September 27, 2006

In the end, the Late Great Housing Bubble will be just a blip on the radar


Sure, bad news for those who bought a home from 2002 to 2006 (to live in or to flip) and didn't heed the warnings to sell, and those who sucked fake equity out of their house and blew it.

Everyone else, they might not have the riches and windfall they thought they had, but for the most part, they'll be OK.


Unless they work at Countrywide. Or Home Depot. Or are realtors. Or work for homebuilder-ad supported newspapers. Or that donut shop. Or have anything to do with the REIC. Or live in Phoenix, or Miami, or San Diego, or DC.

Well, for that matter, maybe a lot of them won't be just fine.

But in the end, just a blip on the radar folks. The biggest blip ever, but just a blip on the radar...

28 comments:

nostradamus said...

What i want to know is where did all the folks who posted on this blog a few months ago that there was no bubble go to?

They all went to the same place that all the anti gold people are going after the election when gas goes back up.

autofx in Phx said...

Silliness, Keith. Just because one lives in a bubble city doesn't mean one is financially screwed.

Anonymous said...

This whole "bubble" was created by the Federal Reserve. A good read visit www.financialsence.com and go to "The Fraud" article for what has happened. To understand this about the money system will put you in the top 1% graduation class.

nostradamus said...

Huge job loss due to shrinking demand will hurt many bubble areas at a rate to be determined.

Anonymous said...

Isn't the bubble time-frame dependent on area? I bought early in '02, but bought cheap (150K) and have a solid, old farmhouse on 1.12 acres. I'm an hour from D.C., and it's still rural, pretty, and safe for when TSHTF. I have a 30 yr. fixed, very managable mortgage -cheaper than most rentals. Am I necessarily screwed? I have dogs, so gave up on finding a decent rental that accepted pets. I'd rather not have the debt, but don't feel it was a bad decision, given the particulars.

Disgorge! said...

Just a short note, don't have much time to read this blog these days: I'm seeing more and more articles online and in newspapers saying that the bubble does not exist, that we've had a mild correction in house prices is all, that housing starts and prices are moving up in some locations, and that all is basically well with housing.

Not endorsing it, just reporting it.

Anonymous said...

No bubbles, no troubles. The Fed is getting ready to inflate its way out of this debt crisis. House prices will double in the next five years, along with average wages, and the HP will be averted. Mortgage rates have dropped 3/4 point in just two months, and we will see record low fixed rates by the end of the year. Massive refis of option-ARMS and other exotic loans will defuse Keith's doomsday scenario.

Anonymous said...

San Diego is still melting down!!

That beautiful sunshine/beaches paradise occupied by illegal aliens and Asian gangs....looking pretty dusty

Disgorge! said...

A good read visit www.financialsense.com and go to "The Fraud" article for what has happened.

I love Jim Puplava and his website, but please recognize that he is an ÜberBear and a Doomer. I have seen his predictions fail a number of times.

BUBBLE HEAD said...

The housing wail
By NICOLAS P. RETSINAS
September 26, 2006

"HOUSING BUST AHEAD."

The headline hints of catastrophe: a dot-com repeat, a bubble bursting, an economic apocalypse. Cassandra, though, can stop wailing: the expected price corrections mark a slowing in the rate of increase - not a precipitous decline. This will not spark a chain reaction that will devastate homeowners, builders and communities. Contradicting another gloomy seer, Chicken Little, the sky is not falling.





Let me alleviate some fears.

Fear One: Prices will plummet.

From the start, the much-vaunted housing "boom" was an uneven phenomenon, driven by a strong demand for housing, coupled with constrained supply, particularly on the two coasts. In much of the nation, housing prices rose modestly; in a few areas, prices did not budge.

In those overheated markets - often fueled by immigration - prices were rising by as much as 20 percent a year. But even with soaring demand and limited supply, that escalation was not sustainable. Even with too-good-to-be-true mortgages, people cannot afford to buy homes that cost five times their income.

So in those overheated markets, moderation is expected. Moderation means that prices will stop rising at meteoric rates: The homeowner who expected a double-digit profit after one year will be disappointed. A home will once again be more of a domicile, rather than an investment. In some regions, prices will flatten, rising around the inflation rate, which is the historic average. The fundamentals behind high prices - strong demand (more households will form in the next decade than in the last) and constrained supply - persist.

Fear Two: The economy will collapse.

Housing now represents over 20 percent of the gross domestic product (compared with 18 percent from the manufacturing sector). For most families, the investment in a home constitutes de facto savings: the build-up of equity is in the trillions of dollars. And homeowners have tapped into that equity, using their homes as ATM machines for refinancing and home-equity loans.

Consequently, we are "well-housed." Indeed, two bathrooms, air conditioning, garages - the amenities our grandparents called luxuries - are standard.

All this activity has fueled consumer spending.

A Cassandra fear is that as home prices moderate, the moderation will show up in the gross domestic product. Yet, again, moderation is not a free-fall. The housing market will adjust slowly, with fewer sales and starts. History tells us that housing booms are not eternal - that most end - enabling incomes to catch up with prices.

Furthermore, builders have been building to meet demand. In regions where the number of households is growing, so is the need for housing. That demand will not slake. So the incentives for developers remain strong. We will see more construction over the next decade than over the last - and the last decade set a record.

Of course, Cassandra has not been the only one watching housing prices fall. Some Pollyannas have cheered the fall, predicting that at last housing will become more affordable: The $200,000 home will go for $150,000; the $150,000 home (in some parts of the country, this is a rare ramshackle) will go for $100,000. Renters desperate to buy into the American dream yet lacking the down payment - much less the income to finance a mega-mortgage - will get their raised ranch. And as more middle-income renters buy homes, the shortage of rental housing will ease; rents will drop; and the "affordability" crisis will fade.

Pollyanna, though, is shortsighted. Yes, some would-be owners, previously shut out of the market, may at last buy a home. But the "affordability" crisis will persist - exacerbated by rising interest rates.

The working poor face their own income-and-expenditure imbalance: Their incomes fall short of their need for housing, food, transportation and health insurance. They will still be hard-pressed to pay for a basic apartment close to their jobs. If the market "self-corrects" in the fast-growing parts of the country, that self-correction will not trickle down far enough to help the Wal-Mart clerk or diner waitress.

In our new economy, low-wage jobs are growing. These people will still need public intervention.

Cassandra can stop wailing, and Pollyanna can stop cheering. Home prices in some regions are moderating, but for a nation inured to CNN's headline-of-the-moment, this moderation does not rate high on the Richter scale of cataclysm.


(Nicolas P. Retsinas is director of the Joint Center for Housing Studies at Harvard University.)



(Distributed by Scripps Howard News Service, www.scrippsnews.com.)

LauraVella said...

Nostradamus said: "What i want to know is where did all the folks who posted on this blog a few months ago that there was no bubble go to?


They are too busy trying to figure out how they are going to live out of their Lexus cars now that housing is dead.

dan said...

Blip blip fizz fiz
Oh what a relief it is.

Anonymous said...

Even with too-good-to-be-true mortgages, people cannot afford to buy homes that cost five times their income.

So in those overheated markets, moderation is expected. Moderation means that prices will stop rising at meteoric rates: The homeowner who expected a double-digit profit after one year will be disappointed. A home will once again be more of a domicile, rather than an investment. In some regions, prices will flatten, rising around the inflation rate, which is the historic average.

-----------------

If I cant afford it now, how will "moderate" price increases help me?

Bakersfield Bubble said...

Damage Control:


http://bakersfieldbubble.blogspot.com


crispy&cole

Charles said...

BUBBLE HEAD wastes much blog space to say little of consequence and nothing of truth.

The Long Winded Blog Comments bubble has just begun to inflate!

Anonymous said...

BERNANKE..... NO HOUSING BUBBLE AND ALSO THE MARKET IS AT ALL TIME HIGHS..... BOY YOU HOUSING FEAR MONGERS ARE ON THE WRONG SIDE OF THE FENCE! THINK I'LL GO AND FLIP SO MORE REAL ESTATE....

Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve.

U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new households.



Ben S. Bernanke testified on Capitol Hill just before being nominated to succeed Fed Chairman Alan Greenspan. (By Ron Edmonds -- Associated Press)

Ben S. Bernanke
On Monday, Oct. 24, 2005, President Bush nominated Ben S. Bernanke, chairman of the president's Council of Economic Advisers, to succeed Federal Reserve Chairman Alan Greenspan when he retires in January. Learn more about Bernanke's background and nomination.

Profile of the Nominee
Transcript of Nomination


Alan Greenspan's Tenure
In 1987, Alan Greenspan was sworn in as Chairman of the Federal Reserve. Look back at his more than 18-year career through four presidencies with analysis of his legacy, a compilation of stories about his tenure and archived photographs.

Special Report


Opinion
Allan Sloan: The Myth of the All-Powerful Fed
Steven Pearlstein: Modern Markets Shatter Model Of Fed Chairman's Power
David Ignatius: Greenspan's Humility
Robert J. Samuelson: The Risk Manager
Anna Bernasek: To Fill His Shoes, Mr. Bernanke, Learn to Dance


Live Q&A Transcripts
Washington Post Staff Writer Nell Henderson
S&P Economist Beth Ann Bovino



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Bernanke's thinking on the housing market did not attract much attention before Bush tapped him for the Fed job Monday but will likely be among the key topics explored by members of the Senate Banking Committee during upcoming hearings on his nomination.

Many economists argue that house prices have risen too far too fast in many markets, forming a bubble that could rapidly collapse and trigger an economic downturn, as overinflated stock prices did at the turn of the century. Some analysts have warned that even a flattening of house prices might cause a slump -- posing the first serious challenge to whoever succeeds Fed Chairman Alan Greenspan after he steps down Jan. 31.

Bernanke's testimony suggests that he does not share such concerns, and that he believes the economy could weather a housing slowdown.

"House prices are unlikely to continue rising at current rates," said Bernanke, who served on the Fed board from 2002 until June. However, he added, "a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year."

Greenspan has said recently that he sees no national bubble in home prices, but rather "froth" in some local markets. Prices may fall in some areas, he indicated. And he warned in a speech last month that some borrowers and lenders may suffer "significant losses" if cooling house prices make it difficult to repay new types of riskier home loans -- such as interest-only adjustable-rate mortgages.

Bernanke did not address the possibility of local housing bubbles or the risks faced by individual borrowers or lenders in a slowing market.

But if Bernanke is confirmed as Fed chief, and if the housing market slows more than he expects, he would be unlikely to use the central bank's power over short-term interest rates to prop up falling housing prices for the sake of individual homeowners, according to comments he has made in numerous speeches and statements in academic papers.

Rather, he has argued for many years that the Fed should respond to rising or falling prices for stocks, real estate or other assets only if they are affecting inflation or economic growth in an undesirable way. Thus, he would advocate cutting interest rates if a reversal in the housing market sharply dampened consumer spending, triggering job losses or a fall in inflation to very low levels.

Lower interest rates encourage consumers and businesses to borrow and spend, spurring economic growth and hiring. That would also make it less likely that very low inflation could turn into deflation, an economically harmful drop in the overall price level.

Bernanke believes "the Fed's job is to protect the economy, not to protect individual asset prices," said William Dudley, chief economist for Goldman Sachs U.S. Economics Research.

Anonymous said...

"Some Pollyannas have cheered the fall, predicting that at last housing will become more affordable: The $200,000 home will go for $150,000; the $150,000 home (in some parts of the country, this is a rare ramshackle) will go for $100,000"

uh, hate to break it to the guy, but that's not a prediction, that's what's already happened.

a prediction is £200,000 becomes £100,000

Anonymous said...

Nicolas P. Retsinas is director of the Joint Center for Housing Studies at Harvard University.

EVERYONE REMEMBER THAT THIS GROUP AT HARVARD IS CORRUPT AND FUNDED ENTIRELY BY MEMBERS OF THE REIC!!!!!

keith said...

man, some realtor troll posted that corrupt harvard dude's blabber on every damn thread. had to waste 60 seconds of my life hitting delete

note to realtor trolls - post anything you want, but do not post entire articles, and do not post the same thing on more than one thread

jeesh!

meanwhile, I'm gonna do a complete post refuting the harvard guy's blather. talk about corruption, and the sick thing is he's doing it with harvard's name on it - that's bad stuff

haggis said...

And he's done it twice.

Twice.
Twice.

Must be true.

Anonymous said...

anon 10:03:50,

you are absolutely right. i remember that guy nicolas retsinas interviewed on TV just last year in fact, that he thinks there was no bubble.

Alan P. said...

Harvard sux, they have no credibilty left. They will do a study that says whatever you want it to say if you give them money.

Anonymous said...

a stock to look at shorting

If I had some money I could afford to lose I would short the crap out of a stock called TALX. This is "The Work Number for Everyone". This started out as a decent enough company providing a valuable service to lenders making loans by verifying the employment and wages of employees of companies that subscribed. As their subscription base grew and the demand for their services grew from the refinance and housing bubbles, their egos got just as big. They doubled and tripled their user fees and began charging users monthly fees, etc. It reached a point that I stopped using them because their price began to exceed their value in a big way (kind of like my ex-wife, ha!!). Anyway, to me, unless they've changed their business model, they look like they are ripe for a hosing. Do I dislike them. Yes I do. Do I hope some big boys with some bucks they can gamble with take their stock to the woodshed and beat the living crap out of it, yes I do. I carry a grudge way too long - well, gotta go to therapy now.

David said...

To Buy or Not to Buy That is The Question

David
Bubble Meter Blog

Anonymous said...

largest mortgage frauds in American history

http://tinyurl.com/fsyu5

Anonymous said...

Keith, The question is - when will the market equalize?

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