Poll

Is Irvine feeling a bit bubble-licious to you lately?

Yes... buy now are be priced out forever.
24 (27.3%)
No... it's just there are only 3 houses on the MLS and interest rates are .00000888%
9 (10.2%)
Maybe... but it's short term... just a mini-bubble that will pop in several months
32 (36.4%)
I have no idea... but I think I just saw a unicorn
19 (21.6%)
Other
4 (4.5%)

Total Members Voted: 87

Author Topic: What the bubble?!?  (Read 91344 times)

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Offline woodburyowner

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Re: What the bubble?!?
« Reply #15 on: June 11, 2013, 11:36:10 PM »
I live in Woodbridge.  We bought ours in 2004.  For 2 years we got constant pestering from realtors (literally, knock on our door and having 10 minute conversations because they would not take no as an answer) and endless phone calls asking if we want to sell our home.  After 2008, they all went away.  We've been pestered-free since. 

The pestering agents never stopped in Woodbury.  During the downturn they would knock to see if you wanted to do a short sale.  Everyone was a "short sale specialist" even though most probably had no experience when the downturn first started.

Offline irvinehomeowner

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Re: What the bubble?!?
« Reply #16 on: June 12, 2013, 07:28:34 AM »
So what is going to pop this bubble? More inventory... rising rates... crashing stock market?
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Offline Homer_Simpson

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Re: What the bubble?!?
« Reply #17 on: June 12, 2013, 07:49:11 AM »
So what is going to pop this bubble? More inventory... rising rates... crashing stock market?

More inventory and rising rates. 
#FARM

Offline Goriot

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Re: What the bubble?!?
« Reply #18 on: June 12, 2013, 08:50:35 AM »
There is a very high correlation (decades) between the Lumber prices and New Housing Construction Market.  Lumber prices plummeted by 30%+ in the past few months and there is 12-18 months lag between the movement in lumber prices and when the housing market reacts. 

That means, we will most likely see a slow down in middle to second half of 2014.  Also, institutions will start unloading on their inventory probably in the next few years as investment holding periods for PE are about 5 years.  However, for the near-term, we probably can expect the market to remain hot (as lumber prices climbed 40% in the past 2 years before it plummeted recently) until end of the year and then plateau and then soften a little sometime next year as rates increase and inventory shoots up (both new and existing).

However, who knows when the bubble will pop.  Problem with the bubble is that it can be a huge titanic bubble or small blimp bubble.  No one can predict the timing.  Also, this market is driven by hot money from China, Taiwan, and Korea with significant cash downpayments.  It could be sustainable at this high level for a while unless overseas market in Asia tanks.  To the Asians who are used to paying $1 million in cash for 950 sqft condo in Seoul, Beijing, Shanghai, Hong Kong, homes in Irvine are dirt cheap for the property they are buying.  Chinese and other foreigners are swallowing up the Manhattan, Seattle, Miami, and other markets near the west and east coast.

With the entire globe running their money printing press overtime, the money will continue to flow to real estate and stock market until rates spike up significantly higher not only in the U.S. but Asia (Japan is doing 3 times more money printing then U.S) and Europe as well.  I doubt this can happen in the near term with all of the countries still long way from completing their de-leveraging process and running budget deficits.
« Last Edit: June 12, 2013, 08:57:19 AM by Goriot »

Offline paperboyNC

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Re: What the bubble?!?
« Reply #19 on: June 12, 2013, 02:18:17 PM »
So what is going to pop this bubble? More inventory... rising rates... crashing stock market?

More inventory and rising rates.

The main drivers of long-term demand for housing are:
 - The Job Market
 - Population Growth

This housing need can be filled by renting or by buying. If you buy, you are basically renting to yourself. In the long run, housing prices and housing demand is very similar to rental prices / demand.  Right now Irvine is having very strong job growth. Also, as families are achieving better financial health they might be looking to move from their long commute in Corona to a shorter commute in Irvine. On the flip side, they are building thousands of new homes in Irvine. Ultimately the question will be whether the job market can continue to grow enough to provide families to live in all of the existing homes and new homes.

Things like interest rates, investors, etc. are pretty irrelevant.

Offline The California Court Company

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Re: What the bubble?!?
« Reply #20 on: June 12, 2013, 03:10:25 PM »
North Korean invasion.



sorry cannot help it after I watched Red Dawn last night
So what is going to pop this bubble? More inventory... rising rates... crashing stock market?
"Should any Person come into contact with such fruit, soil or groundwater, such Person is advised to wash thoroughly with soap and water and seek immediate medical attention"-Augusta Disclosure, Tustin Legacy

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Offline Goriot

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Re: What the bubble?!?
« Reply #21 on: June 12, 2013, 03:17:41 PM »
So what is going to pop this bubble? More inventory... rising rates... crashing stock market?

More inventory and rising rates.

The main drivers of long-term demand for housing are:
 - The Job Market
 - Population Growth

This housing need can be filled by renting or by buying. If you buy, you are basically renting to yourself. In the long run, housing prices and housing demand is very similar to rental prices / demand.  Right now Irvine is having very strong job growth. Also, as families are achieving better financial health they might be looking to move from their long commute in Corona to a shorter commute in Irvine. On the flip side, they are building thousands of new homes in Irvine. Ultimately the question will be whether the job market can continue to grow enough to provide families to live in all of the existing homes and new homes.

Things like interest rates, investors, etc. are pretty irrelevant.

How can you say interest rates, investors are pretty irrelevant???  Yes, employment is very important, but what caused the crash in 2007 through 2009?? We had a very low unemployment rate, job market was strong, wage was increasing, people's net worth was high, things were happy bubble happy happy back then.  Our lovely wizard Greenspan lowered the interest rate and kept it too low for too long, which pumped and inflated the money supply with easy financing, etc. => Increase in Leverage => money flooded into real estate, exotic securities (CDOs, MBS, CDS, etc.) and leveraged buyouts ==> which caused bubble and crazy debt bubble.  So government's role and manipulation does play a key role in addition to employment.  If it was perfectly and efficient market without gov't intervention, yes employment will play a key role.  However, we are not in an perfectly efficient market.  Tech bubble --> Real estate bubble --> Government bubble (last frontier bubble).  When bond market bubble pops when it has been inflating and bubbling up for the past 30 years, it is gonna be VERY UGLY.  Worst then the housing bubble pop.

It's the government policies that dictate how we react.  Investment Bankers were simply taking advantage of what the government has open up them to do = Lower regulations.  Thus, we can't solely blame on them for the crash either.

House prices became inflated because of 30 years of declining interest rates and high debt load.  It's similar to expanding P/E ratio in the stock market because more people are invested although the fundamentals are the same.

I agree with you that Irvine will weather the storm better then other places because of stronger employment, etc.  but things are not that simple - perhaps in perfectly efficient market it is.

Offline gld2

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Re: What the bubble?!?
« Reply #22 on: June 12, 2013, 03:33:04 PM »
Goriot,

what is going to happpen if the bond market crashes?   how will it be related to the housing price?   Thank you

Offline Goriot

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Re: What the bubble?!?
« Reply #23 on: June 12, 2013, 04:40:20 PM »
Goriot,

what is going to happpen if the bond market crashes?   how will it be related to the housing price?   Thank you

This is just WORST case scenario so don't panic  ;)  But, it can happen if it happens "suddenly" not in an orderly manner.

If the bond crash happens gradually, then people/investors can react to it so not as bad.  However, IF the bond market goes out of control and goes into a shock, it will be ARMAGEDDON for all.  Do you know how much of our global wealth is in Treasuries and related fixed income instruments?? Enormous (close to $100 trillion globally and perhaps around $40 trillion for US as of today) and we have been piling it up for 70 years since the end of WWII.  Your pension and savings will be wiped out, inflation and interest rate will skyrocket, etc.  All assets will be affected perhaps lesser so for hard assets (agriculture, commodity, gold, etc.) I won't go into too much details. 

Your employer, our government (local, municipal, federal), your schools, our parent's savings, homes, roads, pensions, corporations will all be adversely affected.  What do you think your mello roos are?  They issued bonds (borrowed) to pay for those infrastructure.  They will all take a hit.  Corporations issue bonds to fund investments and grow.  PE/VC funds borrow to acquire companies.  Government (Sallie Mae) borrow to provide student loans to educate the students.  Banks and Insurance companies hold enormous amount of securities in treasuries, MBS, and other types of fixed income securities as part of their asset.  If they go sour, many will be insolvent as it will wipe out their equity.

Think about what would happen if you, corporations, governments are unable to borrow to purchase, invest, repair, etc. and at the same time your savings will be wiped out.

U.S bond market (just fixed income) will take 20% to 30% loss = $10 trillion loss in the U.S. and $20 to $30 trillion loss globally.  On top of those losses, the Equity market will go into panic and crash, real estate asset will take a dive because you have no access to credit and the huge derivative market will go into a tail spin.  Huge losses.   

Who owns U.S.  treasuries (debt)? The Chinese and Japanese do.  This is their savings/assets and it will be wiped out as well, which will hurt their fiscal soundness.  No one can escape.  Just look at Greek and Cyprus as one of the examples.  But, they are tiny little drop in the bucket compared to U.S. fixed income market.  So multiply Greek and Cyprus x 10,000.  Also, look at Japan.  They got clobbered on their debt load in early 1990s.  The real estate price hasn't recovered to that level even after 20 years and the after math still lingers.

One good thing out of this = U.S. probably won't need to pay back China on those debt.  We start from scratch clean.  Deleveraging is very painful and slow process. 

Ofcourse, this is the worst case scenario so don't panic.   ;)

http://www.caseyresearch.com/articles/coming-crash-bond-market
http://www.arabianmoney.net/us-dollar/2013/04/14/how-would-a-us-bond-market-crash-play-out-for-investors/
SEC Gallagher - Muni Bomb - http://video.cnbc.com/gallery/?video=3000162410
http://moneymorning.com/2013/05/03/bond-market-crash-will-strike-by-2016-expert-predicts/

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Offline lnc

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Re: What the bubble?!?
« Reply #24 on: June 12, 2013, 07:37:28 PM »
Goriot,

Are you Bill Mcbride?

Offline Goriot

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Re: What the bubble?!?
« Reply #25 on: June 12, 2013, 08:33:35 PM »
Goriot,

Are you Bill Mcbride?

First time hearing about him :)

Offline gld2

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Re: What the bubble?!?
« Reply #26 on: June 13, 2013, 02:22:17 PM »
2008 Financial crisis is " corporations, governments are unable to borrow to purchase, invest, repair, etc. and at the same time your savings will be wiped out. " 

Is the Bond crisis same?  If the bond crisis won't happen,  When the rates go up, the bond prices go down.   As everyone predicated now, the bone prices go down as the rates are up.  What will happen to the housing price?  because inflation is up, therefore the rate goes up,  then the housing price should be up as inflation is up.  However the rate goes up, which will negatively impact the housing price.   the up and down pressures will offset each other?  what is going to happen?


Offline Goriot

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Re: What the bubble?!?
« Reply #27 on: June 13, 2013, 03:57:44 PM »
2008 Financial crisis is " corporations, governments are unable to borrow to purchase, invest, repair, etc. and at the same time your savings will be wiped out. " 

Is the Bond crisis same?  If the bond crisis won't happen,  When the rates go up, the bond prices go down.   As everyone predicated now, the bone prices go down as the rates are up.  What will happen to the housing price?  because inflation is up, therefore the rate goes up,  then the housing price should be up as inflation is up.  However the rate goes up, which will negatively impact the housing price.   the up and down pressures will offset each other?  what is going to happen?

Yes the bond (IOU/Debt) crisis is the same.  Right now bond are overpriced, which means interest rates are lower then what it should be because of Fed manipulation.  Fed is pumping out liquidity and providing money by purchasing bonds.  Right now, people that CAN NOT afford to purchase homes are able to purchase because of these manipulated rates ==> Artificially high driven demand for homes then it really should be because of access to free $$$ and free financing.  The real interest rate (treasury 2% - inflation 2% = free) is actually lower so it's awesome to get free money from the gov't. 

If interest rate goes up and bond prices tank ==> Less people can afford to buy homes.  Students and graduates will have a tough time paying interest on their student loans (btw, student loans doesn't go away eventhough you file Bankruptcy).   FYI, Medical students have average $250,000 in debt. 

bond crisis ==> Not only people, but corporations and governments can't obtain financing to invest, grow, hire, build, etc. ==> Economy will come to a halt.  Corporations, consumers, even our government will have to spend more of their discretionary income on interest expenses. 

$50 trillion debt x 2% interest = $1 trillion interest expenses = Currently manageable
$50 trillion debt x 10% interest = $5 trillion interest expenses => less money available to spend on other things.  Just FYI, our total annual tax revenue is about $3 trillion so if interest rates goes out of control, U.S. is going to default.

There will significant illiquidity in the market place and the financial system will come to a halt.  This will be Global collapse because every other countries and financial institutions and corporations own U.S. treasuries and bonds.  We are cross collateralized/linked in some way.  It will wipe out their assets.  No more FCBs because Chinese own trillions of U.S. treasuries and we can't pay their interest and pay back their principals (probably at 20 cents on a dollar maybe).  Chinese real estate bubble will pop too.  Actually, this might happen before as their bond (Debt) bubble is growing too.

No $$$ to invest, hire, etc. ==> Hire employment.  Governments, retirees, 401k, pensions, banks, credit unions, corporations all own bonds as part of their investment/asset.  Their savings will be chopped up.  People will move back into their parent's homes again.

Overall, less people can afford to purchase homes because of higher interest rates and very limited access to credit.  Unemployment rate will shoot up, which means less demand.  Foreclosures will follow.  ARMs will reset at significantly higher rates, which means more foreclosures.

U.S. is the consumption power house of the world.  We borrow from Chinese and others to buy our lovely Mc Mansions, BMW, Mercedes, Toyota.  So if bond crisis spread to the economy, it will put a halt on our consumption and demand for Chinese, German, Japanese goods.

Low demand, no access to financing, and high unemployment ==> lower housing prices.

Just think this way = Complete bond collapse = 2008 financial crisis x 10 

« Last Edit: June 13, 2013, 04:03:33 PM by Goriot »

Offline jamboreedude

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Re: What the bubble?!?
« Reply #28 on: June 13, 2013, 04:31:42 PM »
Maybe there will never be a bursting of the bond market because Uncle Ben can print money to infinity in order to soak up any unwanted bonds thereby reducing or stabilizing interest rates. If U-Ben didn't have the printing presses then I am sure the bond market will burst someday. Is this logical?

Offline Goriot

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Re: What the bubble?!?
« Reply #29 on: June 13, 2013, 04:47:08 PM »
Maybe there will never be a bursting of the bond market because Uncle Ben can print money to infinity in order to soak up any unwanted bonds thereby reducing or stabilizing interest rates. If U-Ben didn't have the printing presses then I am sure the bond market will burst someday. Is this logical?

This will be logical upto a certain point (a threshold point).  Can't say when we will reach that threshold level, but if you keep on printing money and flow that $$ into the economy, US$ supply will get bigger and bigger up to the point when the world say enough is enough and dump all their US dollar denominated asset into the market thereby crashing the value of US dollars ==> TRASH = inflation ==> higher interest rates.  At end of the day it's supply and demand.  You flood with infinite amount of US dollar into the global money supply, it will eventually become your next toilet paper.  Google Currency War I and II.  German Deutche Mark was trashed after they were printing money like nuts after their WII loss.  Inflation 1000% and made their money worth crap.

Fed printing USD into Infinite ==> Breaks threshold point and the USD will become TRASH.  People will switch to hard assets and other safe haven assets to replace USD==> Gold, Silver, Oil, whatever.  For now, there is no alternative because every other major currency is in similar state except Yuen.

This will collapse the U.S. treasuries.  But, it will be good because we don't need to pay back Chinese for every $1 of debt because $1 of debt today will be worth $0.10.  This will be painful, but it will give us a clean start.

But, this scenario would be a low probability.  It happened during the Currency War I which caused Great Depression in the 30s and Currency War II in the 70s, when we saw the collapse of U.S. dollar and US denominated assets (because US gov't broke the link between USD and gold), which caused high inflation (hyper inflation) and interest rate spike.

Zimbawe hyperinflation in 2008 was 89,700,000,000,000,000,000,000% in less than a year, which means your $1 million will be probably like a $0.01 in a year  :-\

http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

But, no worries we are not Zimbabwe.



 

 

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