Don't worry be happy. The Free Market will not fail us.
Posted on 08/24/2005 3:40:56 PM PDT by ex-Texan
Are home values floating merrily upward in a bubble that's about to burst? Many of the economists who correctly predicted the bursting of the stock market bubble, including Yale University's Robert Shiller, think so.
If the housing market should collapse as the stock market did, the impact could be even more painful, warns Bruce Bartlett, a senior fellow with the National Center for Policy Analysis.
For one thing, Bartlett says, homeowners are much more leveraged than they used to be.
According to the Federal Reserve, home equity has fallen to 56.3 percent of their real estate from 75 percent a generation ago. Another Federal Reserve study found that 16 percent of the money taken out in refinancings was simply consumed.
According to Freddie Mac, people are taking more and more money out of their homes. Cash-out refinancings have risen to 18.1 percent of all refinancings from 7.2 percent in 2003. In the last four years, homeowners have taken $559 billion in equity out of their homes.
More and more homeowners are buying and refinancing with unconventional loans, such as adjustable rate and interest-only mortgages, rather than traditional fixed mortgages.
These loans offer low initial payments, but will rise automatically when interest rates rise, putting homeowners in a potential bind. The Federal Reserve says that 47 percent of all residential mortgages by dollar volume are now non-traditional.
Economist John Makin of the American Enterprise Institute notes that housing has a powerful effect on economic growth through construction, employment, purchases of durable goods like refrigerators and in other ways.
He estimates that if home prices simply level off and stop rising, it will cut 1 percent off the real gross domestic product growth rate.
Mortgage Bankers Fret Over "Creative Loans"
I'm not going to respond to you questions today. Not being rude but the answers are there for everybody to explore. Just do a search of my screen name.
And add to that the fact that short-term interest rates are so low.
Doesn't leave much room to drop rates lower to stimulate a recovery should the bubble wreck the economy.
One aspect is that everyone says land values are going up because everyone else says it's going up. It's a pyramid game, and sooner or later someone says 'no more' and everyone tries to sell at once. This is basically what the MSM doom'n'gloomers are referring to, but IMHO it's not the whole story.
Another part is when interest rates are low, banks have a harder time cutting profits. So they're under more pressure to loan money. They inflate the value of homes that people want to mortgage. Sooner or later there's an 'S&L Crisis' like what we had in the '80's or like Japan had throughout the '90's.
IMHO (again) just part of the surge in housing prices is the above; but most is the fact that these are boom times, people are rich, and they're buying bigger homes that cost more.
You heard it here first.
People couldn't all sell their dot-com stock at one time either. Someone had to buy the stock. In each transaction, only 50% were selling.
I'm acquainted with an individual who owns a townhouse, two units. At this time, the value of the property is $375K--but he can only get around 2500/month in rentals, with proptax taking around $6K/year from that.
He has a problem...
You must know some really bad economists.
Of the ones I know, the lowest paid guy was making 60 G's, most of them were making 6 digits.
That said, one weird thing, not a single one of them votes.
Go figure.
"You must know some really bad economists."
I do, myself and many of the other idiots I went to school with. But I do vote. Maybe I should stop.
Don't worry be happy. The Free Market will not fail us.
It will cover the trade deficit for one year.
What will happen if many people will not be able to pay?
Some made fortunes "advising" Yeltsin's Russia.
I have nothing to add. Just checking in.
Darn, thats tough.
The economists I knew were pretty good (weird bunch though), they got paid pretty well for a variety of things (consulting, analysis, etc).
The voting thing was always weird, it was like some kind principle to them.
I honestly have never met a poor (financially speaking) economist though.
Doesn't leave much room to drop rates lower to stimulate a recovery should the bubble wreck the economy.
Excellent points. Thanks for the reminder.
Quote: Don't worry be happy. The Free Market will not fail us.
That's right!! We are in a "new" new economy.
Just as well. Many of them are so politically erratic, it is not encouraging. The Supply-Siders are a perfect case in point. From Jude Wanniski forward to Paul Craig Roberts and Arthur Laffer, to name the more prominent ones, down the lesser bench-warmers in the political aisles like Jack Kemp...they are prone to flighty fanciful fads...and taking personally policy disagreements with their prescriptions.
Jude Wanniski used to be a marxist, now he is a champion of capitalism. Roberts designed and really was the architect of the implementation of supply-side economics for the Reagan adminstration, drafting the Kemp-Roth legislation and working for Donald Regan in the Reagan administration. Went from 25 years staunch GOP supporter, Heritage Fellow, Manhattan Institute, CATO fellow, to opposing GWB for the 2004 race after having nominally supported him 2000. (Trade issues aside, he appears to have gone around the bend on Iraq policy and is purely following Buchanan's line on it). Meantime, the "public face" that Reagan championed for supply-side theory, Arthur Laffer, of course voted GOP until...Bubba Xlinton came along. Voted for him twice...and enthusiastically. But now claims to be back on the ranch with GWB, whom he is quite fond of. Jack Kemp has been becoming progressively more radicalized and Big Government oriented that he is virtually indistinguishable from either Paul Samuelson, or Lester Thurow's domestic politics, the big-time democrat economics chair at MIT...just applying supply-side buzz-words "zones" for this and that in essentially what amounts to Keynsian/Welfarism run amok.
These guys are just the more visible spokesmen for Supply Side. But there are many others...and truth be told...just as flighty by and large. Of course, that may be excusable when the politicians don't stick to their pledges.
Its more shallow then you think.
Long story short, and I'm quoting here "Once you remove the whole shoulda, woulda, coulda stuff, my vote does not make a difference, all the hypotheticals in the world can't buy a cup of coffee".
They just don't vote because they simply don't think its worth the effort.
Kind of caught me of guard with that answer.
Granted the guy I talked to is also a cynic who thinks all politicians are the same and it doesn't really matter to him one way or the other who gets elected....since all politicians are corrupt and ignorant anyway.
I'm still kind of laughing about it.
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