[vcguy_10]

Yes, I remember a few months back, someone here wrote that he was thinking of selling his house in L.A., then come back and buy again in six months to take advantage of the expected price drops! Make that six years, I’d say.

As we know, house prices are notoriously sticky on the way down, and a big chunk of the needed correction will be in inflation-adjusted dollars (this means that in some years house prices will be flat, while wages, consumer goods, even the Euro become more expensive).

Prices will drop, that we know for sure, but it’ll be a long and painful process. Houses will remain overpriced for many years, although prices will be gradually less and less “excessive” until we slowly reach a point such as that of 1996.

[vcguy_10]

“Fortunately she had the presence of mind to swing her (very large) handbag at the guy (…)”

Irish, I would say “unfortunately”. Your friend was very lucky that she was confronted by novice muggers. Had they been hardened criminals, they would have hurt your friend. I think that no amount of money in your purse is worth an ugly scar, or worse.

[vcguy_10]

I have a story like that. I made an offer for about 90-95% of asking price in the summer of 2005. I was expecting the seller to counter with a half-way offer. In ther counter letter, they not only kept their asking price, but they also wrote that they would take their window treatments and other fixtures with them.

After other offers I made were turned down by other sellers, and after noticing that prices were still climbing to ridiculous levels (summer of 05), I decided to keep my money and rent a big comfy house.

Fast forward 9 months or so. The lady who wanted to keep her window treatments eventually sold in the fall of 2005 for less than what I offered her four months earlier! Not only she got less money, she also had to pay another four months of mortgage, porperty taxes, etc.

[vcguy_10]

“the smart people already know this and stupid people will just ignore the sign”

That’s true to some extent. A smart coworker (a relocated new hire) was about to buy a house, and I tried to talk to him out of it. He didn’t seem too convinced. The next time I talked to him, he had decided to wait until the fall (this was late Spring 06). But shortly after that, he did some more research and became convinced that it would be really dumb to buy before 2008; so he signed a 2-year lease for a nice, big house.

My point is that some people are smart enough to “get it,” but may need some encouragement to get them thinking and researching about this falling market.

[vcguy_10]

“NAR economists were already aware & forecasted the RE bubble”

Sure they forecasted it. A year too late! Good thing we have Piggingtonians saving all of Lereah’s statements in 2005 and early 2006 when he was still “expecting” prices to go up.

[vcguy_10]

Conspiracy theories again…

It’s very hard (or impossible) to manipulate prices like that. To answer your first question, inventories are up for reasons analagous to RE inventory: oil prices were going up so much and so fast in the recent past, that many companies (even non-oil companies!) got in the game.

It looked like a fool-proof way to make money: buy oil, then sell it at the same time in the futures market, for a nice, risk-free profit. Even after factoring-in the price of storage, these companies made a lot of money. But too many did the same thing at the same time, worsening the oil shortage (and high price) in the short-term. Up to a point, of course. Now everybody has a big chung of oil to unload, and prices are moving accordingly (downwards!).

Unlike SFHs, oil prices are not sticky on the way down. (Retail gasoline prices are coming down, though not as fast as crude). At the same time, demand is contracting as the economy enters a slower growth period.

This has nothing to do with the political cycle, IMO. Politicians perhaps wish they had that kind of power in international markets!

[vcguy_10]

“could this be the first asset bubble in history to not revert to the mean”

Have you seen the historical graph by Shiller? It showed that home prices climbed by 60% (national average) in 1943-1947. After that, prices stayed flat through the 70s! Not even the 1958 or 1968 recessions made prices drop. Even the OPEC-driven recession of 1973-1974 had no adverse effect on RE prices.

No one knows what will happen in the near future. I’m expecting house prices to drop, but I may be wrong, as there are many factors at play. It would be naive to expect the RE cycle to necessarily behave like the last two downturns (early 80s and early 90s), when history shows that each cycle has different timing and dynamics.

[vcguy_10]

“Cant”?, Geez… we suck. Look at this thread’s title. It’s “can’t,” not “cant”!

[vcguy_10]

LOLROTFLMAOSTC

Also, it’s “a lot,” not “alot.” The US Central Bank’s name is abbreviated as “Fed”, there’s no FED. And keep in mind that “affect” and “effect” are different words, as are “do” and “due.”

[vcguy_10]

When did psychology and greed become an issue in this boom period? Sometime between the 2003 and 2004 high selling seasons (late spring, early summer of each year). And why? Two (maybe three) factors made the boom into a bubble:

(1) House appreciation had been so fast that people started to think “I can’t lose no matter what I pay for RE”.
(2) Proliferation of exotic loans
(3) Mortgage interest rates bottomed in June 2003

Factor (2) above is not measurable, but (1) is. What we need for (1) is not only prices, but the change in prices, either as a difference or as a growth (percentage) rate. The same for (3), you need an indicator of how fast interest rates were dropping, not just their levels, but also the speed of change.

Finally, there’s no way a statistical model can capture the irrational aspect of bubbles and manias, so even if the % change in prices and interest rates turn out to be significant, you may still have a gap between actual and fitted for 2004-2006. You may want to try including a binary (dummy) variable for the bubble years (say, 2003Q2 through 2006Q1) and also its interaction with some other variables, especially % changes in house prices and interest rates.

Powayseller’s comment about missing the supply side is completely off. You are tracking the history of housing prices: each data point is already given by the market (both supply and demand, and any imbalance therein).

Great job JG!

[vcguy_10]

The in-sample fit is awesome! Have you looked at the time series literature on cointegration? Problem with time series data is that many variables trend upwards over time, resulting in high R2 regardless of the “true” causal mechanism. See if you can request your software to print the Durbin-Watson statistic, which would give a measure of serial (i.e., over time) correlation. Again, great job!

[vcguy_10]

4plex: Did you Zillow that house to see how much the flopped flipper paid for it?

[vcguy_10]

More nervous than a 6 year-old at Neverland Ranch.

Priceless!!!!

[vcguy_10]

Thanks! Isn’t that (S out of luck) redundant? Is there ever any lucky poopie?

[vcguy_10]

What’s SOL?

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