Just because of the way the C-S index is constructed it is likely that the individual houses most likely to have dropped the most are equally least likely to be included in the most recent data.
Robert I think you are speaking of the jumbo limit. But I disagree I think the first and second quintiles will suffer a greater percentage decline than the top three quintiles.
Well the rumor de jour is Goldman is about to announce a 10bio writedown. More likely we're about to hear their subsidiary, the Treasury Dept. is about to take 10bio in cdo's on "long-term" repo.
Yes, the Jumbo Limit excludes many bubble areas but I was thinking of several other issues. ...non-arms-length transactions are excluded from the pairing process. The most typical types of non-arms-length transactions are property transfers between family members and transfers of properties from mortgage borrowers to lenders during foreclosure proceedings.
How's that working in areas where half of all transactions are repos?
Then there's the even more important collapse in sales volume. The very few repeat sales are likely to be those with equity thus eliminating all the more recent 2005-06 most highly leveraged deals.
I know what Case-Shiller thinks it is trying to track but when every transaction above $417k or bank repo or deeply discounted/incentivized new home sale in San Diego isn't included and they still get a 9.9% decline then the model is IMO too granular to justify the results as people are trying to use them.
"...
The doomsday scenario would play out something like this: Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities. Rising delinquencies would hurt not only the banks involved but the securities backed by the credit card receivables. Those securities would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
To be sure, there are key differences between the subprime market and the problems brewing with credit cards. The first is that while rising mortgage delinquencies were apparent for months before the subprime market blew up, credit card delinquencies are actually coming off unusually low levels.
. . .
But credit card debt is different from subprime debt in another way: Unlike mortgages, credit card debt is unsecured, so a default means a total loss. And while missed payments are at a historical low, they show signs of an uptick. . .
. . .
If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.
It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. . ."
If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle.
I'd question that, the property bubble has only just started bursting in the UK.
If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.
It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. . ."
--Andrew | 10.30.07 - 1:00 pm | #
House prices are just stabilising in Britain at the moment - our housing market is a year or so behind yours. We're going to be having one hell of a crash soon though. People have stopped looking at me as if I have two heads when I tell them there's no way I'd buy a house in the current environment so sentiment has turned but prices have only just started to do the same.
This drop is even more substantial when adjusted for inflation. Inflation, for some reason, is often ignored but has a very substantial impact over a long period of flat or falling home prices. C-S's 4.5% YoY drop becomes about 9% adjusted. And that's just one year.
In the OC during the 90's, falling home prices combined with inflation-driven wage increases eventually turned an irrational market into a rational one. (Unfortunately, it has since taken a trip to the loony bin.)
That is when the Case-Shiller curve really begins moving upward? Why that year? I heard it was because Clinton changed 1031 exchange(no capital gains on house sales) as a campaign promise to Silicon Valley in 1996.
Has anyone else heard that or have alternative explanations?
Noob asked: "Could someone please answer a question from a Noob: How far do prices need to fall in order to be back in line with incomes on a 30 year fixed?"
It depends on the local market. In LA median housing costs 10.5X median income, in San Francisco it's 9.8X, in San Diego it's 8.8X. But where I live (Raleigh, NC) it's 3.2X, which is already about in-line. (Oddly enough, that's about the same as New Orleans, only with less danger of flooding and a better economy. Go figure.)
Myself, I think the differences in the absolute cost of housing are a factor the housing bears don't seem to take into account in the "nationwide housing bust" story, where all housing is going to go through a calamitous drop.
Also, keep in mind that the C-S monthly releases are three-month moving averages. So these numbers are averages for sales in June, July and August. So, the effect of the "credit crunch" on this report is minimal. The numbers released in the next couple of months are going to look even worse. Wait until Jan 2008 when the numbers will come out for Sep-Oct-Nov averages! Yikes!
dav said: "Also, keep in mind that the C-S monthly releases are three-month moving averages...."
Another thing to keep in mind is that 3 of the MSAs in Case-Shiller are in California, skewing the composites.
Even further skewing the composites is that C-S is capitalization-weighted, meaning the most-expensive houses tracked are given the heaviest weight. Since CA is also home to a lot of the most-expensive real estate in the country, C-S is way skewed for conditions in CA.
Sebastian, relatively few of us think "all" housing is going to go through an equally calamitous drop. For example, I think the value of my old house in central Phoenix will probably only fall about 30-50% from peak value. That would be pretty good compared to some of the developments on the periphery that will be occupied only by squatters.
Assuming economic growth continues in your area, it is possible that housing will "only" fall by 10% or so based on much tighter mortgage lending. Of course, if the economy doesn't do well in the next few years then the income part of the equation will force the price part of the equation down further. And of course, I am talking in nominal terms, which means a much greater real drop once inflation is factored in.
When you average that with the impact on the consumption-and-finance economy of 50+% drops in the bubble markets, plus the overbuilt depressed economies in much of flyover country, the picture doesn't look too bright overall.
Sebastian -
I think most of the doom and gloom on this blog outside of what CR says is overblown. That being said, you seem to be in a massive state of denial. The housing price data is horrible. There is no way to spin it positively if you look at it objectively or rationally. It is a national problem with differing degrees of severity throughout the country. The few areas that are currently seeing price growth would be seeing much greater price growth if the national factors impacting housing were robust rather than unhealthy (ie mortgage availability, inventory, etc). I have no doubt things will get much worse before they get better. I dont see how any rational person could think otherwise.
sebastion - You are right, housing will fall much worse where most Americans live and where the higher paying jobs are. If I could live in rural NC or Va and make half what I do in Los Angeles area I would in a heartbeat. I am actually watching homes in the south and the mid-west because I believe many of the nicer Jumbo loan type properties in these areas will have the same problems as everyone else. As equity disappears and inflation of medical costs, heating and transportation increases it will limit the number of retirees et al who will pay 800k for a really nice home in small town America. We'll see.
I actually bought a SFR for income puproses in an area that is 3x's median income and never experienced a "California" bubble. In fact, the median price today is the same as it was back in 2000. It currently has a CAP rate of six and I am anticipating two-year treasuries to be yielding two to three percent for the immediate and foreseable future. Trashing cash is one of the only ways to save asset values, if they can even be saved at all.
California has 12% of the population and 17% of the GDP of the United States. So having 3 of 20 MSA's (15%) be from California does not seem like a "massive skew" to the composite, it sounds exactly right.
Similarly, to the extent that the composite is intended to represent the value of the total stock of real estate in the US, it should weight by capiltalization, overweighting high-value areas, because they contribute more, by virtue of their high value, to the total value of US RE.
Myself, I think the differences in the absolute cost of housing are a factor the housing bears don't seem to take into account in the "nationwide housing bust" story, where all housing is going to go through a calamitous drop.
Classic Strawman and patently false for the vast majority of bloggers here and other bubble-focused sites. Easy to paint every contrarian thinker with a broad perma-bear brush. Anyone who, over the past 3-4 years, has ever though to himself, "Gee, how can housing be shooting up 20-30%/year in XXX city, is this really sustainable?" is a Gloom-n-Doomer.
Yes, we're all well aware that to some extent housing markets are "local" and the effects of the bubble vary greatly region to region. CA, OR, WA, NV, FL, AZ, & most NE states all being "bubble poster children", while some regions experiencing reckless lending & speculation to a much lesser degree.
Even so, thanks to MBSs/CDOs and the carry-trade, mortgage credit markets today ARE national --and international. Not to mention that most of the U.S. population is heavily concentraed in those extreme bubble regions. There may not have been much of a bubble in Fargo, ND, but then again, very few people live there compared to L.A. or Miami.
Robert, if I remember correctly, Case Shiller includes non-conforming sales (i.e., above the $417K limit). It is OFHEO that is limited to FNMA transactions.
Classic Strawman and patently false for the vast majority of bloggers here and other bubble-focused sites. Easy to paint every contrarian thinker with a broad perma-bear brush. Anyone who, over the past 3-4 years, has ever though to himself, "Gee, how can housing be shooting up 20-30%/year in XXX city, is this really sustainable?" is a Gloom-n-Doomer.
Most bears I have seen on these blogs are nitwit religious order-followers. They flock towards they saint and then gleefully chirp whatever they have been taught on the main page of the blog. If tomorrow CR changes his tune, half of you will end in asylum.
If you really think most people here are such nitwit religious order-followers, why stay? There are oh-so many more appropriate like-minded forums for you, like the WSJ blog, SDCIA, Larry Kudlow's blog, etc.
Most bears I have seen on these blogs are nitwit religious order-followers. They flock towards they saint and then gleefully chirp whatever they have been taught on the main page of the blog. If tomorrow CR changes his tune, half of you will end in asylum.
Pathetic.
S.
Sebastian | 10.30.07 - 3:17 pm | #
Why waste your time with a bunch of cultists fake sebastian? Life is short and there is much to learn and experience. . .
The only psychologocally damaging trait that I see in overabundance on this board is curiosity.
Robert, if I remember correctly, Case Shiller includes non-conforming sales (i.e., above the $417K limit). It is OFHEO that is limited to FNMA transactions.
jg
Yes, I misnamed the Case-Shiller exclusion/diminution of radical price change data. Large price changes in short periods of time are excluded. I was thinking but poorly expressed that periods of rapid but still arms-length transactions are either eliminated or weighted less than 1.0. I agree with this in normal market conditions but think it serves to unfairly eliminate market driven extreme price changes.
"Most bears I have seen on these blogs are nitwit religious order-followers. They flock towards they saint and then gleefully chirp whatever they have been taught on the main page of the blog. If tomorrow CR changes his tune, half of you will end in asylum.
Pathetic."
Must be the "fake Sebastian" ....
The one thing I find refreshing about this blog is the lack of the Rush Limbaugh "dittoheads" syndrome where everyone dances to the tune of the day.
I would say that a good portion of people are either more or less optomostic tha CR.
Not much of "Right as usual, Tanta", or "Yessir, Mr. CR, you nailed it again!"
If anyone has any insight into the credit card debt situation, I'd love to hear it.
There is a bankruptcy spike showing on the remittance reports for last month that I have checked, and I am wondering whether it's RE-related bankruptcies or CC-related. It makes a difference.
Note to Fake or Real Sebastian - usually the marker of a cult is that its beliefs are divorced from reality. In this case, the results (and I am talking corporate writedowns of assets) are showing that CR and Tanta are quite attuned to reality.
You might want to think it over. There are plenty of arguments here about the meaning of facts and people will disagree about trends, etc. There seem to be a wide range of opinions about where this is going long term. But I doubt very much there will be any outbreak of CalculatedRiskInsanity.
UNCalculatedRiskInsanity is, however, an apt description of the state of mind prevailing in many boardrooms at this point. CW's WristbandMotivation program is an example.
Ray on the Farm: The differences in the individual cities from the jan '01 base is interesting. Detroit, Cleveland, Dallas are very little higher. NY LA DC are much higher, but have strong income producing economies. San Diego, Tampa, Miami are up in the low 200's in low-income economies. That's where the highest drops will be, unless all the snowbirds and foreigners suddenly decide to be there (not this one, anyway).
I know what Case-Shiller thinks it is trying to track but when every transaction above $417k or bank repo or deeply discounted/incentivized new home sale in San Diego isn't included and they still get a 9.9% decline then the model is IMO too granular to justify the results as people are trying to use them.
I wouldn't say it's granular... I'd say its 'chunky'... as in blowin' chunks.
On Seb's point about bubble-no-bubble... I'd say his anecdotal evidence (and mine - also live in a low price to income area) should be indicators of concern not one of relief...
The problem is that so much of the economy is under the overhang of this real estate correction. Consumption is so damned (too damned) important for our GDP that you can't have highly populated regions like the Northeast, Florida and West Coast with this much potential troubles without it finding its way to Hickory NC or Fargo ND.
And as Andrew pointed out & Sandy seconded - the transmission mechanism could very well be credit card failures.
we have a corrupt dysfunctional gov't that is bought and paid for by the elite.
Bernanke should be lynched by the public along with greenspan.
these two serial printers have put us in a deep hole that will be tough to climb out of, but not impossible if the presses are stopped.
A couple of interesting things from looking at the 20-city raw data:
with the latest data, only Charlotte, NC has yet to drop. Three other cities -- Seattle, Portland, and Atlanta, topped in July; Dallas did in June.
those five cities, plus Denver (which is almost even YoY) are the only ones that continued climbing over the past year. Every other city topped between May and September last year.
What's up with Miami and that dead-cat bounce?
I'm glad I don't live in Detroit.
Graphing value at peak against percentage drop is instructive
Thank-you to the posters who immediately recognized the fake "Sebastian." I'm stubborn and contrary, but never result to name-calling or insulting taunts...because they're stupid and unproductive.
albrt said: "...Assuming economic growth continues in your area, it is possible that housing will "only" fall by 10% or so based on much tighter mortgage lending..."
If it's all right, I'll use your post as a proxy for the others who responded.
I don't think I'm wrongly painting all the housing bears with the same "extremist" brush, and here's why. They all seem to have an exaggerated view of what's going to happen to housing, the only difference being how much.
Here's what I mean. albrt suggests that in my area (one of the strongest in the nation) there will "only" be a -10% drop in housing prices if the economy in my area stays good.
The worst year-over-year drop in housing since 1987 in the Charlotte MSA was -1%. That's not a typo, it's negative one percent. It occurred in August, 1991 just coming out of the '90-'91 recession.
Negative 1%, and caused by a recession.
CR's bubble-centric blog (and others) have fostered this extremely, extremely exaggerated view of what will happen. The expectations of huge price drops (however you define "huge") are just not reasonable.
Having looked at the Charlotte MSA data from the CS index, it seems that Charlotte is not a bubble market. What is the median price/income ratio in Charlotte?
Creekside- I believe you're right about the Clinton capitol gains whimp out in '97. The reason being, I was in Seattle and watched the average house prices go from 180K-260K in one summer (2 months) and then just keep on going from there.
The Microsofties were cashing in stock options and blowing good money out-bidding each other on homes. Once they'd finished their buying spree, homes were way too overpriced for everyone else.....SO the loose lending started en force allowing your average Joe to "keep up".
I never heard the Silicon Valley angle before but, judging from what I saw in Seattle, it makes perfect sense to me, as it clearly was directed at the newly minted tech millionaires.
Dryfly- if you're out there, thanks for your reply to the ABX question last night!
Bring the pai
This isn't going to end well...
great news! does anybody have the detailed declines per city?
thanks!
======================================
great news! does anybody have the detailed declines per city?
Its in the press release pdf. Denver was -0.5% YoY, LA was -5.7%, Charlotte was a PLUS something..
-K
Full listings can be found here:
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_102626.pdf
Hang on tight.
full data in excel here
hmmm, let me try that link agai
thanks!
Yes my pretty.
seems that results at UBS are as bad as Merrill. Holding on to 20 Billion highly illiquid senior debt.
- NY Times
I think this index is the only reliable source of national house prices available today.
I think I saw someone dive off that blue graph in Acapulco once. The thing is that he made it back out of the water, many others today won't.
Just because of the way the C-S index is constructed it is likely that the individual houses most likely to have dropped the most are equally least likely to be included in the most recent data.
As someone who as worked to save a downpayment and has looked on in dismay at house prices, all I have to say is:
he he he he
"Prices are now 5.3% below the peak in June 2006."
Only 44.7% to go! Wheeeeeeee!
Robert I think you are speaking of the jumbo limit. But I disagree I think the first and second quintiles will suffer a greater percentage decline than the top three quintiles.
Well the rumor de jour is Goldman is about to announce a 10bio writedown. More likely we're about to hear their subsidiary, the Treasury Dept. is about to take 10bio in cdo's on "long-term" repo.
Yes, the Jumbo Limit excludes many bubble areas but I was thinking of several other issues.
...non-arms-length transactions are excluded from the pairing process. The most typical types of non-arms-length transactions are property transfers between family members and transfers of properties from mortgage borrowers to lenders during foreclosure proceedings.
How's that working in areas where half of all transactions are repos?
Then there's the even more important collapse in sales volume. The very few repeat sales are likely to be those with equity thus eliminating all the more recent 2005-06 most highly leveraged deals.
I know what Case-Shiller thinks it is trying to track but when every transaction above $417k or bank repo or deeply discounted/incentivized new home sale in San Diego isn't included and they still get a 9.9% decline then the model is IMO too granular to justify the results as people are trying to use them.
OT - CNN/Money has an article from Fortune about financial companies worrying that delinquent credit cards could be the next subprime.
The $915 credit-card bomb in consumers' wallets - Oct. 30, 2007
"...
The doomsday scenario would play out something like this: Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities. Rising delinquencies would hurt not only the banks involved but the securities backed by the credit card receivables. Those securities would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
To be sure, there are key differences between the subprime market and the problems brewing with credit cards. The first is that while rising mortgage delinquencies were apparent for months before the subprime market blew up, credit card delinquencies are actually coming off unusually low levels.
. . .
But credit card debt is different from subprime debt in another way: Unlike mortgages, credit card debt is unsecured, so a default means a total loss. And while missed payments are at a historical low, they show signs of an uptick. . .
. . .
If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.
It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. . ."
I'd question that, the property bubble has only just started bursting in the UK.
If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.
It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. . ."
--Andrew | 10.30.07 - 1:00 pm | #
House prices are just stabilising in Britain at the moment - our housing market is a year or so behind yours. We're going to be having one hell of a crash soon though. People have stopped looking at me as if I have two heads when I tell them there's no way I'd buy a house in the current environment so sentiment has turned but prices have only just started to do the same.
There will be pain. It seems to be necessary from time to time, since the human animal has a hard time learning anything without it.
Some pertinent quotes:
Pain is the great teacher of mankind. Beneath its breath souls develop.
- Marie von Ebner-Eschenbach
Pain is no evil, unless it conquers us.
- Charles Kingsley
Tetragon says $68 mln in mortgage securities worth nothing
Tetragon says $68 mln in mortgage securities worth nothing - MarketWatch
This drop is even more substantial when adjusted for inflation. Inflation, for some reason, is often ignored but has a very substantial impact over a long period of flat or falling home prices. C-S's 4.5% YoY drop becomes about 9% adjusted. And that's just one year.
In the OC during the 90's, falling home prices combined with inflation-driven wage increases eventually turned an irrational market into a rational one. (Unfortunately, it has since taken a trip to the loony bin.)
The detailed city list for SP Case-Shiller is available at HOUSING DERIVATIVES
Could someone please answer a question from a Noob: How far do prices need to fall in order to be back in line with incomes on a 30 year fixed?
What happened in 1997?
That is when the Case-Shiller curve really begins moving upward? Why that year? I heard it was because Clinton changed 1031 exchange(no capital gains on house sales) as a campaign promise to Silicon Valley in 1996.
Has anyone else heard that or have alternative explanations?
I sure do wish I had not put 25% down because that money is gone forever. Should have done 100% financing like everyone else.
Latest Bill Gross commentary:
PIMCO - Investment Outlook - November 2007 "Shadow Dancing"
Noob asked: "Could someone please answer a question from a Noob: How far do prices need to fall in order to be back in line with incomes on a 30 year fixed?"
It depends on the local market. In LA median housing costs 10.5X median income, in San Francisco it's 9.8X, in San Diego it's 8.8X. But where I live (Raleigh, NC) it's 3.2X, which is already about in-line. (Oddly enough, that's about the same as New Orleans, only with less danger of flooding and a better economy. Go figure.)
Myself, I think the differences in the absolute cost of housing are a factor the housing bears don't seem to take into account in the "nationwide housing bust" story, where all housing is going to go through a calamitous drop.
Sebastia
Also, keep in mind that the C-S monthly releases are three-month moving averages. So these numbers are averages for sales in June, July and August. So, the effect of the "credit crunch" on this report is minimal. The numbers released in the next couple of months are going to look even worse. Wait until Jan 2008 when the numbers will come out for Sep-Oct-Nov averages! Yikes!
Roubini
RGE - The Recessionary Macro Effect of the Worst U.S. Housing Bust Ever
Historically LA home prices are around 4.5x of median income. But you really need to look at monthly payments to remove the interest rate factor.
Now im sure it is absolutely nothing, but this thread is oh-so-tantalizing:
Countrywide Issues,
dav said: "Also, keep in mind that the C-S monthly releases are three-month moving averages...."
Another thing to keep in mind is that 3 of the MSAs in Case-Shiller are in California, skewing the composites.
Even further skewing the composites is that C-S is capitalization-weighted, meaning the most-expensive houses tracked are given the heaviest weight. Since CA is also home to a lot of the most-expensive real estate in the country, C-S is way skewed for conditions in CA.
Sebastia
Sebastian, relatively few of us think "all" housing is going to go through an equally calamitous drop. For example, I think the value of my old house in central Phoenix will probably only fall about 30-50% from peak value. That would be pretty good compared to some of the developments on the periphery that will be occupied only by squatters.
Assuming economic growth continues in your area, it is possible that housing will "only" fall by 10% or so based on much tighter mortgage lending. Of course, if the economy doesn't do well in the next few years then the income part of the equation will force the price part of the equation down further. And of course, I am talking in nominal terms, which means a much greater real drop once inflation is factored in.
When you average that with the impact on the consumption-and-finance economy of 50+% drops in the bubble markets, plus the overbuilt depressed economies in much of flyover country, the picture doesn't look too bright overall.
Sebastian -
I think most of the doom and gloom on this blog outside of what CR says is overblown. That being said, you seem to be in a massive state of denial. The housing price data is horrible. There is no way to spin it positively if you look at it objectively or rationally. It is a national problem with differing degrees of severity throughout the country. The few areas that are currently seeing price growth would be seeing much greater price growth if the national factors impacting housing were robust rather than unhealthy (ie mortgage availability, inventory, etc). I have no doubt things will get much worse before they get better. I dont see how any rational person could think otherwise.
sebastion - You are right, housing will fall much worse where most Americans live and where the higher paying jobs are. If I could live in rural NC or Va and make half what I do in Los Angeles area I would in a heartbeat. I am actually watching homes in the south and the mid-west because I believe many of the nicer Jumbo loan type properties in these areas will have the same problems as everyone else. As equity disappears and inflation of medical costs, heating and transportation increases it will limit the number of retirees et al who will pay 800k for a really nice home in small town America. We'll see.
Sebastian-
I actually bought a SFR for income puproses in an area that is 3x's median income and never experienced a "California" bubble. In fact, the median price today is the same as it was back in 2000. It currently has a CAP rate of six and I am anticipating two-year treasuries to be yielding two to three percent for the immediate and foreseable future. Trashing cash is one of the only ways to save asset values, if they can even be saved at all.
California has 12% of the population and 17% of the GDP of the United States. So having 3 of 20 MSA's (15%) be from California does not seem like a "massive skew" to the composite, it sounds exactly right.
Similarly, to the extent that the composite is intended to represent the value of the total stock of real estate in the US, it should weight by capiltalization, overweighting high-value areas, because they contribute more, by virtue of their high value, to the total value of US RE.
Myself, I think the differences in the absolute cost of housing are a factor the housing bears don't seem to take into account in the "nationwide housing bust" story, where all housing is going to go through a calamitous drop.
Classic Strawman and patently false for the vast majority of bloggers here and other bubble-focused sites. Easy to paint every contrarian thinker with a broad perma-bear brush. Anyone who, over the past 3-4 years, has ever though to himself, "Gee, how can housing be shooting up 20-30%/year in XXX city, is this really sustainable?" is a Gloom-n-Doomer.
Yes, we're all well aware that to some extent housing markets are "local" and the effects of the bubble vary greatly region to region. CA, OR, WA, NV, FL, AZ, & most NE states all being "bubble poster children", while some regions experiencing reckless lending & speculation to a much lesser degree.
Even so, thanks to MBSs/CDOs and the carry-trade, mortgage credit markets today ARE national --and international. Not to mention that most of the U.S. population is heavily concentraed in those extreme bubble regions. There may not have been much of a bubble in Fargo, ND, but then again, very few people live there compared to L.A. or Miami.
Robert, if I remember correctly, Case Shiller includes non-conforming sales (i.e., above the $417K limit). It is OFHEO that is limited to FNMA transactions.
Sorry of topic..well maybe not..
but a great read n0n the less
Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US
Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US | Energy Bulletin
Classic Strawman and patently false for the vast majority of bloggers here and other bubble-focused sites. Easy to paint every contrarian thinker with a broad perma-bear brush. Anyone who, over the past 3-4 years, has ever though to himself, "Gee, how can housing be shooting up 20-30%/year in XXX city, is this really sustainable?" is a Gloom-n-Doomer.
Most bears I have seen on these blogs are nitwit religious order-followers. They flock towards they saint and then gleefully chirp whatever they have been taught on the main page of the blog. If tomorrow CR changes his tune, half of you will end in asylum.
Pathetic.
S.
Sebastian,
If you really think most people here are such nitwit religious order-followers, why stay? There are oh-so many more appropriate like-minded forums for you, like the WSJ blog, SDCIA, Larry Kudlow's blog, etc.
Most bears I have seen on these blogs are nitwit religious order-followers. They flock towards they saint and then gleefully chirp whatever they have been taught on the main page of the blog. If tomorrow CR changes his tune, half of you will end in asylum.
Pathetic.
S.
Sebastian | 10.30.07 - 3:17 pm | #
The only psychologocally damaging trait that I see in overabundance on this board is curiosity.
It kills cats you know.
Andrew,
You are right. Credit-card is the next big concern.
Housing Depression: The Next Ticking Bomb..Consumer Credit?
Sandy
Robert, if I remember correctly, Case Shiller includes non-conforming sales (i.e., above the $417K limit). It is OFHEO that is limited to FNMA transactions.
jg
Yes, I misnamed the Case-Shiller exclusion/diminution of radical price change data. Large price changes in short periods of time are excluded. I was thinking but poorly expressed that periods of rapid but still arms-length transactions are either eliminated or weighted less than 1.0. I agree with this in normal market conditions but think it serves to unfairly eliminate market driven extreme price changes.
"Most bears I have seen on these blogs are nitwit religious order-followers. They flock towards they saint and then gleefully chirp whatever they have been taught on the main page of the blog. If tomorrow CR changes his tune, half of you will end in asylum.
Pathetic."
Must be the "fake Sebastian" ....
The one thing I find refreshing about this blog is the lack of the Rush Limbaugh "dittoheads" syndrome where everyone dances to the tune of the day.
I would say that a good portion of people are either more or less optomostic tha CR.
Not much of "Right as usual, Tanta", or "Yessir, Mr. CR, you nailed it again!"
albrt: many would consider a 50% drop in price "calamatous."
If anyone has any insight into the credit card debt situation, I'd love to hear it.
There is a bankruptcy spike showing on the remittance reports for last month that I have checked, and I am wondering whether it's RE-related bankruptcies or CC-related. It makes a difference.
The detailed city list for SP Case-Shiller is available at
Tampa is leading the parade at -10.1% YoY ?
OUCH
Note to Fake or Real Sebastian - usually the marker of a cult is that its beliefs are divorced from reality. In this case, the results (and I am talking corporate writedowns of assets) are showing that CR and Tanta are quite attuned to reality.
You might want to think it over. There are plenty of arguments here about the meaning of facts and people will disagree about trends, etc. There seem to be a wide range of opinions about where this is going long term. But I doubt very much there will be any outbreak of CalculatedRiskInsanity.
UNCalculatedRiskInsanity is, however, an apt description of the state of mind prevailing in many boardrooms at this point. CW's WristbandMotivation program is an example.
I want a wrist band that says 'Sebastian'. Not sure about the color though...maybe black?
ow everybody sing
"happy days are here again"
ABX indices down again.
Ray on the Farm: The differences in the individual cities from the jan '01 base is interesting. Detroit, Cleveland, Dallas are very little higher. NY LA DC are much higher, but have strong income producing economies. San Diego, Tampa, Miami are up in the low 200's in low-income economies. That's where the highest drops will be, unless all the snowbirds and foreigners suddenly decide to be there (not this one, anyway).
i think S. Sebastian is a hedge fund guy who wants to keep the party going as long as possible to keep lining his pocket.
I know what Case-Shiller thinks it is trying to track but when every transaction above $417k or bank repo or deeply discounted/incentivized new home sale in San Diego isn't included and they still get a 9.9% decline then the model is IMO too granular to justify the results as people are trying to use them.
I wouldn't say it's granular... I'd say its 'chunky'... as in blowin' chunks.
On Seb's point about bubble-no-bubble... I'd say his anecdotal evidence (and mine - also live in a low price to income area) should be indicators of concern not one of relief...
The problem is that so much of the economy is under the overhang of this real estate correction. Consumption is so damned (too damned) important for our GDP that you can't have highly populated regions like the Northeast, Florida and West Coast with this much potential troubles without it finding its way to Hickory NC or Fargo ND.
And as Andrew pointed out & Sandy seconded - the transmission mechanism could very well be credit card failures.
We'll see.
we have a corrupt dysfunctional gov't that is bought and paid for by the elite.
Bernanke should be lynched by the public along with greenspan.
these two serial printers have put us in a deep hole that will be tough to climb out of, but not impossible if the presses are stopped.
Don't feed trolls tonight
A couple of interesting things from looking at the 20-city raw data:
(Sorry if this double-posts---HaloScan.)
Thank-you to the posters who immediately recognized the fake "Sebastian." I'm stubborn and contrary, but never result to name-calling or insulting taunts...because they're stupid and unproductive.
Sebastia
albrt said: "...Assuming economic growth continues in your area, it is possible that housing will "only" fall by 10% or so based on much tighter mortgage lending..."
If it's all right, I'll use your post as a proxy for the others who responded.
I don't think I'm wrongly painting all the housing bears with the same "extremist" brush, and here's why. They all seem to have an exaggerated view of what's going to happen to housing, the only difference being how much.
Here's what I mean. albrt suggests that in my area (one of the strongest in the nation) there will "only" be a -10% drop in housing prices if the economy in my area stays good.
The worst year-over-year drop in housing since 1987 in the Charlotte MSA was -1%. That's not a typo, it's negative one percent. It occurred in August, 1991 just coming out of the '90-'91 recession.
Negative 1%, and caused by a recession.
CR's bubble-centric blog (and others) have fostered this extremely, extremely exaggerated view of what will happen. The expectations of huge price drops (however you define "huge") are just not reasonable.
Sebastia
Sebastian,
Having looked at the Charlotte MSA data from the CS index, it seems that Charlotte is not a bubble market. What is the median price/income ratio in Charlotte?
Creekside- I believe you're right about the Clinton capitol gains whimp out in '97. The reason being, I was in Seattle and watched the average house prices go from 180K-260K in one summer (2 months) and then just keep on going from there.
The Microsofties were cashing in stock options and blowing good money out-bidding each other on homes. Once they'd finished their buying spree, homes were way too overpriced for everyone else.....SO the loose lending started en force allowing your average Joe to "keep up".
I never heard the Silicon Valley angle before but, judging from what I saw in Seattle, it makes perfect sense to me, as it clearly was directed at the newly minted tech millionaires.
Dryfly- if you're out there, thanks for your reply to the ABX question last night!