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  1. spdrun
    February 2, 2014 @ 10:00 AM

    Well, here’s hoping for a
    Well, here’s hoping for a three-PEAT of the late 70s and late 80s. (Thinking of growing a pornstache to prepare.)

  2. DWCAP
    February 2, 2014 @ 3:46 PM

    Rich, I like the last graph
    Rich, I like the last graph you show. Including extreme outlier bubbles like 2005ish time points only distorts the definition of a ‘bubble’ to something larger than the last one. At least, it does in the relatively short time spam you have posted. 2003-2008 ‘bubble’ is 14% of the total time span 1977-2013 graphed.

    The last graph to me makes a lot of sense. Prices are at traditional ‘overpriced’ levels that correlate with low inventory; and corrections as price revert to normal. But not at bubble territory that endangers crashing the local economy. It just doest scream ‘crazy’ after the drama of 2004-2008.

    • CA renter
      February 3, 2014 @ 1:49 AM

      Call me crazy, but I remember
      Call me crazy, but I remember the 1989 bubble, and it was a bubble. The 2000-2008 bubble was massive credit bubble with housing as the most obvious beneficiary of the excess credit.

      Also, in the 70s and 80s, we had demographic shifts that we don’t have today: Baby Boomers entering their peak buying years, and women entering the workforce en masse. Add to that the credit expansion which began in the early-mid 80s, and it’s easy to see why prices got so high during those earlier two peaks.

      IMO, the main reasons we’re seeing asset prices climb like they have over the past few years are the incredibly low interest rates and massive investment by foreign entities and speculators (foreign and domestic) who are desperately searching for yield in this ZIRP-ish world. With the wealth gap the way it is, there is a lot of “excess” money at the top looking for a place to earn yet more money. Not sure how this will end up, but I just don’t think it’s indicative of a healthy economy.

      • zak
        February 3, 2014 @ 2:06 PM

        Agreed, I would love to see
        Agreed, I would love to see Rich somehow able to factor in government intervention into these charts. Since QE3 just started it’s taper and markets (especially emerging) started going into turmoil, will taking away the punchbowl start to bring on the hangover from the cheap credit orgy we’ve been on? I guess there really is no historical precedent for something like QE3, so how could we begin to know the impact it has had or what taking it away will do?

        They say don’t fight the fed, and the fed is fighting to keep house prices high, but saying they will stop fighting slowly… They could always say one thing and do another, but doesn’t this tend to look like there will be a downtrend in prices as the fed withdraws asset support policies?

      • Anonymous
        February 4, 2014 @ 1:15 AM

        doesn’t this tend to look
        doesn’t this tend to look like there will be a downtrend in prices as the fed withdraws asset support policies?

        Not downtrend necessarily, but definitely downward pressure. And if I were to bet, I would bet on a downtrend too.

        As the Fed buys less mortgage backed securities, mortgage rates will go up which will take some heat off the market. My question here is – without the Fed depressing rates, what is the new mortgage rate equilibrium?

      • moneymaker
        February 8, 2014 @ 1:07 PM

        I’m sorry Rich but this graph
        I’m sorry Rich but this graph makes no sense to me, why would you divide by equally weighted rent and incomes. Rent is money going out , income is money coming in, so they should not be grouped together in my opinion, but that is just that, my opinion. I guess from a landlord perspective they would be in the the same grouping. I was thinking as a home buyer however. From previous graphs I recall the bottom being in spring of 2009, this graph shows it being in 2012. I’m currently drinking wine so let me know if I missed something.

      • Rich Toscano
        February 8, 2014 @ 1:24 PM

        moneymaker wrote:I’m sorry
        [quote=moneymaker]I’m sorry Rich but this graph makes no sense to me, why would you divide by equally weighted rent and incomes. Rent is money going out , income is money coming in, so they should not be grouped together in my opinion, but that is just that, my opinion. I guess from a landlord perspective they would be in the the same grouping. I was thinking as a home buyer however. From previous graphs I recall the bottom being in spring of 2009, this graph shows it being in 2012. I’m currently drinking wine so let me know if I missed something.[/quote]

        Rents and incomes are the two fundamentals for housing:

        – Incomes show how much potential homebuyers are earning
        – Rents show how much it costs to put a roof over your head in San Diego, without including the “investment” aspect of home ownership

        Both are good fundamental factors for home prices, and both ratios (home prices to rents, home prices to incomes) have been very mean reverting over time. Combining them together is just a way of looking at the two main fundamental factors in one swoop.

        The fact that one is money going out and one is money coming in (from a renter/homebuyer perspective) is not relevant…. I’m not trying to look at it from anyone’s “perspective,” I’m simply looking at prices in relation to their fundamental underpinnings, which I have always argued are best represented by local incomes and rents.

        2009 was the bottom in nominal prices, early 2012 was the bottom in inflation adjusted terms and in terms of all the ratios (price to rent, price to income, price to avg of both).

      • usr145
        February 9, 2014 @ 2:03 PM

        when calculating bubble
        when calculating bubble threshold we should definitely ignore the mid 2000 bubble.
        since the graph is based on income and rent based. but mid 2000 bubble is happened b/c of stated income and zero down loans. these situations should never happen in the near future at-least for a decade, so we can definitely ignore that from future calculations.

      • spdrun
        February 9, 2014 @ 5:42 PM

        ^^^
        No, those situations

        ^^^

        No, those situations happened because of 120% LTV loans. I’ve seen quite a few units where the amount owed was at least 20% OVER peak value.

      • moneymaker
        February 11, 2014 @ 7:45 PM

        When doing a geneaology
        When doing a geneaology search I found out my grandfather made $900/year as a laborer and paid $9 a month in rent back in 1940. Now that is what I would call affordable. Granted it was not here in CA but in upstate NY. I suppose that it might still be possible to pay 1% of yearly salary in rent today, but not in CA, unless making some good wages.

      • spdrun
        February 11, 2014 @ 11:24 PM

        Still possible today — there
        Still possible today — there are small towns in upstate NY or Michigan where you can rent a 1-bedroom apartment for $300-400 per month. If you’re making $30 grand a year, the numbers work out similarly.

        Even in some bigger cities, the numbers can work out. You can still rent an efficiency or small 1 br apartment in Philly for $400-600 per month.

      • moneymaker
        February 12, 2014 @ 6:52 AM

        I have no idea of the size of
        I have no idea of the size of the rental, but do know there were 4 little ones, ages 1,2,3,and 4.

      • spdrun
        February 12, 2014 @ 8:31 AM

        Getting close — here’s a
        Getting close — here’s a 3-bedroom apartment in rural Michigan for $600…

        http://grandrapids.craigslist.org/apa/4312575556.html

        And an entire house in Grand Rapids /w garage for the same price…

        http://grandrapids.craigslist.org/apa/4324520380.html

        Farm house for $700/mo…

        http://grandrapids.craigslist.org/apa/4307343070.html

      • CA renter
        February 12, 2014 @ 11:58 PM

        But can they earn the same
        But can they earn the same income as laborers, relative to rent, that moneymaker’s g-g-father did? That’s the main issue.

        Sure, there are lots of places where rent is cheap, but there’s a (not so good) reason for that: no jobs! 🙁

      • spdrun
        February 13, 2014 @ 10:24 AM

        Not really — it has more to
        Not really — it has more to do with land availability. You have metros which have a lot of empty land and can still build out, which keeps rent cheap, even if there are jobs.

      • Jazzman
        February 14, 2014 @ 10:32 AM

        moneymaker wrote:When doing a
        [quote=moneymaker]When doing a geneaology search I found out my grandfather made $900/year as a laborer and paid $9 a month in rent back in 1940. Now that is what I would call affordable. Granted it was not here in CA but in upstate NY. I suppose that it might still be possible to pay 1% of yearly salary in rent today, but not in CA, unless making some good wages.[/quote]
        In much of Europe, farm laborers paid a pepper-corn rent and were living in tied dwellings, which came with the job. Not sure if this happened in the US, but it might explain very low rents in rural areas.

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