“Sales of single-family houses in the U.S. dropped in November by the most in two decades and resale prices collapsed at a pace reminiscent of the Great Depression, dashing hopes that the market was close to a bottom.”
U.S. Economy: Housing Prices Collapse at Near-Depression Pace [Bloomberg]

69 thoughts on “JustQuotes: Forget The Hopes, It’s Time For Prayer”
  1. Pray for what? Lower housing prices help the overall economy tremendously by freeing up disposable income that would otherwise be paid to service debt.
    Lower housing prices are a huge help to young families, immigrants and anyone else starting or re-starting their life.
    The only people who favor high prices are entrenched interests and banks. Even realtors shouldn’t necessarily care what the prices are, as long as there is high turnover.

  2. disposable income? the rest of the report also mentioned household wealth dropped by 2.81 trillion. The problem is not the home prices, its’ that wealth is vanishing, incomes are stagnant or dropping and jobs are being lost. And it’s only the beginning.

  3. What’s troublesome here is before October, prices were down, but volume was up.
    Now prices are down even more and volume is down.
    Meaning prices must drop even lower for volume to pick up again.
    I use to think some cities had already bottomed out, but this proves we have further down to go.

  4. Ridonculous! There were 347 people at my SOMA open house last weekend. I had canapes from Bryan’s brought in – let me tell you parking was a b*tch!

  5. viewlover — the “$2.81T in disposable income” that you refer to was money that could only be accessed by refinancing your house and taking on more debt. It looks, feels and acts like income, but at a certain point you have to pay the piper… therefore it is not income.
    I believe the concept was neatly summarized some years ago:
    “My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and, in short, you are for ever floored. As I am!”

  6. Barring any future government intervention (which is a large leap), it has been apparent for quite a while that we are going to overcorrect before values come back into line. I believe housing is still overvalued relative to its long term average. Since we are going to end up below that long term average in the near term, we have a long way to go yet. Cheers!

  7. The truth is somewhere in between.
    This is very bad news for almost everyone. The bubble created a lot of undeserved purchasing power for homeowners, and bless their hearts, they purchased. With their fishy chips off the table, the game won’t be fun for anyone.
    On the other hand, if you were priced out of real estate for the last decade, and you’ve been putting your money somewhere safe (not stock), and you manage to keep your job through all this, then what a glorious day. The boom has to this point been at your expense and now God has given you another chance to buy that condo you should have bought back in 1999.

  8. Of course socketsite commenters cheer, they all rent, they all sold their stocks early in 2007, they all sold their oil contracts over the summer, they are all now hoarding vast piles of cash and cheering each bit of bad economic news.
    In fact I think everywhere I go I see several millionares laughing at the misery of others.

  9. Riight… well I sold most of my stocks last year (and did short two banks this year), but I have nowhere near enough money for a downpayment on anything (yet). But declining prices do give many people hope, myself included.
    Most people in my situation (low 6-figure earner) would just give up but I’m cursed with roach-like tenacity. Somewhere, someday, somehow, it’ll happen.

  10. I never expected that my joy over prices finally demonstrably falling would be so tempered by the fear and misery of so many of the people I love around me.

  11. in that case Jimmy the same could be said for all stocks or other investment instruments and credit. Nothing is worth anything until there is a transaction. In the meantime, people buy and plan to pay with the value they percieve to have as assets. When any of those assets are devalued I see that it was not real money, but there goes the real purchasing power that one thought they had, and less spending and more loss of jobs, and so it goes down the spiral.
    Regardless, hope you are able to make the move to buying something that works for you sometime soon.

  12. Maybe I’m just an optimist, but I tend to agree with Jimmy. In every transaction there’s another side. People who couldn’t afford to buy, can now buy. People who might have had to move out somewhere cheaper can now afford to stay.
    It’s not all good, but there is some good in the dropping prices.

  13. viewlover– Not at all. Stocks have a value which is transparent and can be instantly realized at any point in time by selling. They have nothing in common with debt or credit, and a great deal in common with cash.
    I think we’re getting caught up in semantics. Disposable income is the amount of monthly cash income you receive that exceeds your monthly cash expenses.
    Lower expenses mean you have more disposable income. And if Charles Dickens is to be believed, more disposable income equals greater happiness …. that is how most people live, believe it or not.
    I can’t imagine anyone saying “I’ll just mortgage my house and borrow my way out of this recession” but then, I hate borrowing money. The debt hangs over me and I can feel the weight of it …
    great debt equals great unhappiness.

  14. Rillion,
    I believe you are right for a few posters. Do not believe bears are all frustrated losers getting high on shadenfreude.
    Some have been successful in what they do but chose to rent instead of following the Ponzi victims. A few have enough for a downpayment and then some…
    Sure there’s a common feeling that we did predict it, but it’s nothing compared with the hubris the bubble boys were showing during the 2003/2007 RE Ponzi.
    Non-believers were belittled and shamed. Just as Madoff was belittling people who didn’t want to throw 20M into his own little Ponzi, RE scammers were treating you like dirt. Now they’re begging for a bailout. Shame is not in their playbook.

  15. Fantastic news for everyone.
    Prices were going to drop to wherever they were going to drop. The sooner it happens, the sooner the recovery.
    Sorry for the suffering but lets rip the band aid off and get it over with.

  16. SanFronziScheme, yeah that would be great if the RE crash was limited to inflicting pain on just those that benefited from it, or if Madoff’s victims were limited to those that invested directly with him. But both ponzi schemes are taking down people that didn’t hand over their money directly to scammers.
    If RE prices were dropping in isolation it wouldn’t be a big deal. But the scary part of the original post of the top of the thread “at a pace reminiscent of the Great Depression”. Was the Great Depression pain limited to the people that gambled in the ponzi scheme stock market of the roaring 20’s?
    Do you believe that the RE market can continue in a state of free fall without it continuing to effect the broader economy?
    You have been one of those that mentioned that you’ve sold your RE and your stocks and I am sure you personally are going to be fine. But there are a lot of people that are not going to be fine and being smug and seeming to enjoy the pain all around you is not an attractive virtue. I don’t think the bears are frustrated losers at all, I just wish they were not such bad winners.

  17. It takes a stunningly poor understanding of macro economics to believe that you can be entirely immune from a very deep recession in either equities or real estate. Even if one is expressly divested of both, when the former part time Footlocker employee who is now laid off (due to a recession in equities and real estate that causes a retraction in consumer spending and thus this young man’s job)holds you up at gun point to steal your wallet to get some money—you won’t be able to talk him out of the theft by persuading him that you are divested of equities and real estate and thus are immune.

  18. Nickswish, I am sure you will be able to explain to him why he is actually better off and how until his unemployment check runs out that he will be able more with it…

  19. well the article mentions household wealth and that of non-profits. I interpret it that households have less wealth, period, be it stocks, cash, jewelry, art or the value of their home. Credit is not an asset so I’ve never thought of it as such so I”m not sure how it got in the discussion.
    As far stocks being more transparent, well they still fluctuate based on the market and you really dont’ know what they are worth until you sell or buy them. One dollar is still a dollar and worth a dollar. Transparency is not the word that applies, liquidity may be more appropriate.
    Dickens basically says the richer you are the happier and I dont’ agree with that either.
    Having less debt is clearly desirable, one has less worries. I can’t imagine people thinking they can borrow their way out of a recession, yet companies like Citibank and AIG have no problem thinking that way, and we’re lending them the money. Oddly, I doubt they have any worries either.

  20. Rillion, what would you prefer to see happen? That house prices stay on a permanently high plateau unhinged from historic norms versus incomes and rents? I just don’t see how that is going to be a healthier situation in the long run. Yes, we are in a mess that is and will extend way beyond housing, but I don’t see a realistic alternative to declining house prices in helping us get past this situation.

  21. Cheering on a depression is like cheering on a war. It might sound like something you want to experience, but I don’t think you’d enjoy it. Deflation will destroy wealth for most American’s and lower our standard of living.
    Sure, housing prices in markets like San Francisco got out of hand, but be careful of the solution.

  22. Amen Corner – What I would like to happen is for people to not seem so gleeful that housing prices are dropping rapidly and ignore that part of reason for that is the economy is going down the tubes with them. I would like for some posters here to show a bit of human decency and not gloat how while the economy is descending rapidly into the crapper they saw it all coming and now can dance a little jig.
    Personally I’m in pretty good financial shape but who knows, my job may or may not be “safe” depending on how bad it gets. But many of my close friends and family are facing reduced income (hours being cut), loss of jobs, and are struggling due to the economy even though they are renters and never participated at all in the real estate market.

  23. 1. If more people had listened to us, none of this suffering would be occurring.
    2. Acting gleeful is a way of driving our message home.
    3. Driving the message home will prevent the suffering that will occur when real estate finally recovers in 30-50 years and the bubble repeats.
    4. Therefore, our glee now will save much suffering later, and is therefore a positive thing.
    5. The economy is toast, housing prices are toast, whether or not anyone is gleeful now. It isn’t going to make it any worse.
    So people should be MORE gleeful. Besides, it’s the holidays and we’re SUPPOSED to be joyous. I know I am!

  24. “not gloat how while the economy is descending rapidly into the crapper they saw it all coming”
    but we did see it all coming, and we are due an amount of gloating and vindication proportional to the scorn and contempt with which our prognostications were greeted. And yes, what’s coming is going to suck for everyone. That’s why I picked my handle http://en.wikipedia.org/wiki/Deimos_(mythology) (and yes, I’ve always been a lousy speller).

  25. @tipster: if that secretary hadn’t outbid you for the $2 million condo you previously mentioned, you would be underwater like many other homeowners.

  26. No, I would have dumped it, just like anyone with half a brain should be doing now.
    The Bush administration has booby trapped the economy to assure a Republican comeback in 2010. You think this is bad, wait until Q2’08. In case there was any doubt, the mini bailout of the auto industry to last until then should have made that clear. Think Mr. Share-the-Wealth is going to protect your million dollar condo?
    If you were planning on selling in the next 7 years, you may have 3-6 months to get out. Lots can happen between now and then to change my view, but for now, I’d say anyone who gets out now is going to look like a genius next year.

  27. Those (of us) cheering on a depression understand that it will wring the excess from our phony economy. Those begrudging us to “show some decency” or “not knowing what we wish for” are struggling to propagate an economic circumstance that is severely distorted, sick, and unsustainable.
    Depression assures a better tomorrow after the pain.
    More-of-the-same simply allows this generation to steal from young generations through insatiable debt-creation, and disproportionately from the elderly and the poor through consequent inflation unless debt-destruction is allowed to run its course.
    Depression is the only path back to ethical inter-generational economic policy in this country.
    And the “Have’s” will fight the mother of rearguard actions to try to keep the fruits of their thievery.
    So. I repeat:
    Bring it on.

  28. Aren’t your arms getting tired from patting yourselves on the back for over a year now?
    Seriously for how long do you need to dance on the grave of the economy?

  29. 1. If more people had listened to us, none of this suffering would be occurring.
    2. Acting gleeful is a way of driving our message home.
    3. Driving the message home will prevent the suffering that will occur when real estate finally recovers in 30-50 years and the bubble repeats.
    4. Therefore, our glee now will save much suffering later, and is therefore a positive thing.
    hahahahha. whatever. you are quite detached from reality, Tipster. I’m not talking about what you write, but rather, how you perceive the import of what you write. Very telling stuff today.

  30. I really don’t think anyone here is dancing on anyone’s grave — although there is the occasional chain-yanking just to get a rise.
    I’ve told the story of how I got interested in this site. I was the “associate liaison” in my law office for a few years, and in 2005 and 2006 I had a few associates tell me of recent 2 BR condo purchases in the neighborhood of $1 million. I was shocked as I had paid just about half that for a nice (but not spectacular) 3 BR SFR in one of my favorite SF neighborhoods just 5 years before. There is no way they could afford these places. These women (all were women) earned about $175k — good money but they also had 6-figure student loans and if they were not elevated to partner (chances about 1-in-10) they were unlikely to see significantly higher salaries at any point in their career, at least if they stuck with law. They all bought with interest-only loans with nothing down (maybe 5%) because they did not want to be “priced out forever.” Others came to me asking for advice, so I started poking around for information.
    It really was astounding what was being put out there on realtor web sites, which was where the vast majority of info on SF real estate could be found. I saw things like “prices never go down in SF!” “buying is always better than renting in the long run,” “for every dollar you pay in interest, you save a dollar in taxes!” and “you can always refinance at a lower rate and cash out equity at the same time.” I kid you not. A partner of mine pointed me to Socketsite and Calculated Risk, where the editors were sounding reasonable notes of caution, and on Socketsite the general reaction was that a crash probably can’t happen anywhere, but it will never happen in SF.
    I had friends who bought around 1990 in the last run-up when we were just out of undergrad — similarly because they didn’t want to be “priced out forever.” The real estate downturn that followed was devastating. They were out the entire 20% down. One of them had to forgo a move to the East Coast for a better job because he couldn’t afford to take the loss or carry two homes. And both had serious relationship problems that were directly related to these housing and financial problems. The 2000-2007 bubble dwarfed the late 80s run-up and it was obvious to me that the crash was also going to be far worse this time. The associates noted above who bought during the peak are no longer with the firm, so I don’t know how their story ended (or if it has). But I can see from the state bar web site where they now work, and I suspect their current salaries are about 30% lower than they were making here.
    I started chiming in from about mid-2007 on this site just to add a note of caution and to highlight the risks of buying. My comments then were generally along the lines of pointing out that SF prices were unlikely to go higher and very well could decline dramatically in the next few years, so one might want to hold off until we see where things stand. As the data seemed to clearly (to me) indicate that we were heading into a downturn, I sounded that flag. Generally the response to me and others was a selective posting of recent sales with the theme that prices are stronger than ever and SF is immune and “different” because everyone wants to live here, it is a superstar city, foreign buyers will prop up the market, etc. And as the data and indicators have become more alarming, I’ve turned up the volume on my sounding the alarm.
    So nobody is gloating. Many, including me, are quite happy that prices are now coming back down to earth. Those who bought from about 2002-2007 might take a big financial hit. But lower prices mean SF will once again be more affordable to families and those who work for a living, and the city will be a better place for it.
    Happy Holidays to everyone. We are in for an extremely rough 2009 in the economy (and likely 2010 too), and the correction in SF real estate will accelerate to reflect that. When it finally shakes out, most of us will be in a better place, and many who got caught up in the bubble will have learned an expensive lesson but also a valuable one.

  31. “Until they lose their jobs…”
    Are you kidding? Do you know how much free time that would give me to write economic analyses on SS? 😉
    I was half-hoping to get laid-off during the last round of layoffs at work so I could have time to write a book. People are rightly down on central command economies but the distributed control system we use for allocating resources (i.e. “the free market”) has it’s own bugs and features. I’ve found that applying feedback and control theory to predict the behavior of the system has been most effective.

  32. Rillion,
    There’s a lot more patting on the back to come so I hope people aren’t tired yet!
    You act as if the depression can be separated from the insanity that preceded it, but it can’t. Were you castigating the people who sold real estate as the new ticket to free wealth, or who justified the historically low savings rate with voodoo economics?
    Yes, it’s a tragedy that lots of people are going to lose their jobs, and lots of people will lose much wealth, but it’s the same tragedy that misallocated resources into those jobs and wealth in the first place. It’s an even bigger tragedy that so few sane people were able to insulate themselves from the madness and will be dragged down too.
    That’s one of the reasons many of us think the governments attempts to stop the correction are worse than futile. If someone has 6-12 months of savings and loses their job, it’s much better for them to have the economy correct quickly and return to rationality and confidence than to have a decade of misery and uncertainty, with little confidence in recovery. Maybe a little gloating will convince more people that the doomsayers were right, and to listen to them now and get things back on track faster!

  33. I’d like to know this: what will happen to the realtors and the mortgage brokers to show that they learned their lesson?
    How many realtors did I visit between 2004-2006 who told me that there was no way to lose money on RE in San Francisco? Who, when I pointed out that they had not been in the industry in the early 90s, dismissed me as a crank? How many mortgage brokers told me I was a fool to put 20% down and get a fixed mortgage, that it was much more sensible to get an IO loan and “let the power of leverage do the work.”
    I feel a certain guilty pleasure in seeing realtors suffer now. All of them – without exception – lied to my face about RE during the bubble, swearing that you can’t possibly lose money in SF.
    Of course I’m sorry that the economy is tanking. RE is just one of the effects of an enormous credit bubble, but far more people are exposed to it than to stocks. And far more people were led down the path thanks to know-nothing realtors and outright fraud from RE workers of all types.
    What I would like to see is some actual regulation of the re industry. Estate agents should actually be required to know something, to behave ethically, or should be shown the door.
    I would like to see a Scottish style blind auction, potentially run by specialist law firms, rather than the system we have now. I would be delighted to see the demise of real estate agents, full stop. I would like to see meaningful regulation of the mortgage business as part of the meaningful regulation of the finance industry more generally. Mostly, I would like to see the end to the fraud that led to the inflation of property values in the condo market in SF (cash back, for example).
    Rather than hearing the RE folks moan about how they don’t like being on the wrong end the bubble, I’d like to hear, in concrete terms, what people would like to see happen to make this industry better in the future.
    And yes, I take some pleasure in saying that I’d like to see a world free of estate agents. They behaved just like pond scum for the past 8 years, and they have no right to expect sympathy from anyone.

  34. Embarcadero: You are totally right! All the real estate told me that, and it’s lucky I trust my own intuition. But it’s not just the real estate agents…I do remember quite a few people now defending SF prices like crazy in this board too..

  35. Trip- thanks for the thoughtful post. I am a regular reader (and infrequent poster :)), and have appreciated and learned from the many contributors on this board. And in particular those, like you, who are able to analyze and synthesize experience, history, and data and then communicate it clearly.
    Clearly life is not quite as simple as “real estate always goes up” or “bears are just bitter renters who can’t afford to buy” (nor that all real estate owners are foolish, either).
    Thanks to socketsite, and contributions from folks like Trip, for making this a valuable (and often entertaining) resource for making sense of the complexities of this real estate environment that really does impact everyone….

  36. Embarcadero – while I too have witnessed unethical behavior on the part of both RE and loan brokers, it is unfair to paint all with the same brush stroke. Some are good ethical people to work with. It is astonishing how poorly the industry polices itself though.

  37. really great posts on this thread. I too think a large recession whill teach some people the vaulable lesson of saving and hopefully distancing themselves from the herd mentatilty that ruled for so long in real estate and credit in general. luckily, my parents taught me that i could never spend more than i make, that i should always pay my credit card fully every month and to never spend more than 3x my annual salary on a home. I have kept to those basic rules (except for debt for education) and feel really blessed for it as i sit in their home writing this message. It sucks that people have to go through pain in the downturn but it will be better for the vast majority of people in the long run. Some times you have to take your medicine and hope and plan for long term health. hope everyone has a nice holiday

  38. Great posting by Trip. The only problem is, that unlike buying stocks, where it is simply a game, buying a home is a “life” decision, unless you’re a speculator. When a law firm associate (or anyone) is considering this decision in 2003/2005/2007/whenever, and given the history of SF real estate, it is virtually impossible to withhold acting on the basis that “this MIGHT be the time that the general rule doesn’t apply”. Maybe Trip’s point (which I would agree with) was that the rapid appreciation was so significant that the new price points were simply unsustainable. But how really could anyone know that? When we bought our first home in the Richmond (12th and Balboa) in 1984, we paid $264,000 with a 12% interest loan. Three years later, when the highest comp on the block was $325,000, we sold it FSBO for $393,000. Today, that home (even in the current environment) is worth over $1.3M. At any point along the way, a person could have rationally concluded that the price was crazy, given that it was only $264,000 in 1984. So while we can all criticize the realtors and others who “guaranteed” further appreciation, let’s not forget that the losers over the past 25 years, 95% of the time, were those who didn’t act. So let’s go easy on those who bought real estate to LIVE IN – the prices they encountered, for better or worse, were the only prices available during this period. If a particular stock is overpriced, you can ignore it and buy another stock. If the entire inventory of SF housing is overpriced, you have little choice.

  39. Yes, Trip, thanks for the revealing post. I like it when we get a sense of where people are coming from. If you’re like me, you suspect that most posters’ opinions on this site are heavily conditioned by their personal and financial stake in the debate (i.e., renter, owner, realtor, investor, etc.). [Case in point, you bought your home in 2000 or 2001 and, hence, you predict that those who bought in 2002 or after “might take a big financial hit.” I on the other hand bought in 2002, so I will argue vigorously for a different date!]
    But I do have to take issue with your description of this website in mid-2007. You make it sound like it was a predominantly bull-ish site then to which you courageously added “a note of caution.” It was not. I was here too. Then, as now, it was dominated by voices predicting market correction or crashes throughout SF in the next, typically, “6 to 12 months.” There were more bulls around then, but the “herd mentality” expressed here was definitely bear-ish.

  40. @ Trip,
    “So nobody is gloating”
    The four or five individuals who regularly post onomatapoeic cackling laughter sounds would seem to contradict that statement.

  41. So let’s see what I’ve learned from our fellow realtors today. It is alright to gloat and cheer on the real estate market on the way up despite the fact that the bubble it created caused a global financial meltdown. On the other hand, it is wrong to cheer the financial correction which is required to clean up the mess as well as bring affordability back to residential real estate.

  42. “suspect that most posters’ opinions on this site are heavily conditioned by their personal and financial stake in the debate”
    There’s a chicken and egg problem at work here.
    Do people want the market to go down because they are renters or are people renters because they expect the market to go down. Are they talking their book, are they living their convictions, or are they whistling past the graveyard hoping that they’ve made the right choice?
    Who can say?
    There are plenty of posters who have a predictable knee-jerk reaction to any article and there are ones who will lay out their arguements and you can either agree or disagree with them. In the end, if you can’t think the situation through for yourself then you’re at the mercy of whatever sounds good or sounds like what you want to hear.

  43. “So let’s see what I’ve learned from our fellow realtors today. It is alright to gloat and cheer on the real estate market on the way up despite the fact that the bubble it created caused a global financial meltdown. On the other hand, it is wrong to cheer the financial correction which is required to clean up the mess as well as bring affordability back to residential real estate. ”
    Who are the realtors? Who is saying that any gloating is OK in any context? But regardless, you think gloating took place too though.

  44. I’m gloating, but because I was right, not because the Ponzi scheme has ended.
    Those guys who kept telling everyone that Madoff was a Ponzi scheme are gloating, but they aren’t happy about the effects of the downfall. They are happy about the fact that they were pressured to do the same, resisted the pressure, told everyone the outcome (which was easy based on the fundamentals), and those who basically ignored the fundamentals got what people who ignore the fundamentals always get. Always.
    Housing rising faster than inflation is by its very definition a Ponzi scheme. The people in the scheme recruit the new investors to buy their shares. Like any Ponzi scheme, the profits come from later investors money, not from investment values rising, which in the case of housing, comes only from wage inflation and scarcity as the rental value rises as inflation goes up and scarcity stays about even.
    When you see all that housing being built, and wages are flat, and yet housing prices are rising to the moon, guess what: it’s a Ponzi scheme. That’s all this was. The miraculaous financing just tapped a demand that could only support it while the Ponzi scheme was on its way up, which fueled the belief and became self perpetuating.
    It’s collapsing around you right now because it had no support other than the belief by later investors that prices would be even higher tomorrow, like any Ponzi scheme. That belief, as much as the government is struggling to try to pump it back up, is dead.
    All this WAS was a giant Ponzi scheme, and those of us who stayed out of it have every right to gloat.
    Asset bubbles are Ponzi schemes run by dupes. The only difference between an asset bubble and a regular Ponzi scheme is that the people running the scheme know full well that it’s a fake. The rubes who run asset bubbles, at least some of them, actually believe that the underlying value has changed. That’s really the only difference, as there really is no other. That belief is usually carefully managed by the people making the real money, the support staff: the salespeople, appraisers, and financiers.

  45. I’m very happy to see the credit bubble collapsing.
    The damage was done during the credit inflation period. That was the “crisis” – the time when scarce resources and energy were misallocated into foolish uses that actually detracted from wealth. The coming depression is the mechanism by which the economy rights itself.
    It would have been infinitely preferable for the ponzi credit scheme to have collapsed in 2001-2003, of course, because there would have been less collateral damage. But I’ll take it now, just the same. I do hope the policy makers fail in their attempts to avoid the unavoidable, because I can’t imagine the collapse that will happen in the not too distant future if the insane attempts at trying to prevent the economy from righting itself at this late stage are “successful”.
    Oh, and I’m glad I was “right” about US housing markets, but it’s really not too big of a deal. The history books are full of examples of bubbles. Besides, in just the last 15 years it’s the 4th or 5th major bubble I’ve been personally involved in (either as interested observer or active participant) and it’s always the same story. Every bubble ends this way.

  46. LMRiM,
    There was a book written by a 93 year old economist that covered all of the bubbles, recessions, and depressions. Can you recall the title? Would love to get a copy.

  47. LMRiM,
    There was a book written by a 93 year old economist that covered all of the bubbles, recessions, and depressions. Can you recall the title? Would love to get a copy.

  48. @fluj
    “Who are the realtors? Who is saying that any gloating is OK in any context? But regardless, you think gloating took place too though.”
    As one of the biggest gloaters and market pumpers during the past few years, you sound a bit hypocritical asking other posters to ask for forgiveness for being “right” when they just saved 100’s of thousands by not buying into the market hype. Gloating is fine on the way up, but not on the way down? Typical realtor hypocrisy…

  49. Sunny Jim,
    I scratched my head for a while, but I can’t think of any single work that fits the bill. There have been a few long-lived economists who have tackled the question in different ways. Friedman (lived to 94) and his wife wrote The Monetary History of the United States in 1963. That pretty much covered the US bubbles, recessions and depressions up to that date, and is worth reading (even if you don’t think Friedman’s monetaist approach is the most robust intellectually).
    The Kindleberger book cited by Debtpocalypse is good and has been updated a number of times – it’s especially good on the modern bubbles (but the prose is a little dry).
    A few people have recommended Chancellor’s Devil Take the Hindmost, but I haven’t read it.
    The (long lived) economist-commentators most closely associated with the theoretical examination of credit bubbles specifically are probably Hyman Minsky (died at 77) and Ludwig von Mises (I think he was 94). Kurt Richebacher (died at 92 I think) comes up a lot too, but it’s not easy to find his essays in one place (he ran a subscription service for years and years, and only now is the work getting collated in one place). Hayek of course wrote a lot about inflationary booms and the loss of freedom that inevitably results when government seeks to paper over its mistakes, and I think he lived into his 90s as well!
    If you’re interested in somewhat theoretical treatments of credit booms/busts from the Austrian perspective, I’d recommend Murray Rothbard’s works, almost all of which are available free on mises.org, especially:
    What Has Government Done to Our Money (http://www.mises.org/books/whathasgovernmentdone.pdf)
    Making Economic Sense (http://www.mises.org/books/econsense.pdf) – this is a fun collection of essays that can be sampled out of sequence
    Man, Economy and State (http://www.mises.org/rothbard/mespm.PDF) – this is pretty heavy duty; if you have a few weeks to kill, I recommend it!
    Anyway, I hope that helps.

  50. It’s the Kindleberger book that I was trying to remember. Thanks! The mises.org site has really been helpfull as well.

  51. Tipster: Housing rising faster than inflation is by its very definition a Ponzi scheme.
    Got hyperbole?
    So by your measure then pretty much all investments except bonds/fixed income are ponzi schemes. My stock investments are only worth any value if someone else comes along and is willing to use their money to pay me off. So any time a P/E ratio for a stock increases it is a “ponzi scheme” since someone is now paying more money for the same amount of earnings. Same with commodities, they only have value if you can find some new investor to come along and buy them from you.
    Real estate has been a pretty bad investment for the last couple of years but that isn’t the same thing as a ponzi scheme. Could Madoff’s investors live in their bogus investment?

  52. Rillon,
    I agree that Tipster was a bit over the top (it is possible that people will value identical housing higher over time, but that hasn’t been the case, and no one made that argument during the runup, AFAIK).
    But if you lend or borrow a mortgage with the assumption that a refinance or sale will solve payment issues if they occur, you are perpetuating a ponzi scheme. The fundamental assumption is that house prices don’t decline, and when you can’t find someone to keep putting money into the system, it collapses.
    So a lot of real estate transactions in the past few years were part of a fraud, and ones that weren’t were/are affected by what went on in that part of the market.

  53. Only under the most strict and technical definition could someone assert that the real estate market in the last 10 years was not a ponzi scheme. At minimum, this was a game of musical chairs and now that the music has stopped many are finding no place to sit.
    “Could Madoff’s investors live in their bogus investment?”
    Neither can many former “homeowners” who has lost not only their home, but all of their wealth in the process.

  54. Oh I have no doubt that there was a lot of fraud in the real estate industry but to say the entire concept of buying or selling a home is a ponzi scheme is an over reach.
    The bears on here enjoy saying that up until just a few months ago anyone involved in RE was running around saying that “RE never goes down!”, now you have the bears saying that “if RE ever goes up by more then inflation the only reason can be FRAUD!”
    People in hyperbole glass houses should not be throwing stones…

  55. There are many factors influencing home prices, not just inflation. Other fundamentals include:
    – Larger poplulation wanting to live in same area without a proportional increase in housing stock.
    – Increased number of good jobs in the area.
    – Existing housing stock improves in quality through remodeling / neighborhoods improve through gentrification.
    All of these took place in SF over the last few years, and they just happened to coincide with the bubble and fraud. But I personally am of the belief that fundamental changes are picked up in rents as well as home prices, and a relative parity between the two should exist (given a static mortgage model). The fact that home prices increased manifold compared to rents indicates that more than fundamentals were at play.
    I don’t think anyone is literally saying that only inflation affects home prices. For an example of fundamental changes affecting values negatively, inflation notwithstanding, just look at Detroit.

  56. Maybe not the entire concept of buying or selling a home. Even without the fraud, however, there were factors that caused the housing market to become unsustainable.
    Even if the overall housing market was not a ponzi scheme, the “exotic” loan market certainly was. There was no way that much leverage could be used to purchase a home and really expect payment. Payment could only continue so long as housing prices increased and more money put into the market. As soon as housing prices stop increasing, or don’t increase enough, that is when the scheme collapses. That is why these things were sliced and diced so that when sold no one knew exactly what they were buying.
    If you don’t like the use of the term “ponzi scheme” that’s fine. But what went on is as close to a proper ponzi scheme as you can get and I think the description apropos.
    The result is that the overall market is now significantly overvalued. I find it very interesting that the prime market is suffering an increase in default rates. I assumed that the prime market would not see a significant increase in default rate but remain steady with subprime and alt-a making up the bulk of the increase. I’m interested to see if this continues.

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