housing is not going to fall off a cliff. the problem here is that this bubble thing has gotten in the way of a fundamentally strong market driven by factors other than just easy money. imho.
i see a spec shake out, a flipper disaster and then strength resuming...
there are unstoppable, tectonic forces at work here...
The population explosion has more to do with the immigrant influx that are buy 400K homes with interest only loans. There is plenty of housing, its just that the Real Estate community with the mortgage people have allowed everyone to own a home for a short period. Let us see how things look in three years.
There are TWO factors to demand: (1) desire to buy & (2) ability to buy. All you need is a collapse of one or the other to stop the parade.
Most of that 'population growth' is low income - immigrants & kids... not much ability to buy there... not at these prices unless the builders & banks give'em away... which is very likely to happen given the sunken cost position of the major builders. I commented on this on the last thread...
I firmly believe the industry is morphing ... that they are beginning to manufacture demand just like the automakers did 20-30 years ago... and will continue to do so as long as they can price them high enough so there is margin to conribute to sunken fixed cost overhead... just like automotive.
That can't go on forever but it can go on for a very long time... and eventually put severe downward price pressure on the market overall (via inventory build up)... then when the jig is up... it will really be over... like automotive.
I think you will see the result in overall inventory first then existing home sales figures & finally existing home prices... You will see this continue until the builders hit a cash squeeze or prices fall or costs rise or a combo of those two such that all margin disappears...
Automotive has been 'mining the factory' (using their previously sunken cost/assets) for something like 20 years... and it is just now really catching up with them. Builders can mine their assets & land holdings for a long time as well.
I think things have changed. I say watch the exisiting home market - inventory, sales volume & prices. That will be the canary in the coal mine.
That and the cashflows of the builders... they might actually be bringing more homes to market now to push cash through their systems... Similar to what GM did with sales incentives last summer... Think the big loss just reported by GM & last summer's sales incentives are 'independent coincidence'? If so think again...
This shit all takes time to work through. Sometimes a lot of time.
Something of high interest from HFE
High Frequency Economics- Chief U.S Economist Ian Shepardson-who in the past was one of Wall Streets biggest Bulls.
Hi dc1000
Appreciate your contrarian view and am here to shore your position up. [Wait. Where are you going? I'm here to help!]
"housing is not going to fall off a cliff. the problem here is that this bubble thing has gotten in the way of a fundamentally strong market driven by factors other than just easy money. imho."
This bit about prices falling off a cliff IS rabble-rousing at its worst.
U B right.
I used to think the cliff was next week too, but after holding that view for a couple of years ("It's next week, stock up on the canned goods forchrisake."), I have seen the light. (Actually, after a couple of years, nobody hears you --sorta like the barking dog, only worse.) So it's not next week. (And I am way more popular for this too.) [People no longer run and hide when they see "calmo-Housing Crash" coming.]
No, not next week, but next month.
Ok, not exactly long term support for the contrarian view.
population growth as a reason for the housing explosion has been debunked on numerous occasions. if you want articles let me know. still there are a combination of factors giving fuel to the flames. IMO the biggest one is credit. Credit via the Fed's rock bottom short rates and foreign central banks recycling money back into Treasuries to keep their export driven economies churning. Cheap money = less investor risk = looser lending standards = lending product innovation = increased buyer pool. At some point the proverbial pendulum will swing and we'll have the reverse. The question is always when and in what increments.
I think if you guys had read the link above from High Frequency economics Ian Shepardson- who has an excellent record,
the 'fall' does not begin till spring-6 months off- and when it does begin it could become 'Ugly'. He feels there will be a recession even if housing does not suffer a big implosion (but he feels there will be a 'meltdown'). Which will cause a recession in late 2006-into 2007. Shepardson has been one of the biggest bulls on wall street in the past. READ the link!
sky - I'm going to read it... but lets be realistic... we are on uncharted territory. We'll only know if his expert crystal ball is better than my wag after the fact.
But thanx for the link... believe me I'll read it.
Thanks-its very specific and informative.
Sheperdson makes the rounds on all the business sites...(CNN,Marketwatch, etc)
Considering his bullish prognastications over the years- this is a BIG change from him, thats why I think this could be something to take seriously.
We have never been hear before.
The best we can do is see what parts of history 'rhyme' with this and make predictions on that.
Like CR is looking at the crash in retail being a big event. But I look for a crash in services because folks have been paying for services with credit. Almost all services have been going up and up. Doctors, Auto, Legal and the like. Walmart can always pressure China for lower costs and manage. However Doctors have sunk costs at par to deal with so when the credit dries up and they have to lower costs, they will be squeezed. Maybe have to take livestock in trade.
I agree vader - and doc's & lawyers & accountants & sales guys... we don't have a lot of real assets to continue to borrow off of... not like farmers say who can operate at a loss for almost a decade... like they did in the 80s. When you hold a million dollars in land that produces 200 BU/acre corn... you can be losing money for along time before no one will lend you more... even when you start half leveraged... I've seen it. Just watch the cash as best you can and slow the burn rate.
Doc's no way - especially the large PA's - all cashflow & little else. Burn rate like paper... 'cause so much of it is. Ahhh, the benefits of a service based economy.
It will get interesting in ways we can't imagine yet but probably look back and say -- DUH! -- and then slap our head.
Vader, my crystal ball is fairly linear - housing slows, equity extraction slows, retail slows, layoff start and then ... the crystal ball is cloudy. I need some more spice menage (sound clip).
The gods already know through prophecy what is going to happen: When the event will occur, who will be slain by whom, and so forth. They even realize that they are powerless to prevent Ragnarok. But they will still bravely and defiantly face their bleak destiny.
look, i'm a broker in DC. i know sales have slowed, inventory is up, and interest rates are up a bit.
population growth is a long term trend in housing, decades.
short term blips like what we'll see coming up here are to be expected.
i cant imagine what debunking there can be of simple fact, i welcome any articles you have on the subject.
you take a finite resource and continue to chop it up amongst more people.
isnt that simple? either prices continue to go or people live in smaller and smaller places.
yes credit is a huge factor right now. but aren't we really back to normal in terms of long term rates? wasn't 1982 the abnormality? the long term chart from the early 20th century makes the case quite well.
and that was without all this funny chinese recycling of their social policies into our bond market.
sure incomes haven't risen to meet the new pricing in property.
but what LAW is there that people should and will only spend a certain amount of their income on housing? what factors could force the percentage to move?
what factor causes people to pay more of their income for property in nyc vs kansas or tokyo or nairobi?
what i'm saying is that prices are high right now because they SEEM high. real estate pricing is all about perception b/c thats what housing represents, other people's perception of the owner. "i live in a coop in nyc, aren't i special' 'i live in a mansion in CT aren't i special' 'i live in a 500 sqft condo near a strip mall, i'm not that special'. see what i mean?
so yes perception can change and it could and probably will turn negative here, but there is really no hard and fast law that says people will only pay such and such amount of their income to property.
the only thing i know well is my market here in DC. DC metro area is flooded with jobs. people here really are rich. montgomery county and fairfax county are two of the richest counties in the country. 80,000 new jobs last year in the area. 80k! and each of the 3 years before. thats a quarter million new jobs here, where are they going to live? and all the immigrants that have come here and saved money and bought a house? yes its entry level housing but thats what drives everything as people trade up.
my main point is that this credit driven spasmodic episode of real estate lust will end and there may be a crash, but property prices in the US will then continue their inexorable thrust upwards so long as this country is worth a shit.
There is a absolute law that you cannot long term pay more for a house than your income is.
So long term, RE can only rise as fast as income.
Short term, the % of income allocated to housing can change and RE can rise, but how long can this continue in the face of medical costs, and retirement savings, and kids and school and the like is debatable.
The average income of US citizens fell in real terms in the last few years. More and more of income that is left is being taken up by other things.
Maybe there is government expansion and lobbiest expansion in DC, and RE may prosper there but that is not the rest of the US. In Bham, I take my folks to a medical center located in my boyhood neighbor hood where there are empty lots and abandoned homes.
The midwest is being depopulated so there are places and with internet connection, whitecollar stuff can be done there just as much as else where.
you bring up a good point. sure there is plenty of land. but what about desireable close to employment and culture land? thats the thing. NW WDC is just about built out. But there continue to be more and more lawyers in DC. AOTE, the price of land will continue to go up in the long run.
Sure, housing has a relationship to income. But, its only a law once housing is some number near 100% of income, then housing could only rise with income. But in reality, if housing goes from 30-40-50-60% of income even with stagnant incomes, housing is up.
So what makes people spend more on housing in different places? Once we answer that question regarding today's world, we will be able to understand what tomorrow's world will look like and why housing prices for whatever reason can continue to rise even if it makes no rational sense.
Vader, i appreciate your viewpoints on these items. I have read your posts with interest and appreciate your perspective.
To say that the average workers real income has decreased over the last few years is sort of a misleading statement. yes, many many many people and sectors have had real wage losses. but so too have the highest incomes gone up. averages are made by the extremes balancing out.
the widening income gap will be bullish for housing.
and in DC the evidence of wealth, propserity, and jobs is everywhere and overwhelming.
To say that the average workers real income has decreased over the last few years is sort of a misleading statement. yes, many many many people and sectors have had real wage losses. but so too have the highest incomes gone up. averages are made by the extremes balancing out.
But housing demand cannot be driven just by the highest incomes. If middle class and indeed even upper middle class people find themselves priced out, what happens ?
In the long run, I believe housing prices will go up. But there could well be periods of substantial declines or stagnation and I believe we're headed into such a period.
As for "no land" available, I've seen in some of the most crowded counties in NJ, new land being created. How ? By building high, by converting old warehouses or factory areas and the like.
For DC, there are 2 or three more things to consider. Given the huge deficit, at some point the government will have to cut spending. What happens to the local job market then ? Or what if (god forbid), there is a terrorist attack using WMDs ?
The Herengracht is the 'Park Avenue' of Amsterdam. Records go back to 1620s and it has been high end real estate since.
However on average there has been no real appreciation of the value in that time. There have been peaks and valleys but on average no real increase.
There are several threats that the article notes. Weather, war and disease.
For the DC area, Bush has had the greatest build of govt since LBJ. It is unlikely to continue and is likely to drop. The lobbist contengent has doubled or tripled. Its fate post Bush is also uncertain. The Dems will likely take revenge on it if they get power and the scandle ridden era of Bush may prompt all kinds of election reforms killing the market growth.
The bird flu could kill up to 50% of the population. No a likely event but folks are looking at it. That would kill RE prices.
RE prices in the rest of the country could affect by being much cheaper. Deptartments could relocate to less expensive areas.
There is the threat of military action, unlikely now, but with a China that is modernizing its armed forces who knows what could happen.
Then there is the terrorist factor.
Bottom line, if you can profit off of the DC market by offering services do it. Just be aware that all good things come to an end.
Thanks for the HFE piece. Does it say that RE price go up because they have gone up the previous year? And once they fall they keep falling because they have fallen the prvious year? This quarter prices in Manhattan have declined, thus they will decline again. Since Manhattan is probably one of the most "desired" places to live in the country (I still dont know why people want to live there) the contagion is likely to spread to other areas (cause we'd all rather live in Manhattan right?).
Prices rise with local growth of the economy and decline for the same reason. Growth includes income growth and population growth. And not necessarily the income of those there currently. In the fastest growing areas, lower income residents move out to make way for higher income residents to move in, and retirees move out to capitalize on their equity. It is late in this cycle though.
Bologna. I'm just not buying this. No one can convince me the ten year treasury yield is a well thought, considered investment in our present economy. We're living in a capitalistic country & capitalists push until they're convinced it's no longer in their best interest to push. Until the ten year supply shortage & futures settlement issues are addressed, or until fx sellers step up big time or AG gets his point across, even tightening r.e. lending practices won't be enough to offset the effects of continued low mtg. rates. All we can do is settle in, advise our friends & wait this out. I saw an interesting piece & chart on Sacramento, CA sales this a.m., but even that trend reversal will be muted if fixed mtg. rates don't rise along with arms.
historically real estate prices are a reflection of earning potential. always has been, always will be. this explains why NYC has higher prices than Topeka, KS. there's nothing to say people can't pay more of a % for housing than historically, however depending on your economic class the choices expand/restrict. with the persistent rise of non-voluntary costs (energy, health care, education) this will further squeeze the choices the farther down the economic ladder you go.
affordability via creative lending products has allowed the buying pool to expand, however there's a side effect of further dependence on the overall economy (interest rates, etc.) the explosion in housing is just too new a phenomenon to be closing the book on it's cycle. let's see the market recession tested before doing so.
housing is not going to fall off a cliff. the problem here is that this bubble thing has gotten in the way of a fundamentally strong market driven by factors other than just easy money. imho.
i see a spec shake out, a flipper disaster and then strength resuming...
there are unstoppable, tectonic forces at work here...
have you seen population growth charts??
have you seen population growth charts??
Yes, I have for my region (N. CA), and the population growth figures don't appear to support the unprecedented rise in prices:
Major Metros City By City Population Growth Rates
My home is in Marin, and I just don't see the correlation.
The population explosion has more to do with the immigrant influx that are buy 400K homes with interest only loans. There is plenty of housing, its just that the Real Estate community with the mortgage people have allowed everyone to own a home for a short period. Let us see how things look in three years.
have you seen population growth charts??
Have you seen the inventory growth?
There are TWO factors to demand: (1) desire to buy & (2) ability to buy. All you need is a collapse of one or the other to stop the parade.
Most of that 'population growth' is low income - immigrants & kids... not much ability to buy there... not at these prices unless the builders & banks give'em away... which is very likely to happen given the sunken cost position of the major builders. I commented on this on the last thread...
I firmly believe the industry is morphing ... that they are beginning to manufacture demand just like the automakers did 20-30 years ago... and will continue to do so as long as they can price them high enough so there is margin to conribute to sunken fixed cost overhead... just like automotive.
That can't go on forever but it can go on for a very long time... and eventually put severe downward price pressure on the market overall (via inventory build up)... then when the jig is up... it will really be over... like automotive.
I think you will see the result in overall inventory first then existing home sales figures & finally existing home prices... You will see this continue until the builders hit a cash squeeze or prices fall or costs rise or a combo of those two such that all margin disappears...
Automotive has been 'mining the factory' (using their previously sunken cost/assets) for something like 20 years... and it is just now really catching up with them. Builders can mine their assets & land holdings for a long time as well.
I think things have changed. I say watch the exisiting home market - inventory, sales volume & prices. That will be the canary in the coal mine.
That and the cashflows of the builders... they might actually be bringing more homes to market now to push cash through their systems... Similar to what GM did with sales incentives last summer... Think the big loss just reported by GM & last summer's sales incentives are 'independent coincidence'? If so think again...
This shit all takes time to work through. Sometimes a lot of time.
Something of high interest from HFE
High Frequency Economics- Chief U.S Economist Ian Shepardson-who in the past was one of Wall Streets biggest Bulls.
http://www.cumber.com/Special/USNotes_Oct17.pdf
Hi dc1000
Appreciate your contrarian view and am here to shore your position up. [Wait. Where are you going? I'm here to help!]
"housing is not going to fall off a cliff. the problem here is that this bubble thing has gotten in the way of a fundamentally strong market driven by factors other than just easy money. imho."
This bit about prices falling off a cliff IS rabble-rousing at its worst.
U B right.
I used to think the cliff was next week too, but after holding that view for a couple of years ("It's next week, stock up on the canned goods forchrisake."), I have seen the light. (Actually, after a couple of years, nobody hears you --sorta like the barking dog, only worse.) So it's not next week. (And I am way more popular for this too.) [People no longer run and hide when they see "calmo-Housing Crash" coming.]
No, not next week, but next month.
Ok, not exactly long term support for the contrarian view.
population growth as a reason for the housing explosion has been debunked on numerous occasions. if you want articles let me know. still there are a combination of factors giving fuel to the flames. IMO the biggest one is credit. Credit via the Fed's rock bottom short rates and foreign central banks recycling money back into Treasuries to keep their export driven economies churning. Cheap money = less investor risk = looser lending standards = lending product innovation = increased buyer pool. At some point the proverbial pendulum will swing and we'll have the reverse. The question is always when and in what increments.
increasing the pool of buyers.
I think if you guys had read the link above from High Frequency economics Ian Shepardson- who has an excellent record,
the 'fall' does not begin till spring-6 months off- and when it does begin it could become 'Ugly'. He feels there will be a recession even if housing does not suffer a big implosion (but he feels there will be a 'meltdown'). Which will cause a recession in late 2006-into 2007. Shepardson has been one of the biggest bulls on wall street in the past. READ the link!
sky - I'm going to read it... but lets be realistic... we are on uncharted territory. We'll only know if his expert crystal ball is better than my wag after the fact.
But thanx for the link... believe me I'll read it.
DF
Thanks-its very specific and informative.
Sheperdson makes the rounds on all the business sites...(CNN,Marketwatch, etc)
Considering his bullish prognastications over the years- this is a BIG change from him, thats why I think this could be something to take seriously.
OH YES
We have never been hear before.
The best we can do is see what parts of history 'rhyme' with this and make predictions on that.
Like CR is looking at the crash in retail being a big event. But I look for a crash in services because folks have been paying for services with credit. Almost all services have been going up and up. Doctors, Auto, Legal and the like. Walmart can always pressure China for lower costs and manage. However Doctors have sunk costs at par to deal with so when the credit dries up and they have to lower costs, they will be squeezed. Maybe have to take livestock in trade.
another amazing bit of statistics...
how much supply would ne unloaded into the market? who knows?
I agree vader - and doc's & lawyers & accountants & sales guys... we don't have a lot of real assets to continue to borrow off of... not like farmers say who can operate at a loss for almost a decade... like they did in the 80s. When you hold a million dollars in land that produces 200 BU/acre corn... you can be losing money for along time before no one will lend you more... even when you start half leveraged... I've seen it. Just watch the cash as best you can and slow the burn rate.
Doc's no way - especially the large PA's - all cashflow & little else. Burn rate like paper... 'cause so much of it is. Ahhh, the benefits of a service based economy.
It will get interesting in ways we can't imagine yet but probably look back and say -- DUH! -- and then slap our head.
Vader, my crystal ball is fairly linear - housing slows, equity extraction slows, retail slows, layoff start and then ... the crystal ball is cloudy. I need some more spice menage (sound clip).
You are probably right about services.
Best to all.
I'm hooked by Vader's
"OH YES
We have never been hear before. "
Exactly the kind of navigator I need when I'm lost!
Some enthusiasm and delight about being on an adventure --not those nasty glances and grumbling.
Vader knows how to travel.
Ragnarok! I am weary of waiting for it.
The gods already know through prophecy what is going to happen: When the event will occur, who will be slain by whom, and so forth. They even realize that they are powerless to prevent Ragnarok. But they will still bravely and defiantly face their bleak destiny.
link
look, i'm a broker in DC. i know sales have slowed, inventory is up, and interest rates are up a bit.
population growth is a long term trend in housing, decades.
short term blips like what we'll see coming up here are to be expected.
i cant imagine what debunking there can be of simple fact, i welcome any articles you have on the subject.
you take a finite resource and continue to chop it up amongst more people.
isnt that simple? either prices continue to go or people live in smaller and smaller places.
yes credit is a huge factor right now. but aren't we really back to normal in terms of long term rates? wasn't 1982 the abnormality? the long term chart from the early 20th century makes the case quite well.
and that was without all this funny chinese recycling of their social policies into our bond market.
sure incomes haven't risen to meet the new pricing in property.
but what LAW is there that people should and will only spend a certain amount of their income on housing? what factors could force the percentage to move?
what factor causes people to pay more of their income for property in nyc vs kansas or tokyo or nairobi?
what i'm saying is that prices are high right now because they SEEM high. real estate pricing is all about perception b/c thats what housing represents, other people's perception of the owner. "i live in a coop in nyc, aren't i special' 'i live in a mansion in CT aren't i special' 'i live in a 500 sqft condo near a strip mall, i'm not that special'. see what i mean?
so yes perception can change and it could and probably will turn negative here, but there is really no hard and fast law that says people will only pay such and such amount of their income to property.
the only thing i know well is my market here in DC. DC metro area is flooded with jobs. people here really are rich. montgomery county and fairfax county are two of the richest counties in the country. 80,000 new jobs last year in the area. 80k! and each of the 3 years before. thats a quarter million new jobs here, where are they going to live? and all the immigrants that have come here and saved money and bought a house? yes its entry level housing but thats what drives everything as people trade up.
my main point is that this credit driven spasmodic episode of real estate lust will end and there may be a crash, but property prices in the US will then continue their inexorable thrust upwards so long as this country is worth a shit.
and that, is the real question.
There is a absolute law that you cannot long term pay more for a house than your income is.
So long term, RE can only rise as fast as income.
Short term, the % of income allocated to housing can change and RE can rise, but how long can this continue in the face of medical costs, and retirement savings, and kids and school and the like is debatable.
The average income of US citizens fell in real terms in the last few years. More and more of income that is left is being taken up by other things.
Maybe there is government expansion and lobbiest expansion in DC, and RE may prosper there but that is not the rest of the US. In Bham, I take my folks to a medical center located in my boyhood neighbor hood where there are empty lots and abandoned homes.
The midwest is being depopulated so there are places and with internet connection, whitecollar stuff can be done there just as much as else where.
So there is plenty of land, just not in DC.
you bring up a good point. sure there is plenty of land. but what about desireable close to employment and culture land? thats the thing. NW WDC is just about built out. But there continue to be more and more lawyers in DC. AOTE, the price of land will continue to go up in the long run.
Sure, housing has a relationship to income. But, its only a law once housing is some number near 100% of income, then housing could only rise with income. But in reality, if housing goes from 30-40-50-60% of income even with stagnant incomes, housing is up.
So what makes people spend more on housing in different places? Once we answer that question regarding today's world, we will be able to understand what tomorrow's world will look like and why housing prices for whatever reason can continue to rise even if it makes no rational sense.
Vader, i appreciate your viewpoints on these items. I have read your posts with interest and appreciate your perspective.
To say that the average workers real income has decreased over the last few years is sort of a misleading statement. yes, many many many people and sectors have had real wage losses. but so too have the highest incomes gone up. averages are made by the extremes balancing out.
the widening income gap will be bullish for housing.
and in DC the evidence of wealth, propserity, and jobs is everywhere and overwhelming.
To say that the average workers real income has decreased over the last few years is sort of a misleading statement. yes, many many many people and sectors have had real wage losses. but so too have the highest incomes gone up. averages are made by the extremes balancing out.
But housing demand cannot be driven just by the highest incomes. If middle class and indeed even upper middle class people find themselves priced out, what happens ?
In the long run, I believe housing prices will go up. But there could well be periods of substantial declines or stagnation and I believe we're headed into such a period.
As for "no land" available, I've seen in some of the most crowded counties in NJ, new land being created. How ? By building high, by converting old warehouses or factory areas and the like.
For DC, there are 2 or three more things to consider. Given the huge deficit, at some point the government will have to cut spending. What happens to the local job market then ? Or what if (god forbid), there is a terrorist attack using WMDs ?
There are a couple of interesting articles on RE prices over centuries.
link
and
link
The Herengracht is the 'Park Avenue' of Amsterdam. Records go back to 1620s and it has been high end real estate since.
However on average there has been no real appreciation of the value in that time. There have been peaks and valleys but on average no real increase.
There are several threats that the article notes. Weather, war and disease.
For the DC area, Bush has had the greatest build of govt since LBJ. It is unlikely to continue and is likely to drop. The lobbist contengent has doubled or tripled. Its fate post Bush is also uncertain. The Dems will likely take revenge on it if they get power and the scandle ridden era of Bush may prompt all kinds of election reforms killing the market growth.
The bird flu could kill up to 50% of the population. No a likely event but folks are looking at it. That would kill RE prices.
RE prices in the rest of the country could affect by being much cheaper. Deptartments could relocate to less expensive areas.
There is the threat of military action, unlikely now, but with a China that is modernizing its armed forces who knows what could happen.
Then there is the terrorist factor.
Bottom line, if you can profit off of the DC market by offering services do it. Just be aware that all good things come to an end.
Thanks for the HFE piece. Does it say that RE price go up because they have gone up the previous year? And once they fall they keep falling because they have fallen the prvious year? This quarter prices in Manhattan have declined, thus they will decline again. Since Manhattan is probably one of the most "desired" places to live in the country (I still dont know why people want to live there) the contagion is likely to spread to other areas (cause we'd all rather live in Manhattan right?).
Prices rise with local growth of the economy and decline for the same reason. Growth includes income growth and population growth. And not necessarily the income of those there currently. In the fastest growing areas, lower income residents move out to make way for higher income residents to move in, and retirees move out to capitalize on their equity. It is late in this cycle though.
Bologna. I'm just not buying this. No one can convince me the ten year treasury yield is a well thought, considered investment in our present economy. We're living in a capitalistic country & capitalists push until they're convinced it's no longer in their best interest to push. Until the ten year supply shortage & futures settlement issues are addressed, or until fx sellers step up big time or AG gets his point across, even tightening r.e. lending practices won't be enough to offset the effects of continued low mtg. rates. All we can do is settle in, advise our friends & wait this out. I saw an interesting piece & chart on Sacramento, CA sales this a.m., but even that trend reversal will be muted if fixed mtg. rates don't rise along with arms.
historically real estate prices are a reflection of earning potential. always has been, always will be. this explains why NYC has higher prices than Topeka, KS. there's nothing to say people can't pay more of a % for housing than historically, however depending on your economic class the choices expand/restrict. with the persistent rise of non-voluntary costs (energy, health care, education) this will further squeeze the choices the farther down the economic ladder you go.
affordability via creative lending products has allowed the buying pool to expand, however there's a side effect of further dependence on the overall economy (interest rates, etc.) the explosion in housing is just too new a phenomenon to be closing the book on it's cycle. let's see the market recession tested before doing so.