Why there is no housing bubble.
Interesting commentary in MSN’s money central site:
With the 10-year U.S. Treasury bond yielding below 4% and 30-year mortgages available at 5.1%, there isnt a housing bubble
Mind you, I’m not saying that U.S. consumers don’t have too much debt, or that the U.S. economy isn’t dangerously dependent on the housing sector for growth, or that all the money sloshing around the globe isn’t encouraging dangerous speculation.
But those are different problems from the one getting all the headline attention at the moment.
It’s just that, for all the teeth-gnashing and pundit-moralizing, we really don’t have a housing bubble that’s anywhere near bursting. Current 10-year interest rates are just too low. And I certainly don’t see interest rates rising enough in the next year or so to burst a bubble, either.
..Interesting because it was published in June of 2005, right about the peak of the US market. Since that time prices and sales have dropped by record amounts and foreclosures have gone up 79%.
To make that monthly debt burden onerous enough to trigger a burst in a housing bubble, you have to look for a big drop in family income so that while monthly debt payments remain the same, they take up a bigger chunk of a diminished family income.
Huh. And yet mysteriously prices peaked in 2005 and started falling without a big drop in family income. Very strange!
The other trigger would be a big increase in interest rates that would push the monthly debt burden up on average and would strike especially hard at those home buyers who used an adjustable or no-interest mortgage to buy more house than they could really afford.
This trigger was also a no-show. There was no big increase in interest rates, but for some reason the buyers stopped showing up. Can housing markets collapse under their own weight? And if there is no housing bubble what happened in the USA?
Well, as the saying goes, prediction is hard, especially when its about the future!
update: On the local market front, Ella points out this article in 24hours that shows buying in Vancouver may make more sense than renting as long as you use some very questionable math, disregard half the numbers and base the rest of the figures on silly assumptions.
RSS 2.0 comments feed. Both comments and pings are currently closed.
January 29th, 2008 at 6:28 pm
http://vancouver.24hrs.ca/News/2008/01/ … 1-sun.html
I honestly don’t understand it.
January 29th, 2008 at 6:41 pm
January 29th, 2008 at 6:44 pm
January 29th, 2008 at 7:02 pm
I’m no expert, but I don’t think so. why should they assume you have a downpayment of 100K to purchase on the one hand and then pretend you don’t have 100K to invest in something else on the other?
and they obviously skipped out the 10 year maintenance costs on owning. i’m sure there’s other things missing too…
January 29th, 2008 at 7:28 pm
January 29th, 2008 at 8:06 pm
Yes of course. Or putting it in more precise terms, asset prices always revert to fundamentals.
If the yield of any asset is lower than for fixed income, supply will inevitably exceed demand
Always.
January 29th, 2008 at 8:19 pm
January 29th, 2008 at 8:58 pm
Before that they were doing what a lot of stupid trendy kids do, which was living in a slum to be close to the freakin’ Drive. There are lots of nice, affordable rentals in this city if you shop around a little and don’t have to live in a “hip” area. The truth about THE DRIVE is its just another boring street with restaurants and stores. Nothing special at all.
January 29th, 2008 at 9:27 pm
I don’t mean to brag, but I think I’m a lock.
- ReductiMat
January 29th, 2008 at 11:21 pm
http://tinyurl.com/35zdjh
January 29th, 2008 at 11:50 pm
1.) The buyer and renter are not equal. The comparison presents the buyer as having $100,000 available for a downpayment while the renter is given no base savings.
2.) The money saved by renting and the interest / investment income the money can be expected to generate is not calculated for the renter, yet the calculation for the buyer considers value appreciation on the home.
So what happens if we take that $100,000 plus the $2,067 per month saved by renting and put it into a safe investment like an ING high interest savings account? Let’s find out!
Starting balance: $100,000
Monthly contribution: $2,067
Interest rate: 4.0%
Period: 10 years
Interest earned: $105,408
Total saved: $451,381
You look at these figures and it changes the picture. The article makes it sound as though the renter walks away in 10 years by being $100,000 in the hole. But the truth of it is, the renter has $450,000+ cash in the bank.
January 30th, 2008 at 3:20 am
“If the yield of any asset is lower than for fixed income, supply will inevitably exceed demand”
Isn’t a below average yield more a function of excess supply, or am I misinterpreting “fixed income”.
January 30th, 2008 at 4:22 am
Below average yield reflects increased demand to own an asset versus demand to use the asset, in expectation of higher asset prices. Higher prices can only be sustained by an increase in income, i.e. demand for use.
The buyer of the asset may have a rational reason for believing this (e.g. for growth stocks), or just think that asset prices will keep going up of their own accord (the greater fool theory).
Like dot-com then, like housing now. Remember demand to buy an asset and demand to use it are two different things.
High yield for an asset is a function of low demand to buy the asset versus demand to use it, because of pessimism about future income. Like housing during the 1930’s.
In the long run asset yields must adjust to interest rates, with a risk premium.
January 30th, 2008 at 7:15 am
January 30th, 2008 at 7:42 am
And I should have added, this means more of the asset will be produced (i.e. houses built) than will be demanded to be used.
I.E. fibre optic cables spanning the world but less than 10% used, or empty houses.
January 30th, 2008 at 8:38 am
“Look at everything that’s going on in the world,” he said. “You can’t really afford not to get into the housing market.
“It’s the only thing that’s been continually rising, especially in the Vancouver region.”
Ok, well lets just not include the USA as part of the ‘world’. I mean it would be inconvenient to note that house prices have been dropping for 2 years in the worlds largest economy.
*&#^$* shills.
January 30th, 2008 at 9:19 am
A former resident from quebec”I would be happy in a tent here.”
Larouche, 44, a Vancouver teacher who recently bought a one-bedroom apartment on Great Northern Way for $265,000 after discovering 400-square-foot bachelors were fetching $300,000 in the West End.
But Larouche, who is from Saguenay, Quebec, the second-cheapest place in Canada to live, where houses cost about $100,000, said, “I would never go back there. Those are the sacrifices you make to live in Vancouver. I would be happy in a tent here.”
BM/beastplaceonearthbloggersmanagement.krrish
January 30th, 2008 at 9:53 am
HOUSING DOES NOT APPRECIATE!
In fact, in the case of condos, it will actually LOSE value over time.
This is the real history. These losers just pick a specific period of ‘history’ to base all their assumptions on. They’re counting on everyone forgetting that there actually WAS a time before 1980. I was there, believe me it existed! (although oddly enough my parents can’t seem to remember that their house did NOT appreciate prior to 1980) Sometimes I want to just slap these people silly.
January 30th, 2008 at 9:59 am
Dog-boy of the Yukon said, “Vancouver sucks, there’s like people there and cars and stuff. Life is much better here. Yeah, much better.”
He says he paid 5.8 million dollars for the dog house and he’s very happy with his purchase. He expects that in a few years it will be worth several trillion dollars but he never plans to sell because he loves it so much.
January 30th, 2008 at 10:23 am
When is your next seminar?
“BM/beastplaceonearthbloggersmanagement.krrish”
WTF does that mean? That you have suffered a severe head injury?
Beast place? Management?
You couldn’t manage a parking lot.
January 30th, 2008 at 10:44 am
I don’t know what the rest means but I think BM stands for Bowel Movement. Perhaps it’s his way of admitting he has verbal diarrhoea.
January 30th, 2008 at 11:28 am
January 30th, 2008 at 11:45 am
I know a *LOT* of people who have bought homes, here and in Toronto.
NONE of them have EVER had 100K to sink into it.
We’re now at the point where people are plain old fudging numbers or building models with assumptions that aren’t beyond the relm of possibility, but do not accurately reflect the reality of buyers.
This is done to show that it’s still “just barely” possible for first time buyers to get into the market.
January 30th, 2008 at 11:53 am
There are thousands of imbeciles like krissh out there and they are the ones who fuel this fire. They want to believe the fairytale is true and feel good, like the achievers they are. That article in 24 hours insults the intelligence of an average broom stick. Yet thousands of ESL Skytrain commuters will read it like gospel and feel proud of themselves. Best Place on Earth it is. Take another pill.
January 30th, 2008 at 11:54 am
January 30th, 2008 at 11:57 am
NOW STOP THAT! If you spook the first time buys and speculators with smart analysis, they’ll stampede for the exits and…..
Oh, wait…. carry on.
January 30th, 2008 at 11:59 am
January 30th, 2008 at 12:01 pm
Back it in bears….. the market has spoken.
January 30th, 2008 at 12:03 pm
January 30th, 2008 at 12:06 pm
“OH NO! NOBODY SAW THIS COMING, HOW WILL I FEED MY FAMILY???”
I’m hoping they start feeling their families…. to the fish.
January 30th, 2008 at 12:06 pm
Canada won’t escape U.S. woes, TD chief says
http://www.reportonbusiness.com/servlet … bNews/home
January 30th, 2008 at 12:44 pm
Maybe he’s a bear that finally capitulated– he kept on holding out, knowing that RE prices were unreasonable, hoping that it would drop, knowing that it should drop, but never seeing any drop. So finally, he gave in and bought something small, unreasonable, in a neighbourhood that he didn’t want, just so he can get his foot in the market. Evidently he’s not a mindless speculator, or the article would’ve shown him buying something he can’t afford as a presale in Spectrum, or something like that.
Or what of the people who bought my condo last year? For anybody cashing out at the peak (or what they believe to be the peak), somebody’s buying from them, who may (will) be losing out.
January 30th, 2008 at 12:47 pm
I have gathered some information about krrish through some source to explain”krrish”
Adoption of krrish is to be fair among religions krrish is a combo of two god lord krishna and Chris but krrish him self is not a religious person he just respect all religions
AGE.He might be 36-38 year of age.Education.He is a universty graduate.He has claim to be a sportsman rather than student,he also creat wmd because he is unbeatable unless market crash for real so his wmd help him to recapture remaining part to explain because of time shortage means to be right and short.
He seems to be start working at the age of between 28-30.Family.He got support from reasonably settled family.Country of birth/Origin.He is from India and he is here since 1995.Citizenship status.He is a canadian citizen.
He has a good mental strength and power to inhale agression that’s why he get back to normal with same posters over and over that’s mean he don’t like to hurt some one personally, like to be a part of all discussion.Sometime he surprised us the things we never heard in our life.
He has claimed to have type of abilities to forecast things which other can’t see.I was surprise to read him saying “while there is full consumer confidence is available in the market other economic fundamental laws does not apply”I have never heard this type of statement in my life.Looks I think he has a sportsmans body and beyond average looking guy.Anger He has power to control his anger so he like to give 2 spare chance to his opponents,mean if you curse him twice on your third attempt he will hit you hard.
Recent Issue he claim to score a goal over strataman but strataman did not accept it and gone further to confuse the thread between knowledge to knowledge actually strataman can explain every one else here the original story.
Rediculas in his first attempt request krrish not to respond to his comment,next comment he called krrish a M”””then gone further one more time actually Rediculas can explain that to every one else.
Scullboy his sofia is a women so he spare her to respond badly he called her sofia because he use to be in love with four to five different womens on different time but he was unable to keep as life circumastance roll over to next chapter.
Hey Krrish please take no offence this is to creat some short of understanding this is my first and last comments and language style I have used here is a attempt to match your wmd skill so I can come close to the point.
Here is sort of Idea who isKrrishneverlie
I will be countinue my self as reader thanks every one
January 30th, 2008 at 1:14 pm
http://tinyurl.com/2eu9kx
January 30th, 2008 at 1:20 pm
Looks I think he has a sportsmans body and beyond average looking guy.
If by “sportsman’s body” you’re counting sitting around a poker table for hours on end eating junk food then yeah< I’d be willing to bet you have a sportsman’s body.
And yeah I’d bet you’re beyond agerage looking too, in the same way that Willie Picton’s beyond average looking.
‘tard. God I wish someone would hit you with a rock.
January 30th, 2008 at 1:33 pm
Is “informer” your new pseudonym? If it is, good job you beat your previous record of a half an hour, now people figured it out within minutes.
January 30th, 2008 at 1:47 pm
It is quite amazing how little intelligence one must possess these days to amass all this incredible amount of money to be exchanged for a promise of the better lifestyle with stainless steel appliances and granite countertops.
Sadly, all these condo projects will soon turn into slums, with caving-in roofs and graffiti-covered walls… Frankly I feel pity for ourselves, in this “Best Place on Earth”… how did we let people like krrish to be at the stern???
January 30th, 2008 at 2:52 pm
Anyone basing a financial decision based on ‘information’ out of 24 hours gets exactly what they deserve.
January 30th, 2008 at 2:53 pm
Hard to believe your comment there is no sense of humour.
1.why some one will be happy to buy leaky condo unless there is equall margin?.
2.If we work on your sense the type of people you complaining about that creat a big question who is selling them?.
3.If you can not digest the current market status why did you sell your unit.
from the reasons above explain that “GREED” is not in the market because people like you have been sold their unit on profit first and later join the force to force the market to come down.I have found this to be true there are only Drachen and Blueskies are actually honest bears on the blogs there might be some more but you and blah blah blah damn.
Cheer Up
January 30th, 2008 at 4:29 pm
Too bad it’s broken on newer Wordpress templates - I should see what it would take to revive it. Would improve the signal/noise here. I kind of feel sorry that he has nothing better to do that try and goad people.
January 30th, 2008 at 5:40 pm
Of course they can. The reason the RE bubble got out of hand is old myths such as this one. If price relative to value gets out of line, and the market wakes up to this fact, NOTHING can stop the realignment.
January 30th, 2008 at 6:19 pm
Got cash?
January 30th, 2008 at 6:48 pm
X, a West Coast visitor to Saguenay, Quebec, the second-cheapest place in Canada to live, said “I will never go back to Vancouver. I’m going to have to learn another language, but those are the sacrifices you have to make to live in Saguenay where $250,000 will by you a huge house on acreage and waterfront. Bonjour, Vancouver.”
January 30th, 2008 at 7:04 pm
Really scary. Consolidate your debt with us and we’ll lend you the money for a mortgage.
The numbers don’t make sense to me either. To start with they’re comparing renting an apartment owned by a slumlord to buying a high end condo or small house.
The woman is 24 years old. My parents were in their mid-30s before they bought their first house. Why do 24 year olds feel compelled to get into the real estate market?
And who paid 24 hours to publish this?
January 30th, 2008 at 7:36 pm
“If price relative to value gets out of line, and the market wakes up to this fact, NOTHING can stop the realignment.”
In this case I think the market will not wake up, there will simply be an easing of the money supply (mostly on the banks’ side of things).
January 30th, 2008 at 10:11 pm
January 30th, 2008 at 10:43 pm
January 30th, 2008 at 11:55 pm
The 24 Hours article concerns me because it contributes to a perception that the market can only go up and that it is foolish to do anything except buy. It is insanity.
There is nothing wrong with renting. For a lot of people, it probably makes more sense and it involves far less risk. Let’s face it, if the current market turns, many new owners will be ruined.
January 31st, 2008 at 1:43 am
January 31st, 2008 at 8:30 am
But come on people, its very simple math! If the numbers don’t add up they don’t add up.