The speculative episode that is the housing market has created huge excesses in the lending industry and banking system. The US financial system has become increasingly unstable in the past few years due the housing boom. Already we have seen the collapse of some sub prime lenders including Acoustic Home Loans and the massive layoffs that are happening in the lending industry including at Ameriquest Mortgage.
Foreclosure rates have risen significantly since 2005 and will continue to rise as an increasing amount of ARMs adjust to their higher interest rates. Meanwhile, consumers are getting squeezed on many fronts as the price of gasoline, electricity, food, medical costs and other consumer goods and services are increasing much more then people's salaries.
As the housing market continues to decline many financial institutions will be hurting. Some financial institutions may ask for a federal bailout. Perhaps, a large group of individual home purchasers may also demand a bailout in a few years as they are underwater on their mortgage loans and facing a lifetime of debt.
Will there be a massive federal bailout like the S & L crisis which culminated in the 1980's?
The Bubble Meter Blog stands strongly against any federal bailout of the excesses of the housing boom, unless there is solid evidence that the US financial system is facing likely collapse. At this point, it appears very very unlikely that the US financial system will collapse as the boom turns to bust. The speculative nature of the housing market should have been curtailed by the federal government a few years ago.
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"Will their be a massive federal bailout like the S & L crisis which culminated in the 1980's?"
ReplyDeleteAnother question.....can this government bail us out from this mess?
George W is cutting even more taxes from the rich and corporations, Gulf war is dragging on, Katrina bailout, building the Mexican border security system....basically spending more and cutting taxes? A recurring theme in this blogsite is GETTING INTO MASSIVE DEBT. Should a bailout occur it is nothing more then passing debt from speculators to the innocent middle class.
As ususal, Davis has a hardon for a complete economic meltdown. Pathetic.
ReplyDeletefritz,
ReplyDeleteRead what i wrote: "At this point, it appears very very unlikely that the US financial system will collapse as the boom turns to bust"
Wow. Thanks for standing strongly against a federal bailout for the excesses of the housing boom. Ummmmmm, yeah, like that's a necessity or will ever be needed. More factless claptrap.
ReplyDeleteJust found your website by searching results for "penn quarter dc condos" after noticing somebody found my website (statcounter) using that phrase. You offer a good service and info on this topic that helps people have more info when making decisions that involve $100,000s.
ReplyDeleteI wrote a columnn on this last year and my conclusion was that investing in new construction condos is not a good idea right now with 10,000s of more being built in next few years.
I do not see a significant bubble for single family homes in the DC metro area--at least not on the VA side with more jobs coming than new homes being available. It will now take much longer to sell a home though and there has been a correction (may not be over) from the summer 2005 peak. But a retraction of 5% after 3 years of 20%+ appreciation is nothing to horrified about.
As far as bailouts are concerned and real estate, by principle, the the government needs to stay the hell out of our lives and the markets--it's called liberty.
jay
JustNewListings.com
NO bailout, pleeeeeze. Let the greedy banks lose. Fanny and Freddie ditto, no bailout.
ReplyDeleteJust say NO!
"I do not see a significant bubble for single family homes in the DC metro area--at least not on the VA side with more jobs coming than new homes being available. "
ReplyDeleteI think you are overlooking one important detail..are the salaries that come with these jobs sufficient to cover the 300K+ cost of housing? A rough guess is a majority of the saleries are from 50-100K. If you do some math you will come to the conclusion that demand for these new units will not be large until prices go down substantially. In other words a bubble burst.
David, stop playing semantics. It's pretty clear what you mean.
ReplyDelete"huge excesses in the lending and banking system"
"US financial system has become increasingly unstable"
"foreclosure rates have risen significantly and will continue to rise"
"consumers getting squeezed on many fronts"
"housing market continues to decline"
"many financial institutions will be hurting"
"some financial institutions may ask for a federal bailout"
will their [sic] be a massive federal bailout like the S&L crisis"
After all this gloom and doom, you issue a silly "stand" by the blog against a federal bailout, "unless there is solid evidence that the US financial system is facing likely collapse." That's patently sophomoric and ridiculous.
Stop being intellectually dishonest and simply state your desire to see a total economic meltdown. It's what many of the lunatic fringe of flying monkeys on this site want (you know you're part of the lunatic fringe if: you sit around saying that you're not going to buy until the listings price drops by 50%; you say that a featured property should only be worth X amount of dollars and that you would never pay that amount of money for a property; you view the housing situation as the results of a Bush-Greenspan conspiracy; you argue that the current housing situation is on the verge of collapse, yet can't sustain a discussion of basic economics. If you have done at least one of these things, you are part of the lunatic fringe.).
Is there anecdotal evidence of excesses in the housing market? Of course. Does this anecdotal evidence strung together mean there is imminent danger? No. Is there factual support for many of your asserted claims? Very few are provided.
"Stop being intellectually dishonest and simply state your desire to see a total economic meltdown"
ReplyDeleteI do NOT wish this. In fact if people continue to accuse me of this I will delete their post.
"Florida looks like Wall Street October 1929"
ReplyDeleteA contender for the Lunatic Fringe Posting of the Day.
Please send us updates on all the builders and sellers leaping off Florida buildings.
Wah! Someone made fun of me on my blog! I'm gonna take my marbles and go home! Wah!
ReplyDeleteLooks like Fritz wears rose-colored glasses 24/7. The economy is doing not well for many Americans--you know, the ones that are not in the top 5 percent of income and wealth brackets.
ReplyDeleteihateyuppies:
ReplyDeletePlease show me a time period in modern American history when the economy WAS doing well for ALL Americans.
Otherwise, I see nothing of value in your statement. It's sort of like saying that the weather outside is not sunny weather for most Americans. Yeah. And, so what?
If the economy were truly hurting most Americans, then you would expect discretionary consumer spending levels to be falling precariously. Yet that is not occurring.
It's much easier to spout bumper sticker slogans than to actually do some thinking and research.
“In March, 344 permits were authorized, but in April only 88 permits were issued. ‘They’ve stopped building,’ Raney said.”
ReplyDeleteSo the number of building permits issued in a place I've never heard of in Florida means an implosion in Florida, which will undoubtedly move onto DC??
If anything, shouldn't a decrease in permits work against your argument of disaster in Florida, I see this as the market decreasing the future inventory, which leads to less inventory and higher prices. Or at least this is how it works according to those people who watch inventory numbers, and then post the long list of daily or weekly numbers on the bubble blogs (Of course those people think rising inventory equals lower prices, if you accept that (and I think its part of the bubblehead creed) than decreasing inventory would likewise equals higher prices).
Skytrekker:
ReplyDeleteSo your proof that "Florida looks like Wall Street October 1929" is that 88 building permits were issued by the North Port Building Department in Sarasota County?
Color me unimpressed. But rest assured that your post remains a strong contender for the Lunatic Fringe Posting of the Day.
fritz,
ReplyDeleteWe "the lunatic fringe" finally have a place where people share our disbelief at the excessive debt being taken on by average homeowners to "keep up with the Joneses." Disagree with us - fine. But if you want someone to cheerlead your convictions about the current housing prices being substainable and/or growing please go to the NAR site. Long term "investor" insanity does not mean we are wrong. The bubble will disappear. And like all RE bubbles it will do so slowly and over many years. If you disagree -please, please, please go buy some investment property during this "buyers market" (as the NAR says.
"Perhaps, a large group of individual home purchasers may also demand a bailout in a few years as they are underwater on their mortgage loans and facing a lifetime of debt".
ReplyDeleteI thought that the Fed bailed out banks and financial institutions during the S&L crisis and not individual home owners...could some one help clarify this?
Thanks.
Not only are those condos $100K cheaper:
ReplyDelete"Builder will pay $10,000 Closing cost and Loan Origination Fee with preferred lender."
Are there markets that have out-of-whack valuations? Yep. Will those valuations change as mortgage rates increase? Absolutely. Does evidence of overbuilding in certain markets mean the entire real estate market is overvalued and due for a major correction? Only in the minds of the lunatic fringe. Is it realistic to expect housing prices to drop 50% in the short term? Once again, only in the minds of the lunatic fringe. Are there folks out there hoping for such a massive real estate drop because then they will be able to afford to buy - and not realizing that if such an unprecedented drop were to occur, the US economy would collapse and such gloom and doom folks would likely be out of jobs? Of course. Read some of the comments on this site.
ReplyDeleteSo, what have we learned today?
1. There are some pretty self-centered and childish people hoping for a crash without realizing what such a crash means for their own livelihood.
2. The chances for a massive drop of 25%, 33%, 50%, etc. are incredibly low, barring some sort of catastrophic event (e.g., terrorist attack on a city, act of God, etc.).
3. Before buying a home, each person needs to do their own due dilligence and not listen to the pronouncements of either anonymous Internet posters or spokespersons for realtors groups.
4. Many people who say "I would never pay X amount for a house" will still be saying that in 5 years' time.
"Many people who say "I would never pay X amount for a house" will still be saying that in 5 years' time."
ReplyDeleteThat's true.... I do not expect my max price to change much in five years, except for small inflation adjustments (weighed against depreciation of the homes).
However, my max price for most houses in the DC area is usually 30-50 percent of the asking price. This would take these houses back to their real prices of 5-6 years ago. I fail to see why the skyrocketing prices of the last 5-6 years is somehow so natural that expecting it may give back some (or all) of those gains is somehow unrealistic.
A Redskins fan
It would be a wonderful world if we could pay for something based on its value of half a decade ago.
ReplyDeleteUnfortunately, life just doesn't work that way.
If averages real estate prices did drop 30-50%, then either a) a terrorist attack has just occurred in DC or b) we are in a recession and it doesn't matter what the listing price is since you will be out of a job.
"It would be a wonderful world if we could pay for something based on its value of half a decade ago."
ReplyDeleteUmmm... I can buy shares of MSFT or CSCO for their nominal value of more than half a decade ago.
I guess it's a wonderful world.
Of course, half a decade ago, the mantra was "stocks never go down." Sound familiar?
A Redskins fan
Fritz,
ReplyDeleteThere is a fine line between brilliance and lunacy. You seem to think I'm a lunatic.
Prices will drop big in some markets and not at all in others. I live in San Diego and sold my home for a healthy profit in 2005. I'm waiting for the reversal. I feel bad those who will get hurt but their loss will be my gain. I've been warning all my friends not to buy right now.
Fritz, please start buying. May I suggest Florida, DC and Sothern California?
Aside from the bailees, no one likes a bailout. I happen to think, though, that sometimes it's necessary to prevent even worse damage.
ReplyDeleteThese bailouts tend to be followed by regulation "to make sure this never happens again." In the case of mortgage finance, that essentially means restructuring the system. Obviously there would be winners and losers in such a restructuring, both inside and outside the financial sector, but are current lenders so sure they'll be among the winners?
I'm one of those who thinks that the bailout of housing won't wreck the American economy. I think this because I think a bailout is impossible. I think the ATTEMPTED bailout will wreck the American economy. Whereas, say, Chrysler or the S&Ls were "too big to fail," the mortgage mess is "too big to bail." I realize I'm not the first to say that, but phrasing this in easy-to-grasp slogans might be the only way to get through to Joe and Jane HELOC.