Housing Bubble Bursting?

[hastalavista]

Also, it seems that half the US is trying to move to the DFW area because of cheap housing and jobs.

Could be the start of a bubble!

 

[Randolph Kinney]

Ahead of the curve - leading the nation into recession

S.D. economic forecast looks 'pretty bad':

Diego County's leading economic indicators took a sharp plunge in August, signaling that the county faces its greatest threat of recession in half a dozen years, according to a report released yesterday by the Burnham-Moores Center for Real Estate at the University of San Diego.

All six components used in the index were negative last month. Building permits, stock prices, help-wanted advertising and consumer confidence fell. Unemployment filings rose. And the national economic outlook weakened.

“Things are pretty bad,” Gin said. “Not only are all the components down, but they're down by hefty amounts.”

Gin still thinks there is less than a 50 percent chance the economy will go into a regional recession – meaning an extended year-to-year loss of jobs. But he said the chances of that happening are the highest since at least 2001, when the national economy briefly dipped into recession.

At the center of the economic problems is the continuing decline of the local housing market. “There's a connection to the weakness of the housing market in every one of the components,” Gin said.

Last month, there were 19 percent fewer homes sold in San Diego County than in August 2006. Home prices, based on the Standard & Poor/Case-Shiller Index, were nearly 8 percent lower. The weak market has prompted developers to cut back on building homes.

Although San Diego was an early epicenter of the housing crisis, the problems have since spread nationwide.

Bend over all you people who believe all real estate is local. I see the shaft of the housing recession coming your way!

 

[sunnycal]

I don't agree. Real estate is local and look into the conditions of San Diego that don't exist in other markets. San Diego has been overbuilt and has an oversupply of commercial and residential housing. There is always more room to build that other major metropolitan areas don't have which help keep the supply in balance. San Diego has been having problems for a long time which does not automatically carry over to Los Angeles for example.

 

[Randolph Kinney]

I don't agree. Real estate is local and look into the conditions of San Diego that don't exist in other markets. San Diego has been overbuilt and has an oversupply of commercial and residential housing. There is always more room to build that other major metropolitan areas don't have which help keep the supply in balance. San Diego has been having problems for a long time which does not automatically carry over to Los Angeles for example.

sunnycal,

Are you saying that Los Angeles is immune to this real estate cycle?

Of course, hardly anything automatically carries over to everything - as a generality. However, the underpinnings of this real estate cycle was national in scope; easy money and credit. The only argument is, to what degree was the impact on real estate prices going up and will that be in effect on the way down.

Looking at the attached Case-Shiller graph for Los Angeles, it does show LA to be declining in value. How low will it go?

 

[Greg Bell]

For Pete's sake , It's a nationwide crash , pure and simple.Unless you move to Seattle and 2 zip codes in New York and Texas prices are DOWN and will continue for years , not months.So buy beans and ammunition , this recession may turn into 1933...

 

[sunnycal]

sunnycal,

Are you saying that Los Angeles is immune to this real estate cycle?

Of course, hardly anything automatically carries over to everything - as a generality. However, the underpinnings of this real estate cycle was national in scope; easy money and credit. The only argument is, to what degree was the impact on real estate prices going up and will that be in effect on the way down.

Looking at the attached Case-Shiller graph for Los Angeles, it does show LA to be declining in value. How low will it go?

Of course, I am not saying it's immune no market is immune to external forces. I am simply saying that the situation is San Diego is different than other markets. Los Angeles and the San Francisco Bay Area including Silicon Valley are all evidence in support of my contention. What has happened in San Diego has not happened in Los Angeles or the Bay Area now and in the 1990's after the savings and loan crash. Both of these markets did experience declines but overall in the long run both markets are still up.

Considering the overall appreciation from prior to the latest cycle people have still experienced tremendous appreciation. Anyone who bought prior to the last boom cycle is in pretty good shape. Unless prices drop to pre 1990's levels then I don't think we have too much to be worried about since this market correction is a necessary phase of economic cycles. Prices could be down 10-20% over say last year or two years ago but how do they compare to 10 years ago? People are too caught up in short term horizons vs long term horizons.

 

[Randolph Kinney]

Of course, I am not saying it's immune no market is immune to external forces. ... Both of these markets did experience declines but overall in the long run both markets are still up.

I am saying the same thing you are. Cheap and easy credit made the run-up in home prices happen in San Diego, Los Angeles and San Franciso this time. The same external force is at work bringing prices down in these 3 markets; housing affordability and credit tightening.

Unless prices drop to pre 1990's levels then I don't think we have too much to be worried about since this market correction is a necessary phase of economic cycles. Prices could be down 10-20% over say last year or two years ago but how do they compare to 10 years ago? People are too caught up in short term horizons vs long term horizons.

I am attaching the Case-Shiller index for Los Angles from 1987 through 2nd quarter 2007 and 1990 through 1997. Take note: prices fell for 8 years, a decline of 27% before stabilizing and turning back up during the 1990 - 1997 time period.

Most people selling their houses during those 8 years resulted in losses.

 

[Randolph Kinney]

sunnycal,

Here is the OFHEO statistics graphed to compare the Case-Shiller statistics graph. Notice the inflation line?

 

[moh malekpour]

Long road to recovery for housing market: Greenspan

http://www.reuters.com/article/ousiv/idUSL0112895120071001

The housing market has a long way to go before stabilizing after the subprime crisis, spelling bad news for consumers in the world's biggest economy, former Federal Reserve chief Alan Greenspan said on Monday.
"As in similar situations of inventory excess, I would expect home price declines to continue until the rate of inventory liquidation reaches its peak," Greenspan told an audience at Reuters in London.

"There is little relevant American history to guide us in judging the ultimate extent of home price decline or the timing of a new price recovery, or by extension, the economic impact on the rest of our trading partners."

 

[Randolph Kinney]

FED awakens (maybe) to a new reality

House prices to dominate Fed policy for years, says Pimco's Gross

'Wall Street, despite its increasing influence in America's finance-based economy, is not Main Street; and stock prices do not dominate the spending habits and confidence of its consumers in the same degree as do home prices.'
— Bill Gross, Pimco

WASHINGTON (MarketWatch) -- Falling home prices will dominate Federal Reserve policy for the next several years, despite "false hopes" of a bottom in housing, "faux economic strength" or worries about the dollar, says Bill Gross, managing director of Pacific Investment Management Co.

The Fed will probably cut the federal funds rate from 4.75% to 3.75% within the next six to 12 months, Gross wrote in his monthly outlook.

Policymakers will have to adapt to a "brazen new world" dominated increasingly by supercharged private money that is unresponsive to public policy, Gross wrote. Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson will need to throw out the textbooks that describe a lost world in which banks, which dance to the Fed's tune, are the main force in the financial world, according to Gross.

"The modern financial complex has morphed into something unrecognizable to many astute market veterans and academics," Gross said, referring to a "shadow banking system" of derivatives and the alphabet soup of CDOs, CLOs, ABCPs, CPDOs and SIVs.

"They know they are in a pickle, and a sour one at that," Gross said, explaining that if interest rates don't fall enough, Bernanke "risks exacerbating a housing crisis."

However, if Bernanke favors homeowners over corporations, "he risks igniting speculative equity market behavior" and a run on the dollar, according to Gross.

But the Fed and the Treasury will have to deal with Main Street's problems, not Wall Street's, he said.

"The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market by their conduit holders," Gross said.