Thursday, October 06, 2005

The Nation: 'Pop Goes the Real Estate Bubble'

Here are the highlights from The Nation article titled Pop Goes the Real Estate Bubble.
The Big One isn't the long-predicted California earthquake or even a hurricane named Katrina. The genuine big one will arrive with a deafening pop, the sound of the real estate bubble bursting.
'Deafening pop' is strong language. I called it a 'loud hiss.'

In the past few years there have been plenty of false sightings, but now comes something truly ominous: a 13 percent drop in Manhattan real estate prices in a mere three-month period ending October 1.

As if that were not bad enough, more unsettling news of the same nature is reported in Boston, Washington and San Francisco, the places that have led the national upward zoom in real estate prices for the past several years.

What is their source for the 13% drop in prices in Manhattan in a three month period. ? I would not call the news from the markets "unsettling news" because we need price declines in the bubble markets. The huge price appreciation that has occurred in the bubble markets has distorted the US economy. In the short term it is 'good,' but in the long term the housing bubble is damaging.
By taking home equity loans and cashing out--that is, refinancing the mortgage--every time their houses went up in value, the millions made billions. According to Federal Reserve chairman Alan Greenspan, they made $600 billion last year on the hypothetical appreciation of their properties. That adds up to about 7 percent of their spendable, after-taxes income. That's twice as much money put into people's hands as Bush's tax cuts.
Nice comparison on those big numbers. :-) $600 billion is a huge number. That is about $2000 for every man, women and child in the US.

If house prices stop going up ...add on to that what high gasoline prices are doing to the automobile industry, and most people's flat or declining incomes, and you have the makings of a fairly decent recession

Not to mention the federal debt / deficit, the effects of offshoring, and the trade deficit. A recession is indeed coming in the next 1.5 years.

Executives in the industry have sold off almost a billion dollars' worth of stock in their own companies this year, something they would not be doing if they thought the arrows were pointing upward.
Great point. Big red flag as insider's have sold a huge amount of stock.
If housing does do its long-awaited plop, there are some pluses. Savings may go up, we'll buy less from foreigners and owe them less, we'll be better able to pay some of our bills.
Right on. The roughly $750 billion annual trade deficit must be reduced, as it is entirely unsustainable. The end of the housing bubble will help contrinute to a shrinking of the trade deficit.

1 comment:

  1. Not a loud hiss-but a steady one that will drain much of the lifeblood out of many peoples pockets.