Is this the housing bubble going to burst

[dansolo]

http://newsobserver.com/front/digest/story/2817631p-2604114c.html

This is an interesting article about how a huge order of plywood for the military operation in Iraq has severely limited supplies, and has caused the price of plywood to double. The article mentions that this increase of price would add several thousand dollars to the cost of newly constructed homes. But wait, it gets even better:

"You had several factors come together all at once to create a perfect storm, and it's still going," Dawson said.

One commonly used type of half-inch four-ply exterior sheathing cost $240 per 1,000 square feet at the mill in April, Dawson said. At the middle of this week, it was $460.

But things could be worse.

"The only thing missing this year is a hurricane threatening a major metro area," Dawson said. "If that were to happen sometime in the next six weeks, it could be a major market influence."

Combine that with the increasing mortgage rates, and I suspect that we are going to see the housing bubble burst. I wonder how that is going to ripple through the economy.

[Sliverofhope]

1. The only thing missing this year

is a hurricane threatening a major metro area?

Like Isabel might do in the next four or five days? Swell. Several factors coming together to form a "perfect storm" indeed. You can't make stuff like this up.

[Code_Name_D]

2. I don't think this will burst the bubble.

I am not an annalist mind you, so I could be wrong. But the housing bubble isn't being caused by material shortages, but by speculation in the housing market futures. In other words, the bubble is taking place in trading houses, not out in the field where these homes are being built. The only thing that will threaten that bubble is if they have trouble selling the freshly built homes. Increased material cost only drops that threshold. But the current housing market is so inflated that mark up can easily absorb even double the cost of building materials.

But it will hit the victims of the coming hurricane. And hit them HARD. It will also have a profound effect on attempts to reconstruct afterwards. But even if building material becomes hard to come by, or becomes more expensive, the real challenge will be getting the capital to rebuild.

[Code_Name_D]

6. More information.

Not that I do research on this or any thing. But as I stammer around the DU, one of my daily visits happens to be the daily market watch thread. And this was one of the little nuggets I stumbled on. Whispers on the street has it that the insurance industry is heavily invested into real-estate. Well, with Isabel baring down onto the East coast, with some of the most expensive resituate development being built right their on the beach, in the path, it looks like the insurance companies may have to liquidate some, if not much of that real-estate back onto the market to pay off the claims. (Don't worry, we tax payers will still get to pay off most of the damages from these developments.)

This sets the time bomb. It now becomes a game of chicken as insiders hold on to real-estate, waiting to sell only as the insurance companies sell off, so that they get to sell on the highs. And John Q public will snatch them up, for a while, until more and more resituate hits the markets. It will not take a large drop to suddenly become a plummet. And if bubble predictions are true, plunge they will, most likely over several weeks.

[Melsky]

3. Why would this cause it to burst?

It sounds like having new homes be more expensive would just drive people to buy existing homes, driving the prices up even more.

[Ouabache]

5. I think Melsky might be right

New housing starts might decline ? Then again at the high up-scale end does it really matter? Those people got huge tax breaks, does the price of plywood matter to to them when they import Italian marble?

If new housing starts decline in the middle and lower housing markets that might make sales of existing homes rise. Here, I see a lot of existing homes in the middle and lower markets sitting on the market for over 3 months.

Some of the price (equity) might come out of those existing homes since mortagage rates are going UP again. So only those people who have already borrowed all the equity out of their homes would consider it a bubble bursting, correct? (I am being a little facetious here.) There are not too many of them, right? If there are a lot of them and foreclosures ensue, what could the cascade effect be?

:shrug:

Now, no one is going to tell me we are already in this position are you ?

[Creideiki]

8. New housing starts are much more important

You have a lot of labor involved, and that's much more important to the economy than increasing value of existing homes. At least that's how it's always been explained to me.

[Trajan]

4. Im not sure about the impact of sheathing costs .... BUT >

With values skyrocketing AND rates increasing: .... THEN you have a scenario where buyers find it harder to qualify for the higher prices, and buyers begin to disappear from the marketplace, thereby decreasing sales, and increasing supply, which would bring downward pressure to bear on home values .....

Here are the main factors:

1) Wages are stagnant or diminishing ... Hey: its a Bush economy ....

2) Bush is borrowing INCREDIBLE amounts of money to fund government operations: .... when the government borrows : it competes with the private sector for funds on the open market: .... MORE buyers: same supply, more demand: .... Interest rates increase ... Its just a matter of time: they would ALREADY be increasing if it werent for the fear that ALL will collapse if interest rates are unhinged and allowed to find its true market value ...

3) Home values have already ran up almost 100% in the last decade, if not more ..... the current values are themselves an obstacle to income qualifying ....

Combine that increase in home value to rising interest rates: .... it is inevitable that sales drop .....

BTW: ... Im currently in escrow ... Im selling my home of 3.66 years which increased in value $130,000 during that time .... That means it increased $2954.55 avg monthly since I bought it ..... this is ludicrously excessive .....

But hey: .. Ill take the gift horse and say nary a word of it's mouth, so to speak .... My family can use the money ....

After all: .. We'll need it to cover the loss of income from being laid off last month .....

Housing is in for a fall ..... and it wont be long ....

[dflprincess]

7. When the deficit and interest rates collide

it will burst big time.