Fate of World Economy Lies with U.S. Housing --Greenspan

Sign on San Diego ^ | 10/1/2007 | Sumeet Desai

[ex-Texan]

LONDON – The fate of the world economy hinges on what happens to house prices in America and that may not be a good thing, former Federal Reserve chairman Alan Greenspan said on Monday.

Speaking at the Reuters headquarters in London, the former Fed chair delivered a gloomy prognosis on the state of the global economy – U.S. house prices are likely to fall further and they could drag the rest of the world with them. * * *

“The critical variable in this judgement is the price of homes in the United States,” said Greenspan, who ran the U.S. central bank for more than 18 years until he stepped down in 2006.

“I would expect home price declines to continue until the rate of inventory liquidation reaches its peak,” Greenspan said, on stage with British Prime Minister Gordon Brown and finance minister Alistair Darling.

[ex-Texan]

“The critical variable in this judgement is the price of homes in the United States” * * *

“I would expect home price declines to continue until the rate of inventory liquidation reaches its peak"

And this proclamation comes from the guy who is most responsible for everything that is happening today. Thus Sprach Zarathustra . . . The real estate god is dead. Long live real estate. Do you see what is happening now all over the America . . . ? Do you really understand?

The builder was reported to be having "money problems" back in July. Now they are having a Banruptcy sale Nothing to see here. Time to move. Move alonmg people, move along now.

Prices reduced from $ 359,000 to $ 99,000 — !!! And even less. Want more details?

Casa Grande

Fiesta homes range from just under 1,500 square feet to over 2,100 square feet in size and most have 4 bedrooms with 2 to 2 1/2 bathrooms. Celebration homes are larger and range in size from just under 2,000 square feet to nearly 3,400 square feet.All homes to be auctioned in Casa Grande are BRAND NEW homes and starting bids will be as low as only $89,000. This is an amazing opportunity to own a beautiful home in this fast growing community.

Maricopa

aricopa is a charming city located just 20 miles south of Phoenix. Maricopas early influence from the hearty local farm economy which still thrives today has led to unprecedented growth and development. Know as A Community With A Heart, the safe neighborhoods, educational excellence, endless recreational and cultural opportunities and strong business community anchored with a unique small-town feel makes Maricopa a great place to live and work.Twenty-seven brand new homes in the Celebration and 26 brand new homes in the Fiesta communities of Maricopa will be featured at auction. Previously listed at over $353,000, starting bids on select units will be as low as $99,000!

Source Here

For all the real estate and mortgage shills out there i say "Save your bovine squat for your industry message boards. Nobody is buying it today. Except other people in the business."

These empty houses have been on the market for at least six months. The builder could not sell them. Even in the good times. So how much will they sell for? I suggest a few will sell slightly over the required minimum bid. Others may sell for a 40% price reduction. Others will sell for about 50 cents on the dollar. Maybe. Hurry, hurry, hurry! You can join the crowd and even put in bid yourself. Want to learn more? Or do you just want to throw stones at the messenger.

[Brilliant]

Give me a break, Greenspan. We make a lot more than just houses.

[Petronski]

[ex-Texan]

*Ping* !

[CaptainK]

It must be a relief to Alan that he had nothing to do with the situation.

[madvlad]

But wait! Isn’t the world economy decoupling from the US drivers?

Guess its not diff this time! bwahahahahahahahahaha

Wish houses in my area were being firesold!

MV

[in hoc signo vinces]

Exactly....he’s gone senile and his wife is a democrat journo hack...using is his prestige as a mouth piece that’s all the latest statements from Greenspan represent.

Sad end to his legacy.

[djf]

Hey, the biggest banks in the world can lose their keisters and the stock market just goes to new highs!

Kum Bay A, m’Lord, Kum bay A...

Somethins gonna hit the fan real quick here.

[Fairview]

Greenspan does not seem to know when to STFU. His mouth has caused more problems for this country.

[Popocatapetl]

Wise homebuilders should finally bite the bullet and evolve into a new market that hasn’t ever existed much in the US.

For years, homes have been “cheap and cheerful”, slapdash construction of biodegradable properties, that even with their poor quality have continued to appreciate in value. The pressure to change, to improve, has only resulted in the creations of “McMansions”, which are still cheaply built affairs, but written on a much larger scale. When homes and other buildings age at all, they are just torn down and replaced with the same.

But at no time has the idea of “quality” entered the picture. That is, building homes and other buildings on the idea that the US is no longer wildly growing, but is becoming a mature nation where property starts to become a long term family asset, with the same home owned for generations by the same family.

In all fairness, in years past this was much harder to do, because building materials were far less durable or prohibitively expensive. But this is much less the case today. In addition, there was always the problem that “castles” tended to be very expensive to maintain. But this, too, has been alleviated to a great extent with technology.

So why not build homes that will last a family for generations, without complete rebuilding, and designed for low cost operation and maintenance?

The design will be somewhat different, as it will have to be fashioned to support the needs of several generations at once, yet comfortably for all. Its initial costs will be much higher, because it will need to integrate features that while expensive, will save much money over time.

As much as possible, it will have to be self sustaining, with few resources entering and little waste leaving.

If such homes exist, the one great expense would be property taxes. The elimination of those would make this a popular model for everyone who could afford it.

[BeckB]

It sounds to me like a lot of international investors have been fueling the building speculation in this country.
Let them exploit some other country. ( maybe Greenspan is about to lose some investment money of his own ) .

[stylin19a]

oh no...a fly by night developer,
that's been around only a little bit,
took out huge loans/revolving lines of credit in 2004 using 450 desert "lots as collateral
is the basis of your today's "sky is falling" alert ?

[unixfox]

His mouth has caused more problems for this country.

It's called "Irrational Exuberence"

Somebody needs to stuff a sock in this asshats mouth.

[jpl]

Far be it from me to question someone as smart as Greenspan, but I would think that things such as the price of oil, the continued growth of China, and the stability (or lack thereof) in the Middle East would have far greater impact on the world economy than the real estate market correction in America.

[abercrombie_guy_38]

He fails to mention he had a (large) hand in the problem.

[DungeonMaster]

Fate of World Economy Lies with U.S. Housing --Greenspan

BS. This statement seems to be a setup to blame Bush for a lot of stooooopid loans. So now I suppose Bush is supposed to bail out the whole industry.

[Wolfie]

He probably doesn’t know.

[AZLiberty]

The biggest unspoken factor in current real estate prices is uncertainty about immigration. Immigration, substituting for our sub-replacement birth rate, has been driving the real estate market, providing a continuing flood of people entering the bottom of the market and allowing everyone else to "move on up". Without this, real estate will revert to its real value, which is what people are willing to pay out of cash flow rather than what they can pay out of their increasing equity.

Let's resolve the immigration crisis, cutting off the flow of illegals, and replacing it with a flow of deserving, capable, legal immigrants.

[Savage Beast]

You're right about this, Popo. In many cases, the heir or heirs to a home cannot afford to keep it because of heavy taxes and must sell it.

There are loop-holes to this--a Family Limited Partnership, for example--but they are cumbersome and difficult and have a downside.

The worst of it is that getting taxes away from the politicians is practically impossible. Once politicians--who form our de facto ruling oligarchy--get their greedy hands on our money, they NEVER let it go.

They use it, of course, for their own aggrandizement and to get and keep themselves in power.

Unfortunately millions of Americans cannot comprehend this. They accept the politicians' bribes of bread-and-circuses in return for votes, and they support these greedy parasites by feeding their hunger for more and more money and power.

If you can figure out how to solve this basic problem, you will save our beloved nation.

Our brilliant Founding Fathers foresaw it, but their vision was inadequate to prevent it.

[ga medic]

I think Bush has already promised to bail out the industry. Greenspan definately shares some of the blame for this, but I am not sure how much. I am not a big Bush fan, but I don’t see how he is responsible.

Honestly, I don’t know why this was so hard to predict. Rapidly rising housing prices, low interest rates, lots of speculation, and mortgages being issued for interest only loans, to qualify purchasers for the maximum home possible. Looked like disaster from the beginning to me.

I do think Greenspan is right here though. The housing market has the potential to seriously impact the US economy. America still has a major impact on the rest of the world. Without strong American investment, the world economy will suffer. Greenspan may have made some mistakes, but he controlled the Fed for 16 years, most of them very successfully. He isn’t an idiot.

[quant5]

I am not buying yet. The pricing is going to go lower. The downturn is a snowball (as your demonstrating) in some areas and a wimper in others. My home value in Southeast Maine has gone up slightly his year, because it was flatlined during the boom. I will be looking to buy at the end of 2008, at what will be the worse housing conditions we have seen in our lifetimes. That means bargains galore.

[DungeonMaster]

I do think Greenspan is right here though. The housing market has the potential to seriously impact the US economy. America still has a major impact on the rest of the world. Without strong American investment, the world economy will suffer. Greenspan may have made some mistakes, but he controlled the Fed for 16 years, most of them very successfully. He isn’t an idiot.

No but I'm surprised at how he has suddenly become quite anti Bush. Since everything is so partisan and since he is now retired and way old, it makes what he says very suspect.

Too many people own outright, like me, or are not fools with their house purchases, like all of my friends, or rent, like my oldest son for this to account for that big a percentage of the economy. I'd have to say the total percentage of the economy involved with bad loans and housing decisions is much smaller than health care.

[Fairview]

Honestly, I don’t know why this was so hard to predict.

It wasn't. Three and a half years ago, well before the peak, a friend who does business at a very high level warned me of the coming disaster. He told me to get out of my house and rent until the blood dried a little, then buy at the bottom of the market. Smart man.

[ga medic]

You are lucky to have such a smart friend.

[ga medic]

Look at the overall housing market, and the market for new homes. Lots of foreclosures on the market decreases demand for other resales or new homes. Developers and builders will suffer, and this will affect the building materials industry. Housing is a huge sector, and has a big impact on the overall economy. You may have a good loan now, but if you were to be suddenly transferred or need to sell for some reason, it would be difficult to sell your home, and you might not get a great price for it. Not a problem if you have a lot of equity, but if you don’t you can run into a problem. (I fave some friends in this situation now.)

You might be right about the significance of housing compared to healthcare. I don’t really know. Unfortunately neither sector is doing very well right now.

[HockeyPop]

ex, put me on your ping list!

[DungeonMaster]

You might be right about the significance of housing compared to healthcare. I don’t really know. Unfortunately neither sector is doing very well right now.

I know this is a change of the subject and I don't want to seem contrary but, the health care industry is doing great. It accounts for 1/6 of the economy. Demand is sky rocketing such that providers can name their price. That's the definition of a sector doing well. I believe you are confusing the politics of the sector with the economics of the sector.

[quant5]

These are indeed negative factors beginning to brew the perfect storm of a major global recession. And if things do heat up to true regional war in the ME vs. just proxy we may see a total collapse of the financial system. This would be restored within months, but the economy will take years to recover.

If Hillary gets elected, expect a black Tuesday event as she will raise the capitol gains tax and Wall St. will have a massive selloff before a 30% or normal capitol gains rate of 40% goes into effect.

Don’t expect it to be ‘the sky is falling’ from the mainstream media or financial experts in 2008. A lot of stimulus, including a bailout of homeowners will occur. This always happens in struggling sector or another but this time the bailout will be big. However, it is still but a band-aid. The damage done is on a global scale. Greenspan is correct, much of the previous economic growth came from home values and collateral from banks based on such values. It’s a TRILLION dollar problem and we have just begun scratching the surface. Those at the top made billions going in and are making billions exiting.

Google Netbank. See the first real innocent casualties of this debacle. If you had $5M in Netbank, you would have just had $2M of your hard earned wealth instantly erased. I would go postal and this is just the beginning.

What to do: Stop spending money on a rich lifestyle. Cut up the credit cards and pay down the debts. Save money in banks but spread them out to what the Fed insures up to $100k. I have killed much vacation planning, lowered the Christmas budget to $700 for a family of four (usually spend $2k). If you have a decent job, now is not the time to go exploring the next bigger and better thing. Refinance at a new lower rate but don’t take the cash out for remodeling. Cut corners everywhere. I like to think of the story in the bible of Joseph who was abused by his brothers and sold into slavery to Egypt. He became the second in charge of the known world in the empire of Egypt.

He was given a dream to store up seven years of grain during tremendous produce years for a seven year famine. We are two years away from the seven year famine.

[Redleg Duke]

"So why not build homes that will last a family for generations, without complete rebuilding, and designed for low cost operation and maintenance?"

Because, families do not stay in homes for a lifetime anymore. We are a transitory society, moving as the job opportunities dictate. Why pay for a house that will last a lifetime when you can get one that will last 10 years, and you will be long gone.

[quant5]

“Our brilliant Founding Fathers foresaw it, but their vision was inadequate to prevent it.”

No they built in an adequate way to stop it dead in it’s tracks if necessary. It’s called the Consitution Right to Bear Arms. The elites know this is the only real thing stopping the corrupt political engine from realizing ultimate socialist utopia. They have worked overtime on this for 20 years and cannot end-around this despite unlimited stealthy attempts to circumvent We the People.

They also know the day they actually find a way to accomplish this is the first day of the American Revolution part two. Our military would unlikely be on the side of the corrupt politicians trying to crush 60 million gun owners.

[quant5]

“I know this is a change of the subject and I don’t want to seem contrary but, the health care industry is doing great. It accounts for 1/6 of the economy. Demand is sky rocketing such that providers can name their price. That’s the definition of a sector doing well. I believe you are confusing the politics of the sector with the economics of the sector.”

More or less you are correct, I am in the Lifesciences business as a marketer. The entire sector is very good. Some segments such as big pharmacueticals are struggling for higher growth and have seen 3-4% in the last couple of years, less then the double digits seen in the 90’s but when your talking billions, it’s still all good :) I got into it a couple of years back based on research and that is paying off big now. I guess I am just glad I am not in the mortgage or real estate business although I know people who made a killing and it seemed like such easy dough for a long, long time.

[ga medic]

I was referring to the increasing push for Government intervention in healthcare, and the very real possibility that Hillary may be in a position to create HillaryCare.

[CharlesWayneCT]

If you followed that advice 3.5 years ago, you got screwed.

My house is worth less than it was last year, but a lot more than it was 3.5 years ago.

The problem with naysayers is that the market ALWAYS comes down sometime, so they always claim they were “right”, just off on the timing a bit.

But timing is everything. When is the right time to sell out of an inflated market? Right before it crashes. When is the right time to buy back? When it hits bottom.

So tell me, if you sold 3.5 years ago, missing 2.5 years of great gains, when do you buy back? In 5 months, 1 year, 2 years? How will you know when you are at the “bottom”?

A Time machine?

[DungeonMaster]

I was referring to the increasing push for Government intervention in healthcare, and the very real possibility that Hillary may be in a position to create HillaryCare.

Scary thought, that.

[DungeonMaster]

More or less you are correct, I am in the Lifesciences business as a marketer. The entire sector is very good. Some segments such as big pharmacueticals are struggling for higher growth and have seen 3-4% in the last couple of years, less then the double digits seen in the 90’s but when your talking billions, it’s still all good :) I got into it a couple of years back based on research and that is paying off big now. I guess I am just glad I am not in the mortgage or real estate business although I know people who made a killing and it seemed like such easy dough for a long, long time.

A whole different way to view the situation is to look at my home town of Cedar Rapids, Iowa. The city stays the same size year after year but there is a new health care business opening every few months.

[Eyes Unclouded]

“Cultivated mind is the guardian genius of democracy.”

The people of this country by and large cannot be bothered to learn about their country and protect the institutions that made it great.

My generation (80’s baby) from what I have seen in school is split in such a way as to ensure the continuation of an oligarchy. 80% don’t care about politics or history, of the 20% that do only a small sliver at the top are well read and can analyze and debate ideas. They split into factions getting the other 20% to line up with them and the anytime they can whip up the other 80% they win a debate in school.

[art_rocks]

All those banks were crying when they were making money off the housing market.

[Fairview]

The top of the market where I live was two, nearly three years ago. If I had taken my friend's advice and gotten my house ready to sell then, I would have done very well. Remember, it was 3.5 years ago he was predicting this; he did not say to throw everything in the back of the car and run that very minute. Three years ago in my city buyers were throwing wads of cash at sellers, buying anything frantically, without an inspection. My friend took his own advice and made out like a bandit.

Real estate, like politics, is local, so your mileage may vary. Point is, not everybody was blind-sided by this collapse.

[quant5]

2 trillion dollar market and going to become much bigger. The catalyst in my humble opinion was when man first cracked the genetic code of ourselves. This was what, 1995 or 1996? The medicines now coming on this understanding have little side side effects and massive upside.

Treatments are becoming far better and can keep someone relatively healthy until very old age. However, I would love to see more cures. To do that, a network of philanthropists must be created focused on funding companies with cures. Check out ProNai for example.

Big pharma doesn’t want cures, treatments are 20 times more profitable to keep someone on them for decades and so your average investor knows cures are a lousy ROI and don’t invest. I also have a great solution through legislation - open up the Canadian drug market to the US consumer. With competition comes fair pricing and it is the price of meds driving the majority of absured health care costs.

[stephenjohnbanker]

“Let’s resolve the immigration crisis, cutting off the flow of illegals, and replacing it with a flow of deserving, capable, legal immigrants”

Bingo!

[WLR]

I see this a little different..

Banksters decide to end the con and recoup a great deal of wealth which was as a part of a bait and switch operation temporarily out of their hands.

Crashing the Housing Market is a way to continue to steal the wealth of the American People..

No accident just part of the design.

BTW there is no Hyperbole... We just lose our a$$eS as planned..

Proud your $300,0000 home is “paid for”?

Oh it is now worth $65,000.... Sucker

W

[CharlesWayneCT]

And my point poorly made was that in fact not very many people were blindsided by this. I’ve been reading about this coming for over 2 years now. It was inevitable, what with prices in my area going up 20-50% a year.

I knew my house wasn’t worth what people were willing to pay me for it, but it wasn’t worth it to me to take the chance of selling it and having to go through the hassle of renting for a couple of years and then buying back.

It’s just like the stock market, you can guess that if it’s gone up 20% in 6 months that you probably are at the peak for the year, but you can’t know for certain, even though when at the end of the year it’s up 15% you can look back and realise you knew it.

I’m not sure what’s going to happen in my area. We don’t have a lot of land, we have more employees moving in every day, people have to live somewhere. But we obviously had a group of people buying multiple houses hoping to use them for investments.

[DungeonMaster]

Big pharma doesn’t want cures, treatments are 20 times more profitable to keep someone on them for decades and so your average investor knows cures are a lousy ROI and don’t invest. I also have a great solution through legislation - open up the Canadian drug market to the US consumer. With competition comes fair pricing and it is the price of meds driving the majority of absured health care costs.

That's half of the false promise of socialized medicine. They promise to take big business out of medicine and reduce the costs of all the current treatments. I still believe in the biblical idea of "If man will not work then neither should he eat". The same concept applies to health care.

My dad is a union thug liberal and he doesn't believe that a billionaire deserves any different health care than a bum that has never worked.

[listenhillary]

Outstanding time to buy that first house. Wow!

[ga medic]

no kidding.

[upcountryhorseman]

Greenspan started the process: easy credit, print lots of
money, low interest, etc. Now they have “painted themselves into a corner”; they have to continue the same thing.

[Justa]

Nice advert. You know I’ve been reading your RE postings for about 3 years and it appears your dire warnings may finally be validated. Of course that means you caused it all to fall apart in the first place.... ; )

[ex-Texan]

The Ponzi scheme was way too obvious. A short distance away from where I live builders were putting up new homes for less than $ 100 per square foot including the land. Why would anybody pay over $ 300 per Sq. Ft. for a house sold by a realtor? It was easy for me to see the truth. All anybody had to do was ask questions. Of course, I have also owned houses and rental properties in several states.

There never was any reason justifying $ 600,000 median-priced houses in La La Land. Except incredible stupidity and simple greed.

[Popocatapetl]

The transitory society may be slowly winding down, as part of the economic maturity I mentioned. Granted, *some* children will still leave for other opportunities, but others will remain behind. This is more the norm for human history.

The social advantages of this are many, compared to a fully transitory society. Families are much more stable, with the young and old being cared for much more. The mainstay of the family fortunes again becomes the house. It is the high value equity that remains between generations.

Now, a home like this would not be inexpensive, in fact it could run to several millions of dollars in current money, and as I mentioned, would have to be more protected than it is now. This would mean the elimination of real estate taxes for personal homes, bankruptcy protections like they have in Florida, and very low or no estate taxes.

[Redleg Duke]

I do not see any signs of this transitory society “slowly winding down”. What you are seeing are children coming back home after college because they can’t afford all of the creature comforts that Mommy and Daddy have and aren’t willing to work for them on their own.