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Mark Hanson: "Why We Could Be In A Housing Bubble Right Now"

Tyler Durden's picture




 

From Mark Hanson of Hanson Advisors

Why We Could Be In A Housing Bubble Right Now

Let me preface this note by saying “I am a raging bull over houses”. I love real estate. On any given Sunday you can find me and my family touring open resale houses or new builder communities. My grammar school-aged kids love it too; especially the free cookies and peering into the beautifully staged rooms and really believing that some lucky kid has every gadget or musical instrument ever made and with utter amazement on how clean he keeps his room. Of course, my wife and I fully propagate the lie by saying “did you two see how clean the Lennar boy and Pulte girl keep their rooms? Why can’t you do the same?”

I think it’s safe to say that America — especially the American media and Wall Street firms — has fallen in love with real estate again. But, this time around it’s not ‘all of America’ like the last time; when the most exotic mortgage loans known to mankind turned every ma and pa end-user homeowner into a raging speculator. One has to look no further than the generationally low level of purchase loan applications — with rates at generational lows — to realize something isn’t ‘normal’ about this housing market. Rather, controlling this housing market over the past three years has been a small, unorthodox slice of the population that “invests” in real estate using tractor-trailer trucks full of cash-money slopping around the financial system put into play specifically for this purpose. Over the past few years so much cash-money has been deployed into the housing sector by unorthodox parties, that in many regions ma and pa end-user hasn’t stood a chance to buy. Especially, if they need a mortgage loan, which of course presents numerous risks to the seller vs the all-cash buyer.

In part, this is why I believe we could be back in a house-price bubble right now and not even realize it. And also because everybody is looking at the wrong thing…house prices. Sound confusing? It’s not, really.

A brief history of the “mortgage-loan, house-price governor”.

 

1) In a normal housing market, in which at least 80% of all house purchases are done with “fully documented” mortgage loans, house prices are solidly rooted to contemporary “end-user fundamentals”. That is, the mortgage loan with it’s LTV, appraisal, DTI etc guidelines is the “house-price governor“.

Bottom line, when the majority of houses are purchased with mortgage loans it is virtually impossible for house prices to wildly detach from end-user fundamentals unless credit goes haywire like from 2003 to 2007. Sure, there have been exceptions to this over the decades. But, for the most part housing is a pretty simple asset class that for decades leading into the change of the millennium remained mostly in-check to fundamentals and a great inflation hedge.

People will say that this is an unfair analysis because post-crash “mortgage lending is too restrictive”. I say “compared to what?” The mostly thoughtful mortgage laws enacted by the Government post the great mortgage collapse still leave mortgages today — through the GSE’s and FHA — easier than most periods in history. Sure, non-GSE/FHA, bank portfolio lending (loans that the banks make to keep on the books) has suffered because of the lack of a robust securitization market and much tighter capital requirements. But, if a borrower has a downpayment, documented income, and good credit — three things that always should be present when buying a house anyway — mortgage lending is back. It simply isn’t as easy as from 2003 to 2007, which astoundingly is what everybody points to when saying “mortgage lending is too tight”. This is so radical to me, as they also point to bubble-years peak house prices as a benchmark to where prices should go. However, they fail to realize that if prices did return to 2006 levels — and 2006 was in fact a “bubble” — then housing would be in an even larger bubble than back then! Those looking/hoping/lobbying for a return to 2003 to 2007 mortgage lending will not only be disappointed, but if it somehow happened, would end up very sorry it did. Be careful what you wish for.

 

2) Enter 2003 to 2007, when the “mortgage-loan, house-price governor” was removed by the introduction and wide acceptance of exotic loans; in particular stated income, interest only, pay option arms, and HELOCs. Through the power of exotic lending, the ‘incremental buyer’ always earned $200k a year and had more-than-enough dollars in the bank when it came to qualifying for a loan to buy a house…credit went ‘haywire’. This allowed house prices to completely detach from fundamentals. Then, when the mortgage loan governor was strapped back on in 2008 — on the sudden loss of all the exotic loans over a short period of time — house prices quickly “reset to end-user fundamentals“. House prices quit plunging in 2009, as affordability using new-era 30-year fixed rate, fully-documented loans recoupled with real income and asset levels. This “bottom” should have set the stage for housing to once again be rooted to fundamentals / governed by contemporary mortgage lending guidelines. But, they couldn’t leave well enough alone.

 

3) Enter, the 2010 to 2013 “all-cash”, new-era “investor” era, which was almost identical to the 2003 to 2007 era in the effect it had on house prices . That is, during this period the incremental (the ‘majority’ in many markets) all-cash buyers work without a ‘house price governor‘, instead base their purchase and pricing decisions on individual, random, emotional, uneducated, or hopeful models or guesses. Some buy for appreciation, some for rental income, some to flip and some because they have to in order to get paid at their fund. In any case, without a mortgage loan governor the price they pay for a house is more often than not, subjective vs objective.

House prices being up 25%, 50%, or more in the past two years should have everybody sounding loud warning signals, as this is a tell-tale sign housing is being led around by the nose by something ‘other than’ end-user fundamentals. It’s not like employment or income gains in the past two years in the regions that experienced the greatest price gains — not coincidentally the same regions that were the ‘bubbliest’ in 2006; crashed the hardest in 2009; had the greatest institutional investor interest from 2011-13; and that were first to experience significant demand destruction beginning mid last year — grew at levels to support such gains. Rather, they simply assume this is the new-normal — in an era when anything in any financial market is possible — and point to the 2006 peak as proof housing is not overpriced yet.

In short, it’s very easy for an all-cash individual or institutional buyer to overpay for a house by 10%, 20% or even 30% in the heat of the deal, when competing against a dozen other all-cash buyers, and using flawed assumptions and return “models”. Overpaying for a house to this degree is impossible if mortgage loans and appraisals are required. As the bubble blows and prices become detached from reality there are always greater fools that can and will chase the market keeping it elevated for a period of time. But, outside of the all-cash cohort the number is finite unlike the 2003 to 2007 era when everybody could always overpay using exotic loans. Some will say “all-cash purchases for rental investment are rooted to fundamentals…that’s rents”. I say “hogwash”. I have seen many single family rental assumption models from some of the largest investors, and they are beyond rosy. I can easily change a few numbers in their Excel spreadsheet models and turn a 6% annual return into an 6% loss. Most all-cash, buy to rent or flip, flop, flap or frolic investor assumptions and models I have reviewed make the most bullish Wall Street sell side stock analysts look downright pessimistic.
Bottom line: It’s very easy for a demand cohort — as flush with easy liquidity as this era’s all-cash cohort — to push national house prices well above what the average end-user can pay. And that’s exactly what’s happened over the past two years and why in leading indicating regions, in which new-era investors flocked first, demand is plunging and supply surging. Just like in 2007.

 

4) All-Cash buyer demand

This chart from Black Knight (formerly LPS) says it all…the all cash cohort — without a “mortgage-loan, house-price governor” — has been fully in control of the US housing market for a long time. It’s very easy for a demand cohort — as large as this era’s all-cash cohort — to push national house prices well above what the average end-user can pay.

Housing market history is littered with instances of investors and first-time buyers flooding into the housing market all at once on some sort of catalyst, only to leave all at once, over a very short period of time. In ‘this’ housing market, however, first-time buyers are not a presence. This in itself, should be a huge red flag to anybody analyzing this sector. But, if the all-cash buyer cohort has finally eaten it’s fill and it’s demand drops back to historical levels, there is not another demand cohort to pick up the ball and run with it. In other words, if the all-cash speculators leave — or even downshift a bit — I am worried that certain housing market regions all over the nation — particularly the ones that have experienced a parabola in house prices over the past two years — could have substantial house price downside ahead.

Why we are in a housing bubble1

 

5) House prices are more expensive today than in 2006 on a monthly payment basis using the popular loans of each era… a true apples to apples comparison

Those looking at “house prices” — especially relative to 2006 — for signs of a “bubble” are looking at the wrong thing. That’s because to the end-user, the monthly payment is generally more important than the price. As such, when comparing the ‘cost’ of houses today vs 2006 one has to normalize the data for a true apples to apples comparison.

On an absolute basis, investors have significantly lightened up their purchases in all of the leading indicating regions I track so closely. This paradigm shift from an “investor-driven market” to an “end-user driven market” is causing considerable consternation.

That’s because when all cash investors, without a “mortgage-loan, house-price governor”, hand the market off to the end-user cohort with a fully functioning mortgage-loan, house price governor a “demand void” can appear. Not necessarily because the demand isn’t there. Rather, because average house prices are too high for the average, fundamentally-driven end-user to afford. This is what’s happening now. And based on how expensive houses are today relative to 2006, this should prevent any further upside this spring and summer, especially with rates up 100bps from a year ago. In fact, we are seeing seasonal weakness in offer prices much further into the year than typical meaning house prices have a strong chance of going negative YoY in the summer.

The Bubble Data

The chart below compare the ‘cost to own‘ the average priced house today vs 2006 using the popular mortgage loan financing of each era. When normalizing the data in this manner — vs simply assuming everybody always used market rate 30-year fixed loans, which clearly wasn’t the case from 2003 to 2007 — one can see clearly just how expensive houses are today.

Bottom line, in the first ‘results’ column, house prices in 2013 were 11% lower than in 2006 yet the monthly payment was 35% higher and the monthly payment needed to qualify was 29% greater. Taken one step further, see the second “results’ column to the far right. That is, to buy the 2006 bubble priced house using today’s mortgage finance vs the popular loans of the 2006 era, the monthly payment is 54% higher and the monthly income needed to qualify 44% greater.

Every time I review these data after updating prices in our database each month, I am amazed. I ask myself, “if 2006 was a bubble then based on the data below if if costs more per month to buy today’s average house why isn’t the sector in a bubble again?”

Affordability Comps 2

 

In closing, I do think higher house prices are mostly always good. That’s of course unless the reason for the rise is “unfundamental”.

General consensus has once again returned to the overwhelming belief that “house prices always go up and 2007 to 2009 was a fluke”. That’s plain wrong and dangerous.

I am not calling for another house price crash even though I think that housing is back in a bubble based on the monthly payment comparisons between now and 2006. What I am saying is that housing runs a real risk of price downside if the new-era investors — that have largely supported the entire sector and run up house prices beyond the reach of the average end-user through cheap and easy liquidity over the past three years — take their balls and bats and go home.

On the other hand, bubbles can deflate while house prices remain flat if the underlying fundamentals improve rapidly…strong employment, income gains etc. But fundamentally-driven housing markets take a lot time to develop, especially after so many years of running on unfundamental stimulus. Perhaps our economy can “grow into” today’s house prices over the next few years. Perhaps not.

As we saw in 2007 nobody can predict what house prices will do and the general consensus is usually the wrong one. Be careful out there. Buy a house because you need shelter and buy what you can truly afford using a 30-year fixed mortgage. Don’t buy because everybody else is unless you can clearly afford it — both financially and psychologically — especially if next chapter for this housing market is a consolidation of the past few years of gains.

 

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Wed, 03/12/2014 - 09:28 | 4538206 Its_the_economy...
Its_the_economy_stupid's picture

I am becoming increasingly concerned w this site. My browser Firefox is locking up and if this site is open in a seperate tab myn other tabs lock up. I have to close and delete hx repeatedly.

Any constructive rep[lies?

Wed, 03/12/2014 - 09:34 | 4538234 madcows
madcows's picture

NSA< TSA< homeland security has been watching you.  You've been scheduled for reprogramming.  watch out for the thoughtpolice at night.

Wed, 03/12/2014 - 10:04 | 4538382 Headbanger
Headbanger's picture

Whoa dude!   That's scary!  I just put  another layer of foil on my head..

Wed, 03/12/2014 - 11:52 | 4539051 24KGOLD FOIL HAT
24KGOLD FOIL HAT's picture

With gold foil, anothr layer is superfluous.  Next time, use gold!

Wed, 03/12/2014 - 12:18 | 4539163 max2205
max2205's picture

Same here. Quite reading here on a PC.    Now only use smartphone.

 

PS... my PC is more reliable now...thank god

Wed, 03/12/2014 - 13:21 | 4539385 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

If I understand correctly, Mr. Olson maintains that there may be a bubble being driven by all-cash buyers (i.e. investors/pros) who are routinely paying 10-30% over what the properties would appraise for, which presumably approximates market value.

I find that  *really*  hard to believe.

Wed, 03/12/2014 - 09:37 | 4538246 -.-
-.-'s picture

Funny that you mention these issues:

I am not sure if it is ZH site or something else, but in the past, oh, ten days my browser has been acting noticeably glitchy when it comes to refreshing, closing tabs, and, for some reason, when I would refresh my ZH screen (so as to update article distribution) it would automatically land me on TestosteronePit with a pre-filled search of that site for "Student Debt"...WTF

Wed, 03/12/2014 - 09:40 | 4538256 TheGermanGuy
TheGermanGuy's picture

It´s when they redirect you to healthcare.gov that you need to start to worry

Wed, 03/12/2014 - 09:52 | 4538309 TaxSlave
TaxSlave's picture

NoScript and Ghostery.  You should already know this.

 

Wed, 03/12/2014 - 09:53 | 4538318 Its_the_economy...
Its_the_economy_stupid's picture

Thanks

Wed, 03/12/2014 - 11:41 | 4538987 Its_the_economy...
Its_the_economy_stupid's picture

Great Advice Taxslave. Thanks!

Wed, 03/12/2014 - 13:05 | 4539343 N2OJoe
N2OJoe's picture

No browser should be without NoScript and Ghostery.

Wed, 03/12/2014 - 13:03 | 4539329 Dr. Destructo
Dr. Destructo's picture

Ghostery is a load of crap -it sells info on what's being blocked to the corporations.

Use ABP instead.

Wed, 03/12/2014 - 13:06 | 4539345 N2OJoe
N2OJoe's picture

Didn't know this but it warrants further investigation.

Wed, 03/12/2014 - 09:53 | 4538310 Its_the_economy...
Its_the_economy_stupid's picture

+1

Wed, 03/12/2014 - 11:42 | 4538989 HisNameIsRP
HisNameIsRP's picture

ZH is always unstable to my browser, the audio on the add to the right is always getting blocked by blocker and causes the page to sometimes refresh.  very annoying

Wed, 03/12/2014 - 10:31 | 4538498 Max Cynical
Max Cynical's picture

May be a router issue...

Wed, 03/12/2014 - 13:42 | 4539455 TaperProof
TaperProof's picture

Good let the bubble pop, half price McCastles after the crash!

Wed, 03/12/2014 - 09:44 | 4538268 negative rates
negative rates's picture

Move to Japan and get wireless.

Wed, 03/12/2014 - 10:01 | 4538360 nevadan
nevadan's picture

Check these out.  I was having the same problems.  These fixed things. 

 

https://adblockplus.org/en/firefox

https://addons.mozilla.org/en-US/firefox/addon/noscript/

Wed, 03/12/2014 - 10:23 | 4538456 Notsobadwlad
Notsobadwlad's picture

Turn off active scripting in your browser tools/options. You will have to look at the site without all of the advertising, but heck there are sacrifices with everything, no?

Wed, 03/12/2014 - 10:37 | 4538553 Scoobywan
Scoobywan's picture

I put Shockwave and Java on "Ask to Activate" in the Add-ons section of the browser. Now all the ads are grey boxes with a LEGO block in the middle asking me to "Activate Adobe Flash".

Runs smooth as silk now.

Hope that helps

Wed, 03/12/2014 - 11:30 | 4538924 Lost My Shorts
Lost My Shorts's picture

ZH is a massive collection of javascripts, designed I think to defeat adblockers.  It tries to verify that the ads are loaded before showing you any content.  Can't blame them for that, but it does create problems if one of the ad servers is not easily accessible to your computer.  The whole page can lock up waiting for the missing ad.  It might happen sporadically because ads and ad servers rotate in and out.  Perhaps your ISP or employer or you (inadvertently) have blocked a particular ad server, or the connection to a particular ad server is slow enough to get dropped before the ad can load, or whatever.  In broadband-land I never have problems, but in remote areas it can be tough to read ZH -- I think some small-time ISPs block or de-prioritize some ad servers to conserve bandwidth on expensive international cables.

Wed, 03/12/2014 - 14:44 | 4539729 TaperProof
TaperProof's picture

my typical adblock apps seem to work fine and the site for the most part works.  Really though ZH needs some code upgrades, these needle thin comment replies are ridiculous.   

Wed, 03/12/2014 - 12:00 | 4539092 Larry Dallas
Larry Dallas's picture

I can bottomlink this *entire* article in 4 words while sparing you the Frasier Crane-laced bullshit.

"Its the debt, stupid!"

But I do love this article though.

Wed, 03/12/2014 - 12:50 | 4539287 OldBoy
OldBoy's picture

I had same issue and switched to Google Chrome. Seems fine now.

Wed, 03/12/2014 - 13:03 | 4539328 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

ZH is a total wreck in Firefox, unusable.  A usable mess in IE.

Wed, 03/12/2014 - 13:16 | 4539379 Cugel
Cugel's picture

Using AdBlock to block theinvestingchannel.com 's stream worked for me.

Wed, 03/12/2014 - 13:37 | 4539451 vie
vie's picture

Use Chrome.

Wed, 03/12/2014 - 13:40 | 4539460 Turin Turambar
Turin Turambar's picture

The shockwave plug-in in Mozilla is always locking up for me, and I get tired of waiting on it.  I no longer use ZH as my home page due to these issues and find myself reading less daily.  I refuse to go to IE.

Wed, 03/12/2014 - 14:07 | 4539573 Iam_Silverman
Iam_Silverman's picture

"My browser Firefox is locking up"

Disable Flash Player and it will get better.  Too much crap all trying to load and run at the same time.

Wed, 03/12/2014 - 09:29 | 4538212 Shizzmoney
Shizzmoney's picture

This looks more like "We Are In" as supposed to "Why".  

Wed, 03/12/2014 - 09:51 | 4538305 icanhasbailout
icanhasbailout's picture

The original housing bubble never fully deflated, thanks to unprecedented intervention.

 

Quick housing bubble test: Which way have incomes moved over the past few years? Which way have housing prices moved?

Wed, 03/12/2014 - 11:12 | 4538820 Lost My Shorts
Lost My Shorts's picture

It never fully deflated, but it definitely reflated since 2011.  In the market where I am looking (a place overrun with libruls, tree-fuckers, and metrosexual hipsters by the way) prices are up 40 - 50% in three years.  Prices are now back to 2005 levels, not far off the peak.

Wed, 03/12/2014 - 11:15 | 4538843 Arthor Bearing
Arthor Bearing's picture

Mark Hanson: Why We Could Be On A Small Rock Orbiting The Sun Right Now

Wed, 03/12/2014 - 09:54 | 4538323 Buckaroo Banzai
Buckaroo Banzai's picture

"But, if the all-cash buyer cohort has finally eaten it’s fill and it’s demand drops back to historical levels, there is not another demand cohort to pick up the ball and run with it."

Duh. Just print MOAR cash for the all-cash buyers!

SOLVED!

Wed, 03/12/2014 - 10:00 | 4538357 new game
new game's picture

your logic is sound because the plunge protectors have to keep the illusion in tact...

Wed, 03/12/2014 - 09:33 | 4538226 Tinky
Tinky's picture

"could be"?

Wed, 03/12/2014 - 10:05 | 4538288 NihilistZero
NihilistZero's picture

+1000  These analyst fucks are so disconnected from reality and the struggle to maintain that everyone is experiencing they think that a 25% run up in one year "could" just as likely be based on sound fundamentals.  When considering how bubbles happen in the first place see champagne sipping dildos at socialite parties discussing the "resilience" of the American consumer and his ability to buy more expensive housing with ZERO wage growth.  To see the look on these fucks faces if the masses ever storm the gates...

Wed, 03/12/2014 - 11:17 | 4538847 Arthor Bearing
Arthor Bearing's picture

Mark Hanson: Why Russia Could Be A Bellicose Antagonist Of The West Right Now

Wed, 03/12/2014 - 09:35 | 4538237 Sardonicus
Sardonicus's picture

You need a house to escape the weather.

Banker runs on nail guns make existing nails more valuable too.

I don't see any bubbles or what the author sees.

Wed, 03/12/2014 - 10:25 | 4538465 nightshiftsucks
nightshiftsucks's picture

I don't see any bubbles or what the author sees.

Maybe you should wipe the shit out of your eye's,or maybe you live in an undesireable area.

Wed, 03/12/2014 - 11:34 | 4538948 Sardonicus
Sardonicus's picture

I guess it was not obvious that I was being sarcastic.

 

Wed, 03/12/2014 - 09:36 | 4538240 Charles Nelson ...
Charles Nelson Reilly's picture

wife and i make good money, not that we consider ourselves wealthy.  we refuse to buy anything north of $400k. i'm convinced we're driving our realtor nuts cause it's been 9 months or so now & he's a pretty patient asian guy.  our friends just plopped down $525k for their 4000 sq ft "ego" home.  she's a stay at home mom, he probably pulls down $175k.  they probably have $15k of credit card debt, two new cars and all the gadgets & new toys for their kids.  I'll be shocked if it doesn't end terribly for them.

Wed, 03/12/2014 - 09:45 | 4538272 new game
new game's picture

as aformer r e broker i would have dumped you a long time ago...

Wed, 03/12/2014 - 10:35 | 4538527 Max Cynical
Max Cynical's picture

I think the word "former" says it all...perhaps you should have paid closer attention to the needs of your clients.

Wed, 03/12/2014 - 11:04 | 4538768 swmnguy
swmnguy's picture

I don't have a problem with "New Game"s comment, and I and my wife are very much of the CNR mold.  Clients like myself (and, it seems, CNR) aren't where the money is for an RE broker.  Of course, we also aren't going to bankrupt ourselves putting an RE broker's kid through college. So I'd say it evens out, and from my limited perspective, works in my favor.  When I go to buy a used car, I know going in, and the dealer knows only a second or two into the conversation, that there's no money to be made from me.  I'm going to get what I came for at a fair price, either at this lot or another or another or another.  That's just how it works.  I'd say "New Game" either ran out of suckers, or got sick of fleecing suckers, or realized serving clients like me and CNR wasn't going to yield enough money for the work it required.

Wed, 03/12/2014 - 09:56 | 4538335 tarsubil
tarsubil's picture

That is basically the American economy. Pretending you are a going concern when debt has already made you bankrupt.

Wed, 03/12/2014 - 10:46 | 4538632 Almost Solvent
Almost Solvent's picture

I work in the BK world and I can tell you for a fact that many "middle class" families look exactly like what Charles describes above. 

 

Keeping up the "middle class" lifestyle is expensive these days. Throw in 2-3 kids in college and those Parent Plus loans on top.

 

Not pretty and getting worse.

Wed, 03/12/2014 - 12:05 | 4539110 homiegot
homiegot's picture

You know what they say about Asians.

Wed, 03/12/2014 - 16:40 | 4539819 vulcanraven
vulcanraven's picture

I was browsing the dating site "Plenty of Fish" last night and I came across the profile of a good looking hispanic woman who was 28 years old. In her bio it mentioned "proud mother of 4 children" and she also had a picture uploaded with her and all 4 kids. The very next picture was an Audi RS7 with the caption "my baby"

When I scrolled further I checked out her occupation, guess what it said?

BARISTA AT STARBUCKS

Now, pray tell, how in the fuck is a single mother of 4 driving an Audi RS7 and supporting FOUR children on a Starbucks income???????????

Ex husband is surely getting assfucked on alimony/child support while she is surely also holding a Mount Everest of debt. Now here she is "fishing" for new men, having her cake and eating it too. It brings me back to this comment from an earlier ZH post by I believe Jack Burton. So good I had to email it to myself:

I am sure married people experience job losses in different ways. Suppose the wife is terminated from her office job. This cuts deeply into family income, but the man likely has a full time income and a employer health insurance that can continue to cover mom and the kids. The wife thus has a safe haven, i.e. her home and husband, from which to venture out into the jobs market, or go back to school to gain more employable skills. Most families I know of, have weathered a wife's job loss and come out the other side pretty intact, even if wife ends up at lower pay. Two income families are a stable and secure way to go through life.

Let us suppose the man is the one who is terminated from his job. He too has the love, support and security of his wife and her income. So he too has that safe haven from which to venture back out into the hard job market, or upgrade his education. Again, the two earner family is the most secure way to go through life. But, and this is a big But! Women, especially wives have a very stern view of their man's role in her life. She will likely begin to consider her divorce options the instant husband breaks the news. Unless he looks set to return to a job of equal income and prestige very soon, she will begin to note that they are "no longer on the same page". She will note they have not really been "in love" for some time. She sees now, at last, that she is being held back by this drag in her life, the man. Running the numbers in the evenings, she comes to how much the man will pay in support and child support when her no longer compatible husband is divorced. The number look good, she will get the house and car as part of her childrens due. She will get most of any income he can produce, and the courts will demand he produce a lot! Thus the burden of forcing him to get back out there and earn is now upon a court and police agency. Her job provides and stripping him of all assets and forcing him to pay support, no matter what type of job he can find, the court cares not. She is entitled to a certain level of support. Thus he will soon get his walking papers and pack up for a shit hole apartment, while she redecorates and considers the bonanza a new boyfriend or husband could bring to her. A new Dad for the kids, and a new Third income for her to spend.

Given American family law, I would believe the man is totally fucked should he lose a job, the woman on the other hand, may see the perfect opportunity to get rid of someone she just discovered she doesn't love, on the very day he is fired. Her hopes for another man to move in after she redecorates is probably pretty good. As a man can see she comes with house, car, job, child  support and his income will just be a cherry for them to enjoy life on. Not to say this is always the case, yet, I do know of quite a number of these cases just in the circle of people I move in.

Wed, 03/12/2014 - 09:37 | 4538244 madcows
madcows's picture

um, Tylers, now is the time to throw up one of those historic house price graphs so we can all see that prices ramped massively through the 90s and into the 00's, and only slightly dipped around 2008-2009.

Notice, we haven't deflated the original bubble (much), and the FED is full retard to maintain the current high prices.  They can't have their borrowers (banks) taking losses, now, can they.

FORWARD!

Wed, 03/12/2014 - 09:54 | 4538322 Winston Churchill
Winston Churchill's picture

Since the FEdRes now owns most of the RMBS, its their own solvency that concerning them.

Wed, 03/12/2014 - 12:23 | 4539182 max2205
max2205's picture

UK are the pros from dover in keeping housing up and up....why can't our morons? 

Wed, 03/12/2014 - 09:38 | 4538251 spanish inquisition
spanish inquisition's picture

The market never really cleared. Banks are holding inventory and institutional investors are buying with low or no interest loans. If you package houses as an investment, they will behave like one and be tied to the latest interest rate like a bond. It's still the same bubble, the FED hopes that if it holds up prices by holding down rates that eventually technicals will support the inflated valuation.

Wed, 03/12/2014 - 09:42 | 4538262 yogibear
yogibear's picture

Demographics in play. Boomers are retiring and need the money. From 2 homes down to one. Also thank the Fed and government for huge student loans which will take decades to pay off and lower the affordability for many.

 

Wed, 03/12/2014 - 09:52 | 4538308 Georgia_Boy
Georgia_Boy's picture

Yep, and nope. The foreclosure down the street from me has been vacant as long as I've lived in the neighborhood (about four years) and the "please call 1-888-XXX-XXXX" notes on the storm door are faded they've been there so long. The house is priced at 30 percent below market and has been for at least two years (since I started checking on it every so often). Nobody's buying, nothing's happening.

Wed, 03/12/2014 - 10:49 | 4538660 Almost Solvent
Almost Solvent's picture

Depending on the climate (I'm guessing GA?), there is likely a mold fest in that sucker to boot!

Wed, 03/12/2014 - 09:59 | 4538349 TaxSlave
TaxSlave's picture

I think the analysis forgot to mention the affect of no 'mark to market'.  If the foreclosed homes are sold, the new value gets reflected on the books.  If they sit there, they are still worth the original mortgage amount and the bank is still 'solvent'.  There are still lots of vacant homes around here without any for sale signs.

 

Wed, 03/12/2014 - 09:40 | 4538255 yogibear
yogibear's picture

Thank the bankster cabal, Federal Reserve, for this housing bubble #2.

Blowing bubbles with non-productive asset inflating printed money.

Wed, 03/12/2014 - 09:46 | 4538275 negative rates
negative rates's picture

That's what happens when you can't afford to wait for your own salt to dissolve.

Wed, 03/12/2014 - 09:46 | 4538273 Georgia_Boy
Georgia_Boy's picture

Hey, they did tell us the purpose for bailing the banks out was to get them lending again. They didn't say they would lend to YOU ...

Wed, 03/12/2014 - 09:47 | 4538281 negative rates
negative rates's picture

The 1% is an exclusive club, draw the line at 2% and, no loan.

Wed, 03/12/2014 - 10:00 | 4538358 NihilistZero
NihilistZero's picture

These sociopath bankers and politicians have taken the instinctual human desire for home and stability and rolled it up into this massive credit bubble they've been building for 30 years (or 100???) to enslave mankind.  You know, once The Punisher caught the leader of a sex slave ring.  He new he couldn't stop the evil trade, but to give them something to think about he shot a video.  He looked in the camera and said "Don't come back here", then he set the slaver on fire while he was chained to a chair.  I wonder how many toasty bankers it would take to derail the road to serfdom?

 

 

Wed, 03/12/2014 - 09:48 | 4538279 buzzsaw99
buzzsaw99's picture

The author claims he is a real estate "raging bull" because he takes his family to open houses for a looky loo on weekends for the free cookies? LMFAO

 

https://i.chzbgr.com/maxW500/3164785920/hC56543CD/

 

 

Wed, 03/12/2014 - 09:48 | 4538285 new game
new game's picture

things are getting frothy again. yea all local based on local econ, i get it. but really how much is a dollar really worth. for me it seem simply a case of buy and never sell...

Wed, 03/12/2014 - 09:49 | 4538290 drooley
drooley's picture

Yes we are absolutely in a bubble. We're in the mother of all bubbles.  I've gotten a few phone call offers as high as 30% over what I bought my place for 4 years ago.

Wed, 03/12/2014 - 09:56 | 4538337 Fix-ItSilly
Fix-ItSilly's picture

Have we missed the real driving factor of real estate for the past 50 years?  The true bubble - baby boomers.

Population/age demographics now dictates that real estate will be soft for years to come.  Just as same dictated increasing demand in past decades.  Only Govt and the Fed can fight this reality - but not forever.

Wed, 03/12/2014 - 10:04 | 4538384 new game
new game's picture

but not exactly true because the winners(boomers financialy speaking only) are buying property two, three four as rentals to preserve wealth...

see how that goes?

Wed, 03/12/2014 - 10:02 | 4538368 ArkansasAngie
ArkansasAngie's picture

AS an all cash investor I took my ball and bat home in August.  I've bid on probably 20 houses since then and they all have gone for more than my 6% cap rate calculations.  Most went to contractors who need the houses to flip so that they can put bread on the table.  I'm an income investor and rent rates scare me to death.  Rents are exceeding people's ability to pay.  

I don't believe this market will hold.

Wed, 03/12/2014 - 10:02 | 4538371 toady
toady's picture

"Buy what you can truly afford using a 30-year fixed mortgage."

No, no, no!

Buy what you can pay off in five to ten years. There are a lot of other considerations, especially location & taxes, but if you think you're going to be in a stable job in a stable location for thirty years, well, you're simply wrong.

Wed, 03/12/2014 - 12:37 | 4539241 dhengineer
dhengineer's picture

Well, you could finance for 30 years, but then pay down the principal every month to effectively shorten the loan period.  I was very-sub-prime in 1996 post bancruptcy, and I got a simple-interest loan from Ford Financial to finance a great apartment-turned-condo in Boston.  The interest clock kept ticking every minute, so it was in my best interest (pun intended) to throw them an extra 500 to 1000 a month.  I sold in 2000 for 2.4 times what I paid for the place, so I made out.  And I bought my next place for cash..

Wed, 03/12/2014 - 14:20 | 4539616 toady
toady's picture

There you go. Did you get it paid before you sold? I guess it doesn't matter. Good job!

Wed, 03/12/2014 - 10:10 | 4538402 ptoemmes
ptoemmes's picture

I suppose when it crashes next time the all cash buyer won't have a mortgage to default on - or worry about. Which leads me to wonder how no-mortgage real estate gets securitized.

Wed, 03/12/2014 - 10:51 | 4538669 slyhill
slyhill's picture

RBS (yes, R as in rent)

Wed, 03/12/2014 - 10:20 | 4538448 OneLessZombie
OneLessZombie's picture

Uh, yes, housing bubble again.  Been in the biz for 40+ years and saw the lowest interest rates ever last year, but that didn't cause a bubble? ding ding ding...come and get yer low rate money from .gov and blow that bubble baby...the taxpayers will pick up the tab if it don't work out dontchaknow?  Prices in Denver Metro were up about 12% last year.  I'd call that a pretty brisk annual clip. Run those numbers forward?  Fat chance for long term viability.

Sorry to tell ya that 850 sq. ft. cracker box ranch built in the 50's on a cracker box lot aint worth a quarter of a million, cept if Uncle Sam is funding the funny money for nearly nuthin.

Will it work out?  NOPE.  Never has, never will. Boom, bust, bamboozel.  The American way of life.

And everyone in Milpitas sez...only a quarter mil?  wow! dats cheap. Come to cow town you suckers.

Wed, 03/12/2014 - 10:54 | 4538693 Almost Solvent
Almost Solvent's picture

"cept if Uncle Sam is funding the funny money for nearly nuthin."

 

FED would love for inflation to take hold so that 850 sq. ft. house is worth half a million in 5 years. Who cares if gas is $6.75 gal - cash out and fill 'er up! :)

Wed, 03/12/2014 - 11:11 | 4538813 OneLessZombie
OneLessZombie's picture

Seriously I have sellers (read, elevator operators) telling me they are hesitant to sell because they think their home price will double in the next 5 years.

Top?  I don't see no top...;)

Wed, 03/12/2014 - 11:44 | 4539010 NihilistZero
NihilistZero's picture

You know the bubble has already popped when the lemmings are convinced it can only grow larger...

Wed, 03/12/2014 - 10:28 | 4538481 Notsobadwlad
Notsobadwlad's picture

Yes, once again, money is being created out of thin air through debt, given to Wallstreet cronies for their highly leveraged funds at very low interest rates and the "fiction" money is being traded for real assets. The banks creating the fiction debt money now have a claim on those assets as collateral.

It is a totally unfair and unregulated system and its future is completely at the whim of those who create money through debt. When it fails, it will not be unforseen or an accident. It will be planned to have the greatest effect toward accoomplishing their goals.

Wed, 03/12/2014 - 10:30 | 4538491 The Pop In
The Pop In's picture

The author says "Buy a house because you need shelter and buy what you can truly afford using a 30-year fixed mortgage."

I could not disagree more with that statement. The 30 year mortgage is one of the primary factors destroying the home owning working class. Go back to the 1960's and people bought a home equal to 2.1 times their annual income and they would put 25% (or more) down and the loan was no longer than 20 years. It was common for people to "pre-pay" their loans, reducing the term by another 2,3,5 years. 30 year fixed rate loans are less risky than ARM's and interest only, stated income, negative amortization, etc. loans, but 30 year loans still make the banksters far richer and the borrower far poorer. IF buyers SAVED for a 20% down payment (eliminating PMI mortgage insurance costs) and only bought what they could afford using a 15 year fixed rate mortgage, and only bought a property valued at 2.1 times their annual income, then millions of foreclosures could be avoided and a sound housing market would exist. The banksters are happy to allow people to borrow until they have a housing payment close to 50% of their monthly income, then happy to give out a 100% auto loan for 6 years, plus another $10,000 to 30,000 in credit card debt. Add in many years of possible education loans, and you have the modern day debt slave. Predatory lending is alive and well, but to exist, it depends on avarice and ignorance from borrowers, and these traits are no doubt abundant in the USA today.

Wed, 03/12/2014 - 10:47 | 4538646 MHansonAdv
MHansonAdv's picture

I could not agree with you more. You descrie a pretty perfect world.  But that perfect world went away a long time ago...with the gold standard. We have to work with what we have. 

In this world, if one can get a 30 year loan under 4%, (of course like you said 20 year or 15 year loans are better but you can turn your 30 years into a 15 year by yourself pretty easily) a mortgage interest tax deduction, and over the next 30years both house prices and inflation averages about the rate of the mortgage, back in 2010-12 it probably would have been a better alternative than renting based on today's rents.  Especially, if there are families involved with children who need some stability.

 

Anyway Pop, great comments.

Wed, 03/12/2014 - 10:58 | 4538728 OneLessZombie
OneLessZombie's picture

What fantasy world are you living in?  2.1 times annual income for housing cost hasn't been around in decades in major 'normal' (ha ha) markets. Better to just wait for the next bust followed by the next nearly free money feeding frenzy, YO YO lolo.

Wed, 03/12/2014 - 11:13 | 4538822 toady
toady's picture

That 'truly afford' bit is priceless. I remember back in the late 80s, I was buying my first place. I'd just broken the 100K a year barrier for the first time. I had 50K saved, so I figured 50K is 20% of 250K, so that's my limit.

The banks, I was approved by three, all came back preapproved 1.5 Million or more. 2.2 on the high one!

The agent, remember, this is pre-internet, was SO disappointed when I didn't take the bait and stuck with the original 250K.

Wed, 03/12/2014 - 10:30 | 4538495 kaiserhoff
kaiserhoff's picture

Rents are ridiculous in the midatlantic and trending higher, as tenant quality goes to hell in a hand basket.  I have this thang against renting to druggies, and that keeps me out of the market except in college towns.  Even there, the younger they are the poorer and more clueless they are. 

I'm sure Obummercare and student loans will fix all this. /sarc.

 

Wed, 03/12/2014 - 10:47 | 4538640 adr
adr's picture

The only reason college towns are safe is because college kids are adding $100k in debt each year to fund their lifestyle.

My dorm resembled an 1800s jail. The new campus is filled with luxury apartment townhomes. We had communal showers with no doors and one laundry room for six floors. That was in 1995.

College kids are so spoiled today.

Wed, 03/12/2014 - 12:07 | 4539120 sluggo
sluggo's picture

+100

I have two boys in college and am shocked at what their contemporaries can "afford" while at school.  After the compulsory freshman year spent in the older dorms with a roommate, everybody expects their own bedroom in an apartment or nice "upperclassman" dorm/suite.  Hell, I shared a bedroom (late 80's) all through college!  Also, my boys appear to be the only students that are on any sort of a budget and are perpetually "poor" compared to their friends. 

Two things: I'm guessing most of the students are racking up huge levels of student debt to fund their cushy lifestyles while we are funding from savings (and the boys' savings from summer jobs for part of their spending $), and, I feel like it's a good thing to be a little "hungry" while in college -- if it's too comfortable you'll never want to graduate!  I know I couldn't wait to get out of school and make more than minimum wage ($3.35 back then), and to finally get my own - no roommate! - apartment.

Wed, 03/12/2014 - 10:33 | 4538513 MarcusAurelius
MarcusAurelius's picture

This is another one of those anomolous transfers of wealth from what should have been families looking for a house to buy to the entities that line up at the Fed window for cheap cash to get greater returns on their money by buying rental properties that should be (under normal circumstances) purchased by buyers needing housing. There is NO normal anymore and supply and demand has very little to do with any economic activity in any area from stocks to housing. 

     This is simply a result of "TBTF" and fear of deflation. By trying to avoid a natural consequence of far too much cheap credit being injected into the economy over the past three decades you end up distorting everything and likely making the long term consequences far worse than if you had allowed a period of purging. 

Wed, 03/12/2014 - 10:42 | 4538603 adr
adr's picture

My home sold for what it was worth in 1998. The difference is that property taxes, water, and electric rates have all tripled. I understand people will still think the numbers are still cheap in today's world but that doesn't matter inflation is inflation.

When I sold it I looked at the tax history. In 1998 property taxes were $725 a year, now $2400. Combined utilities: electric, water, sewer, amd trash ran at an average of $35-50 a month. Now $125-150. Gas rates were far lower since you only paid for the gas without massive transfer fees, delivery fees, and base charges. I remember gas bills from Dominion for $8. Now just the base charge is $25. 

The town I lived in was a beacon of middle class affordability. The average house price was $125k and you had about $100 a month in total expenses tied up in utilities and taxes. Even though the average home is once again back to 1990s price levels, you need $400 a month to cover taxes and utilities now. Considering real incomes have fallen below 1998, the neighborhood is no longer affordable.

I really want to know what people are smoking when they think a supposedly middle class neighborhood in Massachusetts can support an average house price of $360k when the average price was $150k in 2002. Could be why no homes are selling in the NE.

Wed, 03/12/2014 - 11:08 | 4538802 PoliticalRefuge...
PoliticalRefugeefromCalif.'s picture

That is the true danger, these property values have to be maintained to support inflated property taxes, if they fall off to reflect true conditions.. well we know what that means because the government can never take a haircut the same way sheeple are accustomed.

Wed, 03/12/2014 - 10:47 | 4538639 Cursive
Cursive's picture

Am I the only one who thinks Mark Hanson is an asshat for dragging his kids to open houses every weekend?  He's indoctrinating hi kids into the housing facade, with his own weekend Potemkin villages.  Oh, look here, another depressingly wonderful planned suburban community!  Hey, Mark, wake the fuck up and do something better with your life and teach your kids about the great outdoors!

Wed, 03/12/2014 - 11:03 | 4538694 MHansonAdv
MHansonAdv's picture

dude, quit bashing on the kids. They get out.

 

In fact, last weekend I took them to a the mountains outside Denver where they are clear cutting old growth forrest to make room for several planned developments complete with their own WalMart!  

Wed, 03/12/2014 - 11:06 | 4538695 MHansonAdv
MHansonAdv's picture

dude, quit bashing on the kids. They get out.

 

In fact, last weekend I took them to a the mountains outside Denver where they are clear cutting old growth forrest to make room for several planned developments complete with their own WalMart!  

Wed, 03/12/2014 - 11:26 | 4538902 DOGGONE
DOGGONE's picture

Bubbles and Your Kids

http://patrick.net/forum/?p=1238827

Wed, 03/12/2014 - 11:28 | 4538918 slightlyskeptical
slightlyskeptical's picture

As soon as Fannie and Freddie get thrown to the private lenders, interest rates will rise 2-3% and hardly anyone will be willing to take on those new bloated payments. Interest rates are the biggest determinator of home prices in the end. It's going to get real ugly with any rise of rates from here.

Wed, 03/12/2014 - 11:56 | 4539063 NihilistZero
NihilistZero's picture

Just had this discussion on the Fannie Freddie post yesterday.  Their shareholders are about to get creamed.  The FED saved the big 4 member banks after Bubble 1.0, that was going to happen no matter what.  However this time the bad RElationship bag is in the hands of private equity and the greater fools among them are about to take some losses.  There is not and has not been a fundamental reason for the rum up since 2012.  My guess is that Metro areas revert to low of 2011 minus whatever the higher mortgage rate adds to the monthly nut.  That takes us down a minimum 30% plus from where we are now.  Heaven forbid such a reduction in rent and mortgages jump start consumer spending...

Wed, 03/12/2014 - 15:17 | 4539911 Iam_Silverman
Iam_Silverman's picture

"There is not and has not been a fundamental reason for the rum up since 2012."

Sure there is - TAXES!

See this article.

Wed, 03/12/2014 - 13:15 | 4539375 IREN Colorado
IREN Colorado's picture

Cash needs a place to go...

Preferably a place where Government subsidies (section 8 housing) will keep the gravy flowing without regard to the general economic condition. Equities may not be here tomorrow, but if you are holding a deed you are holding value. Just like metals but the Gov't won't seize it. 

Till it does...

 

 

Wed, 03/12/2014 - 14:11 | 4539583 whoknoz
whoknoz's picture

note to its the economy...check to see if Adobe has jammed Shockwave into you system...that will screw things up big time on an older PC...especially with the type of video ads on ZH...if you figure out how to permanently delete it, let me know...try clearing your computer, then download Adblock...that will eliminate the video ads...PS: I hate A-dope...whoever said the world has to read everything on a PDF??!!

Sat, 03/15/2014 - 14:42 | 4552330 W74
W74's picture

When people can't pay rents (or simply decide they don't want to)....they move into their parents' basements.

Some may take on room mates they otherwise wouldn't.  Others might choose a tent city or a Wal-Mart parking lot.

At any rate, these two periods of half-decade long distortions in the housing market - with interim crashes - have incentivised millions to examine the existing paradigm and to look for alternative solutions. 

Long-term this may turn out to be a positive not only for citizens looking for affordabilty, but also for the development of technology, a shift in the way people choose to live their lifestyles (especially work life balance), and a step in the right direction away from government/elitist control over the "normal" rat-race-routine lifestyle.

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