January 9, 2010

In 2005, the National Association of realtors on Commission assured the nation that there was no housing bubble. Epic fail.

Here they were, November 2005, encouraging people to make the wost financial decision of their lives.

They were joined by their undereducated army of 1.2 million thieves, led by the hilariously clueless likes of Connie De Groot, Greg Swann, Leslie Appleton Young, Kendra Todd and that weird lady at your church who wears too much makeup.

I give you the full 2005 NAR anti-bubble statement now in its entirety. For posterity. So that nobody forgets. No matter how much they try to rewrite history.

Please don't kill them. Remember, like hookers and crack dealers, they're just out to make a buck. And remember, in many cases, they went bankrupt and lost their homes, reputations and careers too.

Housing Bubble Prospects Q&A

What is a housing bubble?

As broadly interpreted, a housing bubble refers to an unsustainable gain in home prices. The premise is that a price bubble is at risk of “popping,” resulting in a loss of equity.

Has there ever been a national housing price bubble?

No, not since good recordkeeping began in 1968. There was a national decline in the 1930s during the Great Depression; however, home prices were not a prime concern in that era. The greatest issues were essentials such as food, clothing, employment and shelter of any kind. Declining home prices were a natural result of a general economic collapse caused by the stock market crash in 1929.

What is the “normal” rate of home price growth over time?

Since 1968, the national median existing-home price has increased an average of 6.4 percent per year. However, that includes a period of high inflation. A better frame of reference is in relation to the overall rate of inflation. Home prices typically have increased 1.5 percentage points faster than the rate of inflation, as measured by the Consumer Price Index.

What are the biggest factors that drive home prices?

In simple terms, it gets down to supply and demand. The inventory of homes available for sale has been historically low since 2001, which is why home prices have been rising at above normal rates.In a balanced market between home buyers and sellers, there typically is a six-month supply of homes on the market. Over the last four years, the supply has hovered around 4.5 months. By contrast, in the recessionary period of 1990-1991, there was in excess of a 9-month supply.

What conditions are necessary for home prices to soften or decline?

Generally, two conditions are necessary for price softness in a given area: an oversupply of homes available for sale, and adverse economic conditions – generally a weak local job market. Sometimes these conditions occur against a backdrop of overall economic weakness, recession or high interest rates.

Where and when have home prices declined in the past? What were the general market conditions?

Most metropolitan areas, especially in the Midwest and South, have not experienced price declines in the era of modern recordkeeping. In the period from the mid-1980s though the early 1990s, many metros in the Northeast and on the West coast saw localized declines. Typically, this occurred in large population centers with very little capacity for growth. When housing shortages developed during a period of high demand, prices grew at sharp double-digit rates – often over 20 percent per year – for several consecutive years.After local economic conditions declined in those areas, home sales stalled and the inventory of unsold homes rose, which eventually led to price softness or decline.

How long have home prices declined in the past?

Although there are exceptions to any general finding, most metro areas that experienced price declines were relatively short lived (several years). Most homeowners who went through such downturns -- but stayed in their home for a normal period of homeownership -- still netted healthy gains when they sold. People view homeownership as a long-term investment as opposed to the kind of quick-in, quick out investment that Wall Street is fond of. Unlike stocks, homeowners don’t panic sell simply because a home down the street sold for less. Home prices tend to be sticky on the downside -- usually a single digit decline in any given year following a sustained period of double digit gains. Very few people buy at the top of a market and then sell in a short timeframe. After several years, home prices level and return to normal appreciation patterns.

Should we be concerned that home prices are rising faster than family income?

No. There are three components to housing affordability: home prices, income, and financing costs – the latter are historically low. During the last four-and-a-half years of record home sales, there has been a shortage of homes available for sale. As a result, home prices during this period have risen faster than family income. However, in much of the 1980s and 1990s, the reverse was true – incomes rose faster than home prices.On a national basis, according to the Housing Affordability Index published by the National Association of Realtors, a median income family who purchases a median-priced existing home is spending a little over 20 percent of gross income for the mortgage principal and interest payment. In the early 1990s, a typical mortgage payment was in the low 20s as a percent of income, and in the early 1980s it was as high as 36 percent. Overall housing affordability remains favorable in historic terms.

What are the prospects of a housing bubble?

There is virtually no risk of a national housing price bubble, based on the fundamental demand for housing and predictable economic factors. It is possible for local bubbles to surface under the right circumstances, but that also is unlikely in the current environment. There are tight supplies of homes available for sale in most of the country, and labor markets have been improving. In other words, the two conditions necessary for price softness do not exist in most of the country.The strong underlying demand for homes results from the simple fact that the population is growing faster than the supply of homes. In addition, it is highly unlikely that the cost of construction will decline. In fact, construction material shortages are expected to continue and the cost of building and development is trending up. Baby boomers remain in their peak earning years. Echo boomers – the children of the baby boom generation – are just entering the period of life in which people typically buy their first home. The echo boom is the second largest generation in U.S. history. Considering the median age of a first-time buyer is 32, echo-boomers will be a big factor over the next decade. In addition, immigration has been strong for many years. Census data shows that immigrants eventually achieve homeownership rates higher than do native born Americans – this also will be a strong factor in housing demand in the future. Also, minority ownership rates have been trending up. All this means the demand for housing is historically high and is one of the reasons 2005 will be the fifth consecutive year of record home sales. Even in an economic downturn, the demand remains.

If conditions become unfavorable, home buying may be postponed, but a general price decline remains highly unlikely.What is likely to happen with home prices?

The forecast is for mortgage interest rates to rise slowly over the next year, which will have a minor breaking effect on home sales. The good news is that will help inventory levels to recover and allow the market to come into a closer balance between buyers and sellers.In other words, a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms.


Anonymous said...

They should be water-boarded in Ramen juice.


casey the flipping machine said...

The funny thing is the taxpayer will pay for the whole cluster f@ck.Every working person in the usa might as well grab their ankles and thank the NAR and corrupt politicians.

Anonymous said...

Greg Swann says he saw it all coming

Anonymous said...

They should be water-boarded in Ramen juice.


Funniest thing I have heard all week! LOL LOL


Anonymous said...


According to NY Times, Mr. James Chanos,big time hedge fund owner who predicted and profited from the Enron collapse along with the real estate collapse predicts..

"China is Dubai times 1000- or worse!"

Went2puke said...

The corrupt politicians and their benefactors are still pushing for the creation of wealth out of thin air. They won't allow for a market correction. There is now a growing number of people who believe the government is buying stocks to keep Wall Street in the green!

I am not a conspiracy-theory nut, but I always had a nagging suspicion that something was wrong with the recent Wall Street rally. My apprehension grew almost concomitantly with the unrelenting upward drive of a market that turned so blatantly oblivious to bad economic data. Since March '09, there was plenty of bad economic news to create panic amongst any stock traders, but almost none of the bad news seemed to have impacted the bullish trend on Wall Street. How come?

According to TimTabs, a research firm that tracks liquidity flows in the market, the unusual circumstances that led the U.S. market rally might be explained by secret government moves to purchase stocks!

Charles Biderman, the founder and chief executive of TrimTabs, said in a statement released January 5, that his firm could not identify the source of the new money that pushed stock prices up so far so fast.

The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds. He added that The Federal Reserve or the Treasury could have easily manipulated the stock market by buying $60 to $70 billion worth of futures of the S&P 500 Index.

Went2puke said...

Just for the record, and besides Mr. Biderman's statement I mentioned in my earlier comment, I would add a couple of speculations of my own:

- The Fed and the Treasury may have spent most, if not all the bailout money buying stocks, either directly or indirectly, in order to restore investors' confidence. After all, doesn't the entire trading depend on psychological factors that have nothing to do with cold figures?

- Washington's most influential economic planners have strong connections with Wall Street. It is normal that they believe the stock market is the only driving force that could lead to a viable economic recovery. Given their background, they are certainly more convinced than others that Wall Street is the magic bullet with which all the ailing sectors of the economy can be salvaged.

- I can easily imagine those planners setting a specific target-- a "self-combustion" point that, when reached, would absolve the government from any further involvement. They may have figured that as the stock market reaches a self-sustaining bullish drive, the government would ultimately recover any money spent on stocks, or even make a profit.

This theory may explain the Fed's reluctance, despite all the prodding from Congress, to disclose which banks are benefiting from the bailout money.

It may also explain the banks unusual restraint in processing foreclosed homes. This may have to do with the banks belief that, thanks to Wall Street and government money, the housing sector will get back on its feet, sooner than anticipated.

The banks are holding off on putting a good percentage of their REO properties on the market to avoid pushing prices lower. Their aim is to help push the prices back up, turning upside-down mortgage holders into viable customers, as they will have no reason to walk away from their homes.

The government and the Fed have obviously embraced the same model of reasoning; mortgage interest rates have been pushed down to historic levels, tax-payers money is being spent right and left for mortgage modifications aimed at reversing the delinquency rates, and Congress has extended the home buyer tax credit until the Spring of 2010.

On paper, this scenario sounds great, but there are unknown factors, such as the soaring unemployment figures and the housing shadow inventory, that may continue to act as the one indomitable horse which can wreck the entire recovery scheme.

If we add to that the fact that the option ARM resets are just beginning to kick in, especially in California, that the Federal Reserve may soon run out of money to buy mortgage-backed securities, and that hundreds of thousands of homeowners may decide to sell their properties this year, due to unemployment, retirement, or simply to become renters in an increasingly favorable rental market, it is fair to say that this year holds a lot more surprises than most of us think.

As we can see from the headlines at this very moment, Wall Street is still turning a blind eye to the economic data of the day:

- Economy loses 85,000 jobs as employers remain wary

- Stocks Close in the Green as Traders Take Jobs Report in Stride

- Consumer borrowing falls sharply in November

- Dow Gains 1.8% for Week; Financials Rally

So what's really going on?

AND sorry for this long piece...

Anonymous said...

I saw a pick up truck on the Loop 202 in the rush hour traffic here in Metro Phoenix the other day. In the back window read this...

"Real Estate. Still the best investment".

The driver looked very depressed.

Anonymous said...

Wave two of the resets is coming. Will it be the second dip or just extend the current crisis another three years?


casey still flipping said...

Is reagor still pimping real estate in phx?Dont believe a word the financials gurus say.If you see someone selling ivestments in a suit run as fast as you can.

Anonymous said...

I was talking this guy who was looking for a house, and oblivious to everything. Realtors still selling shit boxes for as much as possible and telling people they will be 'priced out of the market forever'if thy don't buy now. I just sent him the link to this blog.

token said...

A little off the immediate topic.

I want to assure you all that I would have voted for Peter Schiff, even tough I am not sure he’s right about Gold, but I appreciate his courage to speak his mind.
Given that his marketing association with low-life and extreme Jew envier Mel Gibson I will actively campaign against him.

SeattleMoose said...

Used house salesmen.....same as used ______ salesmen everywhere.....shysters.

HousingPanic was the single best public information site and one of the few places to get THE TRUTH when the financial mafia, the RE industry, and the government were all lying thru their teeth to keep the party going.

So where is the press coverage on how HousingPanic saved many people from financial ruin?.....crickets...

Why aren't all the liars and thieves being held accountable?....more crickets...

Keith should be on the cover of magazines and on talk shows instead of.....pick your poison.

Only confirms what we already knew about the MSM.

Anonymous said...

disgusting! What is worse Keith, your "slut" spill post or this filth? I honestly cant tell. Thanks for dredging up all the unkind memories of the bubble years!

soft landing said...

Keith, I must thank you again for all the great info and opinion during the final stages of the bubble. I made a couple bucks on gold and bonds (wish I had the nuts to short REIC stocks though) and didn't make the biggest mistake of my life.
I hope you can hang around to discuss the future. Obviously more of the same old stuff will lead to other bubbles and collapses. I just want to be in a good position to profit from the stupidity.

SoYouThinkYouCanInvest said...

It's always a good time to buy what they are selling. Who'd a thunk it?

Anonymous said...

The China bubble which is about to pop is the biggest bubble of all. Christ, I live in Jamestown RI where a lot of families are still living off the China trade of the 1800's. They remember the collpase of the China trade and the families which failed to get out of the trade in time. Just wait. In a year the expets will be saying the collpase of China was unforseeable. What shitheads! We must remember to rub their faces in their denials of any China bubble.

Banana Republicrat said...

The worst part is that even now there is zero accountability for these people, none. The MSM still report NAR projections as if they were fact. Epic win, for them.

If there were any justice at all, all references to NAR reports would be required to run a disclaimer like the sportsbook guys do: "...for entertainment purposes only..."

Anonymous said...

"that weird lady at your church who wears too much makeup"

You mean Greg Swann in drag?

Anonymous said...

keep posting Keith - luv this blog (and the old HP blog).

went looking at homes a month ago - spoke the the saleswoman, she was telling me most of the buyers where getting down payment assistance! they did not have 3% to put down!!

two guys I work with bought homes in the past 7 months - both only had 3% down!!!

deja-vu baby.

my landlord (nice brand new 1 br apt in "resort" style complex) dropped my rent 15% !!!

Yahooooooo!! come on crash 2!!!

RipeDurian said...

Okay no killing the Realtwhores.

But how about some cutting out of tongues?

Anonymous said...

Went2puke said...

...The banks are holding off on putting...their REO properties on the market to...help push the prices back up, turning upside-down mortgage holders into viable customers, as they will have no reason to walk away from their homes..."

Huge problem with that theory, puke: they have no ability to make those payments.

Anonymous said...

I can't even talk to my sister anymore about RE. She is so fucked.

I am renting a place - it's a 1BR, a bit of a squeeze with my toddler "roommate", but she gets her own room, and I have a nice cozy bed in the living room. Plenty of light, there's a backyard, it's not fancy, but it's ok for now. Plus my landlord dropped my rent from $990/month to $725 per month back in April.

I'm on unemployment for the forseeable future, the state is paying me to go to school for accounting, and I get a little bit of child support, not to mention a stockpile of $56K in bonds, gold, and cash. I mind my Ps & Qs and don't spend much. I hope to find a job by autumn.

My sister, on the other hand, is neck deep in debt and freaking out about her 4BR suburban house, which she traded up to for $420K back in 2003. She's a sahm, and her husband has some VP of IT job he commutes to in the city. He has been getting up at 5:30am every working day for the past 10 years, bless his heart.

I told her last spring before the buying season started that she should put her house (which she hates and says she can't afford) up for sale (before the knife started accelerating downward), rent for a year or two, and then buy a new cheaper place, maybe we could pool resources for a two family or something. She just started whining about the equity in her house and how renting is just throwing money away.

I'm like, you can save money in the long run by dumping your house how and downsizing your life for a while, but she just can't fathom it. She has guzzled a whole keg of the KoolAid.

Anonymous said...

"...she just can't fathom it. She has guzzled a whole keg of the KoolAid."

I see it everywhere, but have a different theory on what it really is.

They no longer believe and realize, somewhere deep down, that they are truly facked.

It is just that the thought of how screwed they are is so terrifying, they are too scared to even admit their circumstance and act. Like a deer in the headlights.

The best advice I've seen for the non-recourse(can't come after other assets/garnish wage) states is to stay in the house as long as possible without making payments.

Put that money somewhere out of reach of the mortgage servicer. Always have a rental lined up for when the sheriff finally comes-a-knockin'.

Save up all that is possible, because the buying opportunity of a lifetime will come; around the same time that one's credit will recover.

Some will remain mired in denial until they get kicked out anyway. The smart/brave ones will not keep pouring money into a bad debt they were suckered into.

Refuse to buy overpriced said...

The previous owner of my house purchased it in June 2006 for $260,000, then remodeled the kitchen and bathroom and installed a new roof.

Mabey the realtor told him his "home price is likely to continue to rise above historic norms"

The mortgage holder foreclosed for $268,000 in 2008

I bought the house at auction for $137,500 in 2009.