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Housing Bubble Bursting?

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will have an exit migration of businesses to states that have no or less of a requirement regulating emissions
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The politics of global warming is winning over the science. Clearly since the end of the Ice ages we have been warming up. That warmup will continue until we cycle into another Ice Age. Part of that cycle is the fact that the Earth goes from a circular to a eliptical orbit about every 41,000 years and 'wobbles' on a cycle that is something less. Further, the earth tilts between 22 - 24 degrees and when that tilting occurs just right, the climate changes...it changes more in the N. Hemisphere than the south. CO2 may be increasing and may be affecting the rate of change, but the change will occur anyway and the difference in change is much slower than the dramatic change that occured about 9600 years ago when the earth warmed by some 9 degrees in less than a century in a sudden warmup that no one has explained yet. When the economy is 'cooking' along, it is always the politicians gambit to start tinkering with either the environment or social issues and in doing so, the law of unintended consequences often affects us.
 
Housing data looms large in Fed rate policy

http://today.reuters.com/news/artic...OC_0_US-USA-HOUSING-ECONOMY.xml&from=business

By Julie Haviv - Analysis

NEW YORK (Reuters) - As market economists and Federal Reserve policy-makers comb data on the U.S. economy next year to decide interest rates, the housing sector will be the elephant in its living room.

Once a relatively small part of the economic picture, housing now plays a critical role. The 2000-to-2005 housing boom allowed homeowners to borrow against their homes to fuel consumer spending, buoyed construction and housing-related employment and supported an economy recovering from the 2001 recession.

Now, after two years of higher interest rates, housing has become a brake on the economy. Data from the sector has taken on special importance as the Fed gauges if -- and when -- it should begin cutting interest rates.



The impact of those decisions will spread far beyond housing.

"Given the size of the housing sector compared with years past, the state of the housing sector is going to be more prominent in the minds Fed decision makers next year," said Lawrence J. White, professor of economics at New York University's Stern School of Business.

From mid-2003 to mid-2004, residential investment contributed 0.71 percentage point to gross domestic product growth, according to Dean Maki, chief U.S. economist at Barclays Capital in New York.

"Over the most recent two quarters, residential investment has shaved roughly a percentage point from GDP growth," he said.

Fed Chairman Ben Bernanke himself recently cited the big role that housing has played in the economy's recent slowdown. While the U.S. central bank sees the economy growing moderately, Bernanke conceded that the upbeat scenario could be disrupted by a more severe and widespread correction in the housing market. Continued...
 
A loan that'll get ugly fast

http://www.latimes.com/business/la-fi-option11dec11,0,6789284.story?coll=la-headlines-business

EVERY day, Will Hertzberg owns a little less of his three-bedroom house in Corona.

Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month.

Like many of them, he always chooses to pay as little as possible.

For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.

"I am rather screwed," he said.

Alarmed regulators recently have attempted to force lenders to cut back on loans like Hertzberg's. Even some industry executives are beginning to wonder how these borrowers will handle their added debt, especially if housing prices stay flat or fall.

If it turns out that many can't, it would be a major blow to the housing market. In the worst outcome, it could drag down the overall economy.

Hertzberg could sell now, but his lender would charge him an $11,034 prepayment penalty — money he doesn't have. Yet if he stays, the housing market may tank, vaporizing what little equity he has left.

"I made choices, and they happened to be the wrong choices," said Hertzberg, a big guy who lives alone amid the clutter of decades of memorabilia.

The real estate boom of the last few years has made it very easy to become overextended.

Earlier generations bought houses knowing they had no choice but to keep paying at the same rate for three decades. Their reward: the ability to sleep well, knowing their payments wouldn't abruptly adjust upward.

As interest rates rose in the early 1980s, many borrowers couldn't afford these traditional loans. Lenders responded with adjustable mortgages that offered lower introductory rates.

A few years ago, as home prices began escalating sharply, lenders pushed loans that let the homeowner pay only the interest for an initial period.

When even that was too onerous for some borrowers, they offered loans such as Hertzberg's, often called "pay option" loans.

One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.

A second possibility is to pay $2,279, which would cover only the interest.

But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.

Essentially, option loans are bets that good things will happen. Maybe the mortgage holder will get a big raise, or sell a script to Hollywood, or inherit a chunk of change. When the borrower has to start paying off the loan in earnest in five years, the plan is that he or she will somehow be able to handle it.

At a minimum, the borrower is betting the housing market will be better in a few years than it is today. If the house goes up in value, it will be possible to refinance and the day of reckoning can be put off once again.

In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to San Francisco-based data tracking company First American LoanPerformance.
 
As prices rose on homes across the nation, so too did the amount of real estate taxes paid yearly and the amount home owner insurance premiums paid yearly. Even if mortgage payments remain constant year over year, the payments for taxes, insurance and maintenance for a home will continue to rise year over year. The question becomes, will wages rise at a rate that makes homes more affordable? Or will the affordability be maintained by government subsidy - IE. more tax incentives to own and to increase debt deduction by borrowing more on the home, transferring consumer debt to mortgage debt?

Investors are not a preferred government solution for affordability but they are a target for increase taxes to balance other transfer tax payments. Investors: Get ready for that tax adjustment.
 
A year ago, NAR projected 2006 housing resales would be the second-best on record, at 6.84 million. Instead they fell to 6.47 million, the third-highest. Its year-ago forecast called for mortgage rates to gain in the second half of 2006 to average 6.6 percent. The average has been 6.4 percent so far in the second half of the year, according to Freddie Mac data.
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So the forecast track record of NAR is that good where people should run out and buy homes?:happy:
 
Black and Decker in trouble...uh oh....get the food and ammo ready...

Some housing bubble reports from Wall Street and Washington. “Black & Decker Corp., the biggest U.S. maker of power tools, cut its annual profit forecast for the third time after a U.S. housing slump ’significantly’ reduced sales. There may be ‘additional pressure on our earnings,’ said CEO Nolan Archibald.”

“The slowing housing market also caused Illinois Tool Works Inc., the maker of Duo- fast nail guns, to cut its profit forecast. ‘It’s spreading, and we don’t know how far and how wide it’s going to spread,’ said Marvin Roffman, president of Roffman Miller Associates in Philadelphia, which manages $390 million, including Black & Decker shares. ‘Be prepared for more disappointment from Black & Decker and others’ who rely on the housing market.”

“‘Most disappointing, in our view, is Black & Decker expects their disappointing trends will continue well into 2007,’ wrote Michael Rehaut, analyst with JP Morgan.”

The Wall Street Journal. “New home construction is plummeting. Car sales are weakening. Investors have driven long-term interest rates well below the short-term rates set by the Federal Reserve. All these factors are present today, and all have been precursors of past recessions.”

“But the U.S. central bank and much of Wall Street are now betting that the old rules don’t apply, and that a recession next year, while possible, is unlikely.”

“‘This time will be different,’ Ed Leamer, who heads the forecasting center at the University of California at Los Angeles’s Anderson School of Management, predicts in a report. ‘This time the problems in housing will stay in housing.’ It’s a prediction, he admits, that ‘keeps us up at night.’”

“Dean Baker, a co-director of the Center for Economic and Policy Research, said the rise in housing prices was unprecedented. Optimists are ‘missing the full impact of the housing downturn. They think it’s mostly, if not entirely, completed, and I think we’ve just seen the beginning.’”
 
San Diego County Housing Decline Largest On Record

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San Diego County housing prices dropped by nearly 7 percent last month – the largest year-over-year decline on record.

Locally based DataQuick has been tracking prices since 1988 and previously marked the largest year-over-year median drop at 5.7 percent in December 1992, in the depths of the '90s recession.
 
Most disappointing, in our view, is Black & Decker expects their disappointing trends will continue well into 2007,’ wrote Michael Rehaut, analyst with JP Morgan.”
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Home Depot, Lowes, Whirlpool, Georgia Pacific, Sealy, any furniture maker, GE, paint companies, cabinet makers, builders supplies, window makers, architectural firms, plumbing supplies...what parts that pertain to a new house won't be affected?
 
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