California still in a housing bubble (July, 2010)

[StageLeft]

So says Dr. Housing Bubble. http://www.doctorhousingbubble.com/

Despite the name and despite a consistent pessimistic view on housing, specifically in CA, as I've visited his site over the last year or so he has more data in a single blog post than you'll find in a bunch of vague articles about housing. As I have read his stuff I've noticed his views to be quite fair.

I know some have called a housing bottom time and again and they've, time and again, been wrong.

For CA Dr refers to:

California CPI
2000 = 172
2010 = 227
Increase of 32 percent

Further, he says the second half of 2010 will be bad, and of course he's right, it will be worse for those looking to get money out of their house should they need to sell it.

 

[Slew Foot]

Especially along the coasts. The central valley not so much(but prices have already dropped there up to 70% from the peak).

We're looking to buy in a nicer part of San Jose. the avg.household income is around 150K but the avg. home is nearly 1.5 million. According to our RE agent, the avg person, takes out 2-3 loans to buy a house.

 

[her209]

At least my property taxes won't go up unexpectedly.

 

[IGBT]

Lots of property for sale in my area of SF due to the tax hikes comming in 01-01-2011. Better to get what you can now under existing tax law rather then wait and pay the obama tax fusk.

 

[Ronstang]

Especially along the coasts. The central valley not so much(but prices have already dropped there up to 70% from the peak).

We're looking to buy in a nicer part of San Jose. the avg.household income is around 150K but the avg. home is nearly 1.5 million. According to our RE agent, the avg person, takes out 2-3 loans to buy a house.

These people are fucking stupid to buy a home that is 10x their income, simply stupid. I don't care if they can somehow secure financing that makes it look like they can actually afford it or not, it is stupid. The only reason these houses are priced at this ridiculous level is because there are people stupid enough to pay it, all the while someone else is laughing all the way to the bank.

 

[Red Dawn]

Especially along the coasts. The central valley not so much(but prices have already dropped there up to 70% from the peak).

We're looking to buy in a nicer part of San Jose. the avg.household income is around 150K but the avg. home is nearly 1.5 million. According to our RE agent, the avg person, takes out 2-3 loans to buy a house.

1.5 Mill for the average home in San Jose? Hell that place is just a shell of it's former self. I can only imagine what it'd cost in a nicer area like Los Gatos or Saratoga

 

[Slew Foot]

1.5 Mill for the average home in San Jose? Hell that place is just a shell of it's former self. I can only imagine what it'd cost in a nicer area like Los Gatos or Saratoga

Its not necessarily an average home, its a nicer place in a gated country club. But still, the stats for the zip code are there. My wife works in Los Gatos, the same house over there would be over 2 million. My brother in law bought a $1.4 million house in Los Altos a few months ago, 2400 sqft and needed about 50K in repairs.

 

[Vic]

No question IMO that home prices will continue to go down for the next year or so. The bigger issue though is in the markets that I believe will be hardest hit in the next wave, markets that hadn't been hit so hard before.

 

[IGBT]

No question IMO that home prices will continue to go down for the next year or so. The bigger issue though is in the markets that I believe will be hardest hit in the next wave, markets that hadn't been hit so hard before.

when the home mortgage deduction gets phased out the prices will drop yet again.

 

[Double Trouble]

The home price insanity had to come to an end somehow, and we're far from seeing the bottom yet IMO. Until prices come down to a reasonable multiple of disposable income, they have to get driven down further. The bubble was fueled by unreasonable amounts of credit, and in some places the prices haven't come down nearly enough yet.

 

[Vic]

when the home mortgage deduction gets phased out the prices will drop yet again.

The mortgage interest deduction is not getting phased out, not now nor anytime in the indefinite future.

Don't quote me and then post stupid. The reason I believe the housing market is set to take another tumble is because the waves of the subprime implosion are now spreading into prime loans.

 

[Double Trouble]

when the home mortgage deduction gets phased out the prices will drop yet again.

I would be surprised if that happens anytime soon. Not because the idiots in DC don't want to do it and fill the trough with more money to waste, but because they know the the average middle class person (those who statistically are very likely to vote) will be incredibly pissed. I know I would work very hard to see whatever idiot senator and congressman that votes for removing that deduction be removed from office.

 

[Vic]

The home price insanity had to come to an end somehow, and we're far from seeing the bottom yet IMO. Until prices come down to a reasonable multiple of disposable income, they have to get driven down further. The bubble was fueled by unreasonable amounts of credit, and in some places the prices haven't come down nearly enough yet.

The benchmark for determining home prices IMO is to compare market rents and low-down low-interest mortgage payments for comparable properties in the same area, and then factor in that market's expectation of appreciation, keeping in mind that rents will almost never be more than mortgage payments (due to the prestige of being a homeowner).
It's not an exact science obviously, but a good rule of thumb. The direction of mortgage rates is a crucial factor as well.

 

[Vic]

I would be surprised if that happens anytime soon. Not because the idiots in DC don't want to do it and fill the trough with more money to waste, but because they know the the average middle class person (those who statistically are very likely to vote) will be incredibly pissed. I know I would work very hard to see whatever idiot senator and congressman that votes for removing that deduction be removed from office.

And the good folks at NAR and MBA and every other real estate and banking lobby would be right behind you.

 

[StageLeft]

I could envision 'reduction' in the interest deductions for high end homes but absolutely the average family would see a terrible increase in taxes if they could not deduct those so it's not a realistic fear. I'm not even sure any legislators have mentioned it. I imagine they'd be hanged for even thinking it out loud.

 

[IGBT]

Obama looking to end mortgage interest tax deduction — to help pay for Obamacare!

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

The new spotlight on the mortgage deduction and other tax expenditures comes as the Obama administration and Congress consider ways to reduce deficits the Congressional Budget Office (CBO) expects will average nearly $1 trillion over the next decade.


http://politipage.com/2010/06/08/ob...rest-tax-deduction-to-help-pay-for-obamacare/

 

[Vic]

Obama looking to end mortgage interest tax deduction — to help pay for Obamacare!

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

The new spotlight on the mortgage deduction and other tax expenditures comes as the Obama administration and Congress consider ways to reduce deficits the Congressional Budget Office (CBO) expects will average nearly $1 trillion over the next decade.


http://politipage.com/2010/06/08/ob...rest-tax-deduction-to-help-pay-for-obamacare/

Are you going to post the "news" from Mad magazine next?

The mortgage interest deduction comes "under scrutiny" every year, including every year Bush was in office. Nothing is ever done about it. It's as untouchable as social security, and will never go away. Period.

 

[IGBT]

Are you going to post the "news" from Mad magazine next?

The mortgage interest deduction comes "under scrutiny" every year, including every year Bush was in office. Nothing is ever done about it. It's as untouchable as social security, and will never go away. Period.

dream on. it's days are numbered. Even the admins at HUD are supplying rational to end the mortgage interest tax perk.


http://www.nytimes.com/2010/03/23/business/23views.html


Mortgages should be made less attractive. That’s one lesson of the recent housing bubble and bust. As long as borrowing seems like the easy road to riches, people will do too much of it. But right now in the United States, the tax code encourages many people to take out big mortgages. That’s why it’s a good idea to put the elimination of the tax deductibility of mortgage interest on the political agenda.


I think it's a good idea. It will bring stability to real estate business and get rid of the property flippers.


Britain removed the tax advantages of home ownership over a period of 12 years. In the 1990s, the mortgage tax relief rate gradually fell from 25 percent to 10 percent before disappearing completely in 2000.


As policy makers consider how to reshape this troubled sector of the economy — and the need to raise taxes to shrink an enormous deficit — getting rid of a poorly designed tax incentive is good place to start.

 

[StageLeft]

dream on. it's days are numbered. Even the admins at HUD are supplying rational to end the mortgage interest tax perk.


http://www.nytimes.com/2010/03/23/business/23views.html


Mortgages should be made less attractive. That’s one lesson of the recent housing bubble and bust. As long as borrowing seems like the easy road to riches, people will do too much of it. But right now in the United States, the tax code encourages many people to take out big mortgages. That’s why it’s a good idea to put the elimination of the tax deductibility of mortgage interest on the political agenda.


I think it's a good idea. It will bring stability to real estate business and get rid of the property flippers.


Britain removed the tax advantages of home ownership over a period of 12 years. In the 1990s, the mortgage tax relief rate gradually fell from 25 percent to 10 percent before disappearing completely in 2000.


As policy makers consider how to reshape this troubled sector of the economy — and the need to raise taxes to shrink an enormous deficit — getting rid of a poorly designed tax incentive is good place to start.

Do you think the author realizes the irony of saying "Higher taxes for mortgage borrowers would not prevent excesses in the United States housing market either. They would need to be complemented by careful controls on lending. But it would be a step in a good direction" immediately after

"Mortgage tax relief ended just as a housing bubble began. Far from slumping, the median British house price rose 145 percent from 2000 to the peak in 2007"?

So, what exactly did it do to stay "As long as borrowing seems like the easy road to riches, people will do too much of it."

I don't see the point. Obviously the deduction does keep housing prices higher than they would be, or at least interest rates higher than they may be. Canadians cannot deduct but they seem to have lower rates by quite a bit, too, although few of them also have 30 year mortgages.

 

[Greenman]

The home price insanity had to come to an end somehow, and we're far from seeing the bottom yet IMO. Until prices come down to a reasonable multiple of disposable income, they have to get driven down further. The bubble was fueled by unreasonable amounts of credit, and in some places the prices haven't come down nearly enough yet.

There are homes on the market right now selling for less than construction cost. They can't go all that much lower.

 

[Vic]

dream on. it's days are numbered. Even the admins at HUD are supplying rational to end the mortgage interest tax perk.


http://www.nytimes.com/2010/03/23/business/23views.html


Mortgages should be made less attractive. That’s one lesson of the recent housing bubble and bust. As long as borrowing seems like the easy road to riches, people will do too much of it. But right now in the United States, the tax code encourages many people to take out big mortgages. That’s why it’s a good idea to put the elimination of the tax deductibility of mortgage interest on the political agenda.


I think it's a good idea. It will bring stability to real estate business and get rid of the property flippers.


Britain removed the tax advantages of home ownership over a period of 12 years. In the 1990s, the mortgage tax relief rate gradually fell from 25 percent to 10 percent before disappearing completely in 2000.


As policy makers consider how to reshape this troubled sector of the economy — and the need to raise taxes to shrink an enormous deficit — getting rid of a poorly designed tax incentive is good place to start.

/facepalm

That's a political commentary piece -- an opinion -- not a news article.

Quit puffin' so hard on the outrage pipe.

 

[JS80]

Especially along the coasts. The central valley not so much(but prices have already dropped there up to 70% from the peak).

We're looking to buy in a nicer part of San Jose. the avg.household income is around 150K but the avg. home is nearly 1.5 million. According to our RE agent, the avg person, takes out 2-3 loans to buy a house.

That stat is probably for "new" buyers. The reason why CA home prices are still inflated and will perpetually be inflated is that the overwhelming majority of CA homeowners (in prime areas) purchased their property back in the day for $80k and their tax basis is so ridiculously low it would be stupid for them to sell (and they won't sell).

Also the fact that land is scarce. When you fly into LA/SF/SD you will see 200 miles of building and absolutely no plots of land. Fly into any other city in between and you see tons of land. The majority of CA house "price" is the price of land.

 

[rudder]

Especially along the coasts. The central valley not so much(but prices have already dropped there up to 70% from the peak).

We're looking to buy in a nicer part of San Jose. the avg.household income is around 150K but the avg. home is nearly 1.5 million. According to our RE agent, the avg person, takes out 2-3 loans to buy a house.

Does California have lax lending laws or are these people committing fraud in order to purchase homes? Just curious.

My guess is people are paying these outrageous amounts for homes because they thought they can pay 2-3 loans for 1 - 2years... sell the $1.5 million home for $1.75 million to the next sucker.

 

[PingSpike]

I agree with JS80's point. With that prop 13 or whatever that locks your property tax increase, who the fuck would ever want to sell? I get gang raped every year with property tax increases, I'd love to have that kind of stability in my budget.

 

[soccerballtux]

So says Dr. Housing Bubble. http://www.doctorhousingbubble.com/

Despite the name and despite a consistent pessimistic view on housing, specifically in CA, as I've visited his site over the last year or so he has more data in a single blog post than you'll find in a bunch of vague articles about housing. As I have read his stuff I've noticed his views to be quite fair.

I know some have called a housing bottom time and again and they've, time and again, been wrong.

For CA Dr refers to:



Further, he says the second half of 2010 will be bad, and of course he's right, it will be worse for those looking to get money out of their house should they need to sell it.

The only better blog I've found is from Michael Pettis, a professor teaching at [one of China's top...3...? universities...can't remember which]. Unrelated to housing but if you appreciate solid macroeconomic discussion, mpettis.com will scratch that itch. Forgive his broken site layout-- he's got the best thoughts on China I've ever run across.

Oh and don't forget calculatedriskblog.com for general economic news, and globaleconomicanalysis.blogspot.com for decent conservative ranting and railing.