- Joined
- Jan 15, 2002
- Professional Status
- Certified General Appraiser
- State
- California
...to an investor group, and for longer than the lease agreements.
I find it interesting to note NAR's projection of inventory.David Wimpelberg said:WASHINGTON - The median price of a new home plunged in September by the largest amount in more than 35 years, even as the pace of sales rebounded for a second month.
http://www.optonline.net/News/Article/Feeds?CID=type%3Dxml%26channel%3D32%26article%3D19965796
EXISTING HOME SALES VOLUME 2006
Jan 6,570,000
Feb 6,900,000
Mar 6,900,000
Apr 6,750,000
May 6,710,000
Jun 6,600,000
Jul 6,330,000
Aug r 6,300,000
Sept p 6,180,000
EXISTING HOME MEDIAN SALES PRICE 2006
Jan 220,000
Feb 218,000
Mar 218,000
Apr 222,000
May 229,000
Jun 229,000
Jul 230,000
Aug r 224,000
Sept p 220,000
Why would anyone pay more for an existing home than a new home? Or is the new home data signaling a bigger price drop coming for existing home sales as they follow the prices of new homes, down???The median sales price of a new single family home fell 9.3% to $217,000 during September. Though the August level of prices was revised up, the year to year change of -9.7% was the worst since 1970 and it lowered prices below the average level of 2004.
. ``To think otherwise after a bubble is to not understand bubbles.''
housing is going to be very inelastic to falling interest rates on the way down, just as it was very inelastic to rising rates on the way up. To think otherwise after a bubble is to not understand bubbles
============George Hatch said:I think using the color blue for the forecast was a bit misleading. They should have used a rose color.
What Would Happen Politically If the Housing Bubble Really Collapsed?
“Is this what a housing bust looks like? New home prices fell last month by the largest amount in 35 years and owners are being warned to brace for further declines, especially in formerly hot markets. After years of increases, some buyers say prices are still out of their range. The Commerce Department reported that the median price for a new home sold in September was $217,100, a decline of 9.7 percent from September 2005. That was the lowest median home price in two years and the sharpest year-over-year decline since December 1970, providing dramatic evidence of the slowdown in the once-booming housing market.” (AP, Oct 27)
“The decline in home prices after a five year real-estate boom will cause the economy to slow and force the Fed to lower rates to avoid a recession, McCulley wrote on Pimco's Web site on Oct. 19. ``To think otherwise after a bubble is to not understand bubbles.''” (Bloomberg, Oct 23)
"Moody's Economy.com projects that the median sales price for an existing home will decline in 2007 by 3.6 percent, which would be the first decline for an entire year in home prices since the Great Depression of the 1930s. 133 of the nation's 379 metropolitan areas would suffer price declines. account for nearly one-half of the value of the nation's stock of single-family homes … the rebound in prices is not expected to occur quickly." (AP, Oct 3)
“The ABX index, which measures the risk of owning bonds backed by home-loans to people with poor credit, rose 30 percent since Aug. 9 to the highest since January. There are more than $500 billion of such notes outstanding. The increase in the index shows traders expect mortgage delinquencies and foreclosures to increase at a time when the number of homes for sale is at a 13-year high. The percentage of home-loan payments more than 60 days delinquent rose to 7.23 percent in July from 5.9 percent a year earlier, the fastest rate of increase since 1998.” (Bloomberg, Oct 23)
""Since the start of 2005, the inventory of unsold new homes has climbed 29 percent, while the stock of unsold existing homes is up a staggering 82 percent'' … cancellations are rising, and they aren't being captured in the aggregate statistics because of the way the survey is designed. Hence, sales are being overstated and inventories understated. " (Caroline Baum, Bloomberg, Sep 29)
““I don’t think that the [housing market] boom came from a 1 per cent Fed funds rate or from the Fed’s easing. It came from the collapse of the Berlin Wall,” Mr Greenspan told a private audience in Canada on Friday … the collapse of Communism in eastern Europe and the shift towards more market-based economies in China and other parts of the developing world brought “billions of cheap labourers onto the scene”. This, he said, “brought disinflation and lowered inflation risk premiums and long-term interest rates, creating a decline in real interest rates and equity-risk premiums.” In consequence, “the real market value of assets increased faster than GDP.”” (FT, Oct 9)
""The rate of [real estate] decline is going to dramatically slow,'' Greenspan told an audience of insurance-industry executives in White Sulphur Springs, West Virginia. ``We are beginning to see some evidence that all the data are not going south,'' he said, citing statistics on mortgage applications." (Bloomberg, Oct 10)
If Greenspan fully believed his explanation of what he calls the “boom,” then why did he lower interest rates to 1% in the first place and keep them there so long?
It wasn’t just the “billions of cheap labourers onto the scene” that was key, it was the decisions to transfer to that labor by stateless multinationals advanced technology and management, developed over decades by innovative individuals standing on the shoulders of their societies’ progress, now expropriated for the benefits of the very few at the very top running those multinationals, via their stock options, and the financial hyper-speculators driving them to do so.
But I digress. The key point to be made for the purpose of this discussion is the potential political problem arising from the American middle-class not understanding and accepting what Greenspan said above.
Five or ten years ago, if you had told the American middle-class that their homes would be worth what they are today, you would have been considered insane. Everyone knew such valuations would be completely absurd based on all their prior experience, not only with their own home prices, but also with decades of stagnation of their own real incomes.
Yet today, the American middle-class very strongly believes that these previously insane valuations are normal, and more importantly politically, that they somehow earned their massive increase in home equity.
They have no real idea how it happened, magically perhaps, they don’t particularly care. They don’t fully understand the role of East Asia that Greenspan mentioned above, because no leader has ever clearly told them, no one has explained to them the so-called "Bretton Woods II" marriage of convenience between the spending Americans and the saving Chinese, implicitly agreed to by "independent" central bankers in the U.S. and CCP leaders in China.
Nor do they fully appreciate how they've benefited from massive government tax breaks of a couple hundred billion dollars per year on mortgage interest and capital gains, the latter enacted clearly to pump a bubble, huge government mortgage security subsidies, government supply restricting zoning and land use regulations, etc., all of which was not in the news report on Greenspan that I quoted above.
If the middle-class homeowners thought about it at all, they might think their huge home equity gains was the “free market” at work, and since they took the "risk," they deserve the huge capital gains, even the small number who weren't fully honest.
“the use of liar loans has become epidemic. In 2005, mortgages underwritten with minimal documentation sometimes accounted for as much as 50 percent of subprime mortgages. almost 60 percent of the stated-income amounts are exaggerated by more than 50 percent.” (sfgate.com, Oct 6)
Regardless, they know possession is nine-tenths of the law, so it's their hard-earned home equity, period, end of story. They’ve even spent a good chunk of it, via home equity extraction, which has continued even through rising rates, though at a slower pace, down from about $800 billion a year to less than $500 billion. But there’s still far more of that new paper wealth left.
The Fed is doing everything it can to maintain this mass delusion about real estate values, otherwise they would be far lower, while keeping inflationary pressures under control, at least until after the Nov election.
But what if this truly massive social “state of denial” was ever threatened, what would be the consequences? Who would be blamed? Who would the middle class lash out at, as it historically has been prone to do when its living standards are very seriously threatened? Who would pay the price, be the target, for their sublimated anger?
For three decades, as their real incomes stagnated (average real weekly earnings are still -17% below the level of 1972) working and middle class people’s lives were spindled, folded and mutilated on the premise and promise, by both political parties and the mass media, that what came to be called "globalization" would somehow ultimately pay off for them.
It did, finally, but in an unanticipated way, not through better new jobs , 1996-2000 was the only period of modestly rising real wages since 1972, but rather through the by far largest speculative bubbles in history, first in the equity markets, then more importantly in real estate in the 2000s.
Social science research gives clues as to who would be targeted should the real estate bubble significantly deflate (see the end of the Social – U.S. and Political – U.S. sections of the 10/24 news summaries link).