housing crash
- Thread starter silk
- Start date
Boy you are confused. Yes I am familiar w/ Lampert and KMRT. There are similarities but also important differences that you blithely fail to mention. But I'm tired of helping you out - doesn't seem to do any good anyway.
BTW for any others reading this, I'm not even pretending to call the top of this bubble. We could be a few years off - like 1997 on the Nasdaq, that doesn't mean we are not in a bubble today.
As Old-dude said, do your own homework, 'cause bubbles foster lots of wishful thinking.
OK, I have the answer to my own question. I went to this wonderful site for my data:
http://www.usagold.com/gold-price.html
Anyway, give or take, on January 2003, one of my townhouses had a market price of $105,000. Back then, gold was at $355 an ounce (and it was spiking then). If I sold my house and bought gold with the proceeds, I would have had 295.77 ounces of gold.
Today, January, 2005, that same townhouse is selling for $135,000 or 28.57% more. 28.57% in two years. Thats a bubble, right? But wait...since gold is now at $422.67, I could sell my townhouse and purchase 319.39 ounces of gold. That is only 7.98% more gold. So, IMHO, the "real" increase in the value of that piece of property was less than 4% a year over the last two years. A tidy return, but not exactly big, soapy, and round.
For the last 5 to 6 months, the price of that townhouse hasn't increased based upon sales information from nearly identical units. Yet the dollar seems to be in a downward trend. With the purchase price of the dollar diminishing, gold will/should climb. At this rate, my 7.98% gain will evaporate by the end of the year.
See what I mean? Except for crazy areas like California, the dropping value of the dollar may keep the bubble from popping by decreasing the values of the houses in real terms. Further, if wages catch up with the falling dollar, there might not even be too many defaults on ARMs because peoples wages will rise high enough to cover the climbing mortgage payments. Maybe the Fed is doing this on-purpose???
SM
FWIW, if you compare the dollar to gold, and the Euro to gold, you'll see some interesting stuff. During the benchmark date for the Euro, our dollar was at the top of a cycle in terms of strength (i.e., gold was cheap when purchased with U.S. dollars). Basically, I think they set the benchmark price for the Euro at the extreme end of a cycle and it kind of exaggerated the widening gap between the two currencies, even before we started to "somewhat" abandon our strong dollar policy. In fact, if you look at the price of gold since 1972, it was at a low, on a decreasing saw tooth pattern, implying that the value of the dollar was about as high as it ever was back in 2000 or so. A strong dollar is good, but if its too strong, then it hurts exchange. Its kind of crazy that until recently, it was cheaper for germany to import raw materials, make volkswagens, and then ship them here rather than just produce them here.
I strongly agree with you about either the dollar tanking or rising interest rates to support the dollar creating more inflation. They must, indeed, choose between a stronger dollar or a hurting RE market. However, if they leave the dollar where it is, inflation will continue to kick in, justifying the lofty RE prices everywhere but California, New York, etc. I think thats why we've seen the dollar stop its freefall lately. I think someone knows EXACTLY what they are doing and I do believe it will save us from a RE bubble collapse because everyone will have more cash in their pockets on payday. The cash will make those mortgage payments, but it won't buy much gold. It may buy a hell of a lot of Chinese crap...which seems to get crappier by the day if you look at the junk in Wally World.
SM
Quote from BlueHorseshoe:
Boy you are confused. Yes I am familiar w/ Lampert and KMRT. There are similarities but also important differences that you blithely fail to mention. But I'm tired of helping you out - doesn't seem to do any good anyway.
BTW for any others reading this, I'm not even pretending to call the top of this bubble. We could be a few years off - like 1997 on the Nasdaq, that doesn't mean we are not in a bubble today.
As Old-dude said, do your own homework, 'cause bubbles foster lots of wishful thinking.
One of us is certainly confused....I agree. If I were you I'd go back and re-read some of your posts. I'd begin with the first one where you mention "Texas prairie land", then move on to the one about the 3Q that you generalize from. Based on these I'd like to thank you for the entertainment at least, if not the "help".
Old-dude
As long as people keep talking about a "Housing Crash" I think it will do anything but.
So many people talking about housing crash probably have vested interest in their view. Meaning all the people that are looking for a fall in prices don't own a house and are looking to buy.
That means there is still tremendous demand out there and loads of people left to buy.
So many people talking about housing crash probably have vested interest in their view. Meaning all the people that are looking for a fall in prices don't own a house and are looking to buy.
That means there is still tremendous demand out there and loads of people left to buy.
Whether or not we have a "crash" depends on how you define a crash. Personally I would say a fall of more than 20% in real estate prices is a crash. Remember most people are highly leveraged in real estate, a 20%+ fall would wipe out the equity of anyone who purchased at the top. Anything which can wipe people out has to be considered a crash, IMO. A 20% fall in the S&P is just a bear market, not a crash, because investors aren't generally leveraged 5-1 or more in stocks like they are in real estate.
Oldtrader makes the point that a "crash" won't occur without major job losses. Well, there are alternative ways to get a 20%+ price fall in real estate, which have occured historically - one is to have interest rates increase significantly from low levels; another is to have an adverse change in government regulation or tax treatment; another is to have a speculative mania which then bursts. All of these can cause a 20%+ fall in prices, and have done so in the past.
Examples:
Rate rises - US real estate in the early 80s, when Volcker was inflation-busting. Regardless of your employment situation, taking out a mortgage at 15% per annum interest is a lot harder to afford than at 6%. Thus, prices will fall significantly to compensate.
Government action - rent control (e.g. NYC) has caused major price falls in the past.
Speculative bubble bursting - e.g. the Florida land boom and bust of the mid 1920s. There was no recession in the state or major rate rises - but you got huge price falls all the same.
Currently there is quite a bit of speculation in certain "hot areas". There is also the prospect of higher rates. Going by history, those two factors combined are more than enough to set off 20% falls in the more speculative areas. And that is enough to send people who have bought rental property into bankruptcy, or force them to sell to stave off financial disaster. Bankrupts and forced sellers have to unload at any price. Whenever you get a lot of price-insensitive sellers in a market, there is the potential for large price falls.
As for Oldtrader's question of what existing homeowners are going to do - you don't need people to sell out and start renting to cause price falls. As mentioned, this tends to happen only in extreme circumstances. But current owner-occupiers are only one source of market demand and supply. You also have RE investors, and owner-occupiers on the demand side (people trading up or down, or relocating) - if they get put off by higher rates, inflated prices, or negative sentiment, then demand will fall even if stay-put owner-occupiers don't change their behaviour. Equally, on the supply side you have landlords cashing out, builders/developers, and DDD (death, debt and divorce) sellers. If they are not getting enough interest at current prices from buyers, then they will have to cut prices, simple as that. They are not there to hold property for the long-term, they need to sell now. Prices at the margin are determined by people who - for whatever reason - are actively buying and selling in the market, not by owner-occupiers who are intending to sit in their houses until kingdom come. Unless OldTrader thinks that stay-put homeowners are the only people who buy and sell houses, then IMO he needs to reconsider his view.
Oldtrader makes the point that a "crash" won't occur without major job losses. Well, there are alternative ways to get a 20%+ price fall in real estate, which have occured historically - one is to have interest rates increase significantly from low levels; another is to have an adverse change in government regulation or tax treatment; another is to have a speculative mania which then bursts. All of these can cause a 20%+ fall in prices, and have done so in the past.
Examples:
Rate rises - US real estate in the early 80s, when Volcker was inflation-busting. Regardless of your employment situation, taking out a mortgage at 15% per annum interest is a lot harder to afford than at 6%. Thus, prices will fall significantly to compensate.
Government action - rent control (e.g. NYC) has caused major price falls in the past.
Speculative bubble bursting - e.g. the Florida land boom and bust of the mid 1920s. There was no recession in the state or major rate rises - but you got huge price falls all the same.
Currently there is quite a bit of speculation in certain "hot areas". There is also the prospect of higher rates. Going by history, those two factors combined are more than enough to set off 20% falls in the more speculative areas. And that is enough to send people who have bought rental property into bankruptcy, or force them to sell to stave off financial disaster. Bankrupts and forced sellers have to unload at any price. Whenever you get a lot of price-insensitive sellers in a market, there is the potential for large price falls.
As for Oldtrader's question of what existing homeowners are going to do - you don't need people to sell out and start renting to cause price falls. As mentioned, this tends to happen only in extreme circumstances. But current owner-occupiers are only one source of market demand and supply. You also have RE investors, and owner-occupiers on the demand side (people trading up or down, or relocating) - if they get put off by higher rates, inflated prices, or negative sentiment, then demand will fall even if stay-put owner-occupiers don't change their behaviour. Equally, on the supply side you have landlords cashing out, builders/developers, and DDD (death, debt and divorce) sellers. If they are not getting enough interest at current prices from buyers, then they will have to cut prices, simple as that. They are not there to hold property for the long-term, they need to sell now. Prices at the margin are determined by people who - for whatever reason - are actively buying and selling in the market, not by owner-occupiers who are intending to sit in their houses until kingdom come. Unless OldTrader thinks that stay-put homeowners are the only people who buy and sell houses, then IMO he needs to reconsider his view.
DHOM builds homes in central Ohio and Kentucky. This from Friday:
"DUBLIN, Ohio (AP) -- Dominion Homes Inc. said Friday that it sold 33 percent fewer homes in the fourth quarter of 2004 than a year ago.
The homebuilder sold 392 units during the three-month period for revenue of $75 million, down from 586 homes in the prior-year quarter, when sales totaled $110 million.
For 2004, home sales declined 20 percent to 2,450 units from 3,071 in 2003. Total sales decreased 17 percent to $460.3 million from $554.7 million.
"Real estate is a cyclical business and many of the homebuilders in our region are experiencing a slowdown in sales," Dominion's chairman and chief executive, Douglas G. Borror, said in a press release.
The company closed 605 homes during the quarter, a 32 percent decrease, and closed 2,837 homes during the year, an 8 percent drop.
Dominion said its backlog at the end of the year was 632 sales contracts with total value of $127.5 million, lower than the 2003 backlog of 1,019 contracts worth $198.9 million.
Shares fell 79 cents, or 3.4 percent, to close at $23.89 on the Nasdaq."
That is one nasty fall people. And this is Ohio and Kentucky - not San Diego or other purported 'hotspot.'
http://finance.yahoo.com/q/bc?s=DHOM&t=2y
"DUBLIN, Ohio (AP) -- Dominion Homes Inc. said Friday that it sold 33 percent fewer homes in the fourth quarter of 2004 than a year ago.
The homebuilder sold 392 units during the three-month period for revenue of $75 million, down from 586 homes in the prior-year quarter, when sales totaled $110 million.
For 2004, home sales declined 20 percent to 2,450 units from 3,071 in 2003. Total sales decreased 17 percent to $460.3 million from $554.7 million.
"Real estate is a cyclical business and many of the homebuilders in our region are experiencing a slowdown in sales," Dominion's chairman and chief executive, Douglas G. Borror, said in a press release.
The company closed 605 homes during the quarter, a 32 percent decrease, and closed 2,837 homes during the year, an 8 percent drop.
Dominion said its backlog at the end of the year was 632 sales contracts with total value of $127.5 million, lower than the 2003 backlog of 1,019 contracts worth $198.9 million.
Shares fell 79 cents, or 3.4 percent, to close at $23.89 on the Nasdaq."
That is one nasty fall people. And this is Ohio and Kentucky - not San Diego or other purported 'hotspot.'
http://finance.yahoo.com/q/bc?s=DHOM&t=2y
http://www.frontlinethoughts.com/printarticle.asp?id=mwo011405
interesting take on housing this week.