80% off wipes out 400% of increase. With that prediction you are saying that median prices of a home in seattle will be $96k (off the ~$480k max)
One can blather on about Japan all they want - but the reality is that no market in Japan lost 80% of it's value - and the Japan bubble was much larger than the US bubble
Yet search for "In Lehigh Acres, homes are selling at 80 percent off their peak prices". That's outside Fort Myers, FL. In year 1 of the depression.
All this fuss has given me an idea. I'm thinking of making next week "bottom-calling" week on Seattle Bubble. I'll pick five different statistical methods for calling a bottom, and each day will feature a post looking into where the bottom is/will be using one method. I think it will be interesting to see if each method puts the bottom at a similar place.
Terrible idea Tim. Just a terrible idea. If you want to get some eyeballs, you should call the bottom. Imagine it now, all over the front page of the PI and Times.
The Tim calls bottom on housing bubble
Realtors dance with joy.
That's the way to drum up business. Unless of course, you are wed to your ideals and legitimate rational analysis. Then I guess your plan is alright.
Here's a surefire way to tell when we've hit bottom: no one will care. Right now it is big news when someone claims we are at a bottom because there are still a lot of people hoping to pick up bargains. When the real bottom comes, very few people will be in a mood to buy. There will be a general discuss with real-estate purchases in general. At the bottom, the accepted wisdom will hold that buying a home is one of the worst financial decisions you can make.
That will be the time to go out and finally buy a house.
Agreed. I mean, a bunch of amateurs like us were very clued into the entire bubble.
Perhaps it was because we were looking at the forest from the outside rather than being lost within?
I don't believe that's it. Nobody here had any better or any more information than the insiders. If anything, we were at a disadvantage. I think the pros fell for two very simple deceptions. First, they saw everyone else was doing it. Complex decisions are hard, and one way we as people simplify the decision space is to follow the signals of others. In days bygone, this was helpful because if your friends suddenly starting running from something, it behooved you to do the same. Sure, it might just be a game, but it might also be a lion. Better to run now than not.
The second problem, as I see it, was pure arrogance. When people pointed out the nature of the bubble, they were generally ridiculed. "What qualifies you, a nobody, to exclaim that prices can't rise 10%/year forever" the experts would say. The herd mentality, I can forgive. But the arrogance part is what makes me think rather poorly of most of the supposed experts who couldn't see the forest through the trees.
I agree with what you are saying...especially the arrogance that came with it. I think that the reason I considerer myself as "being outside the forest" is that I was living in Missouri watching the coasts. I wasn't the only one either that thought the coastal bubbles would come crashing down. My Realtor who sold my house tried to do some legwork for a client that had sold a much larger home and was moving to D.C. She was told by the local D.C. Realtor that "they didn't show anything under 800k". Even being in the profession, she was extremely suspect of the values in the "bubble" areas. We would talk about homes in South Central Los Angeles selling for 500k. (now similar homes are closer to $150k)
So....my perspective at the time was that of a mid-westerner looking at property values on the West Coast scratching their head thinking....they want how much for that?!?
Then again...my neighbor right next door to me was buying condos in Florida. :roll:
Agreed. I mean, a bunch of amateurs like us were very clued into the entire bubble.
Perhaps it was because we were looking at the forest from the outside rather than being lost within?
I agree with the point that it was only outsiders who were capable of identifying the problems, but not because the insiders were in the midst of a forest. Rather, the issue is that insiders had vested interests in allowing the credit bubble to continue which caused them to throw up psychological blinders. It is often only the people who have no direct interest in a particular field who are able to see what is happening the clearest. It's not because they have more, or less, knowledge. It's not because these outsiders are "smarter". It's simply because everyone has blind-spots when it comes to percieving their own weaknesses.
There is a reason they say that lawyers shouldn't represent themselves, and that doctors are the worst people to treat their own ailments.
To put it another way, drug addicts are always the last people to realize they have a problem.
My strategy was based on inflation. I honestly thought we would have a period of rapid inflation contrived by lenders and reinforced by the Fed.
Oil prices were bound to go up, I bet on $100 per barrel from the first mention of invading Iraq. It all made sense until the Fed raised ineterst rates and the whole thing collapsed.
sniglet's comments here were the first time I ever considered there was a "credit crisis." Goldman Sachs? Lehman Brothers? What would they possibly have to do with my Real Estate plans for the future? Those are some kind of stock something or others, I was thinking.
Credit is a tool. It works for you and against you. Credit inflates pricing and it was looking like the rest of the markets would catch up.
As an insider, I (and others. I don't claim to be the only one) started talking publicly and writing/publishing articles about the problems with the lack of ethics of loan originators. I also taught classes on predatory lending, ethics, and mortgage fraud as far back as 2001.
I have had veiled threats made against me, I have been on the receiving end of aggressive attempts to discredit me and my family because of the dirt I exposed. My family has had contracts cancelled with national associations because I spoke out against the practices that were making millions of dollars for some of these corporations. I regret nothing.
I remember teaching a class a few years ago called RE2.0: How to Create a New Business Model where I talked about alternantive business models such as Redfin, Zillow, 4SaleByOwners.com, etc. The agents LOVED the class but I heard that a broker(from a traditional company) put out a soft ball mandate banning his agents from attending my classes and attendance dropped dramatically.
It is not easy trying to affect change on the inside when you rely on people from the inside for business! I could have made LOTS of money during the bubble run-up working with slimeballs like New Century but I turned it down.
I think that there will always be challenges out there, however, not everyone on the "inside" was dirty.
Some of us tried for years to get regulators, corporations, and associations to make changes.
I approached all four national mortgage associations with ideas on how to better self-regulate ethical conduct. ALL FOUR turned me down and said they had no interest in regulating the ethical conduct of loan originators because they would lose members. This was 2002.
So...I started my own association. It's small but growing and attracting people with a vested interest in helping the industry grow.
Not all insiders were silent about what was going on.
Not all insiders were silent about what was going on.
I am pleased to hear that there were a few courageous insiders (like Jillayne) who were willing to speak out. However, they were clearly in the minority, and almost certainly had marginal roles. Jillayne is a great example of this. Yes, she could have profited by playing along with the slimy lenders and so on, but she was able to remain gainfully employed nontheless offering education in non-controversial subject areas. By contrast, it was likely impossible to be a skeptic and work for a ratings agency or CDO mill. There are documented cases where the risk management folks were actually fired when they questioned what their financial institution was up to. That kind of puts a chill on any dissent.
There were other careers where it became virtually impossible to stay employed if you were actually using common sense. Just how many appraisers are there who used very conservative estimates who had steady work during the bubble? In some real-estate markets in particular I don't think it was possible to be a realtor without having a willingness to place low-income earners into homes they couldn't afford. Statistics show that in excess 90% of ALL new sales were sub-prime in some towns like Florida, California, or Arizona. You would simply couldn't continue being a realtor in places like Riverside or Bakersfield WITHOUT playing along with questionable deals.
This reminds of me Jeffrey Wigand. His job didn't last very long when he started expressing concerns about the safety of the cigarette products his company made. Like I said earlier, it is very frequently in the interest of insiders to NOT question what is going on.
Corporate culture also plays a big part. For example, Sniglet, you mention California cities but right here in Yakima the seller downpayment assistance money laundering schemes were so widely accepted that one group of students (in Yak) said that if it were not for the DPAs, none of the people in the room would have made ONE sale during the entire year. They gave me blank stares when I suggested it was creating an artificial bubble in their city.
I think that was 2006, could have been 2005.
Not everyone on the inside was a slime ball. Fed up loan processors quit and moved to other companies, appraisers "fired" slimeball mortgage brokers refusing to take their business, underwriters walked off the job, loan originators left companies like countrywide when they realized what was going on.
We don't hear these stories often enough in the mainstream media but they're out there.
Not everyone can just walk away from a good paying job. Not everyone will choose to be a whistleblower. Not everyone will choose to confront blatant fraud.
Not everyone will choose to confront blatant fraud.
Or even the more prevalent not quite fraud but not quite kosher?
How many appraisers were being threatened and cajoled by lenders into raising their appraisals in order to keep working?
I know one appraiser who found it so frustrating that he gave up lender appraisals entirely and now mostly does divorces and teaches real estate fraud.
But I think the vast majority just went along.
Particularly when they aren't confronted with outright fraud. Quite a few folks will have a spine when they see blatent wrong-doing, but it is easy to rationalize just using rosy estimates on appraisals or selling a home to someone who can't really afford it when you convince yourself that real-estate prices are only going to keep going up.
I think that many "insiders" actually drank the cool-aid and really "believed".
I'll step up and say that I thought I had died and gone to heaven. I did three rehab projects that I had only dreamed of being able to do. One project was a place I vultured for twenty years, another for almost eight, and the best was a stucco house I bought in 1986.
I never entered into a multiple offer situation with a client and have never made a full price offer on a property for a client. As a matter of fact most clients bought below market.
From 2000 on I concentrated on my own stuff and getting rid of it. I felt fortunate to be able to. I also told any one and every one to get rid of thier properties.
I made this point to the Board of Realtors rep; it's hard to be telling a client the truth as you know it when the Board of Realtors has a National ad campaign telling people just the opposite. I told the guy the Board of Realtors should have been issueing warnings as the market over heated.
All in all though I never saw what is happening today. A correction to me would have been back to 2001 to 2003 levels. Today I know better.
I think that many "insiders" actually drank the cool-aid and really "believed".
That's what I think happened too. Jillayne's story (very interesting BTW and way to go!) reinforces this belief to me. I'm sure a couple of the people she got in touch with or confronted knew outright that what they were doing was not right or wise.
But most of the people in her story fell into one of two camps: those too stupid to get it, and those too smug to listen. The DPA guys in Yakima were the first case. To this day, many of them probably don't realize they played a part in crashing prices in their area. The people running all those associations on the other hand are probably smart enough to 20-20 hindsight admit their organizations actions played a role in this mess. Unfortunately, at the time they didn't want to listen.
So, my position was the smart people didn't listen because they were arrogant. Sniglet suggests simple greed, which I'm sure was also a factor. I find it likely that those two positions summarize about 80%-98% of the wrong doing.
It's been a while since I've updated this. The short answer is no this is not the bottom. The longer answer?
So, what's changed. Public opinion has taken a violent shift from "we really don't like bailouts to banks while real people are *suffering" to "you #$%@ #^%$ #$%@ fat cat bankers can suck my #@#% %#@ $#%# if you think we're going to fund your bonuses." There has now been more outrage over $165M in bonuses than there was in $1.5T of TARP/stimulus, and the AIG bonus outrage is still chock full of steam. AIG is one more bad quarter (or month maybe) away from being nationalized. The chorus to nationalize AIG is growing stronger, and frankly they are right. For those who freak at such terms, this does not mean the US Government will be in the insurance business; rather it means that we'll seize AIG, immediately reprivatize every profitable aspect (real insurance) and any outstanding collateralized debt derivatives will be put into a bad bank where they can be sorted out with full government control. When this happens, it will reek havoc on the stock market for about two weeks.
Two positive weeks on Wall Street. Well, technically it was more like 7 consecutive positive days. I guess the recession is over - NOT. Evidently all the problems at Citibank and Bank of America have been solved - NOT. Oh yeah, US auto is doing fine as well - NOT. In other words, a lot of false optimism is suddenly hanging in the air, mostly because we have had two weeks without a lot of hard economic news (nobody's announcing quarterly profits and such). The general outlook is still positive if you put people in a vacuum. Seems to me like that means we haven't had enough of a crash yet, and fear hasn't really run its course.
* Note - suffering in this context means not doing as well as before. For the most part, It does not mean suffering in any sense that the third world of today or royalty of 200 years ago would actually consider suffering.
Many of you have been wondering what the "the bottom" will look like. After a hasty image search on google of "the bottom" and an even hastier "Clear Private Data" in my browser I have found the answer.
BEHOLD!
Duh, totally obvious. You see, The Tim. You aren't so special. Anybody can do this numbers stuff.
C'mon, that has got to be a bottom. Are places going to sell in Redmond right next to Microsoft for less than $160 a square foot?
Nice try...but with rates skyrocketing recently, this is definitely not the bottom. All those "green shoots" on Wallstreet were bound to cause damage somewhere, and I think it's in the mentality that we are now looking at a inflationary cycle.
Anyways, housing still has at least another 20% to fall in much of KC.
Comments
Terrible idea Tim. Just a terrible idea. If you want to get some eyeballs, you should call the bottom. Imagine it now, all over the front page of the PI and Times.
The Tim calls bottom on housing bubble
Realtors dance with joy.
That's the way to drum up business. Unless of course, you are wed to your ideals and legitimate rational analysis. Then I guess your plan is alright.
That will be the time to go out and finally buy a house.
Agreed. I mean, a bunch of amateurs like us were very clued into the entire bubble.
IMHO, we'll know the bottom when we see the opposite headlines of this -
In other words, when Time Magazine or Fortune run something like the following headline, we'll know it's about the bottom :
The American Ream
Why real estate can go f*** itself?
Perhaps it was because we were looking at the forest from the outside rather than being lost within?
I don't believe that's it. Nobody here had any better or any more information than the insiders. If anything, we were at a disadvantage. I think the pros fell for two very simple deceptions. First, they saw everyone else was doing it. Complex decisions are hard, and one way we as people simplify the decision space is to follow the signals of others. In days bygone, this was helpful because if your friends suddenly starting running from something, it behooved you to do the same. Sure, it might just be a game, but it might also be a lion. Better to run now than not.
The second problem, as I see it, was pure arrogance. When people pointed out the nature of the bubble, they were generally ridiculed. "What qualifies you, a nobody, to exclaim that prices can't rise 10%/year forever" the experts would say. The herd mentality, I can forgive. But the arrogance part is what makes me think rather poorly of most of the supposed experts who couldn't see the forest through the trees.
I agree with what you are saying...especially the arrogance that came with it. I think that the reason I considerer myself as "being outside the forest" is that I was living in Missouri watching the coasts. I wasn't the only one either that thought the coastal bubbles would come crashing down. My Realtor who sold my house tried to do some legwork for a client that had sold a much larger home and was moving to D.C. She was told by the local D.C. Realtor that "they didn't show anything under 800k". Even being in the profession, she was extremely suspect of the values in the "bubble" areas. We would talk about homes in South Central Los Angeles selling for 500k. (now similar homes are closer to $150k)
So....my perspective at the time was that of a mid-westerner looking at property values on the West Coast scratching their head thinking....they want how much for that?!?
Then again...my neighbor right next door to me was buying condos in Florida. :roll:
I agree with the point that it was only outsiders who were capable of identifying the problems, but not because the insiders were in the midst of a forest. Rather, the issue is that insiders had vested interests in allowing the credit bubble to continue which caused them to throw up psychological blinders. It is often only the people who have no direct interest in a particular field who are able to see what is happening the clearest. It's not because they have more, or less, knowledge. It's not because these outsiders are "smarter". It's simply because everyone has blind-spots when it comes to percieving their own weaknesses.
There is a reason they say that lawyers shouldn't represent themselves, and that doctors are the worst people to treat their own ailments.
To put it another way, drug addicts are always the last people to realize they have a problem.
Sometimes when one is deeply involved is precisely the reason there is a lack of clear perspective.
My strategy was based on inflation. I honestly thought we would have a period of rapid inflation contrived by lenders and reinforced by the Fed.
Oil prices were bound to go up, I bet on $100 per barrel from the first mention of invading Iraq. It all made sense until the Fed raised ineterst rates and the whole thing collapsed.
sniglet's comments here were the first time I ever considered there was a "credit crisis." Goldman Sachs? Lehman Brothers? What would they possibly have to do with my Real Estate plans for the future? Those are some kind of stock something or others, I was thinking.
Credit is a tool. It works for you and against you. Credit inflates pricing and it was looking like the rest of the markets would catch up.
As an insider, I (and others. I don't claim to be the only one) started talking publicly and writing/publishing articles about the problems with the lack of ethics of loan originators. I also taught classes on predatory lending, ethics, and mortgage fraud as far back as 2001.
I have had veiled threats made against me, I have been on the receiving end of aggressive attempts to discredit me and my family because of the dirt I exposed. My family has had contracts cancelled with national associations because I spoke out against the practices that were making millions of dollars for some of these corporations. I regret nothing.
I remember teaching a class a few years ago called RE2.0: How to Create a New Business Model where I talked about alternantive business models such as Redfin, Zillow, 4SaleByOwners.com, etc. The agents LOVED the class but I heard that a broker(from a traditional company) put out a soft ball mandate banning his agents from attending my classes and attendance dropped dramatically.
It is not easy trying to affect change on the inside when you rely on people from the inside for business! I could have made LOTS of money during the bubble run-up working with slimeballs like New Century but I turned it down.
I think that there will always be challenges out there, however, not everyone on the "inside" was dirty.
Some of us tried for years to get regulators, corporations, and associations to make changes.
I approached all four national mortgage associations with ideas on how to better self-regulate ethical conduct. ALL FOUR turned me down and said they had no interest in regulating the ethical conduct of loan originators because they would lose members. This was 2002.
So...I started my own association. It's small but growing and attracting people with a vested interest in helping the industry grow.
Not all insiders were silent about what was going on.
I am pleased to hear that there were a few courageous insiders (like Jillayne) who were willing to speak out. However, they were clearly in the minority, and almost certainly had marginal roles. Jillayne is a great example of this. Yes, she could have profited by playing along with the slimy lenders and so on, but she was able to remain gainfully employed nontheless offering education in non-controversial subject areas. By contrast, it was likely impossible to be a skeptic and work for a ratings agency or CDO mill. There are documented cases where the risk management folks were actually fired when they questioned what their financial institution was up to. That kind of puts a chill on any dissent.
There were other careers where it became virtually impossible to stay employed if you were actually using common sense. Just how many appraisers are there who used very conservative estimates who had steady work during the bubble? In some real-estate markets in particular I don't think it was possible to be a realtor without having a willingness to place low-income earners into homes they couldn't afford. Statistics show that in excess 90% of ALL new sales were sub-prime in some towns like Florida, California, or Arizona. You would simply couldn't continue being a realtor in places like Riverside or Bakersfield WITHOUT playing along with questionable deals.
This reminds of me Jeffrey Wigand. His job didn't last very long when he started expressing concerns about the safety of the cigarette products his company made. Like I said earlier, it is very frequently in the interest of insiders to NOT question what is going on.
I think that was 2006, could have been 2005.
Not everyone on the inside was a slime ball. Fed up loan processors quit and moved to other companies, appraisers "fired" slimeball mortgage brokers refusing to take their business, underwriters walked off the job, loan originators left companies like countrywide when they realized what was going on.
We don't hear these stories often enough in the mainstream media but they're out there.
Not everyone can just walk away from a good paying job. Not everyone will choose to be a whistleblower. Not everyone will choose to confront blatant fraud.
Or even the more prevalent not quite fraud but not quite kosher?
How many appraisers were being threatened and cajoled by lenders into raising their appraisals in order to keep working?
I know one appraiser who found it so frustrating that he gave up lender appraisals entirely and now mostly does divorces and teaches real estate fraud.
But I think the vast majority just went along.
Particularly when they aren't confronted with outright fraud. Quite a few folks will have a spine when they see blatent wrong-doing, but it is easy to rationalize just using rosy estimates on appraisals or selling a home to someone who can't really afford it when you convince yourself that real-estate prices are only going to keep going up.
I think that many "insiders" actually drank the cool-aid and really "believed".
I never entered into a multiple offer situation with a client and have never made a full price offer on a property for a client. As a matter of fact most clients bought below market.
From 2000 on I concentrated on my own stuff and getting rid of it. I felt fortunate to be able to. I also told any one and every one to get rid of thier properties.
I made this point to the Board of Realtors rep; it's hard to be telling a client the truth as you know it when the Board of Realtors has a National ad campaign telling people just the opposite. I told the guy the Board of Realtors should have been issueing warnings as the market over heated.
All in all though I never saw what is happening today. A correction to me would have been back to 2001 to 2003 levels. Today I know better.
That's what I think happened too. Jillayne's story (very interesting BTW and way to go!) reinforces this belief to me. I'm sure a couple of the people she got in touch with or confronted knew outright that what they were doing was not right or wise.
But most of the people in her story fell into one of two camps: those too stupid to get it, and those too smug to listen. The DPA guys in Yakima were the first case. To this day, many of them probably don't realize they played a part in crashing prices in their area. The people running all those associations on the other hand are probably smart enough to 20-20 hindsight admit their organizations actions played a role in this mess. Unfortunately, at the time they didn't want to listen.
So, my position was the smart people didn't listen because they were arrogant. Sniglet suggests simple greed, which I'm sure was also a factor. I find it likely that those two positions summarize about 80%-98% of the wrong doing.
http://msurkan.podbean.com
So, what's changed. Public opinion has taken a violent shift from "we really don't like bailouts to banks while real people are *suffering" to "you #$%@ #^%$ #$%@ fat cat bankers can suck my #@#% %#@ $#%# if you think we're going to fund your bonuses." There has now been more outrage over $165M in bonuses than there was in $1.5T of TARP/stimulus, and the AIG bonus outrage is still chock full of steam. AIG is one more bad quarter (or month maybe) away from being nationalized. The chorus to nationalize AIG is growing stronger, and frankly they are right. For those who freak at such terms, this does not mean the US Government will be in the insurance business; rather it means that we'll seize AIG, immediately reprivatize every profitable aspect (real insurance) and any outstanding collateralized debt derivatives will be put into a bad bank where they can be sorted out with full government control. When this happens, it will reek havoc on the stock market for about two weeks.
Two positive weeks on Wall Street. Well, technically it was more like 7 consecutive positive days. I guess the recession is over - NOT. Evidently all the problems at Citibank and Bank of America have been solved - NOT. Oh yeah, US auto is doing fine as well - NOT. In other words, a lot of false optimism is suddenly hanging in the air, mostly because we have had two weeks without a lot of hard economic news (nobody's announcing quarterly profits and such). The general outlook is still positive if you put people in a vacuum. Seems to me like that means we haven't had enough of a crash yet, and fear hasn't really run its course.
* Note - suffering in this context means not doing as well as before. For the most part, It does not mean suffering in any sense that the third world of today or royalty of 200 years ago would actually consider suffering.
I'm waiting for C, AIG, and a few others to start the reverse splits to try and keep their stock price out of penny stock territory.
BEHOLD!
Duh, totally obvious. You see, The Tim. You aren't so special. Anybody can do this numbers stuff.
http://www.redfin.com/WA/Redmond/6618-1 ... ome/516723
1840 square feet
$295k
$160/sqft
C'mon, that has got to be a bottom. Are places going to sell in Redmond right next to Microsoft for less than $160 a square foot?
You know what bigger feet means, don't you?
Nice try...but with rates skyrocketing recently, this is definitely not the bottom. All those "green shoots" on Wallstreet were bound to cause damage somewhere, and I think it's in the mentality that we are now looking at a inflationary cycle.
Anyways, housing still has at least another 20% to fall in much of KC.