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Zero Hedge: “Presenting: The Housing Bubble 2.0”

Tyler Durden:

It was just seven short years ago that the prices at the epicenter of the housing bubble, Los Angeles, CA rose by 50% every six months as the nation experienced its first parabolic move higher in home prices courtesy of Alan Greenspan’s disastrous policies: a time when everyone knew intuitively the housing market was in an epic bubble, yet which nobody wanted to pop because there was just too much fun to be had chasing the bouncing ball, not to mention money. Well, courtesy of the real-time real estate pricing trackers at Altos Research, we now know that the very worst of the housing bubble is not only back, but it is at levels not seen since the days when a house in the Inland Empire was only a faint glimmer of the prototype for BitCoin.


A lot of the people I talk to in Phoenix are trying to time their exit. It wasn’t this way in 2005-2006; I had people still eager to buy ten months after the market had turned.


Until there is a brokerage counter at Wal-Mart, there is no real estate bubble

Ever wonder about the relationship between gold and real estate?

Jim Klein got me to thinking about a “store of wealth”, when I postulated that there is no gold bubble:

I think people can get snookered into thinking it’s a great “investment.” It’s protection, it’s barter; it’s a store of wealth. To me, that’s not what “investment” means, which is usually about income. I believe that in actual inflation periods, gold tends to appreciate on the low side, particularly when compared with many other assets. It does much better /anticipating/ inflation, as now.

I remembered hearing that term before, over on Seeking Alpha:

Gold and Real Estate have historically been the two ways to store real value as they are as real assets as you get. So what happens when the value of one real asset is artificially manipulated? We all know by now what caused the bubble in real estate, but, at the height of the bubble it was unknown to the market that it was a bubble on the verge of bursting

Real estate does have income-producing value though, as Sean Purcell pointed out to us years ago.  Also, the median-priced home is larger today than it was 40 years ago, because of change in retail demand.  Still, for fun, let’s compare the median price of a single-family home, in August, 1971 ($25,300) to the price of a single-family home, in February, 2011 ($202,100), in ounces of gold:

On August 1, 1971, the price of gold was pegged at $35/oz so it would have taken 722 ounces of gold to purchase a median-priced, single-family home.  Two weeks later, The United States terminated its participation in The Bretton Woods Agreement, creating a fiat currency.

At the end of February, 2011, you might have paid $1,400/oz for gold.  You could purchase a median-priced, single family home then for 144 ounces of gold, about one-fifth the cost (in gold), from 1971.

What I’m missing here is the net operating income you would have derived from that single-family home, over the 40-year period.  I’d have to know what the rents were for each year, the property taxes and costs for fire insurance, maintenance, etc..  I suppose we could assume 1% of the value of the home for monthly rents, adjust it each year to the median-price, and deduct 25% of that income for taxes, maintenance, and expenses.

One of the great reasons to purchase real estate is that you can leverage it.  If we could assume that you purchased that home, in 1971, with just 20% down payment, financed the rest, and the rents covered the financing costs and expenses, and amortized the loan for you, we could say that you only paid 144 ounces of gold then, for 144 ounces of gold today but…

…you could live in that house today. Real estate then might be a real bargain today and, until they have a home brokerage counter in Wal-Mart, there is no bubble in real estate.



The Next bubble to burst: Government!

I’ve been a bit slow on this one.  I have been wondering what sector of the economy was going to over inflate and burst next.  The answer has been right in front of me the whole time but the reason I did not see it very clearly is because I was wondering what part of the private economy would burst next.  Sure, I knew the government was in trouble, but I did not think of it as a “bubble”, like real estate or the era.

A simple headline today put the perfect perspective out there for me to get it.  If I apply “bubble economics” to the government sector, it is perfectly clear.

The economic collapse of Greece is a wake-up call. The unsustainable combination of a bloated public bureaucracy, high deficit spending and unfunded pension obligations busted Greece’s government bubble. Now the birthplace of modern democracy is on the brink of becoming a failed state.

The Bank of England recently warned that the U.S. is on the road to the same fiscal failure as Greece, and the Obama administration’s insistence on massive public spending and increasing deficits is the reason.

At this rate, the U.S. government will be the next economic bubble to burst. We’ve seen similar downturns: the information technology bubble in 2000, housing in 2007 and Wall Street in 2008. If unchecked, America’s government bubble will depress our economy with higher interest rates and defaulting state and local governments.

Politicians Aren’t Businessmen

Federal spending alone this year accounts for 25% of our nation’s gross domestic product. If you add state and local spending, the number is closer to 50%. No economy can thrive when nearly half of all economic output is directed by politicians rather than entrepreneurs and small businesses.

After big government spending, government employee unions pose a serious threat to America’s fiscal health. Over the past 30 years, union membership has declined significantly, from 23% of all workers in 1980 to about 12% today. But the percentage of union members working for government has soared: Over 50% of all union workers in the U.S. are employed by the government compared with only 17% in 1980.

In addition, government workers make about $10 per hour more than the average private sector worker.

And when they retire, taxpayers are on the hook to pay for lucrative pensions promised by a generation of politicians trying to win the next election. America’s small-business owners could only dream of providing the type of pensions that government workers take for granted. – IBD Editorials


Why the Housing Bubble hit some areas harder than others.

I don’t know if you’re familiar with Randall O’Toole from the Cato Institute, but he’s much better reading than Lawrence Yun.  I was just acquainted with one of his latest works entitled How Urban Planners Caused the Housing Bubble.

If you’re in real estate, it is a must read.  I live in a strict Growth Management state from a public planning perspective.  As a freedom loving individual, it is frustrating.  But this analysis not only talks about the costs of planning, but the volatility it introduces into the market and why.  It compares different policies of various states.

The correlation between planning practices and pricing volatility is uncanny!  Fed policy, the Community Reinvestment Act and other hair brained political practices can’t explain the phenomenon without the inclusion of growth managment into the equation.  The costs for growth managment are also staggering!  For real estate nerds, it is required reading!

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They Were Wrong About The Bubble And They’re Wrong About This, Too

In 2002, Business Week talked about “Real Estate’s Bubble Cities“.

Barron’s said it’s a better time to be “a seller rather than a buyer”.

But, 2002 wasn’t the bursting of a bubble. Prices didn’t start to fall until three years had passed from those piece’s respective publication dates. And when they did, prices fell for reasons not even named in the articles.

Being right isn’t what earns a person credibility — it’s about being right at the right time and for the right reasons.


Do you want to see a bubble?

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Twisted minds: Was BusinessWeek bamboozled by bubble-blogstress?

Was a big-time Sixth Avenue media giant flim-flammed by a Gilbert, AZ, housewife, nom de guerre “Twist,” who has set herself up as an authority on the residential real estate market and its feverishly-sought collapse? From BusinessWeek Online’s Hot Property:

In Phoenix, the numbers seem to go kerflooey every December. In December 2005, the number of houses that were withdrawn from the market plummeted to just 87, from 3,673 the previous month and 5,882 the month after. (Twist defines withdrawals to include listings that are expired, withdrawn, pending, or temporarily off the market.) In December of ’04 in Phoenix, withdrawals declined so much that they supposedly went negative–specifically, a negative 1,234. Of course, there is no such thing as a “negative withdrawal,” so this has to be some kind of bookkeeping fudge.

As it turns out, the only thing wrong with this is everything.

I have no idea why we’re talking about November and December of 2005 and January of 2006, but these are the actual numbers for Expired, Cancelled, Sale Pending and Temporarily Off Market listings from those months, as taken this afternoon from the Arizona Regional Multiple Listings Service, the MLS system for the Phoenix area:

November 2005
Expired: 1021
Cancelled: 2444
Pending: 1
Temporarily Off Market: 1
Total 3467

December 2005
Expired: 2134
Cancelled: 2218
Pending: 2
Temporarily Off Market: 1
Total 4355

January 2006
Expired: 1568
Cancelled: 2582
Pending: 3
Temporarily Off Market: 6
Total 4159

November 2004 (amended to orignal post for completeness)
Expired: 640
Cancelled: 1200
Pending: 0
Temporarily Off Market: 0
Total 1840

December 2004
Expired: 1062
Cancelled: 1001
Pending: 0
Temporarily Off Market: 2
Total 2065

January 2005
Expired: 605
Cancelled: 1363
Pending: 1
Temporarily Off Market: 3
Total 1972

Why are so few homes listed as Sale Pending or Temporarily Off Market? Because the status of those listings has changed in the intervening months, most of them to Sold.

I have no idea what “Twist” was failing to measure, but a Realtor would only be concerned with Expired and Cancelled listings, recognizing that the other two categories are nebulous and subject to change.

And, obviously: Bubble bloggers are notoriously reckless with numbers. They have an agenda, so they tend to throw out any data that do not fit their preconceptions. I have no idea if that’s what has happened here, but I can’t see any way for “Twist” to have made an honest error.

The story goes on to make similar claims about bogus MLS data in Tucson and Las Vegas. I have no way of checking those numbers (nor, I’m sure, does “Twist”), but my presumption is that they are as accurate as can be expected. Realtors in those markets might confirm that this is so.

Says “Twist”:

The more I look at it, the more I realize how horrifically fuzzy the numbers are. The MLSes weren’t set up for data-reporting purposes.

Wanna bet?

Further Notice, Friday, 01/05/07, 8:45 am PST: Peter Coy at BusinessWeek just phoned. We discussed the numbers shown above and he has elected to pull BusinessWeek’s post subject to further verification.

An important point that I raised in email with Peter this morning:

Regarding this:

“this has to be some kind of bookkeeping fudge”

A “fudge” would be a huge undertaking, essentially rewriting the software to exhibit anomalous behavior in December. This would be instantly obvious to thousands of Realtors — many of whom track cancelled and expired listings for a living.

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Furious fusillades of blistering BubbleHead flatulence: Foghorn Leghorn declares “WAR!”


That was even more lame than I expected. Foghorn Leghorn–er, Keith at HousingPanic has declared war by commanding his troops to… read.

And to read BloodhoundBlog of all things!

Yeah, that’ll work…

The specific marching orders are pretty stupid, but that’s hardly a surprise.

The troops are supposed to prove that the Phoenix housing market has crashed, which has proved to be a problem, given that it hasn’t.

They are supposed to “flame away, and hard,” with the objective of chasing away future clients. Do your best, boys. Anyone who will listen to you — I don’t want.

This one I love:

Dig up postings, articles and quotes from Greg Swann for all to see. Where he admits having unlicensed or out of work realtors working for him.

The specific post cited says nothing of the sort, but, of course, Keith can’t read. But most BubbleHeads are much smarter than their “leader,” so do please read all you can here. This is one of the most serious real estate weblogs on the net. If you open your minds, you’ll learn a lot.

There is more — for example, a repetition of the false charge that I have posted comments at HP — but the whole call to action is pretty pitiful.

How’s the war going? I think this comment says it all:

What a pile of excrement is here in this blog.

It’s a waste of time to try to read blood whatever.

You better go anywhere else on the web.

This site is brain dead.

In other words, the poster is fighting out of his class and he knows it.

To our BubbleHead visitors: Even if you can’t stand on your own, surely you can do better than this moron you follow so slavishly…

And to our regular readers: This will be all heat, no substance. You do not have to respond to every comment — nor to any of them. They are not paying you for your time. I tend to choose comments by people who are better-behaved and who are raising points I want to talk about.

Ultimately, this has nothing to do with real estate. This is about the wounded vanity of a vile, ignorant troll. Let him sputter. It’s the one thing he’s good at…

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Arizona economy: “Get over housing bubble, economists say, growth remains strong”

I won’t have September’s numbers until tomorrow, but the news is not good for bubbleheads — which is to say that the news is not bad for everyone else. Meanwhile, there’s this from The Business Journal of Phoenix:

Some of Arizona’s leading economists believe the housing slowdown is a short-lived bump in the road that too many people spend too much time thinking about.

Instead, Arizonans should be looking at statistics that show the state created 161,000 jobs through August of this year, more than 340,000 jobs since the end of the 2002 recession and had a whopping 8.7 percent gain in gross state product for 2005.

“It’s hard to imagine a state with more economic momentum,” said Kent Ennis, an economist and the director of research at the Arizona Department of Commerce.

I most sincerely do not hate to say I told you so

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The Lord of the Bubbleflies: Lean-looked prophet whispers fearful change, cultivating the worst impulses in otherwise decent people . . .


I am rooting for an epic housing collapse, a disastrous recession, the collapse of the stock market, a complete replacement of our current partisian leadership, a questioning of our country’s current economic model, and a severe and historic financial meltdown.

I told you so

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When Realtors become as stupidly hyperbolic as the bubbleboys, that’s news…

Apparently, about 200 Phoenix-area Realtors got together Thursday night for some group therapy:

About 200 agents gathered at the Southeast Valley Association of Realtors in Mesa to hear tips from top achievers on how to sell homes and handle clients in this transitional market.

We don’t belong to SEVRAR, so we weren’t invited, but that’s just as well. As far as I’m concerned, this is both collusion and an agency violation — a class on how to betray your clients’ interests. This was a bunch of Realtors getting together to figure out how to keep the commissions flowing, whether or not this is what is best for their clients.

The scare stories the boys and girls told each other make for interesting reading. For reference, right now, with four business days left in the month, Market Basket values are up slightly from July. A lot of houses will close in those four days, but quite a few of them will have to sell at fire sale prices to put a big dent in August. When Realtors become as stupidly hyperbolic as the bubbleboys, that’s news.

Alas, we don’t have any real estate news, just breathless reports from people who can’t see beyond the bugs on the windshield…

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Blithering Bubbleheads lathered up into a dither . . .

The BubbleBrains swooped in en masse today, having only just now discovered my 21 reasons to bank on the Phoenix real estate market. Courage, confidence and competence are often found together in a solitary soul, but cowardice, cowering and impotence — these are the attributes of character of men who run in packs. I am more than libertarian enough to let them go to hell in their own way, but it seems only common courtesy to point the way. So I sent them hither and thither — blithering Bubbleheads lathered up into a dither. Now that’s just good, clean fun.

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Something to bubble about: Bubble blogger’s bloviations hiss to a blessed, if temporary, silence…

This nests pretty deep, so hang on tight. First, cites The Walkthrough weblog at the New York Times, which in turn quotes a letter received from the The Marlin Real Estate Bubble weblog. Here is the letter:

I’ve lost my faith, at least for Marin County. Despite all reason and rationality to the contrary, I am no longer so sure that Marin County will succumb to a collapsing housing bubble. I’m actually starting to think that somehow Marin (and maybe the Bay Area at large) is not subject to the same laws of economics as everywhere else. Seriously. This contrarian is “throwing in the towel” and capitulating for the present (which must mean the collapse is on the verge of happening). I dunno, maybe I’ll get over it and start blogging again tomorrow but as of today I am so discouraged that I can’t bring myself to it.

Anyway, the point of this email is that my blog is going silent for a while. If Marin starts to tank then I’ll resume blogging to document the downfall and to rub it directly in the face of Marin hubris and arrogance (and I’ll still be compiling charts during the silent period so that I can show them in the future). I just wanted other bloggers to know why my blog is going silent for a while so that you could decide whether or not to keep linking. I won’t ever take the blog down as there are good resources there.

Unless you can talk me into believing again what must be true, that Marin is not special…

SFHomeBlog’s take:

Perhaps he finally realized that real estate really is local and there are places (like San Francisco) where demand always exists. We’re seeing a different market from last year, but it’s nowhere near a ‘bubble’, and in my world, I’m not seeing anything but a good, balanced market.

For some people, the sky is always falling, and they refuse to consider that real estate might not fit into their Templates of Doom. In addition to persistent demand for particular locations, home sellers in a buyer’s market are a lot less time-sensitive than are home buyers in a seller’s market. In the latter case, the longer buyers delay acting, the greater their costs — which is why a true seller’s market is so frenzied. But in a buyer’s market, if sellers stand fast, it might turn out that they will suffer a significant loss. But they also may do better by waiting. Or the marginal cost of waiting for a better offer may be less than the loss ensuing from a too-hasty sale. Or they may elect to stay put for a year or two longer, to wait out the market. Truly desperate sellers can fare poorly in a buyer’s market. Most of the others have options that are eminently worth exploring.

I can make any number of other excellent arguments — local and global — why the real estate market will not pop like the bubble. But this will not silence the bubble bloviators.

Want proof? After two days off, the Marlin Real Estate Bubble weblog is back to breathlessly foretelling imminent doom…

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Kotkin: “Why the next great American cities aren’t what you think.”

Joel Kotkin at The Daily Beast:

Once considered backwaters, these Sunbelt cities are quietly achieving a critical mass of well-educated residents. They are also becoming major magnets for immigrants. Over the past decade, the largest percentage growth in foreign-born population has occurred in sunbelt cities, led by Nashville, which has doubled its number of immigrants, as have Charlotte and Raleigh. During the first decade of the 21st century, Houston attracted the second-most new, foreign-born residents, some 400,000, of any American city—behind only much larger New York and slightly ahead of Dallas-Ft. Worth, but more than three times as many as Los Angeles. According to one recent Rice University study, Census data now shows that Houston has now surpassed New York as the country’s most racially and ethnically diverse metropolis.

Why are these people flocking to the aspirational cities, that lack the hip amenities, tourist draws, and cultural landmarks of the biggest American cities? People are still far more likely to buy a million dollar pied à terre in Manhattan than to do so in Oklahoma City. Like early-20th-century Polish peasants who came to work in Chicago’s factories or Russian immigrants, like my grandparents, who came to New York to labor in the rag trade, the appeal of today’s smaller cities is largely economic. The foreign born, along with generally younger educated workers, are canaries in the coal mine—singing loudest and most frequently in places that offer both employment and opportunities for upward mobility and a better life.

Over the decade, for example, Austin’s job base grew 28 percent, Raleigh’s by 21 percent, Houston by 20 percent, while Nashville, Atlanta, San Antonio, and Dallas-Ft. Worth saw job growth in the 14 percent range or better. In contrast, among all the legacy cities, only Seattle and Washington D.C.—the great economic parasite—have created jobs faster than the national average of roughly 5 percent. Most did far worse, with New York and Boston 20 percent below the norm; big urban regions including Philadelphia, Los Angeles, and, despite the current tech bubble, San Francisco have created essentially zero new jobs over the decade.


The reality is that most urban growth in our most dynamic, fastest-growing regions has included strong expansion of the suburban and even exurban fringe, along with a limited resurgence in their historically small inner cores. Economic growth, it turns out, allows for young hipsters to find amenable places before they enter their 30s, and affordable, more suburban environments nearby to start families.

This urbanizing process is shaped, in many ways, by the late development of these regions. In most aspirational cities, close-in neighborhoods often are dominated by single-family houses; it’s a mere 10 or 15 minute drive from nice, leafy streets in Ft. Worth, Charlotte, or Austin to the urban core. In these cities, families or individuals who want to live near the center can do without being forced to live in a tiny apartment.

And in many of these places, the historic underdevelopment in the central district, coupled with job growth, presents developers with economically viable options for higher-density housing as well. Houston presents the strongest example of this trend. Although nearly 60 percent of Houston’s growth over the decade has been more than 20 miles outside the core, the inner ring area encompassed within the loop around Interstate 610 has also been growing steadily, albeit at a markedly slower rate. This contrasts with many urban regions, where close-in areas just beyond downtowns have been actually losing population.


Pressed by local developers and planners, some aspirational cities spend heavily on urban transit, including light rail. To my mind, these efforts are largely quixotic, with transit accounting for five percent or less of all commuters in most systems. The Charlotte Area Transit System represents less a viable means of commuting for most residents than what could be called Manhattan infrastructure envy. Even urban-planning model Portland, now with five radial light rail lines and a population now growing largely at its fringes, carries a smaller portion of commuters on transit than before opening its first line in 1986.

But such pretentions, however ill-suited, have always been commonplace for ambitious and ascending cities, and are hardly a reason to discount their prospects. Urbanistas need to wake up, start recognizing what the future is really looking like and search for ways to make it work better. Under almost any imaginable scenario, we are unlikely to see the creation of regions with anything like the dynamic inner cores of successful legacy cities such as New York, Boston, Chicago or San Francisco. For better or worse, demographic and economic trends suggest our urban destiny lies increasingly with the likes of Houston, Charlotte, Dallas-Ft. Worth, Raleigh and even Phoenix.

The critical reason for this is likely to be missed by those who worship at the altar of density and contemporary planning dogma. These cities grow primarily because they do what cities were designed to do in the first place: help their residents achieve their aspirations—and that’s why they keep getting bigger and more consequential, in spite of the planners who keep ignoring or deploring their ascendance.

Read the whole thing. I’ve been pimping Kotkin here for years. When you see his name out on the nets, give him your time. He’s been dead right about what’s happening in American cities, where Richard Florida has been dead wrong.

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Can Bernanke Keep Mortgage Rates This Low Into 2015?

I’ve been a vocal critic of Ben Bernanke.  I thought his Quantitative Easing schemes would eventually create a bubble in the Treasury and mortgage-bond markets.  Bernanke has committed to keeping rates low for another 18-24 months.

I was wrong.  I violated the first rule of market prognostication (from the late Marty Zweig):  Don’t Fight the Fed

Let me give you some background.  Mortgage rates are driven by the secondary market (which is a fancy word for bond buyers on Wall Street).  I offered an abbreviated history of secondary mortgage marketing , six years ago, here on Bloodhound Blog.  Essentially it works like this:

  • Home buyer applies for a loan with a mortgage originator
  • Originator processes the loan for submission to a lender
  • Lender underwrites the loan to agency guidelines (FHA, FNMA, FHLMC, VA)
  • Lender funds the loan
  • Lender secures guaranty from agency
  • Lender retains servicing rights but assigns rights to principal and interest to an investment bank
  • Investment bank packages loans in a pool, carves up the pool into bonds, and sells them to individual investors

Two things are important in secondary marketing:  the agency guaranty and the ability to sell the bonds.  The agency guaranty offers a sense of security to the investors and the demand for the bonds must be there.  When I thought rates would rise, because of runaway inflation, I posited the the Federal Reserve Bank’s power was quickly deteriorating.  What I hadn’t anticipated was that central banks, all over the word, were in even worse shape.  The Fed might be ugly but she’s the prettiest gal at the dance.

Last month, I asked Alan Nevin, economist with the London Group, “What if the buyers run away?”  To which, he replied, “Where will they go?”.

This is not a pollyannish answer.  Where WILL investors go?  I offered these options:  Hong Kong, Australia,  and Canada

Then it hit me–the world wide capital market is huge and the options for capital investment are limited.  Imagine the global capital market as a 64-gallon trash can.  The Hong Kong, Australian, and Canadian bond markets are like a shot glass, a pint bottle, and a quart can.  Even if you tried to dump all that trash into those three little receptacles, you’d have at least 63 gallons of trash which needed a landfill.

The domestic treasury and mortgage-backed securities markets are that landfill—a great place to dump all of that trash.  Maybe Hong Kong, Australia, and Canada can pull some capital away from the domestic bond markets but The Fed-controlled landfill is still a good place for investment.  For now…





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