Guest Post: Has Housing Bottomed? Here's How To Tell

Tyler Durden's picture

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camaro68ss's picture

Housing has not bottomed. you have 4.1 million familys not paying there house payments. Thats 4.1 million homes that need to be forclosed on but the banks arnt doing it because it will bankrupt them if they do so. 4.1 million homes times the average home cost of $300,000 = $1.2 Trillion that still needs to fall on the bankers books.

These are the numbers a insider banker told me, he says this will dwarf 08

Its far from over

Azannoth's picture

It's hard to imagine how they will dig them selves out of this without causing hyperinflation

After-all when the only tool you have is a hammer everything else looks like a nail

whatsinaname's picture

How do you account for 20 million boomer homes that will hit the market - most of which still have unpaid mortgage balances and underwater since boomers tended to buy Boom Mansions anyways..?

Dr. Richard Head's picture

My neighbor and I were just talking about housing yesterday and he said there is enough blood in the water to jump in now.  I tried to explain shadow bank inventory to him, as well as Alt-A and Option Only resets peaking late this year.  His response, "I am sure it will go down a bit more, but sometimes you have to zig when everyone else is zagging." 

His blood will soon join the water.  Nevermind the facts, those just get in the way of decisions that need to be made.

you enjoy myself's picture

not to mention that there's about 20M less people in the generation below the boomers.  and they have record student loan debt, with no real job prospects.  and you have to pledge your first-born in order to get a loan.  and interest rates are only going up from here...

IQ 145's picture

 reply to the post itself. Yes. This is the way I look at things; it takes many years for a huge number of people to change their opinion. Similarly, if you're going to look at price charts; be sure and look at weekly and monthly charts. Sometimes market tops and reversals are obvious on a longer term chart and completely buried in the short term noise.

IQ 145's picture

 reply to the post itself. Yes. This is the way I look at things; it takes many years for a huge number of people to change their opinion. Similarly, if you're going to look at price charts; be sure and look at weekly and monthly charts. Sometimes market tops and reversals are obvious on a longer term chart and completely buried in the short term noise.

Woodyg's picture

It's not 1.2 trillion - not when they leveraged those mortgages 100's to 1 with derivitives - if it was 1.2 trillion we'd be fine as we've given the banks 10 times that amount. Heck the Fed has given out more than enough to pay off every single mortgage in America - in default or not. Too bad it was all stolen and moved overseas to unmarked swiss bank accounts.

Woodyg's picture

It's not 1.2 trillion - not when they leveraged those mortgages 100's to 1 with derivitives - if it was 1.2 trillion we'd be fine as we've given the banks 10 times that amount. Heck the Fed has given out more than enough to pay off every single mortgage in America - in default or not. Too bad it was all stolen and moved overseas to unmarked swiss bank accounts.

I am Jobe's picture

The Bull shit keeps on coming.

Transitory Disinflation's picture

...if APPLE started to sell house's?

iHomes with iDrives and iLawns.... iDunno

FEDbuster's picture

iDunno about houses, but I bet there is an iCar in the future.  Electric, thin and lightweight, and made in China by $10/day workers.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Deletion of the mortgage interest deduction will do wonders for the housing industry "and" the economy!  --Tuco Benedicto Pacifico Juan Maria Ramirez

Silver Dreamer's picture

The answer is both simple and easy: The goverment buys all of the mortgages, right?  Housing market? What market??

packman's picture

One key problem with this analysis - it doesn't take into account inflation in the housing prices.

Sorry, but no matter how bad things get, houses will come nowhere near their 1994 values in nominal terms.  In inflation-adjusted yes.  Definitely not in nominal terms.  They may get down to 2000-levels.

Charles is usually spot-on with his analysis.  I'm aware of his Bubble Symmetry chart,  however always assumed it was inflation-adjusted.  However his newer charts make it clear that's not the case.  As such, IMO the analysis may be correct in its premise, but bad in its scale.

(Another wrong thing - the Bubble Symmetry chart is specifically for California, which did have a pause in 2002, due to the tech bubble burst.  However nationwide there was no pause in 2002.  E.g. see the CoreLogic HPI chart (from Case/Shiller data presumably))

 

Max Hunter's picture

Wrong.. Housing prices will reflect the amount people are able to pay as a monthly payment.  I don't care what year you attach to your number, prices will fall as long as the labor market (and wages) fail to sustain housing prices.

It's pretty simple math actually.. You don't even need to be an economist to figure this one out.. All the charts in the world will not tell you what a house is worth. The income of Americans will dictate what is paid for houses.

packman's picture

Wage and salary disbursments:

1994: $3.0 Trillion

2000: $4.8 Trillion

2008 peak: $6.6 Trillion

2009 bottom: $6.3 Trillion

Now: $6.6 Trillion

Are you seriously suggesting that in this monetary-inflation-crazy environment that wages will go back to 1994 levels?

The only way that happens is if we get to 60% unemployment.  The U.S. will simply cease to exist long before then.   However home prices in nominal terms will still not be at 1994 levels - because these prices are denominated in US dollars.  The US dollar will have ceased to exist.  Thus there will be no more home price index.

 

BlackholeDivestment's picture

Perfect tune, fits the time frame now. lol http://www.youtube.com/watch?v=vGbK_H1O8PI

Imagine that, it was a prophetic tune.

...reminds me of the time of sealing and the time of judgment. The time of sealing comes before the revelation upon the day of judgment

alangreedspank's picture

A house is not a commodity. It follows inflation as long as maintenance is done and that people can actually afford it.

 

Salah's picture

Maybe not a true commodity, but it's simply the biggest consumer durable of them all.  It's not entitled to anymore mythic US worship, like apple pie, motherhood, and baseball. 

Strip away its deified status, courtesy of those criminal bozos at the NAR ("it's that weather!"), and reliquify with mandatory paperless transactions, and retail "house dealers", who adjust their inventories quickly with uber-fast transparent pricing, via localized "wholesale real estate auctions" (similar to car dealers)...and the whole mess will clean itself up within 18 months.

Of course, any reform is now caught up in the signing scandal & the "ultimate masters of friction" (i.e. lawyers) have gotten involved.  But sooner or later, this brave new world of liquified real estate will emerge, and those ditzy divorcees or school teacher won't be making 6-7-10% on the gross for a transaction they have absolutely, positively ZERO equity risk in.

BigJim's picture

I disagree. Housing in high- or hyper- inflationary scenarios loses value relative to things lower down Exter's pyramid... for the same reason everything else does that is essentially a derivative; yes, houses are real things, but they are bought on credit, the price of which is a derivative of base money and interest rates (and government intervention like the CRA).

Considering the relative lack of volatility in supply and demand compared with commodities, this explains why house prices are surprisingly inconstant.

Praetorian Guard's picture

I agree completely!! With inflated dollars I do not believe we will see ACTUAL prices at or near 1994 values. I think the best way to calculate this is to take the inflation adjusted dollar value since 1994, YOY, and correlate this to the actual 1994 house prices for a more realistic 2011 nominal value.

FEDbuster's picture

Sorry to burst everyones "we won't see 1994 prices" bubble, but here in AZ we are seeing 1994 prices.  Not everywhere, but in some areas (fairly new, but overbuilt) the pricing is mid-1990's. 

I moved to the Prescott area in 1997, and a new 3 bed, 2 bath home could be bought in Prescott Valley for $80K.  Over the past three years there have been many sales of that type of home for under $100K.  Those same homes peaked in price at about $200K in 2006.  They went up about 150% over 10 years and dropped 50% in 3 years.  The current cost of construction on those same houses would be about $140K.  The current market price for those homes is about $125K, foreclosures are still showing up for under $100K (they sell fast).  That is just a quick snapshot of one small AZ "boom" town.

Hobbleknee's picture

Bottoms, bitches!

 

Am I doing it right?

blunderdog's picture

I think housing's bottomed when everyone in the world knows reflexively it's a lousy "investment."

I'd say at least 12 years.

packman's picture

One key problem with this analysis - it doesn't take into account inflation in the housing prices.

Sorry, but no matter how bad things get, houses will come nowhere near their 1994 values in nominal terms.  In inflation-adjusted yes.  Definitely not in nominal terms.  They may get down to 2000-levels.

Charles is usually spot-on with his analysis.  I'm aware of his Bubble Symmetry chart,  however always assumed it was inflation-adjusted.  However his newer charts make it clear that's not the case.  As such, IMO the analysis may be correct in its premise, but bad in its scale.

(Another wrong thing - the Bubble Symmetry chart is specifically for California, which did have a pause in 2002, due to the tech bubble burst.  However nationwide there was no pause in 2002.  E.g. see the CoreLogic HPI chart (from Case/Shiller data presumably))

 

packman's picture

Well - sorry for the duplicates.  I kept getting an error when attempting to post, and assumed the posts weren't getting through.

 

foxmuldar's picture

I live in a Mobile home so my home price always drops from year to year. But unlike those who wanted more then they can afford, I don't worry about making my next mortgage payment. I don't care if my home continues to drop in value. I don't pay property taxes cause the value of my home is so little. the chickens have come home to roost for so many who lived beyond their means. I don't feel sorry for them. Shit happens. lol

foxmuldar's picture

I live in a Mobile home so my home price always drops from year to year. But unlike those who wanted more then they can afford, I don't worry about making my next mortgage payment. I don't care if my home continues to drop in value. I don't pay property taxes cause the value of my home is so little. the chickens have come home to roost for so many who lived beyond their means. I don't feel sorry for them. Shit happens. lol

packman's picture

One key problem with this analysis - it doesn't take into account inflation in the housing prices.

Sorry, but no matter how bad things get, houses will come nowhere near their 1994 values in nominal terms.  In inflation-adjusted yes.  Definitely not in nominal terms.  They may get down to 2000-levels.

Charles is usually spot-on with his analysis.  I'm aware of his Bubble Symmetry chart,  however always assumed it was inflation-adjusted.  However his newer charts make it clear that's not the case.  As such, IMO the analysis may be correct in its premise, but bad in its scale.

(Another wrong thing - the Bubble Symmetry chart is specifically for California, which did have a pause in 2002, due to the tech bubble burst.  However nationwide there was no pause in 2002.  E.g. see the CoreLogic HPI chart (from Case/Shiller data presumably))

 

packman's picture

Duplicate of above - ignore.

V in PA's picture

click edit. delete post content and replace with " . "

Shameful's picture

Wait till they try and smoke the housing interest deduction.  That aught to be good for the employed to pile out and tie them down to a location.  If the dollar was more stable I would think housing still has a long way to plummet (hello shadow inventory and people not paying), but never know how much Zimbabwe Ben will wizard into existence.

Bear's picture

And don't forget the 3.8% tax for selling any home ... part of Obamacare

foxmuldar's picture

I live in a Mobile home so my home price always drops from year to year. But unlike those who wanted more then they can afford, I don't worry about making my next mortgage payment. I don't care if my home continues to drop in value. I don't pay property taxes cause the value of my home is so little. the chickens have come home to roost for so many who lived beyond their means. I don't feel sorry for them. Shit happens. lol

packman's picture

One key problem with this analysis - it doesn't take into account inflation in the housing prices.

Sorry, but no matter how bad things get, houses will come nowhere near their 1994 values in nominal terms.  In inflation-adjusted yes.  Definitely not in nominal terms.  They may get down to 2000-levels.

Charles is usually spot-on with his analysis.  I'm aware of his Bubble Symmetry chart,  however always assumed it was inflation-adjusted.  However his newer charts make it clear that's not the case.  As such, IMO the analysis may be correct in its premise, but bad in its scale.

(Another wrong thing - the Bubble Symmetry chart is specifically for California, which did have a pause in 2002, due to the tech bubble burst.  However nationwide there was no pause in 2002.  E.g. see the CoreLogic HPI chart (from Case/Shiller data presumably))

 

packman's picture

Duplicate of above - ignore.

 

Cvillian's picture

I agree with you. I generally like his work but the trend lines for HPI make a case that we are much closer than he suggests. Factor in the rent/mortgage payment arb and my area, at least, is at equilibrium if not oversold already. Guys are buying 1/2BR entry level condos here and renting out in just a few weeks for an annual return north of 10% (with rent bump potential)

ghostfaceinvestah's picture

You are on the right track better than the author.  To take the housing and stock market analogy futher, housing was in a speculative bubble, but is now closer to being priced based on fundamentals - price/rent, etc all matter.

From that perspective housing is near a bottom.  In fact if you pull out distressed sales (which are often in some state of neglect) house prices have been stabilizing for months.

As for all the delinquencies, where are they going to go?  Rentals?  Rents are rising, which further sets a floor on housing.  You are going to see more of what we are seeing now: many distressed sales being sold (usually for cash) to investors.

That's not to say the banks don't have huge losses ahead - someone will have to take the hit on all that underwater debt.  But that doesn't mean house prices will drop further.

Quintus's picture


Has Housing Bottomed? Here's How To Tell

Won't we be able to tell pretty accurately when house prices have bottomed by, er, looking at house prices and checking to see whether they have stopped falling?  Seems like that might work, but what do I know.

V in PA's picture

How long do you look? What if it starts going up after 6 months? Is that the dead cat bouncing or recovery?

I like the idea that when everyone stops talking about it, it has bottomed.

Quintus's picture

A vaild point.  Forgive my factiousness.  T'was meant in jest.

DiveGerl's picture

As a well qualified home buyer here in centreal NY I can tell you, everything in the median price range is either in a foreclosure or short sale position - period! We tried to deal with banks on several occassions...they WILL NOT deal, they want at least .85 on the dollar for homes that will NEVER reasonably appraise for 60% of the asking price. This assumes no further decline in the housing market. This is a downright disaster, and it has not even come to full fruition...Yet!

foxmuldar's picture

I live in a Mobile home so my home price always drops from year to year. But unlike those who wanted more then they can afford, I don't worry about making my next mortgage payment. I don't care if my home continues to drop in value. I don't pay property taxes cause the value of my home is so little. the chickens have come home to roost for so many who lived beyond their means. I don't feel sorry for them. Shit happens. lol

ChiefJohnRutledge's picture

The average post-war real estate recession has lasted 6 years from peak to trough, so in temporal terms we should be at a bottom.  But with TARP, QE1, QE2, tax credit, ZIRP, etc. the necessary price falls haven't come yet even with the fairly dramatic declines we've seen.  In most markets on the east coast, sellers are still asking prices of 15-18x annual rents when at the bottom of a recession the prices are more like 10-12x annual rents.

And when you factor in the fact that the Classes of 1968 (Clinton, Bush, Henry Paulson, Bill Ayers) through 1975 (Tom Friedman, Ben Bernanke) are going to be net sellers of ALL types of property for the next 20 years, you have a real demographic clusterfuck still in the making.