Sunday, January 13, 2013

Are We Really Turning Japanese?

I really think so.(Vapors Video) Just look at how Japan took care of their massive real estate bust and how we are duplicating their strategy. Zombie (insolvent) bank survival at all costs. They are now starting their third lost decade and real estate prices have retreated back to 1989.  We have completed our first lost decade as prices have rolled back to 2003.

You can argue that prices are rising for organic sales as available inventory has been severely restricted and interest rates are at historic lows. There is no denying that. However, there are still a large number of distressed sales going on as banks leak out some of their shadow inventory and REOs. We obviously have an usual market that has been manipulated by the FED and are now in uncharted territory. Nobody really knows where we go from here. With the suspension of "mark to market", whereby banks do not have to foreclose, it has fundamentally changed the market. Banks can trickle out properties without having to worry about their balance sheets. This continues the "Moral Hazard" problem which is really at the crux of it all. Banks still have no incentive to cut their risk as the Government continues rewarding them for bad behavior. With the financial crisis of 2008 almost sinking the global economy, what could be next for the banking industry?

Too Big To Fail banks are cancer that gets bigger each day. Eventually they will collapse. The big question is when, and after what? With the FED monetizing the debt, who will blink first, the US or foreign governments becoming wary of our debt problem. The Fed is more than happy to inflate their way out of debt. It might take another decade, but they have time. Unfortunately, incomes have stagnated over the last 10 years, and continue to do so. With the cost of inflation cutting more and more into the family budget, the pool of buyers will continue to shrink if housing prices and rents continue rising. Owning a home here has become a privilege for a few and renting the norm for the masses. What seems to be even more critical now in buying a home is the type of income. How steady is it? Are you relying on 2 incomes? Could an employer replace you for less, now that good jobs have become scarce? And, what is your time horizon? 5 years, 10 years,  15 or more? At a minimum, in 5 years you need an annual appreciation of at least 2% to warrant buying after closing costs, taxes, insurance, maintenance and commissions. Also, picking the right neighborhood is paramount as some will appreciate as others may not.

Now, it may seem like I am giving the green light to buy, but not necessarily. If you can find a place that is equal or very close to what your current housing cost is, have a minimum of a 5 year time horizon, ENJOY the neighborhood and is large enough for your family, now could be a good time to buy at a 2003-2004 price. That being said, with a current bubble for non distressed housing, be careful not to over pay. Short sales, if you can get one might be a good alternative.

Thank you to those who have continued following this blog in my absence. I tried to continue listing distressed sales in the 2003 range over the last 6 month and I will do my best to continue.  Now that I'm back, I will continue with new posts chronicling the current market conditions.

8 comments:

Anonymous said...

This is my favorite housing blog. I look forward to seeing your posts. The bifurcation of the market is amazing. I continue to see condos in certain neighborhoods selling at 2002 prices, but in for example, the North of Montana neighborhood prices are exactly back to where they were at the all time peak. Crazy bifurcation

Latesummer2009s@gmail.com said...

Great point! Yes,each neighborhood has it's own micromarket. Big money is paying top dollar right now, as interest rates are at historic lows and they plan on settling in a home. Restricted inventory has created a bubble mentality in homebuying right now. The problem is, in the more middle class starter homes, the time horizons is generally shorter and they are being more cautious about overpaying. Hence the bifurcated market.

Anonymous said...

"now could be a good time to buy at a 2003-2004 price."

Aren't you one of the bears who said the bubble started in 1997, and all bubbles go lower than where they started? But now it would make sense to buy at 2004 prices, which in some areas is one year before the peak?

Latesummer2009s@gmail.com said...

The Westside peaked in the summer of 2007. And if you are going to quote me, use the entire sentence and not just the piece you like.
"If you can find a place that is equal or very close to what your current housing cost is, have a minimum of a 5 year time horizon, ENJOY the neighborhood and is large enough for your family, now could be a good time to buy at a 2003-2004 price".

In 2007 when I started this blog, there was no "mark to market" relief from the government. With banks getting a free pass, that changes everything. If they would have let the market run it's course, we would have worked through all the distressed inventory by now and be on to a real housing recovery. Not an artificialy induced one at taxpayers expense, that could drag on for another decade.

Anonymous said...

"Not an artificialy induced one at taxpayers expense, that could drag on for another decade."

Exactly; you're just figuring this out now?

Anonymous said...

I agree... is anyone else following each transaction North of Montana. let's discuss individual transactions in detail !!!

Anonymous said...

anyone else go to open houses north of montana today?

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