Bush's last leg: The Housing Market Bubble

[Zynx]

The unusually strong housing market(13% gains nationwide vs. 5% normally) has undoubtedly helped Bush's approval ratings to some extent because people like the feeling of making money regardless whether or not the president has anything to do with it. Granted, it does not appear to be helping him much, but it is likely giving him a few points worth of positive lift in the polls. However, the rapid pace of house and condo price appreciation cannot continue for long and will soon turn to a terrific bust once speculators see signs of cracking that are already anecdotally occurring and as Greenspan tightens up liquidity that has fed the housing boom. Once house prices go into correction, the national economy will likely suffer and consumers that have leverged themselves to the hilt in their houses in the hot markets will find themselves underwater and in deep deep trouble. Such a correction will probably happen sometime in early '06 starting in the most speculative markets and will spread from there nationwide, fueled by banks getting fearful about granting home equity loans so freely and from there it will be disasterous. Such an event, assuming it does happen, will probably cause Bush's approval rating, even in MSM polls, to plummet even further to the low thirties.

[LoKnLoD]

1. If Fitzgerald hands down indictments in October

That might be the last leg of Bushco, got my fingers crossed.

[Zynx]

2. A lot of people care more about their money than anything.

The elite of this country has always been more about real estate than financial markets. Real estate is something that seperates the rich from the poor as they see it. Financial markets actually can, with an outside chance, make a middle class person rich. Not so with real estate. A middle class person will never become wealthy in real estate unless they get very lucky and happen to hold some very lucky property. Many of Bush's staunchest allies are heavily invested in South Florida, Southern California, and New York City real estate. All of these are dramatically overbid and due for a crash. Once that happens, his base support will crack and those without much in real estate who were making money and thanked Bush for it will be wipped out and will turn on Bush as well.

[ultraist]

19. Lucky? Hmmm...

Don't know many landlords, do you? It's not a matter of "luck" it's a matter of buying smart. ;)

[Bluebear]

3. FOX TV news today: "Will hurricane help the housing market?"

Leave it to them to find the bright side.

[Zynx]

8. Hurricane= Higher Insurance= Weaker Housing Market

Insuring houses, particularly in the hot South Florida market, will become tremendously expensive and will hurt the market badly at the margins.

[Stinky Bushes]

4. Some economists have predicted that

many will have to just up and walk away from their homes. When they find they were hoodwinked by interest only loans and they cannot afford the excessively high payments anymore, coupled with a home that is decreasing in value, and they actually end up OWING thousands of money back to the banks - they will have no choice but to walk.

I have predicted this bubble pop for five years. I am surprised it has taken this long, but the advent of interest-only loans has only propped up this thing for a harder fall.

[jackbourassa]

11. Interest only loans will be the ruin of millions

Because if people are only paying down the interest and not the principal - and the values of homes collapse - it means that people will be owing tens, if not hundreds of thousands, of dollars and hold no equity in their homes.

Example:

Let's say someone buys an "interest-only" home for $150,000. Then the property value decreases to $100,000. Since the owner of the home sells off the property for $100,000, he still has $50,000 owing and no ownership left in the property.

How about that for Bush economics?

But you know what the Republicans will say? They will blame it on people for taking such loans in the first place.

[Zynx]

13. There has been a widening of the bubble over the past five years

For a while, it was only about four metro markets. Now eight whole STATES have yearly price increases of 20% or more when only 5% is historical. 15 markets have prices increases of 15% or more and 25 10% or more. Half the states in the country with the vast majority of the population are running well above historical growth and one thing that always happens in economics is a "reversion to the mean" meaning that a correction will occur in far more markets than the analysts, who never get anything right, are calling for.

[Wordie]

5. Be careful what you wish for...I've read that a major portion of our GDP

is tied up in the housing market. So it wouldn't just be Bush who would go down in this scenario, it would be all of us. And the ability to say, "I told you so," to all those freepers who were blind to the economic disaster that the Bush policies created will be small consolation (Note that I've heard a lot of mixed reports on the likelihood of this - it's not a certainty that it will happen).

[Stinky Bushes]

7. you are correct

While I lament at the potential damage of lives and property, I do not lament over the final overthrow of greed and avarice that has been endemic to this current housing market.

[Wordie]

14. ...unless the rats manage to wiggle out of it again. n/t

[Zynx]

10. I remember all of those that said the stock market was not a bubble either

They predicted a "soft landing" for the stock market. What we got was a bear market of epic proportions. California, DC, Arizona, Florida, Northern Virginia, New York, Boston, and Chicago real estate is all in the stratosphere and by any rational valuation analysis a correction must occur. Price appreciation in those areas is running 2.5x trend or more. In California it is running 5-7x above trend meaning that there is a bubble and bubbles do only end one way: correction. Markets don't let bubbles end nicely.

[jackbourassa]

6. Don't fight the fed...

That's a saying on Wall Street.

Which means that when interest rates are going down the economy will improve (usually 9 months to a year later). Same is true in reverse. When interest rates are rising the economy will contract.

Given that interest rates are rising and consumer and government debts are at all time highs (understatement of the year) that means that personal purchasing power will greatly decrease with little room for government help.

My prediction: 2006-7 will be a recession year. Deep one probably.

Add to that: Karl Rove's impending indictment; the US fatalty rate hitting 2,000 by the end of the year in Iraq; Bushie's numbers will be in the 20s by the midterms.

[AX10]

9. A recession could start in the summer of 06 into the....

late fall of 07. The debt levels are too high.

[jackbourassa]

12. I think it'll start in the Spring 2006 at the latest.

My opinion.

[pitohui]

15. well the housing market has soared in the last few days

demand exceeds supply, ppl who have undamaged houses have seen their property values soar, a friend in central mississippi said his house went up in value $25K overnight, says he's gonna sell & live in a trailer & take the profit plus equity to build his dream house

i guess it's an ill wind that blows nobody any good but there are ppl who need to be housed & large businesses eager to get their workers in homes so they can get back to business

this bubble won't be popping so quick

[ultraist]

16. There is no national bubble to burst

There are a few regional bubbles but even a burst in those areas wont be devastating.

We've been dealing with predatory lenders for a while now, that's a separate issue from real estate appreciation rates and supply/demand the two main factors to consider to determine if there is a bubble.

Real estate is a dynamic market and fluctuations are regional specific. There wont be a national crash.

[Zynx]

20. 8 whole STATES have price increases of 20% or more over the last year

Nationwide 17 states have prices increases of 13% or more. Sure, the plains states won't burst, but even a WSJ survey said that real estate markets encompassing 40% of the nation's population are overvalued by every conventional measure and in the past two quarters that has only gotten worse. The entire state of Arizona saw a 9.7% increase quarter to quarter for example. Make no mistake, the bubble is far more widespread than the analysts say it is. However, just like the stock market bubble there are areas, large areas, with no excess whatsoever.

[ultraist]

23. Link? My area appreciation rates are steady at around 5%.

TIA.

[Zynx]

28. Here ya go:

http://www.ofheo.gov/media/pdf/2q05hpi.pdf

[ultraist]

35. Thanks

I haven't read the entire 80 page report, but just as I thought my state is steady, right around 5% (actually it's 5.8%).

Those 'state' averages include some regions that are in the 40% range. Bubbles are not state wide.

[Autumn Colors]

17. Watch it burst after October 1

There are a lot of people living on credit cards (we all know that) and when they get the shock next month that their minimum payments are all doubling, you're going to see a LOT of people start falling into the financial black hole.

They'll be late with payments (credit card companies tack on late fee) ... the late fee then pushes them over their credit limit (tack on an overlimit fee)... the following month, they're required to pay not only the newly doubled minimum payment but the entire amount they are above their credit limit ...

repeat each month and multiply by how many credit cards they have....

It won't be long before people start NOT being able to make mortgage payments .... they also won't be able to file for bankruptcy because of the new bankruptcy laws that ALSO go into effect on October 1st.

Watch many, many people lose their homes ... in addition to all who lost them from the hurricane ... housing prices will start tumbling after that.

[tinrobot]

18. One thing's for sure.

The housing market in New Orleans, Mississippi and Alabama is already in the toilet, just like prices crashed in LA afer the '94 earthquake.

Not sure about the rest of the country, but here in LA, seems like the market is already softening. Not sure if it will crash hard like the dotcom bubble, because real estate is much slower, but it looks like the days of huge annual gains are over.

[ultraist]

22. Real estate investors and developers are going to make a killing off of LA

And builders are already lining up!

The sharks smell blood in the waters and are ready for a feeding frenzy.

[pitohui]

24. you are completely mistaken

The housing market in New Orleans, Mississippi and Alabama is already in the toilet, just like prices crashed in LA afer the '94 earthquake.



are you involved in the same event i'm trapped in?

housing is not to be had, prices to purchase a home in jackson, mississippi or baton rouge, louisiana have jumped $25K or more overnight

ppl whose houses survived are already getting offers, often for cash

office space can't be had in baton rouge at any price, it's all been sold

see, there's this little law of economics known as supply & demand

we just had huge supply wiped out

like everybody else who can afford it our first thought was to buy another home while rebuilding but this is turning out not to be so easily done, the houses simply aren't there

[tinrobot]

30. I didn't realize that

I do know that right after the '94 earthquake, a lot of houses in LA were damaged or wiped and prices here dropped considerably.

I do wonder how this disaster will affect housing prices in the South over the long term.

[leesa]

21. Lots of houses for sale around San Diego area. Not moving too fast

[ultraist]

26. San Diego is a high octane area.

San Diego’s current P/E is nearly 30, compared with a 1989 high of 23.4.

SD is one of the major regional bubbles. Sales have slowed a bit in the last month, so there is more inventory on the market, but sales always slow some, this time of year through New Years.

[HockeyMom]

25. Becoming a BUYER'S market

Last year in the town where we lived, the real estate agent said there were a record number of houses on the market (175-180). She said the average was around 150 in the summer. As of today, there are 210 (MLS, not incl. FSBO). Summer is officially over and the number on the market is constantly going up, while it seems the prices are now starting to come down.

Condos, on the other hand, are hard to come by. It seems to me that owners of condos are staying put and not looking to move up to houses. Playing the waiting game?

[ultraist]

27. Fewer condos on the market because speculators are buying them up

Sales also slow this time of year.

What part of the country do you live in?

[HockeyMom]

31. Long Island

Fewer condos on market than last year. I know because I have been checking. As far as speculators go, they are/were buying up the HOUSES (Flippers), not the Condos around here.

[Zynx]

32. In Milwaukee, Condo speculation is rampant.

Two huge new towers with $750,000 and million dollar condos are being erected with a view of the lake. I think those buildings will become the symbol of the end of the Milwaukee condo boom.

[ultraist]

34. Maybe speculators on LI are buying more houses but,..

overall, speculators (both foreign and American investors, often REIT groups) are focusing on condos.

There is a huge condo boom happening in many parts of the country and speculators are driving up prices.

[demzilla]

29. And here's a scary analysis for ya . . .

The conclusion from this article about credit cards, mortgages, and the overall economy:

http://www.dailybreeze.com/business/articles/1812572.html

There have, of course, been any number of doomsday predictions that didn't come true. But a number have: The Great Depression was the result of a panic in the market; in the late 1990s technology stocks collapsed.

A recent study by analysts at the Bear Stearns & Co. Inc. investment bank in New York says most bubbles share the same characteristics: A sense of prosperity leads to speculation which leads to price pressures and a rise in interest rates which then can cause the bubble to burst.

The analysts believe at least eight of the 10 characteristics of a bubble environment exist in America.

But they are not surprised few see it: "The idea that a financial disaster could occur at any moment is too far-fetched for individuals to imagine during times of such heightened exuberance."

[the_outsider]

33. I agree. This will probably be the killer blow to republicans.

A lot of people are ignoring jobs getting outsourced, wages being stagnant/falling and inflation getting out of control just by looking at their home prices going up. When the prices start going down, there will be a lot of angry people and a part of that anger will be directed to the current administration and their flawed policies .

Fed dropped interest rates to negative level (in real terms) in 2001-2002 under extreme political pressure to "stimulate" the economy. Deflation-scare was a hoax. Fed knew very well tax cuts and negative interest rate were economically suicidial moves. Their only goal was to keep people happy and ensure *'s re-election.

The credit and housing bubble (most probably the stock market with it as well) will definitely start to unwind next year. With some effort, we will gain a lot of grounds in mid-term elections. But we do need to squarely point out where the blames lie and present real alternative plans. In the end, it's always about money.

[AX10]

36. True.

the 2001-2003 low interest rates put 'cheap money' into the market. Problem is, that the rates do go up and too many people bit off far more than they could chew.