Housing Bubble Bursting?

[Lloyd Bonafide]

U.S. Credit Crisis Adds to Gloom in Norway

http://www.nytimes.com/2007/12/02/world/europe/02norway.html

NARVIK, Norway, Nov. 30 — At this time of year, the sun does not rise at all this far north of the Arctic Circle. But Karen Margrethe Kuvaas says she has not been able to sleep well for days.

What is keeping her awake are the far-reaching ripple effects of the troubled housing market in sunny Florida, California and other parts of the United States.

Ms. Kuvaas is the mayor of Narvik, a remote seaport where the season’s perpetual gloom deepened even further in recent days after news that the town — along with three other Norwegian municipalities — had lost about $64 million, and potentially much more, in complex securities investments that went sour.

Tiny specks on the map, these Norwegian towns are links in a chain of misery that stretches from insolvent homeowners in California to the state treasury of Maine, and from regional banks in Germany to the mightiest names on Wall Street. Citigroup, among the hardest hit, created the investments bought by the towns through a Norwegian broker.

For Ms. Kuvaas, being in such company is no comfort. People here are angry and scared, fearing that the losses will hurt local services like kindergartens, nursing homes and cultural institutions. With Christmas only weeks away, Narvik has already missed a payroll for municipal workers.

Above all, the residents want to know how their close-knit community of 18,000 could have mortgaged its future — built on the revenue from a hydroelectric plant on a nearby fjord — by dabbling in what many view as the black arts of investment bankers in distant places.

 

[23Degrees]

I don't think so. Inflation is rising too fast for the downward spiral in home prices to last long. By the end of 2008 home prices will be back in line due to the rising price of everything else; due to the general devaluation of the dollar.

This could very well sum up the future. If the FED actually does cut this month then my bet is that this is what the desired outcome is, if not by 2009 then by the time the last wave of resets come home to roost in 2011 or 2012. With California and now the feds talking about deals for a rate freeze, an idea initially viewed with mockery and disbelief across forums and blogs worldwide when first mentioned by the FDIC chair a month or so ago, further rate cuts by the FED will make it pretty clear that all the big players are on board to try and sweep this under the rug to whatever degree possible. They would be taking sides and it looks like those who behaved the worst are going to be catching the breaks, at least short term.

In the end the crash will be spectacular one way or another in many areas but possibly invisible or seriously mitigated in terms of dollars due to these efforts.

That could pretty much kill the dreams of many who sat this thing out responsibly and saved their dollars for the day that homes would become affordable again, particularly those in lines of work that will not see pay increases that meet up with that degree of inflation for quite a while.

 

[Riick]

This could very well sum up the future. If the FED actually does cut this month then my bet is that this is what the desired outcome is, if not by 2009 then by the time the last wave of resets come home to roost in 2011 or 2012. With California and now the feds talking about deals for a rate freeze, an idea initially viewed with mockery and disbelief across forums and blogs worldwide when first mentioned by the FDIC chair a month or so ago, further rate cuts by the FED will make it pretty clear that all the big players are on board to try and sweep this under the rug to whatever degree possible. They would be taking sides and it looks like those who behaved the worst are going to be catching the breaks, at least short term.

And this is the way History shows us all FIAT currencies die - inflation.

Those pieces of paper in your pocket and noted in your bank account are backed by the "Full faith a credit of the United States of America" - and nothing else ---excepting maybe some 9v batteries.
Same paper is currently being described as a "Sub-Prime Currency"
---"Time to buy Beans 'n' Gold Jewelry" ---

 

[Randolph Kinney]

Everyone should know that an inflationary boom results in a deflationary bust. It is seen in falling asset values and deflating debt; one forces the liquidation of the other to pay. It can also be seen in a devaluing of a currency; it takes more to buy less. People will not part voluntarily with a real asset for paper money that has no value. Once that happens, what has value? Force of govenment to take away that what has value.

 

[Riick]

Here's an interesting video from Bloomberg
-- the man says whatever bailout deal the Feds cook up is: "Too Little, Too Late"

mms://media2.bloomberg.com/cache/vSZn84rvBkQA.asf

 

[Terrel L. Shields]

No kiddin'...it makes sense for most of these borrowers to simply walk away. If the market value is plunging then freezing rates will not solve their problem.

 

[Pamela Crowley (Florida)]

I agree with the guy from Beacon. Too true.

 

[Workbox]

Here's an interesting video from Bloomberg
-- the man says whatever bailout deal the Feds cook up is: "Too Little, Too Late"

mms://media2.bloomberg.com/cache/vSZn84rvBkQA.asf

Yeah, how do you identify them?

 

[Austin]

Couch PotatoI don't think so. Inflation is rising too fast for the downward spiral in home prices to last long. By the end of 2008 home prices will be back in line due to the rising price of everything else; due to the general devaluation of the dollar.

I don’t understand that forecast. The underlying problem as I see it is an out of balance market meaning the houses are priced out of range of the ability of potential purchasers. The market needs and is trying to readjust. If housing prices start going back up, or stop going down to soon, then the desired result would be counterproductive. Housing prices coming back in line meaning what? Back in line is balance to affordability indexes so if prices reach equilibrium and start up again without corresponding wage increases is just recreating or prolonging the problem. I see just the opposite effect. Prices need to reach the affordability index and deflation can only accomplish that at which point many areas will be stuck with a gross over supply that will take time to absorb with little available money to accomplish it. The net effect will be a long term flat market at best and hopefully will maintain the affordability index ratio.
This bailout idea is possibly the worse medicine available for the problem. It just makes thing worse.

 

[Riick]

^^^^
Austin - I agree with you that a bailout is a bad idea - and as others have said, it is clearly a Moral Hazard enticing people to bad actions...
~
Since WHEN has your average politician cared about anything other than a short-term solution that will get them re-elected?
....and devil take the consequences - they'll happen next year.
:new_silly: .(idiots). :new_blowingup: