Comments on: Are Pasadena Home Prices About to Bottom?

By: Hannah B.

Hannah B. — Tue, 16 Dec 2008 20:00:15 +0000

I’m assuming Tim was rephrasing an argument you made in the original post: “Home prices in Pasadena hit a four year low in October 2004 and then took on a meteoric rise for the next 49 months before returning for a landing in November 2008.”

To point out from your chart, the January 2004 median price seems lower.

I think what Tim was trying to show is that the 2004-2007 increases in median price were due to the many exotic loan programs out there allowing people to buy more home than they could afford. And based on your argument that 2004 was the best in terms of unit volume, exotic mortgage products do seem to correspond with the price increases.

As far as whether prices have bottomed. My personal opinion is no. As more time passes, more lenders seem like they are returning closer to some level of tradition in terms of approving loans based on the buyer’s income and a 28/36 DTI. If that is actually true and the trend continues, a $550,000 median home price doesn’t seem to match the cities’ median income range.

By: Doug Willis

Doug Willis — Tue, 16 Dec 2008 17:50:09 +0000

Tim,

The housing market did not decline in 2004 as a matter of fact 2004 was one of the best years in terms of unit volumes we have had. Sure there were monthly variations in median prices, but there always are.

My point was that prices will not start going up, but hopefully at least they will stop declining.

As ar as the $700 billion bailout, that was a tongue in cheek remark to one of the worst boondoggles in history, a complete waste of money.

By: Tim K.

Tim K. — Tue, 16 Dec 2008 16:41:51 +0000

Doug, I read this graph differently than you. For one, the events that caused the 2004 decline in housing prices had to do with affordability. The reason housing prices took off again was because of a renewed push in financing products, including the famous Option ARM aka Wachovia’s “pick a payment” plans and negatively amortizing loans. None of those financing options are with us today, and are not likely to return, as you mentioned with the advent of the $700 Billion TARP aka “bailout”.

So I see the decline we’re seeing now playing out in a continuous trend from where the 2004 downward trend was already heading. The 2004-2007 blip was the “last gas” from the ridiculous lending products that came on the scene.

Has the $700B bailout returned normalcy to our credit markets? If so, then why are U.S. Treasury bonds, the most stable and safe investments in the world, trading for yields that are effectively 0%? I think we’ve hit an all time low for credit trust in this country.