I Hope The Housing Market Crashes

[Dawoofdaddy]

wvu, pinpointing something 5 years from now is a crapshoot, for we have no idea which course this bubble will take. However, I think the debate whether or not this is a real estate bubble has been made whole.

The govt could start dropping dollar bills out of helicopters (which believe it or not, fed chairman bernanke is on record stating), or the credit could be completely shutoff by lenders.

Regardless, it wont make any difference, for the bubble is going to burst.

If your expenses are X per month, and the money supply increases 100%, your new expenses are now 2X, and if your house value is anything less than 2X, I would argue you have a negative return.

Year over year money supply has increased 14% past 12 months. Thus, if a house hasnt increased 14% (or generated income) or greater, the owner has lost money.

Same scenario if money supply was to be cut in half. if your expenses are less than X/2, you have gained...same with home prices.

If the fed really goes into overdrive with money printing (most likely scenario), nominal prices could soar, but real (adjusted for any inflation) prices are not going to rise.

I realize this is confusing, but most people dont really understand the real concepts of inflation and thats exactly why the govt operates under such a sinister monetary policy.

It is not going to end well.

 

[WCBias]

Another question. Why wouldnt some of these people that grossly overpaid the past 5 years for homes in markets such as Las Vegas and the other extreme bubble areas walk away from their homes after they realize they are "upside down" in their mortgages...owe more than the home is supposedly worth? The reality is, they are going to walk away, which will further depress prices and sales.

Why would they? To have a huge ding on their credit? To go live in an apartment? To move to a more depressed economy? Assuming said person has a job and can afford their mortgage, they aren't going to walk away simply because they are upside down, that is ludicrous. And that is 90% of people that own homes.

There will be a time to buy again, but for now, any new buyers should hold off, as they should have been doing the past few years. Anyone that bought the past few years, should realize they bought the top.

This bubble is multiples larger than any previous bubble youve witnessed

Agree, simply for the fact prices will continue to drop. But if you are in the market for a new home, and it is the home you are going to live in for the next 30 years, I wouldn't hesitate to buy right now. In fact, here in Las Vegas, the over $1,000,000 market is booming, not only is demand still high, prices are increasing.

I personally do not believe this bubble is worse than anything we've witnessed as you say. Maybe in some regions of the united states, but not out west. For that to happen median prices will have do drop 100%! The median home price in San Diego is hovering around $500,000 (and keep in mind we are well into the current housing recession), it is not going to drop all the way to $250,000. It's not even going to drop to $350,000. Here in Vegas, the median home price is about $300,000...it's simply not going to drop to $150,000, the economic dynamics of the community will not allow it unless of course the thousands of new jobs that are created every year suddenly disappear.

Now if interest rates work their way back up to the high teens? Then that will hammer prices.

I agree with you, there is a certain percentage of the market that purchased homes that they cannot afford...those people are being foreclosed on now or will be shortly. But the vast majority of people that have stable jobs and purchased homes the past 7 years can afford their house payment, even if they overpayed for their house. And they aren't going to walk "just because". Defaulting on a mortgage has a far worse impact on ones life than taking a loss on a bad stock and writing it off against gains.

 

[WCBias]

Here is a question for both Dawoof and WC Bias:

How much would you guess a $500k property sold in south Florida today will sell for in 5 years?

I have no clue, there are other forces working in that market too (property taxes?). Also depends on the area.

 

[WVU]

when most of the coal mines in WV shut down in the early 80's you could buy land at $100 an acre. I agree with EC Bias that steady employment will keep housing prices somewhat steady. I think it is very unrealistic to expect to see median home prices drop from 350k to 250k or less. Income is not going to drop.

 

[Dawoofdaddy]

Why would they? To have a huge ding on their credit? To go live in an apartment? To move to a more depressed economy? Assuming said person has a job and can afford their mortgage, they aren't going to walk away simply because they are upside down, that is ludicrous. And that is 90% of people that own homes.

So you actually think a family making 50-100k a year, who bought 500k -million dollar homes (not all that out-of-ordinary in some of the extreme bubble markets) the past few years isnt going to walk away from that home when they realize its worth half what they paid for it?

I say many of them will, and alot of people are going to be tossed from their homes after their interest rates are readjusted. Also, these condo developers, flippers, and other wannabe donald trumps arent only going to walk away, alot of them will be foreclosed.

Ive posted in dozens of real estate threads, so if Im not already on record here saying im more bearish with commercial and condo type housing, versus single family homes in most areas of the country, Id like to again clarify this.

Even here in stodgy Toledo, people with no real estate expertise have built and/or bought strip malls...some of them in areas with little or no traffic.

Keep your powder dry, as there is going to be some fantastic bargains (especially commercial and condos) when this finally tanks.

:anichamp4

 

[WCBias]

Here's a quick question to everyone who has voiced an opinion. How many people do you know that own their house are in trouble with their housing situation? And by that I mean can't afford their payment or may get foreclosed on.

Out of the hundreds of people I know, I do not know of one that is struggling with this current housing correction and cannot afford to continue to make their house payment. The only thing I can think of that could impact them is loss of job.

 

[WVU]

Dawoof, with all due respect a family with household incomes of 50-100k are not buying 500k houses. If they are, then they are getting "stated" loans and lying their ass off. That is not the case with 90% of the home sales.

 

[Dawoofdaddy]

WC, I hear these types of stories you are asking every week now.

Most recent I know a guy that used to be a mortgage broker, and as soon ago as early 2005 was living on cloud 9. Had the loaded benz, boat, top shelf liquor, broads, all the bells and whistles.

Last Thursday, he called myself and another friend, asking for a 2 dime loan.

He has an interest only mortgage of $4500 a month and trust me, thats the tippy-top of houses in this town. Unfortunately, my guess is he will be kicked out of that house before Christmas.

Hes no longer in the mortgage business and now doing some type of marketing job.

Have various friends and contacts in building business or construction. None of them are currently well.

 

[WCBias]

So you actually think a family making 50-100k a year, who bought 500k -million dollar homes (not all that out-of-ordinary in some of the extreme bubble markets) the past few years isnt going to walk away from that home when they realize its worth half what they paid for it?

I say many of them will, and alot of people are going to be tossed from their homes after their interest rates are readjusted. Also, these condo developers, flippers, and other wannabe donald trumps arent only going to walk away, alot of them will be foreclosed.

Ive posted in dozens of real estate threads, so if Im not already on record here saying im more bearish with commercial and condo type housing, versus single family homes in most areas of the country, Id like to again clarify this.

Even here in stodgy Toledo, people with no real estate expertise have built and/or bought strip malls...some of them in areas with little or no traffic.

Keep your powder dry, as there is going to be some fantastic bargains (especially commercial and condos) when this finally tanks.

:anichamp4

No...most are not going to walk away if they can still afford the payment because they have no alternative. They can't buy another house or improve their housing situation, they don't want to have their credit reamed or declare bankruptcy.

Now if you are referring to those that can't afford that payment, they will have no alternative. There is certainly a good number of people that fit this bill, here we agree. But I think this is a small percentage of total homeowners...typically first time buyers. If they are a second-time buyer they probably had enough equity to weather the storm. Most homeowners have substantial equity and have been playing the game and riding the waves for years.

I agree with you, this is not going to get better any time soon, but I think it will take a major shift in unemployment to really make the impact you speak of, and right now I'm not hearing too much about mass layoffs.

 

[Dawoofdaddy]

Dawoof, with all due respect a family with household incomes of 50-100k are not buying 500k houses. If they are, then they are getting "stated" loans and lying their ass off. That is not the case with 90% of the home sales.

Many of them were lying their asses off. In fact, research these "no-doc" loans and you may want to edit this post.

Also, it doesnt matter if they were buying 500k-million dollar homes or 200-500k homes, alot of them are heading to foreclosure.

 

[WCBias]

WC, I hear these types of stories you are asking every week now.

Most recent I know a guy that used to be a mortgage broker, and as soon ago as early 2005 was living on cloud 9. Had the loaded benz, boat, top shelf liquor, broads, all the bells and whistles.

Last Thursday, he called myself and another friend, asking for a 2 dime loan.

He has an interest only mortgage of $4500 a month and trust me, thats the tippy-top of houses in this town. Unfortunately, my guess is he will be kicked out of that house before Christmas.

Hes no longer in the mortgage business and now doing some type of marketing job.

Have various friends and contacts in building business or construction. None of them are currently well.

That's pretty funny...most of the mortgage and agents I know made so much money that they are basically retired until the next upcycle. I have a few friends who are agents in San Diego and they are still doing well.

But no doubt, the real estate employment shift is coming, if it hasn't already been filtered through. Alot of mortgage guys and RE agents that jumped to the craze in the past five years are out of the game...but they really had no business playing it in the first place.

 

[Dawoofdaddy]

Above are 12 month charts.

These are two companies that offer mortgage insurance as protection for people that cant pay their mortgages. Ive been short both these stocks for several weeks.

What does this picture paint for the # of foreclosures in the next 6-18 months?

Looks like alot of keys are going to be in the mail and I doubt either of these companies have the money to pay their future claims.

:howdy:

 

[Timetopay]

Dawoof why wont you say where you plan on moving when this whole thing goes under?

 

[Brooklynbomber]

solid work daw. I predicted this mess back in 2004 and as soon as RE hit the cover of Time magazine in June 2005 I sold every house that I owned, including the one I live in. happily renting now, let the poor Chinaman who owns it take the loss.

btw - the next subprime loan mess will be in autos....you heard it here first.

 

[WVU]

Many of them were lying their asses off. In fact, research these "no-doc" loans and you may want to edit this post.

Also, it doesnt matter if they were buying 500k-million dollar homes or 200-500k homes, alot of them are heading to foreclosure.

If they lied their asses off and bit off 3x more than they could afford then they will get burned as they should. You were the one who came up with 50-100k in income and 500k houses. Using your example I am just stating that is not as common as you think.

Many people are in over their heads, but not the majority. Housing prices have yet to drop significantly overall. The market is getting flooded but the prices are holding steady so far. While it is inevitable for prices to drop as the supply increases, I seriously doubt we are going to see fire sale prices like you allude to. There are bargains to be had now, but we are not going to see million dollar homes going for 500k. We also won't see 300k homes going for 150k. Not unless we are also facing double digit unemployment.

Employment rates have always had a priority on affecting home prices, not supply.

 

[Dawoofdaddy]

Id say it was alot more common than you think and too many people were buying overpriced homes that they couldnt afford.

And an even larger problem is the builders, developers, and speculators.

They also contributed to these bloated prices and are also why prices are falling.

Here is a good article I found from 2005.

http://www.nytimes.com/2005/03/01/n...=ed57b78b13dc8d7b&ei=5090&partner=rssuserland

This is one of my favorite parts of the article:


Some investment buyers are willing to rent out their properties at a monthly loss, anticipating future sales price rises. Dru Finley and her husband, Hsiao-Li Pan, who live in Brewster, N.Y., bought a one-bedroom condominium in Battery Park City in Lower Manhattan last summer for $499,000. They rent it out for $2,225 a month, about $1,000 less than their mortgage and maintenance costs. The couple hope to make up the shortfall when they sell the condo in a few years. "It seems that real estate always goes up," in the long term, Ms. Finley said.

People like this will be eating catfood before real estate surpasses the former highs.

:lolBIG:

 

[WCBias]

Woof...

With all of the forecasted doom and gloom, what are your projections in terms of length of down cycle and how far housing prices will drop as a % of current median values.

 

[Dawoofdaddy]

WC, I have no idea what method the fed is going to implement or whether or not they will give a full effort to bailout homeowners. I mentioned this in a previous post.

Something else Ive never understood is why people use the doom and gloom type words whenever someone makes any type of bear call.

Actually, for some people that dont own a home and college students, a collapsing real estate market could possibly be good news for them.

However, I have an even better offer for you glossy and fuzzy eyed folks who dont think the sky can ever fall.

Rather than throwing darts into the sky with specific longterm predictions, Ill instead post when I think the bottom has been reached or its safe to crawl out of the bunker. 5-10 year downturn would be a good place for planning. This level of a mania could take 20+ years. None of us know that today.

This thread is a classic and feel free to bump it anytime you want my thoughts about real estate.

I do believe your prediction of this only a 2-3 downturn is quite optimistic and incorrect.

 

[WCBias]

WC, I have no idea what method the fed is going to implement or whether or not they will give a full effort to bailout homeowners. I mentioned this in a previous post.

Something else Ive never understood is why people use the doom and gloom type words whenever someone makes any type of bear call.

I would say if this turns out to be the worst housing recession in the post depression era (mind you my words, not yours), doom and gloom are a fairly accurate description.

I bet you a beer housing prices in Las Vegas upturn (three consecutive periods) within a three year period. By then the Bash will be held at City Center or Echelon and we will be looking across the freeway at the next mega mega casino resort under construction.

 

[Timetopay]

Well since you wont answer my question(which i figured) its because you have no answer. It was pretty easy for anyone with half a brain to figure out a correction or a collapse was coming BUT in all your talk in this thread you have never given a answer on what to do to a normal folk.

Its going to go down I understand and you say you didnt move because of where you live. So the house prices didnt and wont drop by you at all? You are that protected? If thats the case than why wouldnt you move now than to a bigger house since your area is protected against a downturn?

Im assuming at this point you will say you are moving out of state to one of those cities that is crushed in Cali or Florida. So do you have any family or friends you will be leaving behind? Would you be starting over in a career?
Do you plan on getting married in the next few years and having kids, waiting for the drop, and moving your wife and kids away from the family?What if the wife doesnt want to move?

Maybe you just dont give a shit about any of that and you staying single and doing what the fuck you want in life. Again I agree with your thoughts but all the Dawoofdaddy is sharp stuff is probably coming from single guys like yourself who arent tied to jobs,wives,kids,family,pals,memories, and the like...