Economy and Housing

[FutureIrvineResident_IHB]

i've been reading some of the analysis on IHB as well as the forum, the general consensus seems that housing will not bottom out until mid-end of 2011. how does the recovery of the economy play into any of this analysis? if the economy picks back up in 2010 and we're completely out of the recession, will housing really continue to drop in 2010 until 2011?

Thoughts?

http://money.cnn.com/2009/02/23/news/economy/nabe/index.htm?postversion=2009022300

 

[Oscar_IHB]

i've been reading some of the analysis on IHB as well as the forum, the general consensus seems that housing will not bottom out until mid-end of 2011. how does the recovery of the economy play into any of this analysis? if the economy picks back up in 2010 and we're completely out of the recession, will housing really continue to drop in 2010 until 2011?

Thoughts?

Housing prices have to bottom so that the MBS (and derivitives thereof) can be accurately priced with respect to losses. This in turn allows the bank regulators to accurately determine level of insolvency. Without those three events, there can not be ANY recovery in home prices because the lack of transparency prevents banks from lending on homes that are of an unknown value. No loans, no purchases, no price appreciation.

I took the time to lay that out because it explains why any possible recovery is only pure speculation. Politicians are mistakenly trying to put an artifical bottom in housing because they think this will short circuit the writedowns on the MBS and spur the kind of recovery that you describe. It's a nice idea, but we can't sell enough debt to make it work with subsidies. The other option they are considering is to rework the contracts to lower the principle via a cramdown in one form or another, but that will ensure that no one EVER invests in MBS again, meaning the number of homes that can be purchased will be limited to cash on hand at the bank...further depressing home prices.

Right now, some number crunchers are working to reinvent the wheel so they can avoid accepting reality. Your hypothetical exit from the current recession depends on them succeeding... or failing so miserably that we are left with no other option but the brutal one.

You want fries with that?

 

[graphrix_IHB]

In 96 we started creating jobs like crazy, and the economy had recovered by 94, but foreclosures continued to increase and prices continued to drop. History speaks for itself, except it is worse this time, nuf said.

 

[jbenko_IHB]

i've been reading some of the analysis on IHB as well as the forum, the general consensus seems that housing will not bottom out until mid-end of 2011. how does the recovery of the economy play into any of this analysis? if the economy picks back up in 2010 and we're completely out of the recession, will housing really continue to drop in 2010 until 2011?

Thoughts?

http://money.cnn.com/2009/02/23/news/economy/nabe/index.htm?postversion=2009022300

It will be 2043 not 2010 when prices recover. Before they do, we will see 1873 home prices.

 

[tmare_IHB]

i've been reading some of the analysis on IHB as well as the forum, the general consensus seems that housing will not bottom out until mid-end of 2011. how does the recovery of the economy play into any of this analysis? if the economy picks back up in 2010 and we're completely out of the recession, will housing really continue to drop in 2010 until 2011?

Thoughts?

http://money.cnn.com/2009/02/23/news/economy/nabe/index.htm?postversion=2009022300

It will be 2043 not 2010 when prices recover. Before they do, we will see 1873 home prices.

I honestly do not expect my current house to be worth the last appraisal I got in late 2005 until after I'm dead. That's how DEAD serious most of us are here about a recovery to previous levels.

 

[tmare_IHB]

I have the paperwork to prove that my 3 bedroom house in No. Santa Ana appraised for 1.1 million in late 2005. I also have a neighbor who purchased his same size house with a smaller yard for 1.1million at the same time. Incomes never matched that and I don't think incomes in my lifetime will match a 3x rule for the average person to buy at that price. House prices are going back to the 3x rule. Do you really think that it is reasonable that my house will once again be worth this in my lifetime? (I'm in my 40's) I guess it could happen but my sense is that it is more likely not to happen.

 

[no_vaseline_IHB]

I just have the fear that $1.1M will be the going rate for a starter home in a few years.

Of course, the average income will be $250k.....LOL

Me and the wife will be complaining that we can barely make ends meet because we only get $17k per month after taxes and we are putting $200 in the tank and $1000 per week in Groceries.......I hate to laugh...but it is almost amusing.

I don't know why you'd think that. All the metrics show massive deflation in both prices and wages.

Inflation is an easy battle to fight and win. We have a textbook answer for that one that will work. It's called raising interest rates to the moon. Volker wrote it.

Deflation is the far scarier choice of the two.

 

[tmare_IHB]

Deflation is setting the clock back as we speak. Yes, it's very scary. I guess you would have to classify me in the uber bear category. I don't like it, but I'm trying to be realistic.

 

[tmare_IHB]

"What I have personally seen in my life"

This current situation isn't anything close to what you have seen in your life. Everything has changed. Past run ups in prices occurred for mostly real reasons, not because somebody sold off all of the bad risk to the rest of the world. The rest of the world is mad, everybody wants someone to blame and the bottom line is that this situation is unprecedented and I can't see it occurring in this fashion again in my lifetime (Greenspan assures us that it will happen again someday though). When houses were 10x the income of the people buying them, something was seriously wrong. We also have had nothing close to wages keeping up with inflation for 20 years now. Now we are entering a deflationary period with stagnant, dropping or non existent wages as more are laid off. Housing has already dropped 35%-40% but there still isn't an end in sight. The Dow is at 1997 prices today. Wealth has been wiped out and there's no easy way to get it back, no one is loaning us any more money so we can feel rich. I would bet my house will stop dropping somewhere around 1997 prices, which means I would have to see about a 300% run up before I die in order to be wrong. Just because something has been one way in your lifetime, doesn't mean it's going to stay that way.

 

[optimusprime_IHB]

Unless you grew up and lived through the Great Depression....what is occurring now is something NOBODY has seen before.

That's why I laugh at people who think Obama can fix this....NO ONE can fix this...only the Markets can fix this. The Market has a way of purging and correcting itself out. Humans can only interfere w/the process...they can only slow it down but not change it.

 

[no_vaseline_IHB]

I agree that Housing is in deflation.

but your Water/gas/electricity/loaf of bread/gallon of milk.........is all up.

It is so NOT.

A sample Google search for milk prices.

Jackson county dairy farmers hurt by below cost milk prices.

Dairy cows head to slaughter because cost of producing milk is below break even - Turlock CA.

Bread is on its way down.

Dow, soy, wheat prices collapsing.

I don't know if you've seen the price of diesel lately - it's 55% lower than it was 7 months ago.

Again, you don't know what the hell you are talking about.

 

[no_vaseline_IHB]

Unless you grew up and lived through the Great Depression....what is occurring now is something NOBODY has seen before.

If you were around in the early 1980's for the Texas oil bust or the for the "Farm Crisis" you've seen a reasonable facsimile, but not as bad as the GD.

Your comments about “slowing it down” are spot on. That’s all the government is trying to do, lip service aside.

 

[no_vaseline_IHB]

^^First house

1981

804 Southwood

Lufkin Texas

So, yeah, I know nothing......

Jobs Prior to that....1977-79 Houston Texas, Formica Kitchen counter top installer for the housing Boom. We could do four houses a day if we stayed working from 6 am till 10pm at night....and guess what....If we could do more in a day we had a back log at one time that never ended.

So yeah, I know nothing nothing...wait....what?

And I lived through the farm bust.

How about that runaway inflation?

I got $250/ton for alfalfa last summer. This year I'll be lucky if I can get $80.

 

[Oscar_IHB]

I got $250/ton for alfalfa last summer. This year I'll be lucky if I can get $80.

True story, I spent last week looking at alfalfa farms in Oregon. too bad I know nothing about farming, much less farming alfalfa.

 

[bltserv_IHB]

^^First house

1981

804 Southwood

Lufkin Texas

So, yeah, I know nothing......

Jobs Prior to that....1977-79 Houston Texas, Formica Kitchen counter top installer for the housing Boom. We could do four houses a day if we stayed working from 6 am till 10pm at night....and guess what....If we could do more in a day we had a back log at one time that never ended.

So yeah, I know nothing nothing...wait....what?

804 Southwood

Lufkin Texas

Wow. Thats PODUNK Texas.

 

[bltserv_IHB]

Nice Place.

I hope your not doing any landscape contracting.

 

[no_vaseline_IHB]

Rather than ancient history, here's current prices for California Dairy. First, 2008:

http://future.aae.wisc.edu/data/monthly_values/by_area/2023?area=Northern+California

(I can't post the graph, but if you're part of the TL, DR crowd, Jan 2008 milk sold for $23/cwt and in December it sold for $16.5/cwt.)

2009 has been even uglier. It's down to $11/cwt.

http://future.aae.wisc.edu/data/monthly_values/by_area/2023?area=Northern+California

Something like -53% off over 14 months but there's no deflation in this economy.

 

[no_vaseline_IHB]

I got $250/ton for alfalfa last summer. This year I'll be lucky if I can get $80.

True story, I spent last week looking at alfalfa farms in Oregon. too bad I know nothing about farming, much less farming alfalfa.

Serious? What the hell for? You need any help?

 

[Oscar_IHB]

I got $250/ton for alfalfa last summer. This year I'll be lucky if I can get $80.

True story, I spent last week looking at alfalfa farms in Oregon. too bad I know nothing about farming, much less farming alfalfa.

Serious? What the hell for? You need any help?

End of days and all that. The wife and I were looking at possible scram sites and found a little place in Oregon with 75+ acres of flat land, full water/mineral rights, no leases/contracts/liens on the farm or buildings, and a stated 900gpm well with a couple of wheelines; all for $240K. I'm not so much afraid of farming, but I am concerned that I don't know how much I don't know... you know?

 

[no_vaseline_IHB]

That chart definitely shows a downward trend in Alfalfa.

And Demand had nothing to do with what you state

Typically the highest alfalfa prices in the nation are found in the wallets of California growers. Not so in 2006, a year that many alfalfa growers would rather forget sooner than later. Record setting heat in central California stunted alfalfa growth, and alfalfa’s largest customer, dairies, suffered through the loss of 16,000–17,000 cows. Add to the mix depressed milk prices. Alfalfa demand soured.

A chart ending in 2000? Ancient history! Check the dates:

http://hayandforage.com/ehayarchive/0610-ca-drought-dampens/

California Drought Dampens Hay Supply, Raises Prices

Jun 9, 2008 3:13 PM, by Fae Holin, Managing Editor, Hay & Forage Grower

California Gov. Arnold Schwarzenegger has proclaimed a statewide drought after receiving lower snow-pack estimates during a dry spring. That will mean higher alfalfa prices and self-imposed or enforced dry-downs of alfalfa fields in a state with limited hay supplies and minimal new alfalfa plantings, says Dan Putnam, University of California-Davis extension forage specialist.

<snip>

The price of alfalfa has increased significantly, and may continue to increase, he adds, in the No. 1 dairy state where prices have been at a record-breaking $200/ton or more. Last week, supreme alfalfa hay was as high as $265/ton in the Turlock area, according to USDA

Some of our crop sold for $260 in last April/May. This is for high quality, first cutting hay. The bad hay didn't have much of a discount last year, if any. You may not have any takers for the bad hay this year, or if the drought gets worse, it may be the same.

I called our hay broker who told me he thought this year it would be $140 a ton spot price (cash) and $210 if you'd float the dairyman 30 days. This kind of credit spread is very scary and, frankly, unprecedented. Dairymen get paid once a week by the creamery, unlike most other growers that get paid once a year. They have been expanding like crazy and have taken on a ton of leverage to get there. Dairymen have always had cash (FCB much?). Apparently not anymore.

JH is correct that the fluid milk price hasn't come down. I don't understand the way the Feds set the milk price or the formula they use, but it frankly doesn't matter. If something doesn't change they price will skyrocket because there won't be any supply.