Tuesday, January 09, 2007

"Future of housing market debated"

In today's Bakersfield Californian Ryan Schuster reports on the local housing market. The report title includes the words debate. However, after reading the report I found very little debate. It is just a series of quotes by people who make money when you sell your house. There is no counterpoint or statement by anyone else. I would like to "debate" this story and provide a rebuttal of this items presented.

Sources used

The reporter quotes Jon Busby who has zero credibility with this blogger. Busby was on a Channel 17 news special at the peak of the bubble in the Summer of 2005 and claimed that prices will go up 10-15% for the foreseeable future. Prices are down since that point in time. By making this statement he has been discredited as nothing more than a cheerleader.

As has been pointed out numerous times on all the national bubble blogs; the USC Real Estate Center is funded by the real estate industry. Hardly independent. They have been cheerleading all the way up during this boom.

Only one paragraph was used to "debate the opposition"and no one was actually quoted. Not much of a debate here.

Credit contraction

No mention was made of the continued contraction in loose lending standards. As pointed out by this blogger (and many other bubble bloggers) 7 sub-prime companies have gone bust in the last 30 days with several others rumored to be going under. A significant portion of the purchases made in this town during the boom were made by those with less than stellar credit. Even a minor adjustment in the credit requirements will price more households out of making a home puchase. This will place the supply/demand curve even further out of whack than what it already is.


The article makes mention that inventory is down 13% from the month before. This happens every year - inventory decreases during the winter months. What matters is that inventory is up 53% year-over-year (YOY). Our prices will be down in 2006 primarily because our supply of homes outpaced our demand last year. This year we begin with even more supply and with credit contraction we will have even less demand. Not one of the "experts" quoted in the article mentions this.

Straw man

I have noticed that many "experts" who did not call the top in the housing market are resorting to a straw man agrument:

A straw man argument is a logical fallacy based on misrepresentation of an opponent's position. To "set up a straw man" or "set up a straw-man argument" is to create a position that is easy to refute, then attribute that position to the opponent. A straw-man argument can be a successful rhetorical technique (that is, it may succeed in persuading people) but it is in fact misleading, because the opponent's actual argument has not been refuted.

Notice the straw man agrument here "It is not taking this gigantic nose dive everyone was predicting." Everyone was predicting? Gigantic nose dive?

The goal here is to make the other side seem so extreme that they are immediately discredited by these sorts of outlandish statements.


When I read this comment by Crabtree :"Sellers have come to the realization that the party is over and they can no longer get the prices they were expecting before. We've reached a plateau and that plateau is holding" this reminded me of a similar comment made by Irving Fisher in 1929 just before the depression and the stock market crash of 1929:

The stock market crash of 1929 and the subsequent Great Depression cost Fisher much of his personal wealth and academic reputation. He famously predicted, a few days before the Stock Market Crash of 1929, "Stock prices have reached what looks like a permanently high plateau."

There are many other issues not addresses in a detailed manner - Will investers and their false demand return to the market? Our median price is still 8 times household income - Will this number come back to the pre-boom level of 3 times income? And so on....


Anonymous said...

Working at a local title company in Bakersfield I can tell you it's dead...And you know what's funny I saw a truth in lending page that had a 11+ percent rate! It's time to fall!

Bakersfield Bubble said...

Thanks anon!

The days of sub prime paying 10% plus are returning and that will add to the pain.

The days of 540 fico scores with zero down and stated income receiving 5% loans are almost over.

Anonymous said...

Very good analysis!

Bakersfield Bubble said...

This was posted under another thread on this blog, but I wanted to move it up here so it would be seen:

Anonymous said...
latest scoop, a dismantle employee, informed HSBC, of the white washing QC head was doing , and triggered the absolute, THE end of times as we know it for SFC.

Tue Jan 09, 04:43:14 PM PST

Housing Wizard said...

Sub-prime lending should be outlawed . I don't care if it makes the market crash .

After 1929 they had to get rid of margin buying also regarding stock market purchases .

Anybody with half a brain should know that the sub-prime loans inflated the market prices beyond reason and it has to correct .

Who ever thought of the idea of putting people on loans they couldn't afford based on "real estate always goes up "?

Low down stated income loans for people who could just make up a figure for income so they could gamble on prices going up ?

I still can't believe it to this very day that this madhatter lending took place on such a massive scale .

As we can all see, sub=prime loans did not get more people into affordable housing but rather it served to create a speculative mania of gamblers who inflated prices on hype, while those same borrowers can't afford the loans they went on .

Anonymous said...

I am being transferred to the area and am looking at purchasing a new home. Everything i am reading really is horrifying to me. Is investing in a new 350,000 home a waste at this point? What is one to do?

Anonymous said...

Is it really that bad in Bakersfield right now? What are all the real estate agents doing since they must be running over one another right now.

sexy said...