That's me so this will be short.
On the last video post and a few times during the summer I said that a lot of smart people were concerned about a lower high ending this run for the market.
While I don't know that this is what is happening right now it looks like the market is struggling with that May high. For all I know the market could rocket higher but clearly the resistance at 1325 matters to some degree. We'll know whether it matters a lot or a little soon enough.
In my haze I think I heard Steve Leisman say that we now have definitive proof that the housing bubble has burst. Whatever is going on with housing, risky loans et al I doubt it will be as all encompassing the internet bubble which really was a bubble that wiped out many many people. Anyone with too much house faces the risk of a wipe out at any time but I think that whatever might be coming will have less impact across society than the net bubble.
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12 comments:
I don't know....I've always has a small problem with making market judgements based on one index. Lots of indexes have surpassed their old highs already. Look at the 10yr chart of MDY. I think the press fools a lot of people by saying "the market" this or " the market" that...one might get the idea they are loosing money---or egads! making money, when they are really not invested in The Market.
Get better soon!!
I agree the housing bust will not be catastrophic, but I think it may have broader implications (than tech) due to the wider participation and "fingers" thoughout the economy.
The bust appears not to be because of single family homeowner home purchases, but due to speculative investors snapping up homes (especially along the coasts) at almost any price and homebuilders overbuilding.Once the inventory of homes lessens, prices will stabilize. Home speculators? Poof. They are gone,with some now buying in distressed older rust belt areas to satiate their addiction.
We all know that investments can be bought and sold, but the single family homeowner will weather almost any hiccup and burp in value to stay put.
Wow, I wish I could be so sure about housing not hurting the economy.
We bought 5 years ago for 285K and today the sestimates are 527K (www.realestateabc.com) This number is consistent with recent sales. Personally I have trouble understanding how you justify values over 400k (40% increase).
I view a 5 to 10% decline in prices as a real possibillity. While the decline may be small the number of individuals effected is enormous compared to telecom. I am not predicting the sky will fall. I am just saying it is to early to tell if the effects of the housing sector will be mild or significant, but we should know by next summer.
i believe the 10:54 comment is adding one plus one and getting eleven.
I do not think it will be the all encompassing and ruinous event with as much depth as the tech bubble.
That is a far cry from your "not hurting the economy." Man, that's not even close to what I am saying.
It's not (only) a housing bubble, it's a credit bubble. And it looks to be popping. I expect a resolution similar to Japan. We'll see. But I sure wouldn't be casual about it.
I'm not sure I make the connection between not ruinous and casual.
I have been leaning toward a recession for months but I do not see this causimg the US to look like Japan!
Very rarely does the very extreme happen, very rarely.
I do not see a depression or the dollar dropping by 2/3rds or any other society altering event just recession that will be a little worse than the last two.
Roger, you intimated that the housing bubble would be less serious than the internet bubble. Since, from an economic point of view, the internet bubble was pretty much a non-event, I interpreted that as a casual attitude.
The internet bubble impacted a relatively small number of people who were invested in speculative stocks. Certainly there was a lot of whining, but at the end of the day the impact was relatively narrowly focused.
I don;t have the 2000 data to hand, but currently the median value of financial assets owned by a family is $23,000 while the median value of non-financial assets (houses) is $147,800. Median net worth is $93,100. IMO it is not unreasonable to expect the price of houses to be unwound by a minimum of 30-40%, which would cut our hypothetical median family's net worth in half.
More importantly, we currently have a negative savings rate as consumption is supported by increasing debt. If house prices simply fail to rise, it will be increasingly difficult to secure additional debt "on the house". This will force a reduction in consumption (as real incomes continue to fall, 0.5% last month). Simply to resume a normal savings rate would probably imply a 10-15% fall in GDP. That's serious in my book. And could very easily spiral out of control.
30-40%? across the board?
EX MA. NY, FL, AZ, NV and CA, most states have been left behind the run up. Further the housing market has never come close to what you say is not unreasonable.
You being correct would require absolute catastrophy and I am not in the camp; one I just don't believe it ans two the Fed will not sit on their hands and watch the economy flush altoghether.
Further I disagree whole heartedly about the internet bubble.I have met a lot of people in the last few years who's only exposure to equities was the bubble.
Further on RE specualtors, of which there is more than before and unqualified borrowers of which there are more of than before is not the entire population.
That's true. Housing has never gone down like that. On the other hand, it has never (since 1890) run up 83% (real) in 9 years before either. The 70s and 80s booms ran up more like 10-15%. If you can have one (up), why can't you have the other (down)? -40% would bring us back to trend. Probably will undershoot on the downside, but don't even think about that.
With all due respect, I don't think that the people you meet constitute a valid sample of the population. But in any event, the resulting recession was mild indeed - hardly measurable, in fact.
Real estate, like anything else, is priced on the margin. The bid is everything. Just look at the size on the offer side (new and existing home inventories) and tell me there's no problem.
Hey, whatever, its what makes markets, isn't it. You take your side and I'll take mine. Cheers.
Either housing sags significantly or wages rise without a corresponding rise in productivity. The latter is also know as inflation and would lead to a correspondingly weaker dollar. There is no third option. And for what its worth, outsourcing makes wage gains highly unlikely. Sorry guys - looks like housing is going to take it on the chin - that is 30 to 40 % maybe more. 10% is nothing - we are infact over 10% already. Incentives and other NAR follies are diguising the obvious. Fasten your seatbelts!
Some very interesting comments regarding housing. Indeed it does take differing views to make a market.
Here in SW Florida, one of those prior "bubble spots", prices have already dropped 20% from July '05. How am I measuring that drop ? I'm going by what I could have sold my house (and other houses in the area where I live) for at that time versus what it would currently bring on the open market.
I don't know how else to truly determine to what extent RE prices are falling than going by what the market dictates.
Using median prices often skews the numbers because it only goes by houses sold, not those which are still sitting on the market waiting to be sold. If and when those folks who are currently trying to sell their homes at still inflated prices are forced into selling, for whatever reason, the true numbers will come forth. We're not there yet, and the Fed has a large hand in that equation.
New housing starts have really come to a grinding halt where I'm at. The work that is still ongoing is largely that which was sold in 2005. Builders across my region are laying off workers and no longer building houses on speculation.
Nobody really knows how much further the RE market will fall, but here in FL it is certainly tied to the rising costs of insurance and RE taxes, both of which have been increasingly rising.
From where I'm sitting, I see another 15%-20% drop in housing prices locally, based on current inventory levels, prevailing interest rates, overhead carrying costs, energy prices, etc.
How that translates into the U.S. macro economy remains to be seen. It sure looks like we're headed for a recession, though.
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