Saturday, August 13, 2005

Predictions

To all three readers of this blog: How about anonymously posting your predictions of the time-line of the collapse of the housing bubble?

I'll go first. I'm by no means an expert or anything, I fully admit that I don't know anything useful, but for what it's worth (nothing) here's my prediction as of how it might unfold given how things look today:
August - October, 2005
Interest rates keep rising and look to continue to rise into the foreseeable future. The sheeple who just want a place to live still buy, even more willing than ever to use risky loans, as mortgage rates are still relatively low. But overall, in the "hot" coastal markets demand continues to slacken and inventories are noticeably higher for this time of year. Oil makes new highs. House prices in "hot" markets make all new highs. Newspaper headlines still give lip-service to a housing bubble but the talking heads still claim that there is no bubble and prices will continue to increase. Speculators are unphased by anything and keep flipping.

November - February, 2006
In the coastal markets, demand continues to slow and inventories continue to increase. Fixed interest rates are entering uncomfortable levels. But the sheeple are distracted by Christmas shopping, the latest new car to show off to the neighbors, the romantic minutia of celebrities, etc. Since much of the money they have taken out of home equity has been spent, they take on even more debt. Oil makes new highs. Speculators continue to be oblivious and keep speculating.

March - July, 2006
Fixed rates are around 8%, maybe as high as 9%. Dreamers and speculators still think "houses always go up"; still rising interest rates, further decreased demand, and ever increasing inventories continue to be ignored by them as houses still look cheap to them and after all they have it all figured out how they can play the rates and loan types to their advantage.

August - October, 2006
Now the number of houses on the market for sale are legion and sellers are desperate; sellers finally perceive the immense "hole of debt" that they are responsible for and are desperate to sell hoping just to break even, never mind making a profit. Inflation is now acknowledged to be a lot higher than previously admitted. Oil is between $95 and $105 per barrel. Basic household items are now nearly 100% of last year's price. The sheeple are starting to wake up and groggily ask what's going on? Speculators still repeat their (now tiring) mantra that "houses always go up in value, people always need a place to live, everyone wants to live here, houses aren't like stocks,..."

October - December, 2006
"POP!" reads the newspaper headlines across the country. Now all the talking heads claim to have known it all along that there was a housing bubble and the blame game begins in full earnest. The mood on neighborhood streets is gloomy. No one is smugly talking about the value of their houses. Curiously, shiny new SUVs aren't as commonplace as they once were. Oil maintains its highs at around $100 per barrel. Speculators pause and take a moment to look around and see what the fuss is all about, shrug, and carry on.

January - December 2007
The US is defaulting and as a practical matter the dollar is clearly losing or has lost its status as a world reserve currency. Houses have lost 50 to 70% of their peak value depending on how hot the local market was at the height of the frenzy. Unemployment is rife in coastal states due to the fact that so many people were dependent for employment on the housing bubble. The bust of the US housing bubble is felt all over the Western world and their economies suffer as a result. The sheeple, if they haven't already, are buying guns, gold. The blame game is effectively over and now New Ideas are bandied around left and right as to how to fix the situation. Speculators are now broke and probably homeless.

2008
Hillary Clinton is hailed as the first female US president and "look how progressive we are, we truly are the leader of the Free World" and yadda yaddy and her administration inherits a country that is in a sorry state. The US becomes more aggressive and the rhetoric about "spreading freedom and democracy around the world" is more extremist. France, Germany, Britain, the whole of the EU politely turn their backs on the US and openly embrace the East. Iran, China, Russia, North Korea declare their camaraderie.

14 Comments:

Anonymous Anonymous said...

I know you must have more than three readers. I'll bet there are a lot of people, like myself, who are stopping by but just aren't commenting. I like your content, I just wish I was a little more savvy and had something worthwhile to say.

But keep it up, as I enjoy reading your posts. And I am learning more as a result of these fine blogs.

Aug 13, 2005, 8:51:00 PM  
Anonymous Anonymous said...

Any thoughts on Marin in particular--or do you think the crash will be all-encompassing? Given how the median home price in Marin has jumped to $240% of '99 prices, I suspect a huge correction--but slowly, perhaps over 3-4 years. At the low point, I think it will be below market norm, those who did I-O and ARM "just to live in Marin" will be in dire times. I really feel for those people--but they should've done better research--really.

Speculators pause and take a moment to look around and see what the fuss is all about, shrug, and carry on.

Definitely the case in Marin. I've talked to a few "speculators", and their optimism has no end: "Marin will never fall". I suspect they'll hold on until the bitter end--and many will lose their shirts.

Aug 14, 2005, 12:14:00 PM  
Blogger albert said...

When I was 18, I was in college and received my real estate license. This was in 1988. Todays news was exactly the same as it was back then. The only differnce is the reporters and prices. I of course purchased my first investment in 1989. I saw the value drop about 40 percent and it was a negative on a monthly basis.

I did make other purchases in the downturn and still came out on top due to today's prices.

To think that people with 0 to 5% and sometimes even 10% purchasing $1,000,000 to $1,000,000 will be able to afford those payments when the teaser rates disappear is something out of a faily tale novel.

Just wait. History, (i.e.-the early 90's) does repeat itself.

At least that is what my 8th grade teacher said when someone asked why we have to study it.

Aug 14, 2005, 12:23:00 PM  
Blogger njdoc said...

Marinite,

The article by Abrahams is quite interesting. I believe the point is that credit was distributed globaly, throughout the entire financial system. It has become like a chain reaction. I believe the powers that be know that they have a potential problem on their hand, however they must feel that will be able to control it. History is not kind to periods of excess credit creation. Perhaps this time will be different. We all know what can happen when a chain reaction get out of control!

Aug 14, 2005, 1:26:00 PM  
Blogger njdoc said...

Sorry, I meant the previous comment to be about the post on 8/14. Anyway, regarding your predictions, I have only two major disagreements. One. The government will do everything in it's power to maitain confidence in the dollar. There is just too much at stake for everyone in the world for the dollar to collapse. Second. Hillary Clinton is to much of a polarizing figure to be elected president. Although I will definitely agree if there is a housing bust before 2008, Democrats will roll into the White House.

Aug 14, 2005, 1:32:00 PM  
Blogger Marinite said...

What do I really think will happen in Marin?

Ok, the truth is I also believe Marin is a special place but only because it is pretty. I do think that entitles Marin to be about 15-20% more expensive than some other neighboring areas in the Bay Area. But that just means Marin's prices during this boom started off on a higher step of the ladder than other areas. When a correction comes it comes to all bubble areas; Marin, like all other areas of CA, will come down to where it should be on a historical average. Why? Because this housing boom is NOT based on people suddenly making more money and is NOT based on the success of the overall economy. It is based on the far easier availability of credit and Marin is affected by that just as much as anywhere else in CA. Marin has A LOT of speculators. A lot of houses in Marin are being flipped. They are vulnerable. Marin is no different than any other housing market in this respect. Tightening of credit affects all markets equally and as speculators start to not make money, as first-time buyers start renting in favor of buying, Marin will suffer as much as anywhere else.

Yes, Marin is a wealthy county. People with butt-loads of money will still pay whatever to buy a house here. But the places where such people buy are confined to places like Ross, Kentfield, Tiburon. They represent a small percentage of Marin. Also, with the exception of spoiled kids who inherited their money (as opposed to earning it), wealthy folks are wealthy because they are smart and frugal and they know a bargain when they see it and so will take advantage of a downtrend just like anyone else; they can just afford to over-pay to get what they want if they have to.

Another point to consider is that a lot of the wealthier folks who live in Marin work in the city as investment bankers, real estate attorneys, etc. Their jobs will be hard-pressed as RE in the Bay Area as a whole turns down. I know this because my father was a very influential RE attorney in SFO and when the RE market got hurt he was very worried for his job. A lot of attorneys in his firm lost their jobs and in fact the firm went from being known as a RE firm to being more diversified into other legal areas. I've over heard a number of investment bankers in San Anselmo express the same concern recently (my daughter attends a private school there and so I get to rub shoulders with these wealthy folks on a regular basis).

So yes, this time around it IS different. This time Marin's RE market is no different than any other bubble market IMO.

Aug 14, 2005, 1:39:00 PM  
Anonymous Anonymous said...

My prediction: little or no decrease in the month-over-month median price of a Marin home through October 2005. Maybe a 1% - 3% decrease by December 31, 2005. Of course, all bets are off if there's a massive terror attack or natual disaster (e.g., massive quake in the S.F. Bay area or L.A.)

I've been actively looking to buy a house in Marin (I need a house to live in), and I don't see any evidence of an impending decrease in prices. Sellers are not going to sell at less than what they think is the market. On the other hand, there's great resistance to price increases.

Aug 14, 2005, 5:12:00 PM  
Anonymous Anonymous said...

My prediction: little or no decrease in the month-over-month median price of a Marin home through October 2005. Maybe a 1% - 3% decrease by December 31, 2005

Very bullish, but that's even less than upper-end month-to-month decreases during this purported "bubble". That would suggest increasing stability, which begs a reason. Follow the link to see yourself...
http://tinyurl.com/afa96

Aug 14, 2005, 5:20:00 PM  
Anonymous Anonymous said...

YOU SAID: Very bullish, but that's even less than upper-end month-to-month decreases during this purported "bubble". That would suggest increasing stability, which begs a reason. Follow the link to see yourself...
http://tinyurl.com/afa96

MY RESPONSE: Thanks for the link to the monthly median sales price in Marin County. It shows that a 1% - 5% month-over-month decline is the median sales prices is not unusual, but that the overall trend remains up.

I can't see the market crashing in the next few months. However, I do think that it's peaking, and smart sellers know it. An example is the Wood Hallow area of Novato. I looked at a house about three weeks ago that was listed for $1.079 million. It's since been lowered to $1.035 million. A similar house a few doors down just went on the market for $949K. There are several other houses in that area that have languished on the market for weeks. I don't think the owners of these houses are going to drop the price of their houses significantly, that's why there won't be any dramatic drop in the market anytime soon. At the same time, prices are not rising, and buyers know it. Buyers know that time is now on their side; if they can wait, they will.

Aug 14, 2005, 10:07:00 PM  
Anonymous Anonymous said...

"At the same time, prices are not rising, and buyers know it. Buyers know that time is now on their side; if they can wait, they will."

Given the huge disparity between rents and monthly mortage costs in Marin (not even taking into consideration the added expenses of owning like insurance, prop. tax, maintenance, etc.), buyers can wait.

Also, what has supported the Marin housing market has been for the most part, like everywhere else, cheap mortgage rates and, later, exotic loan types. If either of those two things change you can kiss good bye to Marin's housng market. Buyers I think are somehwat aware of this and will wait.

Aug 15, 2005, 9:31:00 AM  
Anonymous Anonymous said...

At the same time, prices are not rising, and buyers know it. Buyers know that time is now on their side; if they can wait, they will.

Yes--once prospective homeowners realize they don't need to "buy before it's too late", the jig is up.

Aug 15, 2005, 10:09:00 AM  
Anonymous Anonymous said...

'Given how the median home price in Marin has jumped to $240% of '99 prices'

Key word in this sentence is median.

Aug 15, 2005, 2:12:00 PM  
Anonymous Anonymous said...

'Given how the median home price in Marin has jumped to $240% of '99 prices'
Key word in this sentence is median.


You're alluding to something, so be more specific.

Aug 15, 2005, 5:15:00 PM  
Anonymous Anonymous said...

My Grandparents came to this county in the horse and buggy days. I am sick of the headlines in the IJ telling about higher and higher prices in this area. I blame the real estate people for some of the increases because many of them drive around in fancy cars and clothes and promote to their clients that they can get more than their neighbors. time and time again this has pushed the little shacks up to the million dollar mark. Hope that when the crash comes that people will be prepaired for the consequenses. their "fixer-uppers" are an insult to those of us with common sense.

Dec 7, 2005, 11:34:00 AM  

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