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Herald, et al: Housing rebound is in sight
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PostPosted: Wed Oct 28, 2009 1:48 pm GMT    Post subject: Herald, et al: Housing rebound is in sight Reply with quote

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Description: Herald, et al: Housing rebound is in sight
URL: http://news.bostonherald.com/business/real_estate/view/20091028housing_rebound_i ...truncated...
Info/Broken?: http://www.bostonbubble.com/link_info.php?id=2644

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admin
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PostPosted: Wed Oct 28, 2009 1:53 pm GMT    Post subject: Reply with quote

There is a lot of talk about a "bottom," "recovery," and "rebound" going around right now. I wanted to capture a little of it as a time capsule for later. The premise seems to be that the bottom is here because sales volume has picked up and price declines are a lot smaller than they have been. Why anybody would attribute this to a "bottom" rather than to the introduction of the $8K tax credit is beyond me. The MAR even admitted as much.

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Renting in Mass



Joined: 26 Jun 2008
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Location: In a house I bought in December 2011

PostPosted: Wed Oct 28, 2009 2:23 pm GMT    Post subject: Reply with quote

Quote:
Why anybody would attribute this to a "bottom" rather than to the introduction of the $8K tax credit is beyond me.


Because they're either dumb or disingenuous. Or both. Mostly both.
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john p



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PostPosted: Wed Oct 28, 2009 2:49 pm GMT    Post subject: Reply with quote

I think a lot of this is like portfolio investment strategy. We have up, down, and mixed cycles. Depending on what market your company serves you're either busy or slow. I think there are enough people that are busy to sustain the statistics we're seeing.

However, it is the potential that is building on the sidelines that is concerning.

The $8k first time homebuyer absolutely had a very big impact on the starter home stock. By supporting that price point, it also helped a lot of people in homes remodify their mortgages because the appraisals were more favorable so more people didn't have to sell if their adjustable rates kicked in; they had a chance to refinance.

The other thing is the "fire rating" on the structural members is running thin. For example, when you spray on fireproofing on steel members it has a rating of say 1 hour or 2 hours depending on what you specify. What I'm saying is that there may be a lot of families that have wage earners who are laid off who are burning through their emergency funds (their fire rating) and the heat is getting close to financial meltdown or deformation. Once you have enough families that are desperate you'll see more desperate sellers. I think we saw more deformation at the price points where families live month to month and as soon as they lost their jobs they were cooked. In the mid range, these families most likely had emergency funds that could sustain them for a while. That is wearing thin. Further, many who were collecting unemployment are having that run out, so the safety net is getting heavy.

Next year, we may see more taxes; if they let the Bush Tax Cuts expire. People have to factor that into their financial planning. They have charts showing the Deficit factoring the Bush Tax Cuts and without. It may be difficult with the Party in Power to see those tax cuts extended.

What I'm focusing on is not only trying to take measure of the fire rating on the existing structure, but waiting to see when and if a new head wind will hit people's sails and things start to really move again. The correction goes to a certain point where people say, "Dam, that's pretty cheap; there has never been a better time to get a boat, or a Brooks Brother's Suit, etc." and then they buy it. I bought a set of Craftsmen's Mechanic's Tools because I knew I'd have them forever and the time was right to get them. Anyway many people know that to become wealthy you have to invest at the bottom. I know this is somewhat bubble thinking, but when things get cheap enough, many who have resources want to be part of the upswing. It seems guys like "Renting in Mass" see another 10 to 15% more in the correction. I'm not quite sure; I think it is case by case, town by town. Lastly on this point, I think new buyers in the past could overextend, but now kids are so financially bonded with student loans that even if a house is a great deal in historical terms, the kid with tons of student loans can't afford it. Perhaps the upper price points will behave in one manner and the lower in another, but eventually without a solid affordable base, everything will backlside.

I always thought that the unit of measure (the Dollar) would deform but I'm again confused as to why mortgage rates aren't going up to reflect the potential inflation premium. I think that people fear the sinking correction (deflation) and that we still have the FED with a cheap cost of capital policy.

We need something kind of big to overcome the downward potential. I think what goes down sometimes goes back up so sometimes the downward force gets to an inflection point and creates its own upward motion. I say this because as humans, we will chose to not suffer for very long. The deterministic upward force will be chosen by the people in power and this time, you'll see winners and losers. The Democrats are trying to say that let's take the top 2% or so and let them lose so the rest of us can win. The Republicans are saying that top 2% are creating the abundance necessary to provide for most of us. My philosophy is that we need a revolution of power and we need the gifted to be able to exercise their talents and not be blanketed by large corporate behemoths where they get buried by corporate red tape, or government regulation/intervention, or taxes.

The guy who invented the personal computer changed the world. The guy who invents a more efficient carburetor or home furnace, etc. is out there and I think it is these guys who will get us out of our problems not a politician who gives a nice speech. I want this inventor to be able to get capital and get through the red tape and get his idea to market. 50 years ago, the Democrats were right because not enough people were getting higher education, it was just the rich. Right now, I believe in a meritocracy and I believe there are enough people out there with the right education to be able to solve our problems; we just need to get them some daylight and a lane to run through. Think about the past decade and a half; the entire Internet was populated. There is a tremendous power of knowledge out there, so I think that problem solving will grow tremendously. I'm personally learning a new word every two or three days just from reading articles. That never happened ten years ago.
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Renting in Mass



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Location: In a house I bought in December 2011

PostPosted: Wed Oct 28, 2009 3:02 pm GMT    Post subject: Reply with quote

Quote:
It seems guys like "Renting in Mass" see another 10 to 15% more in the correction.


I wouldn't say I think it will happen. I have no idea. It would happen in a rational universe. We've gone down the rabbit hole though.
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john p



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PostPosted: Wed Oct 28, 2009 3:05 pm GMT    Post subject: Reply with quote

http://gearwrench.com/new_products/

These products give me faith that things can turn around. When you see humans coming up with a better mousetrap, or solving basic low-tech solutions better than prior generations, you know that the brain power is working.

This company offers a new pry-bar, nail puller, adjustable ratchets etc. These tools have been around for generations and our generation is improving them; that is progress.
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PostPosted: Wed Oct 28, 2009 3:28 pm GMT    Post subject: Reply with quote

I get what you're saying, but I don't think treading water until the economy improves will be enough to ensure that real housing prices will trend up from there (as would be the case if now were the bottom). The decline in housing prices was not triggered by the recession. In fact, the decline in prices started and continued for an extended period of time before the recession. It isn't enough to assume that when the recession goes away, the decline in prices will go away too. The underlying factors of lack of affordability and unsustainable lending which triggered the decline to begin with still remain, albeit not to the same degree, and not in all neighborhoods. The price to income ratio is still abnormally high and the inflation adjusted housing prices are still above their long term average for all tiers in the S&P/Case-Shiller Index for Boston. A general uptick in the economy might slow the pace of real price declines, but it doesn't treat the original cause of the housing downturn and so won't necessarily equate to a bottom. Though I could envision a scenario with relatively flat nominal prices for an extended period of time while incomes play catch-up.
Quote:

I always thought that the unit of measure (the Dollar) would deform but I'm again confused as to why mortgage rates aren't going up to reflect the potential inflation premium.

For starters, The Fed has been buying mortgage backed securities as part of it's new experiments with "quantitative easing", which has pushed mortgage rates down.

It can undertake this and other stimulative activities because foreign governments are still buying US government debt. In fact, the downturn actually increased demand for US debt because it was seen as the safest investment out there, and the downturn caused a lot of money to flock to (perceived) safety. That belief in the dollar's safety isn't unfounded - the US has a very long and respectable history of debt repayment. However, we are earning a premium beyond that because the US dollar is the only game in town. That won't last. Many officials, including US ones, have made statements to the effect that it is a foregone conclusion that the US dollar will not be the sole global reserve currency at some point in the not too distant future. I expect rates to be a good bit higher once this occurs, if not sooner.

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john p



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PostPosted: Wed Oct 28, 2009 3:39 pm GMT    Post subject: Reply with quote

Renting:

I must have misunderstood your post in the Government Intervention topic:

Quote:
Quote:
What if it requires continually increasing intervention just for prices to continue to (almost) tread water?


I think we're gonna find out! My guess is that increasing intervention becomes impossible (we might already be at that point), and prices eventually return to sustainable levels on par with historical norms. I haven't looked at the charts in a while, but I think getting to that point only requires another 10 or 15%. The problem is that the banks can't survive that.


To go along with your "rabbit hole" concept, I think that next year not only will we have to deal with the Bush Tax Cuts ending, but we might get hit up with a ton of new State Taxes and fees because the State is hurting and even Town Governments are in trouble so they want to vote tax Overides and even the Massachustts Municipal Association is posing questions about Proposition 2 1/2

http://www.mma.org/events-mainmenu-47?task=view_detail&agid=337&year=2009&month=10&day=24&catids=59|60|116|114|115|113|61

Think about it, what if next year we get hit with (all at once) Federal taxes, State Taxes, and Local Taxes. All of these levels of government are bursting at the seams. During the bubble years they just kept spending and hiring and even last year they blew threw their emergency funds (fire proofing) or rainy day funds or stabilization funds whatever and they didn't slow down in their spending. This year is a delayed year for governments, the private sector got slammed in 08 and 09, but the public sector is getting a delayed reaction and the Unions are basically saying, tuck it to the taxpayers.

Trust me, taxes next year on all fronts may go up and that bite is going to hurt our economy. We need some big ideas to solve our problems to get some industries moving and capital flowing. Government is going to try take a big bite out of us, and the worst part is that this is just the past few years of Deficits not even considering the new proposed spending which dwarfs the stuff that is already causing major cuts to State and Local Spending. The Rabbit Hole is Government Spending. What happened to the Credit Markets in Sept. 2008 was Septic Shock

http://en.wikipedia.org/wiki/Septic_shock

caused by the subprime mortgages defaulting all at once. It is absolutely critical for our fellow countrymen to understand the true cause of this and not let politics or poor journalism block the truth, because the Subprime Crisis was something our economy could absorb and recover from, this new Government Spending isn't.
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Renting in Mass



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PostPosted: Wed Oct 28, 2009 5:24 pm GMT    Post subject: Reply with quote

My 10 or 15% guess had a pretty big caveat though. When I said "the banks can't survive that," I was getting at the fact that the banking system/government can't handle the additional 15% loss that "should" happen. They are going to do everything in their power (including unprecedented and unpredictable means) to prevent it from happening.
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Renting in Mass



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PostPosted: Wed Oct 28, 2009 5:41 pm GMT    Post subject: Reply with quote

Quote:
Though I could envision a scenario with relatively flat nominal prices for an extended period of time while incomes play catch-up.


I think that's what the government is trying to engineer. It would be a crappy outcome for first-time buyers, but it's probably the right strategy overall.

I'd be more willing to overpay for a house if I was more confident that they could pull it off.
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john p



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PostPosted: Wed Oct 28, 2009 6:05 pm GMT    Post subject: Reply with quote

So what you're saying is an interesting point.

Let's compare what we think is the natural depth to market correction (how much further we think the prices will drop)

versus..

How much resources it will take to try to hold up the market.


We got a taste of what the downward spiral is like i.e. what happens when people can't refinance their ARMS because they're upside down and banks get stuck with homes that are worth significantly less than the money they loaned out.

Further, how long can the FED hold out in trying to help keep the mortgage rates lower?

If what Admin says is true, mortgage rates will go up to reflect inflation and due to affordability reach heights, house prices will have to come down.

If I had to define what I have gathered in the Boston Bubble's blogger's house purchase strategy it is:

Hold out until this safety net gives, get the house for the absolute lowest price using your large down payment that they built while renting, and then refinance when rates drop eventually.

If I'm in the ballpark, the next step is to define diagnostics that represent the conditions that need to be met in order to put this in to play...
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Renting in Mass



Joined: 26 Jun 2008
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Location: In a house I bought in December 2011

PostPosted: Wed Oct 28, 2009 6:29 pm GMT    Post subject: Reply with quote

Quote:
Hold out until this safety net gives, get the house for the absolute lowest price using your large down payment


I'm not concerned with getting the absolute lowest price, but I would prefer that if the safety net gives, it does so before I buy a house rather than after.
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PostPosted: Wed Oct 28, 2009 6:37 pm GMT    Post subject: Reply with quote

Quote:

If I had to define what I have gathered in the Boston Bubble's blogger's house purchase strategy it is:

Hold out until this safety net gives, get the house for the absolute lowest price using your large down payment that they built while renting, and then refinance when rates drop eventually.


Do you mean me specifically or just the general line of thought in the forum? I'll speak for myself, anyway.

No, I'm not holding out for the absolute lowest price, and no, I'm not holding out for a higher interest rate with the goal of being able to refinance later. What I am waiting for on the economic front is one of two things: 1) for affordability to improve to the point that it is better than, or at the very least not so far from, the historical average, or 2) for the total real amount that I would stand to lose from further declines to be small enough that I wouldn't care. The affordability just isn't there yet. The price to income ratio for the area was still over a standard deviation above the historical average at last check (I'm eager to update that once the U.S. Census Bureau releases updated income stats). It's not about looking for the absolute lowest price, it's about waiting for a price that isn't so far away from what it has historically been. The mortgage rates come into play because the still-high prices could not exist without historically low interest rates (or some other artificial market manipulation). This affects my trigger #1 because the low rates are helping to keep prices high and it affects trigger #2 because lower rates now make the risk of price declines much higher given that rates are more likely to rise in the future.

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Renting in Mass



Joined: 26 Jun 2008
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Location: In a house I bought in December 2011

PostPosted: Wed Oct 28, 2009 7:10 pm GMT    Post subject: Reply with quote

Quote:
for the total real amount that I would stand to lose from further declines to be small enough that I wouldn't care.


That's a good way to put it.

I agree with both of your triggers. I'd also like to see a mortgage market that isn't driven by a shaky FHA giving out questionable loans. That seems unsustainable to me.
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john p



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PostPosted: Wed Oct 28, 2009 7:23 pm GMT    Post subject: Reply with quote

I think that from what I gather overall on this forum that many first time buyers think we still have a ways to go in the correction so they are holding out their purchases. I don't have any qualms with this, hell, why not if you believe it... Further, they see an artificial floor being held up by the government and they see that safety net giving. I don't attribute it to any particular one, it is just my general observation...

The two issues I would have using your method are: first, your price to income data will always be a bit delayed because doesn't it take a while to get data on people's income? I have yet to find a source that shows the family median income in any given city that is current. Second, your chart begins with the mid 70's and in many of the areas where housing was more "affordable" we also had much higher unemployment.

http://en.wikipedia.org/wiki/File:Us_unemployment_rates_1950_2005.png

Also, Boston was an entirely different City than back in the days.

http://1.bp.blogspot.com/_drUMJ9HF-tQ/ShK9sGa4NOI/AAAAAAAAITo/udH__FPCB1g/s400/bus.jpg

http://cache1.asset-cache.net/xc/50695483.jpg?v=1&c=IWSAsset&k=2&d=4996399091E83186ECADF8F807CDFF2D688C6CDC44E04CDD

I think you recognize this, but I'm not sure if you're a native and are aware of how much of a transformation Boston has gone through.

Your last few sentences are what I was trying to say as well, that many acknowledge that lower mortgage rates are being potentially artificially being held down and that when inflation does kick in, there will be more pressure for price drops. I mean if you believe this, of course you should wait until you feel comfortable. I don't have an issue with this. In fact, I'm always trying to bring up the context and economic forces that would bring about inflation, deflation so it helps people gauge this better...

Also, on the chart you referenced, what color line am I benchmarking to identify the target you're looking at?
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