One thing about busts too is that the overshoot on the way down, as much as they overshot on the way up
The smart investor (who already cashed in) will be positioned in a couple of years to buy everything in site - once nobody wants anything to do with housing.
I hope Warren Buffet is still around to see his vision fulfilled.
Australia: Government doesn't like housing booms
The government would be happy to never see another housing boom, Treasurer Peter Costello says.
Apart from WA and the Northern Territory, housing prices have flattened in recent times, after booming through the early part of this decade.
Mr Costello said it was a welcome thing that housing had been slowing for some time.
"I think house prices got too high and as a consequence of that, you would expect a correction and we're getting a correction," he told Southern Cross Broadcasting.
"I want a see a correction, once you have had that correction, what you would like to see is stable prices, maybe small increments, but I don't want to go back to the situation where house prices were booming in the way they were a couple of years ago.
"That's not good for an economy. Remember this point, the bigger the boom, the bigger the bust.
"The reason we're against booms, is we're against busts."
March 02, 2006
Remember this point, the bigger the boom, the bigger the bust.
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14 comments:
Exactly. You just HAVE to love all the people who say the bust won't go below what the market should be.
Based on exactly WHAT?
If people can irrationally speculate the prices through the ceiling, exactly what is to stop a panic from dropping those prices well below what the market 'should be' once adjusted.
I can't find a link to the comment from the Australian official (Mr Costello). Would you post it?
The headline takes us to a column (also a very interesting read) giving some advice about getting out of the condo market. Basically, the columist tells a distressed owner to sell her condo quickly, at an attractive price, before everyone else does. Basically, it's get out now, even if it means you have to take a small loss.
Right now, I see a lot of property flippers holding out for the 15% gain they expected from last year, when they bought. Slowly, they are willing to re-list at a break-even price. It'll be interesting to see what happens next - will their patience pay off, or will they get caught in an inventory overload?
Keith,
Most people do not understand simple statistics. I totally agree that markets-stock, commodities, real estate, art, etc., all tend to gravitate toward the mean. When there are excess deviations from that to either oversold or overbought, it will usually match that extreme to the opposite side before eventually finding an equilibrium.
The public have been duped ( or willing accomplices) with the housing bubble. Unlike the prior stock market or commodity bubbles, people failed to comprehend the notion that real estate can and does correct. Unfortunately, the Fed merely transferred the stock market excess to the housing market to a level never seen before. In my opinion, we are about to see a mass correction that happens once in a lifetime.
I agree as I posted elsewhere: the correction we get from this bust will be spectacular. As I said elsewhere "there will be blood on the streets." There will be a blood bath (especially where I live in southern California). I have always said the bigger the bubble the more devasting the bust. Just as prices soared through the ceiling 300% above their fundamental value; these same prices will crash through the ground (and probably overshoot) to over 300% BELOW their fundamental value. This will take place before the market reaches equilibrium. I think it will be another generation before we see this kind of run-up in prices again.
I couldn't agree more with the previous posts that anticipate a devastating crash.
I personally believe that this is the beginning of a "supercycle" crash that is going to exceed even the most bearish of forecasts.
If we mix in the concept of "Peak Oil", which I happen to believe is for real. Throw in a crashing dollar that incapacitates the government as well as ensuring a world-wide recession. I believe we have the ingredients for a U.S.depression that'll make 1929 seem like a walk in the park.
This isn't the correct forum for this remark but I'll throw it out anyway. If Peak Oil is upon us and the world doesn't come up with a solution damn quick(there isn't one yet identified unless it is a secret)then the folks losing their homes to foreclosure can take comfort in the fact that it will be the least of their problems. This housing bubble is just the tip of the economic disaster iceberg.
My bet is on the USA, if there is a bust the U.S. will over come anything so if you don't own get use to renting. The USA is the only superpower and people are making lots of money don't fool yourself or get caught up in the half empty routine. Go make some money and when you get tired of working go work some more and make some more money. Were all been getting lazy and feeling entitled while the people moving in from who knows where are making it happen with no excuse. Put down the clicker and get busy or you will have nothing.
It's ok saying "get out there and earn some money", but the Euro just upped interest rates, the $ will have to raise theirs too.
A 1% raise on 5% is an increase of nearly 20% in interest payments on your mortgage. I wouldn't like to be owing £300k right now. If motgage payments increase by a factor of 10-20% how many repos are going to flood the market?
To Anonymous:
"these same prices will crash through the ground (and probably overshoot) to over 300% BELOW their fundamental value. "
How does something lose more than 100% of its value - are you going to pay someone to take your house?
"How does something lose more than 100% of its value - are you going to pay someone to take your house?"
I did't write that post, but what I think he means is that true value will drop below the seling price by the same percentage the selling price exceeded the true value. In other words, if house "worth" 100K currently sells for twice its value at 200K, it could fall to the point where the true value is twice the selling point,ie., 50K.
Just guessing - like I said, I didn't write the original post. It seems a bit extreme - but the point is reasonable - irrational behavior happens when prices get detatched from fundamentals. This can be a buying, as well as a selling opportunity - in a few years, housing may well represent a great buying opportunity.
The housing market is showing symptoms that the SUV market showed the previous 10 years.
A house should be worth the land and materials that go into it's construction, not some intrinsic value placed on its future appreciation.
SUVs were once in such high demand that few were available at any price. Stupid people put such high value on a vehicle but one day the market turned. The fad was long in the tooth and high gas prices were taking it's toll. In Sept. 2005 there was little demand at any price and once peak oil hits, there will be NO demand at ANY price.
Housing is the same....people put artificial wealth on a consumable good. As prices have risen renting and living in trailers looks inticing. A year ago there were few houses available at any price (due to the greater fool) but in a few years there will be no demand at any price.
A physical house should depreciate along it's lifecycle. The only thing that should appreciate is land which should appreciate at the amount of local growth. I.E. land should be depreciating in central Kansas and appreciating on east Florida.
I see row after row of empty housing units in the suburbs in the next 5-10 years. This is only possible since people have bought 2-3 houses for investment purposes. Home ownership is at 69% all-time high which is not sustainable and goes against previous guidance that not everyone should be able to buy a home just like everyone is not guaranteed a car.
Too bad state parks and local campgrounds have been getting bulldozed to build subdivisions. Might need a lot of extra camping spaces in the next couple years for people displaced from homes they never should have purchased. At least they can get a Tahoe for dirt cheap and have a solid roof over their head. Might even be able to pick up a plasma tv at a fire-sale and adding in a cheap chinese-made A/C unit, redneck riviera will take on a whole new meaning.
I think the housing bubble is already crashing. I just bought my home on 4.3 acres with cash in January 06 north of Springfield, Missouri, USA after having sold my home in June 05, Las Vegas, Nevada in two days for twice what I paid for it. My sister in Pasadena, California had her house on the market from October through January with not one offer. They pulled it off the market. I think the U.S. Dollar is on its last legs and the U.S. economy is bankrupt and so awash in debt that nothing can save it now. It's got to crash and inflation will even out the debt eventually. Those who are mortgaged to the hilt to pull money out of their homes for consumer items were idiots and are already finding themselves underwater in the amount of money owed versus the declining values of their homes. The housing bubble has burst, it's just that the housing ship is slow to acknowledge the turn, but it soon will be obvious to even the resistant that the good times are over.
It has been the most outrageous run up in prices caused by artificial demand - foolish lending practices. I see homes - small garbage homes - that once sold for 80k going for over 350 in the RI market. This is a huge bubble, the fools are no longer in the marketplace and the sellers are about to awaken to a new reality - one they know is real but have refused to acknoledge. This will be one you tell your grand kids about - our own housing version of the great depression.
Anonymous said...
I think the housing bubble is already crashing. I just bought my home on 4.3 acres with cash in January 06 north of Springfield, Missouri, USA after having sold my home in June 05, Las Vegas, Nevada in two days for twice what I paid for it. My sister in Pasadena, California had her house on the market from October through January with not one offer. They pulled it off the market. I think the U.S. Dollar is on its last legs and the U.S. economy is bankrupt and so awash in debt that nothing can save it now. It's got to crash and inflation will even out the debt eventually. Those who are mortgaged to the hilt to pull money out of their homes for consumer items were idiots and are already finding themselves underwater in the amount of money owed versus the declining values of their homes. The housing bubble has burst, it's just that the housing ship is slow to acknowledge the turn, but it soon will be obvious to even the resistant that the good times are over.
I'm not sure if that's the way it will happen. Inflation isn't the only way out, only the traditional one. The problem is that our economy is built on a strong dollar (and our borrowing is too). The FED will try to engineer a soft landing for the economy as a whole, but not asset prices. Therefore, you will see tightening interest rates (perhaps even to 6% or more over a few years, especially when China starts dumping 600Billion USD to even out their reserves which are currently at 850 and need to be at 250) This will naturally cause inflation and cutbacks in personal consumption. The FED might choose to monetize some of the debt to soften the blow, but it's clear that asset prices are not protected anymore than any other asset price. The FED's mandate is to keep full employment and moderate inflation. Protecting asset prices is not.
Overall, CPI should be moderately inflationary, but asset prices will be a bloodbath. The stock market should be sideways for a few years as well, but not a bloodbath since many American companies are now global and will benefit from a slightly weaker USD and stronger Yuan, Euro, and Yen.
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