Story Comments

I agree with your rebuttal to that posters arguments. However, my opinion you are too early still stands.

I notice you didn't try to refute my more logical comment.

Both articles were great. Raw materials sitting in that house built in 1998-2005 put more squeeze on home builders with supply and demand imbalances. Are we adding more new buyers of homes in this current economy? I think youre right long term, but short term 2 to 3 years does anyone expect 5 to 10 returns? I think that is as implausable as whatever measurement returning to 2002 levels.

I am not proposing a perpetual bear. But there is certainly a free fall right now.

I would appreciate Luskin responding to the following. He writes there is no housing crisis in Silicon Valley. What is a 20% price drop in under 1 year? Depends how you define crisis I guess. Prices are dropping 100,000's of dollars in the Valley here between a house listing and a few weeks when the seller realizes he can't sell.

By the way, the middle number, or median, represents numbers much better than an average inflated by $10million mansions. Reputable stats are given in median or at least give both median and average.

See DQNEWS.COM from April 17th:
The median price paid for a Bay Area home was $536,000 last month, down 2.2 percent from $548,000 in February, and down 16.1 percent from $639,000 in March last year. Last month's median was 19.4 percent lower than the peak median of $665,000 reached last June and July.

Don, I think you're right. As someone who has never owned, I am licking my chops right now. I will likely be a buyer in the next 12 months as prices continue to decline or stay flat. After watching the bubble for the past several years and not wanting to get in at the top...I'm ready to get in on the downslope. And assuming there are others like me out there, we'll be slowing the drop or maybe even propping up the market somewhat.
I just hope our boneheaded Congress doesn't make me pay for all the speculators and people that bought more house than they could reasonably afford. And I'm tired of the blame being put on anyone but these same idiots. If you sign an agreement that commits you for 30 years, shouldn't you understand it?

In the retail mortgage brokerage business for the past 14 years, its going to be at least 12-24 to even get to a bottom imo; credit has never been tougher to qualify for, Jimmy Carter might have been worse, but we currently sit in spot number 2 if that is the case. Nobody is immune. There is absolutely zero demand, and an ever geometrically growing inventory that eventually will be vacated and bank owned... its going to get MUCH WORSE before it gets even the slightest more better; I'm not invested, I have no assets, I work for a living... just my perspective. To say or imply/infer that we are not experiencing one of the more procounced difficult economic periods in our history presently is to have your head lodged far up your you know where... I could bring 100K to the table to sell my home and I still would not have a buyer to sell to.

I think one of the easiest ways to spot the bottom in the housing market is to look at lending practices. I don't thing we'll see a bottom until lending practices start to turn around and start to get more aggressive but right now we're not seeing that because lenders are continuing to tighten up. In fact these constrictions are now hitting the government loans (FHA & VA) so how can we hope for lenders to loosen up when they don't even want to risk lending money that is insured by the federal government? Once we see someone willing to take a chance on some more aggressive common sense loans then we'll know that the bottom is near.

Good article Don, but no one knows when a bottom is in place UNTIL after it happens. A case in point; my neighbor put his house up for sale for $519,000 last year, no offers. He dropped the price to $479,000 for a quick sale due to he bought another house, no offers which the salesperson claimed, 'its a slow market but at this price its very attractive.' Last month it sold for $449,000. I said to him why give it away; he said its going to get worse and glad I sold it at that price he claims that same house will sell for $389,000 by mid 2009.

Don-it ain't over yet!

Some good points have been expressed on both sides.

The disconcerting thing about many bottoms is that they only occur when NOBODY (even Mr, Luskin) remains to defend them and the thought that anybody would even consider buying or investing in the fill-in-the-blank collapsed asset provokes bellylaughs.

Unfortunately, as regards housing, the current discussion remains much too sensible.

The first article was well done and the rebuttal is well done. I do like the trend in affordability numbers. Certainly in Phoenix we are seeing an increase in demand and a slight positive sales trend in areas where prices have declined the most.

I do think, however, you have to break it down regionally to get a true picture. In my opinion it was a massive failure of the real estate and mortgage market in selected but massive markets that drove this crisis. For the recovery to take hold those same regional markets have to get back on their feet. I'm sure you've looked at Bernanke's maps. For those who haven't seen them here's a link- http://blog.metro-real-estate.com/?p=360. The critical markets that the map clearly delineates also have a big overhang of Option ARMs-http://blog.metro-real-estate.com/?p=304. We're going to have to work through this issue before we get to real recovery.

It is moving the right way but we still have some pretty significant headwind...(Read more of this comment)s.(Show less of this comment)

4.Rent/price yield has not returned to its historical average. 5.?sluggish ecomomic growth that could add further problems to this market not to mention other pressures on disposal incomes (increase gas/food prices, increase utility bills, the probable increase in taxes locally and nationally,etc.). Don, look at the big picture instead of being myopic. We are in the process of deleveraging and will not see a bottom to this housing market for another 1-2 years. I wish you were right but the America of today is in a totally different environment then the last 20-25 years.

Don,if things look so great to you why do you think Bernanke and congress are apoplectic about doing something further for this 'housing bottoming.' Maybe they know something (along with us 'permabears') that you're clueless about. America has several house-price indices and they tell different stories. 1.Supply/demand difference--about 1 million of excess homes compared with the average of 1985-2005. This should only grow with more foreclosed homes coming on the market. 2. Homeowner-vacancy rate at a record level of 2.9%. 3. Certainly, affordability monthly payments as a percentage of a median family's income are close to historical averages for February but misleading because lending standards have tightened and mortgage payments are still high in relation to incomes based on Case-Shiller.

Good article Don. The pathetic permabears have conditioned themselves to be negative, unhappy, pessimists. I bet they lose more in the market than they make. Permabears see all the bad in the world. They are deceived and foolish.

Well? If one is a Short Term Ivnestor? maybe it's too soon to jump in... But if one a longer term? Why not? Unless we have WWIII what are the odds RE isn't going to be worth alot more 3-10 yrs from now? There are Alot More Middle to Wealthy Kids out-there just Waiting to Buy a Place and with Low Interest rates? It's just a matter of time before they start buying.. And Commerical RE? Is alittle Trickier..alot of Franchise businesses/Strip Malls/Big Box stores are closing up shop ( way over sold ) but The Rental Market is booming..in the Right Area's and as they always say> Location, Location, Location is Key..

Discloser> Am Invested in CGMRX and GGP as a major Part of my Portfolio for many yrs and will continue to do so for yrs ahead..

Dear Mr. Luskin:

Excellent comeback. Your argument is dynamic, and let me tell you --- I hope it's right!

Seth

Guess you know that the House is working very diligently to address this housing situation with lots of possiblities- grants, refinancing,so and so...
Barney Frank has got it covered.

'We are in a recession, and the major cause of that is the subprime crisis,' said Frank, the House Financial Services Committee chairman. 'Diminishing the number of foreclosures is in the interest not simply of those who will avoid foreclosure, but people in their neighborhood, (in) the cities in which they are located, and the whole economy.'

Republican backers said they were putting aside their philosophical objections to a government-based rescue due to the severity of the housing crisis that has hit their constituents.

Well, it worked with bsc, and you know that fnm, and frm are working hard to come up with something also.

I'm sure there is no objection to these bills,especially from folks that have paid their mortgages on time month after month.

Supply/demand assumes equal units in a commodity market. Build better homes with great new features in super locations and off we go. Or clustered around a great new school.

The housing decline alone acts a powerful destructive force upon banks. The US economic recession will be an equally powerful destructive force. Ordinary debts are defaulted outside the realm of housing. Vicious cycles with gripping feedback loops are at work. Bank loan portfolios on the household and commercial side are next to endure wreckage. The only bottom that I know of, Mr. Luskin, is the one I use to sit on.

A couple of points.
*Adpotulski is right - the inventory is about four months larger - up to 10 from 6 months, and not in all parts of the country. DOM (days on market) will go up (and has), but houses are still selling.
*L A area is down ~25% year over year. A big correction already.
* Interest rates are really low - 6% or so. Don't remember that exact quote, but the gist was that for every 1/4% drop in home loan rates close to 100k more families could qualify
*Last, people really want to own their own home (tax benefit aside) and that maintains demand.
* I think Don is mostly right barring more bad news. The only thing stopping his forecast would be a lot more bad news - and that's possible...

In response to the supply and demand argument, who's to say demand won't increase? When prices get low enough, if they aren't already there, people will invest/speculate/buy instead of rent.

Just because something is more affordable (at least according to your statistics and analysis) doesn't mean consumers can or will buy it. As stated previously, a big chunk of the population is genuinely concerned about being able to afford fuel and food, inflation, and losing their job. Couple this with huge inventories, tightened credit, and a consumer psyche that believes sellers CAN'T sell their homes and buyers WILL see further price declines, and whose going to be buying? We may be getting near a bottom, although I believe we have another 10-20% to go, but we may be there quite awhile...there will be no quick, robust recovery in this housing market.
And to your point, 'When so many people believe something with so much conviction, well, it just has to be wrong', could it be that you are just so far off on this one that everyone else is right? Or is that you're right and the world's wrong? Hmmmm...

The whole purpose of these articles has been to explain WHY there will be an increase in demand - Don's argument is affordability. To your point, yes, inventory looks high given the rate of purchases in this slow period - about four months too high in rough numbers - but as we all know it can't 'correct' forever. When this picks back up, those inventory numbers will not look quite so high.

Near bottom may be true. But that doesn't mean that it will rebound any time soon - it could stay around this bottom for a loooong time.

Don, you fail to comment on the single most important aspect of any asset's price. Supply and demand. There is an enormous inventory glut in the US housing market as demand falls. Inventories continue to rise in many cities or maintain their record levels in others. The problem with all bubbles is that they create incredible supply/demand imbalances. As the asset begins to deflate demand slows while supply stays high. We're at the point where supply is still very high and demand is low. The only way prices can stabilize is if demand increases (which is unlikely considering the weakness of the US consumer) and supply is reduced (or more likely, stays flat for a very long time).

I don't see any way we're near a bottom considering these basic economic forces.