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Fitch Warns Of Housing Bubble, Says "Unsustainable" Jump Leaves Home Prices 17% Overvalued
Whether it is 'cover' for the all-too-obvious collapse to come (when another round of ratings agency litigation will take place as blame is apportioned) or more likely a 'fool-me-once...' perspective on reality, Fitch has a new report blasting the "unsustainable" jump in home prices, adding that "the extreme rate of home price growth is a cause for caution." While they note, rising prices are a positive indicator for a recovery, Fitch adds that unprecedented home price growth should be paired with economic health that is similarly unprecedented, the evidence for which is lacking in this case.
Based on the historic relationship between home prices and a basket of econometric factors, Fitch considers estimates national prices to be approximately 17% overvalued in real terms (Bay Area home prices to be nearly 30% overvalued, which approximates the environment in 2003, three years into the formation of the previous home price bubble) - as "speculative buying, not increasing demand" is driving the market. Between this 'speculation' and interest rates, affordability is "strained."
As a whole, the signs of a strengthening economic recovery are present, with momentum continuing to trend in a positive direction. Fitch expects these trends to continue, although the high rate of home price growth is not considered to be sustainable. Currently, Fitch’s Sustainable Home Price Model estimates national prices to be approximately 17% overvalued in real terms, with individual geographic regions varying widely.
Based on the historic relationship between home price levels and the primary drivers of supply and demand in the market, there is a misalignment. A continuing recovery and exuberant home-buying population could well push prices further for many more quarters, or even years. However, Fitch identifies a bubble risk in continuing price rises and sees several factors which could halt or even reverse recent gains in the market.
Interest rate concerns are rising...
The NRI, which measures the relative default risk of a constant quality loan as compared to average originations of the 1990s, has risen in two consecutive quarters, showing a rise for the first time since 2007.
Currently at 1.14, the NRI implies that the default risk of a loan originated today is 14% higher than the 1990s average. Since the peak in early 2007, risk has been declining for newly originated loans as the bubble unwound and prices reverted towards historic averages. On the back of the abrupt price rises across the country and interest rate rises which are expected to limit prepayment speeds for the next several years, the NRI has now increased.
...the extreme rate of home price growth is a cause for caution. Prices remain below the pre-recession peak, but the region never saw the extent of declines that much of inland California did, and prices never fully unwound the effects of the bubble. In San Francisco, prices hit a bottom in 2009 at nearly 125% above 1995 prices and have grown another 30% from that point. In San Jose, prices are up 48% from their post-crash trough and are now only 11% away from setting new highs.
Of course, rising prices are a positive indicator for a recovery and the growth is encouraging to a region that has seen the largest up- and down-swings in the housing market over the past few decades. However, Fitch expects that unprecedented home price growth should be paired with economic health that is similarly unprecedented, the evidence for which is lacking in this case. Based on the historic relationship between home prices and a basket of econometric factors, Fitch considers Bay Area home prices to be nearly 30% overvalued, which approximates the environment in 2003, three years into the formation of the previous home price bubble.
Most concerning, there is growing evidence that recent gains have been bolstered by an increase in investment sales, both to institutions and local investors.
Cash sales are often indicative of investor behavior and the concern is that housing prices are being driven up more through speculative buying than from an increasing base demand.
Typically, bubble cycles form when an initial catalyst causes prices to rise and the increase in prices drives investment activity to the market, hoping to cash in on the rising prices. As investment activity increases, demand builds artificially, reflecting a level of demand that fluctuates drastically with the growth rate of prices instead of long-term demand based on housing necessity.
And yes... a rating agency - the same entity that enabled the last housing market crash - just warned of a housing bubble. How the times have changed - maybe it is different this time?
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Its only going to go one way.
http://www.bbc.co.uk/news/business-24832856
Of course there's a housing bubble .... the previously popped bubble is being reflated by 5 years of ZIRP/QE.
there will always be a bubble in something as long as TPTB let it happen.
there is NO $$$ in 'honest' trading. The spread is in the lie.
I see NYC getting real cheap at some point (compared to now). Maybe not 1995 cheap, but this new fuck sitting in the mayors chair will only help his kind.
The $$$ will leave NYC.
Are prices rising or is the value of cash going to zero?
1) Who gives a crap what Fitch says about housing?
2) The investor cycle already peaked earlier this year, so this is old news.
3) Housing is inherently local, some places are 17% overvalued, some places are 30% overvalued, some places aren't overvalued at all.
4) When you consider $80 billion a month is being thrown at the housing market by the Fed, I'm surprised prices haven't gone up even higher than they have.
Unsustainable? Did Kevin Henry quit buying MBSes all of a sudden?
I see no limit to how many houses Yellin can own.
I live in the bay area and in 2009 my house value (according to Zillow) was down about 25% from the 2006 peaks. Right now its down only about 5%. I don't get the sense that my house is over valued because the whole mid-peninsula area still looks beautiful as a result of all the money spent on renovations etc. during the bubble -- and there are also a lot of great tech jobs here. Two houses are undergoing lavish renovations right now in my neighborhood. From my vantage point it doesn't seem like our crocked "System" will ever fail -- at least for those who're lucky enough to be in a position to benefit.
But as long as those who're getting screwed prefer to stay asleep....seems the party will go on and on.
guess you don't get off the peninsula much. Where do you think all the magic money and zero interest loans are coming from? How would someone make $80k buy your house? Where is the next generation getting there money from?
all the magic money and zero interest loans are coming from? How would someone make $80k buy your house?
80k? People be makin a lot more than that, tons of jobs in mountain view, can't even find people.
A bubble created with credit, vs a bubble created with cash from investors pockets(called skin in the game) is very different.
Let's have an intelligent discussion about this one day, shall we?
Over.
no money in honest trading?
so your saying efficient market hypothosis and random walk are not real? so it ain't so
Not in markets this heavily manipulated...
Yes, and Fitch should talk to Sean Egan about the way it goes for them....
Last nights election is absolute confirmation that Obama's America is solidified!! The free shit army is in total control now, and there is NO tuening it back, tea party or not!!
A mass majority of American's now truely believe in this socialist obligarchy as the only way to live and exist, and without all the free shit, they'd be lost!
Dig in people, if you believe in freedom and liberty and self reliance and accountablity, YOUR FUCKED!
No worries here, peeps. Import some Chinese debt mules to borrow the spaces no one knows how to fix or maintain. Double Win.
How the hell can this stock market approach 16,000....and nobody seems to give a damn? I know you guys get it...but how can the sheep not see the hurricane off shore? It is right there. I also can't believe gold at 1300.00 and Silver, are you kidding me...? I really think all "Stackers" are soon to be rewarded...and by "Soon"...it could take 10 years with this slow moving train wreck...but just ask yourself....In 10 years will Silver be $22 an ounce? I am all in by saying NOPE!
I prefer the analogy of being in the eye of a hurricane.
Very still after being battered by the storm, but with a deafening
noise in the background.Try as they might the FedRes cannt stop
the otherside of the eyewall hitting us.
For what we are about to receive..........
That's a great analogy, but for the fact that we've been in the eye for years now...
hmmm.. maybe it is time to sell? But then what do i do with the capital gains?
17% overvaluation is not a bubble. Only an idiot would call it one.
And this National Risk Index is rising even before Obamacare will add a lot more to household expenses!
Just 17%?
My unadjusted, non-statistically manipulated #'s come out 40-50% overvalued.
The N.A.R. is going to request the S.E.C. investigate Fitch.
Yesterday there was an article which pointed out that home ownership is at an 18 year low...yet home prices keep rising. Don't these two statistics seem at odds with each other? Is it time to remove the theory of supply and demand from the curriculum?
home prices rise as a result of bank hoarding of forclosed properties and institutions trying to buy homes for cash and package the rental income to unsuspecting sheep as a good safe investment with reliabe cash flow and upside potential however when the renters stop paying the laugh will always be on the sheep and other sheep (taxpayers) will have to bail them out again. Full circle. Nothing really ever changes on wall street.
But i get the sense you aleady knew this alien-iq
I thought housing never went down?
Most concerning, there is growing evidence that recent gains have been bolstered by an increase in investment sales, both to institutions and local investors.
Cash sales are often indicative of investor behavior and the concern is that housing prices are being driven up more through speculative buying than from an increasing base demand.
But it's not speculative buying on credit so no interest rate or default risk there.
If these houses are being bought as investment properties it’s not about what the house will be worth tomorrow (last bubble) so much as what kind of income it can generate tomorrow - income generation sensitivity.
In order to tell your Blackstone landloard to shove it you have to be willing and able to buy a place of your own. If not, you're supporting rental rates and contributing to the buyer/owner's return on invested capital.
There are numerous ways of telling your landlord to shove it besides buying a place of your own.
But not all of them result in your still having a roof over your head.
The point is, what would most cause these PE landlords to sell off their housing stock is a drop or expected drop in rental rates which would most likely be caused by people leaving the rental market to buy homes of their own and that kind of demand isn’t exactly bad for RRE prices.
Blackstones homes will depreciate in value faster than they have calculated and they will lose money, although they might get in on the next round of bail-outs to help make up for it. They probably figure they have that backstop.
Here's the problem these "investors" either haven't forseen or otherwise can afford to ignore: renters will not care for a home and invest time and money into the upkeep of a home the way an owner would. It is a lot of work, time, and money to upkeep a residence, but with no vested interest in the outcome renters will treat these homes like you did rental cars when you were seventeen.
Oh I’m all too familiar with the costs associated with maintaining RRE and originally I was quite incredulous about institutional investors’ ability to pull of such logistics. It sounds like this is mostly getting outsourced to local property management companies.
If the homes in question are newer construction and they more closely resemble large apartments rather than older, single family homes in this regard then I suppose this is do-able, especially If Blackstone etc, can easily stick their tenants with bills for a lot of the bigger ticket items and damage. Not all maintenance costs are borne by the owner in the lease agreement of a fancy car either. We’ll see how this shakes out.
24hr gym membership will get you access to toilets and showers. Buy a tent and live under a bridge.
Otherwise, find an empty, foreclosed home and move in. That house was stolen. Govt bailed out the banks. Therefore you own the house.
The cops will look at the land records and then escort you in handcuffs to the pokey for your squatting... now, if you can squat long enough, then maybe your state would allow you to gain ownership of the property... however, most states have outlawed this type of adverse possession by at least requiring you to pay the taxes on the property during your possession.
With city finances the way they are, soon there will be a lot of cops who would like to live under the bridge. Not all cops can be educated. But they will be a fine ally if you can find one that can.
Good people will do a lot to please their bosses, even bend the rules a little. But when the good guy gets thrown on the scrap heap, despite his efforts ... and if he did bend any rules then at this stage he'll feel humiliated ...
Maybe it will be low level bankers, stock brokers and realtors that start it all...
Fuck talk of bubbles and recoveries. Here is the only graph that matters:
http://research.stlouisfed.org/fredgraph.png?g=7iv
That's not a 2006 bubble popping. That is 19fucking60's levels of sales, with 50 million more people alive in the market. And hell, it's a 1960s trough, not a peak, for the level.
This is way more fundamental than "bubble". This is death coming.
That's just another reason we need amnesty, pronto. More families means more housing demand. Our education loan endebted youth living at home aren't going to pair up. They're just hooking up and killing time. Italy has been at this for many decades now, and the birthrates are civilisation ending, just about.
That's a great graph. The picture that's worth a thousand words... Or articles on RE.
All the QE they've done and they barely got a heartbeat going.
Meanwhile, 10 Year at 2.65%.
This ends with QE7 where the banks print and buy all the distressed homes off the books of the banks and the fed and by extension the governement become the biggest landlord out there.
Buy now before you are priced out forever!
DOJ lawsuit in 3..2..
Well no fucking shit, Sherlock!
The wife and I are in the process of buying our first house here in Phoenix (I know, I know, stupid). From July 2011-July 2012, home prices increased by 19.9%, and jumping a whopping 33.3% from Sept. 2012-Sept. 2013.
Really? You think there might be a fucking bubble???
THEN DON'T FUCKING BUY.
And get the hell out of Phoenix. What the fuck sort of farmland do you think works in Phoenix if powered irrigation fails?
Sit your ass down and have a talk with wifey about "a yard the kids can play in". Talk to her about food you can feed your kids.
No point - he already knows its a bad idea and he's too big of a pussy to put his foot down.
It's easy to buy land if you've got the income/equity. I however, do not. That's the whole reason I moved from Idaho here. You think I would rather be in this shithole? There ain't none jobs (at least jobs a man can make a decent living) up there.
People here will criticize you if you move to work, if you opt out of working and become part of the free shit army, if you buy a house, if you rent a house...there is no winning. Good luck and I admire someone who does what has to be done.
Yeah, I withdraw my slam. You gotta have work.
But You Don't Have To Buy A House To Have Work. Put that money somewhere else.
That's problem: in what? I'm 24 without a lot of assets other than some money in the bank right now. I'm sure as fuck not trying to store my wealth in stocks or bonds. Metals are an option, but in the case of a Crash (the big one) that won't do me as much good as bullets and food would.
And at least during a Crash i wouldn't be stuck in an apartment complex with 200 people who all of a sudden don't have food or water and start breaking doors down. Having gold wouldn't do me a lot of good in that scenario. Even if home prices fall/collapse I have the security of being in a neighborhood out of the city a ways with enough space to properly store food, water and supplies for the medium-long term.
I understand that we're taking a risk, the problem is that the other options are even worse.
You're 24 and you have a brain, guy. But you're stuck in old normal thinking.
You are no better off in a house in Phoenix than an apartment complex. Nothing about a house with the water shut off is one iota superior to that apartment.
Your money is in the bank? Leave it there. In a big CRASH as you put it, your house will burn and the insurance company will go bankrupt. So you lose it anyway.
Of course the alternatives are poor. ZH would not exist if the alternatives were not poor. Keep the money liquid. The bank isn't great. Stocks and maybe bonds worse. Metals . . . no value. House, worst of all. Completely illiquid.
Walk away from this house plan, man.
Please, take out the biggest loan you possibly can, default, then squat for two years unitl they send the Sherrif to kick you out.
Then go back to Idaho and join a militia group.
At least he's going to be safe from the Great Tsunami. He may starve to death but he won't drown.
But those sand storms suck!
What Water.......?
Oh, well obviously the solution is to deny there's any bubble and inflate the bubble more.
If Fitch thinks US house prices are over valued they need to go look at British house prices.
ah hem London house prices
British house prices - no UK region has houses affordable for the average wages in the area.
There are, take for instance Burnley. Would I want to live there is another question altogether!
http://www.thisismoney.co.uk/money/mortgageshome/article-2295295/Property-affordability-map-Most-reasonable-house-prices-England.html
The Brits have lived on an island for thousands of years. Americans have lived on a continent for just a few hundred. Apples to oranges
Central London and Manhattan is apple to apple (pun not intended)
I have NOT read this Fitch article with any care, but note 'my' 18% just below the first chart herein.
http://www.showrealhist.com/RD_RJShomes_PSav.html
Bad Moon Rising CCR
http://www.youtube.com/watch?v=ROycpcCuxrs
So, if there is a RE bubble in China, then another in the USa, will there be a RE buble in London?
Chain effect?
Oh dear, scared of being caught with their pants down, they are now peaking too early. Rates will have to rise 1% and house prices by 10% for there to be a bubble.
floccinaucinihilipilification
Real Estate Bubble = Stolen Land
OT/ but related to the bubbly world.
This is really outrageous JPM gets away with it thanks to Obammy admin. :
JP Morgan Settlement Tax Deductible - Business Insider
C'mon Liz Warren shove that pole right up them!
17%?
Not one millenial can buy. I'd say 70% is more accurate.
LOL
Toronto detached home prices hit record as condo gap widenshttp://www.thestar.com/life/homes/2013/10/25/toronto_detached_home_price...
dont worry, all is well...the Treasury is extending the average maturity of debt from 66 months to 96 months over thenext few years. never mind that interest payments are now the largest budget item either.
http://www.treasury.gov/press-center/press-releases/Pages/jl2209.aspx
problem is, the maturity schedule has been converted to cash by the Fed, so the actual maturity is about ten minutes and hence, as with the BoJ, there is no prospect of a rise in short term rates no matter what the inflation outturn actually is, because neithe the Fed nor the economy at large knows how to deal with multi-billion dollar losses on the Fed's 2 trillion holdings of treasuries (1% times ten year duration x 2 trillion = losses of 200 billion).
http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html
bleh
So if Fitch says 17% then it must easily be 2-3 times that.
They were wrong before, so they must be right now?? What??
So sell now?
Honestly, by the way things have been going, I don't think I'll ever be able to afford a house...
This is the reason we have not purchased a home in the Bay Area. We've bought in So. CA and did well, and fair, I might add, but the Bay Area is over priced because TPTB want to keep the average homebuyer locked out of that market. They are extremely classist - just drive through Marin County; you'll never see so many luxury autos as on the 101 - and racist, to boot. We in Sonoma County have been fighting for rail service to the city for decades and Marin has always voted against this plan. Might bring "undesirables" into their precious midst.
Yellen and her 12 Fed stooges will fix it. They'll crash the US dollar. Their following the Zimbabwe economic model. The Fed will most likely increase QE and encourage more US debt.
In San Diego housing is at least 40% overpriced.
Went to look at five rental homes today. Every one of them owned by a new IPO, American Homes for Rent dot com. They were all junk. Crap re-dos with crap appliances asking prices that were 10-15% higher than other houses of comparable size. Rat bastards.
'
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Rents in Toronto are going through the roof.
Places that were $950 3-5 years ago are now 1300.
Waiting for the pop!
Place that sold for $420K this Spring, went for 280K 3 years ago and it was a rinky-dink duplex that needed about $30G of fixing. I lived there.
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