Posted on 01/30/2008 8:15:28 PM PST by Freedom_Is_Not_Free
Again, from the article...
“It is obvious to most people that we are in the midst of a national housing bubble. Nevertheless, there are still plenty of naysayers who are telling anyone who will listen that there are local bubbles only.”
NATIONAL HOUSING BUBBLE. Not local. Not just northeast, California and Florida. National. Please read the article.
Did you also realize that fully half of all homes are below average price?
Its TEOTWAWKI.
Didn't he say to buy google at $650 as well ???
I beg to differ. I bought a house in 1987 and sold in 1996 for a net $2,000.
Purchase price $102,000.
Selling price $124,000.
Net gain = $22,000
Closing costs = $1,500
Improvements = $2,000
Landscaping = $4,000
Maintenance = $1,000
Improvements to sell house = $2,000
Realtor’s commission = $7,500
Costs = $18,000
Net profit = $24,000 - $18,000 = $4,000
In 8 years I “made” $4,000. Never mind the property taxes and fees and mortgage insurance I had to pay for. All for a lousy $250/year in appreciation.
Believe me, I would have been far better off renting and banking $500 per month.
No, the “bubble” did not start in the 70s. Maybe one did, but I sure as hell missed it.
Excluding Ohio, Michigan, Nevada, Florida, DC and California, home prices are still rising or flat or slightly down. It really wasn’t a national bubble. Much of the country still has affordible housing or is simply loaded with ‘old’ and ‘new’ money (New England). Outside of those 5 states, there wasn’t nearly as much property appreciation. The problem is there are a lot of people in those areas and they skew the #s. The south’s #s if you exclude Florida nearly every state is affordable as is much of the midwest and west (besides southern California and Nevada). Most land in the US never saw the huge rise. Much of the housing is located in California, Florida, DC and Ohio though which is why the extreme price drops in Florida & Cali especially skew down the #s for the whole country.
Also as I stated earlier, the article is bullhocky as it doesn’t account for signifantly lower interest rates (which means lower real cost) than in the late 70s and all of the 80s/early 90s and the fact that houses built today are much larger on average than yesteryear.
I am sure you are right. I am also sure you don’t live in rural North Dakota either.
The point is, they are telling you what the NATIONAL median home price should be. If you live in Manhattan or in downtown San Francisco, then of course you aren’t going to get a median sized property for $134,000.
Tell me where you live, and I’ll tell you if $134,000 should be reasonable for your neighborhood, city and state. If you live in a high cost city in a high cost state, then of course not.
One thing I detest about the internet, is everybody who posts simply assumes you know where they are or where they live. So when you say “here” you are acting like I can read your mind and I know where “here” is. If you don’t tell me where “here” is, then I can’t tell if your inability to build a home with your own labor for $140,000 is reasonable or not.
Do you live in eastern Washington State or in the middle of Boston? Help me out here...
Are you including property tax & mortage interest deductions for federal tax savings though in your calculations? Of course where I live, rent is just as much as a mortgage, and in many cases higher.
Cramer is a fool. I have seen youtube video’s of all Cramer’s bad calls. He is wrong much more than he is right. He is a blow hard and people should remind him of all his bad calls at every opportunity.
He is completely wrong about housing. Inventory is huge, lenders are being picky, liquidity is way down. Cramer is a joke.
13912 Lynhurst Dr: Buyer:VALLE EUGENIO
8842 CHERRY OAK CT: Buyer:MOLINA BONILLA JOSE
Am I seeing a pattern here ?
This is not a housing “adjustment”. This is the collapse of a bubble. Many people have made money as a result. Many homeowners have more home equity as a result.
But there are a few problems.
Some people bought at peak and lost huge money. Many of these people can’t afford to keep the home and will walk away. Those who can keep their homes are broke and won’t be adding to GDP buying plasma TVs and jet skis for several years.
Many people who did not buy at peak are still broke because they sucked all of the equity appreciation from their homes to spend. Much of it went to home improvements. That is a good investment. But MOST of it was consumed and spent. That is not good. These people felt rich during the bubble. Now they feel poor and can’t keep shopping till they drop to keep GDP growing.
The collapse of this housing bubble is anything but a normal adjustment. Being bigger than any housing bubble in history, it is going to take longer and prices will fall further than any other housing bubble aftermath in history.
Sorry. Colorado Springs
Agree, but first we have to get through the liquidity crisis. Now that lenders are being more picky, the number of people who can quality for houses has shrunk dramatically. Even at affordable prices, there are far less people who could obtain a loan than could do so in 2005.
Great post!
Home prices don’t far outpace incomes and rents in a normal cycle. That is a “bubble”, almost by definition. I would say we had two housing bubbles since 1982, and easy money caused both of them.
Look for a return to 3x annual income by the time housing bottoms and recovers. Housing prices ALWAYS revert to the mean and we are far above that today. Home owners in much of the nation have to realize that their home prices are going to go down substantially. We will revert to the mean, and that is 3x incomes. Unless of course we have runaway inflation, which seems to be Bernanke’s preferred fix.
Nice chart. Housing WILL revert to the mean. It always has, it always will. Houses just have to be affordable. 3x incomes. There is no other way.
Bad loans + lack of construction work.
“This time it’s different.”
I have to say, “no”.
Sizes of homes and expectations of 1st time buyers are largely irrelevant.
Sizes of homes are way up and so are prices. All that means is that there is an even smaller market for those larger, more expensive homes. Yes, they will sell, but they will be harder and take longer to sell, as the number of people with those incomes is relatively less.
This time is not different. Homes go up about as fast as inflation, unless you are in a bubble. Home prices soar in a bubble. Then prices collapse and revert to the mean — to inflation. This is in line with incomes, which have risen about with inflation.
Let’s look at your house for example. Your house is supposed to cost about $400,000 to $450,000. That is the price inflation has brought it to.
1988 original price = $265,000.
2005 bubble price = $530,000.
2008 current price = $440,000.
If you put $265,000 in the bank in 1988 at 3.3% interest, you would have 439,900. So if your house is worth $440,000, then it has just gone up with inflation. That is what home prices do.
But there are still many homes on the market prices far higher than inflation would justify. These homes are overpriced and are not selling. In fact, correctly priced homes aren’t selling because it is a buyers market, buyers are looking for bargains and there is still a liquidity crisis which makes it harder for your average Joe to get a loan.
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