June 28, 2006

Housing values, inflated self-worth and the collapse of the consumer


It would seem to me that the collective self-worth of homeowners in the US has soared in the past four years as home values soared. These feelings of good cheer then translated into nice new Hummer H2's with the spinning rims, trips to Antigua and shopping sprees at Nordstroms to name a few.

Cocktail party chatter moved away from "how's the kids doing in school" to "how much have you made on that brilliant decision of yours to buy a new tract home in Mesa?"

People walked around with a spring in their step as they enjoyed their inflated self-worth, and inflated paper-gain "retirement portfolio" consisting of one house.

And some took it to the next step, rushing out to buy "investment property" thus increasing the "paper gains" and feelings of brilliance and self-worth.

Well... how quickly things change....

Now that home values are plummeting, led by second home "investment property", and housing panic is in the air, I would surmise that these feelings of inflated self-worth and good cheer are crashing as well.

Thus, crashing as well shall be the shopping sprees at Nordstroms, purchases of new Hummer H2's with shiny rims, and the reservations to Antigua.

Get ready America. The collapse of the housing myth, and the Real Estate Industrial Complex, are already here. The collapse of consumer confidence and discretionary spending are next.

30 comments:

Anonymous said...

I tend to agree with you that we are in a housing bubble...but yet I don't think it has popped...atleast not here in Orange County...We haven't seen "home values plummeting"....Nowhere has had the bottom drop out yet. Don't claim victory yet. We could be in a 3-4 year holding pattern.

FUNNOMINAL said...

I agree wholeheartedly. I have no sympathy for any of them either.
I've battering down the hatches for years in anticipation of this type of debacle unfolding.
And how much denial there is in the environment. Such lying about the degree to which this thing really is.
All the pundits and talking heads go along with the minimal impact approach to the housing depression...call it what it will be called...a depression.
So many people will eventually get so deeply hurt that it will take 15 to 20 years before people consider buying a house for other than personal residential purposes.
The blogs are really the only true source of shared wisdom as to what is transpiring in the country and what other's thoughts are as to eventual outcomes.

Anonymous said...

Nice... you made the connection between self-worth and net-worth. Next add in the connection to safety and security (house).

Now crash the housing market.

You're left with a lot of confused, scared, desperate people who will go along with just about anything.

Anonymous said...

In the last 4 years have we seen these factors occuring in parallel? : High inventory, slow sales (in JUNE), recasting ARMS and rising interest rates??? Only one thing can happen next : drop in prices. Not a drastic one but a gradual FOR SURE one.

Anonymous said...

"but yet I don't think it has popped...atleast not here in Orange County"
What are you some realt-whore? I live in the OC and I am seeing houses sitting for 7 MONTHS. What planet are your from???

minutesfromNYC said...

You all should check out the greatest place on earth, NYC!

Not only is NYC the greatest place on earth, 5 years ago something AMAZING happened... New York floated right next to Northern New Jersey. Half-cape cod homes with no garages and on busy streets which were bought for 100k, have increased their value to 550k

The people who bought years ago must have had some great financial foresight!

Anonymous said...

Fall 2005 Middlesex NJ:

$259k for a 2 bedroom townhouse circa 1945. Condo fees but no pool or tennis court. Superfund cleanup site from closed automobile assembly plant within walking distance. 1 Block from major highway 2 blocks from RR used for commercial shipments at least twice a day. or in the same area you could buy a circa 1950 cape cod with cosmetic updates for a mere $350k

45 min walk to the train station to NYC (30 min if you walk real fast). The train ride to NYC is about 45 min to an hour. YMCA and shopping are close by, but the area is very crowded.

Anonymous said...

You CAN FLY...as Long as you DON'T ..LQQK DOWN!

Lots of "Paperwork" Millionaires will be on the High Ledges preparing to Take the Leap come the 2006 07 & 08 Creative Loan Re-sets !

Nikki said...

While I agree with the premise of what "should" happen, I do not yet see it, and I think that most American s feel that somebody else will bail them out should they bite off more than they can chew, so they continue to spend regardless. We hear all this talk about a slowdown and the like, but where is it? Retail sale up. Vacation spending up. Planes and ships packed. Hotels full and raising rates. More drivers this summer than last. Where is all the money coming from? How are we bitching about gas prices yet buying more gas than ever before? Our nation's identity is the consumer, and it's my feeling that only a severe recession will stop this spending spre..

Anonymous said...

They are still building like mad here north of Tampa. Too bad they haven''t realized that there is no one to buy the home when they are done with const. 1 sucky community with no yards to speak of and homes built where the driveway slopes down into the garage (flooding the garage on any downpour), has 50% of the houses unoccupied and for sale by out of state hammerheads who got duped into buying a worthless overpriced shack. They thought there would be a greater fool than they are. They were wrong.

Anonymous said...

Famed economist Swantar now predicts that the RE market prices will level off and enter prolonged declining market until 2017, whereupon prices will average 65% below peak in fixed 2005 dollars (nominal no change). He likes precious metals and commodities long term. Cash-rich clients are advised to stay with CDs and short term treasuries. Swantar advises anyone who purchased real estate in any of the bubble markets in CA, NY, MA, NV and FL within the last 3 years to bend over and kiss his financial ass[ets] goodbye.

This according to Swantar

entertained realtor said...

I'm a realtor and I'm begging folks to lower their asking prices... but for now, many owners won't do it.

There are still buyers that are willing to pay (what I consider overpriced) asking prices for homes on the market.

The only thing that has changed as far as I can see is the level of inventory available on the market. There simply is no investor pressure on the market now. Inventories are up practically everywhere, and while the level of buyers has tapered off, folks are still buying and selling.

It's not like realtors are standing at someones doorway and putting people in an arm bar, showing them homes they don't intend to buy, and forcing them to make an offer on a home. I live in a small community and work in a small office and still see 20 to 30 people walk in a week that are interested in making a purchase of property.

Now a percentage of those walk in's don't actually buy anything when they see that they are priced out of the kind of home they want. This is where the market needs to cool off on price and if it does then sales will pick back up to rates seen the last few years, minus the investors until more favorable conditions appear for them.

Once more of the true flippers are purged out of the market I think many markets will normalize. I do think Keith is on the money with some of the markets and the conditions they are in. But a normal market is one with buyers that have some bargaining power, and to me and my experience that kind of market is also healthy.

All I'm saying is that I believe what will happen ultimately will be somewhere in between what the REIC reports and what HP reports. And maybe we all learn a lesson or two.

BubbleShanker said...

Entertained Realtor:

The stock market is great at predicting the future, right now it is telling us there will be a recession starting in the 4th quarter. When inventories 50k in Phoenix for example
meet recession and layoffs RE is exposed for what it really is, retail garbage priced lower than anyone can imagine for years to come.

LARenter said...

entertained realtor,

What you said is accurate, IF we make the assupmtion the economy is unchanged during this adjustment. The real risk to housing is a downturn in the economy. We are only seeing the first few chapters of this story.

This is a quote from an analyst on home builders;

"Banc of America Securities analyst Daniel Oppenheim on Wednesday lowered his profit estimates on several home builders with a June survey of real estate agents pointing to further weakness in the housing market.
The analyst now expects earnings for the group to fall 48% in 2007 and he sees a 72% decline for 2008."

Basicaly he is saying that 2007 and 2008 will be a blood bath.

devestment said...

My household goods business is off 65% this quarter from last year. My suppliers who are friends have shared that they are in the same boat. My income is shrinking and my would be mortgage would be in the same boat had I not planned for this.

Pat's Steak said...

Hey Anon-

Where did you read about Swantar the economist predicting a prolonged decline until 2017? Do you have a link? Would love to read about it.

Anonymous said...

Again, your blog seems to not only decry the greed gripping the housing market but indeed is critical of our whole system.

But in the past you indicated you are a republican. Republicans LOVE this sort of crass, commercial, market culture of pimps and whores. Everyone out for nothing but money, no desire to create a better world.

Don't kvetch if you help promote this awful culture.

Anonymous said...

After reading many articles in the news, I have found few if any published articles on the "real" problems ahead facing all of these homeowners and others in their past due, upside down mortages. In the past,the home owner could drop the keys off to the lender or if pushed start to declare bankruptcy.
The lenders knowlingly would accept lower offers etc. just to get out of a bad deal.
Now with the "new" bankruptcy law
passed last fall, this is no longer the case.Any lender can simply go to court and get a judgemnet against future wages on their earnings, regardless how long or many years it takes to pay up the differance on what was originated on the loan. It is in written in the loan papers called "deficiency judgemnets"
Ever wonder why 90% of the papers signed, notes, deeds etc refer to the lenders rights?
As a real estate broker and mortgage broker for over 30 years, now retired I have seen many markets. It use to be higher requirements on loans of this much money. Were not talking chicken feed here folks. The amounts now scare me to death on what all of these debtors will have to pay back. Sharecroppers,now debtcropper for most if not all of their lives.
Lenders have set this up and in my humble opinion knew what was going to happen.They are in the business for loaning money with interest, fees etc. Perhaps they will offer 50,75,100 year mortgages
to "help" these poor borrows in the coming depression that did not have to be. Remember Greenspan saying 2 years ago, "adjustables were great way for homeowners to buy"? God bless America

The Lenders Con
JF

Anonymous said...

Well, what you describe is the society conservatives have craved for decades if not centuries. A return to the feudal system.

Enjoy it, greed-soaked america.

Anonymous said...

"but yet I don't think it has popped...atleast not here in Orange County"
What are you some realt-whore? I live in the OC and I am seeing houses sitting for 7 MONTHS. What planet are your from??? ------


What are you? Mentally brain dead?
Show me any study showing that prices have collapsed in Orange County or nationwide for that matter. (as claimed by keef)

I am not saying that prices won't collapse, I am just saying they clearly haven't.

Reading comprehension? ever heard of it?

keith said...

devestment give us your best short candidates knowing what you know

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