The systemic risk is that since credit = debt = money, we can pretend that there is more of it than is possible. That is because debt cannot exceed some fraction of the potential future amount of work. When it approaches that point, confidence collapses and the debt is destroyed. We have gone through this over and over and over in history. The hot fad now is to think government can alter this cycle by creating even more debt. The answer to that is : ha ha ha ha. Think it over: by preventing the destruction and extending the time frame of debt (by financing with future deficits) the government lengthens the process, as it did in the 1930s, rather than decreases it.
We are in for a loooonnnnnnnng one this time.

That is why we are just fiddling while Rome burns.  Twist from Housing Doom had it right: what we need right now to fix the housing market is MORE Foreclosures, not LESS.

Is now a good time to buy a new home? i would be a first time home buyer and i have heard the market is bad.?

Darren gave a long-winded answer:

Congratulations of thinking of buying a new home.

Is there a “bubble”? The simple answer is “no”. Even if interest rates move a bit higher, it won’t be enough to cause a nationwide slide in home prices. The key to a healthy housing market is the job market. If the payment on a new home might be slightly higher due to increased interest rates, it generally won’t stop someone from purchasing the home of their dreams…but if they feel their job is in jeopardy, it might be enough to stop them from making a move. So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.

The post goes on for nearly 2 more pages of bubblespeak.  It’s an interesting read on what was going on at the time.   The most choice example:

Don’t be victimized by the bubble hype. Buying a home is a big step, but it is almost always one in the right direction.

Darren was also quoted on housing doom and felt required to issue a long-winded discussion of the merits of buying a house, leveraging it to the hilt and other such nonsense.  I also at the time replied (when I was writing under the pseudonym John Doe) to his crazy thoughts:

I kinda wish we had a behind the music rendition of where is he now?

Anything worth saying to Darren after the bubble popped?

Therefore, I ask the most difficult question regarding the property that OCR dragged up in San Diego:

San Diego Shack

In this corner, we have the lightweight contender.  Weighing in at just 570 square feet, and surrounded by squalor, you can bask in the beauty of your red front door that leaves nothing to the imagination and your K-mart clearance special patio set.  Luckily for you, you can now dry your clothes directly outside your front door with the convenient ledger board that is stapled to the outside of your quaint demi-cottage.  Only you and your neighbor will know when you pass gas in this  beautiful little near-beach house.  IT HAS PRACTIALLY EVERYTHING YOU NEED TO SURVIVE.

Similarly, I’ll compare it to this:

Laguna Niguel Shack

This quaint beach cottage has a measly 10,000 square feet, but who can be sure?  It features subterranean parking, wine cellars, an opulent entry, is centrally located in Laguna Niguel near Monarch Beach and boasts a true 180 degree view of the ocean.  Luckily, you won’t need to hang your clothes out to dry, you actually have a laundry room and servants quarters to ensure your underwear is neatly pressed day or night.

However, there’s something this house lacks that the San Diego house has.  It’s a critical component in today’s current economy.

No, it’s not irrational exuberance… but you’re getting close.

Figured it out yet?

OK

Here

it

is.

The shack in San Diego boasts a higher price tag per square foot, exceeding $1000/ square foot while the opulent mansion with views to the ends of the earth weighs in at a measly $975/ sqft.

Now that’s amore.

I’ll let you decide how prudent that advice was by viewing the top homebuilders’ stocks from that date until today measured against the S&P 500.

I’m predicting that even with all of the price declines, I believe there’s still a lot more.

Here is what Joseph had to say:

It seems you can’t talk about the housing sector these days without mentioning the “S” word. Subprime, yes I said it, has even wormed its way into the vernacular of many Fed watchers and Fed members – not to mention the warning shots fired from the sidelines by former Federal Reserve chief Alan Greenspan every other week or so. This morning, the Fed sounded yet another gloom and doom note for the housing sector, as Sandra Braunstein, the director of the Fed’s division of consumer and community affairs, stated that borrowers could see “more difficulty” in the next one to two years. In particular, those borrowers with recently originated adjustable-rate mortgages are likely to experience more delinquencies and foreclosures, Braunstein said.

and

Admittedly, the situation is not very flattering for the U.S. housing market. However, I think that the hype over the popping of the so called “housing bubble” is being overplayed just a bit too much. Just take this quote from a March 18 New York Times article titled “On the Homefront”: “In many quarters, Greenspan was essentially accused of cheating the country out of the depression we deserved: instead of allowing the swooning Nasdaq to bring down the United States economy and punish us for our sins, he had rolled the tech bubble into a housing bubble and allowed the party to go on.”

Blaming Greenspan seems convenient at this point, especially with Bernanke’s Fed in a holding pattern. And comparing the “Dot-com” bust to the current situation in housing seems rather irresponsible. After all, betting on virtual real estate seems a far cry from betting on housing prices and “real” real estate. I mean, can you really compare the long defunct Pets.com and WebVan to Lennar ( LEN: sentiment, chart, options) and Hovnanian (HOV: sentiment, chart, options) ?

I have sat on this article for 5 months to see if my research was right on where they were headed… in an effort to dispel any myths. He was dead wrong, and worse than that, revealed poor research on the underlying fundamentals of the housing problem. It is and still is an affordability crisis. The decline in sales will not abate until that affordability standard is reachieved. At current course and speed, that won’t be for another 2 years at the minimum.

I believe that we will still see some of these builders declare bankruptcy (ch 11) before this bust is through.

For real estate in SoCal? Not so much, especially when sewage backups in Tijuana are basically front page news. Isn’t there constantly sewage coming across the border from TJ? Sorry, no references to immigrants please. The place is just dirty, and is constantly polluting San Diego beaches because the Mexican government fails to do just about anything about environmental protection besides limiting ownership of land by non citizens. Pretty much sums up the problem with the Mexican government (er, politics)anyway… does nothing.

Which, sometimes isn’t all that bad.

For example the former Fed chairman Alan Greenspan (a politician, but alas not currently with the US government) declared today that we might slip into a recession later this year. This was as much of a contrary indicator that fellow blogger Barry Ritholtz of the Big Picture could take. It might make him change his economic forecast since Al has been wrong on so many occasions. Of course, the change in opinion was made in jest (I think), so there’s little chance of a major rally (or is there?).

It seems that too often, people espouse one idea, and desperately seek to find information to support their assertions. This is true of both housingheads and bubbleheads alike, but moreover, it’s human nature. If we constantly second-guessed our beliefs, we might just be chomped by a sabre-toothed tiger. So much for a rational anlysis of facts. Case in point is a book I recently read by Harry Dent. Yes, that Harry Dent. It was some book about how the housing bubble will roll back into the stock market and cause the mother of all bubbles from 2006 to 2010 or some such idea. The book’s title is The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010. Which title kind of reminds me of DL’s book, Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade – And How to Profit From Them.

Most people have staked their credibility on a specific claim. If outside circumstances change the outcome (but not the forces driving it), is the predictor all that wrong? For that matter, another blogger, Mike Shedlock, believes strongly in deflation based on research of Japan’s bubble economy of the 80′s and 90′s.

Many other bloggers believe strongly that we will see substantial inflation.

Bill Fleckstein (one of my favorite reads) was amazingly accurate about the subprime and lending implosion currently underway. However, even he isn’t sure about the economy’s larger fallout. Could it become a contagion throughout the entire economy?

What will really happen? Nobody knows, but with as much liquidity as is floating around in local, national, and global markets, it appears that where its final resting place is, noone is certain of or able to predict.

Which makes one wonder, what is different between our forecasts and those of Gary Watts? Well, for one, we use broad-based economic indictors that have proven robustness (such as affordability, local economic structure, and relative business attractiveness measures such as income) instead of slanted, irrelevant, and cherry-picked demographic moves? For example, what good does a retiring baby boomer generation do for housing in general? Absolutely none if household formation does not promote it, or savings provide for the ability to actualy buy a non primary residence home. (which Boomers are largely guilty of)

One thing is certain, though, housing prices in Southern California will be lower in the future. Until then, there will be quite a few slow news days.

It is for this reason that by the time ideas come to print, they are often outdated and decidedly deceptive. Just such a cover comes our way. (Hat tip and thanks to JMF of immobilienblasen, or “real-estate bubble” for non-German speakers, for bringing this to my attention)

The article “It’s A Low, Low, Low, Low-Rate World: Money is cheap. And some experts say it could stay that way for years. That’s creating opportunity—and brand new risks” is here.

This is the cover of the current issue of Business Week:
How accurate you might ask, has the mainstream media been in predicting so far in the housing bubble? Consider, for example, the cheerleading piece Time magazine published in June 2005, at the near exact top of the housing bubble:
Not surprisingly, when you go to BusinessWeeks homepage, you’ll see this little one (the arrows are mine)
If you don’t see the irony in how the 2 issues impact each other, here it is:
1. Rates are low and credit available because there is low percieved risk. Risk is perceived as low because housing prices were rising.
2. Housing prices are supported by low rates and available credit. If rates go up, housing prices will go down. They are “priced to perfection”

Reminds me of something Alan Greenspan said:

Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low-risk premiums.