December 28, 2005

12.28.2005 - The Housing Bubble Has Burst

The Fat Lady Has Sung


It's here. Just read the headlines. Add it up. It ain't brain surgery. The bubble has burst. Someone had to officially declare it, so let HousingPanic be the first.

"Yield Curve Inverts"
"New Home Sales Fall 21% in West"
"Gold Hits Record High"
"Median US Home Value Falls 4.1 % in November"
"Fed Raises 13th Straight Time"
"Phoenix Home Listings Soar"
"Tougher rules eyed on risky mortgages"
"Investors Moving out of Housing"
"Mortgage Applications Fall to 11-Month Low"
"Housing Slowdown May Claim 800,000 Jobs"
" US new home sales dropped 11.3% in November"
" Existing US homes sales drop 1.7% in Nov"

Pop. Tilt. Game over.

HousingPanic now moves from the theoretical discussion of manias, panics and crashes, and the "are we in a housing bubble" question, to the reporting of the long march downward, the repercussions, and how to best stay above water.

And away we go.

54 comments:

Metroplexual said...

Its just a trend to think it is a bubble, and because everyone believes it then uit makes it not one, right? ;) Thwwwt to them.

Good call on the Times Blog Keith. what was the logic there. If it is in blogs then the general public will know about it later.

Your still in my top 5!

keith said...

I firmly believe bloggers are, for the most part, thought leaders. That's why they blog. And that's why other thought leaders read blogs. The blog audience is ahead of the general population.

Then the uninformed, lazy public definitely lags behind.

Then the media follows. They don't actually initiate anymore. They take the talking points, they do their rip-and-reads, and they read the blogs, then they write their stories.

Then the uninformed masses pick it up.

So if you ask americans 'is there a bubble' the vast majority still says no.

See my "Oh denial" post for some of that thinking

Anonymous said...

I think you may be premature in calling the bubble burst. Then again you may not be...

Metroplexual said...

Anonymous,

So strong in your conviction you log in "anonymous". Totally lame! I recommend a lamo award to anyone that logs in anon.

Anonymous said...

It is NOT a Bubble. It is just "Froth". No it is NOT a BUBBLE. It can't be a bubble because the incoming fed chairman says it is not. And we MUST believe him because he is soooooooo smart and taught at an ivy league school!!!!

And according to the brilliant chief economist of the NAR (National Association of Realtors) IT IS NOT A BUBBLE. According to Condoflip.com bubbles are found only in bathtubs. IT IS NOT A BUBBLE. IT is only a situation having a slow leak, a psst, an easy landing, a return to normalcy....
Just repeat ten times, IT IS NOT A BUBBLE!.....ya sure and just click your red shoes and follow that yellow brick road to Wuthering Heights where all your leveraged profits will be realized!

veritas_faust said...

Denial is the most predictable of all human emotions....


...or at least that is what "the architect" told "neo" in one of the crappy sequels to the Matrix.

But the position is accurate, all of those heavy invested in RE, be it financially or % of mindshare, must inevitably reach the same conclusion.

They are screwed.

In other news: New towers are going up here in Miami, and conversions are still happening to run down 50 year old Motels. Now they are becoming condos.

Though the projects seem to moving ALOT slower on the newer ones. Maybe the financing is drying up...ya think?

Tom said...

A not about Ivy League professors.. see this link

http://www.gold-
eagle.com/editorials_01/seymour062001.html

A couple of quotes as the great depression was happening. People kept talking it up.

1. "We will not have any more crashes in our time."
- John Maynard Keynes in 1927

2. "I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."
- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"There will be no interruption of our permanent prosperity."
- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

3. "No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding."
- Calvin Coolidge December 4, 1928

4. "There may be a recession in stock prices, but not anything in the nature of a crash."
- Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929

5. "Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
- Irving Fisher, Ph.D. in economics, Oct. 17, 1929
"This crash is not going to have much effect on business."
- Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

"There will be no repetition of the break of yesterday... I have no fear of another comparable decline."
- Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929

"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices."
- Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929

6. "This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years."
- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
"Buying of sound, seasoned issues now will not be regretted"
- E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929

"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom."
- R. W. McNeal, financial analyst in October 1929

7. "The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin."
- Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929
"Hysteria has now disappeared from Wall Street."
- The Times of London, November 2, 1929

"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before."
- Business Week, November 2, 1929

"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..."
- Harvard Economic Society (HES), November 2, 1929

8. "... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
- HES, November 10, 1929
"The end of the decline of the Stock Market will probably not be long, only a few more days at most."
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929

"In most of the cities and towns of this country, this Wall Street panic will have no effect."
- Paul Block (President of the Block newspaper chain), editorial, November 15, 1929

"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929

9. "I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929

"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929

10. "For the immediate future, at least, the outlook (stocks) is bright."
- Irving Fisher, Ph.D. in Economics, in early 1930

11. "...there are indications that the severest phase of the recession is over..."
- Harvard Economic Society (HES) Jan 18, 1930

12. "There is nothing in the situation to be disturbed about."
- Secretary of the Treasury Andrew Mellon, Feb 1930

13. "The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity."
- Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
"... the outlook continues favorable..."
- HES Mar 29, 1930

14. "... the outlook is favorable..."
- HES Apr 19, 1930

15. "While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us."
- Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..."
- HES May 17, 1930

"Gentleman, you have come sixty days too late. The depression is over."
- Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930

16. "... irregular and conflicting movements of business should soon give way to a sustained recovery..."
- HES June 28, 1930

17. "... the present depression has about spent its force..."
- HES, Aug 30, 1930

18. "We are now near the end of the declining phase of the depression."
- HES Nov 15, 1930

19. "Stabilization at [present] levels is clearly possible."
- HES Oct 31, 1931

20. "All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S."
- President F.D. Roosevelt, 1933


How could so many "SMART" people be so wrong? Again, we hear of the experts preaching everything is fine.

It's astonishing people pay all that money to get a degree from Harvard. Sounds like many have not learned their lesson and are still buying into the crap that Harvard and Yale teach. yes folks, these are the people most Fortune 500's hire. Because they have a degree from prestigious "Harvard". As far as I can tell, that doesn't mean diddly squat except that you start out your career with a silver spoon in your mouth having proved nothing.

DrChaos said...

Re Ivy League professors.

These days Ivy League schools really are more about talent than family connections, far more than 50 or even 25 years ago. It is very hard to get in, and most students are smart.

Now, that said, it's possible for smart people to be wrong---they come up with more clever explanations than dumb ones. But I bet fewer Ivy grads are doing the massive overleveraging personally.

There are some professors with a brain in their head---I'd say Paul Krugman is one who really does tell it like it is. I like him.

As far as the big shots in the 1920's---and today, certainly---there has always been a good job market for those willing to shill for the capitalist-financial complex. That's what we saw then, and that's what we're seeing now.

I stayed home sick today watching TV. Given that almost all TV was superpathetic, even the news, I turned to CNBC which at least discussed a few issues of importance.

But even, there it was a love fest of mostly chirpy nitwits saying how wonderful everything is going to be, and how great corporate profits are (apparently the only thing that matters to them) and how great it is that wages aren't going up, hence keeping inflation down.

There was a segment when some hosts had four guests to discuss (superficially) the import of the inverted yield curve.

There was one guy---out of four---who said in effect "Hey, all of you are trying to say that Its Different This Time and no recession is coming and everything is great. Maybe it's just like the other times instead?"

Philip John said...

not sure what this beat up about Ivy league professors is about...

I'm not a grad from an Ivy (none in Australia). I wish I was just so I could drop it at dinner parties. :D More power to them.

Stupid people come in all shapes and sizes - the fact they went to an Ivy makes no difference.

Besides, we all know that people are generally very good at predicting what JUST happened. When they start talking about 'housing crash to end all crashes' it's the time to buy. Give it a few years and we'll see. :D

Phil

Tom said...

I agree, stupid people everywhere.

Also, in 1933 they sealed the safety deposit boxes and issued an executive order declaring that hoarding gold and other metals was illegal and had to be tendered within 14 days.

If people move to hoard gold again, would this happen?

Metroplexual said...

the Center for Economic and Policy Research (CEPR)has a couple of policy papers on the runup of house prices. The link below is to a paper on how it is a real bubble. it is titled "Will a Bursting Bubble Trouble Bernanke?
The Evidence for a Housing Bubble"


http://www.cepr.net/publications/housing_bubble_2005_11.pdf

keith said...

U.S. Economy: Existing Home Sales Fall to Lowest in 8 Months

http://quote.bloomberg.com/apps/news?pid=10000006&sid=ap2lCzD6kJzY&refer=home

``Housing activity has peaked,'' said David Lereah, chief economist at the Realtors group, which predicts sales of previously owned homes will fall to 6.84 million in 2006 from a projected record 7.1 million this year.

The housing industry accounts for only about 5 percent of the U.S. economy and yet generated half of the growth in this year's first six months and more than half of the private jobs added since 2001, Merrill Lynch & Co. said in an August report. Price appreciation helped add $5.2 trillion to Americans' balance sheets during the current expansion, or 68 percent of all wealth creation, according to the Federal Reserve.

keith said...

This lovely quote from NAR after yesterday's bad #s:

David Lereah, NAR’s chief economist, said higher mortgage interest rates were responsible for moderating sales, but noted it’s important to keep an eye on the actual level of home sales given the market surge this year. “The current pace of home sales activity remains historically strong – only eight months have had a higher sales pace,” he said. “A modest downtrend, to a sales volume that is expected to be the second-best year ever in 2006, will be good for the long-term health of the housing sector.”

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