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Goldman's Former Head Of Housing Research Predicts Housing Crash, Recession Within Three Years
It's one thing for contrarian financial websites to accurately predict the transitory phase and housing price dead cat bounces which are only sustained by the unholy trinity of foreclosure bottlenecks (which are simply supply-side subsidies), offshore money laundering into US real estate (thanks to the NAR's AML requirement exemption) and Wall Street-as-a-Landlord (through REO-to-Rent and other Fed-funded programs): after all the point of such correct analyses is to be ignored and blasted as conspiracy theories until they are proven, inevitably, correct.
But when a former Goldman executive and the previous head of its housing research team comes out with a shocking analysis so contrary to what the same individual would do in his "former life" when he would be extolling the inevitably rise of home prices from here to eternity and beyond, and also throw in an open letter to none other than president Obama, predicting at least a 15% crash in home prices in the next three years, a move which would without debt catalyze the next US recession, it is time for everyone to pay attention.
Meet Joshua Pollard, who in February 2009 took over coverage of US Housing at Goldman Sachs at the tender age of 24. We can only assume he was given the responsible position because everyone else in his team who had, bullishly, covered housing right into the Lehman crash, was fired. But regardless of Pollard's career and how he got to where he is now, what is more important is that in a report released today, the former Goldmanite has cautioned Obama on the economic impact of an imminent 15 % decline in home prices over the next three years.
In short. the former Goldmanite says that "House prices are 12% overvalued today. They have already started to decline. Today’s misvaluation matches the excess of 2006-07, just before the Great Recession... 5 of the last 7 US recessions were led by a weakening housing market... I am lamentably confident that home prices will fall by 15% within three years." Or, as some may call it, crash.
* * *
While we provide his entire extended analysis of just how this crash will take place, here is the punchline, which incidentally is spot on: when all is said and done, it will be "never-before-seen public policy reactions that determine when and where prices eventually trough."
In other words, if the timing of Pollard's forecast is correct, the last thing on anyone's mind in mid-2015 will be a rate hike. Instead, what people will be talking about, if and when the housing market crash begins, is how to finally engage in Bernanke's favorite para-dropping activity...
Here is how Pollard classifies the three stages of home price decline:
3 Stages of the home price decline
Unless the calculus of history is a poor guide, there is a 60% chance that home values decline materially, in fact, the correction is already underway. This probability rises when new negative shocks emerges. The home price decline will be defined by 3 Stages:
Stage I: Hot to Cool: Active since Summer 2013*, Price growth is slides across the country as flippers lose money outright in the red-hot investor markets (NYC, San Francisco and Las Vegas); New home absorption rates - sales per community - are declining; investors slow their home purchases; total home sales decline year over year; developers lose pricing power, press outlets shift from positive to mixed about the health of the housing market.
Stage II: Demand to Supply: Small shocks convert demand pools into supply ripples. A first wave of investors begin trimming prices to get ahead of future declines; discounts increase to incentivize purchasers as purchasers increase their delays for better deals; developers reduce land budgets as cancellations tick up; major financial press outlets take a more negative tone toward housing lowering confidence overall.
Stage III: Deflation & Response: Falling home prices create a negative deflationary feedback loop that foreshadows a once-in-a-lifetime policy response. Deflationary economics take full hold; leveraged bets on real estate unwind in quarterly ripples due to the public reporting cycle & asset manager redemption schedules; willingness to lend shrinks; the broader consumer finally understands it is a bad time to buy a home, a shrinking housing market negatively impacts jobs causing recession; the estimated effects of never-before-seen public policy reactions determine when and where prices eventually trough.
Some details on timing and where we are now:
Rates & Shocks
We are 16 months into Stage I. A sooner-than-expected rise in mortgage rates - or other adverse shocks - will domino the decline into Stage II unintentionally. Because financial markets rely heavily on Federal Open Market Committee (FOMC) communication and the fed funds rate is near zero, “forward guidance” shifts have as much impact as yesteryear’s rate increases. To that end, two recent policy communications raise immense concern that Stage II of the home price decline could be incited soon: the first public speech of Loretta Mester and a recent letter from the ranks of the Federal Reserve Bank of San Francisco.
September 5, 2014: Loretta Mester, President and CEO of the Federal Reserve Bank of Cleveland, in her first public address since becoming a FOMC voting member welcomed and expects increased volatility following future Fed guidance and rate changes. Mrs. Mester, the FOMC’s newest communication sub-committee appointee, described volatility as a “necessary part of price discovery.” Her personal view is that forward guidance should be tied to actual progress, anticipated progress and the speed at which progress is being achieved (volatility); progress toward full employment and 2% inflation has occurred faster than she and the Fed expected. While stock market volatility has hovered near all-time lows during the Fed’s most recent communication expansion, home price volatility is at extremely elevated levels.
September 8, 2014: A letter from Jens Christensen, a senior economist at the Federal Reserve Bank of San Francisco, highlighted a concerning expectation gap between investors and the Federal Reserve regarding future interest rates. In the letter titled Assessing Expectations of Monetary Policy, the author showed that public investors are expecting a more rate-accommodative policy than the Federal Reserve and these investors are more confident than the Fed in this stance.
As public policy makers debate seminal decisions on “forward guidance” and unconventional monetary stimulus we note that each 1% increase in mortgage rates drops home values by 4%. At a 2% fed funds rate, where Fed officials and investors expect to be by the end of 2016, today’s over-valuation of 12% grows to 20%. Respectfully, the United States can not afford another housing driven recession.
With home price volatility at an all time high, the escalation from Stage II to Stage III is difficult to predict today. At Stage III, the virtuous cycle of housing, a unique mix of causal financial and social relationships, breaks. At these points in history unique governmental intervention provided the only spark that reignites demand. Price discovery is volatile around each new catalyst of information, and the trough will emerge as consumer and investor confidence rebuilds at lower prices. I believe confidence rebuilds at 15% lower valuations without premptive positive shocks.
Unless, of course, the momentum ignition mentality, made so prevalent in capital markets thanks to HFTs in recent years, takes over and the 15% threshold to "rebuild confidence" and BTFD is really 30%, or 40% or more...
Taking a step back, here is the analysis that Pollard uses to base his opinion that housing is due for a 15% crash within three years:
House prices are 12% overvalued today. They have already started to decline. Today’s misvaluation matches the excess of 2006-07, just before the Great Recession. Since World War II home prices have been tightly correlated to income and mortgage rates (R2 = 96%). Investors/cash purchasers, which make up 50% of home sales, have driven real estate volatility to unrivaled levels in trackable history. As public policy makers debate seminal decisions on “forward guidance” and unconventional monetary stimulus we note that each 1% increase in rates drops home valuations by another 4%; at a 2% fed funds rate, where fed o cials and investors expect to be by the end of 2016, the overvaluation equals 20%. Respectfully, the United States can not a ord another housing driven recession. The facts and correlations - the tenets of probabilities - suggest it is more likely than not that home prices fall 15% in the next three years.
Drilling down into Pollard's "three stages:"
The home price decline will occur in three distinct stages: I. Hot to Cool, II. Demand to Supply and III. Deflation & Response.
Stage I, "Hot to Cool", has been underway for 16 months, ignited by a Summer 2013 interest rate spike while prices were rising double digit percentages. Another rate shock, driven by unexpectedly hawkish Fed language, would likely stoke the decline from Stage I to Stage II.
Homebuilder absorption rates precede a home price decline
Homebuilder absorption rates have been a unique leading predictor of new and existing home prices. Changes in gross absorption rates - the number of homes sold per community for the largest homebuilders - have historically led home prices by four quarters. Gross absorption rates have been declining for four quarters in a row.
Home price growth slows with outright drops in some places
As of June 2014 prices are already falling outright in 7 of the 10 largest markets. In standardly quoted stats home prices are up 8% over last year, but with the most recent sequential price drops price will be down 1% yoy if prices simply stay the same until next year. Downward pressure is more likely to continue than not given the 12% overvaluation and home price autocorrelation.
Investor demand slows
The number of homes flipped in the US has declined 50% in the last four quarters alongside slowing home price growth. In fact for the first time since the Great Recession home flippers lost money, before taking re-hab costs into account, in some of the largest real estate markets in the country, namely Las Vegas, New York and San Francisco. Generally, investor demand is only a complement to larger trends in home-buying, however, with all-cash sales being roughly half of total closed sales their impact has been magnified.
Negative homebuilder absorption rates, in conjunction with slowing average selling prices are the clearest signs of a weakening housing environment in Stage I. Economists and management teams acknowledge these early weaknesses but remain positive until a “trend” emerges because the data is volatile. When the “trend” properly surfaces we are already in Stage II
* * *
In Stage II investors stop buying and immediately start selling. This activity increases inventory and home prices fall year-over-year. Recent buyers are remorseful. Negotiating buyers begin waiting to see if better prices are ahead until prices slide and cause Stage III to begin.
Because home price values drop 4% for every interest rate point increase, there are not many shocks as powerful as unexpected interest rate lifts. In a concerning letter from economists at the Federal Reserve Bank of San Francisco, Jen Christensen shows that investors are more optimistic than the Federal Reserve Board of Governors about the path of interest rates. Over the last 25 years home sales have never increased when mortgage rates rise by more than 50 basis points in a month. In 2 out every 3 such cases volumes declined by 3-4% that same month. Interest rate shocks this deep into Stage I have the highest probability of forcing Stage II.
Small shocks have outsized impact with high investor demand and high valuations. Investors are naturally unemotional about assets, focused squarely on cash returns. An investor buyer of 100 homes (demand) can quickly become a seller of 100 homes (supply) without having to solve for speed-limiting consumer issues like finding another place to live, switching school districts or missing neighbors.
If investors reduce their demand by 50% and put half of last year’s purchases on the market, which is not unreasonable when home prices fall, total months of supply jump to 7.5 months from a healthy 5-6 months today. Similarly if 15% of aggregate demand converts to supply a comparable increase in the months supply can occur. 5 of the last 7 US recessions were led by a weakening housing market, with greater than 8 months of supply.
The velocity of Stage II is extremely difficult to predict. Home prices (if you think about them like living things) mock what they see. “If Billy across the street goes up $50,000 then Bobby down the block wants to go up $50,000.” In statistics-speak home prices are autocorrelated in the short term partially because the US appraisal system forces Billy and Bobby to stay close. The transition from Stage II to Stage III is set up to happen quicker than ever because Billy and Bobby (individual home prices) go up and down two times faster than normal.
A material financial imbalance is aggravated when home prices decline. Homes make up 24%, or $23 trillion, of consumers’ total assets. An uneven 69% of consumers’ liabilities are the mortgages tied to those same homes. This tilted financial position means a 5% reduction in home prices equates to a 8.6% decline in consumer net worth. At 15% home price deflation consumers‘ real estate net worth drops 26% or $3.4 trillion.
$3.4 trillion of wealth destruction impacts homeowners financially and future buyers psychologically. Unfortunately the Millenials early-adulthood real estate appetite was handicapped by the Great Recession. With a 45% underemployment rate for recent college graduates, elevated student debt and increased home price volatility the willingness/ability to own will likely shrink among the country’s next major wave of consumership.
* * *
The drivers of housing are structurally recursive. The shift from a good market to a bad market occurs quickly, exaggerated by the circular currents of confidence from consumers, investors and lenders in unison. When unnatural levels of demand or supply impact the market prices are pushed in lockstep.
Unnatural demand from investors has created a mismatch relative to long term drivers - income and rates. Arguably, the upward price movement driven by investor demand has helped to restore the confidence of consumers and lenders in housing as an asset class, however, this shifts quickly. Home prices are already declining and the probability of a more severe decline becomes too high to ignore if new negative shocks force Stage II and Stage III of home price declines.
* * *
With all that said, what are Pollard's suggestions and/or recommendations to offset what will surely be the catalyst for the next recession? He has three:
Public policy suggestions:
Formulate and preemptively communicate a forward-looking monetary policy that balances the risk of raising interest rates from a very low base six years into an economic cycle. If the impact of “forward guidance” changes cause housing weakness and a reduction in corporate profits how will monetary policy spur a weakening economy? Does language simply reverse? Because we are near the end of monetary easing with rates near 0%, will new monetary stimulus be more likely? Could rates be lifted while the stimulus is being increased? Are shadow rates worth considering? An early address of the new cyclical policy toolkit will ease investor volatility when economic slowdowns eventually occur.
Create a skilled trade externship program for the laborers that lose jobs because of lower housing investments. This will lower the multiplier effect of a housing downturn by directly supporting the things that the laborers drive in booms and crash in busts. Simultaneously use this program to train younger Americans in specialized trades while boosting the infrastructure in the country.
Forcefully rebalance number of homes to the number of households. Reduce new builds: Have federal and state regulators reclaim building permit powers from municipalities and localities and limit building to some reasonable percentage of expected household growth. Demolition: Shrink the number homes that can force prices down, particularly those that are already vacant, unsafe and expensive to rehabilitate. Increase migration to the country with a preference toward household headship.
Of course, none of these will be taken seriously until it is too late. And furthermore, one can wonder if it will even be too late: after all some can say that all Pollard is trying to do is pitch his latest company, now that he has left the sell and buy-side: what better way to do that than with a loud call for a housing crash by a former member of the status quo establishment and a letter to Obama.
None of that, however, diminishes the validity of Pollard's observations and forecasts, and if anything, he is likely optimistic as to the severity of the coming housing crash. Then again, if and when housing has finally tumbled, it will mean that the Fed's loss of control of its micromanagement experiment in central-planning is now official. Which will also mean that that far greater repository of household wealth, financial assets, which is where nearly $70 trillion of US assets are parked, will be on its way to a long-overdue "fair value", ex-Fed repricing.
When that happens, whether a 15% or 51% drop in US housing, will be the least of anyone's concerns.
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i bet less than a year=)
Listen. I luv me "SOME" Goldman!
As predictable as the tides.
Dave has been all over this since last April.
http://www.investmentresearchdynamics.com
excellent article. Japan does have 100 year mortgages.........in the available bag of tricks for the usa of course, it would perk up the buying.
Lesson 1 in trading: Always fade a GS research report.
Happy days are here again,
The skies above are clear again,
Let us sing a song of cheer again,
Happy days are here again!
(scratch)
Oh shit, he's former GS. Let me get back to you on this.
Yellen will print forever...
HEY TYLERS,
WHY THEY FUCK DID YOU DELETE MY COMMENT THAT WAS FIRST ON THIS THREAD?
"The murder of markets knows when he is going to kill again"
FUCK GOLDMAN
RIPS
Deathrips,
Joshua Pollard NO longer works for Goldman. Your comment makes nosense.
SUPRISE, BITCHEZ!!!
Shanghai gold trading platform given surprise launch datehttp://www.resourceinvestor.com/2014/09/16/shanghai-gold-trading-platform-given-surprise-laun
Tuesday the Chinese government backed Shanghai Gold Exchange (SGE) brought forward the launch date of its international gold trading platform which is hosted in the city’s free trade zone (FTZ). The gold trading platform will be known as the ‘international board.’
In a surprise announcement, the SGE said today that the international board will go-live this Thursday September 18, eleven days ahead of its original launch date of Monday Sept. 29.
<--boobs
Housing isn't overvalued until the FED pulls the plug. Then it is way over-valued.
Phase 3 is going to be a good time to buy houses again -- I can hardly wait.
...........
Trash article summary:
Housing is overvalued so we need da gubmint to blow the bubble even bigger to keep it from popping.
You forgot to add that global banks including HSBC and GS will be involved:
Jesus christ...!!
You need to shut up and listen before you embarrass yourself with more comments like the one above. I wont flat out call you a troll. But you need to be in the conversation to comment.
THINK...try and learn why we say what we say here.
RIPS
poorly written sentence structure? all caps?
Four chan,
Yes, I was pissed my comment was erased. What the fucks your excuse?
Shit.
RIPS
How does a comment saying your comment was erased and then reposting it, not get erased? Ritalin?
"Yellen will print forever..."
Nope, only "Diamonds Are Forever". As is the sunburn from a 1,000,000 degrees source exploding nearby.
Joshua Pollard, CEO x Co-Founder of Omicelo: "House prices are 12% overvalued today. Today’s misvaluation matches the excess of 2006-07…”
Mr. Pollard, The information you present seems well researched but I have many problems with it.
First: It depends on whether you measure them in nominal or inflation-adjusted terms.
Second: According to the S&P/Case-Shiller National House Price Index, the fall has been about 34 percent from mid 2006 peak.
Adjusting for Consumer Price Index inflation, the drop in house prices since the peak has been 41 percent.
I find the major point of your research flawed.
http://www.american.com/archive/2012/april/how-much-have-house-prices-really-fallen
Listen. Let me make this clear to "YOU". Going into to 2008, your USSA banks still had "INVENTORY" in their pipeline from the S&L crisis. They sat on it from fucking 1989!
So "CRY ME A RIVER!" Bublé
www.youtube.com/watch?v=yopNkcDzQQw
"FLUSH" the pipeline and watch how much $$ your USSA banks and hedge funds will make!
Then, and only then, will I discuss price with you. It's another fucking rigged American market.
so this kid was 18 durring the last crash? and learning how to drive two years before that? give me a break, and a seasoned opinion.
A bunch of artiicles on that blog. The one on year-over-year sales and price from August 13 to August 14 seems a bit conflicting. The volume is down but median prices are up 8-20% from last year. So couldn't lower volume be viewed as less inventory on the market resulting in higher median prices? Seems that "hitting the wall" would result in higher inventory and lower prices....but I just perused the article.
Yup, all by design, this is how they rake the sheeple's chips off the green felt.
All propped and backstopped by our in the bankster's pockets .gov and FED.
Well, at least they didn't predict WW3. Phew, what a relief!
In that case... long Russian resource stocks.
I sometimes get real estate emails for commercial RE. I am not really involved but sometimes get emails. Today, I got an email on Chicago tenant occupied RE for sale with 20% cash on cash returns. It is a package with management in place.
Chicago. Oh yeah. I want to invest in Chicago. F Chicago and Hope and Change.
A 5% correction would blow this bitch to kingdom come. New him construction is gone crazy with 2 income hipsters already paying 20% more then fair market. 15% decline with rising interest, pffft, call the undertaker.
I don't agree with anything you said, but i love the line "blow this bitch to kingdom come."
ah, three years more of current environment before it touches the elites, he means.....
12% is a little understatement GS! Try 30%!
Only 15% ?
Home prices in areas of NoVa are beginning to drop some and inventory is sitting a lot longer. This started about 2 months ago. We are waiting to buy a house and trying to time it right. We are trying to hold off until EOY or early next year to see what happens because I think if something does happen it will happen this fall. Either way we will most likely be buying before next spring. Tired of living in this nasty ass rental and getting owned on taxes.
How long did it take this Goldman genius to figure this one out? Go to the financial district and it was easy to see a while ago. Flood it with cheap money and you have a housing bubble.
Robert Newman's phrase comes to mind:
"The night is young, and so are the homeless".
Bullish
Say It Isn't So - Hall & Oates
http://www.youtube.com/watch?v=D0LPNJUGnT8 (5:15)
Joshua, all of 24 years old. Hey Douche Bag, what was once a Republic but now is a Criminal UNITED STATES, CORP. is in a Depression Dickhead.
Yo Chup - Pollard is now 30 or so... but looks like just another Afiirmative Action hire unfortunately. Did do Stats though.....
Joshua received dual-majors in Economics and Statistics. In additon he received a Management Studies Certificate of Finance from the William E. Simon School of Business and was selected to study international business in Madrid, Spain.
While a student he ran the Minority Student Advisory Board, which oversaw important mandates between the University's leadership and its minority faculty, staff and students. Upon graduation he was asked to be a member of the prestigious Alumni Board of Trustees.
He sure learned a lot there in that "educational" environment. But, why tear the houses down? Just break all the windows.
We live in a world run by morons.
Agreed. I was in a meeting w/ a bankster in 2008 where I told him (prior to the meeting start) he better be ready for some aditional decline. He got really huffy and point blank said, "There can't be anymore decline because we will fail." Looks like we were both right, thanks to the bailouts.
Further along in the meeting he was describing the new "program" coming along where investors (incestors?) would be given preference in purchasing dilapidated homes in bulk before they ever hit the repo list, they'd be rehabed, and fliped back into the market. The PTB in the room were star struck and praised his efforts.
At that point the piss-ant in the room running the .ppt (me) could no longer bite my tounge... I asked why is it that these homes would not be made available to the public where someone like I can buy, fix, and live there long-term, netting a deal in the short-term and strengthening the neighborhood in the long-run? I went on to add that I viewed the idea as a means to keep people like me from ever getting a good deal.
The stinkeye directed toward that dick at the computer (me) was thick enough to cut with a knife. I have never been asked to run a .ppt again. I continue to rent to this day.
Morons indeed.
This just in: ZH comment-section troll "Emergency Ward" predicts a crash within 6-96 months. Really, it's almost a sure thing.
At least ZH wasn't bailed out like you guys were. How does if feel to work for a gov't agency? You must be pretty good at what you do.... to have the gov't come and bail your ass out of bankruptcy. lmao!
I'm sorry, I should have said "long discredited and full-of-bullshit" ZH troll. I have no idea who you are referring to when you say "you guys". Maybe you could clear that up.
Can one no longer mock the subject of an article?
Since when is 15% a crash? There are areas now where housing needs to take the edge off. I call losing 70% on my PM stocks a crash. 15% is just a little trim.
Great point. That said pretty much everyone buys their home leveraged to the hilt. No one buys physical metal with borrowed money. How did you manage to lost 70% by the way. The only way you could have pulled that off is by purchasing all silver at the absolute peak. Troll?
Notice he said PM STOCKS not bullion. For the most part my PM stocks, purchased soon before the 2008 crash have never recovered and certainly have provided little if any profit. However, I'm still a "double" on my bullion purchases from the time, at least in gold, less up in silver.
15% nationwide but somer areas haven't really run up in the last 3 years. that leaves bubblicious California to dropr 25% or more to make up for the NON-insane real estate that makes up most of the nation.
Not only have some areas not run up, but they hadn't run up much prior to 2007 and didn't crash either. That is, some areas of the country simply have lower housing volatility. Seem like better places to buy as the downside potential is much less. Forget about California, Florida, Arizona, Nevada and certain metro areas like Portland or Seattle or Vancouver, BC. Too far to fall.
I'm a SoCal native who came into my prime earning years just as Bubble 1.0 inflated. Narrowly missed on an auction home in 2012. I'll wait Bubble 2.0 out :-)
For all the people who shit on CA because of the nutty lefties more than half of us don't vote, and I'd like to thikng its because many of us realize it matters fuck all. But we hate people like Nancy Pelosi and DiFi just as much as 'yall.
Oh, so THAT'S why those two keep getting re-elected! Everybody hates them!
Makes sense.
Elections work?....do you wait for santa on christmas eve still too?
RIPS
Chinese "Szechuan style"/Fed FRN hot money is bidding up real estate up and down the Pacific Coast.
Portland prices are insane right now.
http://www.zillow.com/homedetails/7911-SE-30th-Ave-Portland-OR-97202/538...
3 more years. We'll all be rich by then.
How's that again?
That sounds like need to know information.
The good news is every American will be a millionaire,and the bad news is every
American will be a millionaire. A happy meal will cost $2M.
Houston Metro Texas:
KB Homes sent me their "Fall Sale" email last week.
Over 100 brand new inventory homes priced $210k to $400k sitting vacant in some of Houston's nicest neighborhoods looking for owners.
No substantial price decreases though yet.
Its all dependent on what the fed does, and they have no clue what they are doing or what the repercussions will be.
did he just put a new date on the 2005 report? I know I would have, then taken a long lunch with booze, blow and hookers!
"did he just put a new date on the 2005 report? I know I would have, then taken a long lunch with booze, blow and hookers!"
+1
LOL! Best laugh I've had in a while...thx for that...
15% drop in housing prices in 3 years. WOW - that's really putting your neck out huh? 15% drop is peanuts compared to how overpriced housing is related to wages - especially considering the negative wages of all those on welfare.
Well, it's now after midnight, and the party has been going since lunch time, but welcome, Mr Pollard. Better late than never.
Fuck' mr Pollard...and the squid he rode in on
We do not even have a freaking clue where the markets will be in three days much less three years. Why do you publish this crap. The only asset going lower and lower is gold and silver. Must admit, it is getting old.
Trade those FRNs into gold and silver at these prices...you'll thank yourself later. Just be glad they are still accepting FRNs at this point.. All about perspective!
House prices are:
100% overvalued across Canada
50% overvalued across USA
So all Canadian is worth zero, or are you another person who doesn't understand how numerators and denominators work?
if a house in toronto if averaging $500k, then real value would be $250k, which means that current price is 100% overvalued
No, the previous poster is techically correct – that would be 50% overvalued, as $250k (i.e. the overvaluation) represents 50% – not 100% – of the current valuation.
Most people would understand what you meant, but you have expressed it incorrectly.
ok
Let me try.
This Goldman tools a moron.
The historical home value is 3x household income. In California, the average income is about 62k.
The average home is 450k ish. So 186k is 3x earnings. That is 60% overvalued. 60% fall
You can also look at it by debt to income ratios. DTI. No more than 1/3 of a families disposable income is supposed to qualify for underwriting guidelines on a mortgage as an acceptable payment (was fact till easy credit distracted the masses).
Looking at the average California home average income of 62k..33% is 20,700/12 is $1,725 total payment. At todays conforming rate of 4.5% ish, that would mean that a buyer could afford a payment on a 340k loan. With 20% down one could afford a 390-415k home including closing costs (to get the lower rate under 80% LTV). 15% fall
This second scenario is the one that Gold nut Suckers is counting on for their analysis.
Here is the flaw in their reasoning, historically interest rates have been 7-9%. Now interest rates are manipulated lower to keep the debt bubble payments under control. As interest rates rise (and they will) purchasing power is taken away.
EXAMPLE:
In DTI modeling with interest rates at 8% lets look what happens. Now a borrower can only afford a 235k loan and a 280k purchase price. Almost 40% drop from todays average. Closer to our 3x average income equation.
For extreme example, look late 70s early 80s when interest rates were above 16% (which I think is coming if they can hold it together long enough). for 1725 payment a buyer could afford 130k and a purchase price with 20% down of 160k. A drop of 60%+ from todays prices.
The conclusion is FUCK YOU GOLDMAN!
Housing going down over 50%.
RIPS
I have to agree with deathrips. My realtor says basically the same as you; namely, the market is heavily manipulated + the prevalence of zero down [or near zero down] mortgages + very weak job market = a worse crash then 2008 with prices correcting 50-60% or more.
He said the housing crash in 1988 was pretty bad but fraud bankers were jailed and houses were foreclosed upon and the RE market corrected fairly quickly. He added, "it's true, this time is different; it's worse." Few if any have been jailed, millions of houses still need to be foreclosed upon and the subprime lending is still out of control.
You have a good friend.
Many are not like that.
RIPS
Let [Rv] be the "real" valuation.
Let [Av] be the "apreciated" valuation (assuming Av>Rv).
Let [Ov] be overvaluation percentage.
SO:
Ov = (Av-Rv)*100/Rv
IF Ov = 100, THEN 100 = (Av-Rv)*100/Rv
SO:
100*Rv = (Av-Rv)*100, SO Rv = Av-Rv, SO 2*Rv = Av
THAT IS, a 100% overvaluation means apreaciated valuation is two times real valuation.
NOTHING is 0 after beinf divided by 2 except from 0.
ok
Hey ekm1, easy discussion in mathematical (objctive) things.
The fun is in the subjective ones, that is, to be 100% overvaluated or not to be.
;)
To be, or not to be, that is the question—
Whether 'tis Nobler in the mind to suffer
The Slings and Arrows of outrageous Fortune,
Or to take Arms against a Sea of troubles,
And by opposing end them? To die, to sleep—
No more; and by a sleep, to say we end
The Heart-ache, and the thousand Natural shocks
That Flesh is heir to? 'Tis a consummation
Devoutly to be wished. To die, to sleep,
To sleep, perchance to Dream; Aye, there's the rub,
For in that sleep of death, what dreams may come,
When we have shuffled off this mortal coil,
Must give us pause. There's the respect
That makes Calamity of so long life:
For who would bear the Whips and Scorns of time,
The Oppressor's wrong, the proud man's Contumely,
The pangs of despised Love, the Law’s delay,
The insolence of Office, and the Spurns
That patient merit of the unworthy takes,
When he himself might his Quietus make
With a bare Bodkin? Who would these Fardels bear,
To grunt and sweat under a weary life,
But that the dread of something after death,
The undiscovered Country, from whose bourn
No Traveler returns, Puzzles the will,
And makes us rather bear those ills we have,
Than fly to others that we know not of.
Thus Conscience does make Cowards of us all,
And thus the Native hue of Resolution
Is sicklied o'er, with the pale cast of Thought,
And enterprises of great pitch and moment,
With this regard their Currents turn awry,
And lose the name of Action. Soft you now,
The fair Ophelia. Nymph, in all thy Orisons
Be thou all my sins remembered.[4]
Tell that to the Chinks who just won't stop showing up and paying multiples of RE values!
What you should be asking, is why the Chinks keep pumping Westcoast RE from San Diego to Vancouver? What do they know?
Chinese have no choice.
Better 10 houses in Vancouver that will lose 50% value from current price than being totally expropriated in Beijing by politburo and thrown to jail
And you really think it will be any different here ?
The Govt. is going to steal everything, carry on spending, and then default.
Out of the Wok, and into the fire for the Chinese RE investors.
It doesn't matter what I think
That is what they think
Open your mind.
They are linking the hot money they received from us (in the Fed's intentional devaluation of the dollar/QE) to our housing market and causing real inflation here in terms of housing costs and affordability of housing for Americans.
They are alloying the inherently brittle and fragile hot "money" USD they possess with the physical foundations of the entire US economy. If we try to cheat them further they'll be able to create massive cracks in our economy in myriad ways.
Anybody who thinks these individuals are making individual decisions needs a Sun Tzu refresher.
ekm1
What do you think will happen to foreign investors in the US when taxes decline and trade war start?
Try higher property taxes and higher withholding on foreigner owned.
Define 'foreign investment' if USD keeps being world currency.
It is an empty concept for USA, for as long as USD is world currency, which is being eroded fast now, though
ekm1,
I mean; foreign investors won't be able to repatriate most, if any of these profits... If they get to see any profit.
The dollar will remain a global reserve currency, it has too.
It's backed by trillions and trillions of (dollar) debt. And the dollar is backed up by the most deadly army in the world.... we like it, or not.
nobody fears an army which is not used
NOT used?
What are you talking about?
Below is the list.
http://en.wikipedia.org/wiki/Timeline_of_United_States_military_operations
Not used when needed in the last 2 years.
Syria, NATO
Prolonging those mini wars is faaar more profitable.
The "chinks" know that the west throws better Ponzi schemes
DXY is on a tear.
NY Fed is draining dollars.
Practially a margin call, if it continues
Did bank lobby surrender to Pentagon and Saudis' offer they couldn't refuse?
We'll find out
Pfft 12% overvalued how about 100% overvalued in Toronto, Vancouver and Calgary
15% or 50% - how can one even know, when the graph points to the early 1980's as the genesis of 'forever' rising home prices, via the advent of easy credit? 'Fair value' being what a market will offer aside, where does one begin to find a level where home prices on average, should be? There are so many Huge changes that have taken place economically and financially within the past 30 years that have forever changed the landscape (read: mispricing due to misallocation of capital and faulty pricing mechanisms). The whole F'ing shootin' match needs to be wiped clean - as in, an all-encompassing Collapse.
Typical Goldman stateist. He makes recommendations about .gov programs to help the housing crash victims.
The crash is the fix. suddenly many "folks" will be free of debt and houses just might become affordable again.
Could they just stop with the fixes please.
No kidding about the statism. The guy wants the feds/states to set local housing permits? That's totally the wrong direction, buddy. PEOPLE should be free(r) to build and buy wherever they darn well want.
I can't imagine a worse f-up than having the feds get more involved in the housing market.
as a former goldmanite, he probably has 4 homes. Setting local housing permits won't affect him one bit.
What is an "ex" Goldmanite? I thought nobody could ever leave the family unless it ends with self inflicted nail gun accident.
He says housing will crash. What he really meant to say is that people should BTFATH in S&P 500 instead of "wasting" their money on upgrading their dwelling.
Keep the shack and by stawks = WINNING!
Become Super Squatter!
http://en.wikipedia.org/wiki/Squatting
the translation:
here's how to ensure the system owners get paid what's owed.
the response:
go fuck yourselves.
If Goldman filth says something, the only sure bet is that it will line its pockets.
Is this a joke?
We've been in a papered-over depression for years.
He said:
That's nutz, the misvaluation probably averaged 30% from 2006 to bottom in 2011, so is he counting that prices (not inflation adjusted) have now recovered a nominal 18% in three years? That at 5% per year real inflation indicates a 40% increase would just hold value but we've only had 18%? Then the net *real* overvaluation of real estate since 2006 is actually *higher* than 30% from 2006 to today.
So yeah, whatever he said, I didn't read the endless posted nonsense.
MH17
Who shot down MH17? 30 Million Dollar reward for information
The GERMAN fraud investigation company Wifka has been charged with investigating the shoot down of Malaysian Airlines flight MH17. Their client is providing 30 million dollars as a reward for information and evidence.
(srcroll down)
http://www.mmnews.de/index.php/politik/20710-mh17-30-mio-kopfgeld-fuer-taeter
Zero interest rates, massive numbers of subprime loans still being handed out at near zero-down, little or no job verification … and house prices are still beginning to drift down.
Massive wage deflation, job losses, flooding immigration across our wide open borders and 300% overpricing of the boxes has alot to do with it.
When will Barry and Ole' Yella just hand them out for free to the FSA and hand the bill to the taxpaying Middle Class schlepping Sheeples ?
I'm pretty sure that's what the ex-goldman douche bag was referring to in the stage III "unprecedented" act by .gov to get the housing market to trough for a rebound...?
Homeowner Real Estate cycle----Estate---McMansion--Single family dwelling---Multi family dwelling---Collective--- Kibutz---Barracks---Tent city---Refugee camp---Cave. Americans may have to learn to live together like others an this planet if the Fed is not careful in facing reality.
Okay housing expert Pollard pick the date and time and back up your call 100% with your personal physical assets and maybe someone will listen. Otherwise WGAF.
I love the fucking charts,,,Within three years????????? The creeping delay,,,it was to be 2014 and now three years,,,fuck it make it ten years.......The creeping coup of the withered mummy of American hegemony.. You can have it I'm out,,good night...
Since when does predicting mean creating.
ah yes, but... this report is entirely about new housing. new housing is subsidized by Fed policy, which is to inflate the value of existing housing (price controls which ensure minimum sales take place, and home buyers are incentivized to buy new homes). now once the value of existing homes falls their saleability should go up, ah yes but, if interest rates move higher, the rise in borrowing costs offsets the sellers ability to maintain the current value in a declining market. on the other hand home builders, those offering new homes, are able to write their own low interest 0% loans, they may still maintain the ability to sell at current values. example GM would go broke if they had to sell cars at their true value, so instead they maintain their a higher value (and make no cash deals) and offer 0% APR as incentive.
two takeways, in the current housing market cash is king, and that means foreign money, that trade will likely end. the most viable strategy in the housing market will include interest rate incentives for new mortgages. some legislation must be written to accompany this, and home builders will morph into hedge funds. (if the stock prices pull back btfd)
how can home builders afford to lend money at less than prime rate? this is more pain for existing housing, but instead of high prices controlled by the Fed which no one trades at, the prices will fall, but then lending costs go up, so there is no incentive to buy existing unless the seller carries the paper,and not everyone wants to do that. so there could be a surge in shadow mortgage companies, like the gogo 00's with the return of the loan originators who set up the deal and then step aside, or remain as collection agency, without liability, in order to direct the flow of payments, for a fee.
depending on how effective the incentivizing of new homes is, oversupply will quickly saturate certain markets, putting further pressure on existing homes, in places where there are jobs. with a few tricks new home builders will do even better.
basing your money system on the debt priced in dwellings failed
in the past, no? or is it a petro dollar or a real estate dollar?
or is it all just a political control mechanism at the whim of
a few monopolistic "authorities"?
WTF is a recession when we're in a depression, like double depression or something?
Yellen Kunt said she WANTS ANOTHER BUBBLE! "mortgages restrictive" Kunt said, this woman is an acedemic disaster for America's 95%. 15% is NOT a crash when speculating parasites drove prices up 30-50%, get fking real. 90% of workers will NEVER see a raise above inflation again.
Does this mean there will be another recession ON TOP of the depression we are already in?
When it comes to real estate low interest rates at some point becomes a double edge sword, that effects both the value by making it easier to purchase thus driving up prices, and at the same time allowing more building to take place and increasing the supply. Often we reach or exceed demand, this eventually has a dampening effect on rents and people stop buying it as an "investment".
Prices must rise and real estate appreciate more then the natural depreciation from the wear and tear from age or the main driver for owning it vanishes. Oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity. Currently we are in uncharted waters, more on this subject in the article below.
http://brucewilds.blogspot.com/2013/12/super-low-interest-rates-disservi...
15% over 3 years is no crash
It would be for flippers.
NO it wouldnt, flippers could care less about a 10 to 15% drop, 15% sounds more like a well needed market correction
This statement in the article says it all, "Unnatural demand from investors has created a mismatch relative to long term drivers - income and rates. Arguably, the upward price movement driven by investor demand has helped to restore the confidence of consumers and lenders in housing as an asset class, however, this shifts quickly. Home prices are already declining and the probability of a more severe decline becomes too high to ignore if new negative shocks force Stage II and Stage III of home price declines." So let me summarize. Large funds bought up lots of forclosed homes, taking supply off the market and driving up home prices before they would normally have done so on there own. So, now this article is discussing what happens now that the prices are not capable of maintaining or increaseing without any real increase in demand for housing, not counting the manipuled demand. Ok, let me put my thoughts this way, these investment funds took economic risk and they want to dump their properties then they will suffer the losses, along with everyone else. Since the home values got artificially ahead of themselves, so what. Supply and demand will soon enough return to equilibrium but these investors who manipulated the market may end up with big losses. I do feel for those in the RE industry so i like the assistance to them in the public policy debates, but this should have no signficiant effect on interest rates or government bailouits or otherwise. This artificial increase in prices took place at or near the bottom of the market. if it goes down again, then other bottom feaders will come in to buy. STOP MANIPULATING THE MARKET AND IF YOU DO, BE PREPARED TO PAY FOR AND SUFFER THE ECONOMIC CONSEQUENCES!
Sorry, duplicate comment.
SURPRISE, BITCHEZ!!!
Shanghai gold trading platform given surprise launch date
http://www.resourceinvestor.com/2014/09/16/shanghai-gold-trading-platform-given-surprise-laun
Tuesday the Chinese government backed Shanghai Gold Exchange (SGE) brought forward the launch date of its international gold trading platform which is hosted in the city’s free trade zone (FTZ). The gold trading platform will be known as the ‘international board.’
In a surprise announcement, the SGE said today that the international board will go-live this Thursday September 18, eleven days ahead of its original launch date of Monday Sept. 29.
Nail gun challenge?
Public policy suggestions: "Demolition"
Paging Paul Krugman, paging Paul Krugman...
12%?! How about more like 90-95%! Land and housing is insanely over priced!
Not everywhere.
In most places, house prices are WAY out of line with the underlying fundamentals of the area.
Not everywhere.
a fall of 15% is NOT A CRASH!
so he predicts sometime between now and when rates will be at the Fed's target high.
are they still hiring?
He's an optimist fer sure
Adjusted for 5% Annual inflation, we're even, no?
He's just another bankster running around screaming his hair is on fire. This is not a problem until BONDS DEFAULT. The whole point of QE is to keep bonds paying INTEREST, principal is not even an issue.
Banks are backstopped, all 2007 subprime loans are paid up, and it only took $1.3 Trillion. Nomi Prins quantified the problem back in 2009, what's the problem? New loans (post 2009)? Who cares, that's the taxpayers/ FNMA 's problem, thank goodness it hasn't been "wound down" yet...
The housing market has been dead since 2007. Sure, last 3 years some people have profited off the bounce before the cliff, but 15% overvalued is ridiculously low. If you move the mortgage rates back to 2007 levels at 5.5% then we are easily 25% overvalued which is exactly how much homes were overvalued in 2007.
The good news?
1.) Most people are locked in with very low rates and are therefore insulated from the next crash.
2.) The loan quality in the last 6 years is much, much better than the last time.
3.) All the bad borrowers have been removed and investors with healthy balance sheets have become their landlords.
The bad news?
1.) All good borrowers are good until the day they aren't.
2.) The investors making 0% at the bank have bought these homes. They will long for 0% returns after this happens.
3.) The fed is running out of bullets. So the next time will be market-based carnage. Wait. That is good news.
The Middle Class merikan is a Broke Down Donkey, I'm afraid. Stand near any retail store's checkout counter and watch credit card after credit card "declined."
It's heartbreaking ... but predictable.
Dude...where the hell do you live? I see no such thing here.
Go away...'baitin.
Dont forget the cars and car loans crashing from the same sub prime loan schemes
These hot money US real estate purchases amount to the Chinese pouring sulfur into the steel foundries of American economic and military power.
The Fed has provided them that sulfur.
Baseless fiat FRN is the economic sulfur that weakens steel...as in the hull of the Titanic.
3 years? How about 3 months after end of QE?
A bit optimistic I would say.