Housing Bubble Bursting?

[Mike Simpson]

"Inflation is reflected in the foreign exchange value of the dollar. It is a gobal market Mike."

I don't think it's as global as some appear to think. How come we ain't all using a global currency? How do you slow down demand for oil in Communist China & East India by raising short term rates in the U.S.?

"Hmmm... and who might those mainstream experts be?"

Try contacting some Land Use Economics Firms from your region Edd. They've information to sell that you might find enlightening. They're unbiased...they don't form preconceived notions going in, and they're typically quite accurate in their assessments (they have to be to remain in business).
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I've just had a wonderful time strolling through the archives...try it if you've some extra time on your hands. Go back to 2002 & search for "Housing Bubble" threads (some, unfortunately are locked, but others are quite commical to read).

It's like looking through an old year book; "oh look @ what so-n-so wrote...that's hysterical!" Or, "I can't believe we use to wear our opinions that way."

It's good to see in this great big world of change...we can rely on some people to never change.

-Mike

 

[Big ole Boy]

Velocity of money is getting silly

How do you slow down demand for oil in Communist China & East India by raising short term rates in the U.S.?-Mike

I think M1 or M2 velocity is getting beyond the point of accurate measurement. 0% interest rate credit cards, 0% chicken being played by the car dealers, real estate sales through auctions with seller financing at 0% interest ..... its getting silly

too much velocity ... too much velocity equal "uncontrollable inflation" in the long run .....

 

[Randolph Kinney]

"Inflation is reflected in the foreign exchange value of the dollar. It is a gobal market Mike."

I don't think it's as global as some appear to think. How come we ain't all using a global currency? How do you slow down demand for oil in Communist China & East India by raising short term rates in the U.S.?

...

-Mike

So Mike, you never heard of the world reserve currency before? It is called the U.S. dollar. Trade is conducted in and settled with U.S. dollars. Buying oil? It is priced in dollars. Commodities? Priced in U.S. dollars. The world will accept dollars for payment.

You can slow world demand by slowing the U.S. economy. We buy from China and India and the rest of the world. We are the ultimate nation of consumers, that's what we do. A recession here will cause slowing abroad. It has been that way since WWII. And, the U.S. consumption of oil will drop when a recession develops here.

Maybe you haven't noticed but Europe, China, Korea, and other nations have raised their interest rates too.

 

[moh malekpour]

Are Mortgage Borrowers Rational?

June 23, 2006
Are Mortgage Borrowers Rational?
by Kevin Duffy
"I believe in people. I believe most people are rational." - Brian Wesbury, as appeared on CNBC June 20th

Earlier this week economists Gary Shilling and Brian Wesbury squared off on CNBC to discuss the current state of the housing market. Wesbury, the younger and far more frequent guest over the past eight years, was bullish: the market is simply "correcting back to normal." Shilling, the bear, subscribes to the housing bubble theory. As evidence, last year 40% of home sales were speculative in nature - that is, to second home buyers and investors. According to Shilling, it would take a 35% drop in housing prices to restore the long-term balance between median home prices and the Consumer Price Index. What caught our attention was the essence of Wesbury's assuredness: there never was a bubble because most people are rational.

In a sense, Brian Wesbury is right. Man tends to act rationally to pursue his own interests and remove discomfort. Markets would fail if man always acted randomly and without purpose. Imagine a household attempting to minimize its income and maximize prices paid at the grocery store. Its members would quickly perish. From 2001-2004 the Federal Reserve put the price of mortgage credit on sale as it drove short-term interest rates through the floor. Can existing and would-be homeowners be faulted for lining up in droves?
A long-time friend from Scottsdale, Arizona (inventories up ten-fold the past year) points out a distinction in the behavior of the debtor class. Some have clearly acted responsibly: they consolidated their debts into tax deductible mortgages, locked in the lowest long-term rates in 40 years, and tossed the interest savings into their rainy day and investment jars. From a consumption standpoint, little has changed except that these old school borrowers pocketed a windfall compliments of their friendly neighborhood central banker.
Others - to put it mildly - have gotten carried away. Mortgage equity withdrawal (a.k.a. going deeper into debt) was roughly $2.2 trillion over the past three years. Homebuying on margin (peddled as "the American dream") greatly expanded in the credit-challenged "subprime" strata. Debt service costs (household financial obligations at nearly 19% of disposable personal income) have never been higher, even with generously low interest rates.
Thanks to the young and reckless, today housing's vital signs look less than encouraging:
· 29% of mortgages assumed in 2005 are now underwater.
· 16% of those with mortgages pay over half of their income on housing, up from 2% five years ago.
· 22% of the $9.3 trillion residential mortgage market is now subprime.
· $2.7 trillion of adjustable-rate mortgages are expected to reset in the next 18 months with payments increasing on average 45%.
· Total home inventories and the inventory/sales ratio are at record highs.
On Main Street, Madison Avenue, and especially Wall Street, anything worth doing is worth overdoing. A good idea inevitably wilts under the sunlight of too much attention. So, too, the mortgage refi bloom is succumbing to over-exposure.
Man tends to act rationally until you place him in a group and offer him something for nothing. Over a century and a half ago Charles Mackay, in his classic Extraordinary Popular Delusions and the Madness of Crowds, observed that "men go mad in herds." 130 years later historian Barbara Tuchman, in The March of Folly, chronicled the recurrent "pursuit of policy contrary to self interest" from the Battle of Troy to the Vietnam War. More recently Bill Bonner co-authored two highly readable and entertaining books crash testing his theory on human progress: in science and technology man tends to learn; in love, finance, and war he makes the same mistakes over and over. This play of perpetual blunder has many acts: fear, skepticism, rationalization, exuberance, denial, resentment, and finally resignation. Only the actors change.
For some, folly is a participatory sport, while others choose to watch from the sidelines. Gary Shilling has been around long enough to see this game before. He recognized the manias of Japan in the late '80s and tech-land in the late '90s. He now claims the mortgage market went manic after the Greenspan Fed opened the credit spigot to fend off a deflating tech balloon in 2001. We have no knowledge of Brian Wesbury's view on "Japan, Inc." in 1989, though six years ago he jumped on the New Economy bandwagon. Today he dismisses the housing naysayers and assures us that the market is "pulling back to normal."
We have little doubt who's crystal ball is more popular with CNBC viewers.

 

[Randolph Kinney]

Good article Moh. It really sums it up; one side thinks no problem while the other side thinks there is a problem yet unresolved.

 

[Big ole Boy]

Real Inflation is the key to the Son of Stagflation

Mike, ( might as well call you Kudlow, from Kudlow and Company)

Its real inflation thats driving people to borrow more than they want to ....

indexes have been missing this .....

sooner or later the indexes and reality begin to force the invisible hand and

the Son of Stagflation appears ........

...glad I am just passing through this warped place called earth .......

.....zippidy do dah zippidity ahe, my oh my what a wonderful day .....

 

[Mike Simpson]

OMG!

Moh posted a semi postive news article regarding the housing bubble!!!

Are you just doing that to upset me?

"So Mike, you never heard of the world reserve currency before? It is called the U.S. dollar. Trade is conducted in and settled with U.S. dollars. Buying oil? It is priced in dollars. Commodities? Priced in U.S. dollars. The world will accept dollars for payment."

No Randolph...never heard of the world reserve currency before :new_sleeping:

China's exchange rate is debated often in Washington Randolph. There's a current imbalance in the so called global economy: The US has a large current account deficit while other countries accumulate dollar assets. Pressure on China to alter its exchange rate makes the news on a regular basis.
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How some of you have so much time on your hands for debate baffles the mind!

I hardly work anymore & I can barely keep up debating these issues year after year.

Everytime I log on & start contributing again...it's a drain. So time consuming, and for what?

This place is so depressing all the time. We'd be better off spending our valuable time in a more constructive manner.

-Mike

 

[Randolph Kinney]

China's exchange rate is debated often in Washington Randolph. There's a current imbalance in the so called global economy: The US has a large current account deficit while other countries accumulate dollar assets. Pressure on China to alter its exchange rate makes the news on a regular basis.

So Mike, you didn't know the U.S. has been a net debtor country since the early 80's? China and India are just the new comers to supply the U.S. with manufactured goods and services. It is called "out sourcing" and it has been going on for some time.

 

[DTB]

June 23, 2006
Are Mortgage Borrowers Rational?
by Kevin Duffy
"I believe in people. I believe most people are rational." - Brian Wesbury, as appeared on CNBC June 20th

As evidence, last year 40% of home sales were speculative in nature - that is, to second home buyers and investors.

What caught our attention was the essence of Wesbury's assuredness: there never was a bubble because most people are rational.


· 29% of mortgages assumed in 2005 are now underwater.
·
.

Herein lies my problem with the bubble bandwagon. They overeach in their attempt to make bubble news.

So a second home purchase and all investment purchases have become speculative in nature. I must have missed that E-mail.

And miraculously all houses with 2005 mortgages have now been re-appraised and voila, not only has their value dropped, but it dropped enough that theya re now upside down. Does anybody REALLY believe this, even if you are on the bubble side of things.

I've severely limited my postings lately. But John Meghdan's new byline sums it up for me.

 

[xm72mhd]

"Hmmm... and who might those mainstream experts be?"

Try contacting some Land Use Economics Firms from your region Edd. They've information to sell that you might find enlightening. They're unbiased...they don't form preconceived notions going in, and they're typically quite accurate in their assessments (they have to be to remain in business).

Not being able to readily identify local land use economic firms (I live in Southern Colorado-apparently there aren't any here who call themselves that), I googled the terminology. Basically, I got educational institutions who are prepping students to enter the land use planning fields.

Then I googled "real estate bubble" and I pulled up one of those guys who sells books about real estate investment who certainly is critical of the "bubble". There was one scholarly article by someone who has studied real estate bubbles and has developed mathematical predictors, and he says no bubble here. Then there were a bunch of the doom's day prophets.

HELP Mike. Your clue is too cryptic. I would like to find something applicable to my market in the resources you cite. It must be some kind of technique that I can apply. Nobody but us appraisers and the Pueblo land use planners pay any attention to the area. The land use planners hire a firm to produce a report that satisfies the chamber of commerce so its reliability and usefulness is somewhat limited.