2013-14 Housing Bubble is now WORSE than 2008 Bubble (brokers, hedge fund, cash)

[Don Jenver]

The new 2013-14 housing bubble is even bigger and better than the 2008 housing bubble ... and we all know how well the 2008 housing bubble ended.

First, the "real" cost of purchasing a home has NEVER BEEN HIGHER:

Based on the median real income, home prices have never been more unaffordable at a stunning 6.7x average salary. Moreover, for those unable to see the bubble (or unsustainability), it appears Bernanke learned well from his previous planner-in-chief, having manufactured a much more aggressive ramp in prices leaving the average American even further away from the American Dream.

Second, the average new home sales price in the month of November reached a new all time high, such that new home prices in the US have never been higher.



Why is this happening? Well, the Fed has deliberately lowered its federal funds interest rate to 0.0% for five consecutive years in order to reflate the 2008 Housing Bubble. Plus the Fed has undertaken 5 years of "quantitative easing" to lower mortgage interest rates to the lowest in history ... Plus the US government has implemented a host of programs designed to reflate the housing bubble.

Source (http://www.zerohedge.com/news/2013-12-24/spot-paradox): (ZeroHedge)

Just as the 2008 housing bubble ended in a cataclysmic disaster when it popped, so too will the new and improved 2013-14 Housing Bubble end in a total catastrophe.

Be prepared.

[oregonwoodsmoke]

Where is that? House prices here aren't anywhere close to what they were right before the bubble burst.

[Don Jenver]

Originally Posted by oregonwoodsmoke

Where is that? House prices here aren't anywhere close to what they were right before the bubble burst.

Hi OregonWoodSmoke.

This is US data compiled by the US Federal Reserve:
Average Sales Price for New Houses Sold in the United States



Link:Average Sales Price for New Houses Sold in the United States (ASPNHSUS) - FRED - St. Louis Fed

[bmw335xi]

I'm a real estate agent but more importantly a mortgage loan originator and... no we are not in a housing bubble similar to 2008 and definetly not worse. If anything we have too many people complaining they can't get approved for a loan. That is an ocean away from 2008 when we could just use stated income to approve clients. Most buyers are paying with cash or very high down payments. Sorry, but the doom and gloom can't fool someone in the industry. If you don't believe me then short the stock market ;p

[NJBest]

My home price is quite a bit higher than it was pre 2008... so I wouldn't be surprised if we saw a dip... perhaps a dip larger than the 10% or so we saw in 2008 (in my area).

[goodlife36]

That is not true. Homes are not selling for anywhere close to what people paid back in 2008. Many people are actually paying less than what they would pay in rent. In addition, there are a lot of cash buyers.

[Don Jenver]

Originally Posted by bmw335xi

I'm a real estate agent but more importantly a mortgage loan originator and... no we are not in a housing bubble similar to 2008 and definetly not worse. If anything we have too many people complaining they can't get approved for a loan. That is an ocean away from 2008 when we could just use stated income to approve clients. Most buyers are paying with cash or very high down payments. Sorry, but the doom and gloom can't fool someone in the industry. If you don't believe me then short the stock market ;p

BMW, we are comparing the magnitude of two asset bubbles, one in 2008, and one in 2013-14. One way to measure the magnitude of these respective asset bubbles is to compare the "Average Sales Price for New Houses Sold."

When comparing these two metrics, we can say confidently that (1) 2008 prices were in a bubble (we know this from the aftermath of the collapsed bubble); and (2) 2013-14 prices are now higher than during the 2008 Bubble.

What's more, the actions of the US Federal Reserve since 2008 have been extremely pro-bubble; to wit, the Fed has lowered the US federal funds rate to 0.0% for five consecutive years -- which has no precedent in US history; the Fed has undertaken ultra-loose monetary policies, including quantitative easing of $1Trillion per year ($85B/month); and the US government has undertaken a flurry of pro-bubble housing policies.

All of these actions are/were designed to "reflate" the 2008 housing bubble so that the Wall Street bankers can improve their balance sheets, and the US economy can appear to "recover."

I agree with you that the two bubbles are very different: the '08 bubble depended on liar loans and subprime mortgages to inflate the bubble; the '13-'14 bubble depends on ultra-low interest rates (0% in 2013 compared to 5.25% in 2008), aggressive Federal Reserve and US Government intervention, and cash-rich, yield-starved pension funds and hedge funds who are willing to buy homes in huge quantities and convert them to rental units while securitizing and bundling them for resale on Wall Street.

The mechanisms of the two bubbles are very different; but the result is the same.

[Don Jenver]

Originally Posted by goodlife36

That is not true. Homes are not selling for anywhere close to what people paid back in 2008. Many people are actually paying less than what they would pay in rent. In addition, there are a lot of cash buyers.

Goodlife, you say that "homes are not selling for anywhere close to what people paid back in 2008."

However, according to the US Federal Reserve, their compilation of "Average Sales Price for New Houses Sold" shows that the AVERAGE sales prices for NEW HOUSES SOLD (not houses "for sale," but rather houses "sold") across the entire US is at a new bubble high. It's true that prices in Las Vegas, S. Florida, and Stockton CA are not at the 2008 bubble highs ... but that's because the mechanism which caused those areas to skyrocket in 2008 (i.e., the subprime liar loans) is a different mechanism than what is causing the 2013 housing bubble (i.e., ultra-loose monetary policy).

I'm not sure what more objective evidence one can provide than the Fed's own data. I'm not trying to be cute ... but I just do not honestly see where the evidentiary flaw lies in this data presentation.

In addition, there are a lot of cash buyers.

Yes, and this helps explain why the current prices are so high ... it's because the yield-starved hedge funds with deep pockets are desperate to buy real estate.

[james777]

I am very familiar with one community in a big Northeastern city that was being built during the last bubble. The new homes were sold during 2005 and 2006. The community was completed, everything sold, and everything about the community was top rate (quality construction, award winning architecture, great location with easy access to public transit and major highways). Today re-sales are stalled. If one is lucky enough to find a buyer, they will take a loss of no less than $100,000, and possibly quite a bit more. That is if one is lucky enough to find a buyer; houses of the largest model have sat on the market throughout 2013 without any offers at all. I have seen communities further out in the suburbs that were built during the bubble and selling prices for those are down over $200,000 from purchase price. So from this position, it doesn't look like a bubble. I have heard from mortgage brokers that after the first of the year, standards will tighten up and loans will be harder to come by.

[eskercurve]

I would say that the housing bubble isn't as bad but it is getting there. I think home values have to fall from here. There was an over correction that ended about two years ago and since then there's been a surprising rally in home values. Meanwhile real wages haven't even kept up with inflation.

What we're seeing is a number of factors and reasons for the rebound: 1) Millennials buying their first home and having children, 2) Boomers are finally selling and down-grading their McMansions and 3) Chinese buyers see the USA as a "save haven" for their newly earned riches.

That last point is critical. Most middle-class Chinese see their stock market as nothing more than a slot machine or gamble. Further, their society stresses saving. Indeed, most Chinese who have solid middle-class jobs save ~50% of their income. If they can't invest it in their stock market, what do they do? They buy on American markets and other hard assets. That means homes and material goods. Gold and silver are falling out of favor as Chinese tastes are really fickle and the "follow the herd" mentality means that's why we don't see a gradual decline, but more of a cliff.

It's estimates that here in Seattle about 80% of all home purchases that were all-cash were Chinese buyers. They traditionally bought in Vancouver, BC, NYC, and LA and SF but those markets are overpriced now so they're expanding elsewhere. That's not a shocking number when you remember that they earn about 40% of what we earn now and save significantly more. Also, the Chinese government has put some really draconian measures in place to prevent their market from getting even worse than what it is at now (need 50% down, can't buy more than two properties, etc).

So the conclusion is that Chinese buyers will be fickle and will switch their investments to something else that some leading figure likes that people there follow. When that happens, you will see the housing market lose half it's floor and come crashing back down.

But it won't be as bad as the last bubble. Why? Because domestic spending is also up. Millennials are having kids. That means consumables, houses, cars, and other things that go along with it. So the 80+ million Millennials will inject more life into the economy through sheer mass. A housing bubble bursting will cause a little disturbance, but not the "doom and gloom and stock up on ammo and gold and seeds and become a farmer" crowd likes to make you think.