Skip to comments.Housing boom could be history soon, experts say
Posted on 12/10/2004 9:05:07 PM PST by nanak
OK. This time they mean it, really. Economists in San Diego and around the country are saying the biggest housing boom in the region's history is slowing and may be finished by the end of 2005.
"The phenomenon of doubling your money in three years is over for this cycle," said Jim Teak, a San Diego-based economist with Prudential Realty of California.
A lot of people agree with Teak. The influential UCLA Anderson Forecast says in a report out today that 2005 could be the year that "reality and reason" finally cool off the housing market.
Higher interest rates will keep overall price increases in the single digits, and may force small price drops in the more expensive neighborhoods, the report said.
Although most homeowners will be able to weather the slowdown, it could be bad news for first-time home buyers and speculators who have bought in recent months.
"If you locked into a great long-term rate, then you are OK," Anderson economist Edward Leamer said. "But people who think they are going flip get in and get out in the next several years are the people who need to rethink their strategy."
Of course, some economists have been saying the housing market is overpriced for the past year or longer. UCLA's economists said a year ago that they were starting to worry about a housing bubble, but prices have continued to rise.
The median price for existing single-family homes in San Diego County reached $489,000 in October, up nearly $100,000 from a year ago and a 44 percent increase from October 2002.
Leamer said the elevated prices are more the result of easy-to-get financing than robust economic growth. In the end, economic growth is needed to support the prices, he said.
There are indications all over the county that the market is already softening. Houses that in April would have sold in six days are staying on the market for 90 days, Teak said. Owners of higher-priced homes are being told to prepare to have their homes on the market for as long as six months.
"Six months ago, if you had a house at $900,000, you would have gotten it," Teak said. "Now you're lucky to get $850,000."
The housing slowdown won't be limited to Southern California and could shave as much as a half-point off the growth in the country's gross national product in 2005, Leamer and others said.
"Housing will be the one sector driving the anticipated slowdown in economic growth next year," said Bill Strauss, a senior economist with the Federal Reserve Bank of Chicago.
Beyond 2005, economists are concerned about the large number of adjustable-rate mortgages being sold and what would happen if the rates go up. Several are concerned about the growing possibility of a housing-led recession.
Leamer said the only reason a housing bubble didn't burst in the recession of 2001 was aggressive cuts in short-term interest rates by the Federal Reserve.
The Federal Reserve worked to keep mortgage rates low by cutting the federal funds rate from 6 percent to 1 percent from January 2001 to June 2003. Those low interest rates helped push home prices to the point where the ratio of prices to rental rates has reached record highs.
Leamer likens this ratio to the price-to-earnings ratio on a stock. And as anyone who studies the stock market knows, inflated price-to-earnings ratios are often a sign of a coming bust.
"We are in very uncertain times," said Robert Shiller, a Yale economist who studies economic bubbles. "Some of the adjustables (mortgages) people got in a couple years ago are already losing their interest-rate protections."
Shiller sees the possibility of a long, slow slide similar to what happened in Southern California in the 1990s. Los Angeles home prices dropped more than 30 percent from 1991 to 1997, and prices in San Diego dropped nearly 10 percent from 1991 to 1995.
It could get ugly if prices drop and consumers are unable to handle the increased mortgage debt on top of all the installment debt they have piled up in recent years.
"It may well be that the big win for reality and reason will come in 2006," Leamer wrote in his report. "We are talking a recession driven by a plunge in consumer spending on homes and durables."
But the gold bugs are enjoying a nearly 100% return on their investment since the late '90s, from around $250 an ounce to about $450.
Yes,I prefer Adams and Hamilton to Jefferson. You are VERY astute,clever,intelligent,knowledgeable,and yes,funny.
What a fantastic saying! I've never heard that one before.And yes,you are 100% correct about the conmen who push gold.For a while,there were a band of gold bugs on FR.The leader of the pack posted thread after thread after thread after damned thread with "articles" (news letters and con-game pitches)by two or three of these con-artists,as though it was all factual and on the up and up. Fortunately he and most of his drooling,rabid followers have been banned and FR has blessedly been free from that garbage for a while.
I pride myself on off beat knowledge of economics, but I had to google jeckyl island. Good one!
Hey......all locals want to make money off the tourist,no matter where they are. LOL
I knew what you meant. The new reality with astronomical housing prices is that few single income families can qualify. Those who are simply moving equity in a current piece of real estate to "move up" can pull it off. First time buyers are finding that 3 to 6 unrelated income earners are pooling their resources to get into a piece of real estate. Many are doing this just on speculation. The broker at my son's office has been flipping properties on 6 to 10 month intervals and building quite a wad of cash.
Hey, thanks! The nicest thing anyone said to me in a long time! You're neat, too! (Okay, end of mutual admiration society)
I'd urge you to take another look at Jefferson -- particularly the stuff he invented. Hamilton was a scrappy guy, but his mind was very abstract. Jefferson also worked in the concrete. Adams I never cared for -- reminds me of some disapproving rich uncle -- can't even look at a picture of him without imagining him saying (in sonorous tones): "Is this how you intend to spend your life?"
The poor thing has been thoroughly bested/refuted,but refuses to realize it. He's so easy to best/refute,though,that's it's not much fun. :-)
Also real estate! :-)
Who gives up their fears easily?
I gotta get to work...
It's been a real pleasure and a treat all!
I don't hand out compliments often,but when I do,they are well deserved! And thanks for the reciprocal kindness.
Ahhhhhhhh...but that's exactly why I like Adams.He wasn't a hypocrite,he was very moral and upright,and he wasn't about to ignore other's imperfections,when he though a verbal kick in the rear would help.
Though imperfect,at least Alex's moral turpitude was only sexual (and that not as bad as some of the other's!) and Hamilton's vision for this country was one of the FF's soundest.
Jefferson was a wastrel,and a poor me,who enjoyed play-acting and showing off. His house designs are fascinating,but he was a METROSEXUAL of the worst order,long before that term was coined.In that time's vernacular,he was a popinjay and a dandy.And for someone who had a hand in the laws of this country,for him to dither,have seconds thoughts as to the constitutionality of the Louisiana Purchase and almost reneging,once the papers had been drawn up and signed;not to mention his Francophilia and his wanting America to send troops to help in the French Revolution (and both Dems and Libertarians claiming him as their patron "saint"),drives me crazy and turns me completely off him.
And let's not forget his indulgence in dirty political tricks and paying people to spread spurious lies about his opponents.Of course,those chickens later came home to roost,when one of the men he used to spread tripe,turned on him (for lack of payment and patronage) and forever after tarred him with the Sally Hemmings lie.
It's been delightful! Let's do this agian soon.
But the equity markets,in the long run,will,as they always do,out perform gold.
Well, almost always.
As the dollar bounces back, gold will subside. If the dollar crashes, which I doubt, gold will be king, as well as coffee, real estate, or any other barter commodity.
It isn't a bad choice to have,as part,PART,of one's portfolio,but it shouldn't be the only part,nor even the majority.
Each 1 oz coin has a face value of I think $50, which if put into effect, could damage a lot of gold coin collectors. The gov't made it illegal to own gold at one point, IIRC, which makes it frightening to own it.
You never know when the gubmint is going to crack down on owning real money again. Not that I have any anyway. :)