Seeking Alpha

"Sell your house ... yesterday," Gary Shilling tells Bloomberg. It will take 4 years, he says,...

"Sell your house ... yesterday," Gary Shilling tells Bloomberg. It will take 4 years, he says, to work off still-high inventories, during which time prices could fall another 20%. Turning to Facebook: "(It's) the end of the social media boom ... reminds me of Pets.com."
Comments (43)
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Shilling is clueless about housing. There, I said it.
    22 May 2012, 03:39 PM Reply Like
  • Mad_Max_A_Million
    , contributor
    Comments (1175) | Send Message
     
    Tack, that depends on whether or not he is factoring in us going over the proverbial cliff we seem to be sitting on. With that kind of risk, you would have to be drowning in worthless Bernanke cash to bite on a "For Sale" sign.
    22 May 2012, 03:51 PM Reply Like
  • enigmaman
    , contributor
    Comments (2686) | Send Message
     
    Existing Home Sales Rose 3.4% to 4.62 Million In April, The median sales price surged 10.1% over April 2011 to $177,400 last month, the biggest percentage rise since January 2006. It was 7.6% higher than March’s median price level of $164,800. The upbeat report helps offset some worries about the U.S. housing market and offers some support to markets today.
    http://bit.ly/KJnbJe
    22 May 2012, 03:56 PM Reply Like
  • Hitesh Patel
    , contributor
    Comments (314) | Send Message
     
    Yes lets believe the marketing arm of the housing sector, the NAR. The upturn is just around the corner, they really mean it this time.
    22 May 2012, 04:03 PM Reply Like
  • enigmaman
    , contributor
    Comments (2686) | Send Message
     
    Believe what you want, in fact since your so sure its all a lie you should bet against the industry at every opportunity. that is if your serious
    22 May 2012, 04:31 PM Reply Like
  • DigDeep
    , contributor
    Comments (2585) | Send Message
     
    http://bit.ly/vNE8qD

     

    one of many reports about NAR's objectivity (sarc)
    22 May 2012, 08:56 PM Reply Like
  • User 168446
    , contributor
    Comments (108) | Send Message
     
    Can't bet against it at this point because too many clueless people keep driving housing stocks higher. The shadow inventory will hit eventually no matter how hard the Liberals try to defer it. Until it passes through the pipe housing won't be fixed. I'm just waiting for signs of weakness in builder stocks. It will be a second crack at the generational short.
    22 May 2012, 10:37 PM Reply Like
  • Matthew Davis
    , contributor
    Comments (4350) | Send Message
     
    Well according to Cramer, the housing market is coming back big time! He was chomping at the bit to hear TOLL earnings tomorrow...and he thinks they will blow it away. HAha, I just don't know.
    23 May 2012, 01:50 AM Reply Like
  • Matthew Davis
    , contributor
    Comments (4350) | Send Message
     
    I think the FB IPO is reminding people that FB isn't worth anything I guess. What if we all just left?
    22 May 2012, 03:41 PM Reply Like
  • Joe Dirnfeld
    , contributor
    Comments (1128) | Send Message
     
    The social media bug is here forever, it's now part of mankind forever just like the wheel. Their first mover advantage may well make them worth a heck of a lot. We shall see.

     

    Shilling is a pathetic old man now, he sounds like a broken record. Housing is recovering.
    22 May 2012, 03:49 PM Reply Like
  • DigDeep
    , contributor
    Comments (2585) | Send Message
     
    pathetic or old or both or pathetic because he's old.

     

    One good thing, the guy has made his nut, why should he jepordize his name by lying?
    22 May 2012, 08:58 PM Reply Like
  • User 353732
    , contributor
    Comments (4993) | Send Message
     
    In 90% of zip codes the effective purchasing power of home equity, real home prices(esp when measured against foundational resources such as gold or oil) and net new construction will be stagnant or declining for many years net. In much of the US housing is in the early years of a generation long depression.

     

    Home ownership rates and net living space per capita are likely to be notably lower in most counties 10 years from now: the great exceptions being the oil and gas producing counties
    22 May 2012, 03:55 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    This simply has no connection to reality. Populations are ever expanding, and housing will be required. Furthermore, we're at the cross-over point, where rent costs are now exceeding ownership costs. The laws of economics will prevail and housing will begin to recover both volume and prices, which is exactly what were seeing, now.
    22 May 2012, 04:04 PM Reply Like
  • Mad_Max_A_Million
    , contributor
    Comments (1175) | Send Message
     
    This morning, Peter Schiff warned that the latest hype was ignoring the bank shadow market. You can do what Jamie D did like bet on a sure thing at JPM, or you can factor in all the risk and dial back the exuberance. The low hanging fruit has been picked and I ain't going out on no ladder.
    22 May 2012, 05:14 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Mad:

     

    Or, you can look at the trend in volume and pricing of realty, as well as the cost-comparison data versus renting, and invest accordingly. Or, you can choose to be scared witless by pundits, like Shilling and Schiff, who only preach the end of the world nonstop and without regard to what's happening, good or bad.
    22 May 2012, 05:29 PM Reply Like
  • Hitesh Patel
    , contributor
    Comments (314) | Send Message
     
    A 60% drop in many parts of the country followed by a 10% rise is not a recovery by any stretch of the imagination. The entire dynamic of housing has changed. Shadow inventory is a small part of the problem. Mass psychology has changed. The college grads of the last 5+ years can't find high quality jobs and are in debt. They have no interest in home ownership. Older workers are not retiring due to devastated 401k and retirement assets so these homeowners along with many retirees are looking to downsize but aren't prepared to take lage hits in equity because they have been brainwashed into thinking the recovery is coming. The largest percentage of the populatioin is getting older and have no interest in buying a home. The 30 year mortgage rate is 3.75% and the housing market is barely chugging along, what will happen to home prices when interest rates rise? The only accurate comment you made is "the laws of economics will prevail" you are correct. More pain ahead.
    22 May 2012, 06:46 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Hitesh:

     

    The classic overstatement in rebuttal. Nobody said we've had a "recovery." It's the direction that counts, not how far away from recovery we are. In fact, the further away, the better.

     

    What's been evident is that inventory levels have dropped dramatically in many areas, sales volumes are increasing and prices have now made noticeable advances. This is all there in the data for anybody to see.

     

    What will happen to housing prices when rates rise is that they'll be higher, as history has demonstrated conclusively for many, many decades. The notion that home prices are inversely related to interest rates is a subjective concept invented in the latest crisis, but unsubstantiated by any historical data.

     

    It's fine. You prepare for ever-worsening conditions; I'll buy undervalued sectors, as I've done for a long time, and it's provided a very comfortable living, so far.
    22 May 2012, 07:18 PM Reply Like
  • jhooper
    , contributor
    Comments (6166) | Send Message
     
    "What will happen to housing prices when rates rise is that they'll be higher, as history has demonstrated conclusively for many, many decades"

     

    Wouldn't that be because in the past the economic environment was better and rates would rise because the growth in economic opportunities was faster than the growth in economic opportunity killing fiscal and monetary policies.?Therefore, a growing economy creates the scenario where the demand for capital outstrips the supply (a good thing), thus interest rates go up in an environment where people are getting jobs that mean something. So they were willing to buy houses, and as such as rates went up so did home prices.

     

    Also, in the past Fannie and Freddie were growing larger and larger as a percent of the mgt market since the mid 70s, so in this growth environment you also had subsidies creating additional buyers.

     

    I can't see either of these two factors occuring again anytime soon. So what bothers me is that the recovery in housing could occur at an anemic pace for two more decades. So for me the further out the recovery, the worse it is.

     

    I hope your position that the further away it is the better is wrong. Why do you say that, because I hope its not true.
    22 May 2012, 08:44 PM Reply Like
  • DigDeep
    , contributor
    Comments (2585) | Send Message
     
    Tack
    I disagree for the medium term.
    Household formation is lagging tradtional adoption rates- and there's no improvement in the short/medium term. Multi unit - yes. Student loan liabilities in and of itself will hold back new formation.
    22 May 2012, 09:02 PM Reply Like
  • DigDeep
    , contributor
    Comments (2585) | Send Message
     
    Tack
    Where's the collateral for the new household formation....and to buy the retiring boomer mcmansions?LTV's being followed more closely by lenders - values will need to come down to meet mini LTV's
    22 May 2012, 09:05 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Hoop:

     

    I meant, by "further way," not time, but valuation. The further below old highs we are, the more upside there is. That's why, when sectors languish, are at or near bottoms and everyone says "they'll never recover again" or "it will take generations," I get happy and buy stuff, especially stuff that pays nice yields, too. Then, I collect those oversize yields and wait.

     

    It's a formula that works very nicely, much better than chasing the FaceBooks of the world, I can assure you.
    22 May 2012, 09:06 PM Reply Like
  • The_Hammer
    , contributor
    Comments (4264) | Send Message
     
    tack you keep repeating yourself that is it cheaper to buy then rent. Not so in many areas of the country. Rumor yun may need a future replacement.
    Tack ever heard about more bodies per housing unit. We hit record lows bodies per unit in mid 2000's now expect more bodies per unit for years to come. Less housing units needed. Besides the 0 credibility NAR, why is everyone in such a rush to get houses prices up putting pressure on family finances when they buy.

     

    Lower house prices are good for American homebuyers and the economy.
    22 May 2012, 09:35 PM Reply Like
  • Hitesh Patel
    , contributor
    Comments (314) | Send Message
     
    Tack

     

    I'm being a realist. I hope you make a fortune in housing. I intend to as well. I don't know the research you have done however all the data I have examined regarding boom and bust cycles in real estate, the best time to buy has been when interest rates are high affordability is low. When rates fall and more people can afford the monthly mortgage payment, demand rises and price follows. Take a look at mortgage rates in 1997 and 2000, they were at highs. They subsequently fell and home prices exploded higher. I would appreciate if you could share what data you are looking at where rates rose as well as home values
    22 May 2012, 10:50 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Hitesh:

     

    A few points:

     

    1) I don't make deep involved studies of housing trends. I apply more simplistic logic. The charts which measure the cost of home ownership versus cost of renting are now at the crossover after many years of home costs being higher. Rents are continuing to trend higher. This will gradually apply upward pressure on home prices.

     

    2) I, also, live in Florida (Sarasota), one of the worst-hit states in the housing crisis. Aside from numerous months of very positive data in Florida, I can see a boom in local home building, sales and related activity all around me, which puts some personal observance to the abstract data. I hear similar stories from friends elsewhere, not everywhere, of course.

     

    3) Unlike many, who seem to think that anyone seeing opportunity in housing must have 100% of his portfolio in homebuilder stocks (what idiot does that?), I place my bets by making a diversified allocation in issues that benefit from housing activity . These include builders, suppliers, REITs, etc. Realty-related investments make up about 15-20% of my total portfolio. And, where possible, I buy common, preferred shares and convertibles that pay very attractive yields, so the timing of share-price rises isn't really critical to my immediate performance.

     

    4) I am of the firm belief that if we see interest rates rise it will be because of a stronger economy and, also, that rising rates will lead more waiting buyers off the sidelines, as they will become apprehensive about losing low-rate mortgages. This will fuel further buying. Affordability is not retarding purchases, now, so increasing rates, still at ultra-low levels, will not have a major impact. Higher rates will also make lenders more willing to play ball.

     

    Because I am a high-yield value-based investor, I look for out-of-favor sectors. I don't try to guess exact bottoms or how long it make take to recover. I am more interested that the shares I purchase are way below historical levels and that they offer substantial yields to alleviate the necessity for immediate price gains in order for them to be good investments.

     

    I'm patient. It's always worked well for my strategy.
    22 May 2012, 11:20 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    Hitesh. You understand the fundamental backdrop for housing perfectly. Tomorrow Toll Brothers will likely report a good number--and the homebuilder stocks will likely have a quick blast up from the HFT machines riding the momentum up.

     

    That might be the best opportunity for shorting homebuilder stocks of the year. Many already sell at twice book value. Toll trades at 3 times trailing revenue. These stocks are fully baked--unless the economy starts to roar for the rest of the year. (Not likely.)
    22 May 2012, 11:31 PM Reply Like
  • Mad_Max_A_Million
    , contributor
    Comments (1175) | Send Message
     
    Scared Stiff by Schiff !!!!
    22 May 2012, 05:40 PM Reply Like
  • Billkirn
    , contributor
    Comments (2) | Send Message
     
    Professional History

     

    EE degree. Grad study's advanced mathematics. Designed and developed Santa Monica freeway traffic sign system.
    Founder of company that build first floppy disk controller , first disk operating system for micro computers, first in circuit emulators for microprocessors. Joined company that designed and implemented first digital paging/message delivery system covering New York City, LA, SF. Company went public in 1980.
    Developed first single pair business telephone system operating in back ground of DOS PC. Established relationship with mfg in Japan and China.

     

    Currently composing music for Movies and building Briidge game skills.
    22 May 2012, 06:59 PM Reply Like
  • DigDeep
    , contributor
    Comments (2585) | Send Message
     
    think you meant that for your bio Bill
    22 May 2012, 09:15 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    Listening to housing bottom-callers reminds me of the gold cheerleaders in the 1980s and 1990s after the gold bubble popped. Every year there was a period of enthusiasm over a nascent (and short-lived) rise in the price of gold.

     

    The methods of cheerleading were always the same:

     

    --overreaching attempts at finding facts to support the hoped-for outcome.
    --regular use of cliches from "dismal science" textbooks like "the laws of economics will prevail".
    --reliance on easily distorted statistics from industry cheerleading organizations.

     

    Like the defeated gold bugs of the 1980s, the real estate bugs will be repeating their sales pitch every year until nobody listens except other real estate bugs--at which point the market will start to improve. Unfortunately, most of the real estate bugs will be in nursing homes or dead by then.
    22 May 2012, 10:02 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Wsd

     

    People need houses. Nobody needs gold.
    22 May 2012, 10:05 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    How about copper, oil, and other commodities? After the 1980 bubble peak, the commodity bugs promised a bottom in commodities every year thereafter until nobody listened to them.

     

    There's no shortage of housing in America. Obviously this is true, as homebuilders are still building a small fraction of the number of houses they were building 10 years ago.

     

    Including vacation houses, one in 10 housing units in America is empty.

     

    People should wait until the next recession before they start fist-pumping over a bottom in housing.
    22 May 2012, 10:25 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    As I've said before, affordability is a misleading concept when promoted by realtors. Realtors emphasize the two most favorable elements of affordability: home prices and mortgage rates. (Mortgage rates are good, home prices are not egregiously overpriced in much of the country anymore.)

     

    Realtors neglect to talk about the other two factors in affordability: lender willingness to lend and buyer financial strength. These two are unfavorable in aggregate--and not likely to improve anytime soon.

     

    So the housing market will likely surge and stumble as sentiment waxes and wanes among the small crowd that views housing as an investment--until the next recession--when you'll see how durable the pricing for houses genuinely is.
    22 May 2012, 11:16 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    For the Shilling haters, read his April 11 call. Four for four winning short-term trades.

     

    "long Treasurys, short stocks, short commodities, long the dollar."

     

    Shilling also predicted the Facebook IPO would be a bust--one of the only analysts who made that call.

     

    He's a contrarian--and often correct.

     

    It won't be a surprise to see up to a 20% drop in home prices within 2 years if even an average recession strikes in the next two years. Even a 10% drop in prices plus an increase in the unemployment rate will mean another massive increase in shadow inventory.--with the attendant declines in home prices.
    23 May 2012, 07:47 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    "Shilling is clueless about housing."

     

    This type of comment is arrogant and clueless about Shilling. In the years leading up to the peak of the housing bubble, Shilling didn't just say that there was a housing bubble, he wrote the likely repercussions and even provided some investment suggestions to profit from the bust. His analysis is amazingly accurate in the majority of his predictions. It's like he wrote the script for the crisis and aftermath. I know of nobody who wrote in such detail with such accuracy.

     

    Read the following article from 2006 to see how "clueless" Shilling is about housing and economics:

     

    http://bit.ly/JJiAH4
    23 May 2012, 08:38 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    Shilling has written negative articles for many years. His tune never changes. Of course, all bears hit paydirt eventually. Just not now.
    23 May 2012, 08:48 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    "Of course, all bears hit paydirt eventually."

     

    You have a narrow definition of "bear".

     

    Shilling has been a bull on long-bond treasuries for a long time. Unlike equities, that's been a huge winner and is STILL in a bull market after 32 years. The S&P 500 is still in a secular bear market since 1980 year 2000. The long bond treasury has been in a roaring bull market since 1980, as well as year 2000--beating probably 80% or more of pro equity managers.

     

    Perhaps you don't know that bond markets have always had far more investment money than equity markets--even during the idiotic equity bubble years of the late 1990s.

     

    Equity markets get all the media attention (along with plenty of thoughtless reflexive permabulls). The bond markets make the world go round. (And the analysis is more rigorous due to the risk-aversion.)
    23 May 2012, 09:29 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    WSD:

     

    You may wish to examine the following chart of historical data, which despite the performance of bonds during the last ten years, conclusively demonstrates that equities outperform bonds handily, over time, including during the 30-year bond bull since 1980, during which time equities have still outperformed by over 30%, even with all the recent travails.

     

    http://bit.lyw4jRpw~adamodar/New_Ho...

     

    Of course, bond markets are much larger than equity markets, but size has no bearing on performance. Given that data clearly shows that equities outperform bonds, over time, and that bonds are at all-time low yields (high prices), which class of securities do you think will outperform going forward?

     

    For anybody not making a short-term trade, the answer should be rather apparent.
    24 May 2012, 05:26 AM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    Your chart link doesn't work. And Ibbotson data refutes your claim for the 30-year period ending 2011.

     

    "For anybody not making a short-term trade, the answer should be rather apparent."

     

    Yawn. This is just speculation under the hubristic
    pretense of common sense. You are quoting all the old playbooks written in the equity bull market periods in history. The stock market bubble and real estate bubble of the recent decade is unmatched in history. The resulting deleveraging period will be unmatched in history.

     

    Bonds will continue to succeed until the deleveraging is over. This is not a short-term trade.
    24 May 2012, 12:22 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    WSD:

     

    Here's the link, again. No idea why incorrectly transposed in SA:

     

    (SA fouling up the link...Sorry; cannot transpose correctly)

     

    Enter following three lines in browser on one line with no spaces and after http:

     

    pages.stern.nyu.edu/
    ~adamodar/New_Home_Page/
    datafile/histret.html

     

    What data refutes claim? I know it's just hard for you gloomers to imagine that equities outperformed bonds during bonds' biggest glory days, but it's true.

     

    This chart should give any Treasury-bond investor great pause. If it doesn't, then there's not much that can be said:

     

    http://bit.ly/Lu9Umg

     

    You keep sticking with your 1.7% Treasuries. I'll stick with my 10% yielding portfolio of common, preferred and corporate bonds, and we can compare notes in coming years. My positions aren't a short-term trade, either, and I've been doing this for a very long time.
    24 May 2012, 12:30 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    Notice the 16 years of outperformance of long treasuries over stocks after 1928 (without having to suffer frightening declines).

     

    Notice that it has been only 12 years since the most egregious overvaluation of the stock market in history--far more overvalued than 1929.

     

    Perhaps stocks will finally outperform long treasuries in the 16th year after the 2000 bubble. Considering the fact that the year 2000 stock market bubble was far more overvalued than 1929--plus the fact that America has far more international competition than it did in the 1930s, I'd say you bond gloomers should spend more time studying history and less time fist-pumping the false Wall Street dogma that "stocks are always the best asset".
    24 May 2012, 01:03 PM Reply Like
  • Tack
    , contributor
    Comments (14266) | Send Message
     
    WSD:

     

    I hold bonds, but not Treasuries, I use them to smooth out returns and volatility. That said, there's just no denying that over substantial time periods equities outperform bonds and have always done so. Now, if you wish to choose one narrow ten-year period, where the market has suffered once-in-70-years crisis and hysteria and use that as a typical bond-performance barometer, then, go ahead.

     

    The charts showing 100-year historical bond yields makes it pretty clear that the bond halcyon days are in the rearview mirror. Even if rates didn't reverse themselves for several years, who wants to net <2% yields awaiting an inevitable reversal?

     

    Frankly, I don't care what happened in the last ten years or last thirty, only where things look like they're positioned now. If something should scare people, it's that 100-year yield chart.
    24 May 2012, 01:14 PM Reply Like
  • jhooper
    , contributor
    Comments (6166) | Send Message
     
    I wonder if people appreciate the myriad of rules and regulations that supply all sorts of subsidies for buyers of US treasuries (capital rules for banks give them a 0 risk weight-like Europe where that has worked well). If you have your money on deposit at a bank somewhere, you probably own treasuries without even realizing it. These rules create a sort of quasi second tier primary dealer network. The individual that buys treasuries outright should think about that. Buyer beware.
    24 May 2012, 02:58 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2924) | Send Message
     
    I don't understand why so many people are excited about buying a house as an "investment" right now. There has been a stealth bear market in many stocks over recent months (not apparent in the indices yet), which has made a number of stocks far more likely to trounce any appreciation in home prices. If the economy improves enough to drive up home prices significantly, there are several stocks currently available at prices that will double or triple from current prices.
    23 May 2012, 07:55 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs