None should buy in this corrupted country I think. Think about this, when rates go up again, who could afford? Apparently with the mounting job losses, more houses are becoming ghost houses. Plus the ever rising fees from the cities, states will slave you forever since these parasites need some blood to drink.

MarkM said:BEEFjerKAY said:I think it is more likely it will be the pre-WW2 (house as shelter only) line than the post-WW2 (house as shelter + investment) line.I guess it is now my turn to ask you politely, "why more than just because?" RE did not have as much income generating possibility pre WWII because we were still primarily an agrarian society with fairly low mobility.

EXACTLY!

We moved off the farms and into the cities ... a proverbial sea change in housing styles. As you point out, that sea change has run its course and not likely to reverse. So at the very least residential real estate will move forward without the tail wind it experienced while that change was underway.

FWIW, the housing those agrarians left behind crumbled away and went to zero as anything more than farm land.

The fundamental problem is not just the number of houses, but the sheer overhang of residential square footage in total. Complicating that overhang is the fact that each American is already "consuming" several times more square feet of housing per person than ever before in history.

There's more than one trend reverting to the norm.

MarkM said:Wow, I'm surprised how much activity this has generated! For the last year or so, I expected this conversation to just peter out. I'll have to take some time later to digest all the great comments and links.

BEEFjerKAY said:Still waiting for someone to provide a reason for why residential real estate prices will stabilize other than "because" ...Well .. they will eventually stabilize for the same reason that I always felt they had to come down, but working in reverse: because when prices come down enough, and/or rents/inflation goes up enough, then the rent vs. ownership ratio will be back in line.

For this argument, I'll let a picture stand in place of my usual thousand words : graph

And another related graph on income ratios, for fun: Text

And another, one almost too busy to grapple with, but it gives you a sense: Text

These are national, so pretty much useless for individual application, but they are at least useful for explaining "why now?" BTW, these are all from calculatedriskblog.com (definitely worth checking out)

Also, I feel that I need to be clear about what I personally am trying to say when I wrote "now." I did not mean literally TODAY. As I hope I made clear elsewhere in the OP, I don't think the bottom is TODAY. I'm quite sure it isn't, in fact. Dean Baker and other claim that the decline is actually accelerating. No, just like the very first thread, I'm not posting this thread because I'm trying to "call" 11/26/03 as the top, or 3/17/09 as the bottom. People always got hung up about that 11/03 date on that first thread to prove it was silly ... or other silly people got hung up on defining the word "bubble" so they could declare if the "call" was right or wrong ... I never could understand why, that always seemed childish to me. I'm not trying to be right, I'm just trying to get informed and share thoughts with other informed people.

The only reason that thread might've been worthwhile was BECAUSE it happened way before the: it gave people enough time to think and act accordingly, since personal housing circumstances are not something you change on a dime . I'm posting these threads in each case because I'm saying "the inflection point is not today, but it has to happen eventually, and it seems like it could be coming soon enough that it's worth talking about how to recognize it, and what to do if you think it's near" I think it's close enough now (even if the bottom is over a year off) to start talking about how to recognize it when it comes. To me, these threads were never about saying what is happening right now for its own sake; they are about figuring out what is happening for the sake of planning what to do in the future -- but only in very generalities; I'm with geo123 that you can't exactly time this, that is impossible. If I buy within 12 months of the bottom, I'll be happy. That is why I finally thought it high time to change the title: talking about how bad the bubble is and will become has not been interesting to me for a long time, if you haven't reacted yet it's pretty much way way way beyond too late. It's time to think about when it ends & what you'll do when the bubble has finished deflating.

In that spirit, the apparent acceleration in ugliness is actually what has me intrigued to start looking for a bottom, paradoxically. If you look at the Case-Shiller index you see it too, from Q2 to Q3 the decline amount increased 80%, and Q3 to Q4 it increased 120% Text. In other words, the Q4 percentage decline (7.4%) is 3.5 times the Q2 decline. There was some talk last year about how projecting the rate of decline meant we would probably not return to long term norms until 2011 or thereabouts. But that assumes a steady decline, not a "blowoff bottom" If the decline is truly accelerating, then (short of Great Depression) the bottom may not be as far off. I used to think myself a year ago that this would be a prolonged slide. But the decline has been more breathtaking than I ever imagined, and because I believe in rational markets, and that is a hard long-term floor, ever-uglier declines just make me wonder if the bottom is getting closer at hand, not farther. Even if we overshoot, it will still return to the trend. That is what made me believe in the bubble in the first place, and I'm not about to stop believing in it now. I don't know when it will get back, and what will happen in between now and then, but it will eventually get back, and keep gravitating back.

Mark-

Great job, as usual. You really nailed it. It was me that asked you to define bubble, who you are calling a child. You never give up do you? How many years ago was that? As I have explained countless times, asking for a definition of bubble was not meant to catch you on "a call" as you put it or anything like that. It was meant to define terms so we could have a reasonable conversation. It is no worse than asking for what is meant by "recovery" or if I predict a housing boom is coming. Lets please define our terms if we are going to throw around loaded words.

MarkM said:manuvns said:Cramer just called housing will bottom out in exactly 105 days from today . Another great prediction ...lol

TextHe must be long Toll Bros, LOL.

Wonder if Stewart has tape of him saying so, by any chance?

I'm not sure what to think of this. I guess I'm just going to conclude that what he's saying is irrelevant, since hardly anyone who is in position to buy a house is likely paying attention to him.

Its easy to dismiss Cramer, but he makes several good points. Some of the changes, especially the mark to market rules, are very encouraging. Encouraging that is to people that hope for a strong recovery and are not vested in a gloom and doom scenario.

DaveHanson said:Taken together, my sense is that we've entered an era of much buckling and shifting. So sure let's be mindful of trends, but also of what will break old trends and carve new ones for us to revert to.Dave, we have been entering eras of buckling and shifting ever since Hesiod aka "this time it will be different."

Seriously though ... I should not have to tell you of all people, that once house prices get to the point that the revenue stream from rental income becomes attractive, houses will be investment vehicles again. 32%, +/- 5%, of the US households have been renters for 60 years, and with that number at a bit over 70%, you can't convince me that there won't still be some of the 67% renting to at least 30% in the future. There will still be supply, there will still be demand, there will still be ability to pay as a % of income, there will still be rental cost to ownership cost ratios encouraging people to take the leap or not. The numbers just have to line up again to make it happen, that's all. It may be painful getting there, but get there we will.

The whole reason there was a bubble (in the sense of something that had to burst) was that deviations from these long term lines is either unsustainable, or very very slow (the lines are maybe slightly curved). Having just seen this belief in the historical norms of economics validated by the last two years, I'm not going to give up on them now!

The only thing that threatens this is if our transportation network fails (making us less mobile again). In that case "location location location" really does take over, we all move into the cities again (except, yes, maybe those working via the net. But I submit that qualifies as one of those slow pulls on the curve of the line, not somethign that happens in the space of a decade or less).

Hopefully we're very close to bottom,I'm feeling more optimistic about it everyday.New home construction UNEXPECTEDLY jumped 22.2% in February..Wachovia is advertising 4.5% 30yr fixed on their website this morning,just in time for the spring buying season.

The recession is driven by consumer confidence,or lack thereof.....There's been a change in attitude in the last two weeks,away from socialism and favoring capitalism.I guess folks like Warren Buffet and even Bill Clinton have finally knocked some sense into their heads.The tone is more upbeat,markets are rallying,even the NBC nightly news has been broadcasting some "good news" about the economy.If this continues,we'll be back on the road to prosperity in no time.

BEEFjerKAY said:Still waiting for someone to provide a reason for why residential real estate prices will stabilize other than "because" ...There are numerous reasons for this. First, as several people have already appropriately pointed out above, in many cases declining housing prices have caused increased rental demand, which has caused rental prices to go up since all the "would be" buyers still have to live somewhere, so the ownership costs in a lot of areas are currently significantly below rental costs.

As I've previously posted, for instance, not too long ago I filled a vacancy in one of our condos (and received significantly higher rental rate than the already high rental rate that it commanded just a year ago) and, after 2 weeks on the market, I ended up with four (4) very strong competing applicants, which is unheard of in our area. I am seeing similar reports from both small landlords and large institutional ones in different states. In our case, our net monthly profit on the condo (after you account for the tax deduction and the principal prepayment portion of the mortgage AND for the opportunity cost of our equity in it) is 47%. Under these circumstances it simply does not make any business sense for a lot of people to continue to rent than to buy (assuming that all the other buying conditions are met, such as willingness to remain in the same area for a few years, relative income stability, ability to qualify for a loan, etc...).

There are numerous other reasons that the housing market simply will not remain inefficient for years to come. One of the reasons that people are reluctant to purchase right now is attributable in part to the same reasons that cause the demand for durable goods to decline in a recession. Namely, economic uncertainty causes people to postpone big purchases and buying a house is about as big of a purchase as many people will make in their lifetime. Once people feel more secure about their jobs, they will be more willing to enter into financial commitments, such as buying various discretionary items, durable goods and, yes, housing.

Again, none of this means that average housing prices will skyrocket (I don't know whether it'll happen and, frankly, don't really care). All I am saying is that I have very little doubt about the fact that the inefficiencies currently found in the housing market will disappear sooner rather than later (which means that marketing times will greatly shorten and all the best deals will evaporate WAY before average prices go up), so that we won't have people like me making 47% net profits on rent and people's willingness and ability to purchase housing will unquestionably increase once they feel better and more secure about their jobs and income.

Can we come out of this Talk Radio talking points. Govt can't ask companies to stop paying bonuses, how can they ask banks to give loans to deadbeats. This is a hole which banks dug for themselves. Even the talk of less regulation applicable to derivatives only. No one needs to teach (regulate) banks on whom to give credit and whom to not

OverRuled said:The housing bubble was caused by the government encouraging banks to give loans to those who could not pay back. Now that it busted, the government comes to the rescue by pumping more money into banks so they can give loans again to buy other things most likely to those who will not be likely to have ability to pay back. Because if anyone needs a loan to buy anything that he/she can afford (ie with enough credit)to pay back then banks will give loans without government intervention.

Therefore this next bubble should be called the "everything else but houses" bubble.

Dealguy123 said:You're right.. We've had a global "credit bubble." Now.. who you "blame" for that is really hard to say. But again, you could certainly make the case that it was the banks (or anyone that had money to loan) with irresponsible lending/dumb practices. The insane leverage of many banks all across the globe is a real problem. So ultimately, you *could* probably make the case that "irresponsible lending" is the root of the cause (you could probably pencil China into that list, because they should of cut off the crack addict before it got this bad (the US)). How do you make that case for countries like Canada, which never had a credit bubble, has practically no subprime mortgages, makes it next to impossible to purchase real estate there with less than 20% down, has extremely conservative lending standards, non deductible mortgage interest and has practically no real estate flipping/speculation? Yet, it is undergoing its housing housing correction in a lot of areas. As I pointed out above, there is a myriad of incredibly complex economic forces that caused the housing correction in the US and abroad and it is rather shortsighted to suggest that irresponsible lending and irresponsible buying were the primary if not the sole reasons for it.

The reason that this point is important in this discussion is because I keep seeing suggestions that real estate cannot stabilize and appreciate without "irresponsible lending and borrowing." Experience of other countries, like Canada (as well as the US before the 100% LTV no-doc loans were introduced), tells you that this is simply not true and that access to easy financing is just one of a number of factors that influence real estate appreciation. Hence, it would not be difficult to have healthy real estate appreciation without 100% LTV no-doc loans.

Dealguy123 said:Notice, I said "global credit bubble." If the Atlantic Ocean tends to rise a foot, I'm willing to bet the Pacific Ocean rose some as well. What I mean by that is that excess money got pumped into Canada like many places. Foreigners from Europe/US put 20% on their Canadian property, but where did they get their money from? A HELOC in the US or Europe? We're all living on the same rock, and our economies are very much interconnected.

Even sound institutions/systems and practices can be corrupted because the rules don't apply across the whole globe.Precisely. There is a myriad of incredibly complex economic forces that caused the housing correction in the US and abroad and disappearing irresponsible credit was just one of such factors. Hence, it would not be difficult to have healthy real estate appreciation without 100% LTV no-doc loans.