Another Housing Bubble is Starting

[opebo]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.

I remember going with dad back in the day - I guess it was the early to mid 1990s, before the big upswing - to look at 'packages' of houses for sale.  Older white slumlords, in the mood to retire, selling of 10-30 houses in black or mixed neighborhoods for about the price of one or two houses in a 'good neighborhood'.  These were typically rented 'section 8' by the government, and were good investments, but my father just couldn't make the leap - he was only into trailer park slum-lording, which to his mind was much safer, though the return was far less.

[Sbane]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.

I remember going with dad back in the day - I guess it was the early to mid 1990s, before the big upswing - to look at 'packages' of houses for sale.  Older white slumlords, in the mood to retire, selling of 10-30 houses in black or mixed neighborhoods for about the price of one or two houses in a 'good neighborhood'.  These were typically rented 'section 8' by the government, and were good investments, but my father just couldn't make the leap - he was only into trailer park slum-lording, which to his mind was much safer, though the return was far less.

It's funny how my uncle, who is into this business as a second job, loves section 8 housing even though he is anti-government in other cases. These days he is especially interested in buying houses in South Atlanta suburbs...for obvious reasons. I have been to these neighborhoods, in many cases looking the same as any other well off suburb....except for the fact that they are filled with Blacks. And houses are cheap as a result....

[DC Al Fine]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.

I remember going with dad back in the day - I guess it was the early to mid 1990s, before the big upswing - to look at 'packages' of houses for sale.  Older white slumlords, in the mood to retire, selling of 10-30 houses in black or mixed neighborhoods for about the price of one or two houses in a 'good neighborhood'.  These were typically rented 'section 8' by the government, and were good investments, but my father just couldn't make the leap - he was only into trailer park slum-lording, which to his mind was much safer, though the return was far less.

It's funny how my uncle, who is into this business as a second job, loves section 8 housing even though he is anti-government in other cases. These days he is especially interested in buying houses in South Atlanta suburbs...for obvious reasons. I have been to these neighborhoods, in many cases looking the same as any other well off suburb....except for the fact that they are filled with Blacks. And houses are cheap as a result....

If they've been rented section 8 for any amount of time, I doubt their condition is good compared to a comparable house in another suburb. You know the deal. Tenants don't pay their rent and the landlord never repairs the place.

[Sbane]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.

I remember going with dad back in the day - I guess it was the early to mid 1990s, before the big upswing - to look at 'packages' of houses for sale.  Older white slumlords, in the mood to retire, selling of 10-30 houses in black or mixed neighborhoods for about the price of one or two houses in a 'good neighborhood'.  These were typically rented 'section 8' by the government, and were good investments, but my father just couldn't make the leap - he was only into trailer park slum-lording, which to his mind was much safer, though the return was far less.

It's funny how my uncle, who is into this business as a second job, loves section 8 housing even though he is anti-government in other cases. These days he is especially interested in buying houses in South Atlanta suburbs...for obvious reasons. I have been to these neighborhoods, in many cases looking the same as any other well off suburb....except for the fact that they are filled with Blacks. And houses are cheap as a result....

If they've been rented section 8 for any amount of time, I doubt their condition is good compared to a comparable house in another suburb. You know the deal. Tenants don't pay their rent and the landlord never repairs the place.

The government pays their rent but yes there are many problems like the tenants not cutting the grass and maintaining the house. But the neighborhoods I am talking about actually have a lot of people who own their houses. Property prices have fallen a lot in these areas though, and a lot of investors are moving in. Who knows what will happen after 10-20 years.

[Person Man]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

and to do that, we need growth based on innovation, not speculation. This is the basic policy differences between the parties when it comes to growth.

[Simfan34]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

and to do that, we need growth based on innovation, not speculation. This is the basic policy differences between the parties when it comes to growth.

And for innovation, we need education, basic science research, and manufacturing. Otherwise it can't happen. Why are you going to research if you manufacture abroad and have large educated classes abroad.

[Beet]

As glad as I am about seeing an economic recovery that is finally starting to gain steam, I do not want to see it based on housing, credit, and consumption like the last time.  We need an economic recovery based more on manufacturing exports, savings, and investment.    

and to do that, we need growth based on innovation, not speculation. This is the basic policy differences between the parties when it comes to growth.

The Democrats turned a blind eye to the housing bubble too. Sadly, at this point it's not at all clear that they would do differently if it happened again.

[Link]

Prices are now appreciating at the same rate as they were at the height of the bubble. This is the problem with Bernanke's QE forever plan...

I don't think rapid acceleration off an oversold bottom portends the same thing as rapid acceleration at an over bought top.

Also you alluded to the FED's historically loose policy.  We are coming off the bottom and monetary policy is waaayyyy looser than it was in 2008.  That alone tells me we are in a different situation.

[TheDeadFlagBlues]

Brought these numbers up in my Intro to Econ class as the Case-Shiller Index and got shot down by the prof. Oops.

The change is less dramatic if you look at Case-Shiller numbers, what are the methodological differences between the two? Which one is more reliable?

[Beet]

Brought these numbers up in my Intro to Econ class as the Case-Shiller Index and got shot down by the prof. Oops.

The change is less dramatic if you look at Case-Shiller numbers, what are the methodological differences between the two? Which one is more reliable?

Sorry about that. Zillow is a website for homebuyers that was founded during the last housing boom. Its data comes only from its database. Case-Shiller index has been around longer and is associated with housing expert Robert Shiller, and comes from a survey conducted by S&P. So it's more reputable. But the two surveys try to measure the same thing. Here's a bit of description from Zillow:

"One important difference between the Zillow Home Value Index and the Case-Shiller index is their respective coverage areas. The Zillow Home Value Index is reported for 165 metropolitan areas whereas Case-Shiller reports on 20 higher level metropolitan areas (although the national Case-Shiller index uses data from about 100 metropolitan areas)."

However I'm not sure how much less dramatic the Case-Shiller numbers are? The chart shows Zillow YoY increase of 4.7%, whereas the WSJ reports that Case-Shiller YoY increase is 3.6%, " the strongest rise since 2005". Perhaps that's a big difference for your professor, or perhaps your professor means the YoY is a lot less dramatic than the MoM.

[Link]

Brought these numbers up in my Intro to Econ class as the Case-Shiller Index and got shot down by the prof. Oops.

The change is less dramatic if you look at Case-Shiller numbers, what are the methodological differences between the two? Which one is more reliable?

Should have read my post.  It would have saved you some pain.

Don't trust the numbers at Zillow.  I don't know what the methodology is that they use for any of their estimates.  Check out a neighborhood you know backwards and forwards and I guarantee you you will see some Z-estimates in that area that will make you go WTF.

To be honest with you I didn't even realize that chart was from Zillow.  I saw ZHI and kept trying to figure out what that meant.  I assumed I was looking at some kind of analysis of the Case-Shiller index.  If it's not Case-Shiller be suspicious.

[Person Man]

Zillow does seem a bit off. Some places they value like half of what the next house just like it just sold for and in other circumstances, its like double. Basing values on statistical sources where there are few degrees of freedom by definition will give you double-digit errors.

[Beet]

DeadFlagBlues' professor is probably thinking about YoY changes. The last month's MoM change on Zillow is the same as the MoM change from the height as the housing boom, however that is just for one month. To have a real housing bubble we would have to see it consistently at this level month after month. At the height of the bubble a 1% MoM gain meant 12% annual gains for the national market. So at 3-5% annual gains for 2012, and even with higher 7-9% annual gain projections for 2013, we are significantly short of that.

[All Along The Watchtower]

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

Yeah sure, provided the demand is there to create it. The question is, does America really have enough demand to raise housing prices significantly?

Well, if demand and prices are growing despite Dodd-Franks regulations against the mortgage market being in place, then... yes?

The problem is that more and more wealth is concentrated in fewer and fewer hands. It was true before the Great Recession and it's even more true now.

A handful of rich people plus some credit extended to some of the vast number of poor and near-poor people does not make a healthy economy.

[Person Man]

DeadFlagBlues' professor is probably thinking about YoY changes. The last month's MoM change on Zillow is the same as the MoM change from the height as the housing boom, however that is just for one month. To have a real housing bubble we would have to see it consistently at this level month after month. At the height of the bubble a 1% MoM gain meant 12% annual gains for the national market. So at 3-5% annual gains for 2012, and even with higher 7-9% annual gain projections for 2013, we are significantly short of that.

Hopefully, this can be sustained like the gradual growth that we saw in the 90s and early 2000s. Maybe home prices will be back to where they were in 2020. Some realtor were saying that at the beginning of....this.

Everything I've read about the housing bubble tells me it wasn't having the bubble itself that was the problem, but the fact that it was overinflated by bad bond ratings and a sneaky investment scheme that encourage poor loans.  Is that wrong?  Was that not regulated out?  Is it not possible to have a healthy booming housing market?

Yeah sure, provided the demand is there to create it. The question is, does America really have enough demand to raise housing prices significantly?

Well, if demand and prices are growing despite Dodd-Franks regulations against the mortgage market being in place, then... yes?

The problem is that more and more wealth is concentrated in fewer and fewer hands. It was true before the Great Recession and it's even more true now.

A handful of rich people plus some credit extended to some of the vast number of poor and near-poor people does not make a healthy economy.

Define "poor" and "near-poor"? Are you talking about the 49% of people at or below 200% of the poverty line?

[Link]

Maybe home prices will be back to where they were in 2020. Some realtor were saying that at the beginning of....this.

Doesn't matter.  There are plenty of places where home prices remained very sane throughout this whole fiasco.  Look at Texas.  People were acting like Perry was some kind of economic genius but the fact of the matter is you didn't see widespread housing lunacy like you did in Vegas and Miami.

The numbers that are being tossed around are aggregate numbers.  There are areas that will not see the prices we saw at the peak for decades.  In Ireland the government is actually actively involved in tearing down perfectly good houses because they will most likely never be occupied any time soon.  Even if aggregate numbers improve that doesn't tell you about local pain.

[Person Man]

Maybe home prices will be back to where they were in 2020. Some realtor were saying that at the beginning of....this.

Doesn't matter.  There are plenty of places where home prices remained very sane throughout this whole fiasco.  Look at Texas.  People were acting like Perry was some kind of economic genius but the fact of the matter is you didn't see widespread housing lunacy like you did in Vegas and Miami.

The numbers that are being tossed around are aggregate numbers.  There are areas that will not see the prices we saw at the peak for decades.  In Ireland the government is actually actively involved in tearing down perfectly good houses because they will most likely never be occupied any time soon.  Even if aggregate numbers improve that doesn't tell you about local pain.

It appears the only reason that someone moves to Texas is because they have to because they have  no other place to go with anything else to do. Maybe that will allow  Texas to snowball into a desirable place one day, but apparently Texas being anything more than it is now is still decades away (more or less around the time that our useful lives will end), if that will ever happen at all. But hell, if that's the only place where there's something for you to do, I would be grateful.

[TeePee4Prez]

Brought these numbers up in my Intro to Econ class as the Case-Shiller Index and got shot down by the prof. Oops.

The change is less dramatic if you look at Case-Shiller numbers, what are the methodological differences between the two? Which one is more reliable?

Sorry about that. Zillow is a website for homebuyers that was founded during the last housing boom. Its data comes only from its database. Case-Shiller index has been around longer and is associated with housing expert Robert Shiller, and comes from a survey conducted by S&P. So it's more reputable. But the two surveys try to measure the same thing. Here's a bit of description from Zillow:

"One important difference between the Zillow Home Value Index and the Case-Shiller index is their respective coverage areas. The Zillow Home Value Index is reported for 165 metropolitan areas whereas Case-Shiller reports on 20 higher level metropolitan areas (although the national Case-Shiller index uses data from about 100 metropolitan areas)."

However I'm not sure how much less dramatic the Case-Shiller numbers are? The chart shows Zillow YoY increase of 4.7%, whereas the WSJ reports that Case-Shiller YoY increase is 3.6%, " the strongest rise since 2005". Perhaps that's a big difference for your professor, or perhaps your professor means the YoY is a lot less dramatic than the MoM.

Case-Shiller ignores Philadelphia despite being the No. 5 largest city.  Zillow is all I have but there's also Miller Samuel research.

[Politico]

The full effects of the housing bubble have yet to be felt. It probably screwed things up beyond repair. What is largely happening right now is investment companies are gobbling up properties and renting them out. Of course, the thought is that one can achieve better returns doing this than by making other investments of similar risk. In some markets this behavior is even pricing interested home-buyers out of the market since they're unable to compete with the investors on bids. Lastly, it is not helping the real economy much since most of the property being bought up is not new.

Thank you Jimmy Carter for signing the Community Reinvestment Act, and thank you Bill Clinton for strengthening it!

[Torie]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.

I am part of the problem, although I generally lose tenants who buy something in my case. I love Hollywood - high income youngs in abundance. That's the ticket if you are in the landlord business. Plus, I find my tenants to be interesting people. I hooked up with my face lift doc through a tenant.  Another runs the theatre operation for a gay organization - one of the oldest and best funded in the nation, providing services to the gay community, including high quality plays and musicals. Oregon is a whole different ball of wax - more marginal tenants with not much extra cash hanging around.

[Link]

Thank you Jimmy Carter for signing the Community Reinvestment Act, and thank you Bill Clinton for strengthening it!

Yes it is Jimmy Carter's fault people were quitting their perfectly good middle class jobs to start flipping condos in Miami.

[opebo]

Part of the bubble is because of cash investors who then rent the properties.  Instead of an "ownership society", we're looking at a tenancy society due to increasing home prices with no employment changes.  Home price increases without corresponding wage increases is terrible.

Could you expand on that a bit? What do you mean by a tenancy society existing while people keep buying homes?

People who own 6-8 homes and then give them out for rent. This is especially true in the poorer parts of America where homes sell for less than a new car.

I am part of the problem, although I generally lose tenants who buy something in my case. I love Hollywood - high income youngs in abundance. That's the ticket if you are in the landlord business. Plus, I find my tenants to be interesting people. I hooked up with my face lift doc through a tenant.  Another runs the theatre operation for a gay organization - one of the oldest and best funded in the nation, providing services to the gay community, including high quality plays and musicals. Oregon is a whole different ball of wax - more marginal tenants with not much extra cash hanging around.

I think your experience in Oregon is more indicative of the reality of the 'tenancy society' referred to above, Torie, and particularly in the case of single-family properties discounted into investor ownership by the bust.

Lets face it, only a minute percentage of america is a 'high income young', while vast numbers are now relegated to poverty-level jobs and spending over half their income on rents.