Housing analysis - Bubble 2.0

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Submitted by kev374 on May 29, 2017 - 10:30pm

What do you think about this analysis? She makes some pretty convincing arguments..

https://www.youtube.com/watch?v=mA6CW7Ejq1g

What is not discussed is how the Fed is going to handle it if their balance sheet stops performing. Also what is going to happen to the $19 Trillion existing debt? And with Trump's plans to supposedly add $10 Trillion more?

Submitted by harvey on May 30, 2017 - 6:32am.

What's up with the video quality?

I stopped about 30 seconds in after she held up a piece of paper with a graph, made no mention of any numbers, and then concluded "real estate is clearly back in bubble territory."

Submitted by flu on May 30, 2017 - 6:51am.

harvey wrote:
What's up with the video quality?

I stopped about 30 seconds in after she held up a piece of paper with a graph, made no mention of any numbers, and then concluded "real estate is clearly back in bubble territory."

people want to believe what they want to believe, especially if they are sitting on the sideline in the opposite direction of the trend...imho...

Submitted by SK in CV on May 30, 2017 - 7:09am.

kev374 wrote:

What is not discussed is how the Fed is going to handle it if their balance sheet stops performing. Also what is going to happen to the $19 Trillion existing debt? And with Trump's plans to supposedly add $10 Trillion more?

Is this supposed to mean something? What exactly does it mean for the Fed "balance sheet [to] stop performing"?

This is "an important question" to someone who has no idea what assets are on the Fed balance sheet.

Submitted by harvey on May 30, 2017 - 6:05pm.

Didn't you know?

The Fed's balance sheet is in the finals on The Voice.

But what if it stops performing?

Submitted by SK in CV on May 30, 2017 - 6:18pm.

harvey wrote:
Didn't you know?

The Fed's balance sheet is in the finals on The Voice.

But what if it stops performing?

Gwen Stefani will use her final save?

Submitted by Escoguy on May 30, 2017 - 8:21pm.

I would love to see a very comprehensive "bear case" for housing based on data.

Specifically for SoCal and San Diego.

Imagine there is a recession, what would be the key factors which would impact housing:

1. how high would unemployment go?
2. would there be another lending/banking crisis?
3. what would vacancy rates be?
4. how much would prices decline?
5. how much would incomes drop?
6. how many businesses would close up/ never to return?
7. what would trigger a recession

In my personal view, many recessions were directly related to energy prices in the 1970s/early 1980s. Even the 1990-01 recession was partly related to Gulf War 1.

In my opinion, the 2002 recession was a combination of 9/11 and the tech bubble bursting. If it had only been one of those two, then perhaps it would have been more regional. Much like Texas in 1986-87 oil industry or Michigan in 1981-82 (auto industry).

I lived through both of those and while it seemed dramatic at the time, within a few years Texas had recovered. Michigan took longer but that was partly due to the complex and unproductive relationships between automakers and unions at the time. I think it is different now.

I can see the tech "bubble" deflating some, but the profits of the Googles today are much more stable than back in 2000 with the dot com bust.

With fracking and OPEC capacity, I don't see energy being a problem in the next 3 years, beyond that perhaps prices will rise but EVs may then play a greater role.

Perhaps if Putin/ISIS/Assad/Iran/Hezbollah all decide to live together in peace than we may see another "peace dividend" for those who remember that phase from the 90s, that would impact defense spending and thus San Diego. But again doesn't seem likely in the next few years, in fact, after the DT was in Saudi, it made me think about getting back into that business.

Alas, a slightly weaker dollar is helping the manufacturing company I work for with our international exports, nice to see foreign customers paying a touch faster when the currency works in their favor. A strengthening dollar would be a headwind but likely not enough to cause a recession. Yes, SoCal still has manufacturing believe it or not.

If the DT admin gets it's way, perhaps some of the govt biotech spending will go down, but there seems to be pretty strong resistance to that, so give this a low probability for now.

In my sober assessment, I still think there is too much demand pent up to see excess supply being a problem. More likely, blue color labor wages won't rise fast enough to keep housing affordable (not saying anything new here).

So for now, I see the cycle just kind of sputtering out as people get bored and realize there is more to life than how much the house appreciated last month/this year. It will be a healthy thing if we all kind of move on and let real estate be boring for a while. Just black and white numbers on a spreadsheet with reasonable down payments.

For my friends who think of buying, my concluding is basically, be sure when you buy that you will actually make/save money in a non-speculative way. I.e. assume perhaps 2-3% appreciation. If things go down, be prepared to ride it out.

The ones who lost the most in the last downturn were those with funny mortgages and those who took money out.

Thanks for indulging me.

Submitted by Rich Toscano on May 30, 2017 - 9:06pm.

I feel like people aren't making enough fun of the video.

Submitted by harvey on May 31, 2017 - 7:05am.

I just couldn't watch it all.

But I did find that it's sorta entertaining to move the slider to a random point in the video and grab a nonsensical quote:

"Liquidity is what's greasing ALL of the wheels and making EVERYTHING go up."

Submitted by FormerSanDiegan on May 31, 2017 - 8:50am.

I like her style.

Rich, you have some competition. Her hand-held charts just feel more homey, kinda like a 2nd grade teacher reading a book and then showing us the pictures. So much easier to consume than reading Piggington's complicated explanations and crisp, clear charts with legible axes and legends and citing of sources. Those are just way to exact and precise to be digested.

Submitted by kev374 on May 31, 2017 - 10:00am.

flu wrote:

people want to believe what they want to believe, especially if they are sitting on the sideline in the opposite direction of the trend...imho...

funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.

Her style may be unusual and there may be some conjecture but I do agree with the overall sentiment that things are getting very frothy in many markets. Then there are many upcoming wildcards - rising interest rates, a possible recession and incomes that are falling in real terms.

Submitted by flu on May 31, 2017 - 10:22am.

kev374 wrote:
flu wrote:

people want to believe what they want to believe, especially if they are sitting on the sideline in the opposite direction of the trend...imho...

funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.

Her style may be unusual and there may be some conjecture but I do agree with the overall sentiment that things are getting very frothy in many markets. Then there are many upcoming wildcards - rising interest rates, a possible recession and incomes that are falling in real terms.

I'm still waiting for all those people who recently took out a stated income ARM jumbo loans start defaulting on their $1+million mortgages....Oh wait, they don't really exist in mass quantities do they, because for practical purposes, lending standards are still pretty tight such that you can't easily take a stated income $1+million loan when your salary is $100k or less, unlike what happened before....

The nice thing about the equity markets and the economy of the past few years is that generally it has been good, and those windfalls allowed people to eat away at debt...That's one of the reason why I don't carry any mortgages on anything anymore except 1.....Again, minimizing risk for a rainy day by taking unexpected windfalls to reduce outstanding debt, "just in case". And for those folks that are locked in a historical low 3%ish 30 year fixed or <3% 15 year fixed, it would probably cost them more to move and rent than to stay. Deal of a lifetime for those folks.

Those primary homes make excellent rental properties and assets to pass on to heirs with extremely favorable tax benefits....Especially with CA property tax rules and with federal rules regarding "step-up" cost basis upon death...
essentially wiping out depreciation recapture and resetting capital gains cost basis of those properties for your kids, i believe....

No worries. Even if home prices were to correct 20%, it probably still wouldn't be a good time to buy, since home prices could probably still fall an additional 40+%, just like last time... :)
.

Submitted by harvey on May 31, 2017 - 10:23am.

kev374 wrote:
funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.

It's like that guy who has accurately predicted 14 of the past 3 recessions - and the naysayers still dismiss him!

Submitted by flu on May 31, 2017 - 10:28am.

Here's food for thought. If loan standards are still strict, what is allowing people to purchase expensive RE here in SoCal....

Or are we now assuming lending standards aren't so strict....

Submitted by kev374 on May 31, 2017 - 11:19am.

just because lending standards are tight does not mean speculators do not exist. The speculators this time around have been private equity and foreign investors, this is a widely known fact. It's a repeat of the past but just the actors are different.

It's not a matter of IF but when the next recession occurs and rents start softening. Oh yes, all the experts here proclaim that rents never fall - that is utter BS. I know during the last crash my rent fell by 30% in south OC, rents were crashing as well. What happens to all the rental investments, the rental backed securities held by private equity? Will they start bailing?

I am not saying that I know what is going to happen, but completely dismissing the possibility that prices are over inflated is completely short sighted.

Submitted by flu on May 31, 2017 - 11:41am.

kev374 wrote:
just because lending standards are tight does not mean speculators do not exist. The speculators this time around have been private equity and foreign investors, this is a widely known fact. It's a repeat of the past but just the actors are different.

It's not a matter of IF but when the next recession occurs and rents start softening. Oh yes, all the experts here proclaim that rents never fall - that is utter BS. I know during the last crash my rent fell by 30% in south OC, rents were crashing as well. What happens to all the rental investments, the rental backed securities held by private equity? Will they start bailing?

I am not saying that I know what is going to happen, but completely dismissing the possibility that prices are over inflated is completely short sighted.

If it floats your boat....If you say so...Meanwhile life goes on...

Submitted by flu on May 31, 2017 - 11:57am.

Foreign investors we already covered this. They at most make up of 1/4-1/3 of purchases at the high end...That still doesn't explain the 2/3 to 3/4 people who aren't foreign investors that are still buying. Institutional buying at these levels? no way...

.And the foreign investors you are probably referring to, ie China investors, aren't just "investors". We've already covered this over and over again... Unlike Japan, China investors aren't just parking their money here in the U.S...They are buying as plan B in case of political instability that will throw the wealthy class into jail.

I know for people in this country it's a concept really hard to understand. But look at those activists who are investigating Ivana Trump's sweetshops in China... One has been arrested and the other two just "disappeared"....This sort of arbitrary thing is what keeps the wealthy there concerned, because any sort of regime change, you can easily be the next target.

Unless the government significantly changes in in China (which it won't for a long time), that sort of instability will always be concern for the 0.1% wealthy there...unlike taiwan, japan, korea...And with a billion people, 0.1% is still a lot of people....
Just look at what's going on....MiraMesa slowly turning into something that is reminiscent of what happened in places like Diamond Bar.

yumyumyumyum

Just happening lately, a bunch of targeted businesses specifically for the asian community, in SD which historically been small...this is happening because there is a demand for it. demographics is changing significantly.Probably because the rest of SoCal is saturated and now San Diego is getting the spillover effect..And it isn't going to let up, especially that Trump crew now just greenlighted encouraging investment immigration (invest $500k+, get a greencard)...Looks like Emerald, Jasmine, Ding Ta Fung in UTC now has even more competition.....

Submitted by FormerSanDiegan on May 31, 2017 - 12:15pm.

kev374 wrote:
just because lending standards are tight does not mean speculators do not exist. The speculators this time around have been private equity and foreign investors, this is a widely known fact. It's a repeat of the past but just the actors are different.

It's not a matter of IF but when the next recession occurs and rents start softening. Oh yes, all the experts here proclaim that rents never fall - that is utter BS. I know during the last crash my rent fell by 30% in south OC, rents were crashing as well. What happens to all the rental investments, the rental backed securities held by private equity? Will they start bailing?

I am not saying that I know what is going to happen, but completely dismissing the possibility that prices are over inflated is completely short sighted.

You may be right, but Prices in San Diego were overinflated relative to rent and income in 2001. That didn't make it a bad time to buy or a good time to sell. Waiting 3-4 more years to sell or never selling resulted in much better outcomes than selling in 2001.

I agree that prices feel pretty frothy. At this stage I'm not betting on price declines from this point in the near future, but I'm also not advocating jumping in and buying anything either...

Submitted by kev374 on May 31, 2017 - 12:38pm.

flu wrote:
FThat still doesn't explain the 2/3 to 3/4 people who aren't foreign investors that are still buying. Institutional buying at these levels? no way...

People with good credit and good high income jobs, particularly dual high income earners. In a recession they are laid off the first. Even very responsible people are willing to highly leverage themselves with real estate based on their current financials with the mindset that it is the responsible thing to do because home ownership is a responsible activity - that is the common wisdom.

I know plenty of very responsible people who lost or almost lost their homes due to job loss during the last crash.

The key thing is that we are overdue for a recession and the political climate is also very tenuous. Is this pessimism on my part, I would just call it being guarded - history tells us the good times don't last forever. Recessions happen and the fallout from the next one could be serious.

Submitted by flu on May 31, 2017 - 1:26pm.

kev374 wrote:
flu wrote:
FThat still doesn't explain the 2/3 to 3/4 people who aren't foreign investors that are still buying. Institutional buying at these levels? no way...

People with good credit and good high income jobs, particularly dual high income earners. In a recession they are laid off the first. Even very responsible people are willing to highly leverage themselves with real estate based on their current financials with the mindset that it is the responsible thing to do because home ownership is a responsible activity - that is the common wisdom.

I know plenty of very responsible people who lost or almost lost their homes due to job loss during the last crash.

The key thing is that we are overdue for a recession and the political climate is also very tenuous. Is this pessimism on my part, I would just call it being guarded - history tells us the good times don't last forever. Recessions happen and the fallout from the next one could be serious.

If you say so...Like i said, trying to predict a future, you're better off throwing darts......

Frankly, I don't think you will ever be ready for home ownership. Because from all your historical posts, the only time it appears you would be comfortable to buy is an ideal situation in which there is a huge economic demise such that everyone else gets wiped out and housing is 50+% off, but magically you survive from layoffs, and emerge from it better than others and also be in position to buy.... That's despite your financial dependency being the same as everyone else that will be losing their job... If you really believe that we are headed for a huge recession, then being you are an IT worker, you will be laidoff just like everyone else you think will be (probably even earlier, because IT projects get cut early and shipped abroad at the slightly misses of a a company's wall street profit goals...it's an expense).....That is, unless you no longer count on your job to pay the bills.

It's the classic paradox we see time and time again by folks posting here, over and over and over again...Magically, despite most of us being not that much different from everyone else, that gets affected the same way by the say economic conditions, magically some of us feel we will be immune versus others...As you say, being financially responsible doesn't mean you won't get laidoff, or lose your job, or make you any more prepared in a large economic shitstorm, anymore so than last time when the shitstorm hit, and you were having a hard time finding an IT job.....So it appears, you're just looking for reasons not to buy...ever....which is really fine... Home ownership isn't really needed... it depends on each and every one of us, and what each and every one of us wants to get out of it.or not...

Sorry. I'm just calling it as I see it...Just saying....

Submitted by SK in CV on May 31, 2017 - 1:24pm.

harvey wrote:
kev374 wrote:
funny, I heard the same comments prior to the last crash! Some of the comments by users and economists here are very reminiscent of 2006 where contrarians were mocked and we know what happened shortly thereafter.

It's like that guy who has accurately predicted 14 of the past 3 recessions - and the naysayers still dismiss him!

It's even easier to explain that someone trying seriously to make predictions based on real data. I don't know who she is, but I suspect she works for the company that posted the video (which I admit, I only watched a few minutes). The company that posted the video sells gold. While I hate this phrase, it really is all you need to know.

Submitted by FlyerInHi on May 31, 2017 - 4:18pm.

Flu, this is how foreigners get EB 5 visa at $500k in "depressed" areas. Otherwise, it's $1 million.

I know some people who got visa but all them head to Cali because education sucks in Nevada. Pretty much all the new casinos in Vegas have foreign investors. There is a gaming commission website where foreign investors are listed.

The investors are not rich. They are middle class people who want an American education for their kids. Not a bad return for in-state tuition.

https://www.washingtonpost.com/investiga...

Submitted by poorgradstudent on May 31, 2017 - 4:41pm.

Rich Toscano wrote:
I feel like people aren't making enough fun of the video.

I'm fairly sure she has an awesome skull ring on her right hand.

And those paper charts are amazing.

Submitted by Escoguy on May 31, 2017 - 9:01pm.

Go to Balboa some evening, must be 50 Asian restaurants in the area,
Korean BBQ, Japanese BBQ, great stuff but often $25/plate for starters

Many Asian kids from UCSD go there to celebrate/relax on weekends.

Submitted by SK in CV on May 31, 2017 - 9:57pm.

Escoguy wrote:
Go to Balboa some evening, must be 50 Asian restaurants in the area,
Korean BBQ, Japanese BBQ, great stuff but often $25/plate for starters

Many Asian kids from UCSD go there to celebrate/relax on weekends.

Is this evidence of a bubble about to burst? Or that prices are going higher? Or just that people like Asian food? There have been a lot of Asian restaurants there for many decades.

Submitted by kev374 on May 31, 2017 - 11:16pm.

flu wrote:
Because from all your historical posts, the only time it appears you would be comfortable to buy is an ideal situation in which there is a huge economic demise such that everyone else gets wiped out and housing is 50+% off,

you make that statement like it hasn't happened ever in the past...it's happened in the very recent past, prices crashed 40% in 2008. Memories are short. It's happened in the past and there are indicators we are heading in the same direction.

The lady in the video is selling gold but that wasn't in context to what she was presenting. In addition she just presented some facts and said time will tell what happens. If her data is wrong then it would be make for a better response to refute it specifically than just calling her names..

You debate vehemently against a downturn yet do not provide any facts whatsoever. Please provide hard data as to why you think prices will NOT fall?

Yes, it's true that I don't have a crystal ball, but you don't either. The bottom could fall out tomorrow and real estate could crash 40% again just like in '08, the truth is nobody can know for sure. But you guys act like the downside can NEVER happen but of course the UPSIDE can because you are all vested in that area... this is not rational thinking, rather it is you who are looking at the situation with rose colored glasses just the the huge number of fools that did so in 2008.

Submitted by flu on June 1, 2017 - 12:16am.

kev374 wrote:
flu wrote:
Because from all your historical posts, the only time it appears you would be comfortable to buy is an ideal situation in which there is a huge economic demise such that everyone else gets wiped out and housing is 50+% off,

you make that statement like it hasn't happened ever in the past...it's happened in the very recent past, prices crashed 40% in 2008. Memories are short. It's happened in the past and there are indicators we are heading in the same direction.

The lady in the video is selling gold but that wasn't in context to what she was presenting. In addition she just presented some facts and said time will tell what happens. If her data is wrong then it would be make for a better response to refute it specifically than just calling her names..

You debate vehemently against a downturn yet do not provide any facts whatsoever. Please provide hard data as to why you think prices will NOT fall?

Yes, it's true that I don't have a crystal ball, but you don't either. The bottom could fall out tomorrow and real estate could crash 40% again just like in '08, the truth is nobody can know for sure. But you guys act like the downside can NEVER happen but of course the UPSIDE can because you are all vested in that area... this is not rational thinking, rather it is you who are looking at the situation with rose colored glasses just the the huge number of fools that did so in 2008.

I'm only making 3 statements....

1. The real estate crash of 2007 and the one during the S&L crisis in the 80ies all had the recipe of loose lending standards given a lot of people who otherwise aren't credit worthy the ability to buy homes they have no real ability to pay for.
Home prices might trickle down, but it's all about staying power...People who weren't very credit worthy had no way to weather any sort of blip in the economy. Most people are putting at least 20% down, some even more, especially in SoCal. For every one of your peers that is stretched thing, I can point at many equivalent peers who have no problem managing their debt load or have no debt on any of their homes they own. NorCal and SoCal are quite different from rust belt/blighted regions of the US which has no chance of recovering.

2. Home prices didn't crash 40-50% across the board all over SoCal and NorCal. IT wasn't a "widespread thing". It was a widespread thing in particular demographics where again sketchy financing, sketchy buyers with sketchy income was more prevalent. Did home prices crash 40-50% in Newport Beach on average? What about La Jolla?

3. I really don't understand the fascination of trying to predict a catostrophic crash that *might* happen god knows when maybe in your lifetime, and then basing a majority of one's financial decisions on that one time event... (Deja vu...)....As I said before, it's a parodox that I don't think folks that subscribe to these extreme viewpoints understand....IF that were to happen, you would be just as affected as anyone else that depends on a W2/1099 paycheck. You're in IT... I think during the real estate bust, you went unemployed for some time. The same reasons why you didn't buy during the last bust would be exactly the same reason why you aren't going to buy in the next bust cycle if it happens.

Before you go off an assume I'm bullish. I'm not... I don't care which way the home prices are going to go. I don't plan on selling. I plan on milking as much rental income as possible and passing my portfolio to my heirs so they can enjoy an easier life. The exception would be if I can get 3-4x of what I paid for those properties, then I might sell...... I don't deny a "correction" can happen... I just don't plan all my financial decisions based on that it will happen. Seems like a losing proposition....

Submitted by moneymaker on June 1, 2017 - 3:39am.

Good banter. The average 401k is the same as the average home equity for the average person. So what would hurt more a stock drop or a real estate plunge? Before 2008 i would have said that a real estate plunge would take longer and give people time to exit, but no longer. The real question in my mind is if things are as rosy as the markets and employment numbers say they are then why isn't gold down around $1000? Luck has been on my side so far but I recognize that it was just luck. We have an interesting situation now economically where the markets are hot and yet people like Carl Icahn and Bill Ackman are losing money,weird. I've increased my 401k contribution to lower my taxes but beyond that I have no investment advice. P.S.- Herbal life, clearly an investment pyramid, is up for the year as is McDonalds. Who would have believed that people would still be paying $5 for coffee that they could make at home for pennies on the dollar.

Submitted by flu on June 1, 2017 - 6:05am.

moneymaker wrote:
Good banter. The average 401k is the same as the average home equity for the average person. So what would hurt more a stock drop or a real estate plunge? Before 2008 i would have said that a real estate plunge would take longer and give people time to exit, but no longer. The real question in my mind is if things are as rosy as the markets and employment numbers say they are then why isn't gold down around $1000? Luck has been on my side so far but I recognize that it was just luck. We have an interesting situation now economically where the markets are hot and yet people like Carl Icahn and Bill Ackman are losing money,weird. I've increased my 401k contribution to lower my taxes but beyond that I have no investment advice. P.S.- Herbal life, clearly an investment pyramid, is up for the year as is McDonalds. Who would have believed that people would still be paying $5 for coffee that they could make at home for pennies on the dollar.

Neither, if you aren't planning to touch it for some time..And if your close to retirement, your 401k probably should be mostly in stock, but instead in cash or fixed income...just for the reason stated...in case it drops for a few years while you need it.

Submitted by harvey on June 1, 2017 - 7:13am.

flu wrote:
I really don't understand the fascination of trying to predict a catostrophic crash that *might* happen god knows when maybe in your lifetime, and then basing a majority of one's financial decisions on that one time event...

https://en.wikipedia.org/wiki/Loss_aversion

Submitted by spdrun on June 1, 2017 - 12:33pm.

Skelldumps have happened at least 4 times in the lifetimes of anyone over 30. 1987, 1991, 2001, and 2008. A dump where skells get burnt and the smart profit isn't a once in a lifetime thing, more of a once in a decade thing.

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