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A Detailed Analysis At Projected Home Prices: A Look At Underlying Supply And Demand Forces

Tyler Durden's picture


As everyone who has taken Introduction to Voodoo Bullshit, better known Econ 101, can attest the following chart is basically as ugly as it gets: in simple terms when you have a collapsing demand curve coupled with a surge in supply, the bottom line is that no matter how much intervention is involved, nothing can help to restore the pricing equilibrium to its old level (at least not for a long, long time).

And as can be expected from economists, despite having come up with the S-D concept, they consistently focus on the part that's (relatively) easy to control - the supply side, and tend to ignore the "demand" aspect, which is far more difficult to jigger in the desired direction (think the constant blaming of banks for not lending when it is in fact the consumers who do not want loans). As such, using data from Bank of America, we focus on the complete picture, with an emphasis on the much ignored Demand side of the home price equilibrium, to conclude that prices are set to drop much lower from current levels.

The simplest way to analyze the outlook for the housing market is to compare the evolution of housing demand and supply. Housing demand comes from the creation of new households and purchases of vacation homes. Households are defined as the number of separate housing units, either families or individuals. A household can be created when children move out of their parents’ homes, couples separate, or roommates decide to live apart. Housing supply is a function of new construction and, in today’s market, foreclosures. The foreclosure will only create net new supply if the former homeowner moves in with friends or family rather than becoming a renter. By this reasoning, we also do not count “turnover” – transactions from existing owners – when analyzing demand and supply. If homeowners decide to sell their home and move to a new house or a rental unit, it will show up as both supply and demand. As a result, we are only focused on new housing demand and vacant housing supply.

Of the above paragraph, the key notable is the highlighted sentence, or the ever critical "household formation" variable. Unfortunately as the chart below shows, household growth has plummeted over the past 3 years, declining by about 700,000, after clocking in materially positive numbers in the 6 years prior.

So focusing on the far more critical Demand side:

Demand: fewer new households

Household creation depends on the state of the economy. The combination of high unemployment, weak wage and salary growth, and tight credit has led to a decline in household growth over the past few years. The two main surveys of household formation from the Census Bureau – the Housing Vacancy Survey and Current Population Survey – show that about 500,000 households were created annually over the past three years compared to an annual average of about 1.2 million during the first half of the decade (Figure 6). How can we explain such a notable drop in household formation?

Moving in with the folks

The obvious answer is to look at homeownership rates, which have tumbled to 66.9% from a peak of 69.2% in 4Q04. This translates to a loss of nearly 2.5 mn homeowners. Most of these homeowners became renters, which means they remain a household, but not all. As can be seen by the surge in the rental vacancy rate to 10.6%, it seems that there was not a perfect shift from homeowners to renters (Figure 7). This begs the question: what happened to these former households? There was doubling up among economically stressed households; in other words people moved in with friends or family. Many of these former homeowners were probably foreclosure victims (Figure 8).

As Figure 8 shows, household formation can also decline if there are fewer young households created to replace the aging homeowners. Given the nearly 10 point surge in the unemployment rate among 16 to 24 year olds from the trough to peak during this cycle, it seems like this was a considerable factor. A recent paper sponsored by the Research Institute for Housing America estimates that the probability of a young adult forming a household declines by 4% during a recession, and up to 10% if unemployed. In addition to the slowdown in “headship rates” domestically, there was a drop in household formation from immigration. According to the Office of Immigration Statistics at the Department of Homeland Security, the number of unauthorized immigrants decline by 1.0 million from 2007 to 2009 compared to a net gain of 1.3 million from 2005 to 2007.

Household growth to improve, but with a lag

Household formation will naturally pick up as the economy improves, but if our forecast for a sluggish recovery is realized, household growth will also be lackluster. The main factor influencing household growth will be the state of the labor market. The above-referenced paper finds that the unemployment rate must fall by 2pp from current levels to return to normal rates of household formation of about 1.2-1.4 million a year. We do not expect the unemployment rate to reach the mid-7% range until 2013, implying another two and a half years of sluggish household formation of about 800,000 a year. This is also when we expect the pace of foreclosures to slow notably, which means that fewer households will have to double-up.

Looking ahead to 2013 and beyond, we use forecasts from the Joint Center for Housing Studies at Harvard University. They present two possible trajectories for household growth: 1) an average of 1.48 million annually through 2020 assuming net immigration returns to the 2000-05 pace and headship rates at 2008 levels; and 2) an average of 1.25 million annually through 2020 assuming the same 2008 headship rates but slower immigration. We believe the latter is more likely and use this as our baseline forecast (Figure 9).

Renters will take market share

Although we expect household formation to start to improve in 2013, the homeownership rate should still fall further, suggesting that most of the gain in households will be due to an increase in renters. This is because there is still a considerable number of homeowners with mortgages in some stage of delinquency that are likely to end in foreclosure. Based on data from the Mortgage Bankers Association, there are about 5.5 mn seriously delinquent mortgages currently outstanding.

A recent paper by economists at the NY Federal Reserve (Haughwout, Andrew, Richard Peach, Joseph Tracy. “The Homeownership Gap”, Federal Reserve Bank of New York Current Issues in Economics and Finance, Volume 16, Number 5, May 2010) attempts to quantify the effective lower bound for the homeownership rate. They make the assumption that underwater borrowers (negative equity), who currently account for about a quarter of mortgage holders, will transition to renters over time. Subtracting these underwater borrowers yields an “effective homeownership rate” of 61.6% (Figure 10). This would be a record low in the data which goes back to 1965. We do not expect such a precipitous drop because not all underwater homeowners will become renters. Indeed, a recent study by and RealtyTrac found that 59% of respondents would not go into foreclosure simply because of negative equity. We believe it is more likely that the homeownership rate will bottom at 65%, returning to mid-1990s levels.

It is plainly obvious why the demand-side is so often ignored in polite conversation: it is the consumer-driven aspect of the house price variable, over which neither the Fed, nor the Treasury, nor the FHA has any authority, and which is a function purely of expectations of the future. Alas, those right now are lously and getting worse. We expect that Demand-side housing economics will take on progressively more importance in the future, as it becomes obvious that no amount of Supply-side tinkering will prevent another 20% drop in prices.

And speaking of Supply, this is also a critical factor, if much more prevalent in the daily media. Alas, that in itself does not make the problem any easier to resolve.

Supply: out of balance

The drop in housing demand triggered homebuilders to slash new construction. In theory, this should have balanced the market. A shift lower in the demand curve will temporarily depress prices until the supply curve shifts to balance the market at a lower quantity. The problem is that this model does not take into account the additional source of supply: foreclosed properties that have returned to the market for sale. As a result, housing supply has not normalized and greatly exceeds housing demand, creating a large imbalance in the housing market.

We can measure this imbalance two ways. The simplest method is to calculate the number of excess vacant homes for sale. Assuming a normal homeowner vacancy rate of 1.7% and rental vacancy rate of 8%, there is an excess of 1.87 mn vacant homes (again, see Figure 7).

Another, more detailed, way to measure the imbalance is to estimate the gap between housing supply and demand over the past few years. We define housing demand as the sum of household formation, demolitions and purchases of vacation homes, and housing supply as the sum of new construction, mobile homes and foreclosures from households that double up (Demolitions: Assume historical average of 0.24% of housing stock; Vacation homes: annual survey from National Association of Realtors which is about 10% of sales – we assume that 80% plan to use the home for vacation rather than rent it out and of which about three quarters plan to keep their first home; New construction: single and multi-family completions; Foreclosures: measure REOs (real estate owned) – we assume that half of the former homeowners will double-up). We estimate an excess of about 2 mn homes created over the past four years, consistent with our estimate from the vacancy data.

It will take years to clear the excess

Our mortgage strategists expect approximately 6 mn additional foreclosures to enter the market for resale over the next three years. It will then take a few years for the pace of foreclosures to gradually normalize to about 200,000 a year. If we plug in our baseline forecast for household formation (as explained above) and assumptions for the remaining variables (as explained in the footnote), we can run a few scenarios for the amount of time it will take to clear the imbalance under different paths of housing starts. At one extreme, if housing starts fall to zero, translating to zero completions next year, the excess supply will be cleared by early 2013. At the other extreme, if housing starts surge back to the historical norm of 1.5 mn next year and hold indefinitely, there would be another 2 mn homes added to the excess, bringing the total to 4mn, which would take until 2027 to offset. We believe the truth falls somewhere between these two extreme scenarios.

If we pencil in our baseline forecast for housing starts of 590,000 this year and 690,000 next year, another 500,000 excess homes will be created. Looking ahead, we must be more judgmental. A reasonable scenario is that starts slowly edge higher to 1 mn by 2013 and reach the “normal pace” of 1.5 mn by 2015. At this point, most of the excess supply will have nearly cleared, allowing starts to pick up to match the pace of demand (Figure 12).



Why any building given shadow inventory?

We often get asked why builders would start new construction given the considerable number of vacant homes on the market for sale. As the above example showed, if housing starts fell to zero, the market would return to normal much quicker.

There is a good reason for new construction: a foreclosed home is not a perfect substitute for a new home. Foreclosures will sell at a discount to a new home, but will often require a great deal of renovations. This will discourage some buyers. In addition, foreclosures are not equally distributed geographically or across price ranges. The bulk of foreclosures are in the lower end of the housing market. This creates two types of markets: “passive” and “active:” The passive market has the undesirable foreclosures, which are either in very poor condition and/or in a foreclosure-dense, and therefore suffering, neighborhood. It is likely that many of these homes will remain vacant and on the market for sale or rent. In contrast, the active market will contain foreclosures that can compete with regular homes in a market with housing demand.

The regional difference is particularly interesting. According to RealtyTrac, 37% of foreclosures are in either California or Florida and 65% are in the 10 states with the highest foreclosure rates. Even within these states, there are stark differences between zip codes. Homebuilders will avoid building new homes in the areas with a large presence of foreclosures. In the first half of the year, only 27% of housing starts were the top 10 foreclosure states (Figure 13). Comparing two large states is noteworthy: about 22% of foreclosures were in California, but only about 6% of housing starts, compared to Texas, which had only 4% of foreclosures and 15% of housing starts.

So now that both the very dire Demand and Supply sides of the pricing equilibrium have been discusses, what does this imply for the broader economy?

Unlike in prior recoveries, it is clear that housing will lag rather than lead the recovery. The monetary policy transmission typically has a very strong impact in the housing market – low rates encourage home sales and greater residential investment. In turn, job creation picks up in the  construction sector, further supporting consumer spending and home sales, and creating a virtuous cycle. This feedback loop is currently broken. Mortgage rates have plunged to record lows, and yet have done little to stimulate home purchases because credit conditions are still incredibly tight and consumer confidence is depressed. That said, we believe the direct drag from housing, through construction, is nearly over. Our forecasts for housing starts imply that residential investment will subtract from growth in 3Q, but then consistently add to output going forward. Still, the contribution to growth will be feeble relative to prior cycles, where housing was decidedly the force of growth (Figure 14).

While housing construction is the most direct link to the economy, it is not the only one. The path of home prices is also very important as consumers respond to changes in housing wealth. Our baseline view is that national home prices will edge lower over the rest of the year and then bounce around the bottom for some time. The downside risk is that foreclosures flood the market at a rapid pace, depressing home prices greatly, which could tip the overall economy back into recession.

Alas, we are already there, and yes, it is BofA's job to put a favorable spin on the data. Look for another 15-25% drop in home prices from here on out, and another wave of hundred billion+ charge offs at undercapitalized banks.


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Mon, 08/30/2010 - 17:01 | 553701 Strider52
Strider52's picture

Home Loans, Bitchez! (had to do it just once before I die).

Mon, 08/30/2010 - 17:13 | 553724 Strider52
Strider52's picture

Hah! My first Junk! Boy, what a great Monday. I'm *somebody* now!

Mon, 08/30/2010 - 17:41 | 553786 tmosley
tmosley's picture

According to some people, that means you are "right".

So congratulations.

Mon, 08/30/2010 - 23:28 | 554397 Johnny Bravo
Johnny Bravo's picture

Yeah, typically the people with the most sense get the most junks on ZH.

Mon, 08/30/2010 - 23:39 | 554413 Fred Hayek
Fred Hayek's picture

As of this moment, you have none.  Corroboration!

Mon, 08/30/2010 - 17:06 | 553709 redpill
Mon, 08/30/2010 - 18:32 | 553855 rocker
rocker's picture

#1 Problem: To many houses. So banks sell them.

#2 Problem: Too many stocks, (Supply). So MM's sell them.

#1 & #2  Solution for both. Simply economic rule of supply and demand.

 * If their is less demand and too much inventory, the price must come down. 


Mon, 08/30/2010 - 18:39 | 553860 redpill
redpill's picture

Existing homeowners with a mortgage have a minimum they can sell their house for.  Builders who have to cover their costs and run their businesses have a minimum they can sell their houses for.  Banks who are writing off the loan anyway, not so much.  As a result, there is absolutely no price resiliency when banks dump these distressed properties on the market.  And since the prevailing appraisal model relies on comparable sales, a bank sale is akin to dropping a bomb on that neighborhood when it comes to home values.


Mon, 08/30/2010 - 22:20 | 554276 dark pools of soros
dark pools of soros's picture

true, but there is still descretion on part of the appraiser to pick 3-5 out of the mix and drop off some of the worst offending sales.. as long as your area is not rife with foreclosures they won't nose dive the neighborhood

Mon, 08/30/2010 - 23:43 | 554420 Fred Hayek
Fred Hayek's picture

I hope you're right.  I'm selling my condo and waiting for the appraiser to come back with a number, one at least as high as the agreed price, I hope.

But there was one sale in the complex for less than my price 3 months ago by a guy who had had an intent to foreclose filed against him by Wells Fargo in addition to a complaint by the condo association that he was something like $3,500 behind on his condo fees, just over a year's worth at our fees.

Take that sale out of the picture and all the other sales are for more than I'm getting.  Include it and things become dicey.


Tue, 08/31/2010 - 00:18 | 554476 redpill
redpill's picture

Negatory on that one, there's no longer any incentive for them to get the best value.  Appraisers have to go through an exchange now, so from their perspective it is to their advantage to be conservative so they don't get blackballed by underwriters.  If anything that means making sure they don't submit a value that isn't supportable under the most pessimistic review conditions.

Mon, 08/30/2010 - 17:09 | 553715 Robslob
Robslob's picture

I don't see how all these numbers account for all the new "tent cities" popping up all over America...?
My guess is that would also be considered "supply"....?

Mon, 08/30/2010 - 17:24 | 553753 Translational Lift
Translational Lift's picture

"tent cities"= temporary housing....

Mon, 08/30/2010 - 22:03 | 554238 Gully Foyle
Gully Foyle's picture


With pretty pretty picture

U.S. Warfare Boosted Q2 GDP Massively
Mon, 08/30/2010 - 17:10 | 553717 chunkylover42
chunkylover42's picture

that's some top-notch research by BOA-ML to put that first chart together.  good thing they made sure to name themselves as the source on it, given it doesn't appear in every economics textbook on the planet.

Mon, 08/30/2010 - 17:38 | 553780 Cow
Cow's picture

that's some kinda funny


Mon, 08/30/2010 - 20:44 | 554060 Bolweevil
Bolweevil's picture

And what's with the Harvard shill picking 2013 for the turn? Bullshit always comes with a 2-3 year horizon.

Mon, 08/30/2010 - 17:12 | 553723 Nihilarian
Nihilarian's picture

You sure this isn't just "economic hypochondria"? FASB accounting rules will prove you wrong!

Mon, 08/30/2010 - 17:13 | 553725 Bearster
Bearster's picture

If you look at each aspect of this depression in isolation, the analysis is depressing.  Another 20-25% drop in housing prices.

If you look at how that will feed back (did this analyst recursively revise upwards the number of homeowners who would be underwater with another 20% decline in prices, vs. today?  And if so, then estimate how many additional would walk away?  And this would recursively feed back into prices, etc.)

But few are looking at the sum total of all of these vignettes in concert.  There are non-linean synergies.  Just look at the banks' dire predicament in light of this housing analysis.

The banks have exactly how much tangible common equity right now?  As Mish keeps pointing out, they are not admitting what their assets are really worth, and the ratio of loan loss reserves to non-performing loans is at a low point.  So the banks already are facing more losses that they haven't written down yet.

And this housing discussion suggests a lot more pain to come to banks, as the gross price of the houses declines by 20%, what does that do to the value of the loan?  Obviously it goes down more than 20%, and in many cases will go down to zero (certainly any second mortagages and HELOCs will).

What does this mean to shareholders of banks?  Likely they take big losses, if they don't get wiped out altogether.  And further losses in 401K's and other accounts will do what to the consumer's willingness (and ability) to spend?

This will drive down retail sales further...

We had one heckuva ascending spiral on the way up over the past 28 years.  But all of those dynamics are now turned into reverse, and it promises to be one heckuva ride down.

Mon, 08/30/2010 - 17:25 | 553756 cyclemadman
cyclemadman's picture

Speaking of banks.  I haven't seen any updates on banks closed by the FDIC last week.  They closed down 8 on August 20, I have a hard time believing they didn't close down any last week.

Mon, 08/30/2010 - 17:45 | 553794 mynhair
mynhair's picture

Yep, no banks.  Shorebank is taking all Sheila's resources.

Mon, 08/30/2010 - 18:59 | 553894 bronzie
bronzie's picture

can't close any banks when Benny Baby is talking at J-Hole

Mon, 08/30/2010 - 19:23 | 553922 mikla
mikla's picture

+1 to both of you -- Sheila is out of money, and can't do anything with B-Hole at J-Hole.

Mon, 08/30/2010 - 22:02 | 554229 Gully Foyle
Gully Foyle's picture


Will they hit any before Labor day weekend? They usually don't close just before a holiday.

Does that mean if two weeks are missed they close three times the usual when they return?

Mon, 08/30/2010 - 17:56 | 553812 molecool
molecool's picture

"If you look at each aspect of this depression in isolation, the analysis is depressing.  Another 20-25% drop in housing prices."

WHY is this depressing again? Why does everyone want homes to be expensive?

Bearster at car dealership: 'Alright, I take the red 323 - let's do the paperwork.'

Car salesman: 'Excellent choice, sir! I have that one on special for only $19,500'.

Bearster: 'What are you talking about? I came here to spend money! I'm not spending a penny below $40,000 - is that clear?

Some of you guys need to have your head examined. Especially if you bought a home at the peak of the housing bubble. Unfortunately some people never learn...


Mon, 08/30/2010 - 18:20 | 553841 Bearster
Bearster's picture

Oh I agree with you, to the buyer it's better if prices are cheaper.

Let's see how that will look in this case.  Homebuyer Joe has been saving his money in a bank account.  Prices fall to the level where he wants to buy.  He goes to "withdraw" his money and that's where the problems begin.

He does not "have" "money" "in" a bank.  He has lent money to a bank and now he has a piece of paper that says they will pay him on demand.  But the  banks are already drowning, and that's before we took into account another 20% drop in home prices!

So where is the money going to come from to pay off Joe so he can buy the house?

Right, from the taxpayers.

Bearster at car dealership: wow, the price is only $20,000.  Good thing molecool is paying for it anyways! :)


Mon, 08/30/2010 - 18:51 | 553876 merehuman
merehuman's picture

lets not forget..Carpenters, bricklayers, plumbers, electricians,roofers, carpet layers, gardeners, earth movers,Glass installers, supply stores, carpet suppliers and suppliers and manufacturers of all other goods going into a house. There is a huge amount of jobs lost until housing restarts.

cars arent pushing along either, and again a huge amount of jobs involved.

Contractor 30+ years, now i garden and enjoy the fruit of my labor. Government has not found a way to tax my garden produce..yet

Mon, 08/30/2010 - 20:26 | 554022 RockyRacoon
RockyRacoon's picture

...other than the fact that you can't sell one ear of corn or a tomato without collecting sales tax.  My wife does ceramics for a hobby and went to a local craft show with some of her wares.  No go.  She didn't have a sales tax permit.  Sonsabitches.

Mon, 08/30/2010 - 21:56 | 554215 Gully Foyle
Gully Foyle's picture


Craft shows are big business. People can make their profit in a few weeks hitting the seasonal circuit.

Wed, 09/01/2010 - 15:30 | 558216 RockyRacoon
RockyRacoon's picture

This was a local yokel deal, people selling off card tables.  No big air-conditioned arena thingie.  It was patrolled by folks from the State!

Tue, 08/31/2010 - 01:19 | 554552 mamba-mamba
mamba-mamba's picture

There is no federal sales tax. Yet. Here in California, grocery type food is not taxed. Take out is, but not groceries.

Mon, 08/30/2010 - 21:59 | 554222 Gully Foyle
Gully Foyle's picture


"Government has not found a way to tax my garden produce..yet"

Um, property tax and tax on things like fertilizer and water, tax on the tools purshases, tax on the energy used to can or freeze.

Only way to avoid tax is live naked in some tropical paradise where the fruit falls into your hands.


Mon, 08/30/2010 - 23:30 | 554400 Johnny Bravo
Johnny Bravo's picture

That supply and demand graph is all wrong.  Shouldn't S1 be to the right instead of to the left?

How can you have an increase in supply AND a decrease in demand, and have equilibrium equal to the old equilibrium price before the supply increased and the demand decreased?

Tue, 08/31/2010 - 00:12 | 554460 whatsinaname
whatsinaname's picture

28 years ride is correct - 401k programs started in 1982 and set the ball rolling for a phony middle class prosperity charade.

Mon, 08/30/2010 - 17:14 | 553726 Ripped Chunk
Ripped Chunk's picture

Yup, more and more people living with people that they would rather not live with.

Assaults and murders skyrocket this Christmas.

Mon, 08/30/2010 - 17:14 | 553727 H H Henry P P P...
H H Henry P P P Paulson's picture

I blame this on Rosie O'Donnell.

Mon, 08/30/2010 - 17:14 | 553729 Rainman
Rainman's picture

Whole families are moving housing to Walton's Mountain. Here comes the kiddies and grandkiddies. G'night Grandpa. G'night Granma. G'night John Boy. McMansions bought on the cheap can house 12.

Mon, 08/30/2010 - 21:13 | 553764 Translational Lift
Translational Lift's picture

"McMansions bought on the cheap can house 12".........Americans...........144 illegals.......


Tue, 08/31/2010 - 10:42 | 555102 Translational Lift
Translational Lift's picture

RE: two junks......Well....there's two illegals....142 to go.........

Mon, 08/30/2010 - 18:02 | 553819 Lucky Guesst
Lucky Guesst's picture

What do we consider a mansion? Nothing over $750K sold in the last 2 months.....

long on bunkbeds?

Mon, 08/30/2010 - 18:20 | 553840 Nathan Muir
Nathan Muir's picture

Careful there, no new home construction over $750k sold in the last 2 months.  This little omission caused me some embarrassment over the weekend while arguing/discussing with a friend.

Mon, 08/30/2010 - 18:29 | 553848 Lucky Guesst
Lucky Guesst's picture

Oooops, thanks for setting me straight on that.


My tax dollars will be used to tear down houses to temporarily prop up the construction industry and lower unemployment stats in order to jack up the price of a house I might buy!!

Mon, 08/30/2010 - 18:56 | 553886 Ragnar D
Ragnar D's picture

Yep, just like the Agricultural Adjustment Act during the first Depression.


Entire fields of crops were plowed under, and millions of pigs, chickens, etc were bought by the gov't at premium prices to be slaughtered and removed from the market.

Keynesianism in a nut shell.  The problem wasn't that people were broke (some starving), with prices falling as a consequence, the problem was "overproduction".  Their perverse solution was to destroy stuff (in this case food), so that they'd have to outbid each other for the diminishing supply, pushing prices back up where they were during the bubble.

So everyone is poor and hungry, being taxed to have their food prices forced back up to levels they never should've reached to begin with.  Problem solved.

Mon, 08/30/2010 - 20:27 | 554025 stollcri
stollcri's picture

I have heard that there was some sort of program [in the very recent past] to encourage dairy farmers in the midwest to do this sort of thing, but I didn't catch the details.

Mon, 08/30/2010 - 17:15 | 553735 septicshock
septicshock's picture

What's this ten year outlook thing? Does anyone really expect this whole farce to even last more than two years?

Mon, 08/30/2010 - 17:20 | 553750 VK
VK's picture

Bullshit is always in a bull market.

Mon, 08/30/2010 - 20:52 | 554085 Bolweevil
Bolweevil's picture

VK said it best first (itchy comment finger by me).

Mon, 08/30/2010 - 17:43 | 553790 Translational Lift
Translational Lift's picture

It took 30 years to get you really think this is going to end in a year or two??

Mon, 08/30/2010 - 20:24 | 554017 THE 4th Quadrant
THE 4th Quadrant's picture

"What's this ten year outlook thing?"

Isn't that the average lifespan of an American house before it's crunched and hauled away to the landfill?

Mon, 08/30/2010 - 21:33 | 554167 Fred Hayek
Fred Hayek's picture

Maybe a Toll Brothers house.  They're a huge real estate company that started in Pennsylvania or Maryland and invaded Massachusetts about 12 or so years ago.  They built big $900,000 status boxes. 


A small independent house builder explained to me, several years ago, all the ways that Toll Brothers houses are shoddily made.  If my alternative was a hovel carved out of peat, I'd take the peat hovel over a Toll Brothers house.  If you ever consider buying a house and find that the title traces back to Toll Brothers or one of their corporate subsidiaries, I strongly advise that you don't purchase.

Mon, 08/30/2010 - 23:58 | 554436 Village Idiot
Village Idiot's picture

"If you ever consider buying a house and find that the title traces back to Toll Brothers or one of their corporate subsidiaries, I strongly advise that you don't purchase."


Shocking.  Bob Toll has been on Crammer's show many times.  He seemed like such an honest, likable fellow.


As an aside, spellcheck is telling me that "Cramer's" should be spelled as "Crammer's." Going with it.



Mon, 08/30/2010 - 17:19 | 553741 Manny
Manny's picture

Would not be surprised if home prices are at or below current levels in 2020.

But then again the world in going to end in 2012.

Mon, 08/30/2010 - 17:18 | 553742 markytom
markytom's picture

When there are still many, many 600 sq ft dumps in CA and elsewhere listed today for 5-6-700K dollars (many over 10X what they were sold for less than 10 years ago) the housing market can only continue to crash regardless of what the government does.

Mon, 08/30/2010 - 17:24 | 553755 VK
VK's picture

Exactly! House prices must reflect reality and that means prices must fall a lot more. Post Japan's bubble pop, house prices fell 75pc! I'm waiting for the Oz home bubble to burst, that will be spectacular to behold.

Mon, 08/30/2010 - 17:19 | 553749 Amish Hacker
Amish Hacker's picture

What I wonder about is the accuracy of the supply number. Do we really know how many homeowners are delinquent but haven't been foreclosed on yet? Or how many homes have been foreclosed by the banks but are not yet listed for sale?

Mon, 08/30/2010 - 17:25 | 553757 Rogerwilco
Rogerwilco's picture

We will see legislation soon that pays states to buy and demolish "surplus" housing or convert large unsold houses into apartment buildings for low income renters. No way are the banks going to suffer crippling losses in this fiasco.

Mon, 08/30/2010 - 17:39 | 553782 docj
docj's picture

Following the "Banks Never Lose" axiom this seems entirely plausible.

Mon, 08/30/2010 - 23:25 | 554391 FEDbuster
FEDbuster's picture

Of course they never lose. It's a "we win, you lose, fuck you, rip off".

And when they can't sell them for pennies on the dollar, they just tear them down and send taxpayers the bill.  Fuck you very much.

Mon, 08/30/2010 - 17:46 | 553797 Milestones
Milestones's picture

And pray tell, where is this $$ to "buy" going to come from and who will be the "landlord" of these ever so desirable low income rentals!! Rots of Ruck!   Milestones

Mon, 08/30/2010 - 17:50 | 553803 docj
docj's picture

...where is this $$ to "buy" going to come from

Same place it's been coming from since the FedCo debt bubble got going.

...who will be the "landlord" of these ever so desirable low income rentals

Same people who are the "landlords" of low-income housing today.

Mon, 08/30/2010 - 19:03 | 553899 Ragnar D
Ragnar D's picture

Valerie Jarret, Charlie Rangel, Maxine Waters, and the other thug politicians who've made a career out of handouts and dependency for their non-producing constituencies.

Mon, 08/30/2010 - 18:19 | 553834 Lucky Guesst
Lucky Guesst's picture

"We will see legislation soon that pays states to buy and demolish "surplus" housing"

So my tax dollars will be used to tear down houses to help jack up the price of a house I might buy? I don't like it!

Mon, 08/30/2010 - 20:29 | 554014 Incubus
Incubus's picture

"No, no! I can't sell you this house at this price...however...I can knock it down (via subsidized demolition) and build a house that you can afford."


Yeah, the game is indeed rigged --to hell with these bourgeoisie.


Mon, 08/30/2010 - 20:43 | 554056 Thunder Dome
Thunder Dome's picture

Providing stimulus to bulldoze all the vacant buildings is money well spent.  These properties are magnets for illegal activity and act like a cancer to a neighborhood.

Mon, 08/30/2010 - 17:28 | 553763 bluprint
bluprint's picture

S0 and S1 should be reversed to demonstrate a "surge in supply." Lowered demand along with high supply should show decreasing prices.

Mon, 08/30/2010 - 21:56 | 554214 Dantzler
Dantzler's picture

I was thinking that too--but then again I'm not an economist.

Mon, 08/30/2010 - 23:35 | 554407 ShankyS
ShankyS's picture

Bingo price will not stay constant. Must have been a Fed economist that helped them put this together. Another bank farce right in your face expecting you not to see it. Disinformation at it's finest. Trust us, we're your masters and what we say will always be true. You must submit to your masters.

Mon, 08/30/2010 - 17:28 | 553766 LMAO
LMAO's picture

Collapsing demand curve?


For about 12 mins ago a "Barclays Capital" tosser on BBC business news explained to the world that demand was STRONG and double dipping was very unlikely. I mean he just said so, right on the telly.



Mon, 08/30/2010 - 17:37 | 553769 RingToneDeaf
RingToneDeaf's picture

A Pollyanna outlook in my view. This assessment must assume that the past year and a half's legislative "improvements" are reversed. Fat chance bub. We are saddled with an exploding faith based fiat money system, in a land of non believers. I see at least 20 years of cleansing to get rid of systematic imbalances, and I do not count very high before confusion sets in. Let us see how many Trillions of $ are going to be printed up in this next Quantitative Easing (QE) give away to big banks and Wall Street by Banana Ben and his merry band of fools? Do any of you think that Obama is going away next week? Come on be real. No one wants Biden or Pelosi in charge. This is the safest man in the world. Unless of course Michele catches BarryO with his fingers in a little pie.

Big government is not dead by a long shot. Those bureaucrats are not cheap.

Mon, 08/30/2010 - 17:34 | 553771 functionform
functionform's picture

Another great find Tyler.  Bravo.  I put this one up there with the Nanex data.

Mon, 08/30/2010 - 17:35 | 553772 Glasgow Gary
Glasgow Gary's picture

The most exciting prospect of all: from this point forward, the seriously beefy and chunkalicious declines on a percentage basis will come from that 800K to 1.4M tranche, of the market. There's a ton of this stuff huddled around most US cities. It's going to get hammered.

Mon, 08/30/2010 - 19:05 | 553900 bronzie
bronzie's picture

yep, entry-level view properties in San Diego were about $800K before the bubble - they ended up in the $1.8-2.0 million range at the peak - they'll be back to $800K or lower before the downturn is over

Mon, 08/30/2010 - 17:36 | 553774 thesapein
thesapein's picture

When I talk to people, offline, they always seem surprised to hear that home prices are in for a bigger decline yet.

Not many seem surprise here, though. Kewl.

Tue, 08/31/2010 - 00:18 | 554475 whatsinaname
whatsinaname's picture

A property that sold for 220k in my neighbourhood in 2002 just sold for 199k in 2010 and the owner was NOT distressed !!

The bubble started in 1982 and prices will settle back to where they were around 1991 when all this is done with.

Mon, 08/30/2010 - 17:37 | 553778 RSDallas
RSDallas's picture

More than anything the residential markets in California, Nevada, Arizona, Florida and CRE throughout the entire US have more pain coming.  The banks that loaned into these markets have not come close to recognizing their actual losses.  The remainder of the Nation will continue to feel the drag until the market participants in these fairyland markets wake up and realize that this is not just a bad dream.

Mon, 08/30/2010 - 17:42 | 553789 CrashisOptimistic
CrashisOptimistic's picture

I'll offer up a solution.

By government edict, all banks must bulldoze every foreclosed house they have in inventory.


Mon, 08/30/2010 - 17:48 | 553800 mynhair
mynhair's picture

How about we just bulldoze all banks and lose the paperwork on the houses?

Mon, 08/30/2010 - 21:11 | 554072 Oligarchs Gone Wild
Oligarchs Gone Wild's picture

How about we just bulldoze all banks and lose the paperwork on the houses?


Mission Accomplished!


Edit:  Whoops - read your post too fast.  Meant to reply to ABOVE yours...  still, the video shows bulldozers and wreckage, you can "imagine" it's a bank, but if you look around any American town, isn't it funny how the bank is the best kept lawn, the full watering system with luscious landscaping, freshly set asphault every year and new parking lines, a wondrous destination that stands out above all other dwellings, oh, and it's fully lit at night, I mean like beyond a jail lit at night, like it takes out the ability to see stars at night bright and it's always made of brick and mortar, never wood.  This is true anywhere, whether in rural america or you know like in cities, how the skyline is covered in towering BANK BANK BANK everywhere, it's funny how they seem to have the best of everything at those banks.


It wouldn't have caught my eye for the slightest of moments until the bailout, when law was no longer respected as the ultimate authority in the US.   Now there are more important things above the law in the year 2010.


Yes, nothing to see here, move along, pay no attention to the gross inequity between banks and their surrounding businesses and abodes, it's just the way it's supposed to be.  They know whats best.

Mon, 08/30/2010 - 17:59 | 553815 Milestones
Milestones's picture

Wowey wo, this ought to be fun to watch when the bankers ask Joe sixpack to pick up the tab for this one. You surely don't expect the banks to pay for it do you?

$200,000 to put em up and $50,000 to tear them down and the utilities eat the cost of maintaining the telephone and electrical and the city does what with the subdivision streets sewers etc.

Yes siree bob, that oughta really fly as a solution to stupidity.     Milestones 

Mon, 08/30/2010 - 17:55 | 553811 william the bastard
william the bastard's picture

In 2004 there were 3,500 licensed homebuilders in Atlanta, GA 

Mon, 08/30/2010 - 17:56 | 553813 Miles Kendig
Miles Kendig's picture

Transfer that shadow inventory to lease 2 own shells and clear the paper.

Mon, 08/30/2010 - 18:06 | 553824 apberusdisvet
apberusdisvet's picture

The assumption of only 7% unemployment by 2013 is a bigger stretch than John Holmes dick fitting in a size 1 condom.  If the number turns out to be 11% instead, then my great grandchildren might see housing equilibrium.

Mon, 08/30/2010 - 20:08 | 553985 Seer
Seer's picture

Yes, it's that "magic happens" followed by lots of technical data supporting itself way of thinking/analyzing.

My math tells me that this is a 27% employment turnaround, from 9.6% to 7%.  Just where is that kind of momentum going to come from when there are NO signs of rebound in employment?  I don't think that people are dying quick enough to create this expansion/opening; and, unfortunately, those that are likely to be dying are those that have been stoking one of the growth industries- medical: and keep in mind how many commericals you see/hear about for medical students- how can that demand keep up, especially when more and more older people won't have extra money to pay for such services?

No, there will be NO magic happening.  There will be NO rebound.

Mon, 08/30/2010 - 22:49 | 554331 Fred Hayek
Fred Hayek's picture

And if you think the unemployment rate is actually 9.6%, I've got some stimulus funded weatherizing I'd like to sell you.

Mon, 08/30/2010 - 18:14 | 553836 redpill
Tue, 08/31/2010 - 00:20 | 554478 whatsinaname
whatsinaname's picture

yes TIME also said BB was Man of the Year.


Mon, 08/30/2010 - 18:23 | 553845 Comrade de Chaos
Comrade de Chaos's picture

The very first graph shows the decrease in supply rather than increase as claimed. Arrow to the right is increase in supply. I like voodo science, not so sure about voodo scientists.

Mon, 08/30/2010 - 18:41 | 553862 Waterfallsparkles
Waterfallsparkles's picture

I remember the 1980's.  What they did to stimulate home sales was to give investors FHA Loans with 15% Down.  They also changed the Depreciation of Investment Real Estat to 15 years.  Every investor in town went out and bought if not one many homes to Rent them or hold them until prices increased.  At that time the Interest rates were about 15% but the home prices were at a low.  Yet, investors flocked to buy Investment Properties.  Many Rented them until the Rate went down and refinanced.  But, that did the trick. 

Get private investors to sop up the excess housing inventory.

Mon, 08/30/2010 - 18:50 | 553873 11b40
11b40's picture

I am just an old man with a 40 year old business degree from a second rate college. It seems like the Econ 101 class I vaguely recall had a couple of basic principles that were taught like they were as solid as the law of gravity.

When I first started hearing about supply-side economics, I did a good bit of head scratching. I always thought that demand essentially created supply (supply somehow materialized to satisfy demand). It took a while, but it looks to me like that equation is coming back around and proving itself to be true. Our financial system was flooded with a supply of cheap dollars that laid the groundwork for all these bubbles, but now the cheap money is failing to attract takers. Imagine that, essentially free money & no demand for it.

The other little rule I seem to recall from the first chapter of Econ 101 is the one about Guns or Butter. My professor told us at the time that a nation could have one or the other, but not both at the same time - that it had never worked in the history of the world. That stayed with me pretty well, maybe because at the time I was sweating out my 4-S Draft Deferment an paying very close attention to Viet Nam.

Again, I did quite a bit of head scratching when we decided it would be a good idea to fight 2 wars & then were told to go on a shopping spree. To help us finace the shopping spree, we got tax cuts, too! Is this a great country, or what!?

Sometimes, I feel a little like Forest Gump.

Mon, 08/30/2010 - 20:33 | 554039 RockyRacoon
RockyRacoon's picture

Supply side is "build it and they will come".  Great for movies, but not so much for economics.   Guns OR butter went out with Vietnam.   Bu-bye.

Mon, 08/30/2010 - 20:51 | 554082 CrashisOptimistic
CrashisOptimistic's picture


I am just an old man with a 40 year old business degree from a second rate college. It seems like the Econ 101 class I vaguely recall had a couple of basic principles that were taught like they were as solid as the law of gravity.

When I first started hearing about supply-side economics, I did a good bit of head scratching. I always thought that demand essentially created supply (supply somehow materialized to satisfy demand). It took a while, but it looks to me like that equation is coming back around and proving itself to be true. 


My MBA is similarly ancient, but I am coming to believe that we all entrusted our beliefs to a science that is no science at all.  

Exactly how does your perspective prove anything in an environment of oil depletion, for example?  A higher price won't do anything to production coming out of the ground when it's too scarce to find in quantities capable of registering a production uptick.  

Economics is bogus.  Period.  In the world of economics, you can create oil by throwing money at it.  You can't.  You simply can't.

Tue, 08/31/2010 - 00:01 | 554443 Village Idiot
Village Idiot's picture

"Economics is bogus"


bumper sticker. nice.

Mon, 08/30/2010 - 21:35 | 554168 Mark Beck
Mark Beck's picture

We are in a new age of economic non-fundamentals, or if you will, nondamentals. The historic economic underpinnings require a framework in which to orient. Remove the foundation and the remaining theories sink into the mud. Much like the unfortunate dinosaures that wandered into the La brea Tar Pits in LA, and were consumed due to lack of support.

So now we have ventured into a similar tar pit of debt. The unfortunate pachyderm is the american taxpayer, who will now sink under the massive weight burden. While we may hear ideas about tar pit dynamics, but that will not give comfort or change the reality of the sinking beast.


The new linkage is between debt, demand and costs.

The government overhead, in its many forms, is just too great to increase private growth. Future demand has been obligated to pay unfunded expenditure. The transfer of wealth undertaken which such expediency, as to change the tax payer into a debt slave.

Our political legacy, a tax on freedom collected in advance.

Mark Beck

Mon, 08/30/2010 - 22:35 | 554303 11b40
11b40's picture

'Economic Nondementals'.  Now that's a keeper, and it describes the principles we are going to eventually impose on government - at all levels.  The more people come to understand where their tax dollars are going, the less they like it.  As more pensions are dimenished or lost, more attention will be paid to the bloated benefit structures governments have constructed for themselves. Reading about Wall Street bailouts is pretty abstract for most folks, but realizing the 53 year old neighbor down the street who worked for the city and retired last year without a worry in the world hits home....especially when you worry all the time about job security, healthcare, retirement.  It starts sinking in that you are paying for their peace of mind while losing yours.

Tue, 08/31/2010 - 14:24 | 555750 quartshort
quartshort's picture

Calling BS on this one... (maybe it is the case in CA, but not here)

I was told a million times to move to the private sector and make some REAL money, why are you staying in local govt? I'd just smile and say I'm happy.

Now there is a bunch of jerk-offs saying I need to take a cut and feel their "pain". Where were these a-holes when I was making "next to nothing"? Out there living LARGE in MILLION $$$ (financed) homes. So now I need to take it on the chin becuase I make $48K/ year and have decent benifits?

Eat your own hand-made shit sandwich, thanks.

Tue, 08/31/2010 - 01:14 | 554547 Serenity Now
Serenity Now's picture

First post here.  Another little Econ 101 maxim that no-one seems to remember (present company excluded, I'm sure) is "All other things being equal."  If we have any major differences between now and "then" (the "then" being used varies according to whichever talking idiot is moving his/her lips), such as an unprecedented credit bubble or moving our manufacturing overseas, then all other things are not equal and whatever comparison is being made (i.e., this recovery will be like "then's" recovery) is moot.  Sorry for the run-on sentence. 

Tue, 08/31/2010 - 01:16 | 554550 Apocalypse Now
Apocalypse Now's picture

Welcome, and you are right on comparing apples to oranges.

Insanity now & later.

Tue, 08/31/2010 - 01:28 | 554563 Serenity Now
Serenity Now's picture

Thank you for the "welcome." 

Maybe I should have used Sanity Now as my ZH name.  LOL.

Mon, 08/30/2010 - 18:50 | 553875 NOTW777
NOTW777's picture

not sure about any stats. I know a number of people who live in $1mil+ homes who have not made a mortgage pymt in months and have not received a NOD yet

Mon, 08/30/2010 - 19:06 | 553877 Village Idiot
Village Idiot's picture

"a foreclosed home is not a perfect substitute for a new home...."


Instantly discredited BofA post.  Pleeeze.

Mon, 08/30/2010 - 20:36 | 554048 RockyRacoon
RockyRacoon's picture

I've done work for realtors who had foreclosed homes listed.   Replacing the doors are really hard.  The factory pre-hung doors are tough to fit a new slab door into.  Lots of work has to be done to get it fit right.  Doing a house full (like 40 doors?) takes a lot of time.  And then there is the missing copper...

Tue, 08/31/2010 - 00:02 | 554417 Village Idiot
Village Idiot's picture

You are right, the stripped out roach of a house fits.  I was just wondering how many people wouldn't take an undervalued home that needs some tlc over a new home that is being sold at market?  I know rocky wouldn't.  Are there that many unskilled/lazy/money's no object types still willing to pay market out there?  No disrespect meant towards the unskilled/lazy/ money's no object group, btw.

I still call bullshit on BofA. 

Wed, 09/01/2010 - 15:32 | 558221 RockyRacoon
RockyRacoon's picture

It gets worse when folks put Pampers down the disposal side of the sink and then pour the aquarium gravel on top.

Mon, 08/30/2010 - 18:55 | 553881 bronzie
bronzie's picture

the article missed an important source of supply going forward: Boomer downsizing

I read an article recently saying that the Boomers will put 1.5 million housing units per year on the market as a normal part of their downsizing

If a Boomer sells his single-family house and buys a condo, that is a net wash - we only get new supply in the following situations:

> Boomer moves in with family

> Boomer moves into assisted-living facility

> Boomer dies (there is a lag between retirement and death but the lag is a short as 18 months in MANY cases - the Boomers will be retiring for the next 30 years so we can't ignore the supply due to death)

Martin Armstrong's economic model shows housing in a downtrend from 2006 to 2032 which is about when we will be done with the Boomers

Mon, 08/30/2010 - 20:14 | 554000 Seer
Seer's picture

Yes, this makes a lot more sense.  As I noted above (, there's also the issue that all those folks associated with all the old-people care, mostly medical sector, which has seen its own share of bubbling, are going to be hurting when lots of the boomers go bust.

I think that even Armstrong is being too optimistic.

Mon, 08/30/2010 - 20:55 | 554092 Lucky Guesst
Lucky Guesst's picture

"Boomer dies"

That's probably why they came up with reverse mortgage, IMO. They don't want Boomer's grandkids getting a house free and clear!

Mon, 08/30/2010 - 22:10 | 554252 Seer
Seer's picture

I wouldn't put it past the overly-greedy to think that way, but I'd have to ask what they think that they could possibly do having stuff that no one can afford?

One thought that flashed through my mind was that US real estate was going to be auctioned off to China, but then I realized that China also has overbuilt!

Our High Frequency Economic system (HFE) overheated and crashed.

Mon, 08/30/2010 - 22:44 | 554323 Lucky Guesst
Lucky Guesst's picture

You might be giving them too much credit. I don't think they can see past the current balance of their check book.

Tue, 08/31/2010 - 01:00 | 554533 Village Idiot
Village Idiot's picture

"That's probably why they came up with reverse mortgage, IMO. They don't want Boomer's grandkids getting a house free and clear!"

Another example of "kicking the can."  Do a reverse so the kids don't have to support mom and dad until the reverse money runs out.  btw, kids, reverse mortgages can be hazardous to you and your parents financial health.  Be careful if you are considering one.

Mon, 08/30/2010 - 21:50 | 554197 Gully Foyle
Gully Foyle's picture


Boomer shoots Adama, gets tossed into prison.

Oh wait...

Never mind.

Mon, 08/30/2010 - 18:57 | 553889 Hall 9000
Hall 9000's picture


Fed Sees 5-6 Years Of Economic Weakness

"The Federal Reserve released their FOMC minutes from their last meeting in June and the most eye popping statement was that they see economic weakness and do not see a full recovery from this last recession for another five or six years."


Mon, 08/30/2010 - 19:00 | 553896 Everyman
Everyman's picture

Pollyanna outlook indeed!  It is downright an intentional mislead.  From this "study" by "phds of economics" from "Havad Yad":


"They present two possible trajectories for household growth: 1) an average of 1.48 million annually through 2020 assuming net immigration returns to the 2000-05 pace and headship rates at 2008 levels; and 2) an average of 1.25 million annually through 2020 assuming the same 2008 headship rates but slower immigration."


Neither of those "trajectories" is even close to reality.  In this economy assuming a "pre crash" level in the head count!!!  Are you f'ing kidding me?!?!?!  As for the "illegal aliens" owning homes, that figure is probably WAY understated and as a result so will the losses, as most around here are "going back home" where life is cheaper,.. meaning MEXICO.  Hell we don't know how many are illegally here anyway! 12, 20, 38, 43 million illegals?


Additionally, Assuming that "immigration will return to record levels of 2000-05" is insane as well, in a country with high unemployment and all services being cutback.  Talk about assinine assumptions.  Hell a fifteen year old with ance and a bad attitude can figure that out.  How come theswe "wizards" ar "Havad Yad" are so clueless?????

Mon, 08/30/2010 - 19:07 | 553903 Larry Darrell
Larry Darrell's picture

"Many of these former homeowners were probably foreclosure victims (Figure 8)...............We do not expect the unemployment rate to reach the mid-7% range until 2013, implying another two and a half years of sluggish household formation of about 800,000 a year. This is also when we expect the pace of foreclosures to slow notably, which means that fewer households will have to double-up.................................Our baseline view is that national home prices will edge lower over the rest of the year and then bounce around the bottom for some time."


So, this whole long article is a complete waste of space because of their "baseline view".  And the sad thing is, they ALMOST admit it with their closing sentence..........."The downside risk is that foreclosures flood the market at a rapid pace, depressing home prices greatly, which could tip the overall economy back into recession."


And just what is it in their baseline view that they leave out.......the new wave of ARM resets coming next year.


Mon, 08/30/2010 - 19:36 | 553938 Iceobar
Iceobar's picture

IIRC, 60%+ of the homes purchased during the boom were second, a reduction in households units is not required for a major contraction. Mortgage resets peak in Q3 of 2012, just when David Rosenberg estimates that unemployment will be 11%. Keeping the powder dry until then seems like a fine idea, IMHO

Mon, 08/30/2010 - 19:48 | 553954 Catullus
Catullus's picture

The HUD secretary on CNN Sunday morning took the cake on the housing situation. They even clearly identified how full of shit he is and has been and his only defense was "housing prices had been falling for 30 months prior to Obama taking office".

Please post it. It's better than "welcome to the recovery".

Mon, 08/30/2010 - 20:51 | 554079 Hall 9000
Hall 9000's picture

Calculated Risk wrote Aug 30:

"If in fact there is “no news here” – and good God I hope administration officials realize that giving potential home buyers the notion that a home buyer tax credit MIGHT be revived will absolutely and unequivocally depress home sales over the next several months – the administration should have Donovan or another HUD spokesperson explicitly state that there is no plan to revive the home buyer tax credit in the foreseeable future – and they should do this SOON!!!!"


Mon, 08/30/2010 - 21:12 | 554123 Catullus
Catullus's picture

I'm not in the "expectations" camp. That assumes that $8000 is the marginal amount to move a house. If that's all it takes, then why wait? Just tell the current owner "I'll buy if drop by x".

I'm in the "if $8000 at the current interest rates is going to be the marginal amount that makes a house affordable, you really have no business buying a house". Other than that, it's just a giveaway of someone elses money

Tue, 08/31/2010 - 00:28 | 554491 Gromit
Gromit's picture

In practice the tax credit tends to help sellers and disadvantage buyers.

I sold a condo in April with multiple full price offers - I'd probably need to list for $20K less today.

Mon, 08/30/2010 - 20:29 | 554030 HungrySeagull
HungrySeagull's picture

Hurricanes will be less costly. Just cart the debris to the dump and hold the grass plots until better times come. Only build back paid for and good equity homes.

Mon, 08/30/2010 - 20:49 | 554067 Thunder Dome
Thunder Dome's picture

Only shop in primo real estate areas.  Low ball every seller and you will be fine.  Great homes are out there. Just put a house under contract in blue chip neighborhood that I can rent for more than cost of carry.  Get out your cocktail napkins and do the math dipshits.

Mon, 08/30/2010 - 21:18 | 554137 bronzie
bronzie's picture

oh, please educate us, enlightened one

in San Diego I can rent for far less than I can own at all price levels - where exactly can I own for less than I can rent (and would I want to live there)?

Tue, 08/31/2010 - 00:24 | 554483 Village Idiot
Village Idiot's picture

"oh, please educate us, enlightened one

in San Diego I can rent for far less than I can own at all price levels - where exactly can I own for less than I can rent (and would I want to live there)?"

Ha, you beat me to the punch!  Typical fucking Realtor, and I've been one for 25 years. 

Tue, 08/31/2010 - 00:31 | 554495 Gromit
Gromit's picture

And don't forget rents are heading down going forward.

You have to project expenses increasing 3% going forward - government, utilities, energy.


Tue, 08/31/2010 - 00:37 | 554502 HungrySeagull
HungrySeagull's picture

Home ownership outright is still better than renting or living in high tax areas or close to expensive areas like San Diego for example.


Rush hour lasts between 6:45 and 7:20 then school buses roll for 15 minutes and two trains. We are all done by 8AM for the rest of the day. No traffic to speak of.

Tue, 08/31/2010 - 01:16 | 554507 Village Idiot
Village Idiot's picture

Weird, got kicked out mid sentence.  Anyway, tell me what "primo" area you bought in? Not picking a fight, even though most Realtors blow.  I want to discredit this kind of disinformation - if in fact it is.


Edit:  My bad, you didn't say you were a Realtor.  You sure sound like one, though.

Tue, 08/31/2010 - 01:25 | 554559 Serenity Now
Serenity Now's picture

+1.  I'm renting in Hawaii (highest rents in the nation) for way less than owning.  We are experiencing rent deflation here for the first time in a very long time.  Median house prices of $600,000 in a state that has a median income of $60,000....not sustainable.

Mon, 08/30/2010 - 20:47 | 554069 Econmike
Econmike's picture

As several posters have already noted, the first graph shows a decrease in supply rather than an increase.

Mon, 08/30/2010 - 20:49 | 554075 THE 4th Quadrant
THE 4th Quadrant's picture

T'wood be nice if Sacrilege could save this image for my icon/avatar thing.

The file uploader somehow fucking kills this. Fails every time even though it's 40x35 and 7kb. I'm starting to get pissed.

Mon, 08/30/2010 - 22:13 | 554260 Seer
Seer's picture

Appears to be working just fine from my vantage point.  Nice job! :-)

Mon, 08/30/2010 - 22:58 | 554345 THE 4th Quadrant
THE 4th Quadrant's picture

Oh, there it is. Thank you ZH.

Mon, 08/30/2010 - 20:58 | 554101 Oligarchs Gone Wild
Oligarchs Gone Wild's picture

Just imagine if housing didn't subsidize oligarchs, banksters and the governments with your productivity.   You know, back in the oldie time days when the people who actually helped build your house were the only ones compensated with payment for actual tangible services rendered or trade.  Rather than the other 700 ponzi scheme collectors in invisible lines behind it with their mouths open ready for their piece of the action.


Mon, 08/30/2010 - 21:02 | 554110 I think I need ...
I think I need to buy a gun's picture

the only way this problem will be solved is a domestic currency split on debt in some way form or manner or it will be a drag on the economy for 10 i agree i don't know but why is John Paulson calling for a housing boom 2nd half of 2011. Get your popcorn ready!

A domestic currency split on debt would bring prices down and get many people out from under and free up people to move.

Go for the gold!!!!!!!!

Mon, 08/30/2010 - 22:33 | 554299 Hall 9000
Hall 9000's picture

Nouriel Roubini - Twitter

  1. Fed policy is impotent & more QE is useless: banks aren't lending 1 trillion of free reserves: why would they lend a second trillion of QE2?

  2. What's the difference between this growth recession and a formal double dip recession? None for the 16.5% of workers w/o jobs or discouraged.

    1. What's the difference between this growth recession and a formal double dip recession? None for the 16.5% of workers w/o jobs or discouraged
    2. "At a Q2 growth of 1.6% US already in a "growth recession", well below potential growth of 3%, a step away from a formal double dip recession"


Mon, 08/30/2010 - 21:08 | 554119 TruthHunter
TruthHunter's picture

Another solution seems  to be on the table here

in SW Florida.  5 empty homes in the last week

or so have been torched.  Thats more than

housing starts!

Mon, 08/30/2010 - 21:15 | 554132 CookieMonster
CookieMonster's picture

Tyler said, "and as can be expected from economists, despite having come up with the S-D concept, they consistently focus on the part that's (relatively) easy to control - the supply side, and tend to ignore the "demand" aspect, which is far more difficult to jigger in the desired direction" In the amazingly boring (but strangely relaxing) video game, SimCity and variations, there is one solution known as the Bulldozer function. Abandoned homes and businesses are bulldozed, rezone to something more useful, and presto, instant economic nirvana and the wealth and aura of the city increases!!! :)

Mon, 08/30/2010 - 23:33 | 554406 48norton
48norton's picture

ha!  just today heard rumor from Naples general contractor, 29 new/teardowns in Port Royal, GS CEO spending $38M. 

Tue, 08/31/2010 - 00:43 | 554512 whatsinaname
whatsinaname's picture

if a home in or close to foreclosure burns down can the bank claim insurance money ?

Tue, 08/31/2010 - 01:21 | 554556 Village Idiot
Village Idiot's picture

"if a home in or close to foreclosure burns down can the bank claim insurance money ?"

Sorry if I put the kibosh on an idea.  It's called a "mortgagee clause" and it's written into every policy where a bank holds the paper.  Bank gets paid first.  If the question was rhetorical, never mind.

Mon, 08/30/2010 - 21:41 | 554182 KevinB
KevinB's picture

"Assumes the recession ended 2Q09"

But haven't we been reading that the recession has not, in fact, ended, as of 2Q10?

Mon, 08/30/2010 - 21:46 | 554190 Gully Foyle
Gully Foyle's picture

Will this make sense without the 3d glasses?

Mon, 08/30/2010 - 21:48 | 554193 clagr
clagr's picture

Just out:

The EPA has concluded that vacant houses are emitting too much CO2, so under their administrative mandate they will all be bull-dozed to help the environment

Mon, 08/30/2010 - 21:54 | 554211 jkruffin
jkruffin's picture

No worries in Tennessee, they got the best candidate for governor in the world.  Check him out!

Mon, 08/30/2010 - 23:07 | 554364 Fred Hayek
Fred Hayek's picture

You think he's a peerless idiot but find some footage of the mayor of Boston speaking.  Mumbles Menino.  As a kid we would have been callous and refered to someone who speaks like Menino as a "retard".  Now we know better.  We call him a "politician".

Mon, 08/30/2010 - 21:58 | 554218 pitz
pitz's picture

Housing market will only bottom when it becomes an entirely 'all-cash' market, with no debt. 

This is how all financial bubbles end. 


Mon, 08/30/2010 - 22:11 | 554225 pitz
pitz's picture


Mon, 08/30/2010 - 22:47 | 554326 chindit13
chindit13's picture

They even got the S-D curve wrong. If it really was a straight line, we never would have had Liar Loans, Alt-A's, Option Arms, Synthetic CDO Squareds, or even subprime. In a few goods (housing and internet IPO's pre March 2000 being two notable ones) rising prices increase demand. Opposite occurs when the rate of decline is on the increase, which is what has everything in a tizzy now.

Up until the last month or so, China, Hong Kong, Singapore, Australia, and maybe Canada were still "enjoying" the right side of the chart. The clock is ticking.

The US will do well if it finally decides homes are something one lives in and not a piggy bank. That might even encourage Wall Street to go back to its roots of capital aggregation and business funding. Of course, it will never happen, as RE bubbles seem to be programmed into the genetic code of humanity. Nobody seemed to notice that when Japan tanked after 1990, some RE fell 95% (my former trading assistant and her husband might still be sitting on their $1.5 million condo, with only 80 years remaining on the original 100-year, 120% of appraised value mortgage, and a current market value below $150K). Hong Kong RE has fallen by 50% or so TWICE since July 1997, yet it has once again moved into non-sustainable levels, supported by "high down payments", which is a euphemism for people borrowing against their relatives' property.

Tue, 08/31/2010 - 01:13 | 554546 Apocalypse Now
Apocalypse Now's picture

Excellent observations.

All of these problems are related to world wide fiat that does not hold value (inflation).  We have hot capital flows moving internationally between asset classes (levered up 40 x 1 in some cases) to beat inflation and interest costs but generally fucking up asset prices globally.  As Faber said, they have successfully created a bubble in everything.  If everything is a bubble, why buy into a bubble - it must be answered.  So surplus labor in the form of fiat (along with questionable fiat through printing/QE) seeks an investment, but all that is waiting are rows of HFT computers and overpriced houses looking to fleece them.

Right now, banks own more houses than people.  That should say more than anything else, and the problem is jobs and banks not allowing inventory to clear with lower prices.  Perhaps we should think in terms of ownership (Balance Sheet) instead of P&L's for the TBTF banks.  We should also ask the same question with regard to equity shares and who owns them.  Remember the fed is not being fully audited, they could print and buy up just about anything.


Tue, 08/31/2010 - 01:33 | 554570 Serenity Now
Serenity Now's picture

"Right now, banks own more houses than people."

Oh, I think they own quite a few people, too.  ;)

That's why they are getting away with holding this inventory while being completely (or mostly, or does it matter?) insolvent.

Tue, 08/31/2010 - 09:38 | 554932 Apocalypse Now
Apocalypse Now's picture

Good one, chuckling just like watching Seinfeld.

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