Why Housing Will Crash Again--But For Different Reasons Than Last Time

[Crewleader]

Why Housing Will Crash Again--But For Different Reasons Than Last Time (July 9, 2014)

by Charles Hugh Smith

Institutionalizing the speculative excesses that inflated the previous housing bubble has fed magical thinking and fostered illusions of phantom wealth and security.

The global housing market has been dominated by magical thinking for the past 15 years. The magical thinking can be boiled down to this:

A person who buys a house for $50,000 will be able to sell the same house for $150,000 a few years later without adding any real-world value. The buyer will be able to sell the house for $300,000 a few years later without adding any real-world value. The buyer will be able to sell the house for $600,000 a few years later without adding any real-world value.

And so on, decade after decade and generation after generation: a house should magically accumulate enormous capital (home equity) without the owner having to do anything but pay the mortgage for a few years.

The capital isn't created by magic, of course: it's created by a greater fool paying a fortune for the house on the speculative confidence that an even greater fool will magically appear to pay an even greater fortune for the same house a few years hence.

This is the result of housing transmogrifying from shelter purchased to slowly build equity over a lifetime of labor into a speculative bet that credit bubbles will never pop. This transmogrification is the final stage of the larger dynamic of financialization, which turns every asset into a speculative commodity that can leveraged via debt and derivatives and sold into global markets.

http://www.oftwominds.com/blogjuly14/housing-crash7-14.html

[Demeter]

1. And that was before the Fraud

brought to you by your sleazy shadow bankster.

[Crewleader]

4. sleazy shadow bankers indeed

The Looming Foreclosure Crisis

http://www.counterpunch.org/2014/07/07/the-looming-foreclosure-crisis/

[DJ13]

2. So he's saying sell now before the fools catch on

[Warpy]

3. He is. The "shadow inventory" of houses being held off the market is still out there

and areas prone to boom and bust are going to see another bust sooner rather than later, I'm afraid.

Florida hasn't recovered much, so they likely won't take another big dive, but southern California and the Phoenix and Las Vegas areas likely will.

[Crewleader]

7. Dr Housing Bubble's last article on July 7th

The real estate gamble in Las Vegas: Year-over-year inventory up 51 percent in Las Vegas. Cash buyers fall by 20 percent from last year.

http://www.doctorhousingbubble.com/las-vegas-real-estate-gamble-rentals-investors-in-vegas/

[upaloopa]

11. Where is your evidence of what you say?

My house in Central Coast of CA has gained $100,000 in value since I bought it in 2011. I plan to sell it and put the equity down on a smaller home. I will still have the same amount of equity in the new house.

[abelenkpe]

5. Doesn't say when

I thought the economy was improving. What will trigger another housing crash?

[1StrongBlackMan]

6. I'm too tired to respond right now ...

But B.S., Peter. (But that's nothing new.)

On a quick scan of the data, he is drawing conclusions that compare different time-frames, his Fed purchase graphic does mean what he says it means, and finally, suffice it to say for now ... Never take sell advice from an "investment guru" that makes a living shorting the industry he/she is telling you, via their proprietary investor's news letter, to sell out of ... that would make YOU the "bigger fool" he/she is talking about!

I will write a more comprehensive response tomorrow, if time allows.

[appal_jack]

8. Cost of building new also plays a role.

The cost of building new also plays a role. We are seeking to build a well-insulated but fairly small house at the moment, and the costs are staggering. If someone had offered us a house on land in the same community before we found the right raw land, we definitely would have doubled their money, gladly, and still come out ahead, probably.

-app

[Submariner]

9. 1968: $19,000 - 2006: $895,000 = 47 times the original price

My parents sold our home for 19K and when I checked on the assessment a few years ago it was almost 900K. Same house, no visible improvements in an Archie Bunker row house type of neighborhood. Then it was blue collar working class people. Now it is interns at local hospitals or students at Tufts Univ.

Crazy prices.

Somerville, MA.

[Submariner]

10. deleted

.

[IronLionZion]

12. All real estate is local

in some neighborhoods, it really will increase in value because the demand for housing has increased due to growth of the local economy and population. Others may go in the opposite direction.

Things get really interesting in cities that get gentrified and neighborhoods change very quickly where the urban areas might be more attractive and nearby suburbs might become less attractive. This is apparent in the DC metro area and PG county, MD.

And many times job changes or relocation or whatever may cause selling or renting of homes, rather than the value of the home. People move more of then than they used to.

[sendero]

13. i have friends trying to buy in north Dallas suburbs....

.... houses are selling the day they are put on the market. Multiple offers, sometimes over asking price.

Dallas and TX in general did not participate in the boom of the early 2000 many areas of the country did, and the bust wasn't nearly as severe.

I've heard that the housing market is an "overheated bubble" in areas of the country and still moribund in others. Makes it hard to know what the big picture really is IMHO.