also add another point if you are assuming static rates and inflation: if rates and inflation can both be assumed to be low, the “real” burden of your debt will stay higher through the amortization. In contrast, if rates/inflation are high, you are paying more interest, but you are basically paying off your mortgage faster as inflation eats away at the real burden of your principal.

But, what I was more attempting to get at was the fact that rates and inflation are NOT static. So discounting future income using today’s 10-year Treasury doesn’t really take that into account, if I am understanding you correctly.

And again, I’m kind of muddying the waters here by trying to figure out not one guy’s decision to buy or not, but rather what represents a fundamentally justifiable, sustainable level of pricing. For this latter, it seems to me that one must take the long view on rates. Or, that one should ignore rates altogether, because A) they haven’t had much impact historically and B) since their future direction is unknown, they shouldn’t figure into pricing. Or something.

I’m pretty exhausted and out of it this evening so the above may or may not make sense. Thanks for sharing your insights.

Rich

PS – Ray – In bonds, you care not just about the current rate but about future rates. I’m arguing that the same is true in housing.

[Rich Toscano]

I am very skeptical of the idea that lower interest rates justify higher home prices. Let me throw a couple of thoughts out there haphazardly — this is an article I’ve wanted to write for a while so this is a good opportunity to get feedback on my thinking.

1 – The historical record doesn’t support it

Check out this graph: http://piggington.com/images/primer/sdpricetoincome.gif The p/i ratio peaked and trough at the same place in the prior two cycles, despite vast differences in rates. This time around, the difference was not rates but incredibly (and unsustainably) loose underwriting due to the securitization boom.

Also I did a quick regression and there was no correlation between rates and inflation-adjusted home prices from 77-2000. If you include the latest bubble there was a mild positive correlation but again, i think that’s due to underwriting. Not sure how to prove that thesis, except for the fact that falling yields never before affected the p/i ratio, so it must be something else.

BTW rates fell thru both of the prior downturns — http://piggington.com/historical_home_prices_payments_rents_rates — how does that fit in?

2 – Houses are long-duration assets, or something

This is the part I’ve had trouble describing coherently. For the individual making a rent/buy decision, lower rates are definitely a consideration (as long as you will be in the house for long enough to reap the benefits of locking in a low rate. There’s always the argument that you can refi in the future, but what if rates only go up from here?).

However, think about the market as a whole and future rate/price direction. If rates rise, they will put downward pressure on prices (maybe? see above – but let’s say they do) in the future. Given that rates are low, and in specific that real yields are unusually low, there is a good chance of rates rising — shouldn’t this future pressure be priced into the justifiable home price?

Or let me try to explain it a different way. When you buy a house, the future value of that house will be influenced by FUTURE rates, not just current rates. So just because rates have spiked down, does that suddenly argue that prices should be higher? I’d argue not.

Or a third angle: the “justifiable” price may be influenced by rates, but it has to be influenced by the average level of rates over the holding period of the home, not just rates right now. Hmm, I think that may be a better way to describe it.

You can see why I haven’t written about this yet. 🙂 The concept is clear in my mind but I don’t know how to explain it. Thoughts?

Rich

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