The FOMC mislead when it stated there is a 'gradual cooling of the housing market.' *Nice* euphemism. The FOMC can't really tell the truth at this time and use a term like 'significant decline' as its utterance would cause a housing panic!The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5-1/4 percent.
Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.
Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.
Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.
Thursday, June 29, 2006
Fed Raises Rates by 1/4
Here is the FOMC Press Release:
Subscribe to:
Post Comments (Atom)
Posts
Looks like more rate hikes to come. The Chinese water torture that are these rate hikes continues.
ReplyDeleteLike the FED said, looks like it's a gradual cooling (soft landing), not a hard landing as you bubbleheads like to proclaim.
ReplyDeletehousing panic? that should be a blog name!
ReplyDeleteit is! housingpanic.blogspot.com
ReplyDeleteTake a look at the rising rates on the ARM's. Ouch!!!
ReplyDeletehttp://www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputWk.jsp?week=26&ending=20060629
yea bill gross of pimco too... " a slight bubble in housing"..... how do you keep inflation from exploding while at the same time avoid the deep hard recession that would result from the housing market boom ending and correcting itself....stagflation is very scary and this is the big fear...good job greenspan...trash the place retire and leave a mess...
ReplyDelete"trash the place retire and leave a mess... "
ReplyDeleteyeah, sounds about right for the baby-boom generation.
You know, threads like these are a pleasure to read. It seems when the conversation reverts to the economy as a whole, housing as the unsteady core of it all and how it's bound to come back down to earth, we can have a nice discussion. It's when a photo is shown or any specific area is mentioned around the NCR that the nitpickers come around and try to convince us all that this neighborhood in DC is still increasing by 18% annually or "shut up shut up shut up dc is so wonderful we have so many nice things everyone wants to live here lawyers make $160K a year if i keep repeating all these things maybe it will happen". Which reinforces the fact that even the housingheads realize that housing is gonna bust, they just have a severe case of IDH (it's different here) syndrome.
ReplyDeleteAnonymous at 11:42:
ReplyDeleteWould you expect anything different than the FED saying that it is a soft landing?
Why don't you ask someone who bought a place last year in Arizona, Nevada, or Florida if they are having a soft landing. Or perhaps ask those who are having their ARMs reset. There will be $1 trillion of ARMs resetting next year.
The term "soft landing" sounds a lot nicer than "slow bleeding".
I do make $160k, and you should shut your hole until you're unbroken streak of being wrong ends.
ReplyDeleteMy guess is that you are not a lawyer like Nikki described, because you can't seem to write grammatically correct sentences. If you are a real estate broker or agent, you will see your commissions hacked considerably in the coming months and years. I hope you stashed some of your bubble money away.
""Why don't you ask someone who bought a place last year in Arizona, Nevada, or Florida if they are having a soft landing."
ReplyDeleteHousing Prices:
Phoenix = +30% YoY
Vegas = +10% YoY
Miami = +18% YoY"
I believe the word is "pwn3d."
Anyone know what this guy means by giving away a free house? Or did I just read incorrectly.
ReplyDeletehttp://washingtondc.craigslist.org/mld/rfs/176573617.html
*Anyone know what this guy means by giving away a free house? Or did I just read incorrectly.*
ReplyDeleteI can see how $750k is close to free...what a jackass - shows you the mentality of those greater fool's trying to find someone dumber to buy their house. Good luck finding someone dumber than this guy trying to sell this house.
this is a scam ... and the guy who wrote doesn't know the meaning of the word "free" ... what I think he is saying is that he has priced the house at $750,000 (it's probably worth $500,000)and he'll "give" you $75,000 to use as a downpayment on loan for the house and pay the closing costs. So, he's not giving you a "free" house since you are taking out a loan for for $675,000 and giving it to him for a house probably worth far less. The problem with this scam is that the house won't appraise for the $675,000 ... also, since the buyer would need to show bank statements going back something like 3 months, the transfer of $75,000 to the buyer from the seller would be pretty obvious AND how would the seller guarantee himself the buyer was going to use it for the purchase since he really couldn't put it in writing now could he? The whoe thing is some scammer idea on how to get rid of his house at a profit to some unsuspecting person. Luckily the lenders would never lend in a situation like this. 'Course, if someone were really fool enough to fall for something like this, I probably wouldn't have pity for them short of their being perhaps elderly or developmentally disabled.
ReplyDeletepwned, you just wait a few months. The peak was late summer/early fall last year, so some appreciation is still cooked into that YoY median. The monthly numbers are bleeding red ink everywhere.
ReplyDeleteTell all the YOY good marks to these 2 investors that are losing. Also tell them on their own investor forums that this is a soft landing and to keep buying. I think the word is omgwtfownd
ReplyDeletehttp://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1218242
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1205179
THIS IS A GREAT TIME TO BUY!! Tell that to these 2 :)
"The problem with this scam is that the house won't appraise for the $675,000 ... also, since the buyer would need to show bank statements going back something like 3 months, the transfer of $75,000 to the buyer from the seller would be pretty obvious..."
ReplyDeleteLance, as far as I know, lots of banks out there don't need the 3-month statement any more. The lending standard is quite loose right now. Here is something interesting I read today on another blog contradicts what you've claimed.
"Just last month, I was present while a friend talked with a loan officer for a major bank.
The officer said that since my friend intended to put down 20%, the bank would do only a computerized check (something like Zillow I guess) rather than hire an assessor.
Also, because his credit scores were good, they wouldn't verify income or assests. They needed account numbers but wouldn't actually check the balances. And this is for a "full doc" loan.
The loan officer kept using the phrase "this might sound strange but..."
On the positive side, the loan officer strongly suggested a conventional 30-year-fixed mortgage, saying that the adjustable rate options don't offer enough savings anymore to make them worth considering (how true)."
In my opinion, the housing bubble will not pop because of Bernanke or Greenspan. Bernanke will probably continue raising rates, but too slowly to really pop the bubble.
ReplyDeleteIn my opinion, the bubble will be popped because foreign investors will start to abandon the dollar, eventually forcing higher interest rates or stagflation.
A Redskins fan
anon said:
ReplyDelete"Lance, as far as I know, lots of banks out there don't need the 3-month statement any more. The lending standard is quite loose right now. Here is something interesting I read today on another blog contradicts what you've claimed.
"Just last month, I was present while a friend talked with a loan officer for a major bank.
The officer said that since my friend intended to put down 20%, the bank would do only a computerized check (something like Zillow I guess) rather than hire an assessor."
What the banker said makes a lot of sense. Businesses and government use this kind of screening all the time. For example, only something like 5% of all crates coming into the US get physically examined by Customs agents BUT 100% of them get "screened". The screening is a process that allows you to identify which of the crates might possibly have contraband or terrorist "stuff" in them ... it is based on examining various factors from various sources and coming up with that 2% - 3% that really are questionable ... and then physically examing 5% just to be on the safe side. It wouldn't be possible to physically examine 100% of crates coming in ... Our economy would come to a standstill while the ships lined up at the ports.
What that banker was talking about was essentially the same thing. If your friend was willing to put up 20% of the sales price, then (1) your friend has a large stake in the deal and (2) there is a lot of room for error in the actual value of the house before the bank gets "burned". The desk appraisal you mention actually is a an appraisal done comparing what the buyer is saying he is buying the house compared to what other similar houses in the neighborhood have sold for. If it is reasonably corredt, then the bank has no chance of getting burned. In the scam example we were talking about, the scam house wouldn't pass muster 'cause it would be far out of range of what houses go for there. I think you are going under the assumption that every one and every transaction must follow the same rules. That just isn't the way it works in business, for good reason. Do you think someone would really ask President Bush to fill out a mortgage application if he needed one? Do you think Clinton did when he bought 6 years ago? You base your "verification/documentation" on the risk of the situation.
Redskins fan,
ReplyDeleteIt amazing how you and I seem to agree on what is happening ... but draw 180 degree different conclusions from what is happening. I agree we are heading toward inflation and yes foreigners are starting to abandon our currency 'cause of trade deficits etc. The last time this happened (after Vietnam), what resulted was out of control inflation in this country (and around the world) ... and part of that inflation meant that house prices skyrocketed ... hurting the investors who held the nominally-denominated loans (i.e., the "principal" they had lent was losing value quicker than the interest they were earning could compensate for the losses) and, more importantly for us as homeowners, making our mortgage payments rediculously low in inflated dollars. For example, someone earning $5,000/yr back in 1965 might have paid $25,000 for a house that same year and had mortgage payments of something like $117/mo. By 1979, that same house might have tripled in value to $75,000 and the person might have been making $20,000/yr ... but still paying only $117/mo.
The mortgage holder now had $50,000 in equity on his house, extremely low payments considering his current salary ... while the lender had a note out there that had lost considerable value because inflation had made the principal (and the monthly mortgage payment) nothing.
So, seeing as you and I are in agreement as to what is occuring, I would be interested in knowing why you don't think what happened in the 70s under the same circumstances will result in the same benefits to the mortgage holder that they did then?
This time, housing prices have already skyrocketed. What I mean by stagflation is that now the prices of other things will have to catch up.
ReplyDeleteI believe that house prices will return to their more normal prices relative to commodities and consumer goods. Whether this restoration of prices will come because house prices fall back or because the prices of other goods go up will be decided by the monetary authorities. I believe they will choose inflation. Houses already have inflated too much, so I see them staying the same or falling slightly in nominal terms as the nominal prices of everything else comes way up.
But I could be wrong.
You are right that IF a person has a fixed loan (and many do NOT), and IF their wages rise with inflation, that their house payment will go down. However, many buyers do NOT have fixed loans, and generally wages react LAST to inflation, because otherwise there wouldn't be any point to the inflation (i.e., raising seignorage by inflating prices while wages do not rise as much).
A Redskins fan
Lance,
ReplyDeleteI disagree with your "social contract" junk, but your analysis of inflation's effect on homeowners is dead-on.
Unfortunately, since the consensus that inflation is bad is nearly universal, and the tools for combatting it are widely known, it will take a very manipulative, self-serving President to overcome the anti-inflation bias.
Hillary in '08!
Monetary Policy is lagging and RIGHT NOW we are seeing effects of monetary policy from AUG-OCT of 2005. What happens when the last 75 bps of rate hikes, plus future ones of course, go into effect and mortgage rates reach 7.5-8% by late 2007?
ReplyDeleteOr do people think this won't happen?
I think it will and as a result speculative buyers won't be interested in a 'dead' housing market, and regular buyers will be few and far between as they wont be able to afford as much house as they like with lending rates so much higher than 3-4 years ago.
Housing has cooled in the sense that buyers are NOT CHASING, NO BIDDING WARS, WEAK OH's ACTIVITY which puts those sellers who MUST sell for whatever reason, under pressure to use their ONLY weapon to move their property faster ---> lower asking price!
Once sellers live through 4,5,6 months of no bids in their self proclaimed 'will accept range' they start to panic and finally come out of denial about their homes true market value.
To understand this we must look at why a housing market cools? Rising inventory? Check! Rising Interest Rates? Check! Still High Asking Prices w/ slowing Buyer Activity? Check! Buyers market? Check!
What goes up, usually comes down with time and the fundamentals are all guiding the housing market lower; how do you fight this or argue against it? Housing has had an unsustainable incredible run since 2001 or so due in large part to monetary policy as a result of the dot com bust and recession that followed. This 1 time event is now over and if the fed overshoots (making lending much more expensive) and leads to a recession (job losses) what do you think will happen to housing in 2007-2008-2009?
Time to buy is when the fed is mid way through a RATE EASING campaign when you still have 1-2 years before those moves go into effect! Im thinking 2008-2009 will be awful for sellers and good for buyers!
If anything, time is on the side of bueyrs, NOT sellers! How can you argue this after analyzing where we came over the past 3-4 years!
Redskins,
ReplyDeleteYou and I are on the same page. So, why do you not feel it would be wise for you to buy now with a fixed loan rate. (Which is what I did incidentally.)
*fixed rate loan
ReplyDeleteBecause I think nominal house prices will be flat to lower in several years, while the prices of other goods and commodities rise.
ReplyDeleteI could be wrong. We will see.
A Redskins fan
but Redskins fan ... even if prices are flat to lower in several years, wouldn't it still make sense to lock in that payment now? I mean, if prices are going to be flat, then it is a no brainer that you are better off starting to take advantage of tax savings, etc now ... since waiting won't do you any good ... and will actually do you harm because interest rates will surely rise in the period between now and then. Ditto if the prices actually do nominally go down a bit. Again, the higher interest rates and the opportunity foregone on tax benefits and the like will more than eat up any savings you might get by buying a little cheaper. I don't know, you and I see the same future, but our reactios are opposites. I think maybe you are more risk adverse than me. By that I mean, you will only go for a 100% sure thing. I don't believe there are 100% sure things in life. You just have to use your best judgement and go for it before the opportunity passes you by. What's that's saying... ? A decision not acted on is a decision made for you by others? ... or something like that!
ReplyDeleteUrbandigs--
ReplyDeleteI found it intersting that in one Bloomberg story I read last month after BB came out hawkish and guns a-blazin' regarding inflation and how it was at an uncomfortable level, that bonds actually rose. The quote from a broker or whomever was something along the lines of "If the Fed keeps raising on account of inflation pressures, that makes it all the more likely they'll eventually have to cut rates." Huh? Of course they'll cut rates sometime, someday, but it seems to me that nobody wants the party to end. It's the Fed's job to keep the economy from overheating, and one can argue it's been overheated for about 3 years now, and is showing virtually no signs of slowing. Consumer spending continues to rise, gas demand is higher than last year, available credit is everywhere despite all the rhetoric about tightening, etc. With this mindset of traders, I do not think the 30 yr will be up at 7.5-8%. I think it will maybe hang around 7%, but for a short while, and then drift slightly down if there is indeed a pause. No pause, all bets are off. All this whining about these rate hikes when rates are still very low indicates a fundamental weakness in the economy that fears anything but the status quo of the past 5 or so years. Just MHO.
Nikki: Your humble opinion is totally non-credible given your stated views that you believe homeownership is nothing more than a scam.
ReplyDelete"Nikki: Your humble opinion is totally non-credible given your stated views that you believe homeownership is nothing more than a scam."
ReplyDeleteYawn...can't you come up with a new line, particularly when you can't even validate that one?
nathan--
ReplyDeleteIf immigration was the solution to the glut of housing and the salvation of all the housing heads, why is it that the state with one of the highest amounts of immigrants has some of the lowest housin gcosts in the nation? While TX has lots of land, so does Vegas...it's called speculation, and the loss of it is what will drive the pending crash.
Please see here , about halfway down the page, for 9 reasons why it's really not different this time, immigrants or not.
Texas has fewer than average land use controls, while Vegas has water availability restrictions. Plus, Vegas is hemmed in by federally owned, non-developable land.
ReplyDeleteNathan Boggs,
ReplyDelete"Even major cities like Chicago have been passed over"
Have you been to downtown Chicago in the past few years. It is the best in the US. Wonderful!
Bill,
ReplyDeleteYou must have slept through the section on demographics. Everyone else knows that DC's population loss is through a change in household size and that the District is seeing an increase in households.
nikki said:
ReplyDelete" TX has lots of land, so does Vegas."
TX has lots of buildable land. Vegas does not. Only 11.5 percent of Nevada is privately owned. The federal government controls 86.1 percent, tribes 1.6 and the remaining 0.8 percent is owned by state and local governments.
http://dcnr.nv.gov/nrp01/land01.htm
By comparison, 87 percent of Texas' land in is private hands.
www.texasep.org/html/lnd/lnd_5pub.html
Your comparison between prices in TX and NV has just helped substantiate Nathan's point that limited land is a big factor in exploding prices. It would be interesting to see how much immigration (legal and illegal)and new births has been going on in each state.
"I don't mind folks thinking out loud, but you seem to do so without any foundation in fact or data. If you have a hunch, fine. But keep it to yourself, unless you can back it up.
ReplyDelete(Note: I've lived and studied Economics and Sociology in Austin and Chicago.)"
Where's the fact or data supporting your assertions? Oh, you went to school. Sure, now I'm convinced.
"Nikki: Your humble opinion is totally non-credible given your stated views that you believe homeownership is nothing more than a scam."
ReplyDeleteYawn...can't you come up with a new line, particularly when you can't even validate that one? "
Nikki, let me guess, you deleted your comments from your blog after your rant about homeownership being nothing but a scam (a post I read) garned a little attention and rightfully caused readers to question your credibility? And now you ask someone to "validate" that you in fact posted this rant? Just admit it. Your credibility is damaged more by being evasive.
Anon-
ReplyDeleteCan you please provide a link so that the rest of everyone can "know" that? I don't mean to be flip but making a statement that everyone knows something without a source is not reliable. If it's really that well known it should be no trouble to find a link.
DC Housing aka Bill,
ReplyDeleteSo, with your economics degree, why are you working in a low paying association job? Were you and A student who understood well the concepts but couldn't apply them to the real world? Or a less-than-stellar student who got his degree by signing on to the 6 yr plan? Curious minds want to know!
You know you should consider selling real estate. I bet your economics degree would impress a lot of "on the fence" bubbleheads.
First, I think the FOMC used the right phrase. We might believe a housing correction is coming to the DC area, and I personally think a housing correction is starting, but we're not in the middle of a sharp downturn...yet. "Cooling" is the right phrase to use at this time. Whether the current cooling is a steady state or a precursor to a sharp correction is the subject of our debates, and the FOMC doesn't exist to take sides in debates.
ReplyDeleteFirst, as Ed Glaeser (the best housing economist in the biz) points out, land-use controls do partly drive higher housing prices in certain locales, like DC and LA and New York. And it's not because these controls make life better. The difference between hedonically identical houses on a quarter acre of land in LA and a half acre of land in LA aren't that different. That indicates that demand for land is not the driver of high housing prices, which explodes a lot of the "amenity" stories that people tell. Instead, land-use controls and other types of zoning add to housing prices because the right to build a house becomes very valuable. Ideas like making developers build low-income housing and other controls would only worsen the problem.
But even Glaeser believes that the runup in housing prices in areas like NY, Boston, LA, and DC over the last 5 years is excessive, and that housing prices are due for a correction.
Everybody here seems to agree that condo prices are due for a bigtime correction, even the "housingheads".
As for townhomes and single family homes...it gets dicey.
If housing prices stay flat or slowly fall for a long enough time as inflation rolls by, that's a fairly steep real-dollar drop. Does that count as a correction?
Again I ask you to post a link, and you can't, so you claim I deleted some of my own comments from my blog? Next time why don't you try contributing to the discussion instead of...well, what exactly are you trying to do by not just trolling, but lying? Make me feel badly about myself, shut my blog down, make me stop posting, attempt to discredit me by insulting me? Good luck with that...
ReplyDeleteNice analysis Keith.
ReplyDeleteanon,
ReplyDeleteYou really hit a nerve with Nikki. I think she's having a meltdown!
Quick someone! Get the Bubblemedics in here!
Nikki,
ReplyDeleteThanks for holding other people to a higher standard than yourself.
Try a thought experiment:
Lots and Lots of new construction plus gentricfication = ????
(Hint: see also posts from rental property owners as anecdotal evidence re vacancies)
Nikki:
ReplyDeleteYou have posted on the comments section of this blog statements as to how homeownership is nothing more than a scam. Even David acknowledged that that kind of thinking was out in the fringes.
So let's end this little tangent of yours and get to the heart of the matter:
1) Do you deny posting comments on this site stating that home ownership is a scam?
2) Do you deny believing that home ownership is a scam?
Simple yes or no answers.
Bill:
ReplyDeleteHow many alisases to you have? Why the new "dc housing news"? Why not just stick with your old alias, or one of the plethora of aliases you created to hype this blog about your own blog?
How is that blog doing, by the way? It must be pretty lonely sitting in a virtual room by yourself.
Nathan/ DC Housing,
ReplyDeleteBlaming the "speculators" is blaming the sympthoms for the problem rather than the underlying disease. It is not seeing the forest for the trees.
Speculators show up in a real estate market only when their is gravy to be ladled off the top. They don't cause the problem, but profit from it. They are the vultures that hover around a dead carcass, and not the beast that left the carcass to rot in the sun. Do you see what I am saying? Chicago has no real estate speculators 'cause there is nothing for them to speculate over. Would you speculate over a flat market?
Nikki, for what it's worth, and please don't make people post proof of what you've previously stated, that's very poor form:
ReplyDeleteAt May 25, 2006 3:14 PM, Nikki said...
Anon 2:11
"By the price a willing buyer will pay to own it. The owner of the house owns that value."
Yes, the owner of the house owns that value, but that owner is the bank. The person who is residing in the house and paying the mortgage has paper equity, none of which materializes until it is sold for that amount. This is all a giant scam, and anyone banking on their home to make them wealthy is the sucker. I feel sorry for the boomers who truly believe their house will allow them to retire comfortably. Even if prices just stagnate, these people will have nothing--inflation will have pissed all their "equity" away.
http://bubblemeter.blogspot.com/2006/05/one-year-anniversary.html
Nathan Boggs - "UT at the end of the day is a football school."
ReplyDeleteI don't care what you've studied. Statements like that are moronic.
UT's MBA program ranking is higher than any of the DC-Baltimore area schools.
UT's law school ranking is only two places behind Georgetown's.
UT's Economics PhD program leaves all of the DC area universities in its dust (with the possible exception of U MD.)
In fact, there is simply no DC area school that is as strong in as many different graduate programs as UT.
Yes, and UT is good at football, too.
By the way, I have no loyalties to UT. I didn't go there. But "UT at the end of the day is a football school" is a spectacularly stupid statement.
someone needs to visit http://www.bannedmembers.com
ReplyDeleteSee Mish's Global economic analysis here for an explanation of how the changes in the Fed's comments released with this recent hike inidcate that they seem to be more concerned with inflation now, not less, and that the rally may have been overdone. One in particular can be found in the excerpt on David's blog..."However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures." Hell, the dovish nature of the statement as traders took it was enough to drive up the price of oil all by itself--if they stop raising rates, the economy won't slow and therefore oil demand won't moderate. It's an ugly conundrum.
ReplyDeleteAnd thanks for proving my point...yes Fritz, I deny both of those things, and I challenge you or anyone to prove it. I cannot prove a negative, but obviously this purported statement of mine really left an impression, so why is it so difficult to find? That quote from me above is not only irrelevant to a "scam", but actually a correct, cogent thought. But I'm glad to be in your thoughts so often!
Dammit, the site is www.globaleconomicanalysis.blogspot.com.
ReplyDeleteNikki,
ReplyDeleteAs anon said above "everyone knows" that assets are the best protection against inflation.
Your statement:
"...inflation will have pissed all their "equity" away"
is just fundamentally false. Your error is neither original nor cogent.
And if a link makes it true, click on the Housing Panic blog for many lengthy treatises on inflation hedges.
"As anon said above "everyone knows" that assets are the best protection against inflation."
ReplyDeleteSo, so, true. The only better hedge is capital being repaid at a lower than inflation interest rate. The folks who took out 5% mortgages over the last couple years will be really coming out ahead when inflation hits something like 10%. They will have made the deals of the century because they will in effect be being paid to borrow money. Not a bad deal at all!
This comment has been removed by a blog administrator.
ReplyDeletenikki -
ReplyDeleteyou said:
""...inflation will have pissed all their "equity" away""
This is outright incorrect because hard assets are the best protection for one's wealth in inflationary times. Currency, bank accounts, anything fairly liquid loses value when there is inflation simply because price inflation really means nothing more than liquid asset devaluation. That is, since it takes more and more of that liquid asset to buy something as inflation ups prices, the liquid asset moneytary value drops. Hard assets such as land, hold their value. Gold, land, etc.
Nikki,
ReplyDeleteI noticed you deleted your post asking how your statement could be incorrect. I guess you understand why it is incorrect now?
gb-
ReplyDeleteCan you elaborate on how my statement is wrong? If you're going to say I'm in error, would it not be more useful to correct me? How is it incorrect that if prices just stagnate at current levels for several years, many people's equity will be pissed away? It's not my original thought, but thanks for giving me the credit. Another nicer way to say it, if that's what you'd prefer, is that it's the refreshing pause that allows wages to catch up with prices--again, not my original thought,, and that may be the best possible outcome,even according to the FDIC. Check out the conclusion section in this study.
"Conclusions
Our analysis of the OFHEO historical home price data shows that metro-area housing booms don’t last forever. But what matters to lenders and borrowers alike is the manner in which housing booms end. In over 80 percent of the metro-area price booms we examined between 1978 and 1998, the boom ended in a period of stagnation that allowed household incomes to catch up with local home prices. While neither lenders nor current homeowners particularly like stagnation in home prices, such an outcome represents a necessary adjustment in market conditions that helps bring home prices within the reach of new homebuyers.
Mortgage lenders and borrowers encountered a great deal more distress in the 21 episodes of U.S. metro-area housing busts identified between 1978 and 1998. Fortunately, based on the criteria we use to define a housing bust, such an outcome can be characterized as relatively rare. In fact, only 17 percent of the housing booms identified during this period led to a subsequent bust, and where busts occurred they were typically preceded by significant distress in the local economy. To the extent that local factors continue to determine home price trends, the expectation would be that metro-area home price busts will continue to be relatively rare.
However, the broadening of the U.S. housing boom during 2004 may imply a growing role for national factors–including mortgage credit conditions–in explaining recent home price trends. More research is needed to establish exactly what role, if any, changes in the cost and availability of mortgage credit played in the expansion of the U.S. housing boom in 2004. But to the extent that credit conditions are driving home price trends, the implication would be that a reversal in mortgage market conditions–where interest rates rise and lenders tighten their standards–could contribute to an end of the housing boom. While our analysis shows that boom does not necessarily lead to bust, it remains to be seen to what degree the current situation might differ from our previous experience in U.S. housing markets."
Lance--
ReplyDeleteNo, I actually thought I needed to add some more. But don't worry, I copied and pasted the initial post as is at the top of this one. Hope that satisfies your jones for my two cents, man you spend alot of time here.
Nikki said...
ReplyDelete"Lance--
No, I actually thought I needed to add some more. But don't worry, I copied and pasted the initial post as is at the top of this one. Hope that satisfies your jones for my two cents, man you spend alot of time here."
But do you understand now how GB was right when he said your statement re: inflation was incorrect? I.e., do you understand that placing your money in a house protects it from inflation and not vice versa?
Nikki,
ReplyDeleteThe more you write, the more you're right?
Their is no way anyone can argue with your straw man. Unless, of course, the logic in your straw man is fundamentally flawed as well. Which is a distinct possibility, but I couldn't read the whole comment.
Not too many people are going to define stagnating prices as inflation, though.
This comment has been removed by a blog administrator.
ReplyDeleteGB,
ReplyDeleteYou may have noticed by now, that the bubble-universe is an alternate universe: "House prices have risen, so we're now going to have a Great Depression that is going to lead to great stagflation and deflation ... and I can then buy a house 'cause my salary will have remained the same despite all the other changes in the economy." "Inflation will eat away at the price of a house that others have bought but it won't touch my savings in the bank or stockmarket ... so then I can buy a house which will not be eaten away by inflation when I own it." "Buying a house should be strictly a financial decision not based on emotions, so when I go to buy my house, I don't care if high interest rates mean a higher payment as long as I can buy my house because it is
priced 50% cheaper on "paper" than what it is now."
“Lance said...
ReplyDelete……You may have noticed by now, that the bubble-universe is an alternate universe…..”
Yep, one based on numbers, facts, and spread sheets.
Yours? Based on what the realtor told you. How much was that commission again?