Why Not Another RE Bubbble?

Shiller recently said that he sees the possibility of significant price increases. In fact, they are already happening in some areas, such as San Francisco and Minnesota.

ummm... how about...

1) the entire world just learned that RE doesn't only go up
2) the vast majority of the country/ state / city is now poorer
3) the city and state have no money...

just to name a few....

> 4. Miami RE boom bust cycle is roadmap.

And the road still leads down....

> 3. Mo more industry so primary ways to accumulate wealth are market plays and certain asset classes.

Meaning even fewer people can buy.

You're actually helping to make the bear case....

How about you need people with jobs to buy RE.
How about you need credit for people to buy RE.

There will be a bubble again - just not in the immediate future, and not widespread. That is, of course, if the federal debt / crashing value of the dollar lead to a regional / worldwide depression first. The only bubbles that you will see then are those billowing up in the raw sewage flowing down your street.

somewhere,
your post is so late 2008. The frozen market of late '08-early'09 which caused desperation prices is over. Market prices at least on the low-end have settled to about 6%-7% below peak '07 sales season. We should have a strong spring 2010 as the last of the economic uncertainty is gone.

steve, so what were your comments in late 2008? so 2006?

Anyone up for a wager? Cover your action and give you one more.

In two years you'll be reading about it.

ieb, bubbles take volume. not just some rich people who've largely been rich getting richer. could the park avenue apartment see a resurgence? who knows. and demographics are hugely unpredictable this go around.

if it makes you happy to have another destructive bubble created, and one does so manage to appear from the ashes, there's nothing i can really say. bubbles aren't healthy, but pop the bubbly if you so desire. i don't think there's enough gas in the bottle, and after the mid-term elections i'd bet you see another side to this administration.

Ieb,

You obviously don't know anyone who has applied for a mortgage. I have a client with $10 Million in their brokerage get denied a loan because they don't work. It's not like they got laid off, they just don't need to work. When you see what happens to NYC real estate now that everyone has to put at LEAST 20% down, you'll be eating your words.

NBC news just said the real unemployment rate is over 17%.

If someone is laid off, the bank can't just assume he'll get a new job. The lender risks money when it lends. This country has such a sense of entitlement.. It's as if they don't understand the concept of a loan. If the buyer is richer than g-d, he should either pledge assets, or pay cash.

A number of months ago someone asked under what circumstances I could see prices going back up. I'm too lazy too go look for it again (I know I reposted it once already), but I said something like "big Wall St bonuses, Dow over 10,000, Fed Gov't pressures (including artificially low interest rates)" (at least that's what I think I said).

"If someone is laid off, the bank can't just assume he'll get a new job. The lender risks money when it lends. This country has such a sense of entitlement.. It's as if they don't understand the concept of a loan. If the buyer is richer than g-d, he should either pledge assets, or pay cash."

Banks consider assets to be worthless. Really. So they would rather make a $4 million loan to someone with a $1 million W-2 income and $1 million in assets, then someone with $10 million in assets with no W-2 income but $1m in income from cap gains and interest/dividends.

Who is the higher risk? The guy with the $1m income who loses his job and quickly eats into his savings or the guy with $10 million in real assets but no "job"?

Modern,

Exactly.

With 17% real unemployment and banks getting crushed daily with their credit card and home loan/HELOC portfolio charge offs, it will only get worse from here in terms of lending. The economy might improve in terms of hiring, but credit will (I hope) never be as loose as 2007 again.

Modern - Or they can look at the 10% return $1 million implies on $10 million invested and figure out that in this environment that return implies far too great a risk and the $10 million will all go away. After all, the only people consistently making that kind of return in the last decade were invested in Bernie Madoff.

So far, I haven’t seen an argument that refutes my assertion. How about some fresh out of the box thinking?

And, while we’re on the topic, what’s wrong with bubbles, anyway? Isn’t this now the primary source of wealth generation in the U.S, what else is there?
an d

ieb:
"Time to uncork the champagne. Bubbles popping up all over the place. Why not another RE bubble stating in next year or so.
Just give me one good reason why this won’t happen again."

Thats easy. The current bubble hasn't deflated yet. Need this one to crash before a new one will start. However, if your OP was asking will we ever have bubbles again, then, yes, we will.

Patient09: So would you say that in ny re there’s another leg up before a major crash? Based on what’s happening in places like Hong Kong and London, I can buy into that.

No,
What patient means by "deflated" is that it hasn't bottomed yet. How dense are you?

ieb, some reasons against a new housing bubble:
1. Previous bubble is still with us. It's taken some nicks and cuts but the beast is not dead.
2. The "free money" express only stops on Wall Street these days. And even if Wall Street bonuses are high they are being given out to a smaller number of people thanks to the bankruptcies and layoffs. More bonus money is deferred comp and not cash so there may not be a immediate spending splurge. How many first year associates making $200K and getting loans on $1MM apartments do you think we'll see when the '09 bonuses are paid? Maybe a few hundred people at Goldman will trade up homes but don't think that'll for a bubble.
3. The current bubble (now slightly deflated) was due to the "free money express", aka easy credit, stopping on Main Street. The Main Street station is now closed.

Personally I think there needs to be another non-housing bubble first (e.g. stocks, gold, beanie babies, brightly colored shells) before we see another housing bubble. So, it could come in a few years but I would expect to see a lot of money being generated out of thin air first (Tulip bulbs?)

> steve, so what were your comments in late 2008? so 2006?

ROTFL.

stevef is a moron.

> Thats easy. The current bubble hasn't deflated yet.

Bingo.

There will be no more bubbles. Wall Street is now regulated and will never be able to cheat the system and rob the american people of their life savings again. Americans will now be smart about thier finances and will never again fall for the easy what out and the lure of purchasing with debt.

they said that about wall street post dot com... post '87... post... well post EVERY single time something like this happened.

Also remember all the times folks have said "the american consumer will never again be so materialistic, bla bla". Said it right after 9/11, too.

Guess what, they were wrong every time.

somewhereelse - i guess that you cannot detect sarcasim?

He's ba-ack

http://newyork.corante.com/archives/Housing%20Bubble%20logo.gif

> somewhereelse - i guess that you cannot detect sarcasim?

Not from someone who usually makes incorrect statements like that.

i guess that I have made over $11 million incorrect statements....

somebody please help me i'm all tangled up in green shoots and drowning in bubbles

i'm feeling gasseous, all those bubbles.

> guess that I have made over $11 million incorrect statements....

Sounds right... all your totalled losses from your Las Vegas bust and your NYC bankruptcy and your other bad investments.

Sounds about right.

Sorry, I lost my head for a moment. I meant to say that the second derivative of the carry trade based on liquidated assets related to many unnatural acts will thusly result in the growth of employment and productivity.

Are we not in a Government spending bubble right now?
Is there not an investment banking/commodities bubble growing as we speak?
It's bubblleisious! Wait till you see this one blow...going to really impress you.

I love that squeaking sound when you rub a balloon the wrong (or right) way. its' like sqqqqqwwwwwueeeeeeeek!

I'm sure we'll have another bubble... but the big mistake is thinking that bubble pops are followed by bubbles in the same asset class. History says... they simply aren't.

This bubble is mainly fallout from the stock market bubble....

The modern day American economy is based upon bubbles and nothing else. You can thank Republican deregulation and the greed of Wall Street for it.

Mishkin just wrote a piece in the FT.. Personally I think he should have read it back to himself before hitting the publish key.

http://www.ft.com/cms/s/0/98e7c192-cd5f-11de-8162-00144feabdc0.html

The second category of bubble, what I call the “pure irrational exuberance bubble”, is far less dangerous because it does not involve the cycle of leveraging against higher asset values. Without a credit boom, the bursting of the bubble does not cause the financial system to seize up and so does much less damage. For example, the bubble in technology stocks in the late 1990s was not fuelled by a feedback loop between bank lending and rising equity values; indeed, the bursting of the tech-stock bubble was not accompanied by a marked deterioration in bank balance sheets. This is one of the key reasons that the bursting of the bubble was followed by a relatively mild recession. Similarly, the bubble that burst in the stock market in 1987 did not put the financial system under great stress and the economy fared well in its aftermath.

Because the second category of bubble does not present the same dangers to the economy as a credit boom bubble, the case for tightening monetary policy to restrain a pure irrational exuberance bubble is much weaker. Asset-price bubbles of this type are hard to identify: after the fact is easy, but beforehand is not. (If policymakers were that smart, why aren’t they rich?) Tightening monetary policy to restrain a bubble that does not materialise will lead to much weaker economic growth than is warranted. Monetary policymakers, just like doctors, need to take a Hippocratic Oath to “do no harm”.

The modern day American economy is based upon bubbles and nothing else. You can thank Republican deregulation and the greed of Wall Street for it.

what hooey. Ignores Clinton,Rubin & Summers

what hooey ignores obvious partisan moron Riversider

ieb - great topic. I think the two main reason there wont be another bubble are:

1. The PAIN that was felt by millions that lost there home. We wont have that mass migration to the asset as a speculative investment play that usually is required to make a bubble in the first place. What will power a euphoria phase that sees prices appreciate 20-25% a year for 3-4 straight years again?

2. credit contraction, lack of lending, elimination of exotic mortgages to expand affordability, tighter underwriting, hvcc appraisal changes, etc.....hard to have another bubble when credit is clearly being applied elsewhere, not to masses of consumers, or being hoarded to absorb future loan losses and adequately maintain capital ratios.

thanks for bringing up

Urbandigs major flaw with #1 means that the American masses will have to think for themselves and understand what risks they are taking and making informed decisions. This is not the way America works. The American masses want the easy way out. They will listen to any huckster that tells them if they sign here they will make millions with no money down. Its already happening again all over the country.

urban, there will always be bubbles, but assume you are talking about the near future.

What I’m thinking is along the lines that gov and banks will come up with a scheme to permit massive reflation of the re market, even way beyond the last cycle. Look at Hong Kong where over the past 10 years re has spiked maybe three times and the current HK bubble is very hot. I do business in HK and in China where they are taking our money and bidding up re to insane levels. So with the bummer economy that we have overlaid on next election cycle why not another bubble?

but that is the plan, Treasury and the Fed plan is to reflate the bubbble to prevent write-downs and allow the banks time to use earnings to beef up the balance sheet(thank you zero fed funds rate)

The current plan is to pump up home values. 2010 plan is to pump up jobs. By the end of 2010/early 2011 you will see 1 - historically low lending rates, 2 - home values increasing gradually, 3 - Americans and institutions with more savings (cash in the bank) than ever, and 4 - jobs being created briskly. Sounds like a perfect environment for another RE mini bubble.

in america we are consumerist maniacs with no hindsight or foresight, like gnats getting burned but noetheless flying back into the light, over and over again... the only thing that might "trickle down" effectively is regulation, to try to save us from ourselves.. there's three animals in this food chain: the government, corporations, and the people, and it's a f*cking feeding frenzy...

Some people refer to this as an "echo bubble."

They historically have equalled 30% to 40% of the initial bubble.

But then they fade and prices return again to the earlier lows where they typically stay for an extended period of time.

Absolutely. If you took all the people like me -- a prospective buyer, employed, good salary -- and convinced a fair number of us that current prices were attractive, you would certainly have enough people to support a mini-bubble, for a couple of years at least.

Ohhhhhhhhhhh!!!!!! Air bubbles when you are being fucked too hard. I get it petridish. You think the problem was we didn't get fucked hard enough on the last go around. This time fuck us gently with lots of lube!!!! Great advice.

i think the next near term bubble will be in commodities, specifically metals

w67th was the problem fixed after the S&L scandel in the late 80's? No. Did American fix its oil dependecny in 70's when the Arabs were attacking us? No - Reagan ripped the solar panels from the white house and the people cheered for being dependent on foreign oil.

America doesnt fix things. America looks for the easiest short term fix while knowing they are screwing the future.

i think the next near term bubble will be in commodities, specifically metals

urban diggs, not even close. commodities are just having a big bull run. commodity bubble means ipo's on vancouver stock exchange

UD: commodities and metals are interesting and as in the case of grains can add to inflation but you are viewing these markets from an insider perspective. The price fluctuations are very dramatic and someone can make or loose a lot of money but generally don’t have broad economic impact of the mega markets like the stock market or re.

The current bubble is the stock market where average Joe can buy into it like in their 401’s. That’s why next wave has be re again, just because it’s so easy.

My money's on emerging market stocks.

Expect them to get bid up to ridiculous prices.

"They've got the growth. We don't. What's to discuss."

The key will be to gradually scale out as the bubble gets bigger and bigger. Bulls make money, bears make money. But pigs never do.

Although the strength of emerging market economies will help commodities, I'd note that the best performance from commodities historically has occurred late cycle when we're running out of capacity. We still have ample capacity.

I keep a modest position in PIMCO's commodity fund for now. Too early to build it up, though.

I agree with several of you above who point out that the previous bubble isn't done deflating yet, at least not in NYC.

Inflation is the big "X Factor", but on an inflation-adjusted basis we are almost guaranteed further reductions in NYC real estate values. My personal guess is corn futures would be a better investment than NYC real estate right now . . .

but not nearly as much fun...

"The modern day American economy is based upon bubbles and nothing else. You can thank Republican deregulation and the greed of Wall Street for it."

what hooey. Ignores Clinton,Rubin & Summers
and barney frank, the master moron!

But, why be surprised, perfitz has been absolutely wrong about, well, EVERYTHING for a good 2 years now. Why would now be any different.

somewhereelse AKA nyc10022 aka Eddiewilson - why do you keep changing your name? is it so you can hide from your ignorant posts?

Hmm wrong? I am up over 250% on avg for all my properties in purchase price vs appraised value (in the past 2 months) I have alos collected enormous amounts of rent from each property and I will make more cash this year than I ever have.

How about you EddieWillson/NYC10022/somewhereelse? How much did you make renting over the past 5 years?

> (in the past 2 months

I love it. Goes down 10000%, and then back up 20%, and he thinks he made money.

What a moron...

And you never answered... how is your lake las vegas "investment" doing?

oh yeah, we know... bust.

whoops.

Somewhereelse, please dont forget Greenspan and Geitner. As an aside, Mishkin is a moron as well.

eddiewilson/nyc10022 - cant you read? i meant bank appraised in the last 2 months you moron

not surprisingly, still nothing on lake las vegas. What a bust!

and so much for your "manhattan real estate will be up 15%"... (you forgot the negative sign!)

and, did you miss the article on how you're screwed even more....
http://www.streeteasy.com/nyc/talk/discussion/16091-landlords-screwed

Congrats, moron, I couldn't lose as much as you did if I TRIED!

rotfl.

my las vegas property is still above water. several homes in my development have sold for more than i paid in the past 6 months none under what i paid. Remember I paid 60% off asking. So i am still up nicely not to mention my write offs and rental income.

How about you? can you tell us how much money you made from renting in the past 5 years? I figure that is about 100K at least in rent. How much of that have you profited?

> my las vegas property is still above water

Yes, the lake went dry, we know. Its a complete bust.

> How much of that have you profited?

Several times that. I took the money I saved in carrying costs, and I shorted RE.

Basically, I'm one of the guys who made all the money you lost.

Thanks! Much appreciated!

Keep up your genius "investment"!

awesome job, perfitz! way to lose all your money!

http://www.lvrj.com/news/breaking_news/Creditors-of-bankrupt-Lake-Las-Vegas-Resort-trying-to-sue-former-project-owners-65071182.html