Housing Bubble Bursting?

[Brad Ellis]

Randolph,

I looked again at Greg's post- data and projections that have been repeated here.

Both new and existing home sales prices are expected to increase? 2.8% for all property types; .2% for new construction.

Guess we shall see.

I agree the gummint will have a harder time with the next recession- but not worry. New technologies in energy may well be on the books soon and within 10 years we might be a net energy exporter. (Yeah, I know I'm dreamin')

Brad

 

[Brad Ellis]

Moh,

Your quote, "by the way the recession doesn't cause the housing decline, the housing decline causes the recession. With the current GDP, employment rate, interest rates and CPI rate, there shouldn't be any recession if there were no housing bubble."

I did not say that recession causes a housing decline. BTW, housing price cooling does not actually cause a recession; it merely contributes to it.

Higher interest rates do contribute to a recession; the conventional method to combat that is to lower interest rates, at least according to monetarists. Higher rates decrease the GDP, typically.

Now see my post to Randolph. IF those new energy technologies do not come to fruition, are you telling use that $6/gallon gasoline will have no impact upon the actual cost of living? How about electricity? 2 months ago my bill was 2.5 times what it was in the prior month and last month it was still 50% higher than it had been, albeit lower than the month before.

Like I said, I am willing to wait for the numbers to come in. So far, I see clear indications of a correction- somenting I have been saying for many months. I still se no indications of a bubble- at least the way many define a bubble in that it must burst. No bursting gong on here yet; the market is simply on a diet.

Brad

 

[Randolph Kinney]

Randolph,

I agree the gummint will have a harder time with the next recession- but not worry. New technologies in energy may well be on the books soon and within 10 years we might be a net energy exporter. (Yeah, I know I'm dreamin')

Brad

Are you one of those people who believe E85 (85% ethanol, 15% gasoline) will replace petroleum? :new_smile-l: Detroit will be stuck will a bunch of those vehicles because they get 40% less miles to the gallon with E85 compared to regular gasoline. Energy is energy, there is less calories of energy in ethanol than gasoline, by a factor of 4 to 1. I expect to see more layoffs from Detroit to be announced.

The other killer of ethanol is that the infrastructure to manufacture, transport and distribute is not there. It is the reason why gas prices at the pump are so high now. There was no plan to substitute ethanol for MTBE, just a federal mandate and a law that required ethanol from corn be used.

The coming recession will reduce demand for all fuels, which will hold down prices. That's the good news.

Did you read where Intel is laying off 10,500 people here in the U.S.? Looks like new technology from the electronics industry will be on hold until after the next recession.

All eyes are on the upcoming CPI report. 0.3% core CPI and the FED has a problem. The pressure will be on to raise interest rates.

The forecast from NAR on existing home prices is a joke. They themselves have spoken the words "slight decrease in the median home price for the next few months". It should be very comical for the next report on existing home sales. It really does look like it is getting much worse than NAR had predicted. Lets see if their economist stops using the phrase, "soft landing".

 

[Greg Bell]

NAR Reports are the best tasting cooked books since ENRON.Standard issue at an NAR meeting is rose colored glasses following by lessons of how to wake up and smell the coffee.I wonder where all the leased Cadillacs will be stored...

 

[moh malekpour]

Like I said, I am willing to wait for the numbers to come in. So far, I see clear indications of a correction- somenting I have been saying for many months. I still se no indications of a bubble- at least the way many define a bubble in that it must burst. No bursting gong on here yet; the market is simply on a diet.

Brad,
I don't follow your assertion about the market. You agree that market is in diet and needs correction but you don't see any bubble.
I am going to ask you a direct question and I hope I get a direct answer about the market correction and market diet that you have used.
You can say market correction is needed when you believe that something went wrong in the market. So, by agreeing to needed market correction, I assume you agree that the past market increase was unwarranted. If that is what you mean by market correction, then could you please tell me what rate of market correction is needed and why and how the market got out of control in the past and why it needs a correction.

Now, lets get to the market diet. When a person gains extra weight to the point of crisis, the doctor puts that person on diet and tells the patient, you either have to lose certain amount of weight or you are going to get heart attack, diabetes, stroke or death.
Based on the doctor diagnosis, the patient needs to lose certain amount of weight in order to escape a fatal disease or death. So, if you are a real estate doctor, what is your diagnosis about the market weight? How much extra weight market has gained and why and how much needs to lose in order to become balance and healthy market again?
If the gained weight is to the point that the patient cannot walk anymore, or has a minor heart attack, or has developed type 2 diabetes, can we equate it to a bubble. Can a patient with 400 pounds weight be considered at the point of weight bubble if that patient should have a healthy, normal and balance weight of 180 pounds? The bubble point is the ultimate point, the end of the line, the point that cannot go any further. It is not the point of burst but if it goes an inch further, the burst or death may happen so, the good doctor does a crisis intervention and saves the patient either by surgery or diet and get the patient back to the healthy balance weight.

 

[Brad Ellis]

Moh,

I keep trying to give you a straight answer but you seem unwilling to accept it since it does not jibe with your own ideas. So here we go again.

Markets go up and down- true for real estate, commodities, stocks, bonds and almost everything you can think of. Even oil has gone down in the last couple of weeks despite ever increasing demand.

The diabetes/heart attack/stroke or whatever analogy is silly. You assume that you would need to be grossly overweight (in bubble mode, per your analogy) in order to get one of these. I AM a type 2 diabetic and got it when I was at my lowest wieght since college- about a mere 10 lbs. over the desired level. I am now 5 lbs. heavier than I was then. Did my "bubble" burst? Should I go thru a "correction"? Probably a good idea, but I still do not think I'll explode.

A correction is not a bursting bubble. They are different things. Corrections are natural in virtually every market. Ask any stock trader or investor. Bubbles can occur and have- witness the dot.com bubble that burst. While the NYSE went down about 10-12% or so in 2001, the NASDAQ, home of so many dot.coms went down by 50% or so- now THAT was a bubble.

Greenspan foretold it with his "irrational exhuberance" comment. He also foretold the changing of some markets with his "frothy" comments.

Are the markets frothy now? No. The irrationality required for a bubble appears to have never appeared.

We may be in that correction right now. NAR's numbers (don't much care who thinks the books are cooked- I do NOT) indicate that prices went up again in July. OFHEO confirms this- even higher in percentage since they include only conforming deals. You may deny facts all you want but they remains FACTS.

I say we may be in that correction because there appears to be a trend in place- downward (just like in a stock market correction) and we may see actual price declines for August and for some months to come. That will depend upon a host of economic factors. BUT- there is no sign of anything BURSTING.

You seem to believe that any downward trend evidences a burst bubble. I disagree in that a natural correction can occur without any bubble bursting. My analogy would be much like the NYSE vs. the NASDAQ.

I hope that clears this up for you- finally. I believe market can do up and down without there being a bubble. A bubble is different from a correction.

Brad

 

[Randolph Kinney]

A correction is not a bursting bubble.

The spin on words is incredible. It reminds me of the definition of recession and someone saying there was no recession in 2001. And then there is the practical side of defining words, like the difference between a recession and a depression: A recession is where your neighbor gets laid off; a depression is where you get laid off.

Hair splitting over semantics is losing sight of the reality; a declining housing market both in volume and price. Now, just like the definition of recession, someone can argue magnitude, time duration, and direction. Just don't call it a bubble and don't call it bursting. Call it a correction.

 

[moh malekpour]

Brad,
Your answer is very broad. The specific question is why and how much correction is needed? Correction is a natural phenomenon but it is a reaction to an artificial action. The burst to a bubble by itself can be a natural correction or a natural reaction to an artificial action.
Even US senators are going to have a hearing on real estate bubble in the senate on Wednesday but you still don’t see an indication of bubble.

 

[Randolph Kinney]

Inflated, Bogus Appraisals Result In Foreclosures

Reading some articles on appraisal fraud and inflated appraised values. Some interesting points:

Reports of all mortgage fraud nationwide have tripled since 2003 to nearly 22,000 last year, the FBI said.

Lenders estimate "as much as 15 percent of all appraisals are overvalued" though not necessarily fraudulent, said David Berenbaum, a board member of the national Center for Responsible Appraisals and Valuations.

The inflation of home prices through appraisal fraud may be helping to push a real "bubble." Some observers believe that appraisal fraud helps explain high foreclosure rates in certain parts of the nation.

Appraisal fraud can lead homeowners to borrow more money than their homes are worth, putting themselves at risk of being "upside down" in a home - e.g., not being able to sell for a high enough price to pay off their mortgage - even if there is no downturn in the real estate market.

Now just think, if the overall economy weakens where unemployment starts to rise and home values are declining, how much more will appraisal fraud and inflated values come back to haunt the lenders when they get stuck with properties that are upside-down? Will that in turn cause enough of a negative feedback loop causing additional declines in the housing market?

 

[Randolph Kinney]

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