I've been waiting for prices to drop and now they are going back up.

Isn't all the money the Fed pumping in the system all going on balance sheets anyway? If that's the case, wages wouldn't be impacted, but inflation would kick in. Homes have historically been a function of wages, so wouldn't see any near-term increase. With interest rates going up in future years, home prices should stay flat for a good period of time. Your monthly payments may or may not be lower in 3 years as lower home prices will be counterfeithed by higher interest rate. Also, keep in mind that lost interest on your downpayment will be much higher at the time if interest rates are high.
 
If the Fed inflates enough, it will come through to wages and house prices. House prices may start going up before wages, actually, because of savvy investors looking for inflation havens. It's not clear how much enough is, though. Japan increased M1 90% over 8 years without much inflation. The Fed will produce a similar increase, but in about 18 months.



For somebody wanting to buy and needing to borrow, the train leaves the station not when houses start increasing in price but when interest rates start climbing from inflationary expectation. House prices might drop when that starts but payments will be climbing. A cash buyer should probably wait until inflation is well underway.
 
[quote author="FairEconomist" date=1238047134]If the Fed inflates enough, it will come through to wages and house prices. House prices may start going up before wages, actually, because of savvy investors looking for inflation havens.







... when interest rates start climbing from inflationary expectation. House prices might drop when that starts but payments will be climbing.</blockquote>






Aren't you contradicting yourself?

<em>House prices may start up ...

House prices might drop ...</em>

Well, at least you can not be wrong about what home prices may do.





You have been wrong about almost everything you have predicted so far. And you will be wrong about price increases translating into wage increases.
 
[quote author="graphrix" date=1238051197]Don't you need to have jobs to raise wages for?</blockquote>
Yeah, from my econ classes I get the following conclusion....



increasing unemployment translates to decrease in wage earnings (i.e. more people chasing fewer jobs results in people dropping their wage expectations). Once the labor market starts to tighten up, then you will begin to see wage inflation and then inflation will begin to take off (company pricing power + increasing wages = pick up in inflation). Don't make me bust out the econ graphs from my macro-econ book on you guys. haha
 
Maybe this is where wage inflation will come from:





<a href="http://www.latimes.com/business/la-fi-ucla-econ25-2009mar25,0,6381086.story">UCLAeconomist</a>
 
[quote author="usctrojanman29" date=1238053937][quote author="graphrix" date=1238051197]Don't you need to have jobs to raise wages for?</blockquote>
Yeah, from my econ classes I get the following conclusion....



increasing unemployment translates to decrease in wage earnings (i.e. more people chasing fewer jobs results in people dropping their wage expectations). Once the labor market starts to tighten up, then you will begin to see wage inflation and then inflation will begin to take off (company pricing power + increasing wages = pick up in inflation). Don't make me bust out the econ graphs from my macro-econ book on you guys. haha</blockquote>


Granted my econ degree was only from CSUF, but I did take quite a few courses in the macro area, including a grad school macro course. What I recall about real wages is that productivity is what determines increases in REAL wages. Technology is a signicant factor here. However, despite all our advances in technology, real wages have been essentially stagnant for the last 30 years. The exception was a few years in the 90's where real wages did increase. I'm still holding on to hope that we as a nation will be the inventors of the next big thing and see productivity increase. We have the institutions, the engineers and the ability to attract talent from the world over as well as the abiliity to put the investment capital where it needs to be.



One of the reasons that inflation was so difficult to tame in the '70's is that we still had a tremendous amount of organzied labor. Unions negotiate stronger, often to the ill of the economy, than individuals. Workers and lenders are both hurt by inflation. Union negotiates a 15% pay raise (without the additional 15 increase in productivity) and company capitulates, but in turn raises prices 20%, so worker thinks he has more money but can still only buy less.



In a down cycle there are more workers (supply) than there are jobs (demand). However, the supply also diminishes as the wage decreases. The downward pressure on wages can only go so far. Even if we go into another period of stagflation, companies need workers and have to give a wage that lets them survive. In periods of high inflation, wages rarely keep pace with the increase in the cost of goods, but they still increase.



We are far less unionized today, but most companies still have annual cost of living adjustments based on the CPI. Even in a down cycle, companies need to have some workers. If we do indeed go into a period of very high inflation, companies will have to increase wages. Granted, it won't be to the same degree as the cost of everything else, but wages will still increase nominally. You will not see EVERYTHING going up in price and workers wages decreasing significantly. The cost to put a roof over your head is not going to nose dive with rapid inflation.
 
On the one hand, there is the "don't fight the fed" rule. When interest rates drop, the market (stocks, housing, whatever...) goes up.



However, this time it IS different. Interest rates to the banks are about as close to zero as they can get. Any further reductions are meaningless. And a 30-year mortgage in the 4% range? It doesn't get much better than that. Yet nothing the Fed does seems to be working. To me, that spells D-E-P-R-E-S-S-I-O-N.



Then again, everyone is in such a depressed state right now and there is so much gloom and doom in the air the contrarian in me wants to buy everything in sight. I didn't know it was possible for so many people to be so negative at the same time. No one talked about this "depression" two years ago (well, I did, but I don't count....) and now everyone is a suddenly a self-proclaimed expert. When my car wash guy quit washing cars to start day trading internet stocks, I knew the market was toast. When construction workers I knew started talking about being real estate agents, I knew the real estate market was over. Now everyone is comparing 2008-2011 to the depression era. Guess what I'm thinking now!



So what am I trying to say? Well, if you guessed that I must be having one hell of a great margarita you'd be right. Anything more than that and you're on your own! ;-)
 
[quote author="Zulu" date=1238060306]So what am I trying to say? Well, if you guessed that I must be having one hell of a great margarita you'd be right. Anything more than that and you're on your own! ;-)</blockquote>


So... where did you have that margarita? I want one.
 
I've seen many postings on investment forums and there are was even a university study put out there talking about the changing demographics that will keep housing demand low. The theory is that the Baby Boomer generation is all entering retirement, and therefore out of the workforce, leading to less money available to purchase new homes. This demographic is so large that the younger generations supposedly cannot make up for this loss of high income.



There has also been a theory floating around for the past 5 years that the labor markets will get really tight as the baby boomer generation retires, and senior and middle level managers will all be leaving the work force.



My caveat for all this:



"Baby Boomers" have had their retirement savings wiped out and will be staying in the workforce 5 years longer than expected. On the other hand, as the economy is really bad right now, I have personally witnessed a few retirement aged employees being "asked" to retire, and there are alot of early retirement programs out there (which happens every downturn). But I feel that these are not mainstream cases, so there will be more people staying in the workforce longer than normal than not.



I feel that generational theory leads to alot of bias. You tend to favor a theory when it benefits your particular generation.
 
Here's my rant regarding the current unemployment trend and housing. Anybody agree? Am I completely off base?



In order for the housing market to recover in So Cal, we need to soak up a vast amount of excess inventory. However, current home buyers purchasing homes does nothing to reduce our rediculous amount of inventory. Current buyers are strictly trading one home for another. So, that being said, you can see the importance of The Almighty First Time Homebuyer.



So, who is this first time homebuyer? Aren't they 28-40 with a solid income, downpayment of 20% and 650+ credit score? If they don't have a down payment, they need (and the area) to qualify for FHA. I know there is a lot more that goes into that description, doesn't that pretty much sum it up? Isn't the problem, as has been noted many times on this board, that many of the people that fit this description are no longer qualified because they were pulled forward as buyers into the 2005-06 pool because rates were "amazing" and "the housing market was running away from them"? Well those people can't buy for another few years now (or shouldn't) because their credit is shot and they have no DP.



So... we're asking these first time homebuyers to purchase all of this inventory at the current prices? Well, that's not the easiest thing to do because the job market for 20 & 30 something's absolutely sucks right now. I've personally seen projections as high as 20% for unemployment in this age bracket. Instead of working, they are going back to school, traveling the world & moving back in with their parents, etc... Why? Because the 45 year old ex-mortgage broker with a degree from State U is now applying for the Sales Coordinator position because it's the only thing he can get. The youth of America is getting the shaft of this job market because they are less-qualified and even 40-somethings are willing to take a 30k salary right now. So, again, please tell me how Southern California is supposed to rely on this age bracket to pull us out of the housing mess so quickly ? Do we tell them to "Buy up kids, it's your duty to the NAR, Lennar's, Countywide's, BofA's and other spoiled firms out there"?
 
Nothing price won't fix.





That's really the solution. Price.





Price needs to be low enough that buyers on the sidelines have the money for 20% down.
 
[quote author="No_Such_Reality" date=1238669814]Yeah, yeah, you can do it with 5% and PMI. The answer is still the same, price.</blockquote>


No, you can either buy out the PMI or pay a slightly higher rate! Back in April of 08, before rates were low like they are now, we did 10% down, 5.875 and no PMI. It's even better now.
 
[quote author="stepping_up" date=1238670687][quote author="No_Such_Reality" date=1238669814]Yeah, yeah, you can do it with 5% and PMI. The answer is still the same, price.</blockquote>


No, you can either buy out the PMI or pay a slightly higher rate! Back in April of 08, before rates were low like they are now, we did 10% down, 5.875 and no PMI. It's even better now.</blockquote>


Step, you're right but you're literal.



The answer is still price. Price fixes the income issue for the majority of non-owners. Price fixes the credit issue since it pushes DTI lower. Price fixes the PMI and down payment challenges. Price fixes the rent or own cost breakdown. Price fixes the job insecurity issue. Price fixes the denial and paralysis in the market place. Price fixes the volume issue. Price fixes the bank hesitancy to renegotiate issue. Price fixes the homeowners hanging on issue.



Price fixes it.
 
[quote author="No_Such_Reality" date=1238672094][quote author="stepping_up" date=1238670687][quote author="No_Such_Reality" date=1238669814]Yeah, yeah, you can do it with 5% and PMI. The answer is still the same, price.</blockquote>


No, you can either buy out the PMI or pay a slightly higher rate! Back in April of 08, before rates were low like they are now, we did 10% down, 5.875 and no PMI. It's even better now.</blockquote>


Step, you're right but you're literal.



The answer is still price. Price fixes the income issue for the majority of non-owners. Price fixes the credit issue since it pushes DTI lower. Price fixes the PMI and down payment challenges. Price fixes the rent or own cost breakdown. Price fixes the job insecurity issue. Price fixes the denial and paralysis in the market place. Price fixes the volume issue. Price fixes the bank hesitancy to renegotiate issue. Price fixes the homeowners hanging on issue.



Price fixes it.</blockquote>


I think you are absolutely correct. However, we have a seriously ingrained attitude in our culture that feeds the current frenzy to buy up the foreclosures, short sales and other distressed properties in desirable locations such as Irvine, Huntington Beach and even in my own neighborhood. This is still the attitude of "buy now or be priced out forever (or at least for a while)" or "you can't lose with real estate". A few chats with people older than 50 and you will find that they hold these ideals near and dear. The thought that the paradigm may have changed is just a bit too much for some to bear. There are still those on the sidelines who have held out and have cash and just can't or don't want to wait any longer. I believe that we will run out of these people before we run out of distressed properties and then the perceived "bounce" and massive bidding and over-bidding will come to a halt. It can only be so long before the economy, job loss, lack of opportunity for the young, losses of the close-to-retirement crowd all appear as huge factors in this declining market. I, myself was actually starting to believe the hype until our own Graphrix set me straight and made a lot of sense. The banks are overwhelmed and are starting to crack under the pressure of dealing with these foreclosures and will soon start dumping them quickly instead of playing games and holding while they lose. When this happens, all properties will decline further.
 
[quote author="tmare" date=1238673396]

I think you are absolutely correct. However, we have a seriously ingrained attitude in our culture that feeds the current frenzy to buy up the foreclosures, short sales and other distressed properties in desirable locations such as Irvine, Huntington Beach and even in my own neighborhood. This is still the attitude of "buy now or be priced out forever (or at least for a while)" or "you can't lose with real estate". A few chats with people older than 50 and you will find that they hold these ideals near and dear. The thought that the paradigm may have changed is just a bit too much for some to bear. There are still those on the sidelines who have held out and have cash and just can't or don't want to wait any longer. I believe that we will run out of these people before we run out of distressed properties and then the perceived "bounce" and massive bidding and over-bidding will come to a halt. It can only be so long before the economy, job loss, lack of opportunity for the young, losses of the close-to-retirement crowd all appear as huge factors in this declining market. I, myself was actually starting to believe the hype until our own Graphrix set me straight and made a lot of sense. The banks are overwhelmed and are starting to crack under the pressure of dealing with these foreclosures and will soon start dumping them quickly instead of playing games and holding while they lose. When this happens, all properties will decline further.</blockquote>


I agree with this assessment, and here's a recent article describing the declining situation:



<blockquote>The supply situation is even worse. Currently, one-million homes are owned by the banks according to Zelman & Associates, and between 2009 and 2011 there will be 5-million ?lost homes.? Moreover, 14.5% of the housing stock representing 19-million homes is vacant. Worse still, only 34% of those units have found their way to market.</blockquote>


<a href="http://seekingalpha.com/article/129041-housing-weakness-looms-large-over-market?source=article_lb_articles">Bank Housing Supply Continues to Grow</a>
 
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