Bush adviser: Housing boom appears to be mostly market driven

[sabra]

<<SNIP>>
http://www.signonsandiego.com/news/business/20050712-0807-bush-housing.html

By Jeannine Aversa
ASSOCIATED PRESS

8:07 a.m. July 12, 2005

WASHINGTON – The Bush administration is closely watching the housing boom, though so far the surge appears to be driven mostly by basic market forces and not speculation that could lead to instability, Ben Bernanke, the president's top economist, said Tuesday.
Federal Reserve Chairman Alan Greenspan and some private economists have raised concerns that the market may be getting too hot.

Speculative buying and selling seem to be cropping up in some areas, but other forces also are feeding the hot market and the surge in house prices, Bernanke suggested.

"While speculative behavior appears to be surfacing in some local markets, strong economic fundamentals are contributing importantly to the housing boom," said Bernanke in his first speech as the new chairman of the White House's Council of Economic Advisers.

<</SNIP>>

[swag]

1. No conundrums for ol' Ben, I guess.

[rzemanfl]

2. Absolute bullshit!!!! It is driven by the Federal Reserve and by

*'s tax policies which encourage investments in housing (not business investment like they told us they would). I will post a link to an article in Sunday's St. Petersburg Times, which was supposed to reassure us Floridians that we really were "earning" as much on our houses as we were at our jobs, but which actually shows how tax policy is helping to make housing unaffordable.

[rzemanfl]

5. Here is that link:

http://www.sptimes.com/2005/07/10/Perspective/Bubble_tr...

Which no longer works....

The article was titled "Bubble trouble? Unlikely."

[cosmicdot]

39. link to the sptimes article

http://www.sptimes.com/2005/07/10/Perspective/Bubble_trouble_Unlike.shtml

[kestrel91316]

3. Oh SURE it is ..................

just like the Dutch tulip bulb craze was.

[Zorra]

4. Uh-oh.

The bubble must be about to burst.

[AlCzervik]

6. ok i couldn't afford to rebuy my own house now

these people really, really need to get out of the beltway every now and then.

[rzemanfl]

8. For me, not only could I not afford to rebuy my own home, if I were

to sell it and move, I couldn't afford the property taxes on a house bought in today's market.

[Moose_head]

19. Property taxes-

Don't they do regular re-assessments in your area?
If you were to sell your house, and then buy one of equal or lesser value, why would your property taxes be appreciably higher than they are now or soon will be on your current residence?

Where are you located, and how do they figure property taxes there?

[barb162]

23. Some places don't have reassessments

Relatives in CA who bought their house 30 years ago pay about 3000 bucks and their home is worth about a million. If they moved down the block to a similar house, they'd pay a lot more in taxes. Then you have the seniors who get the taxes frozen. There's a lot of play in some states and counties with house taxes. In my area, they don't care if you had your house a hundred years, your taxes keep going up unless you are 65 and can get the taxes frozen

[demobabe]

40. Little known tax fact for you Californians that could save you $$$

There is some kind of provision where you can sell your house in California, move to another one in California, and roll over your assessment from your previous property.

But the catch is that you can only do this once. If you move again, you're stuck paying the higher assessment.

[rzemanfl]

24. In Florida there is a cap on the amount they can raise your

assessment on your homestead in any one year (I think it is under 2%) but as soon as you sell and buy something else the assessment on the new place goes up to about what you paid. We've been in this house about eight years during which it supposedly has tripled in value, but the taxes have only gone up about a $100 a year.

[Moose_head]

27. i understand the purpose of those types of caps-

It helps prevent people on fixed-incomes(i.e. retired or disabled) losing their homes to huge tax increases-
BUT-
when you exempt some people from paying their fair share of the taxes- it means that the state has to make up that income elsewhere, and someone(s) are going to have to pay MORE than their fair-share.

[rzemanfl]

31. This gets murky, is my house really worth three times what I paid

for it eight years ago? Only if I sell it and buy someone else's overpriced house. Here the people who pay the most property tax are people who have second homes here, which may or may not be fair. If you aren't buying that, then I plead being pretty darn old.

[Moose_head]

37. you don't have to buy someone else's overpriced house-

you can buy someone else's reasonably priced house.

my wife and i also have a house that has tripled in value since we bought it 9 years ago.
we're putting it on the market- and when it sells- we should be able to pay off the mortgage, and have enough leftover to buy another house outright- we plan to relocate from the city of Chicago to somewhere less congested in Wisconsin.
we've been looking at prices, and we should be able to get something a little bigger with a much bigger lot- and probably be paying less in taxes too.

[rzemanfl]

38. There are no reasonably priced houses around here and if I

moved back to Wisconsin, even though I could pay cash for a reasonably priced house, the property taxes would be more than my annual mortgage payments on this place. Besides, it would ruin my tan.

[geomon666]

7. I don't get it

I've been seeing the same houses up for sale for almost a year now with no buyers. And more get put up every month.

[rzemanfl]

9. Where do you live? n/t

[geomon666]

21. I live close to downtown Miami

but the area I'm talking about is the suburbs where my father lives. People are asking 300k for homes down there and barely any are getting sold. Every time I go down there the same houses are for sale and it's been that way for almost 2 years now.

[Tempest]

10. BushCo full of shit. Up to 25% of sales are by investors

It's a big problem in California.

[sandnsea]

13. Retirement areas too

I read an article about it a month or so ago. It's investors and second home buyers preparing for retirement. As soon as boomers start selling their first homes, they're going to saturate the market and not be able to pay for the second homes like they thought they could. That's what I think anyway.

[Guy_Montag]

11. The Economist - a very solid British weekly news magazine

had special edition on the US (& world, but mostly US) housing boom last month.

& how it's going to go to shit.

[leftchick]

17. how soon?

did they speculate on the shit arrival?

[Neshanic]

42. I am predicting end of October mid November for Phoenix.

[K-W]

12. Somehow that doesnt make me feel better about things.

I wasnt really worried about why the prices were high, I was more worried that they were high.

[msongs]

14. He is correct for our situation here in Southern California.....

the driving force behind housing cost is population growth. Too many people from multiple sources, a shortage of places to live, supply and demand, and voila! housing prices increase.

There might be some speculation here, but not a whole lot.

When you have lots of people living 10 and 20 to a house/apartment at the bottom end (think immigrants) and people moving away from the city centers to try and find cheaper housing (think commuters), and a shortage of apartment/low/moderate housing construction, price increases are inevitable.

take my house: a small 1100 sq. ft, 3 br, 2 bath, made in the early '50s from a design that is very common around here. who woulda thought the price would be what it is today? It happens to be in a very good neighborhood, but there are exactly same houses all over this county in "not so good" areas that are also selling for megabucks.

The problem is nobody is building houses like mine for the current market. If I was a builder I would resurrect this design, make a few updates, and start building them in tracts all over insted of building these huge high-price stucco palaces that are so common around here.

Msongs
www.msongs.com/liberaltshirts.htm

[Moose_head]

18. Exactly-

As long as they keep making more people, without making more land, demand will be the main driving force.

However- Interest rates play a very major role- and until mortgage rates go back into the double digits(I remember when they were at 18%), people will keep on buying.

[redacted]

20. Here in the CA wine country -- I think it's primarily speculative.

Although some of it is (or initially was) based on fundamentals. Lot's of investment buying, buying from folks out of the area. Median price going from 300K to 600K in a few years. People doing "move ups" just because low rates allowed them to.

If you just look at the rental market you can see the results -- the rental market is very soft -- rents are stagnant or going down. Many of the landlords are from different area codes -- they can't seem to fill the places. Even though unemployment is the lowest it's been in 6 years.

I read a paper (I think from Bob Gordon, Economist at Northwestern University) that said the rental market is a good indication of where the RE market is heading. (locally, that is)


Edited to ad the (locally) comment. Didn't want to imply that our situation was everywhere -- in fact I think it's not true many places. My parents tried to sell their house in Houston a about a year ago and no one serious even came to look at it -- it's a very nice house in a very good school district.

[Tempest]

25. Also largely a speculative market in Bakersfield

Bakersfield had the highest jump in housing prices in the nation last year. It's still leading the nation in 2005.

I've seen housing prices in the area increase 300% since moving here in 1999.


Here's a perfect example:

A house in my neighborhood went on the market in 2001 for $108,000. It sold for $112,000. Two years later (2003) it went on the market for $198,000 and sold for $210,000. In March 2005 it went on the market for $310,000 and sold for $340,000. It was sold to an investor in L.A. who's renting it out.

I have a friend in San Francisco who just purchased his third house in Bakersfield and is renting out all three. He plans on dumping all three in the next year, and moving on to Texas (Austin area) where the housing market is just heating up.

[CAcyclist]

30. Bakersfield is the Absolute Last Place To Appreciate

I was raised in Bakersfield and my parents still live there. I've seen the market just stagnate for so many years and now people are finally buying, but I would have to agreed it's mainly speculators. There's still an awful lot of land to be developed in Bakersfield and most people who buy to actually live there tend to like to buy only new houses.

My mantra has always been that the housing boom is peaking and will soon implode when Bakersfield is hot.

[Tempest]

33. There's one big problem with your analysis

The increase of new houses is outstripping population growth almost 2 to 1. (I should have said family growth)

According to local realtors, and reported in the Californian, 25% of the market in 2004 was speculators and investors. And it was around 33% in the last quarter.

If you mean the housing market will implode when the temperature in Bakersfield increases, it hasn't happened in the last 3 summers. What makes you think it'll change now?

[CAcyclist]

44. In Bakersfield?

You know very well I mean when the housing market in Bakersfield heats up. You don't think a 25% speculator rate isn't bizarre? It's like putting all your money on the purple properties in Monopoly.

True, I don't have the stats for the number of people moving into Bakersfield, but I've seen the huge,huge numbers of boarded up, abandoned houses over the last ten years, houses for sale on the market that just stay on the market for months and months, and the enormous amount of farmland that is perfect for developers - level, near freeways and still relatively close to the city center.

People grow up in Bakersfield and then move away. It's not a place a lot of people think of as a great place to live. It's too hot and too far from recreational and cultural activities. The housing market had been underpriced a bit, but now its far too high too fast for any reasonable explanation other than a speculative bubble.

[getmeouttahere]

26. Sounds like what my Dad refers to as...

starter homes. They simply don't build them anymore.

I was listening to a progressive radio program a few weeks ago, and they were saying how there are 400,000 real estate agents in California. WHAT???? They were saying that in itself was an indication that the bubble was soon to burst, because it reminded them of the time right before the tech bubble bursting when everybody was an expert on tech stocks, your janitor, the cab driver, etc. They also said that the housing bubble simply replaced the tech bubble.

[Deja Q]

15. Market driven - you mean, CONSUMER DEMAND?

These nitwits need to realize supply-side economics is a crock; designed to hinder demand.

[redacted]

16. 2003 Paper from Brookings on it

http://www.brookings.edu/dybdocroot/es/commentary/journals/bpea_macro/papers/20030904_case.pdf

The good news here is that the "bubble" in housing prob will not happen as dramatically as it did in stocks -- it will likely happen in different places, different times -- and some places not at all.

[trekbiker]

28. 9/4/2003????????

the whole world has changed since then. my own house is up near 40% since then. Hoping to sell it next spring and clear out of Calif. maybe sell it to a freeper whose overleveraged on an interest only ARM (wishfull thinking... doubt any of those dumb bastards could afford it)

[redacted]

32. Agreed. But it shows how long this trend has been going. and . . .

. . . the fundamental analysis applies up until that point. Also I (not being and economist) found the basis for understanding this situation very helpful.

I guess my point is -- if this was their analysis is 2003 -- what would it be NOW.

[Eurobabe]

22. BS, it's speculative

in most places now. I see it even in my own neighborhood. One person who built last year found a sucka to buy his mcmansion for $50K above what he paid, so he is selling it and building a new one in same subdivision!! No speculation there...

[CAcyclist]

29. I'm Starting To Think This Is Allowed To Continue

so that people's property taxes will go up.

This will allow the federal government to justify sending even less money to local governments.

Maybe the Republicans are hoping people will revolt over the taxes and , by a knee-jerk reflex, also vote republican because they automatically associate the democrats with high taxes and the Republicans with low taxes, even if that correlation isn't fair.

Now this is all pure speculation on my part.

I don't own, just rent, but, for the first time, I am glad we in California passed Prop 13, so that people in my area who haved lived in their houses all their lives aren't being suddenly forced to pay huge amounts of tax just because the newcomers are willing to pay so much for homes in the last few years.

[Tempest]

34. Prop 13

What's really funny is listening to pro-proposition 13 people complain about the state of California's infrastructure.

California has paid a high price for keeping property taxes at 1970s levels.

[CAcyclist]

45. Now, I'm Not Saying I'm Pro Prop 13

I'm just saying there's finally a silver lining. I fully agreed with your sentiment on this.

[kineneb]

35. statistics from the trenches

I work at a small chamber of commerce...

Today I was sitting there, waiting for the phone to ring or for someone to come in the door, when I had a brilliant idea. I would look at information packet requests from last year and compare the numbers to this year. Guess what? Both tourism and relocation packet requests are down from 2004. Interesting thing was that we had a lot of relocation packet requests at the beginning of this year, but now we are not getting very many, compared to last summer. I think I am seeing the beginnings of a trend.

I have yet to ask any of the motel folks about occupancy rates. Might be interesting.

[fleabert]

36. personally, since i don't own a home now,

I am really looking forward to the boom ending and buying a house dirt cheap! shitty of me, I know, but I hope to target a conservative and lowball the shit out of them. the market will change, it always does, it will be a buyer's market again someday.

[Neshanic]

41. He should visit Craig's List for Phoenix. Too many homes no renters.

New three bedroom homes, never lived in. With pool. Thousand bucks. That's just Craig's list, the gazillion ads in the newspapers and free pick up books at the supermarkets are like the phone book.

For a hundred bucks more a month, I can live in a new three bedroom house with a three car garage, with a pool.

It's not gonna be pretty here in Phoenix in a couple of months, he will be looking for those "strong economic fundamentals" under piles of U-Haul reservation forms.

[Jose Diablo]

43. If a Bu$h advisor says it, then I say "Look out below". n/t