Divorces = household formation. the data for household formation is in the report.

Here’s a great FT.COM news article today comparing America to the fall of Rome. It states in part:

“…David Walker, comptroller general of the US, issued the unusually downbeat assessment of his country’s future in a report that lays out what he called “chilling long-term simulations”.

These include “dramatic” tax rises, slashed government services and the large-scale dumping by foreign governments of holdings of US debt.

Drawing parallels with the end of the Roman empire, Mr Walker warned there were “striking similarities” between America’s current situation and the factors that brought down Rome, including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government”….”

The rest of the URL:

http://www.ft.com/cms/s/80fa0a2c-49ef-11dc-9ffe-0000779fd2ac.html

Thank God he does give us hope, but only if we act in the “longterm”, rather than destroying ourselves for a bit of “short-term”…..

Initially in this bubble, this was true. The problem is that the attributes of the loan which made it initially affordable (low teaser rate, IO, neg-am etc…) in the long run actually increase the total cost of that money and sharply increases monthly cost. We are just now starting to get to that territory.

For this reason, I think that an inflation-adjusted housing index compared to an average trend line is a very powerful modeling tool. I don’t know if we will see the full 43%, but it certainly appears to be a possible outcome.

interest rates will increase

assume exotic loans are gone for the next 20 yrs

the speculative premium will be negative if the market loses more than a few %

so, take the average monthly payment for a house bought today, take out 30% for speculation, and see what that same payment would buy on a 30 yr fixed loan at 15% interest (the kind of interest rates we saw during our last recession in the 80s)

that is what the Greater Seattle Metro Area prices will trend towards, given an international housing bubble induced recession

if you graph monthly cost (based on the prevailing loan type) and average income over time, you’d see a clearer trend of flat appreciation.

even the 2000-2005 bubble would look pretty flat because of the change of loan types and low interest rates.

then, to predict the 20?? price of a house, you’d just have to guess what the interest rate will be, the average income, and the loan types available

plus or minus a speculation premium, of course

Uh, yeah. Usually. But they don’t have to own.

We are at record inventory, record vacancies, record ownership and record prices.

When you get to extremes, things tend to revert.

We’re not talking about large families. In most cases it’s singles or couples, making it very easy to double up. Demand will drop so fast you’ll wonder what they built all those units for.

A picture tells a thousands words…

http://tinyurl.com/2ns92m

Before we get to that point, though, perhaps the government will intervene…

Using the historical (1914 to 2007) inflation value of 3.29% it would take 16.2 years for inflation to “catch up” with a 70% price excess.

Just another spin.

Bubbles can work in reverse too. 40% may just be the point at which prices stop accellerating downwards. They may end up dropping well below 40% as everyone and their barber declares that real estate is a horrible investment.

Rose- time will tell.

A series constructed by Yale economics professor Robert Shiller shows house prices have tracked inflation for the 100 years prior to 1995. Since 1995, house prices have risen by more than 70 percent after adjusting for inflation.

If this is accurate, and the future conforms to the past, and housing completely busted tomorrow, you could expect a 40% decline to offset the 70% increase. The crash will play out over several years, so a 40% decline is more like a reasonable upper bounds.