[sdduuuude]

In the 8 years from 1990 to 1998, when the price-to-income ratio decreased by 30%, what was the actual % median price reduction ?

[sdduuuude]

“in some areas”

I always assume the discussion is about median price for the county, which has yet to go negative.

I think downtown could see -50%, though!

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Does he continue to assume the price will drop in 0 time and ignore the 5 to 7 years of additional appreciation?

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I did mix my words.

I didn’t mean the falling against the yen. I meant the value of a dollar is decreasing because they are printing more of it. This is inflation.

I did, however, mean that if the dollar falls against the yen, it will help bring jobs back into the US.

If the dollar falls with respect to the yen, and the value of your house is constant, is your house worth more dollars or fewer yen? Huh. I don’t know that one, but it is one of the two or a littel of both. This is why these fiat currencies are a challenge.

Again – I meant, the dollar itself is becoming less and less valuable, which is inflation.

All I’m saying is – if inflation is raging, your 50% nominal reduction gets wilder and wilder, more and more unlikely.

[sdduuuude]

If the value of the dollar falls, your house is worth more dollars. No two ways about it. Your 50% figure doesn’t take into consideration this dollar value reduction because it is a nomial figure. As a wild example, if housing stayed constant and the dollar cut in half, we would see a doubling of prices, right?

Better to estimate the real value drop of housing, then adjust the nominal price depending on inflation or dollar depriciation assumptions. i.e. How much are houses overvalued above what the fundamentals support.

Also consider if the dollar falls, jobs may move back to the US.

Your comment on wages is interesting, but again you quote 5-8% inflation above and 2% inflation below. Which is it? You have lots of thinking / resolving to do to bring your ideas in alighnment with each other. Like I said – you are a good thinker, but you have to connect the dots.

That linear line he drew, which starts in 1986 looks like an extrapolation of data the 4 years proior. It is really the inflation line, but it is nonsensical to say the first 4 years are the norm, but the 20 years after that is a deviation from the norm.

[sdduuuude]

The (somewhat light) forest of for sale signs showed up in Clairemont last Summer. Not alot of signs now, but many of the SAME signs have been up for several months. Lots of overpriced properties, too. A few for sale signs replace by for rent signs. I do notice lots of open house signs on Sundays.

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It’d be interesting to see this as a ratio of population.

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I agree with you, poway seller 😉

I didn’t like his/her tone or analysis of the situation.

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“Any post which suggests more than that is perceived as threatening and can result in a negative tone.”

Change that to:

“Any post which sugggest more than that , but hasn’t been backed by a good analysis can result in a negative tone.”

I feel it is my responsibility to convince people not to make difficult and large financial decisions based on your fairly random guesses. You have gained alot of respect on this forum because you post interesting posts very very often. But regular posts are not a substitute for good analysis and people need to take your advice with many, many grains of salt.

Finally, you guys complaining about my tone isn’t going to change my tone. In fact, I’ll assume that you couldn’t find any flaws in the analysis to complain about and and I’ll take it as a compliment.

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I’m not really saying inflation should show up in higher wages.

One of the many reasons why I posted that is this – if you don’t think housing prices will rise with inflation, don’t post an article which uses that assumption to support your case.

Now, I hope you understand I’m not bagging on you as a person, but I am going to come down pretty hard on your analysis. Like my tone or hate it, I feel people need to understand your 50% number is nothing but a guess.

Again – you add a good perspective and lots of interesting links to this forum, but what you don’t add is good analysis to support your assertions.

Your 50% number is, in my opinion, completely unsupported. I’m not saying it is unsupporatble, I’m just saying you have not done the analysis, complete with a list of assumptions, that generates the number “50%”.

I know you haven’t done the analysis because you are “100% confident.” When one does a good analysis, they make assumptions, do the calculations, then take their assumptions and ask “what if this doesn’t happen the way I think.” Note how I changed the inflation figure, just to get an understanding of how much risk there was in the analysis. If I change the inflation figure dramatically and the end result doesn’t change much, I know there isn’t much risk there.

If you had done an analysis you would say “I think it is 50%, but the risks are x, y, and z.” But you don’t, you just claim 50% with full confidence. With a +/_ factor of 10 percentage points, you are saying 40-60% nominal or nearly 75% drop with respect to inflation. 75%? Its just too much, with no supporting analysis.

Your irreverence for the difficulty of macro economic anlysis is somewhat shocking. The best minds in the world have difficulty with it, but you read a few articles, and bam – you know with 100% confidence exactly what the market will do.

If I can do anything to reduce people’s confidence in that number, I’ll do it.

Keep in mind, I think you’ll do fine with selling your house and renting, then buying low. I did the same thing with an extra property. I’m just not a believer in massive risk-free gains or 100% certainty in ultra-complicated markets that rely on variables as disparate as people’s psychology, the price of gold, and the Bank of Japan.

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I am a long-time Piggington reader.
Believer in the bubble.
Expecting nominal price drops of 15 to 20%

Sold a rental property in August 2005 out of fear and made $150,000 in two years for doing nothing.
Keeping my home, with a 50% Loan-to-value ratio.

If you had, perhaps, focused on my analysis and not my tone, you would not have made the error in judgement.

[sdduuuude]

Another way to look at it: Your 50% “guess”, combined with the logic of this article puts inflation at 2% for the next 7 years – assuming a 7 year reduction to the 2% inflation + 1% housing bonus trend line.

Are you comfortable with that?
Sure you wanna buy gold?
I guess the dollar isn’t devaluing as much as you thought? Either that or housing isn’t.

[sdduuuude]

Powayseller, while you are a good thinker and regularly provide excellent qualitative analysis, I don’t think you have “connected the dots” on how the current situation is 5 times worse than the last bubble. This article doesn’t help your position at all.

This article draws a random line and says “here is the trend.” The trend line takes 4 years of data, and extrapolates it out 20 years !!!!

I also think you have an inconsistency between your thinking that inflation is raging worse than the numbers show, but won’t affect housing or wages at all. Because if this, I’ll use a variety of inflation rates in my analysis below.

Lastly, the author needs to learn how to calculate growth based on a percentage.

The writer uses an inflation figure of 78% over 20 years, which is the same as 2.9% per year.
1.029 ^ 20 =~ 0.78%
He then incorrectly adds 20% because he assumes housing grows at 1% per year for 20 years (call it a “housing bonus”) over and above inflation.

To do it properly, you assume housing grows at 3.9% and multiply it by itself 20 times.
1.039 ^ 20 = 2.15
or up 115%, not 98%. This shows a reduction of 52%, not 56%.

Just getting started.

Now, using larger inflation figures – 5% (plus 1%) shows housing will only reduce by 30%. Using 7% inflation (with no 1% “bonus”) shows housing will actually increase by 4%. So, that government inflation figure, which is suspect, is very very important.

Oh – but wait. That is only in 2006
The author assumes an immediate reduction to the mean!! Idiotic! If it takes 7 years for the prices to adjust, the target price will grow. I get this for the year 2013:

2.9% inflation + 1% housing bonus => 36% reduction
4% inflation + 1% housing bonus => 16 % reduction
5% inflation + 1% housing bonus => 9% increase
7% inflation + with no housing bonus => 40% increase

Be careful seeking out articles that support beliefs you already hold. You can get badly tricked that way.

For the rest of you – don’t mistake powayseller’s excellent research, confidence or zillions posts for good or thorough analysis. Do your own.

[sdduuuude]

If I understand you and powayseller correctly, 4plexowner is predicting a 40% to 60% drop in real prices, which translates to a smaller nominal (paper money) price reduction than powayseller. At 5% percent inflation (cuz I know you guys like that big inflation stuff) for 5 years you are looking at 36% drop in nominal prices.

Powayseller said 50% drop in nomial prices, which (using the same inflation figures) is a 60% drop in real value.

So I put powayseller farther out than even you.

Using the “revert to 1999 values” concept in another thread, I came up with 16-20% nominal, which is still a wild drop – twice that of the last crash.

Not sure how powayseller thinks this crash will be 5x worse than the last. The numbers just don’t support it, in my opinion.

I do think prices are off 3-5% though, and the fall is nearly a year old already, though it will be Summer 2007 before the general public realizes it. 6 more years and 15% to go.

[sdduuuude]

I always thought a fixed fee plus commission made the most sense, where the comission is 1/2 % or so and the fixed fee is whatever the market would bear.

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