Home prices are too damn high

From Peter Schiff via the WSJ:

Home Prices Are Still Too High

Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today’s already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders “underwater.” As a result, the trajectory of home prices has tremendous economic significance.

Earlier this year market observers breathed easier when national prices stabilized. But the “robo-signing”-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor’s Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a “double dip” in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.

Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.

By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that set off a national mania for real-estate wealth and a torrent of temporarily easy credit.

If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book “Irrational Exuberance,” Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and ’60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late ’90s.

In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

This entry was posted in Economics, Housing Bubble, National Real Estate. Bookmark the permalink.

162 Responses to Home prices are too damn high

  1. grim says:

    And to think that we trusted what this guy told us about housing?

    From the Post Chronicle:

    Ex-Treasury Chief Henry Paulson Loses $1 Million On DC Home

    Few know better than former Treasury Secretary Henry Paulson how the struggling U.S. economy has battered home prices.

    As former President George W. Bush’s top economic
    adviser, Paulson played a lead role battling the U.S. housing downturn and deep financial crisis it sparked.

    But last week it got personal.

    Paulson sold his three-bedroom home in a tony Washington neighborhood last week for close to a third less than his initial asking price and more than $1 million below what he paid for it more than four years ago.

    The villa-style home near the official vice president’s mansion and the National Cathedral sold for $3.25 million on December 21. Paulson put it on the market for $4.6 million in April, later lowering the asking price to $4.15 million, according to real estate industry records. He paid $4.3 million in August 2006, according to government records.

    “A jewel-like facade, reminiscent of a Provencal villa, gives way to a remarkable interior with living space on three levels and expansive common areas,” gushed the listing.

    Paulson clearly got caught in the wave of price declines that has bedeviled sellers across the nation. But real estate is location specific, and Paulson fared much worse than his neighbors.

  2. chicagofinance says:

    albani: from Vecsey…..
    This just in from column contributor Michael Catarevas: Wilson Chandler is miffed at Knicks management for refusing to support his new Tats for Tots charity.

  3. grim says:

    From HousingWire:

    S&P revises shadow inventory timeline upward, again

    In the last three months, an estimated liquidation timeline covering the nation’s backlog of distressed real estate actually increased, according to Standard & Poor’s.

    The ratings agency now estimates it will take 44 months — up 25% percent from an estimate made just three months ago — to clear the so-called shadow inventory of homes in distress or foreclosure, but not yet on the resale market. Some markets are significantly more impaired when compared to others, the agency concluded.

    In September, Standard & Poor’s estimated it would take 40 months.

    “Our recent estimates of months to clear have increased primarily as a result of the deceleration of the distressed property liquidation rate rather than a rise in overall distressed property levels,” according to analysts in a research report emailed to HousingWire.

  4. hoodafa says:

    Don’t Believe the Rosy Forecasts

    Most economists and pundits predict a continued upward trend for most assets next year, but they will eventually be proven wrong.

    More at: http://finance.fortune.cnn.com/2010/12/30/dont-believe-the-rosy-forecasts/

  5. grim says:

    From the WSJ:

    Dead Soul Is a Debt Collector

    Martha Kunkle has come back to life.

    She died in 1995. Yet her signature later appeared on thousands of affidavits submitted by one of the nation’s largest debt collectors, Portfolio Recovery Associates Inc., in lawsuits filed against borrowers.

    Some regulators complain that the use of Ms. Kunkle’s name reflects an epidemic of mass-produced, sloppy and inaccurate documentation in the debt-collection industry. Lawsuits have surged as more borrowers fall behind on payments and collection firms turn to courts to get what they are owed.

    After being sued for fraud, Portfolio Recovery Associates decided in early 2008 that any documents bearing Ms. Kunkle’s name had “defects” and shouldn’t be used when trying to collect debts, a company spokeswoman said.

  6. Schrodinger's Cat says:


    any thoughts on the tiered index trends I was posting on last night in the prediction thread?

    Have fun in the chocolate city!

  7. xroads says:

    “Where would prices go if these props were removed?”
    Most people I talk with in NJ don’t seem to realize this state hasn’t been hit that hard in price declines yet. I still here hurry up and buy! It’s crazy how uninformed we can be as a society. Sheeple…

  8. Neanderthal Economist says:

    Chart: YoY Changes in NY Metro Case Shiller Index

  9. Schrodinger's Cat says:


    my theory on that is as follows:
    in general, most people only see 1 full RE cycle in the period of their adult lives when they have the potential to be buyers. As a result the long term cyclic nature of RE doesn’t have a chance to be absorbed into “generational” memory. Hence each generation behaves based only on the most recent phase of the long term RE cycle.

    If we could actually get long term trends into peoples “generational memory” then you would have the crazy swings. Of course you would have to educate people about such things from a young age. That’s about as likely to happen as monkeys flying out of my @ss

  10. Schrodinger's Cat says:


    I’m not sure what your chart is showing. Is it a simple delta, I.e. 2006 – 2007???? That’s what I seem to get from it considering the y axis.

    Perhaps I need more coffee. Happy new year buddy and all the best to you and your family

  11. It’s all over, but the fighting and crying. We are all doomed.

  12. Just like S0dom & Gomorrah, flee and don’t look back.

  13. xroads says:

    “in general, most people only see 1 full RE cycle in the period of their adult lives when they have the potential to be buyers.”

    I would agree if it were not for the 1980’s bust in our area that most adults(Boomers) forgot about? I guess. My in-laws were victim to memory loss of this phenomena, RE price drops of the late 80’s early 90’s. I was in my late teens early 20’s at this time but remembered because a guy I worked with was going through foreclosure. But most people I talk with seemed to have forgotten this era and are waiting for prices to get back to %20 gains per year. I’ve said that during this last boom there was a lot of bad advice given to gen x and y by their parents to hurry up and buy!

  14. Neanderthal Economist says:

    Kettle, Same to you dude. That chart at 8 is just a ny metro index price comparison for each month to the same month in previous years. I like it because it removes seasonality.
    Happy new year everyone.

  15. chicagofinance says:

    TRENTON — Gov. Chris Christie, recently returned from a family vacation in Disney World, will sign a letter this morning requesting aid from FEMA.

    The letter, in response to the recent blizzard, will request disaster aid for the costs associated with the storm.

    He will travel to Monmouth County for the signing, one of the counties that had the most difficulty getting snow removed from roads and stranded motorists rescued. Crews were still clearing state roads in Monmouth County today.

    This will be Christie’s first public appearance since snow blanketed the state and left some in northeastern New Jersey buried under record-setting snowfall. Christie traveled to Florida for a family vacation Sunday and has remained there until returning early this morning.

    While he was away, Lt. Gov. Kim Guadagno was also out of the state, so Senate President Stephen Sweeney (D-Gloucester) has been serving as acting governor.

    Christie will sign the letter at 11:30 a.m. at the Hall of Records of Freehold.

  16. JJ says:

    FINRA should look into best execution on this trade, 94 sell and a 107 buy within 90 minutes of each other

    Price Quantity Date/Time Buy/Sell
    107.475 10 12/15/2010 12:11:51 Customer Buy
    94.000 100 12/15/2010 10:30:00 Customer Sell

  17. Schrodinger's Cat says:


    does CS really show much seasonality? Their algorythyns seem to smooth most if it outsince it’s a sort of running “average” over a 3 month period if I remember correctly.

  18. Neanderthal Economist says:

    “does CS really show much seasonality?”

    Schrod, Yes CS shows a lot of seasonality, thats why they have two verisons of their index, one seasonally adjusted, which is flawed, as they have openly admitted.

    The 3 month average is a smoothing mechanism, not a seasonal adjustment. Think about Nov Dec and Jan versus March April and May. Apples to Alligators.

  19. hoodafa says:

    From the WSJ:

    In New Mexico, Val Kilmer Relists Ranch for $18.5 Million

    Actor Val Kilmer has relisted his 6,000-acre New Mexico ranch for $18.5 million, a 44% discount from its original $33 million asking price in 2009.

    The Pecos River Ranch is about 30 miles east of Santa Fe. Six miles of popular trout-fishing river runs through the ranch. The property includes a main house built of logs with four bedrooms and four baths, with an attached guest house. There are several additional staff and guest houses, as well as an equestrian complex. Mr. Kilmer currently operates the ranch as a bed and breakfast.

    More at: http://online.wsj.com/article/SB10001424052970203525404576050062394912224.html?mod=WSJ_hpp_sections_realestate

  20. Neanderthal Economist says:

    JJ, That whole round, odd lot thing will get you every time.

  21. chicagofinance says:

    For JJ:

    Bad news ‘bares’
    Strip-joint customers melt away

    You normally want to see giant mountains at a strip club — but this is ridiculous!

    The Sanitation Department caused lap dances at Hell’s Kitchen jiggle joint HeadQuarters Cabaret to grind to a halt, after snow-removal workers cut the gentlemen’s club off from the outside world by dumping 15-foot-high piles of snow in front.

    Strippers were forced to totter through an arctic winterscape in their stiletto heels. By the early-morning hours, the Sanitation Department had packed such massive mounds outside the mammary mecca that men couldn’t get down the street to the front door.

    Even the club’s dancers weren’t hot enough to melt all the white stuff.

    “Its been dead,” complained dancer Valentina Torres, 22. “As you can see, no one is here. The street is closed so we don’t even get our regular customers. Basically, this has been a wasted week. As long as the sanitation [workers] are out there, no one will come!”

    The city was piling the snow near the club — on West 38th Street at 11th Avenue — because a snow-melting machine was operating there.

    After midnight yester day, sanitation workers were stopping people from even trying to go down the street to the club. Club workers also re ported damage to rugs and tiles out side from the snow-moving equip ment.

    “The blizzard never stopped here,” said night manager Carmine Vitolo, 37. “It’s not the act of nature; it’s the city and the Department of Sanitation choosing to melt all their snow on this one block. It’s just so bad out there. The worst thing is that Sanitation is giving us no timetable when this will clear up.

    “The snow just keeps on coming and coming to the street,” he added. “Business is down 90 percent because of this. They closed the street so everyone thinks we’re closed. And it’s funny, because on snowy nights we do better than usual.”

    The Sanitation Department said it had to melt snow in that section of West 38th Street because it is the site of one of the city’s biggest sewers.

    “There are only certain sewer lines that can accept the water from a snow melter,” said spokeswoman Kathy Dawkins. She could not say when the melter would finish its work at the location.

    Despite the city’s explanation, strippers say excuses aren’t going to put dollar bills in their g-strings.

    “I come here from the Upper East Side and have to spend money on cabs, and I make nothing. Zero!” said exotic dancer Amber Tamburi, 22. “A normal night for us, we can make anywhere from, say, $500 to $1,500. And this week, we’re making nothing.”

    Vitolo said he is trying to keep a humorous attitude about the trouble.

    “This whole operation gives a new meaning to the term Hell’s Kitchen,” he said.

  22. chicagofinance says:

    DECEMBER 31, 2010
    Housing Pain Pits Neighbor Against Neighbor in Florida


    LAUDERHILL, Fla.—Few things agitate Sid Schulman, who often shoots the breeze with other retirees and flirts with women friends at their condominium complex here.

    But it galls him when neighbors stop paying their mortgages and maintenance fees, and leave the cost of community upkeep to others. “I am paying for these guys,” said the 75-year-old sitting poolside, a diamond stud in his left ear.

    Last year, he took matters into his own hands. Near the mailbox of each condo building he posted a list of residents delinquent on their maintenance fees, with the message “Pay up or move out” and the same in Spanish, Pague O Mudese. He also tried, unsuccessfully, to get the cable company to cut off service to nonpayers.

    The public shaming angered some of those named. “You know where I live—come and tell me that to me face,” said Lorena Garcia, 36, who lost her job and ability to pay.

    The storm that struck the housing market has strewn many casualties—lenders, builders, real-estate agents, mortgage-bond investors.

    Add to the list the comity of certain communities where residents live close together, some of them paying their mortgages and homeowner-association fees, and some not.

    As banks slow foreclosures amid concerns about sloppy record keeping, some delinquent homeowners get to stay put even longer without paying. The delays are further inflaming some neighbors who consider that unfair.

    The condo complex Mr. Schulman and Ms. Garcia share, called International Village, has installed a fingerprint-scanning device at its central clubhouse, to keep residents who are more than 90 days behind on their maintenance fees from swimming in the pools, playing on the racquetball courts and using the game room, where canasta and mah-jongg competitions are held.

    In a particularly stark example of housing tensions found in many places to varying degrees, the International Village homeowners association responded to the banks’ slowdown in foreclosures with an aggressive step: It began its own foreclosure process. Florida law permits that under certain circumstances. A nonprofit homeowners association can take temporary title of residential units from people who aren’t paying monthly fees they agreed to pay.

    The scene of these frictions is a 28-acre community in southeastern Florida’s Broward County that spreads out on a peninsula, surrounded by a canal, a lake and an eight-foot stone wall. Oak trees shade the gated entrance to International Village, at the center of which is the Bavarian clubhouse, built with a 24-foot ceiling and stone fireplace. Three-story residential buildings, each with about 76 condos, are grouped according to their architectural roots, bearing names like Yorkshire and Bordeaux. In the morning, residents gather at the pool for “aquacise.”

    Early marketing brochures for the complex, built in the 1970s, lured well-off retirees and snowbirds by promising “seventh heaven for people who insist on living first class.”

    Later, easy lending during the housing boom put the condos within reach of lower-income buyers. According to Michael Schenkel, a real-estate professional who owns three units in the complex and manages others, average prices for its one-bedroom condos peaked at about $120,000 in 2006.

    Then Florida’s sagging economy started costing residents their livelihoods and ability to pay. Ms. Garcia bought a two-bedroom in International Village in 2005 for $190,000, but she lost her job. With her cash dwindling as she went through a divorce, she says, she stopped making her $1,500 monthly mortgage payments in 2008.

    Now, owners of about 128 of the 832 units at International Village, just over 15%, are 90 days or more behind on their fees. Banks won’t lend on residences in the complex until the percentage of fee delinquents drops below 15, according to Mr. Schenkel.

    The problems feed on themselves: “Banks will not write mortgages in communities with high delinquencies,” he said, “and property values will not increase until we get financing from major banks.” He says the value of one-bedroom units has tumbled as much as 75%.

    With the homeowners association unable to collect maintenance from so many units, the complex is showing the wear: torn screen doors, roofs in need of repair, carpets getting shabby. Earlier this year, the total of delinquent fees passed $1 million, equal to a third of the association’s annual budget.

    “The foreclosure process takes over two years,” Mr. Schenkel said. “You can get away with living for free for two years, not paying mortgage and maintenance.”

    Larry Kornblith takes a dim view of that. “The ones who are delinquent are parasites,” the 82-year-old bluntly declared, relaxing near the pool in a Fila shirt and white Nike tennis shoes. “If you can’t afford it, get out.”

    There are divisions, too, among the people current on their payments, because they don’t all agree on how the homeowners association should deal with those who aren’t.

    Doug Meyers, a resident who owns more than a dozen units and is up to date on his payments, voted on the association’s board against installing the fingerprint scanner. He was skeptical it would work. He says some neighbors accused him of protecting residents who were delinquent.

    “They make it personal. It bothers me, personally. It hurts me,” said Mr. Meyers, 54, adding that he now tries to avoid some fellow residents.

    Others wanted the association to get tougher. Among these was Michele Tersigni, a 53-year-old resident who works as an administrator at a doctor’s office. She won a seat on the homeowners-association board early this year and in May became its president.

    She quickly made changes, such as hiring security guards directly instead of through a service, to save money. And, responding to residents’ complaints about people staying on in homes they were no longer paying on, she hired new lawyers who would be more aggressive.

    After foreclosure problems such as “robo-signing” of documents erupted this fall, new applications for court approval of foreclosures in Broward County—which totaled 1,693 in September—tumbled to 224 in November and 137 in December through the 23rd of the month, according to Legalprise Inc., a data firm. Countywide, foreclosure applications on more than 38,000 residential units are awaiting a court’s approval to proceed.

    The homeowners association countered the delays. Acting under the Florida law, it took temporary title to two condos in October and another in November. It plans four to five more in January. The move enables the association to rent out the units and get them back to producing income.

    If lenders eventually foreclose on the condos, the association can start proceedings against the lenders to obtain some past-due maintenance fees. Lenders that take over units are liable for maintenance fees as long as they own them.

    Ms. Tersigni says something had to be done because maintenance was slipping. “I just want to give people who are paying the rights they deserve,” she said.

    The village is abuzz, she added, with stories of owners not paying even though they could afford to. Ms. Tersigni’s predecessor as board president, Scott Samuels—who admits to not being aggressive enough in dealing with the delinquency problem—said some owners were letting their units go into foreclosure while renting them out to tenants not registered with the association.

    “Owners are collecting money, and we are not getting our money,” he said.

    Ms. Tersigni said some owners “make the money—they just refuse to pay because they can get away with it. They will put money aside and buy something else.”

    Ms. Garcia says that was never true in her case. “Every house has its own problems. You can’t judge people,” Ms. Garcia said. The homeowners association, to her mind, is “taking advantage of people who really have problems.”

    In August, about two years after she stopped paying her mortgage, Ms. Garcia lost her apartment to a foreclosure by the lender, although she continued to live in International Village in someone else’s unit.

    On the day she and her husband were vacating their own apartment, two female neighbors openly celebrated while making their way to the pool. “Thank God they are moving out,” said one, a blue ball cap pulled over her eyes.

    The other, wearing an olive-green dress and sunglasses, said she couldn’t understand why Ms. Garcia had been allowed to stay so long. “It takes so long to get them out,” she said, and then listed others she said were behind on payments.

    Some residents are troubled by the tensions, which are reflected in a sign put up near the clubhouse: “The prior leadership did not take a pro-active position with delinquents who failed to pay. We must not let this happen again.”

    “I feel like we are being singled out, like we’re not part of the community,” said one young resident, who added that he wasn’t going to provide a fingerprint for access to the clubhouse because he knew he would be denied. “What do they want next, my DNA?”

    Franck Noel, 32, said the homeowners association moved to foreclose on his unit even after he paid $1,753.79 in late fees. When he brought his situation up at a board meeting it got unruly. Someone called the police, who Mr. Noel says stayed out by the gate and didn’t enter the clubhouse.

    The police department says it was informed there was hostility inside the clubhouse relating to a foreclosure and there was a request that the subject be removed. But no police report was filed on the incident.

    Mr. Noel said a resident dragged him out by his collar. Ms. Tersigni said he left without being forcibly removed.

    She acknowledged that the move against his residential unit was an error and said the association eventually recognized this and dealt with it.

    Mr. Noel, noting that some board members own multiple units, alleged that the association was eager to foreclose because some on the board “want to buy these units cheap and own them for themselves.” Mr. Meyers, a board member who owns a number of units, dismissed any talk of his manipulating the system as “lies” and “slander.”

    Said Mr. Noel: “I don’t trust anybody here.”

    Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com

  23. Neanderthal Economist says:

    The next three cs releases will be weak but it will be partially, if not mostly due to the usual slow winter real estate season. If this spring is a bust, then we can start calling double dip. But we wont get spring cs data until july or august of next year. Thankfully this blog turns into a sort

  24. Essex says:

    201. Last thread. One caveat. Crazy & mean trump fit and feisty almost every time.

  25. Anon E. Moose says:

    Meet the new boss… same as the old boss.

    GOP goes all wobbly on Fannie and Freddie

    “[S]everal Republican congressmen apparently abandoning their bid to reform the two government-sponsored enterprises (GSEs) in a mere two years. Apparently they’re forgetting that voters weren’t voting for a change of heart:

    ‘We recognize that some things can be done overnight and other things can’t be,’ said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie.

    [Glad to see those Christmas checks cleared. -Moose]

  26. Neanderthal Economist says:

    Contd…thankfully this blog turns into a sports and politics blog during offseason.

  27. Anon E. Moose says:

    SX [24];

    The side that wins is the one that displays a credible ability and willingness to escalate the conflict beyond what their adversary is willing to bear. That may or may not require actually doing so.

  28. Essex says:

    The end is……john mellencamp and trophy wife elaine irwin split.

  29. Schrodinger's Cat says:


    I disagree about seasonality within the Case Shiller data for the NY metro area.

    The average percent difference between the Seasonally Adjusted (SA) index and the Non-Seasonally Adjusted Index (NSA) is +/- 0.5% In absolute terms the average difference between the SA and NSA index (calulated as NSA – SA) is on average +/- 0.58.

    Yes there is seasonality but it is negligible for the NY Metro area in terms of the case Shiller Index. A variation of 0.5% – 1% will have little if any significant effect on most analysis run the data. A rounding error is likely to have nearly a much effect as the seasonality.

    Where the seasonality will have a visible impact is the micro analysis of the data which in my opinion is excessive and of little immediate value in most cases. In the case of the current issue with the SA adjustment int he index, of the adjustment causing the SA and NSA indices to give conflicting directional trends, this issue is minimal because to date that variance disappears as soon as you look further out then month to month.

    Take a look at the linked charts. Due to the methodology used to generate the case Shiller index the seasonality is significantly muffled.


  30. Schrodinger's Cat says:


    The 3 month average is a smoothing mechanism, not a seasonal adjustment. Think about Nov Dec and Jan versus March April and May. Apples to Alligators.

    Buy smoothing the data you are also reducing the impact of seasonality on the index value. Besides it is not only the smoothing routines used in the methodology, it is also the weighting routines they use for extreme values.

    In the end their methodology reduces extreme move sin either sirection to the point that you have less then a 1% difference between the NSA and SA Index.

    What you could do is take the NSA index and add a +/- 1% error bar and you then have accounted for Case Shiller’s fancy pants algorithms. That 1 percent is fairly conservative as well seeing that the standard deviation is 0.6% over the entire data set.


  31. Neanderthal Economist says:

    Schrod not sure what you are disagreeing with. Cs has a seasonally adjusted index which they’ve admitted was flawed. That part is not even arhuable. Its a fact.
    Although intrrYour assessment of the accuracy or extent of their adjustments are

  32. Schrodinger's Cat says:

    Essex, Moose

    Preparedness is the trump card. Preparedness is having both the knowledge and the capability of fully utilizing said knowledge in a given situation. if you end up being in a a fist fight, then knowing how to street fight, being in good physical condition and having actually taking a few hits before will trump your opponent given all else is equal.

    The little 90 lb blond woman who is carrying a .45 and is well trained with it Vs the crazy 200 lb mugger who approaches on a dark street is going to have much better odds of walking away from the encounter

  33. Schrodinger's Cat says:


    My point is that the seasonality in the NSA CS index is minimal and has little overall impact besides comparisons at the month to month level. at the month to month level an error bar of +/- 1% should be more then enough to account for seasonality effects.

    Schrodinger’s Cat says:
    December 31, 2010 at 10:33 am


    does CS really show much seasonality? Their algorythyns seem to smooth most if it outsince it’s a sort of running “average” over a 3 month period if I remember correctly.
    Neanderthal Economist says:
    December 31, 2010 at 11:09 am

    “does CS really show much seasonality?”

    Schrod, Yes CS shows a lot of seasonality, thats why they have two verisons of their index, one seasonally adjusted, which is flawed, as they have openly admitted.

    The 3 month average is a smoothing mechanism, not a seasonal adjustment. Think about Nov Dec and Jan versus March April and May. Apples to Alligators.

  34. House Whine says:

    22. Thanks for an interesting read. tough situation, all the way around. I will say that is sounds like there is a bit too much nastiness and mean-spirited people living in some of th0se Florida communities. Friends of mine were practically driven out of their home a few years ago by a zealot -like homeowner’s board. On the other hand, you can’t expect your neighbors to pick up the tab forever for your bills and your debt. Glad to be in NJ.

  35. Mr Wantanapolous says:

    Starting Jan. 1, 10,000 boomers will turn 65 every day for the next 19 years. Sell? Sell to whom?

    Forget about the 25% underwater, how’s Medicare doing these days?

  36. Schrodinger's Cat says:


    All else aside i enjoy debating you since you use logic and numbers as opposed to hyperbole. Its also useful in forcing me to see my own conceptual errors.

  37. Mikeinwaiting says:

    BC 35 10,000 a day for 19 years ouch, medicare that will work out well too.
    Get ready for oblivion.

  38. xroads (13)-

    The concept of housing as investment has certainly proved durable enough to cross generations. In fact, the older generation is the biggest cheerleader of this insane idea.

    However, there are plenty of folks these days who have come around to the idea of housing as consumption. I wonder if this concept will become as popular and as sticky as the old one was.

  39. Mr Wantanapolous says:

    Everything that dies someday comes back, welcome to the 70’s.


  40. 1987 Condo Buyer says:

    #22…exact same issues started happening with my Belleville Condo in 1989-1992…
    that is why i will never own in an HOA type environment…..too many risks as noted…I will consider renting of course, but being part of such a “small” community is fraught with potential issues…

  41. JJ says:

    Thats the odd thing, the 100K sale at the crazy low price was a decent sized round lot, yet the 10K buy was the high price. Usually on munis only measly 5k pieces take a big hit. Starting around 25K the prices stablize.

    Neanderthal Economist says:
    December 31, 2010 at 11:19 am

    JJ, That whole round, odd lot thing will get you every time.

  42. chi (22)-

    Imagine that whole scenario…with guns added to the mix. That’s where we’re headed.

  43. Neanderthal Economist says:

    Schrod not sure what you are disagreeing with. CS has a seasonally adjusted index which they’ve admitted was flawed and it was posted here recently. That is not really arguable.
    I can’t comment on your opinion of it since I never really looked that closely into it.

  44. whine (34)-

    You should see how many liens for back HOA fees that complexes in my part of NJ have filed in the past three years. Many “name” complexes are no longer Phony/Fraudy/Ginnie compliant for mortgage financing due to undercapitalization issues (among others).

    This problem is everywhere. However, tensions always boil to the surface in community living, since the residents are all chained to each other financially.

  45. Schrodinger's Cat says:


    On a separate note, perhaps we could try far another New Brunswick or similar gtg before late march

  46. JJ says:

    Looking at some two acre houses with pools on long island this weekend, it is a bit early in downward cycle but want to throw in some low balls and get to know a few agents.

    Will tell you how it goes, thing that drives me nuts is one house the owner bought it brand new in 1978, put a pool in the place in 1979 and has however kept it in very good shape. But for some reason he listed it at full market price a few months ago and after a few cuts got only one offer that failed. Now he has more cuts. Guy back in 1978 maybe paid 150K for the house. You think he would not be such a nickle and dimer. Realtor says guy does not “have” to sell but wants to sell. Am I supposed to pay him extra cause he does not have to sell, plenty of estate sales, short sales, REOs, divorces, medical reasons and old folks ready to move on I can buy from.

  47. Mike Krieger’s year-end piece:

    “There were two things that surprised me this past year. First, was the effectiveness of propaganda and market manipulation. Despite the obvious lack of any real economic recovery other than phony aggregate demand increases due to inflationary policies many people actually think things are getting better. The Larry Summers of the world and other economic magicians like him have one economic policy and that is expectations management, which really means create enough propaganda, push the stock market up, and people will then believe things are getting better and then things will get better in reality. I believe this policy has been half successful so far. It has been successful is kicking the can down the road but it has not been and will not be successful in improving the standards of living for the American people and it is becoming more and more widely understood that this “respite” is merely being used by the small oligarch class in Washington D.C. and Wall Street to steal what little is left and push the middle class into serfdom. When this thing collapses again let’s never lose sight of this and remember who did what during these days of “recovery.”

    The second thing that surprised me was the strong performance of consumer discretionary stocks and retail in general. I think the main thing that caused this particular group to perform so much better than expected in 2010 was the fact that crude remained range-bound for most of it. It is really only in the past couple of months that crude has broken out of its range.”


  48. Mr Wantanapolous says:

    “Realtor says guy does not “have” to sell but wants to sell.”


    Perfect candidate for capitulation at bottom.

  49. jj (46)-

    Wow. You better prep your wife and kids: the move from 1962 to 1979 is gonna be traumatic.

  50. BC (48)-

    I bet the sellers of that house are named Starsky and Hutch.

  51. Mike Krieger’s article (referenced in #47) is well worth a full read.

  52. JJ says:

    My 1955 Split Level still has original boiler, bet some buyer will have some snot nose comment on that. I love buyers who will see a house with new kitchen, new bathrooms, new driveway, new sidewalk, new roof that will find something like a water heater or boiler or ac that is old and then say wow this needs a lot of work I need money off.

    Lamar Asperger says:
    December 31, 2010 at 1:55 pm

    jj (46)-

    Wow. You better prep your wife and kids: the move from 1962 to 1979 is gonna be traumatic.

  53. Neanderthal Economist says:

    Yeh Im up for another new brunswick gtg. Preferably on a thurs night in jan.
    Hopefully they still have that pumpkin ale on tap.

  54. jj (52)-

    Don Draper is waiting for you on line 2.

  55. Barbara says:

    tonight I’m gonna party like its 1999.

    “In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.”

  56. For 95% of America, housing has become malinvestment.

    For the 5% for whom it makes sense to buy, it is consumption.

  57. Party like it’s 1999? More like gather your belongings and live in your little red Corvette.

  58. Anon E. Moose says:

    JJ [52];

    Just because you’re a clear-eyed buyer doesn’t mean that you can’t also be a delusional seller. The two are not mutually exclusive, and anyone who manages to pull it off can make quite a profit.

  59. 36 schrod. Same here.
    half the fun on this board is calling people out on bs or flawed assumptions. That’s why I don’t mind if you want to prod for weaknesses in my claims. If we don’t all do that then the stories and predictions will become even more imaginativehere.

  60. Barbara says:

    Or maybe just Let’s Go Crazy. Eventually this Prince metaphor will run out of steam and I will be forced to move onto Marvin Day and The Time. From there things will devolve into Vanity 6 double entendres.

  61. JJ says:

    GM – pushing $37!!!!
    Last [Tick] $36.91[+]

  62. Mr Wantanapolous says:

    The fed swaps its balance sheet from treasuries to crap and prints trilllions. In early Nov, Bergabe announces QE 2, which will “lower rates”, yet the 10 year yield increases approx 40%. In the meantime, our debt/GDP is at 100% (not counting entitlements), our states are in worse shape than the PIGS, our banks are still insolvent and 25M are unemployed/underemployed. What a stunning success.

    The dead fed is now attempting to create another bubble via the wealth effect while attempting to create manageable inflation. How moronic is that? The same idiots who missed the housing/credit bubble think they can actually create positive inflation? When was the last time this was accomplished? If it wasn’t so sad it would actually be funny. The only realistic outcome is the destruction of our purcahsing power thru the debasement of our paper. They are simply fiat pimps.

    Hopefully, these thieves will be stopped, they are simply out of control (not Hoenig). Hope for the best, expect the worst.

  63. Mr Wantanapolous says:


  64. Schrodinger's Cat says:


    Do you really think they missed the housing bubble? I see it more as a controlled demolition not and accidental ignition

  65. Mr Wantanapolous says:

    Cat [64],

    IMO, they missed it. I believe their intention was to create a housing bull market, not a bubble of epic proportions, bringing the world to the brink of a systemic collapse.

    That said, whatever their intention was, they missed the mark badly. Now, it’s shoot craps and hope for the best. Just throw enough sh*t against the wall, hopefully something will stick. Well, it’s sticking, strictly in the wrong places.

  66. chicagofinance says:

    JJ: assuming you are still at work….

    Jets’ Rex Ryan repeats his it’s a ‘personal matter’ answer when quizzed about latest graphic photos
    BY Kristie Ackert

    If the Jets play defense on the field as well as Rex Ryan does when facing questions about alleged photos of his wife, then Gang Green will be unbeatable in the playoffs.

    As the Jets coach gets his team ready for Sunday’s regular-season finale against the Bills, the usually outspoken coach was quick to refuse comment on the latest – and more sexually explicit – photos that have surfaced on the Internet purporting to be of his wife Michelle.

    “That’s a personal matter and I am not going to comment,” Ryan said at the end of his daily press conference Friday.

    The illicit pictures surfaced Thursday on the website Mediatakeout.com. The images show a woman bearing a strong resemblance to Michelle Ryan. In the photos, a man who is not the coach, is fondling and smelling the woman’s bare feet as she smiles for the camera.

    Other photos show the woman in much more provocative and X-r-ted poses.

    The pictures were published under a headline claiming that they are the coach’s wife. The website does not reveal the source of the photos.

    The report comes nine days after the website Deadspin published a story about online foot-fetish videos that featured the woman purported to be Michelle Ryan.

    Deadspin also pointed out the biographical similarities between the Ryans and a user profile for “ihaveprettyfeet,” on an alternative sex website.

    On Thursday night, a team spokesman reiterated that the photos were “a personal matter,” and that the Jets would have no comment.

    The team’s general manager Mike Tannebaum and owner Woody Johnson made statements in support of Ryan after the initial reports of the fetish videos surfaced on Deadspin.

  67. Mr Wantanapolous says:


    If our Treas Sec was an integral piece of some contrived plan do you think he would buy at the peak? Obviously, a 1m hit means nothing to Hammerin Hank. But remember, he’s a shark that would sell his soul for a tick. You think he wants to be played like a harp in the RE market?

  68. Essex says:

    61. Thought aboutcha on that one. Good!

  69. Ok so the deal was that if we got another big rental instead of buying that my wife would have carte blanche on furnishing with new dining room. Well now that were in the new rental im wondering if $10k for table chairs and hutch is smart move. I guess the argument is that you keep it forever. But I went to mealeys today in pa and they had the same set for $4,500 and it looks exactly like ethan allen and thomasville. Plus they are all made in china now anyway (with american wood).

  70. Can someone please chime in with furniture buying advice?
    Someone told me to go out to lancaster pa where all the quakers make by hand. That might be worth a trip.

  71. Cosmo says:

    Real Estate is a local affair. For the bubble areas (you know who you are) I am sure its true. For other areas that did not bubble – it may not be true.

    Gary Shilling tends to back Peter on this one http://www.businessinsider.com/gary-shilling-and-now-house-prices-will-now-drop-another-20-2010-12?slop=1

    What do you have to loose? If your buying now you may be bankrupt later with a 30% drop. Don’t but now and you might miss the rising tied. Take your pick.
    Gary Shilling’s appraisal of the situation makes the most sense to me and he backs it up with research rather than BS.

  72. 64 Schrod.
    Exactly. Do we really think hank and greenspan are idiots. Nah. Definately not. It would be easy for them to sneak a bubble past congress if they wanted to.

  73. Schrodinger's Cat says:

    Wantan, Neanderthal

    I am not going down the whole illuminati/NWO road. But i dont believe that these big dogs didnt know what would happen when they opened the securitization/NINJA flood gates.

    My guess is that the securitization game ran away from them when they believed that they would be able to manage its growth and effects. I think that as a result what could have been a standard market correction albeit a large one ran away on them and turned into the current 800 lb gorilla.

  74. Outofstater says:

    #69 How about something made in the midwest by the Amish? They are good craftsmen and use good materials. My first choice, though, would be to scout out antique stores and then have the pieces refinished.

  75. cobbler says:

    neanderthal, [70] – furniture
    Dining room furniture in most houses sees extremely little use, so what had been bought 20-40 years ago is frequently in “like new” condition, and of much better quality than most anything made in China that you could buy in an average store. Invest time in checking out estate sales and craigslist – you will save many thousands $$ and end up owning really good pieces. Obviously, not the case for bedrooms/family rooms.

  76. Schrodinger's Cat says:

    Wantan, Neanderthal

    So, in effect all of these Masters Of The Universe, were nothing more then the sorcerer’s apprentice a la Mickey Mouse

  77. Neanderthal Economist says:

    Outofstate, Cobbler,
    Yes this is good stuff. thanks,

  78. Cosmo says:

    Peter Shiff vs Garry Shilling. Shiff comes across to me a operating from the gut rather than any kind of analysis.

    Housing: Ackman bull vs Shilling bear

  79. Neanderthal Economist says:

    Next Year’s Wars
    The 16 brewing conflicts to watch for in 2011.
    Across the globe today, you’ll find almost three dozen raging conflicts, from the valleys of Afghanistan to the jungles of the Democratic Republic of the Congo to the streets of Kashmir. But what are the next crises that might erupt in 2011? Here are a few worrisome spots that make our list.

  80. Schrodinger's Cat says:


    Look at Post 79. Your favorite group finally got some press

    The largest and most alarming insurgent group is al Shabab, which professes to desire the creation of a strict, conservative Muslim state and portions of whose leadership pledged allegiance to al Qaeda in early 2010. The group already controls most of southern and central Somalia and is currently trying to capture Mogadishu. Meanwhile, Somalia’s neighbors fear that al Shabab will begin to export terrorism, as it did for the first time last summer in a series of bombings in Uganda during the World Cup

  81. Fast Eddie says:

    In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

    What have I been saying for the best year about offering 20% under every asking price? And yet, as sure as day, some f*cking numbskull will get hood-winked into signing a contract for a fraction under the asking price and will think they got a deal. Meanwhile, some fat f*cking seller will walk away with a heist and the stupid bast@rd who “bought” will have their net worth cut in half with one stroke of the pen. Brilliant.

  82. Some fat ginch walks up to me at a party tonight and starts bleating in my face about how some pal of hers at Wells Fargo in CA just put out a report that NJ is going to be OK and start turning around this year.

    I wish I could vomit on command.

  83. chicagofinance says:

    are you drunk?

  84. Shore Guy says:


    The fricking Horn has been a growing threat for years.

  85. Shore Guy says:


    We have had good luck with Stickley.

  86. Neanderthal Economist says:

    thanks, stickley and amish seem high quality but wife is not into those styles. She’s more into the baroque/tuscan stuff.

  87. Schrodinger's Cat says:

    Fast Eddie 81

    You and me both buddy

    I have put the following chart up a number of times over the last few years:


    Notice Pages 4 – 8

    Also note pages 7 &8 for NJ homes prices specifically. NJ has a long way to go yet before we reach long term stability and has been said before there is no way we dont overshoot on the way down.

  88. chicagofinance says:

    Neanderthal: My wife and I always had good experiences with ABC Home & Carpet. We never go to the NYC store, we head to the warehouse in Hunts Point in the Bronx. If want a shorter drive/less PIA, you can go to the warehouse in Hackensack, but it never seems to outdeliver what is in the Bronx.

    To be clear, we have been out of the loop since we’ve had kids, so I have no experience since 2005.

  89. Fast Eddie says:

    Lamar [83],

    And the pizza guy around the corner claims to the best around… and the Ford dealer says that Ford’s are the most reliable cars in the world… and since baseball season has yet to begin, word has it that the Mets have a chance to win the world series.

    You should’ve said to that fat b1tch, “produce the note m’fer.”

  90. Schrodinger's Cat says:

    Fast Eddie.

    To hit the 3% trend from 99 then we would have a 40% drop from peak and still have another 30% drop from our current NJ price levels. of course its highly likely we overshoot the 3% trend on the downside.

  91. Fast Eddie says:

    Cat [88],

    Data? We don’t need no stinking data! :) Why let a few facts get in the way of the truth.

  92. Fast Eddie says:

    BTW, my house is going up for sale sometime this year. I don’t know specifically what month, but it’s going to happen this year. It is without a doubt, much more practical to rent than it is to buy at this time. That option is definitely on the table. With asking prices still f*cking absurd, on top of tax rates that sky rocket unabated, it is a serious consideration. My desire to move is to accommodate the family with school/work convenience. I’ll say it one more time: if any potential buyer doesn’t bid with the 100 year trend line as their guide, then they have no concept of true asset value or money management. None whatsoever.

  93. Fast Eddie says:

    Cat [91],

    I couldn’t agree more!

  94. Schrodinger's Cat says:

    Fast Eddie

    The picture of reversion to mean is even uglier if you look at OFHEO and calculate it from the start of the OFHEO index (1975).


    Of course you can debate when you should start the 3% trend.

  95. Schrodinger's Cat says:


    If the 3% trend from 1975 is legitimate then Clot is 100% correct in that we still face RE armageddon. The result of that scenario being correct wold be NJ at a median home price of 130K.

    I am not claiming that that scenario is the more probable once as i just ran the numbers to see what came out. I would need to compare 1975 to the overall 100yr trend to see if that projection makes sense.

  96. Fast Eddie says:

    By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year.

    19.2% year over year increase while salaries remained flat to 2% gain YOY during the same time period. Any questions? And the funny thing is that you’ll never see a used house agent or anyone from the RE industry post here with any data that can dispute it. They’re full of sh1t and they know it. In the history of time, no asset has failed to revert to the long term trend. How’s those option ARM resets looking in the next 12 to 18 months… with rising interest rates? How about that shadow inventory on top? Want to throw in late payments, pre-forclosures and those stuck in the pipeline?

  97. Schrodinger's Cat says:


    I ran the comparison on the 100 yr data and it looks like 1975 may not be a good place to start a 3% trend. It appears that 1985, and 1999 are both good places to start the trend.


  98. Fast Eddie says:


    The longer the sheep stare at a f*cking train wreck, the less impact it has. The proletarians have become sedated, slow and dim-witted. Since everyone is doing the same thing, it must be the norm, right? Conceptual reasoning has become extinct.

  99. Fast Eddie says:

    Cat [98],

    That chart says it all…. it’s dead on! Time and patience is the only thing that matters at this point.

  100. freedy says:

    But wait, Dotty Herman says it the opp of a lifetime. get out their right now and buy.

  101. Necronomy. My word for 2011.

  102. Comrade Nom Deplume says:

    [87] neandrathal,

    Pecaso Home on Rte 22 is going out of business. She can get all her baroque and tuscan stuff there, I think.

  103. Comrade Nom Deplume says:

    [66] Chifi

    I know Rex Ryan said he wasn’t going to kiss Bill Belichek’s rings.

    I wonder how he feels about the Hooded One’s feet?

  104. Comrade Nom Deplume says:

    [70] Neandrathal

    If you need rooms full of furniture, a trip to NC may be worthwhile. I recall stories in the news of folks going on a shopping bender there, then renting a one-way truck in NC to drive it all home.

    Closer to home (but not by much) is Farmville, VA. Basically the same thing but in a compact area so you can visit a few stores within blocks of one another. We got an oversized chair and ottoman there, and an oriental from a volume seller outside Richmond at a ridiculous price (hint on orientals—to tell if they are well made, turn them over. If the underside looks so good that you could use it as the topside, that indicates higher quality).

  105. Ben says:

    I still don’t understand deflationistas who think they are right because they’ve been making small returns on treasury bonds. Meanwhile, anyone that’s bought into the inflation story the past few years is up 100% on gold, 300% on Silver, and possibly 800% on mining stocks.

  106. 30 year realtor says:

    There are 242 properties scheduled for the Bergen County Sheriff sale 1/7/11. More than likely 90% will be postponed, but it is a staggering number.

  107. Schrodinger's Cat says:

    Fast eddie

    3% long term growth is generous and is probably more accurate to target a 2% long term growth rate. Up until 1975 the long term growth rate was about generally between 1.5% and 2.5%.
    The question of the day is whether the sudden growth rate acceleration seen shortly after 1970 can be maintained. The interesting point is that that growth rate acceleration started at about the same time that the rapid accumulation of household debt began and just shortly before the rapid expansion of the US equities in the early 80’s.
    Its likely that the increased long term growth rate was generated by the expansion of personal debt. if the current economic crisis wipes out the current debt model inherent in RE then we could very well see a return to the long term 1.5% – 2.5% growth rate trends. The implications of that are that anyone holding a mortgage gets wiped out in terms of equity and that property taxes will have to drop significantly other wise the tax liability could end up being multiples of the principle on a mortgage, even a very conservative mortgage.

    a return to the range between the 1.5% and 2.5% trends would equate to a 65%-85% drop from peak values in 2006. If home buyers have been soured on carrying large mortgages and the mortgage market stops offering high levels of leverage then that range could be possible.

    On top of that dont forget that we will have about 10,000 people a day entering Social Security and looking to dump their larger homes to feed their retirement. I guess we better ramp up illegal immigration.


  108. Schrodinger's Cat says:


    I originally thought we would see deflation followed by inflation. Depending on how you define those then that has been the case to some degree. But at this point i think we are experiencing both simultaneously and are likely to see a significant bout of inflation in the not to distant future.

  109. plume (104)-

    I hear the Jets hired Mrs. Ryan as a footwork coach.

  110. ben (106)-

    Can’t debase or dilute PMs.

    Unless you have tungsten, that is.

  111. chicagofinance says:

    clot: I actually heard rumors that the Ryan thing is more than a foot fetish thing, it is actually wife swapping.

    Lamar Asperger says:
    January 1, 2011 at 12:01 pm
    plume (104)-
    I hear the Jets hired Mrs. Ryan as a footwork coach.

  112. chicagofinance says:

    Any suggestions for a good home mold test kit?

  113. Al Mossberg says:

    Forgive me if I take some time to schill a bit.

    Silver closed out 2010 with a gain of 82% despite JP Morgans manipulation.

    Re: Real Estate. I am a bag holder. If it wasnt for this anchor around my neck called home ownership I could be sailing around the Carribean in 7 years. Malinvestment is an understatement. What are the average rents for a 3 bed 2 bath home in a decent town?

  114. Al Mossberg says:


    Re: Furniture,

    I had a shed built by those guys out in Lancaster. Its built better than my house.

  115. Fast Eddie says:

    Al [114],

    What year did you buy your house? If you sold now, would you be taking a loss?

  116. Schrodinger's Cat says:


    you say that like it’s a bad thing…..

  117. Outofstater says:

    #108 Cat – I would guess that the rate cannot be maintained and that 1.5-2.5 might be generous. The acceleration which began around 1970 was likely the result of baby boomers buying their first houses. The rate continued to endure as they traded up. That’s all over now. Reversion to the mean can be a b!tch. Demographics even more so.

  118. Schrodinger's Cat says:


    now consider the broader implications of a reversion to mean event of that magnitude…….

    It’s funny that it has gone from family & friends telling to buy as “RE only goes up” to the recent ” buy now at the bottom before price increase again”

  119. Ben says:

    “I originally thought we would see deflation followed by inflation. Depending on how you define those then that has been the case to some degree. But at this point i think we are experiencing both simultaneously and are likely to see a significant bout of inflation in the not to distant future.”

    The whole argument is semantics at this point. We see deflation in the asset classes that were inflated first. All the original liquidity from the printing presses in the early part of the decade went straight into stocks and real estate. As they deflate, it flies into commodities. With the Fed trying to blow more air into the system, it still goes into commodities. When it’s all said and done, we waived bye bye to the price levels seen a decade ago and our ultimate future only has higher prices in store for us. This is the trend that has existed since the end of the gold standard and with no limit in paper money’s potential supply, it will continue. The fact that academia & policy makers buy into the false dogma of salvation via the printing press only ensures this. Even when academia & policy makers weren’t so gullible, they still turned to the printing presses because governments always take the easy way out.

  120. Fast Eddie says:

    Even when academia & policy makers weren’t so gullible, they still turned to the printing presses because governments always take the easy way out.

    Greece, Roman Empire, Ottoman Empire, America.

  121. Outofstater says:

    #119 It’s difficult to stand back and see the magnitude of the change that is occurring. It is too big and it seems to be happening at all levels. The best most people can do is to try to make sense of it based on their own experiences and the memories of their elders. Trouble is, that memory doesn’t go back far enough. The entire world is changing as empires fade and others rise. It could be just a mirage; perhaps the East will fail and the West will stumble but regain its footing. Everything is in flux. Nothing seems to be certain. No one knows what the outcome will be. Troubling times but in the maelstrom there will be pockets of opportunity where tremendous fortunes will be made. Wish I knew where they were.

  122. chicagofinance says:

    Moss: shill or kvell? Colts Neck…4 BR/2.5bath 1.3 acres 2950 sq. ft. $2500/month…

    Al Mossberg says:
    January 1, 2011 at 12:44 pm
    Forgive me if I take some time to schill a bit.

    Silver closed out 2010 with a gain of 82% despite JP Morgans manipulation.

    Re: Real Estate. I am a bag holder. If it wasnt for this anchor around my neck called home ownership I could be sailing around the Carribean in 7 years. Malinvestment is an understatement. What are the average rents for a 3 bed 2 bath home in a decent town?

  123. Schrodinger's Cat says:


    the japanese kanji for danger is a combination of crisis & opportunity. We are indeed facing substantial danger.

  124. A.West says:

    Why use a constant nominal deflator when inflation clearly varies over time? What happens if you deflate using the shadowstats version of inflation? On the other hand, deflating by nominal median household income growth might be more relevant.
    Ultimately, housing price affordability is driven by household income and financing availability and cost, long term, coupled with supply/demand for the area in question.

  125. Schrodinger's Cat says:


    I’m apparently dyslexic today. I meant to say thatvthe kanji for crisis is a combination of danger and opportunity

  126. Schrodinger's Cat says:

    A west

    those charts are all nominal. Adjusting for inflation doesn’t significantly change the relative magnitude of the difference between growth rate trends and hone prices / HPI

    as to your last point, I agree. But that doesn’t change anything. The ling term trends are the end result if all of those factors.

  127. Chi. That’s a pretty darn good rental deal. Im paying about $2,100 for 1,900 sqft plus garage. Would cost $2,250 per month piti to buy it with 20% down.

  128. Yeah I agree with A west. Trend lines are cool but you can’t draw lines based on past data and then expect future to copy the pattern. Supply demand immigration mortgage rates gdp growth stock market gains unemployment inflation etc etc all factor into home prices. And all those factors are constantly changing.
    I’ve recently done alinear regression analysis and ill post the charts later but its all subject to same bs. What you really need to make accurate forecast of all those factors is crystal ball.

  129. Schrodinger's Cat says:

    A west, neandertal

    I never claimed reversion to mean was some unimpeachable source/ methodology. Empirical analysis based on histical trends is a well established tool and generally good for giving bounds within which you might expect the most probable moves.

    Just another tool and not some panacea.

    If you want to talk about micro factors of the largescale trend then consider that absent substantial wage inflation, incomes are set to continue dropping in medium term while rates ate going up, banks are tightening lending standard and the boomers are moving into retirement. All of those factors are more likely to have downward pressure on prices before they have any upward pressure.

  130. RU looking says:

    I walked away from a house deal in September after the seller didn’t want to repair any of the issues, and I am glad I did even though it was a tough decision at the time. Zillow puts the house down over 8% (30K) since that time. Going forward, factor in 1% monthly Case-Shiller HPI drops and I feel like I am making money by waiting. A 400K house will lose $4000/month if these 1% monthly declines continue. What a great way to bring in the New Year!!!

  131. chi (112)-

    How’d you like to be the wife that gets swapped to Rex Ryan?

    Like getting stomped by a T-Rex.

  132. RU. Nice work.
    Not that a zestimate is all that accurate but rates jumping 100bps in three weeks should give you plenty of confirmation that prices were slashed 10% across the board.

  133. Al Mossberg says:

    New pension law could force municipalities to raise property taxes 60%

    “While most emphasis has been on Speaker Madigan’s pension reform law setting up for later retirements and less cushy pensions for new firemen and law enforcement hires, little attention has been focused on the shift in pension fund pay=in burden that local city councils argue will now suddenly fall on their already cash-strapped budgets. Chicago’s Mayor Daley blasted the reform bill Quinn signed on Thursday, predicting it will cause Chicago to hike its property taxes up to 60%.

    ABC Chicago News covered the topic:”


    Bwahahaha! Seriously. Dont buy a f_ckin house. Get the heck out while you can.

  134. Al Mossberg says:



    2009. A bit of a wash because Im down 10% but sold for 10% profit if you use zillow or zestimate. I would be willing to ditch this anchor for a 20% haircut if I could rent a decent house in a decent town.

  135. Al Mossberg says:


    Ben. I agree. Forget about inflation/deflation. Yes it ends in deflationary collapse but the caveat is a new monetary system. Like you said, its all semantics until then. Sure if you are a mortgaged homeowner you will wipe out the debt but you will be stuck with a depreciating asset not only in principal but also via property taxes.

    Dont buy a house in the United States. Im going to get crushed by believing in the so called American dream. Learn from my mistakes.

  136. Al Mossberg says:



    Well put. Great fortunes are made at the beginning and ends of empires. All it takes is some balls. Im for the Texas hedge.

  137. Al Mossberg says:

    Chi, thats a dam good deal. I bought into the bullsh_t and now I have to face the cost.

    How does the old saying go? When a bear attacks the camp you dont have to be the fastest guy in the camp you just have to be faster than the slowest guy?

    Tell you what. Selling our home is going to upset the apple cart domestically if you know what I mean. Trick is I cant tolerate any more loss in equity when opportunity is knocking on the door. I think the campaign to sell is my New Year’s resolution.

  138. Fabius Maximus says:

    #139 Al
    Sing it loud and sing it proud!

    Every gambler knows that the secret to survivin’
    Is knowin’ what to throw away and knowing what to keep
    Cause every hand’s a winner and every hand’s a loser
    And the best that you can hope for is to die in your sleep

  139. Fabius Maximus says:


    “FINRA should look into best execution on this trade, 94 sell and a 107 buy within 90 minutes of each other ”

    Good luck with that, FINRA are still telling themselves that Madoff was nothing to do with them.

  140. Fabius Maximus says:

    #44 Clot

    Many “name” complexes are no longer Phony/Fraudy/Ginnie compliant for mortgage financing due to undercapitalization issues (among others).

    Funny that many complexes are no longer complient as the rent to own ratio has gone up making them un-sellable.

  141. Fabius Maximus says:

    #70 Neth

    Lancaster PA and North Carolina are good buys if you want new. But be honest here and work out what you want. If you want a heirloom then take a trip to Bograds and drop cash on a Stickley set.

    Bottom feeding shopping is, trawling Craigslist for a starter marriage break-up in a nice town where they are parting out the house and you can get that 2yo $10K Thomasville for 4K bargained down to $2500 taht has never been used.

    My current set came for $500 off CL for table with 2 leaves six chairs and a breakfront. The table and leaves have covers so the top is perfect and fits my 104″ Damask Linen tablecloths at full stretch. I think the set was Grandmas and they were looking $1K to send the kid to Hockey Camp for the summer.

    Mrs Fab does have me on the hook for a Stickley set for 12 in a few years.

  142. Now day’s home prices are on very high rise. So they cannot be easily be buy. So they are difficult to buy due to very high rate.

  143. gluteus (143)-

    Looks like it’s League 1 next year for PNE.

  144. I love the stickley and menanite and early american all wood stuff. My wife is into the formal and bold dark euro classical stuff. She says that stickley looks like a big hunk of wood. she has a point.
    The thing that kills me is paying 10k for new ethan allen or thomasville when its all made in china. And it seems like that’s the direction she is pushing.

  145. Were all over craigs list, ebay and classifieds but can’t find anything. There are a ton of creepy postings on craigslist with horribly worded english and obviously fake divorce ads. Im thinking ok, if this is supposedly a divorce sale then why is the furniture in a huge showroom with ten other dining room sets behind it?

  146. homes are fairly valued says:

    It is 2011. What happened 100 years ago is irrelevant. So is the 3% appreciation figure.

    Economically successful places where people want to live, if these places face political and geographic barriers to new construction, will enjoy real (after adjusting for inflation) growth in real estate values. In the English speaking world, these places include London, Sydney, Vancouver, and the New York area.

    On the other hand, places with depressed economies where it easy to build and nobody wants to move to, such as Detroit, will suffer negative real growth in property values.

    The New York and Detroit examples can be observed by crunching the S&P/Case-Shiller data. Across cycles, home prices in the New York area – which includes North Jersey where most njreport posters reside – grow a couple of percentage points faster than inflation. Prices in Detroit and cities like it trail inflation.

    How is New York area residential real estate priced relative to the comparable markets of London, Sydney, and Vancouver? This is the best way to determine if prices around here are fair or not. Based on the comp set, New York area home prices are correctly priced, if not a little cheap at the moment.

  147. Mikeinwaiting says:

    Veto 10 k for a dinning room set. Are you f en crazy. I don’t know guys seems like a lot of money for something you hardly ever use & you don’t we all know that. So what’s the big play on quality it does not have to be made that well it will not get abused it is something to dust. Heirloom crap Ola come on most are not Thurston Howell the third & your new daughter in-law or son in-law will hate it when you kick off. Murphy law.
    Whether you can afford it or not it is imprudent to blow that much on a table & chairs with a hutch. If you have to do it or the wife will be on the warpath well then you pick your battles. But don’t go willingly to the realm of better than the Jones.

  148. Mikeinwaiting says:

    149 One time all together now, it is different here. That was blow out of the water a long time ago. By the way wasn’t NY one of the biggest cities with most of the jobs in the area for the last 100 years. “No one will be sparred” Clot 4:69.

  149. chicagofinance says:

    Neander: In 2004 we ran all over the Hunts Point warehouse to find six matching dining room chairs of this manufacturer. We bargained the guy down to $1,250….it was work but worth it….

  150. Neanderthal Economist says:

    Mike, Im with you man. I’m loving the Raymoure and Flannigan dining set, its also made in china but priced right at $5k. honestly i cant tell difference between that and Ethan Allen set at $9k. but wife wants perceived high quality to keep FOREVER. Does not want to buy dining room twice.
    In our case, we will be using it at every meal since we have decided to use the eat in kitchen space for butcher block, storage and wine fridge etc and the dining room is located in a central area.
    I may have to give in to this battle since she let me win the rent/buy war which has been ongoing for over 5 years now.

  151. Schrodinger's Cat says:


    “It’s different here”!

    I love that line. It’s so cute.

  152. Mikeinwaiting says:

    Veto you pick your battles , 23 year vet of marriage. Looks like you won the big one so you do what you have to do. I’m sure the 5k set will hold up just fine.

  153. Neanderthal Economist says:

    Chi, That is really nice looking furniture, american made too.
    Wish they made dining rooms. But maybe above our price point though.

    Craziest thing i just learned about the chinese furniture manufacturing is that they use american wood. Since all the trade ships bring tons of consumer goods to USA on a daily basis, the ships go back to EU and Asia and South America completely empty, so to send them back with wood and other raw materials is almost free. Then considering that chinese labor that is 20% of an american laborer, and you get significant cost efficiencies. Those $9k ethan allen dining sets would cost $15k if made in america. Its a very sad thing to see a whole industry of centuries old american craftsmen pushed aside for unskilled slave labor and mass production machinery.

  154. homes are fairly valued says:

    I’m not saying it is different here. I’m stating the opposite – home values here should match up with values in comparable cities, and right now, home values are in line with the peer group of comparable cities.

    Suggesting that home prices in the New York metro area should be 2x or 3x median incomes is absurd. Invoking 100-year trends adds to the silliness.

    Multiple of home price to median income:
    Vancouver 9x
    Sydney 9x
    London 7x
    New York 7x
    San Francisco 7x

  155. Mikeinwaiting says:

    157 In NYC proper 3x median income no, you used “New York area” so I would imagine you mean northern NJ. It would depend how broadly your brush is painting. Care to give specific target area in NJ. Are you in Bergen County, or a train town? Selling RE as a living or bag holder.

  156. Neanderthal Economist says:

    I agree with this guy that home prices are justified at much higher multiples than past history because mortgage rates are historically lower than ever before.
    However, to say that NYC should match Sydney or Hong Kong is obviously rediculous. That statement blatantly ignores a lot of important factor factors that very from country to country, such as population density, unemployment rates and availability of credit, inflation rates, housing supply and tax policy etc etc.
    Quite frankly that part sounds alot like David Learah from NAR.

  157. Schrodinger's Cat says:


    “I agree with this guy that home prices are justified at much higher multiples than past history because mortgage rates are historically lower than ever before.”

    how long can we really expect rates to stay that low. On top of that you still need the base incomes to support the mortgages. Don’t forget about much tighter lending standards

  158. Outofstater says:

    #153 Every meal? Um, that’s great unless you have kids. I’m thinking of airborne spaghetti and using a spoon as a hammer on the table.

  159. Elflord says:

    Neanderthal is right. If rates were to mean-revert overnight, prices would be pulled towards historical norms very quickly. But that won’t happen to the rates, therefore not to the prices either. Rates will revert gradually, which will pull prices back to where they should be, gradually. Additionally, there is another factor — people who are underwater are unlikely to sell their place, and when they are unable or unwilling to bring the required cash to closing, the transaction is inevitably less convenient for both the buyer and the seller. This pushes sales below historical norms. To put it another way, even if the demand falls to historical norms, it is not necessarily the case that the prices will fall immediately — the sales number could fall instead (you’re basically walking left along the demand curve)

    So the most likely outcome of this is that prices will stay flat for several years while the historical norm slowly catches up.

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