US residential real estate in its worst recession in 16 years

[w¡n9Nµ7 §£@¥€r 123]

Sales of existing homes in the U.S. fell more than forecast last month, a sign that residential real estate remains mired in its worst recession in 16 years.

...

The housing slump ... is the biggest risk to the six-year economic expansion, according to Federal Reserve policy makers.

"There's no evidence we've hit bottom yet,'' said James O'Sullivan, senior economist at UBS Securities LLC in Stamford, Connecticut, who correctly forecast the drop in sales.

...

The backlog of homes for sale fell 4.2 percent. At the current sales pace, that represented 8.8 months' worth, matching the prior month as the highest since 1992.

http://www.bloomberg.com/apps/news?pid=206...id=ax1lcQnsrXQg

[one...two...tree 2,762]

There was a discussion about this on the radio this morning. In California, the job market is pretty strong so there is hope that it won't hurt us as bad as other states.

[w¡n9Nµ7 §£@¥€r 123]

There was a discussion about this on the radio this morning. In California, the job market is pretty strong so there is hope that it won't hurt us as bad as other states.

Strong wage growth will prevent the worst possible outcome. Yet, fact remains that many people took exotic mortgages that are resetting, or will reset soon - and their wage growth hasn't been enough to afford the new, higher payments. This is what happens when an entire industry practically abandons standard underwriting guidelines and appraisers resort to fraud en masse.

[Dan J 277]

There has been an expectation that ones house should be a path to build wealth, meaning it should be able to increase in value 5-10% per year. But since inflation and wage growth are not even near those levels, its pretty obvious that at some point that will become unsustainable. Which it recently has.

I'm waiting for the housing prices market to bottom out a bit more before I go and buy my first house. Interest rates will probably be higher, but like everything else, it will likely go back down again in the future. Then I can refinance to a lower rate. I cant change the price that I purchase a house at in the future, but I can change the interest rate that I'm getting.

[w¡n9Nµ7 §£@¥€r 123]

Bear in mind though, the longer you keep a loan, the less interest you pay per PI payment. Once you refi, you reset back to square one and end up paying mostly interest again.

[Trompe le Monde 1,107]

There was a discussion about this on the radio this morning. In California, the job market is pretty strong so there is hope that it won't hurt us as bad as other states.

I don't have the hard data but I have been looking at listings for the past 2 years and I'd say they are going down. Of course, when a modest 2-bed in Compton starts listing for $500k, I'd say you don't have a housing bubble but a housing hot air balloon.

[w¡n9Nµ7 §£@¥€r 123]

I don't have the hard data...

http://www2.standardandpoors.com/spf/pdf/i...ory_0426XYZ.xls

Source: http://www2.standardandpoors.com/portal/si...,0,0,0,0,0.html

FAQ on the data itself: http://www2.standardandpoors.com/spf/pdf/i...Indices_FAQ.pdf

Edited July 26, 2007 by VJ Troll

[Trompe le Monde 1,107]

forgive my late afternoon torpor, btu that's an index from 2000 - correct?

if so, the hard data backs me up!

I am so glad I decided to return to renting when we moved here 2 years ago and put more money in the stock market instead

[bostonparis 0]

I saw a program on the housing market the other day. They said that average home sales are down, and in the same market, high-end sales (millions) are up. Interesting.

[w¡n9Nµ7 §£@¥€r 123]

That index sets the values in a market in Jan 2000 to 100 - and then calculates prices in all other years for which data is available as a proportion of that value.

This index ignores refis, which I like. The NAR index includes them.

For the LA market, according to this index, peak price was in Sept 2006. Prices today are 3.8% lower.

[Dan J 277]

Bear in mind though, the longer you keep a loan, the less interest you pay per PI payment. Once you refi, you reset back to square one and end up paying mostly interest again.

I agree, if you miss use refinancing for short term benefit, you will likely pay more in the long run. I don't plan to use it to lesson the payments, but instead hopefully get the mortgage in a shorter term. There are other variables to take into account, and isn't always a good choice in all situations.

[one...two...tree 2,762]

From the Mises Institute...

The Housing Bubble

by Christopher Mayer (2003)

There is always a bubble someplace. In a world of fiat currency and fractional-reserve banking, where money is effortlessly multiplied and pyramided, the sequence of boom and bust become inevitable, like the sequence of the seasons. In this system, the government cannot prevent the expected corrections anymore than it can prevent the onset of winter. The strong housing market has all the makings of being the next bubble—in particular high leverage and unsustainable price increases.

http://www.mises.org/freemarket_detail.asp...der=articledate

...but I don't buy that. It's this idea that the Free Market is ultimately self governing.

..................

This makes more sense to me...

...what exactly is a bubble? Economists would say there's a bubble in the market if home buyers are basing their expectation about the price that they can sell the house for in the future on something other than the affordability and desirability of that home to the future buyer. In a bubble, borrowers are assuming they'll have a capital gain on their house big enough to bail them out of the deep debt they're getting into, even though it would mean an even bigger debt burden for the next folks down the road. But one of those future buyers, if we looked ahead rationally, is going to be forced to say, no sale."

....

Let me say that while I allow that there might have been a rational stochastic bubble in the housing market, I think that the gradual revelation of improper lending practices and excess risk taking in an environment of inadequate regulation suggests to me another interpretation, laid out in a paper by George Akerlof and Paul Roemer in the Brookings Papers in Economic Activity 1993(2), in the context of the Savings and Loans financial crisis of the 1980's:

"Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incetive to pay themselves more than their firms are worth and then default on their debt obligations.

Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values.

...

Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government gurarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses...."

http://www.econbrowser.com/archives/2007/0...ubprime_co.html

Edited July 26, 2007 by Mister Fancypants

[w¡n9Nµ7 §£@¥€r 123]

Steven,

The free market, if truly free (i.e. no barriers to trade or, more importantly, information) is self regulating... ultimately. Ultimately can be a long time. And as long as governments are corrupt and nepotistic, the 'true' free market will remain a theoretical construct.

[one...two...tree 2,762]

Steven,

The free market, if truly free (i.e. no barriers to trade or, more importantly, information) is self regulating... ultimately. Ultimately can be a long time. And as long as governments are corrupt and nepotistic, the 'true' free market will remain a theoretical construct.

Even if you could completely remove government from the equation, the corruption of power would still exist among the players of the market. Ideally, someone needs to be the referee...and he can't be on any of the teams' payroll.

Edited July 26, 2007 by Mister Fancypants

[w¡n9Nµ7 §£@¥€r 123]

Right, that's why I call the free market a theoretical construct. It's kind of like those "thought experiments" in physics where you assume gravity doesn't exist and then theorize on the forces that act on that ball you just threw into the air. It's purely academic.