Posted on 05/03/2008 10:25:47 AM PDT by SeekAndFind
Bump.
What a maroon ... he titles his piece “Housing Prices Near or at Bottom? ( Why the housing bears are wrong )” and then boldly states “IF YOU WANT TO KNOW HOW SMART I AM...” and then the best he can say is “prices can’t go down forever”.
Used to be that when supposed “experts” like me talked, all people could do was listen. Now they can talk back, and their ideas can compete with mine head-to-head on the web.
*************************************
While I do not know enough about this person to say whether he is right or wrong, I do know this statement sounds arrogant and elitist. These people can’t know anything! They don’t have a column like me, how dare they question my knowledge!!!
No, they will not go down "forever".
They will go down until the average buyer for the average house in an average neighborhood that has an average job for that neighborhood can actually afford to pay a down payment AND principal AND interest at a fixed rate each month without going bankrupt.
Until hoses prices go down to that level, the houses prices may bounce up and down all they want above that level but those houses will remain unsold.
We all have columns.
Ours are just scattered around Free Republic. :-)
If the ninja and liar loans are unavailable, then house prices will have to fall back on the old dependable 3 x income formula.
No, but there are plenty of examples where markets go down for 30 or 40 years.
Two years is not "forever".
True.
And guess what? Today home prices have fallen so much, mortgage rates are so low, and personal income is so high — that homes are more affordable today than at any other time, ever
Flat out lie.
You forgot taxes. ;-)
You forgot taxes. ;-)
ARRRGGGHHH!!!
"Hey, honey! You remember how I told you we would never lose this house because we could afford the price? Well, some guy on the Internet just pointed out to me that I forgot one tiny little detail and ....."
Mrs. steveo is in the mortgage biz... She had her best month (April) in a long time. The vast majority were sales... People still want homes and if the price is right, and the loan makes sense it’s a done deal.
The houses are built by illegal aliens so the residential housing sector does zero zilch notta for the economy. In fact it just adds more burden by creating a boom in the illegal alien population and anchor babies.
House prices are so high that even if a household earns $100,000 a year and they have 20% down they cannot afford to get in, An $80,000 down on a $400,000+ house which is the absolute bottom on the edge of the ghetto surrounded by nasty dirty mexicans would cause payments of over $3000 ( over the 30% net income margin) If they do buy they will be hanging by a thread in jeapordy of going into forclosure if gas prices go up again or one of thier bosses sneezes and decides to replace them with a mexican because the entire population demographic is turning mexican fast .
I know because I have been searching for two years, 90% of california metro area neiborhoods are infested with packrats from south of the border. That drives the livable white neighborhood housing prices through the roof, into outer space.
the only way a good buyer can get in is to have a gigantic down payment
Slash prices on houses and they will sell, simple economics.
I’ll agree with your take on this - and add this:
Housing prices were pushed up by an artificial demand. By “artificial” I mean that people who didn’t have sustainable means to buy homes were given outlandish leverage by a very easy Fed policy and banking industry greed following 2002’s agenda of interest rate reductions, plus the Yen carry trade, a confluence of events on Wall Street (securitization of junk paper as AAA paper, which kept rates artificially low and liquidity overly abundant).
That leverage is GONE. Period. See ya. We can see new regulation coming down the tunnel every week now that is going to prevent the sort of lending stupidity of 2003 to 2006 from happening again.
Without that fantastic level of leverage, the demand won’t be coming back. People will have to actually justify to bankers why they should be able to get a mortgage. Bankers won’t be writing mortgages to people seeking to buy houses at 6X their household income. The wave of “ruthless defaults” has already created a response from banks to increase lending requirements, to decrease LTV’s on loans, to freeze HELOC’s, etc. Banks will require at least 10% down, and more conservative banks will likely require more.
Luskin is still playing the typical dumb economist. He keeps looking at the macro economic numbers. This economy and the bond and equity markets have not been driven by macro-econ numbers since last August. Everything since then has been driven by bond market events. And the one picture we can paint from the bond market is that a) too many people confounded “credit” for “cash” and b) they’ll learn (the hard way) that these are two very different things as credit is withdrawn from the US economy in nearly instant regulatory and bank policy changes. The effects of the lack of credit won’t be seen all at once in the macro-econ numbers; it is going to set in over a longer period of time.
The Fed just injected another round of liquidity through auction mechanisms this week, and they’re accepting ever more dubious “collateral” for the treasuries they’re “loaning.” This does not look like “the bottom.”
One more thing: Luskin obviously has never been a trader. One of the truism I’ve learned in trading the stock market is this: When talking heads keep saying “This is the bottom” — you’re nowhere close to the bottom. People have to throw their hands up, express nothing but disgust and despair, the conventional wisdom has to become “No one who wants to make any money would put their money there” before there is a “bottom.”
We’re not at a bottom. Just as bull markets don’t go straight up without corrections, bear markets don’t go straight down. Look at a chart of the NASDAQ stocks in 2001 to 2002 - there were counter-trend rallies that kept people saying “This was the bottom!” time and time again. It wasn’t until we got to October 2002 and March 2003 that we finally hit a “bottom.” By then, people were just chucking in the towel and selling stocks at fantastic discounts.
That is a great line.
I don’t think he sounds arrogant or elitist at all. He says specifically that he is a “supposed” expert, that people can talk back to him and have their ideas compete, and “If you want to know how stupid I am, read the comments section of my columns, where readers get to rip what I say to shreds.” That sounds pretty humble, even charming.
I question one of his axioms:
“What establishes value in a home price? Like anything else, it’s a question of historical norms.”
Actually, no. It’s a more fundamental question. The ratio of value to price, like anything else on the market.
I don’t mean value in a particular market, I mean absolute value. For example, you can buy a $20 pair of sunglasses for $200 in the upscale market across town. But their absolute value is still $20.
So what is the value of a $200,000 home that is being sold for $500,000?
Now people can still spend $500,000 for a $200,000 home, but most often only if they can get a lot of credit. And this same principle applies to businesses and our nation itself. We can only have a ridiculously high national debt, because someone is willing to lend us the money to buy things we can’t afford.
And what happens when nobody wants to lend money, so that people can no longer buy a $200k house for $500k?
Reality happens. The price of that house needs to drop to a little above $200k before it *should* be sold. If people can only pay cash, they will want value for that cash. Absolute value. They question the whole premise of why they should pay $500k for a $200k house.
But what about people who have $500k they want to spend on a house? Easy. They buy a house for a little more than $500k that is actually *worth* $500k. If nobody is selling a house that is actually worth $500k, then the buyer finds somebody who will build them a *new* $500k house.
And no, Mr Contractor, you have no reasonable expectation of being paid $700,000 net profit for building a $500,000 house.
Again, reality happens.
Now there is still credit available out there, even if it is tight right now. And the powers that be LIKE to spend more than they make, and want everyone else to overspend as well. But how long do you think that will last?
Time will tell. Eventually it has to end, however.
He does sound like he has a sense of humor, maybe sarcasm doesn’t come across well in print. Lord knows I’ve been accused of that numerous times.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.