Post by Gary Roberts on Feb 5, 2007 23:17:20 GMT -5
patrick.net/housing/crash.html
US Housing Crash Continues
Mon Feb 5 2007
Why?
1. Prices disconnected from fundamentals. House prices are far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans.
2. Interest rates going back up. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for a loan of only $171,428.
82% of recent San Francisco Bay Area loans are adjustable, not fixed. This means a big hit to the finances of many owners every time interest rates go up, and this will only get worse as more adjustable rate mortgages (ARMs) get adjusted upward. Nationally, about $3,000,000,000,000 (that's trillion) of ARMs will adjust their rates to much higher levels this year and next.
Even if the Fed does not raise rates any more, all those adjustable mortgages will go up anyway, because they will adjust upward from the low initial rate to the current rate.
3. A flood of risky adjustable rate "home equity loans" draining equity from existing mortgages. Just like the bad primary ARM loans, these loans do not have fixed interest rates. When the interest rate adjusts upward, it can double monthly payments, forcing owners to sell.
4. Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.
It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $600,000 house, that's $36,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
5. Shortage of first-time buyers. According to the California Association of Realtors, the percentage of Bay Area buyers who could afford a median-price house in the region plunged from 20 percent in July 2003 to 14 percent in July 2004. Strangely, the CAR then reported that affordability fell another 4 percent in 2005, yet claims affordability is still at 14%.
6. Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in. It is now possible to buy a house with 103% financing. The extra 3% is to cover closing costs, so the speculator needs no money down. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
7. Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 61. The only cash they have is equity in a house, so they must sell.
8. Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. They overbuilt and have huge excess inventory that they cannot sell at current prices.
9. Trouble at Fannie Mae and Freddie Mac. They are being forced to reduce their holdings of risky loans. This means they are not going to keep buying very low quality loans from banks, and the total money available for buying houses is falling.
10. The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
Who disagrees
that house prices will continue to fall? Real estate related businesses disagree, because they don't make money if buyers do not buy. These businesses have a large financial interest in misleading the public about the foolishness of buying a house now.
1. Buyers' agents get nothing if there is no sale, so they want their clients to buy no matter how bad the deal is, the exact opposite of the buyer's best interest. Agents take $100 billion each year in commissions from buyers. Agents claim the seller pays the commission, but always fail to mention that the seller gets that money from the buyer.
There are good buyer's agents who really believe they are helping the buyer, but they often in denial about their conflict of interests.
2. Mortgage brokers take a percentage of the loan, so they want buyers to take out the biggest loan possible.
3. Banks get origination fees but sell most mortgages, so they do not care about the potential bankruptcy of borrowers, and will lend far beyond what buyers can afford. Banks sell most loans to Fannie Mae or Freddie Mac. The conversion of low-quality housing debt into "high" quality Fannie Mae debt with the implicit backing of the federal government is the main support for the housing bubble. That is ending as Fannie Mae shrinks.
It remains true, however, that banks are not required to get any appraisal at all for loans they sell to Fannie Mae or any government-guaranteed loans. This encourages banks to overstate values and sell bigger loans to Fannie, pushing the risk onto taxpayers.
Even for the "jumbo" loans that banks cannot sell to Fannie Mae and Freddie Mac, they have a motive to lend beyond what buyers can afford. Banks designate interest as "income" whether they receive it or not. As long as borrowers do not actually default, additional interest owed is counted as bank income, and banks can claim higher "earnings". That is going to end when those borrowers cannot even make the principal payments.
4. Appraisers are hired by mortgage brokers and banks, so they are going to give the appraisals that brokers and banks want to see, not the truth.
5. Newspapers earn money from advertising placed by Realtors®, so papers are pressured to publish the Realtors'® unrealistic forecasts.
Worse, Realtors® have a near-monopoly on sale price information, and newspaper reporters never ask Realtors® hard questions like "how do we know you're not lying about those prices?" The result is an endless stream of stories which quote David Lereah of the NAR saying it's a good time to buy, as if there were some news in hearing salesmen say that you should give them your money. To be optimistic about this market takes a real estate "professional". Everyone else speaks the truth too clearly.
6. Owners themselves do not want to believe they are going to lose huge amounts of money.
What are their arguments?
1. "Renting is just throwing money away."
FALSE, renting is now much cheaper per month than owning. If you don't rent, you either
* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a place to live. This extra income could be 50% to 200% beyond rent costs, and for many is enough to retire right now.
Either way, owners LOSE much more money every month than renters. Currently, yearly rents in the Bay Area are about 2% of the cost of buying an equivalent house. This means a house is returning about 2%, and it is a bad investment. Pretty much any other investment is better. If you don't like risk, put your money in US Treasuries at 5%.
In effect, landlords are loaning the purchase price of a house to their tenants at a 2% interest rate. This is a fantastic deal for renters. When it is possible to borrow a million dollar house for 2% yearly rent at the same time a loan of a million dollars in cash costs 6% interest, plus 1% property tax, plus 2% maintenance, something is clearly broken. I would think every rational businessman would take the extreme discount renters are enjoying.
2. "There are great tax advantages to owning."
FALSE. The tax advantage is not significant compared to the large monthly loss from owning. For example, it is far cheaper to rent in the San Francisco Bay Area than it is to own that same house, even with the deductibility of mortgage interest figured in. It is possible to rent a good house for $1800/month. That same house would cost about $700,000. Assume 6% interest, and we can see that a buyer loses at least $4,936 per month by buying. Renting is a loss of course, but buying is a much bigger loss.
Renting:
Rent: $1,800
----------------------
Monthly Loss: $1,800
Buying:
Property Tax: $486 ($729 per month at 1.25% before deduction, $486 lost after deduction.)
Interest: $2,333 ($3500 per month at 6% before deduction, $2333 lost after deduction.)
Other Costs: $450 (Insurance, maintenance, long commute, etc.)
Principal loss: $1,667 (Modest 3% yearly loss on $700,000. Reality will be much worse.)
----------------------
Monthly Loss: $4,936
This is a very conservative estimate of the loss from owning per month. If you include a realistic decline in house prices, as in this rent-vs-own calculator, you'll see that owning right now is a very poor choice. Here's a more optimistic calculator which ignores price changes entirely. House value losses will stop eventually, but it could take 5 or 10 years to bottom out.
Remember that buyers do not deduct interest from income tax; they deduct interest from taxable income. Interest is paid in real pre-tax dollars that buyers suffered to earn. That money is really entirely gone, even if the buyer didn't pay income tax on those dollars before spending them on mortgage interest. Of course the creeping AMT will eliminate the mortgage interest deduction soon anyway. Ah, you didn't know that there are limits to the mortgage interest deduction and that more and more people are hitting that limit every year?
Buyers do not get interest back at tax time. If a buyer gets an income tax refund, that's just because he overpaid his taxes, giving the government an interest-free loan. The rest of us are grateful.
If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc. Since you can rent a house for 2% of its price, but have to pay 6% to borrow the equivalent amount of money, it is much cheaper to rent the house than to rent the money.
Then there's earthquake insurance. It's really expensive, so most people just skip it and risk everything on the chance that no earthquake will happen.
3. "A rental house provides good income."
FALSE. Rental houses provide very poor income in the Bay Area and certainly cannot cover mortgage payments. In the best case, a $1,000,000 house can be rented out for at most $25,000 per year after expenses like property tax and repairs. The return is therefore 2.5% with no liquidity and a huge risk of loss.
If the owner were to sell that rental house for a million dollars, he could get about 5% with no risk, no work, and no state income tax by buying a US Treasury Bond. And the money would be liquid and secure.
That said, there are many parts of the US where it does make sense to buy because mortgage payments are less than rents in those areas. They are generally rural areas away from the coasts, and have not seen the same bubble that the coasts have.
4. "Impending regulation changes to allow 40 and 50 year mortgages will fix everything."
FALSE. 40 and 50 year mortgages will probably not be paid back, since a large number of borrowers will die before 40 or 50 years are up. This makes these loans a bad idea from the lender's point of view. It also doesn't make sense from the borrower's point of view, since almost of their payment will go to interest for most of the life of the loan. This makes it almost the same as renting - except that it's 2 or 3 times more expensive!
5. "OK, owning is a loss in monthly cash flow, but appreciation will make up for it."
FALSE. Appreciation is negative. Prices are going down in most places, which just adds insult to the monthly injury of crushing mortgage payments.
6. "House prices never fall."
FALSE. San Francisco house prices dropped 11 percent between 1990 and 1994. Buyers in SF in 1990 did not break even in dollar amounts until about 1998. So those buyers effectively loaned their money to the sellers for 8 years at no interest, losing all the while to inflation. With inflation, 1990 buyers truly broke even only about the year 2000, ten years after buying.
Los Angeles' average house plummeted 21 percent from 1991 to 1995, and of course there have been many similar crashes all around the US. The worst may have been after the oil bust in the 1980's, when Colorado condos lost 90% of the value they had at their peak.
7. "House prices don't fall to zero like stock prices, so it's safer to invest in real estate."
FALSE. It's true that house prices do not fall to zero, but your equity in a house can easily fall to zero, and then way past zero into the red. Even a fall of only 4% completely wipes out everyone who has only 10% equity in their house because Realtors® will take 6%. This means that house price crashes are actually worse than stock crashes. Most people have most of their money in their house, and that money is highly leveraged.
8. "We know it will be a soft landing, since it says so in the papers."
FALSE. Prices could fall off a cliff. No one knows exactly what will happen, but the risk of a sudden crash in prices is severe. As Yale professor Robert Shiller has pointed out, this housing bubble is the biggest bubble in history, ever. Predictions of a "soft landing" are just more manipulation of buyer emotions, to get them to buy even while prices are falling.
Most newspaper articles on housing are not news at all. They are advertisements that are disguised to look like news. They quote heavily from people like Realtors®, whose income depends on separating you from your money. Their purpose is not to inform, but rather to get you to buy.
9. "The bubble prices were driven by supply and demand."
FALSE. Prices were driven by low interest rates and risky loans. Supply is up, and the average family income fell 2.3% from 2001 to 2004, so prices are violating the most basic assumptions about supply and demand.
The www.census.gov site has data for Santa Clara County for the years 2000-2003 which shows that the number of housing units went up at the same time that the population decreased:
year units people
2000 580868 / 1686474 = 0.344 housing units per person
2001 587013 / 1692299 = 0.346
2002 592494 / 1677426 = 0.353
2003 596526 / 1678421 = 0.355
So housing supply in Santa Clara County increased 3% per person during those years. There is an oversupply compared to a few years ago, when prices were lower.
At a national level, there is a similar story in the years 2000 to 2005:
2000 115.9M / 281M = 0.412 housing units per person
2005 124.6M / 295M = 0.422
At a national level, there is 2.4% more housing per person now than in 2000. So national prices should have fallen as well.
The truth is that prices can rise or fall without any change in supply or demand. The bubble was a mania of cheap and easy credit. Now the mania is over.
10. "They aren't making any more land."
TRUE, but sales volume has fallen 40% in the last year alone. It seems they aren't making any more buyers, either.
11. "As a renter, you have no opportunity to build equity."
FALSE. Equity is just money. Renters are actually in a better position to build equity through investing in anything but housing.
* Owers are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owers are losing principal in a leveraged way as prices decline. A 14% decline completely wipes out all the equity of "owners" who actually own only 20% of their house. Remember that the agents will take 6%.
* Owers must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity. Only houses are such a guaranteed drain on cash.
* Owers must insure a house, but not most other investments.
* Owers must pay to repair a house, but not a stock or a bond.
US Housing Crash Continues
Mon Feb 5 2007
Why?
1. Prices disconnected from fundamentals. House prices are far beyond any historically known relationship to rents or salaries. Rents are less than half of mortgage payments. Salaries cannot cover mortgages except in the very short term, by using adjustable interest-only loans.
2. Interest rates going back up. When rates go from 5% to 7%, that's a 40% increase in the amount of interest a buyer has to pay. House prices must drop proportionately to compensate.
For example, if interest rates are 5%, then $1000 per month ($12,000 per year) pays an interest-only loan of $240,000. If interest rates rise to 7%, then that same $1000 per month pays for a loan of only $171,428.
82% of recent San Francisco Bay Area loans are adjustable, not fixed. This means a big hit to the finances of many owners every time interest rates go up, and this will only get worse as more adjustable rate mortgages (ARMs) get adjusted upward. Nationally, about $3,000,000,000,000 (that's trillion) of ARMs will adjust their rates to much higher levels this year and next.
Even if the Fed does not raise rates any more, all those adjustable mortgages will go up anyway, because they will adjust upward from the low initial rate to the current rate.
3. A flood of risky adjustable rate "home equity loans" draining equity from existing mortgages. Just like the bad primary ARM loans, these loans do not have fixed interest rates. When the interest rate adjusts upward, it can double monthly payments, forcing owners to sell.
4. Extreme use of leverage. Leverage means using debt to amplify gain. Most people forget that losses get amplified as well. If a buyer puts 10% down and the house goes down 10%, he has lost 100% of his money on paper. If he has to sell due to job loss or an interest rate hike, he's bankrupt in the real world.
It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is 6%. On a $600,000 house, that's $36,000 lost even if prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
5. Shortage of first-time buyers. According to the California Association of Realtors, the percentage of Bay Area buyers who could afford a median-price house in the region plunged from 20 percent in July 2003 to 14 percent in July 2004. Strangely, the CAR then reported that affordability fell another 4 percent in 2005, yet claims affordability is still at 14%.
6. Surplus of speculators. Nationally, 25% of houses bought in 2005 were pure speculation, not houses to live in. It is now possible to buy a house with 103% financing. The extra 3% is to cover closing costs, so the speculator needs no money down. Even the National Association of House Builders admits that "Investor-driven price appreciation looms over some housing markets."
7. Baby boomers retiring. There are 77 million Americans born between 1946-1964. One-third have zero retirement savings. The oldest are 61. The only cash they have is equity in a house, so they must sell.
8. Huge glut of empty housing. Builders are being forced to drop prices even faster than owners. They overbuilt and have huge excess inventory that they cannot sell at current prices.
9. Trouble at Fannie Mae and Freddie Mac. They are being forced to reduce their holdings of risky loans. This means they are not going to keep buying very low quality loans from banks, and the total money available for buying houses is falling.
10. The best summary explanation, from Business Week: "Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low interest rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken."
Who disagrees
that house prices will continue to fall? Real estate related businesses disagree, because they don't make money if buyers do not buy. These businesses have a large financial interest in misleading the public about the foolishness of buying a house now.
1. Buyers' agents get nothing if there is no sale, so they want their clients to buy no matter how bad the deal is, the exact opposite of the buyer's best interest. Agents take $100 billion each year in commissions from buyers. Agents claim the seller pays the commission, but always fail to mention that the seller gets that money from the buyer.
There are good buyer's agents who really believe they are helping the buyer, but they often in denial about their conflict of interests.
2. Mortgage brokers take a percentage of the loan, so they want buyers to take out the biggest loan possible.
3. Banks get origination fees but sell most mortgages, so they do not care about the potential bankruptcy of borrowers, and will lend far beyond what buyers can afford. Banks sell most loans to Fannie Mae or Freddie Mac. The conversion of low-quality housing debt into "high" quality Fannie Mae debt with the implicit backing of the federal government is the main support for the housing bubble. That is ending as Fannie Mae shrinks.
It remains true, however, that banks are not required to get any appraisal at all for loans they sell to Fannie Mae or any government-guaranteed loans. This encourages banks to overstate values and sell bigger loans to Fannie, pushing the risk onto taxpayers.
Even for the "jumbo" loans that banks cannot sell to Fannie Mae and Freddie Mac, they have a motive to lend beyond what buyers can afford. Banks designate interest as "income" whether they receive it or not. As long as borrowers do not actually default, additional interest owed is counted as bank income, and banks can claim higher "earnings". That is going to end when those borrowers cannot even make the principal payments.
4. Appraisers are hired by mortgage brokers and banks, so they are going to give the appraisals that brokers and banks want to see, not the truth.
5. Newspapers earn money from advertising placed by Realtors®, so papers are pressured to publish the Realtors'® unrealistic forecasts.
Worse, Realtors® have a near-monopoly on sale price information, and newspaper reporters never ask Realtors® hard questions like "how do we know you're not lying about those prices?" The result is an endless stream of stories which quote David Lereah of the NAR saying it's a good time to buy, as if there were some news in hearing salesmen say that you should give them your money. To be optimistic about this market takes a real estate "professional". Everyone else speaks the truth too clearly.
6. Owners themselves do not want to believe they are going to lose huge amounts of money.
What are their arguments?
1. "Renting is just throwing money away."
FALSE, renting is now much cheaper per month than owning. If you don't rent, you either
* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a place to live. This extra income could be 50% to 200% beyond rent costs, and for many is enough to retire right now.
Either way, owners LOSE much more money every month than renters. Currently, yearly rents in the Bay Area are about 2% of the cost of buying an equivalent house. This means a house is returning about 2%, and it is a bad investment. Pretty much any other investment is better. If you don't like risk, put your money in US Treasuries at 5%.
In effect, landlords are loaning the purchase price of a house to their tenants at a 2% interest rate. This is a fantastic deal for renters. When it is possible to borrow a million dollar house for 2% yearly rent at the same time a loan of a million dollars in cash costs 6% interest, plus 1% property tax, plus 2% maintenance, something is clearly broken. I would think every rational businessman would take the extreme discount renters are enjoying.
2. "There are great tax advantages to owning."
FALSE. The tax advantage is not significant compared to the large monthly loss from owning. For example, it is far cheaper to rent in the San Francisco Bay Area than it is to own that same house, even with the deductibility of mortgage interest figured in. It is possible to rent a good house for $1800/month. That same house would cost about $700,000. Assume 6% interest, and we can see that a buyer loses at least $4,936 per month by buying. Renting is a loss of course, but buying is a much bigger loss.
Renting:
Rent: $1,800
----------------------
Monthly Loss: $1,800
Buying:
Property Tax: $486 ($729 per month at 1.25% before deduction, $486 lost after deduction.)
Interest: $2,333 ($3500 per month at 6% before deduction, $2333 lost after deduction.)
Other Costs: $450 (Insurance, maintenance, long commute, etc.)
Principal loss: $1,667 (Modest 3% yearly loss on $700,000. Reality will be much worse.)
----------------------
Monthly Loss: $4,936
This is a very conservative estimate of the loss from owning per month. If you include a realistic decline in house prices, as in this rent-vs-own calculator, you'll see that owning right now is a very poor choice. Here's a more optimistic calculator which ignores price changes entirely. House value losses will stop eventually, but it could take 5 or 10 years to bottom out.
Remember that buyers do not deduct interest from income tax; they deduct interest from taxable income. Interest is paid in real pre-tax dollars that buyers suffered to earn. That money is really entirely gone, even if the buyer didn't pay income tax on those dollars before spending them on mortgage interest. Of course the creeping AMT will eliminate the mortgage interest deduction soon anyway. Ah, you didn't know that there are limits to the mortgage interest deduction and that more and more people are hitting that limit every year?
Buyers do not get interest back at tax time. If a buyer gets an income tax refund, that's just because he overpaid his taxes, giving the government an interest-free loan. The rest of us are grateful.
If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc. Since you can rent a house for 2% of its price, but have to pay 6% to borrow the equivalent amount of money, it is much cheaper to rent the house than to rent the money.
Then there's earthquake insurance. It's really expensive, so most people just skip it and risk everything on the chance that no earthquake will happen.
3. "A rental house provides good income."
FALSE. Rental houses provide very poor income in the Bay Area and certainly cannot cover mortgage payments. In the best case, a $1,000,000 house can be rented out for at most $25,000 per year after expenses like property tax and repairs. The return is therefore 2.5% with no liquidity and a huge risk of loss.
If the owner were to sell that rental house for a million dollars, he could get about 5% with no risk, no work, and no state income tax by buying a US Treasury Bond. And the money would be liquid and secure.
That said, there are many parts of the US where it does make sense to buy because mortgage payments are less than rents in those areas. They are generally rural areas away from the coasts, and have not seen the same bubble that the coasts have.
4. "Impending regulation changes to allow 40 and 50 year mortgages will fix everything."
FALSE. 40 and 50 year mortgages will probably not be paid back, since a large number of borrowers will die before 40 or 50 years are up. This makes these loans a bad idea from the lender's point of view. It also doesn't make sense from the borrower's point of view, since almost of their payment will go to interest for most of the life of the loan. This makes it almost the same as renting - except that it's 2 or 3 times more expensive!
5. "OK, owning is a loss in monthly cash flow, but appreciation will make up for it."
FALSE. Appreciation is negative. Prices are going down in most places, which just adds insult to the monthly injury of crushing mortgage payments.
6. "House prices never fall."
FALSE. San Francisco house prices dropped 11 percent between 1990 and 1994. Buyers in SF in 1990 did not break even in dollar amounts until about 1998. So those buyers effectively loaned their money to the sellers for 8 years at no interest, losing all the while to inflation. With inflation, 1990 buyers truly broke even only about the year 2000, ten years after buying.
Los Angeles' average house plummeted 21 percent from 1991 to 1995, and of course there have been many similar crashes all around the US. The worst may have been after the oil bust in the 1980's, when Colorado condos lost 90% of the value they had at their peak.
7. "House prices don't fall to zero like stock prices, so it's safer to invest in real estate."
FALSE. It's true that house prices do not fall to zero, but your equity in a house can easily fall to zero, and then way past zero into the red. Even a fall of only 4% completely wipes out everyone who has only 10% equity in their house because Realtors® will take 6%. This means that house price crashes are actually worse than stock crashes. Most people have most of their money in their house, and that money is highly leveraged.
8. "We know it will be a soft landing, since it says so in the papers."
FALSE. Prices could fall off a cliff. No one knows exactly what will happen, but the risk of a sudden crash in prices is severe. As Yale professor Robert Shiller has pointed out, this housing bubble is the biggest bubble in history, ever. Predictions of a "soft landing" are just more manipulation of buyer emotions, to get them to buy even while prices are falling.
Most newspaper articles on housing are not news at all. They are advertisements that are disguised to look like news. They quote heavily from people like Realtors®, whose income depends on separating you from your money. Their purpose is not to inform, but rather to get you to buy.
9. "The bubble prices were driven by supply and demand."
FALSE. Prices were driven by low interest rates and risky loans. Supply is up, and the average family income fell 2.3% from 2001 to 2004, so prices are violating the most basic assumptions about supply and demand.
The www.census.gov site has data for Santa Clara County for the years 2000-2003 which shows that the number of housing units went up at the same time that the population decreased:
year units people
2000 580868 / 1686474 = 0.344 housing units per person
2001 587013 / 1692299 = 0.346
2002 592494 / 1677426 = 0.353
2003 596526 / 1678421 = 0.355
So housing supply in Santa Clara County increased 3% per person during those years. There is an oversupply compared to a few years ago, when prices were lower.
At a national level, there is a similar story in the years 2000 to 2005:
2000 115.9M / 281M = 0.412 housing units per person
2005 124.6M / 295M = 0.422
At a national level, there is 2.4% more housing per person now than in 2000. So national prices should have fallen as well.
The truth is that prices can rise or fall without any change in supply or demand. The bubble was a mania of cheap and easy credit. Now the mania is over.
10. "They aren't making any more land."
TRUE, but sales volume has fallen 40% in the last year alone. It seems they aren't making any more buyers, either.
11. "As a renter, you have no opportunity to build equity."
FALSE. Equity is just money. Renters are actually in a better position to build equity through investing in anything but housing.
* Owers are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owers are losing principal in a leveraged way as prices decline. A 14% decline completely wipes out all the equity of "owners" who actually own only 20% of their house. Remember that the agents will take 6%.
* Owers must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity. Only houses are such a guaranteed drain on cash.
* Owers must insure a house, but not most other investments.
* Owers must pay to repair a house, but not a stock or a bond.
kinda makes me glad i'm gonna build my own home 
