• Sprott Money
    05/06/2016 - 06:03
    The US, in its own decline, is showing this same self-destructive tendency. The worse things get, the greater the inclination of the citizenry to say, “Carry on, everything’s fine.”

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

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Wed, 07/20/2011 - 11:20 | 1473800 camaro68ss
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

Wed, 07/20/2011 - 11:22 | 1473814 Azannoth
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

Wed, 07/20/2011 - 11:24 | 1473822 whatsinaname
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..?

Wed, 07/20/2011 - 11:55 | 1474001 Dr. Richard Head
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.

Wed, 07/20/2011 - 16:00 | 1474941 you enjoy myself
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...

Wed, 07/20/2011 - 11:33 | 1473859 chopper read
chopper read's picture

nicely put, camaro68ss.

Wed, 07/20/2011 - 11:33 | 1473861 IQ 145
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.

Wed, 07/20/2011 - 11:38 | 1473899 IQ 145
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.

Wed, 07/20/2011 - 12:12 | 1474090 Woodyg
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.

Wed, 07/20/2011 - 12:12 | 1474091 Woodyg
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.

Wed, 07/20/2011 - 11:21 | 1473804 I am Jobe
I am Jobe's picture

The Bull shit keeps on coming.

Wed, 07/20/2011 - 11:22 | 1473815 Transitory Disi...
Transitory Disinflation's picture

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

iHomes with iDrives and iLawns.... iDunno

Wed, 07/20/2011 - 13:18 | 1474328 Oh regional Indian
Oh regional Indian's picture

Haaaa! Awesome! :-)

ORI

Thu, 07/21/2011 - 09:26 | 1476748 FEDbuster
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.

Wed, 07/20/2011 - 11:23 | 1473817 Tuco Benedicto ...
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

Wed, 07/20/2011 - 11:28 | 1473834 Silver Dreamer
Silver Dreamer's picture

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

Wed, 07/20/2011 - 11:29 | 1473838 packman
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))

 

Wed, 07/20/2011 - 11:49 | 1473965 Max Hunter
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.

Wed, 07/20/2011 - 13:32 | 1474369 packman
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.

 

Thu, 07/21/2011 - 07:37 | 1476421 BlackholeDivestment
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

Wed, 07/20/2011 - 12:37 | 1474200 alangreedspank
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.

 

Wed, 07/20/2011 - 15:25 | 1474787 Salah
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.

Thu, 07/21/2011 - 18:29 | 1478916 BigJim
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.

Wed, 07/20/2011 - 17:06 | 1475205 Praetorian Guard
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.

Thu, 07/21/2011 - 09:46 | 1476818 FEDbuster
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.

Wed, 07/20/2011 - 11:30 | 1473841 Hobbleknee
Hobbleknee's picture

Bottoms, bitches!

 

Am I doing it right?

Wed, 07/20/2011 - 11:46 | 1473943 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

No.

Bitches' bottoms!

There you go.

Wed, 07/20/2011 - 12:15 | 1474103 carbonmutant
carbonmutant's picture

You're missing a 'z'...

Thu, 07/21/2011 - 08:28 | 1476489 BlackholeDivestment
BlackholeDivestment's picture

...bottomless pit Bitchez!!!  

http://www.youtube.com/watch?v=YnZ8ZQ8Puos

Wed, 07/20/2011 - 11:30 | 1473842 blunderdog
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.

Wed, 07/20/2011 - 11:31 | 1473849 packman
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))

 

Wed, 07/20/2011 - 11:50 | 1473974 packman
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.

 

Wed, 07/20/2011 - 11:32 | 1473852 foxmuldar
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

Wed, 07/20/2011 - 11:34 | 1473865 foxmuldar
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

Wed, 07/20/2011 - 11:34 | 1473870 packman
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))

 

Wed, 07/20/2011 - 11:51 | 1473976 packman
packman's picture

Duplicate of above - ignore.

Wed, 07/20/2011 - 15:35 | 1474823 V in PA
V in PA's picture

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

Wed, 07/20/2011 - 11:34 | 1473874 Shameful
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.

Wed, 07/20/2011 - 12:38 | 1474205 Bear
Bear's picture

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

Wed, 07/20/2011 - 11:35 | 1473876 foxmuldar
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

Wed, 07/20/2011 - 11:36 | 1473885 packman
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))

 

Wed, 07/20/2011 - 11:51 | 1473978 packman
packman's picture

Duplicate of above - ignore.

 

Wed, 07/20/2011 - 11:59 | 1474024 Cvillian
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)

Wed, 07/20/2011 - 12:57 | 1474282 ghostfaceinvestah
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.

Wed, 07/20/2011 - 11:40 | 1473891 Quintus
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.

Wed, 07/20/2011 - 15:39 | 1474846 V in PA
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.

Wed, 07/20/2011 - 19:41 | 1475612 Quintus
Quintus's picture

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

Wed, 07/20/2011 - 11:37 | 1473892 DiveGerl
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!

Wed, 07/20/2011 - 11:39 | 1473900 foxmuldar
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

Wed, 07/20/2011 - 11:40 | 1473908 ChiefJohnRutledge
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.

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