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Posted on 05/11/2008 12:04:21 PM PDT by freerepublic_or_die
America May Well Be Only Halfway through the House-Price Bust
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SOUNDING more like a cartographer than central banker, Ben Bernanke this week showed off the Federal Reserve's latest gizmo for tracking America's property bust: a series of maps that colour-code price declines, foreclosures and other gauges of housing distress for every county in the country. The Fed chairman's goal was to show graphically that falling prices meant more foreclosures, and he went on to urge lenders to write down the principal on troubled loans where the house is worth less than the value of the mortgage. But the jazzy design of his maps—where hotter colours imply more trouble—also makes a starker point. The pain of America's housing bust varies enormously by region. Hardest hit have been the “bubble states”—California, Nevada and Florida, as well as parts of the industrial Midwest. The biggest uncertainty hanging over the economy is how red will things get.
The answer is not simple. For a start, it is hard to be sure just how much house prices have fallen. America has several house-price indices and they tell different stories. Widely cited, but least useful, are monthly figures showing median home prices produced by the National Association of Realtors (NAR). These indicate that median prices are down some 13% from their peak, but since these averages do not adjust for the mix of homes changing hands, which fluctuates from month to month, they are inevitably distorted.
Mr Bernanke's maps use figures from the Office of Federal Housing Enterprise Oversight (OFHEO). Its statistics have broad geographic reach and track repeat sales of the same house. The monthly national index suggests average prices have fallen only 3% from a peak in April 2007, and the quarterly figures are still positive (see left-hand chart).
(Excerpt) Read more at economist.com ...
Gratuitous Mad-Cow-Disease-ravaged Schadenfreude from the folks who gave the world Creutzfeldt-Jakob disease (CJD)
We need a map also of tracking areas who let overpriced vehicles go back when they made an ill-advised purchase that they couldn’t afford. The law of economics bites sometimes. -)
UH, maybe they should be tracking and showing the 25-year performance leading up to the previous over-inflation of housing prices in those “bubble” areas, too! That’s not to say it’s any less painful to those who bought near the height of the bubble, but it’s not like CA and FL, etc. are falling into some primitive, pre-industrial abyss. It’s a sharp correction to what had become an unsustainable absurdly rapid increase in home values in those areas.
Then, purchase the new house for much less than the asking price.
Check my Freeper Page
Which would be OK if it was just limited to the Wall Street Bankers, the independent rating agencies, independent mortgage brokers and irresponsible speculators and stupid home buyers but this will have far reaching problems for future growth.
Anybody who bought a house in the last 7 years over-paid for their house. Which for the long term homeowner is really no big deal. But for those who are in “starter” homes or homes in far off suburbs or older couples looking to downsize, they and the housing industry are screwed.
The Mortgage industry killed off the pipeline of home buyers. Subprime and Young Married Couples keep the housing market moving - but they will be either trapped into a too small house for the next 5-15 years or credit and finances will be thoroughly ruined for the next 7-10 years they won’t be any customers to move up in the housing chain. If you can’t sell your two bedroom townhouse in the middle of nowhere you aren’t going to be able to buy a new home anywhere.
You remember how the DJIA didn’t grow for 20 years? It’s going to be something like that.
"Ours has barely even started, and Northern Rock was only the calm before the storm.
God, we hate those fat Americans. Hate them.
Hate them and their full-sized vehicles and high home ownership, at fewer than six houses to the acre. Their McDonald's instead of a proper Wimpy's. Riding lawnmowers!
Hate them."
thanks and bookmark
Well, if context is essential for Rev. Wright, we can look at the context of this article. The broad context is to publish bad news about the US far more often than good news is published. In being slick as an enema, the left wing media can truthfully say that they print good news when they find it, but sadly there is so little good news to print. Here, read some more news, we are sorry it is so all so bad. It must come as no surprise that they find bad news 20 times more often than they find good news, at least in my estimation (your own mileage may vary).
As with everything liberal, in looking for bad news far more intently than for good news, they are projecting their distaste for themselves for all the world to see. But liberalism is all about the denial about reality and the maintenance of the inner Happy Land, where policies desires and actions are only judged by Good Intentions, never by results and we dare not even hint at Unintended Consequences.
And when it did grow it grew on utterly fake Dot.Bomb IPO's.
"We have a product we give away free-Invest in us", said Netscape. And amazingly, people did. Everyone else climbed on.
This was growth, but it was the growth of fake money. Who cared? Everyone got to spend it.
Wealth can only be generated by shuffling paper from one pile to another for so long.
Same thing for the fake loans.
I have faith that greed and human nature will save the day with some other Ponzi Scheme, and Happy Days will be here again.
So how about a government program to bail out those of us who bought fixed-rate mortgages when ARMs were being pushed as more economical? I’d like to get my interest refunded since I kind of figued this ARM crap would be back to bite so I overpaid for a fixed rate.
You didn’t overpay with a fixed rate, you overpaid because you bought a house when rates were artificially low.
Look at it this way at a 9% interest rate a $300,000 mortgage would be about $2,600 a month. With a 6% interest rate, a $500,000 mortgage would be about 3 grand a month. So for 15% increase in payments, you can afford a 60% more house.
So you made almost as bad as a decision as they did.
So if we do nothing and refuse to bail out the banks, brokers, underwriters, speculators and borrowers - you are going to lose about 25-50% of your house’s value for the next 10-20 years. Interest rates are going to go up, credit is going to tighten, the pool of buyers will be smaller and your property tax rates will go up as well.
There are two ways you can save yourself.
1) Go to the bank and threaten them with a short sale unless they change the terms of your contract. A businessman would close up shop if they thought they weren’t going to make money - why should you be forced to throw good money after bad.
2) Bail out the greedy and the idiots, but punish Wall Street & the banks with higher taxes and more regulation. Because obviously they can’t police themselves. As much as we’d like to blame the borrowers the fact is the Financial industry abdicated their responsibility. People with bad credit acted like people with bad credit - it’s the well paid, college educated professionals to say “No, you can’t afford this...” It’s like a parent asking a child what they want for breakfast. If the child says Chocolate cake - it’s the parent’s fault for giving it to them, not the child’s fault for asking for it.
Oh come on.
I realize that gloom and doom is fun, but it just plays into the MSM and Donk’s hands to dive into that pool with such abandon.
Manhattan is up 10% in the past year.
Are you going to put your money where your mouth is?
Why aren't they using lenders to write down the principal on loans to the best customers where the house is worth less than the value of the mortgage?
These are the folks who can and will pay, and who should be rewarded. The lender could forgive some or all of the upside-down part of their mortgage and add in some protective (for the lender) terms if he wants to in exchange. Then these people could move at some point (b/c they could sell their house) and then buy again. This is the only way gridlock in the market is going to be overcome. Right now there is no liquidity at all in real estate.
You explain the situation very well.
This is why I think if someone has to be “bailed out,”-—IOW, if the lenders have to write down losses-—instead of rewarding their worst customers, why don’t they reward their best customers by offering refinances of mortgages held by those with excellent credit to reflect the loss of value in the home?
They could make terms that protected them, but they would be “giving” money and liquidity to those who have shown they know how to use it-—and are willing to pay something for it (such as closing costs on the refi). This would inject some cash into the mortgage industry plus give these homeowners more liquidity and, thus, more options.
You are right that it is the subprime and young married couples that start the real estate food chain. But instead of lenders “giving” them money, give it to their best customers. Then they can sell their homes for a lower price (b/c they’re no longer upside-down) and get the process going again.
Right now even people who can pay their mortgage won’t move b/c they don’t want to come up with cash on the table. If that problem were solved, and at least some mobility/liquidity were restored, the market could start sorting itself out.
How does this work? I have been trying to read up on what to do to minimize the impact of having overpaid for a house. But most people just say "it won't be a problem in the long-term." First, in middle age, people have varying ideas of what the "long-term" means! Secondly, I'm not buying it.
I'd be interested in your thoughts on this.
Well, seeing as I didn’t make a prediction about the direction of any particular market, (you apparantly have me mixed up with yourself), just where do you think I should put my money?
My point was that you don’t, and can’t, know the future of the market, as you claim. You’re mighty impressed with yourself, but it just sounds like more of the standard issue MSM hot air to me.
But you can make educated judgements about the market based on the known facts. And the facts don’t look good.
We are in the middle of an exploding credit bubble - now if you can point me to some contray evidence I’d love to listen to it.
If you can provide a great investment stratgey I’d love to hear it.
But if your only objection is that it makes the Dims and the MSM happy, then please grow up.
Sorry.
I thought you were the one making predictions, and I didn’t realize you don’t have Google up there.
“Monday’s US data came in strong. The ISM’s non-manufacturing index jumped almost 4 points to 52.0, easily beating expectations. The data continues last week’s theme.
On Friday, slightly stronger-than-expected payrolls figures triggered a rally in equities and in turn the dollar partly on a decline in the unemployment rate and a smaller-than-expected decrease of payrolls.”
Yeah, low unemployment and strong manufacturing is sure to kill real estate.
Source: http://www.forbes.com/markets/feeds/afx/2008/05/05/afx4969546.html
Now you’re asking for investment advice? OK, try this. Buy low, sell high.
We seem to get a new crop of gloom-and-doom nincompoops on this board every four years. Thanks for playing!
1) Non-manufacturing - burger flippers and nurses.
2) The Un-employment numbers are a bigger fiction than the Hitlery campaign.
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