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April 3, 2007 9:48 AM   Subscribe

BubbleFilter: Real Estate Roller Coaster. [via] US Home prices adjusted for inflation plotted as a first-person ride on a roller coaster. Keep your eye on the bottom right-hand corner for the corresponding year. Don't worry about the dramatic ending. I mean really, how bad could bad get?
posted by afx114 (97 comments total) 5 users marked this as a favorite

 
These markets, they fluctuate?
posted by These Premises Are Alarmed at 9:57 AM on April 3, 2007 [2 favorites]


Genius presentation, but less genius is giving away the ending by putting the graph on the same page.
posted by DU at 9:57 AM on April 3, 2007


That's a long, hard drop coming up.
posted by maxwelton at 10:21 AM on April 3, 2007


WEEEEEEEeEEEEeeeeeeeeeEEEEEEeeee.....The real estate market is fuckin' awsome! I especially like the part when the market turned that one corner and turned on it's side. Me and my friends totally thought we were about to fall out of the market.
posted by Wonderwoman at 10:27 AM on April 3, 2007 [2 favorites]


The graph should be logarithmic scale.
posted by smackfu at 10:29 AM on April 3, 2007


It's not the drop that kills you, it's the sudden stop at the end.
posted by 40 Watt at 10:31 AM on April 3, 2007


The WW2 spike had no corresponding drop. The graph in 1945 looked the same as what we have now and the world didn't end.
posted by smackfu at 10:31 AM on April 3, 2007


smackfu: but the WW2 spike only brought it back up to the 1890 baseline. We are currently 99% higher than that 1890 baseline.
posted by afx114 at 10:36 AM on April 3, 2007


Hey, the poster moved the graph down. He's watching us.....
posted by DU at 10:43 AM on April 3, 2007


smackfu, that looks like a recovery from the great depression and WWII, not a spike. The trend line suggests to me that the "real" baseline value in the postwar era is about 110% of the 1890 value. Which would actually mean that the postwar spike is no spike at all.
posted by George_Spiggott at 10:46 AM on April 3, 2007


Is the inference I should make that the market always reverts to housing prices ("adjusted for inflation" of course) of 1890? Or to the 20th-century? Is it only because we have data going back that far? What is magical about these points in time? It seems to me that this country and this economy has not been stable and predictable enough--long enough--for there to be meaningful long-term trends.

Also, many people forget a basic principle of prices over time. For something expensive to become affordable again (if that must happen) then 1) the price can drop, or 2) money can become cheaper. I suspect what's behind door #2, personally.
posted by _sirmissalot_ at 10:47 AM on April 3, 2007 [2 favorites]


Very, very clever.
posted by Dave Faris at 10:49 AM on April 3, 2007


Wow that is awesome! A graph is so strange to me, but when you put it into the context of rollercoaster physics, I understand!
posted by Big_B at 10:51 AM on April 3, 2007


sirmissalot: Money is already cheaper, and that's part of the problem. Interest rates are still at their lowest in decades, even after these past couple years of small increases. Easy money given to people who probably shouldn't have gotten it is what has driven this boom. Now that easy money is being taken away (sub-prime lenders going under), there are a lot less buyers. Some say 20-40% less buyers. Add on to that a large increase in foreclosures due to exotic ARM loans starting to reset, we have an increase in supply.

Increase in supply + Decrease in demand = Lower prices.

This is Econ 101.
posted by afx114 at 10:54 AM on April 3, 2007


SELL! SELL! SELL!

It will be scary when the market starts to correct itself - but hopefully it will put to rest once and for all that real estate is the only safe investment that "always goes up." Using interest only loans to buy more than you can afford - not to mention often paying more than a house is worth in the mad rush to get into the market - is gambling, pure and simple.

Too bad so many people will lose their homes learning that lesson.
posted by chundo at 10:56 AM on April 3, 2007


I missed the years rolling by at the bottom 'til towards the end. Its an interesting visualization, though I'm not sure how I feel about the subjectiveness of time in the simulation.
posted by Ogre Lawless at 10:59 AM on April 3, 2007


God, I hate economists. I hate armchair economists even more. I've been hearing about this housing bubble bullshit since at least the late nineties. I also remember a year or two ago everyone was saying how oil was never going to get down to $50 a barrel again and we'd have $100 barrel oil now, living in giant superdomes and at the whim of renegade bands of government contractors who patrol our barren wasteland as fallen warlords.

If you plot the average price of a midtown Manhattan piece of land from 1890 to now without any context except for saying it is "real estate data" you'd gasp and proclaim there's a huge bubble. Except that midtown Manhattan real estate may offer some variance but no one is doubting that the price of Manhattan real estate is going to fall.

Conversely charts like this provide nice overviews but just because the slope of a line happens to be positive over an extended period of time does not indicate that it should be negative at the next turn (q.v., gambler's fallacy). I believe the term bubble should be used sparingly and I believe it is something that can only truly be known a priori.

Now do I think there are some areas in the country that are seeing market prices that will not continue in the long run? Yes. Does it mean that they will crash and people will sell their Malibu homes for 25% less than they bought them for? No, they may drop a bit (arbitrarily 5% in the near term for those who must sell), but in such situations we are more apt to see stagnating home prices.

Now in the second article it looks like they are looking at a more targeted market where such aggregation is not as meaningless. What the article does imply is that the recent foreclosures and such are going to be indicative of future foreclosures and the whole thing will collapse on itself. While things tend to trend in the general direction they are going, just because I happen to keep winning on "black" at Roulette does not mean I will continue to win on "black", and a run of 500 blacks does not mean the next will be black.

I am not such a Roman skeptic that I think these are all rubbish (such as Warren Buffet, who once remarked he wasn't a chartist once he turned it upside down and couldn't divine a different solution) -- but turning data into nice Excel outputs does not make a great tool of speculation. I'd like to see all sorts of other data before making conclusions.
posted by geoff. at 11:00 AM on April 3, 2007 [6 favorites]


Also, this will ripple out into the genral economy in a big way. The past 7 years this economy has been driven by people using their home as their ATM. Need some cash for that Hummer? Re-fi the house and take out equity. Free money! Too bad these people are now left with 500k loans with no equity left on their homes. In fact, with prices going down, people will have negative equity. A 500k loan on a house worth 350k. The ATM is now officially closed.
posted by afx114 at 11:04 AM on April 3, 2007


I can't wait for the Iraq-War-as-House- of-Mirrors video!
posted by googly at 11:04 AM on April 3, 2007


I believe the term bubble should be used sparingly and I believe it is something that can only truly be known a priori.

Don't you mean a posteriori?
posted by languagehat at 11:12 AM on April 3, 2007


No loops, but the 1980's were fun.

While it would have been an egregious bit of editorializing, I sort of wish it just fell to earth when the track ran out.
posted by Terminal Verbosity at 11:14 AM on April 3, 2007 [2 favorites]


Yes of course, I meant a posteriori ... that is it is knowledge that can only be gained from experience.
posted by geoff. at 11:15 AM on April 3, 2007


Too bad these people are now left with 500k loans with no equity left on their homes. In fact, with prices going down, people will have negative equity. A 500k loan on a house worth 350k. The ATM is now officially closed.
posted by afx114 at 2:04 PM on April 3


Except this isn't the problem.

If this homeowner had fixed rate loans, then the situation has not changed in the slighest. If they can pay the monthly payment which isn't changing, they're fine.

The problem is people who've bought $500k homes with $70k household income because they got an interest only mortgage at 4.7% three years ago. This person is screwed. The monthly payment is several hundred more a month, which they cannot afford, and they can't sell because everyone else is selling and the prices are coming down.

There's an element here of "it's your own damn fault". You can say the sub-prime lenders were shady, whatever, but at some point, people have to take some responsibility for borrowing a half-million dollars. Who the hell was taking out a mortgage casually?
posted by Pastabagel at 11:16 AM on April 3, 2007


Market crashes are thrilling! What speed, what kinetic release! Look ma: no (invisible) hands!
posted by ioesf at 11:19 AM on April 3, 2007 [1 favorite]


If home prices crash, why does that even matter to someone who owns a house? Their payment doesn't change.
posted by smackfu at 11:20 AM on April 3, 2007


smackfu: It matters because a re-fi is no longer an option. A large number of people bought their homes with low teaser rates set to balloon a few years later because, "no problem, we can just re-finance in a couple years with a 100k profit." The drop in prices makes re-financing impossible, rendering people stuck with a high mortgage payment they can no longer afford.

Hardly anyone in the past 5 years has purchased with a standard 30-year fixed rate. People who did will be fine, but it's a very small percentage of buyers in these past 5 years who have done so.
posted by afx114 at 11:23 AM on April 3, 2007


If home prices crash, why does that even matter to someone who owns a house? Their payment doesn't change.

It could.
posted by oaf at 11:24 AM on April 3, 2007


hilarious idea.
posted by bhouston at 11:26 AM on April 3, 2007


If you plot the average price of a midtown Manhattan piece of land from 1890 to now without any context except for saying it is "real estate data" you'd gasp and proclaim there's a huge bubble. Except that midtown Manhattan real estate may offer some variance but no one is doubting that the price of Manhattan real estate is going to fall.

Well, that's some nice survivor bias, there. Had you charted Baltimore, Philadelphia, or Buffalo, you would have had a completely different answer.

Conversely charts like this provide nice overviews but just because the slope of a line happens to be positive over an extended period of time does not indicate that it should be negative at the next turn (q.v., gambler's fallacy).


Of course not, but roulette spins and craps rolls are independent events, and are only mean-reverting in the sense that a sufficient amount of subsequent plays will overcome any sort of oddities in the prior trials.
posted by Kwantsar at 11:27 AM on April 3, 2007 [2 favorites]


geoff,

My armchair economics are based on observations from the past 2 years:

1) Record numbers of foreclosures
2) Insane bidding wars for properties for no apparent reason other than the fact that the bank will give them way more money than they should
3) Huge numbers of empty new condos in my Chicago neighborhood, no sign of slowing development, and yet builders are increasingly forced to throw in tens of thousands of free upgrades to avoid actually dropping prices

The current situation isn't sustainable - it's propped up by extremely cheap money. It won't be universal, but in many areas, and certainly on average, prices will come down in the next 12-18 months - and 25% or more in some areas is not unrealistic.
posted by chundo at 11:29 AM on April 3, 2007


Who the hell was taking out a mortgage casually?

Casey Serin, of course. But in many states, all a person can lose on a mortgage is the money he paid into it. I don't find these laws particularly bothersome, but you can bet a nonzero proportion of borrowers liked the idea of being able to put the property back to the lender if things were to go south.
posted by Kwantsar at 11:30 AM on April 3, 2007


Senator Dodd is already pushing for government bailout of sub-prime borrowers.
posted by afx114 at 11:42 AM on April 3, 2007


Hardly anyone in the past 5 years has purchased with a standard 30-year fixed rate. People who did will be fine...

Is this the part where I saw "haw haw"? (2001 actually, but close enough.)

We almost took a 15 year because we could have just barely pulled it, but then we figured why strain ourselves? Get a 30 year and pay it off at the 15 year rate during months we can, at the 30 when we can't. Last I calculated (over a year ago) we'd already saved 20k+ over just paying the 30 year amount every month.
posted by DU at 11:55 AM on April 3, 2007


Then Senator Dodd is an idiot. This isn't a couple of grand of credit card debt. These are people taking out massive loans all at once ofr no reason other than they want a house. Evidently, it's morally wrong to tell someone they can't afford something.

And this guy Casey Serin needs to be put on trial for mortgage fraud and thrown in prison.

He lied on his loan applications stating an income where he had none. He lied on his loan applications saying he was going to live in the house to get an owner occupied loan. He may have committed securities fraud by offering his friend the investment opportunity with a guaranteed 24% interest rate. Guaranteed?! Did he ever have any intention of paying that back? Or does he have an open-ended ticket back to Uzbekistan.

His credit score should be pegged at 1 and he should never be allowed so much as a free food sample at a grocery store. $2.2 million in debt!

Did Casey Serin think people who were getting 30-year fixed loans were stupid? Did he think we were dumb Americans too lazy to take some initiative and 'get ours'? I love how he decided to create a blog to teach the rest of us how to get rich in real estate. What arrogance.

Send this motherfucker to prison and make an example of him. You know why I don't sell drugs? Because I don't want to go to jail. You know why I don't commit insider trading? Because I don't want to go to jail. I could make a fortune doing those things, but they are against the law. Too bad for me.

And it disgusts me how he's getting some celebrity out of it. Bail this guy out? Why should I? They should make him homeless and charge him rent to sleep on the park bench. Welcome to America.
posted by Pastabagel at 12:00 PM on April 3, 2007 [1 favorite]


Neat roller coaster ride, though, huh?
posted by Dave Faris at 12:05 PM on April 3, 2007


afx114: Hardly anyone in the past 5 years has purchased with a standard 30-year fixed rate. People who did will be fine, but it's a very small percentage of buyers in these past 5 years who have done so.

I didn't realize this. Does someone have comparative stats?

I guess my most recent mortgage wasn't a 30-year fixed either, but it was a 15. But am I to believe a majority of the mortgages purchased now are ARMs? Googling for mortgage rates is rather cluttered, surprise.
posted by These Premises Are Alarmed at 12:08 PM on April 3, 2007


These are people taking out massive loans all at once ofr no reason other than they want a house.

At least some of them were out-and-out lied to. NPR had a couple stories of people who were told their payments would be $X and when the first month rolled around it was actually $NX, N>1.

But even assuming you are right, there are plenty of financial products that people would buy if they were allowed to but they aren't due to regulations. Some of these regulations are to protect themselves, but a lot of them are to protect the rest of us. We're all in the same economy.
posted by DU at 12:10 PM on April 3, 2007


This article from 13-Jan says: "New adjustables dropped to a 25 percent share of the total market late last year, according to mortgage investor Freddie Mac's annual ARM survey, down from a 33 percent share as recently as 2004."
posted by These Premises Are Alarmed at 12:19 PM on April 3, 2007


At least some of them were out-and-out lied to. NPR had a couple stories of people who were told their payments would be $X and when the first month rolled around it was actually $NX, N>1

I'm sure some were lied to, probably a small percentage. The rest were probably told that at this rate, your payment would be $X, and so they went ahead and got a variable rate. But these people heard only that their payment would be $X, and threw their hands up like little kids when the payments started to change. I hate to be harsh, but too bad. Otherwise, what is the point of pricing and interest rates if the government will bail everyone out provided enough people are all stupid at the same time.

I would like to be bailed out of a bad options trade I made in the Gap a few years back. It's always good to have options, my grandma told me, so I thought I would wait until the stock price was higher to buy, because that would mean the stock is more valuable. Plus it was a brand name stock, and everyone knows higher price means higher quality (you get what you pay for). So I bought when it was really valuable, right when those cool Gap West Side story commericals came out and then I waited for the bulls to come in and BUY BUY BUY like Cramer says and I then I would be RICH. That's what I was told.
posted by Pastabagel at 12:22 PM on April 3, 2007 [1 favorite]


...too bad.

When the market crashes, the economy tanks and you are laid off and can't find a new job so are kicked out of your apartment, I hope you don't complain about all the people who made it happen. After all, you had a chance to back legislation to keep it from happening, but you didn't. Too bad.

Seriously, your argument sounds like a newly-minted Libertarian ranting about how evil the FDA is because he can't buy toad warts online to inject into his eyeballs. Companies are allowed to screw consumers, but consumers aren't allowed to create laws that keep them from being screwed? What?
posted by DU at 12:29 PM on April 3, 2007


Next time don't go naked like that. You need to hedge to insure you aren't wiped out.
posted by geoff. at 12:31 PM on April 3, 2007


God I yearn for a massive drop is housing. I'm a professional with a pretty good income but as things stand I will never own so much as a condo, let alone a house.

Maybe I look at things differently than some people, but when a condo costs half a million I choose to rent rather than take out a bigger loan than I can afford.

If the market tanks I would sure like to snap up a foreclosure or something though. Renting sucks.
posted by Riemann at 12:36 PM on April 3, 2007 [3 favorites]


When we borrowed for our first (and current) home, we had a small down payment and did two mortgages: 80% at 30 years and 15% at 15 years...or so we thought.

While signing the papers (and reading every one, because I'm like that, so it was taking forever) I found a small mention on a single page that the 15 year second mortgage had a huge balloon payment at the end of the 15 year period -- almost equal to that of the entire second mortgage! In other words, the lender had written us an interest-only second mortgage, and NEVER TOLD US. Throughout the entire process, she'd simply said that our mortgages were 30-year fixed (at under 6%) and 15-year fixed (at under 10%).

Needless to say, I raised a stink -- and then, once I got past my anger, I asked why. She said it was to "save [us] money", because the 15-year non-balloon loan would have been more expensive. I had her figure out the difference on the spot, and it was less than $150 a month. A little more number crunching, and we realized we could pay the entire second mortgage off in 15 years by simply sending an extra principal payment of less than $150 each month. We signed, and diligently made that extra principal payment each month until we refi'd into a single 30-year fixed mortgage (thanks to the latest boom putting us in a favorable debt-to-equity ratio.)

So on the one hand, I'm proud of my wife and myself for going into it with our eyes open and being diligent and responsible enough to take advantage of the bubble to pay that extra principal, and to get us into a single 30-year fixed mortgage. On the other hand, had we not read EVERY SINGLE PAGE of that monstrous pile of paperwork and spotted the SINGLE reference to the balloon payment -- and had not refi'd when we had the chance -- in about ten years we'd have been in trouble.

In short, a lot of these people may have been lied to, or at least been set up to not quite understand what they were getting into...and I say that from experience.
posted by davejay at 12:37 PM on April 3, 2007 [1 favorite]


Look, ARMs are not even close to equivalent to an interest-only loan. First, they're pegged to the fed, so they're only going to change if the index changes dramatically. Plus, most of them have a lifetime cap of 5%. Clearly, that's a lot, but they also usually have a cap of 1% or so per year. So if you took out an ARM at say 5% on a 200,000 loan, your rate's going to change, say, $150 bucks a month. I find it hard to believe that people are going bankrupt because of that amount of change. Granted, if a rate jumped from 5 to 10% in a single year, that would be a big deal. But over the course of 5+ years people should be able to make adjustments, even if the housing market flattens.

On the other hand, that's assuming that the lenders did due diligence in credit and other reviews. To me, that's the real problem, which the constant referencing of the ARMs etc. covers up.

Anecdotally, the condo market here (Portland ME) is pretty flat, with a major glut of condo conversions sitting on the market. But single home and multifamily sales seem to be fine.
posted by miss tea at 12:43 PM on April 3, 2007


Maybe I look at things differently than some people, but when a condo costs half a million I choose to rent rather than take out a bigger loan than I can afford. If the market tanks I would sure like to snap up a foreclosure or something though. Renting sucks.

This is exactly where I am, and where almost everyone I know is. The problem being, as DU notes, the risk of complete collapse. I really can't muster any personal sympathy, though, for someone who (as Pastabagel suggests, above) thinks he can afford a $500k home on a $70k income, regardless of how attractive the lender made it seem.
posted by uncleozzy at 12:48 PM on April 3, 2007


People talk about the "property ladder," where you buy in low (starter house or condo), and work your way up, if you're of a mind.

Problem: There is no longer a bottom rung in many markets. Hell, the first ten rungs are missing. For example, here's an article talking about how the average Seattle worker cannot afford to buy a home in Seattle.

Maybe we're now a country where everyone is a millionarie, but I make OK money and there are vast swaths of Seattle I cannot afford to buy a house in. Not just the traditional "tony" enclaves, but formerly stolid middle-class, nothing-special neghborhoods. Hell, the first house I owned was a 2 bed/1 bath 900 sq. ft. house with minor charm in a decent neighborhood. I bought it for $175K in 1996, and the guy I bought it from paid $170K in 1989. I sold it in 2000 for $250K, it sold again in 2003 for $330K and the latest guesstimate on its value is $395K.

400 large for a two bedroom, one bath starter house! To comfortably afford that, assuming you have the $80,000 in cash you should have as a down payment, you need to make exactly $100,000 a year at a 6%, 30-year mortgage. That's well above the average income.

Maybe a lot of us lucky mefi-types make that kind of coin, but there are many professions where even the top-dogs don't make that.

That is unsustainable--it doesn't take a genius to see that.
posted by maxwelton at 12:50 PM on April 3, 2007


Seattle is where I live as well. I am a software engineer and I wouldn't even want to borrow enough for a condo around here, let alone a townhome or *gasp* a tiny beat up old single family home.
posted by Riemann at 12:57 PM on April 3, 2007


ARMs can jump a huge amount. The problem with predatory lending is that they say, "We'll loan you 500k for 1%!!" But the fine print says that after 1, 3, 5, whatever years, that it will jump to the pegged fed rate. So say the fed rate is 5%, low by most standards, the jump from the 1% teaser rate to 5% is huge. Especially if 1% on 500k is already stretching the buyer thin (buying the most they can afford). The way around this has always been "No problem, we'll just refinance when the ARM resets." That is no longer a viable option.

Standard loans don't have this problem, but we're not talking about standard loans here.
posted by afx114 at 1:20 PM on April 3, 2007


Seems like the car salesmen just found bigger fish to fry. People were already getting jacked on stupid 40k SUV loans.
posted by smackfu at 1:27 PM on April 3, 2007


Seattle sounds like Toronto, maxwelton. I see all these houses for sale downtown at prices well above what the vast majority of the population can afford - then watch as they're sold well above the asking price - and wonder just who the fuck is buying all of them. There are only so many rich people, even in large cities.

I don't know if the mortgage industry is as fucked-up/dishonest as it is in the States...are there as many people up here who are leveraged to the hilt and one interest rate adjustment away from bankruptcy? If there are, that would explain at least some of it.

I'm just bitter because I can't buy a house in the city I want to settle down in without consigning myself to a life of crushing debt/pauperdom. Faced with the choice between the two, I'd rather rent for the time being.
posted by The Card Cheat at 1:40 PM on April 3, 2007


I have successfully restrained myself from going on a rant about Hawaii's insane real estate situation, but let me just say, unless I engage in high stakes gambling or locate Osama, I'm going to have a very hard time owning property in my home state.

...

*urgh*

...

NO! I can't resist: Median price of a home = $620K. There. Dammit! And I encourage everyone to point and laugh at our ridiculously inflated housing prices that are totally unrelated to the age or square footage of the home being purchased. At times it can really strain your notions of wtfuckery.

For some of us here, even if a bubble bursts, we're gonna be like "Wow. Okay. Same shit as ever, but now I can't afford a 65-year old 2 bed, 1 bathroom house that's in friggin' foreclosure, either."

Apologies to all, please continue. I like roller coasters.
posted by krippledkonscious at 1:59 PM on April 3, 2007


My husband and I bought our first home in September, 2005 in Los Angeles. It's just over 1800 sq. feet, built in the 1930's. Cozy, but we love it. And we knew from the start that we wanted a regular old 30-year fixed rate mortgage, none of that ARM stuff. The house should be a source of security for us, we felt, not insecurity. So even though it was scary sinking so much money into our big-ass down payment -- and we got a lot of help from both our families for that -- we preferred to handle the finances that way than to leave things a little shaky month to month, constantly playing catch-up with interest payments.

And yet, right before we signed, we were constantly pitched the ARM 5 or 7 year "bubble" mortgages. We kept hearing the "oh, but you're a young couple! you'll probably move into a bigger house after you have a kid or two, within the next five years! so you won't be here long enough to even get to the interest rate changes! and rates are soooo loooow right now!" line. I mean, people seemed befuddled that we didn't spring for the ARM. Like we were too dumb to understand this really great deal that we had a chance to get in on.

And there hasn't been a week that has gone by since we moved into the house that our mortgage company, which is one of the biggest in southern California, hasn't sent us junk mail of all shapes and sizes and colors, urging us to call them to discuss refi'ing. Little letters, big letters, letters that we had to open and read because they came from our real mortgage company, so we couldn't just assume anything was junk mail. Every. Week.

I found it amusing that all of the junk mail is/was addressed to my husband, and not me, even though both of our names are on the deed.

And yes, the house is getting a little cramped to us -- but that's why we're planning on turning the garage into a home office this summer. Hell of a lot cheaper than a refi in the long run. And if the housing blogs are right, then 5-7 years from now, if we do need a bigger place to house the hypothetical kidlets, well, it looks like a lot of the way-overpriced recently-built places in our neighborhood may become far more affordable by that time...
posted by Asparagirl at 2:04 PM on April 3, 2007


It seems a little bit misleading to talk about the "US Market" then conflate it with a "worst case scenario" that is explicitly restricted to the Irvine, CA market. If I were in that market (and planning to sell or stuck in some sort of adjustable hell mortgage) I'd be shitting myself too. Sitting here in my WWII era, meticulously maintained, appropriately priced (with a low rate, fixed rate mortgage) Minneapolis home, I'm feeling pretty sanguine. Of course, I'm just another slow-witted Midwesterner.
posted by nanojath at 2:06 PM on April 3, 2007


NO! I can't resist: Median price of a home = $620K. There. Dammit! And I encourage everyone to point and laugh at our ridiculously inflated housing prices

According to Money Magazine, San Francisco beats Hawaii (admittedly, a city, not a whole state). $755,000 is listed as the median home price.
posted by ClaudiaCenter at 2:15 PM on April 3, 2007


I heard on the radio that the builders of new homes are starting to back off on their high prices of yore, in order to get rid of a glut of unsold properties, but that individuals are hanging on to the boom-market prices like a dog hangs onto a bone. A 300% increase in their original investment is the minimum they'll take to part with their property, and not a penny less.
posted by Dave Faris at 2:24 PM on April 3, 2007


Glad to see maxwelton linked that Post-Intelligencer story. Seattle's not SF or NYC, but it's pretty damn bad. Like The Card Cheat, I can't figure out how they're still finding suckers, or rich people, to buy places at these inflated prices.

I am a tech professional with a six-figure salary, no debt- no car payments, even- no dependents, and a fairly thrifty lifestyle. My Capitol Hill rent is $835, total utils around $200 for cell, cable, internet, etc, and about the only other expense I have is food. Yet I do not feel I could afford a home in Seattle- or more accurately, I don't feel like contributing to the problem by overpaying $250K+ for some tiny apartment-turned-condo in a mediocre part of town, and as a first-time homebuyer I certainly couldn't afford an actual house like the one my dual-income MS friends recently bought north of Greenlake for $700K. And even they could only afford that home because they made about $200k profit on their one-bedroom view Belltown condo sale which they owned for all of 3.5 years. I guess that's who's buying these places; people making a profit on their last place, and passing the hot potato of the unsellably overpriced property on to some new sucker. Someone's gonna be left holding the bag, while all the other people hold on to their overpriced places and not sell for years.

And that new house has put them in the "We can't really afford to go out anymore" lifestyle which makes no sense for two childless Microsoft employees. The prices are irrationally high because these lenders got people to see only those first few years, to get them to pay into a mortgage they couldn't sustain, on the promise that it starts low, seems affordable, and they'll sell at huge profit anyway so why worry? No sane person pays that much for a home unless they think they'll somehow sell it in a couple of years for far more to some much bigger sucker. I say, fuck them- let them crash and burn, albeit gently.

The sense of entitlement is what gets me; people who believe they deserve to turn a one- or two- hundred thousand dollar profit on a home they own for a few years; the same sense we got at the height of the dot-com boom, where people believe they deserved to be millionaires, "just because".


I just hope the Dodd's of the country don't get their way; better to engineer a graceful landing without any bail out, and hopefully a lot of long term refinancing. People should keep their homes but no longer expect to sell at a huge profit or possibly sell only at a loss, and realize that they should do what every other generation did and re-finance to a 30+ year mortgage where they can make the monthly payments, where they see a home as an inter-generational investment, and not a quick buck turnaround like some boiler room pump-and-dump scam.


Maybe then more of us could afford to own a home in these places, and it will really suck if I, who doesn't mortgage myself to the hilt for a nice car, nice home, nice Sharper Image lifestyle, ends up paying for other people's mistakes by adjusted tax laws to pay for some fucking bail out.
posted by hincandenza at 2:51 PM on April 3, 2007 [2 favorites]


"Median price of a home = $620K."

Note that median income in the US is about $47,000, so that median home price is 13.2 times median income. Out-freakin'-rageous!

Especially when you consider that a family making $47K can really only afford a mortgage payment of about $1,100 (28% of gross) a month, and total debt service of about $1,400 a month (36% of gross), going by the old "sensible" guidelines for home-buying.

An $1,100 payment on a 6% mortgage for 30 years = a $180,000 house. That's it. Well, if you put down 20%, a $220,000 house. Either way, that's about 3.5 to 4 times median income.

I'm sitting here on the sidelines (in Los Angeles) with my cash in the bank or invested (earning nice interest, heh) waiting for the wave of foreclosures, and laughing my ass off at the realtor ads for multi-family and apartment buildings that, if you bought them at the asking price, the rent income would be 1/3 less than the mortgage payment, let alone taxes and insurance. Who the hell do they think they're fooling??

Hey, Asparagirl - when you're ready to sell, let me know! I trust your excellent taste! :)
posted by zoogleplex at 2:51 PM on April 3, 2007


Bad. Data. Viz.
posted by MarshallPoe at 2:55 PM on April 3, 2007


While some markets like Hawaii can at least point to reasons for their pricing with some amount of seriousness, some of the housing markets make absolutely no sense, and are driven by nothing but pure, out and out speculation.

I have a friend who lives in Tuscon, AZ, and he was telling me of how his home, built new in 2004, has appreciated almost 50% in 2 years.

Take a look at the Google Maps or Google Earth for Tuscon. There is absolutely no shortage, of any kind, of easily accessible, flat, ready to be built upon land. Of all the things Tucson might not have enough of, land is not one of them.

And yet you have a housing market that is simply on FIRE.

People think it's great to be caught up in a wildfire market if you already own a home, but guess what? You can't realize the value of that home without selling it and buying something else. But anything you buy is going to be at those same elevated prices.

So, yes, it's great that your 200k house is now worth 300k, but the house you want to look at that was 350k is now 475k.

The only way to get that value out is to sell you house, and abandon that market for one that isn't on fire. And if moving out of town isn't in your plans, well then the true net effect is that you just are stuck in your greatly overvalued house paying higher property taxes.

And the people who are really about to be taken to the cleaners are these spoiled housewives and idle "kind-of" rich, that got caught up in the "flipping" houses thing. They get stuck owning several properties at once and can't unload them, and now the balloon payment cometh.

Many of these people are going to go bankrupt.
posted by Ynoxas at 2:55 PM on April 3, 2007


Also, forgot to say, this visualization is simply brilliant.
posted by Ynoxas at 2:57 PM on April 3, 2007


God I yearn for a massive drop is housing. I'm a professional with a pretty good income but as things stand I will never own so much as a condo, let alone a house.

I know this is a hippie pipe dream, but what would happen if first-time buyers just boycotted the market en masse for a few years? It seems to me that, like most bubbles, the current real estate market is at least partially underpinned by a steady supply of Bigger Idiots willing to come in at ever-more-ludicrous levels to keep everyone already invested getting even richer.
posted by Armitage Shanks at 3:09 PM on April 3, 2007


The other interesting phenomenon that is ignored by the real estate bulls is that one element of this boom in prices is that it depends on cheap gas. A city like Seattle is filled to the brim with jobs that don't pay a lot; none of the people who work those jobs can afford to live in the city if they want to own (a fairly strong desire for most folks who have "settled down").

In this area, it means the growth of distant suburbs like Monroe (which was a cow town when I was a kid), which is about 30 miles from downtown, and not an easy 30 miles at that. If your car gets 20 in stop and go (which this will be), that means realistically you're burning two gallons a day...what happens when that's costing you $10 a day? That's $5K a year in gasoline costs alone--10% of your income if you make $50K a year.

At some point, those folks are going to say "fuck it." What happens to your city then?
posted by maxwelton at 3:13 PM on April 3, 2007


Another important point: As new home builds slow down, a large percentage of jobs in the construction industry will be lost. The real estate/mortgage industry will also see layoffs. Anything home improvement related will suffer as well - sell you Home Depot stock.
posted by afx114 at 3:17 PM on April 3, 2007


"As new home builds slow down, a large percentage of jobs in the construction industry will be lost."

In many markets around the country (including SoCal), a substantial chunk of construction labor has been done by illegal immigrant day laborers, who don't actually appear on any employment rolls. So there will likely be an "invisible" component to the job losses, and to overall economic loss, as the (created out of thin air on the "knowledge" of future payback, borrowed by homebuilders from banks, paid to contractors) cash money these folks have been spending to stay alive disappears.
posted by zoogleplex at 3:32 PM on April 3, 2007


hincandenza, I was in almost exactly that situation, and I wound up buying. My $350k house (near Lake City) is immeasurably more livable than my old apartment (and has a real yard!) and when deductible interest is factored in $1850 a month isn't outrageously more than $750. My $80k salary paid my mortgage and still allowed me to max my 401k and wind up with money at the end of the month. (Until I went back to school, but that's another story.)

I'm not saying it's the right choice for everybody, just that it can be the right choice for some. I'd much rather cook my own dinner than eat out; I'd much rather have friends over than go out to a club. Spending money on a house saves me money on other things. It's all about your priorities.
posted by bjrubble at 3:37 PM on April 3, 2007


Either you have an arithmetic problem, or I have a reading comprehension problem, maxwelton.
posted by Kwantsar at 3:39 PM on April 3, 2007


Well, y'all are welcome here in Pittsburgh. The house we're in right now cost $20,000 a year ago.
posted by nebulawindphone at 3:43 PM on April 3, 2007


There's another parameter at play here and I wonder why it seems to get little attention: that is, the replacement cost of a house is something knowable and isn't usually 20% of the house's selling price. It is more like $100 - $150 per square foot of roofed area, at least in northern California. My house cost something like $350k to build, four years ago. If I had put it onto a flat suburban lot it would have cost $300k to build. You won't get such a house built if you don't have that money, regardless of what happens to the market. Almost all the materials have had price increases well outstripping inflation, so to build it today would be even more than that.

This house went onto land I owned. If the land were worth $0 the house would still be worth pretty close to its replacement value.
posted by jet_silver at 4:02 PM on April 3, 2007


The US is not as bad as many other countries, including Australia.

There are still heaps of affordable large markets, like Dallas, Houston, Austin, Denver and so on.

Check out demographia for a survey of affordable housing markets.

As for a bubble, sure, there is one, markets over shoot. There will be a drop, the US may have a recession. Like in 2001, or 1991, or 1982 or 1972.

The tech bubble bursting didn't cause the end of the world, nor will the housing bubble deflating.
posted by sien at 4:10 PM on April 3, 2007


Seattle is where I live as well. I am a software engineer and I wouldn't even want to borrow enough for a condo around here, let alone a townhome or *gasp* a tiny beat up old single family home.

Welcome to my life. I work for a large research university that may or may not be located in Seattle. Last year, I got a promotion and my biggest raise since I was at a dotcom back in the day. Our household income went up 12%.

Prices in Seattle rose nearly 15% last year.

Even when I get ahead, I fall further behind.

The best mortgage I could get was $300K, and we needed a three bedroom place. The best I could do for what we were looking for was a condo in south Snohomish County, which would double our commute. Of which there were three. And it would cost us, with utils and insurance, well over $2000 a month.

We signed a lease on a 3 bedroom place last month. $500 less, and we can sit out the bubble popping for a few more years. Also, it's a mile closer to work.
posted by dw at 4:21 PM on April 3, 2007


At some point, those folks are going to say "fuck it." What happens to your city then?

If it's Seattle, they get off their asses and finish the damn light rail system, that's what they do, and the suburbs suck it up because otherwise everyone is leaving town from the high gas prices.
posted by dw at 4:24 PM on April 3, 2007


Ok, here's a question, real estate wizards, how does this affect me?

I'm a law student, and have a house 8 blocks away from a great university with a big-name football team in a mediocre city. I bought the place for $52k (walked in for $2k) on a 30 year mortgage. It's a 3 bedroom in a neighborhood that was on the rocks and is rebounding; my street is now full of families. I pay off my mortgage and taxes by having 2 other law students as tenants. I hope to roll the place over in 2 years, not hoping for a huge profit but rather just looking to avoid paying rent for 2 years.

Now what?
posted by craven_morhead at 4:45 PM on April 3, 2007


I'd like to see all sorts of other data before making conclusions.

For those of you wanting something with more equations in it, Econbrowser tries to explain it: "Let me say that while I allow that there might have been a rational stochastic bubble in the housing market, I think that the gradual revelation of improper lending practices and excess risk taking in an environment of inadequate regulation suggests to me another interpretation..."

Also it occurs to me to check the recent price rise against "Pre-Clinton Era CPI" from Shadow Government Statistics. After all, the start of the big increase in the inflation-adjusted housing index is pretty close to 1998, a year where they made big changes to how inflation was measured. If SGS has it right, it looks to me like the change to inflation measurement might account for 30-50% of the increase.
posted by sfenders at 4:58 PM on April 3, 2007


Kwanstar, my mortgage math or my commuting math? Commuting I was factoring 5 days a week, 48 weeks a year, $5 a gallon gas, which is only a Cheney priaprism away, really.

Light rail is good, but has nowhere near the capacity needed to haul everyone downtown every day.
posted by maxwelton at 5:04 PM on April 3, 2007 [1 favorite]


If SGS has it right, it looks to me like the change to inflation measurement might account for 30-50% of the increase.

So my starter house going from $175K to $400K in ten years is largely illusionary? Awesome. Oh, wait. Doesn't that mean I should be making twice what I was making back then?
posted by maxwelton at 5:06 PM on April 3, 2007


"The tech bubble bursting didn't cause the end of the world, nor will the housing bubble deflating."

The housing bubble growing is what kept the tech bubble burst from really messing things up. This real estate boom has been powering a huge percentage, perhaps the majority, of US economic growth since 2002. Almost every other part of the economy has been, at best, flat in real dollars or just barely feebly growing - notable exceptions: pharmaceuticals and energy.

As was said above, a lot of money got created out of thin air as people's homes doubled (or more, places in my neighborhood went from $350-400K to 950K-1 mil from 98 to 2006) in selling price, and vast numbers of people refinanced and took out a couple hundred grand in equity to buy stuff.

Deflation of the house selling price makes all that money disappear again, poof.

The same thing happened with the tech bubble; money was created out of thin air to capitalize dot-bombs, which went bust and the money went poof - of course, the difference was that lots of founders pocketed a few dozen mil of the "free money" and kept it. This time pretty much nobody took out $200K in home equity and put it in investments that outpaced the interest on it, they just spent it, it's gone.

You should look here at Yahoo's chart of the Dow Jones over its entire lifetime. Most of the growth has been since 1985, with a big acceleration at 1995 until now.

Notice that after the tech bust, the chart bottoms and rebounds in July 2002 - which is about when the Fed lowered the prime rate near zero and turned on the cheap money spigot. All that recovery since then has been powered by lots of people borrowing money to buy homes or refinancing - and flipping, too.

So, we're still in a huge financial bubble, fundamentally. The housing thing just mitigated the near-vertical nosedive that's clear to see on the chart from the dot-com bust.

Oh, and one last thing... the way the dollar has been losing value, if you are making less than about 5% on your money wherever you have it invested, you're not actually making any real money. You're treading water. Hopefully the dollar will solid up some, but right now our personal purchasing power is taking a beating.

"Doesn't that mean I should be making twice what I was making back then?"

You'd think, huh? Ain't necessarily so. :)
posted by zoogleplex at 5:10 PM on April 3, 2007 [1 favorite]


I have no idea what "rational stochastic bubble" means and I wrote an article about stochastic option pricing in commodities in discontinuous time. Again he's making fallacies regarding the entire market and lending prices. A $850,000 home is not a "sub-prime" market. You can easily come back with data that says home prices increasing coincides with large redevelopment boons in many cities urban centers. Who is to say that these homes have not been traditionally under-priced for many decades (say Detroit has a revival and all those $30,000 homes are now going for $120,000 which you would probably consider fundamentally reasonable if the neighborhoods improve). Weeeee ... economics is fun! Again I am not disputing that in some markets we do have a run-off in speculation, but Irvine CA or posh Microsoft Seattle does not the country make.

Now what?

Well it depends on a lot of things. $52,000 is really cheap and you should have it payed off in no time. If you took out that mortgage when lending rates were low you got lucky.

I, personally, would use it as a safety net and a nice asset you can borrow against and get lower rates in the future and have a steady, small stream of income. You could say use your house and have the bank value it at y and give you a loan at x rate and then you reinvest that money in something that returns > x rate. If rental rates are low and home prices are high and everything is out of whack the market expects you to sell and bring things back in an equilibrium. This is what you would do rationally. Of course rationally depends on your level of risk, income expectations, etc.

I personally would hold it unless someone came over and offered me a crazy amount of money to buy it (2-3x in a 2-3 year span is a pretty good return). Otherwise I would have a rental management company take over operations and receive a steady bit of income from it. Over the long run it probably won't maximize your personal wealth to its greatest extent but it is a pretty safe trust fund to have. If you lose everything you can always, you know, move into the house.

Then again it could get expensive if everyone around you starts upgrading and you are forced to upgrade ... so many variables. It really depends on how much you want to deal with it, your investment acumen, etc. If you feel prices are out of whack (that is have been rising so fast you don't think they will continue to rise at that rate, or fall), I would get out while you have liquidity in the market and put the money in a nice index fund.
posted by geoff. at 5:19 PM on April 3, 2007


The housing bubble growing is what kept the tech bubble burst from really messing things up

You're right in a way, but in a way you've got it kind of backwards. When one asset class bubble burst, ol' debbil Greenspan dutifully inflated another, with one of the major pumps being near-zero interest rates.

A hard rain's going to fall, I reckon. How hard depends on the triggers domestically (ARM resets etc etc) and overseas (Chinese dumping of treasuries, say, or collapse of the yen carry trade as they raise interest rates, etc etc) and when they happen -- how much of a perfect storm develops. It may not be catastrophic or even that discomforting for most, or it might just dump the US into a tailspin the likes of which haven't been seen for decades.

I've been watching the storm develop with interest for a couple of years now -- none of this is a surprise to anyone who has. Batten down the hatches!
posted by stavrosthewonderchicken at 5:40 PM on April 3, 2007


Also, the rollercoaster thing was very cool and clever. I wish there'd been decade markers of some kind, though.
posted by stavrosthewonderchicken at 5:43 PM on April 3, 2007


From the site's homepage:
***HEAVY TRAFFIC TOOK DOWN THE SITE*** BACK SOON
This is the page everyone is looking at and it is still up so go there:
http://www.speculativebubble.com/videos/real-estate-roller-coaster.php
Did MetaFilter take them down? :)
posted by afx114 at 6:00 PM on April 3, 2007


"When one asset class bubble burst, ol' debbil Greenspan dutifully inflated another, with one of the major pumps being near-zero interest rates."

Yes quite, that's what I was trying to get across. Thanks for making it more concise.

I'm with you on having watched it develop. None of this is surprising me much - I got caught out with the dot-com bust and lost enough money to wise me up (though thankfully not my dot-com job, I got lucky and was with one of the survivors).

Personally I'm hoping for a relatively smooth slide back down, 5-10 years of slow adjustment, so we all have time to get used to it and adjust ourselves accordingly. Big nosedives are very very bad.
posted by zoogleplex at 6:32 PM on April 3, 2007


Meh. Call me when I can buy a new three bedroom, two bathroom house in the San Francisco Bay area for $200K.
posted by elmwood at 6:49 PM on April 3, 2007


I have no idea what "rational stochastic bubble" means

Neither did I, but I thought his description of what he meant by it was clear enough. I was just trying to help out your hypothesis that it's not a "bubble." It is always possible that prices will not revert to the mean this time, it's happened before in other markets that some unrecognized fundamental shift was mistaken for a temporary mania. To me, the odds of that being the case this time seem considerably worse than you get playing roulette, but we'll find out soon enough. However, the present situation does seem more complicated than anything you can discern from looking at housing prices alone.

Irvine CA or posh Microsoft Seattle does not the country make.

Do you have reason to believe that Schiller's index over-weights those places?
posted by sfenders at 7:46 PM on April 3, 2007


I also remember a year or two ago everyone was saying how oil was never going to get down to $50 a barrel again and we'd have $100 barrel oil now, living in giant superdomes and at the whim of renegade bands of government contractors who patrol our barren wasteland as fallen warlords.

Well, so far they have been correct about the $50 dollar part. Let's wait till we bomb the shit out of Iran for the $100 oil.
posted by c13 at 8:00 PM on April 3, 2007


nebulawindphone, as soon as global warming makes central US winters a thing of the past, I'm in.
posted by mwhybark at 8:06 PM on April 3, 2007


It's times like this I wish I lived in the US.

You see, I live in Australia. When you talk about real estate markets, there are really only 8 to consider: Sydney, Melbourne, Perth, Brisbane, Hobart, Canberra, Darwin, Adelaide - the capital cities. A bit over half our population (11 million or so) lives in these 8 cities.

Of those, 4 are in the '25 Most Unaffordable Markets' list mentioned on the demographia website linked above. And only one market in Australia can be considered to be within the 'slightly unaffordable' range - in Canberra.

There are precisely zero major metropolitan areas where it is now affordable to buy a house in this country.

In my home city of brisbane, I'm looking at the housing market in something like despair. My husband and I both earn well above the median wage, but to buy a house (... well, an apartment, or a townhouse, or anything not needing thousands of dollars of repair work) would be a cool half million dollars - and frankly, there is no way we have the 100k deposit just lying around. We may do, in a couple of years, by scrimping and scraping and making appropriate investments with the money we do have - but if house prices double or triple or quadruple over 5 years again ... we're screwed. Like every non-homeowner in this country.
posted by ysabet at 8:08 PM on April 3, 2007


Meh. Call me when I can buy a new three bedroom, two bathroom house in the San Francisco Bay area for $200K.
posted by elmwood at 8:49 PM on April 3


Sure. That will be right after "the big one".
posted by Ynoxas at 8:22 PM on April 3, 2007


There are precisely zero major metropolitan areas where it is now affordable to buy a house in this country.

And yet...people are buying houses, right? As I was saying...who the hell are these "people"? It's a headscratcher, all right.
posted by The Card Cheat at 9:16 PM on April 3, 2007


As I was saying...who the hell are these "people"?

Many, at least with condos and apartments in major cities, are investors/flippers, or were until the ball of twine started to unravel 11 months back or so.

More interesting, and more supportive of the DOOM! side, is that in 2005 in America, the combined total of second home sales [in America] accounting for four out of 10 residential transactions, according to the National Association of Realtors. Those suckers are going on the market when things go bad, I guaran-goddamn-tee you -- they're not primary residences, which people will fight tooth and nail not to lose.
posted by stavrosthewonderchicken at 9:26 PM on April 3, 2007


Nope, no headscratching here. I'll talk about Brisbane, since that's the one I've been staring at for the last 5 years.

In Brisbane, people from Sydney and Melbourne are buying.

The average wage in Sydney and Melbourne is around 20kAUD higher per annum or so than it is in Brisbane. People who live here can't buy here; people who live elsewhere can't afford to buy there, but they *can* just about almost afford it here ... especially if they sell there. And if they can afford what they currently have there ... they can certainly leverage that to buy an 'investment' property here.

The wealth difference isn't huge, but it's enough. People have been migrating to Brisbane and it's surrounding areas from all over Australia for a long time; but the curve got a lot steeper when housing prices doubled in Sydney and Melbourne. And since there was suddenly all this outside demand, prices shot through the roof.
posted by ysabet at 9:33 PM on April 3, 2007


Again I am not disputing that in some markets we do have a run-off in speculation, but Irvine CA or posh Microsoft Seattle does not the country make.

True, but Tulsa is seeing some of it as well. My grandmother is selling her place, and they're listing it at $102K. And she will get it, if not more, even though it's in a less desireable part of town. 5 years ago, the going rate for a similar house in that neighborhood was in the mid-70s.

And honestly, there's not a lot to attract anyone to Tulsa anymore, and still the existing housing prices rise at 5-6-7-8% clip. Meanwhile, they're plowing under farmland and putting up McMansions on half-acre lots in south Tulsa and Jenks.

When the correction comes, it will hit Tulsa just as hard as Seattle. It's just that Seattle's bubble pop will knock $100K+ off the mean vs. $20K off the mean in Tulsa.
posted by dw at 10:05 PM on April 3, 2007


the combined total of second home sales [in America] accounting for four out of 10 residential transactions

See, that is an interesting statistic. I wonder how many of those are homes bought for people's children. Pretty much everyone I know in NYC who owns gets help from their parents, and in some cases the homes may still be listed as being their parents', though in the minds of the family they belong to the kids. And that is how people buy houses in this market: their parents, who bought ages ago, with reasonable mortgages are getting into their fifties, making good dough, and want to provide for their kids.
posted by dame at 5:46 AM on April 4, 2007


NPR's marketplace last night had a segment that said in part:

Barry Bluestone is at Northeastern University. He'll testify that in places like Boston a sustained housing boom could have a bigger downside.

BARRY BLUESTONE: Controlling for inflation, median household income in greater Boston has essentially been flat for more than 15 years. At the same time, median home prices have risen by about 50 percent.

That's put the entire region out of reach for most first-time buyers.

In another study, Bluestone found that cities with the highest median housing prices have real economic problems.

BLUESTONE: The cost of living has finally caught up with those communities. They have been losing jobs, they have been losing population.

Turns out high housing costs are a quiet job killer, so slowly deflating the bubble might not be such a bad thing.

posted by These Premises Are Alarmed at 6:50 AM on April 4, 2007


blah blah blah. What about the speculation and bubbles in Rochester, NY, Cleveland, Pittsburgh and Raleigh??? Oh yeah there wasn't massive speculation and hence the bubble doesn't exist there.

This is strictly a West Coast, Boston, parts of Florida and Phoenix problem. A highly localized bubble with many people now saying the world will end since growth rates are slowing.

I agree that the subprime lending fucked things up and there will be many foreclosures everywhere, but real estate prices didn't skyrocket all over the country.
posted by premortem at 7:05 AM on April 4, 2007


See, that is an interesting statistic. I wonder how many of those are homes bought for people's children.

I'm guessing a lot. My mom didn't buy my brother his house, but she did give him the max the IRS would allow for a down payment. (Oddly, she's never done that for us, but then they bought a $70K house in Tulsa.) And my grandparents did the same for their children -- loaned them a down payment.

Meanwhile in college I had a number of friends whose parents bought them condos. With roommates it was cheaper than dorm prices (or rent elsewhere in town), they would get reasonable ROI when their kids graduated (or they'd sign over the mortgage if the kids got a job), and the parents had some theoretical control over their kids (like that stopped said kids from the weekly college party).

This is strictly a West Coast, Boston, parts of Florida and Phoenix problem.

Did you see my part about Tulsa? No? Consider that Zillow gives the following estimated prices for the Midtown 3/2 rambler I grew up in:

April 1998: $86K
January 2000: $88K
January 2002: $95K
January 2004: $105K
February 2006: $127K
now: $118K

Basically, Tulsa real estate prices were rising post-Oil Bust (1984) at a fairly standard clip -- 2-5% a year. They didn't rise that much during the small tech boom (with WilTel and WorldCom in town) between 1998 and 2002. And then... straight up. But like I said earlier, they'll see a fallback of $20-30K versus the potential $100K correction in Seattle.

Don't suppose that Pittsburgh or Raleigh are the rule. (And certainly don't assume Rochester and its endless Kodak layoffs is the rule, either.) Sure, rural areas will get through this pretty unscatched, but when even a moderate-sized city with stagnant growth is seeing a bubble, you can expect that Pittsburgh and Detroit and Raleigh are the exception, not the rule in American cities.
posted by dw at 8:48 AM on April 4, 2007


It's not just the states either. Property in Calgary is completely batshitinsane. I've seen a 180% increase in the "value" of my 1960 SFH in five years and I live on the edge of the "bad" part of town. And I was worried the first few years that things would tank to the point of loosing my down payment because I paid 80% more than it sold for 10 years ago.

BC isn't any more rational either.
posted by Mitheral at 10:07 AM on April 4, 2007


blah blah blah. What about the speculation and bubbles in Rochester, NY, Cleveland, Pittsburgh and Raleigh??? Oh yeah there wasn't massive speculation and hence the bubble doesn't exist there.

You don't have to read far into this weblog to see that that is simply not true.

BC isn't any more rational either.

Van-housing (he never revealed his name) isn't posting any more (which is a shame, although the site is still a good resource), but there are several other people who are still on the case. I'm watching the Vancouver/BC market with interest. Here's one on Calgary, too.
posted by stavrosthewonderchicken at 5:00 PM on April 4, 2007


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