MJ and Bubbles
Posted on 03/14/2005 9:33:12 AM PST by Destro
The Fed sees bubbles -- and keeps them secret
In public, the Federal Reserve says there's no housing bubble. But the Fed also said there was no stock market bubble in 1999. Behind closed doors, the governors knew there was.
By Bill Fleckenstein
Our Fed chairman has argued (most recently last October, in a speech to America’s Community Bankers Annual Convention) that for a variety of reasons, real estate cannot experience a bubble. Yet anyone with a pulse can see wild speculation taking place all around them.
At the height of the stock-market bubble in the first quarter of 2000, it was becoming progressively more difficult for me to adequately describe (in my daily column) the market action. So, in an attempt to capture the mood of the day, I began to share stories of insane behavior that were being e-mailed to me by regular readers. I dubbed this series "The Mania Chronicles," and you'll find excerpts from it in Chapter 3 of the Archives section of my Web site. (Readers of the Contrarian Chronicles can access the site for the next week by using the password/username: mania/mania.)
The kind of maniacal behavior that we saw then toward stocks and which we are seeing now in real estate tends to come at the end of a speculative mania. It is almost always coincident with rising supply, which helps to satiate the inflated demand.
As I have pointed out, the true danger in the real-estate bubble is that folks are often speculating with more than 100% leverage. When it all ends (and though we don't have a timeline for exactly when that will be), the banking system and other financial entities will be left with the bad assets, which will severely impact the economy.
(Excerpt) Read more at moneycentral.msn.com ...
If this happens, I'll sure be glad I live in Ohio where appreciation is a reasonable 2-4% than in an overpriced town like San Francisco...the higher prices go the harder you get hit.
Didn't this happen locally in the Southwest in the 90s??
Yes, Texas was hard hit. However, some of that is attributable to change in legislation which pulled the rug out from under a lot of developers. This not only popped the bubble but added to the resultant downside. I don't remember the specifics on the legislation.
If true - those new bancruptcy laws - which for some reason could not pass in the years before - were rushed through - funy how most Democrats voted for it. Does it mean "the powers that be" and "the people in the know" may know something we don't (yet)?
Housing in the U.S., except for a few regions, is still relatively cheap. And, unlike stocks, there is a strong reason for sustained demand: record high immigration. New immigrants (many illegal, but until I see evidence of anything being done about that, they are in the demand pool) are sleeping 5 to a room in NYC. They will move into apartments and, eventually, houses.
Until we get reliable numbers on immigrants, it is impossible to call a housing bubble. All the anecdotal evidence I have indicates to me that the entire populations of Russia and Brasil have moved the the U.S., nevermind that Mexico has colonized California.
Most of "flyover country" should scoot through (relatively) unscathed. Problem areas:
NYC
Boston
DC
Baltimore
Atlanta
Las Vegas
Phoenix
Tuscon
Pretty much the southern 2/3rds of California
Chicago
Elsewhere, I think that some high-growth suburbs in MOST metro areas will be affected, but less severely.
Probably allowed more developments to go ahead. Its not really surprising that in a nation who added over 4 million people last year.... yet only allowed limited development, that property prices would invariably rise.
Of course. Not just on this issue, but on most others also.
Bill Fleckenstein is a drooling imbecile, and if he said the sun rose in the East, I'd check it first. A few years back, he trashed a stock I owned ("their business is just going to go away."). When the owners of the company wrote a letter to Barron's explaining why their business wasn't going to "go away" (they make excimer lasers for semiconductor manufacture and have a 90%+ market share), Fleckenstein wrote a reply that revealed he knew nothing whatsoever about what they made. He called it a "light bulb." What a moran.
in Los Angeles, there was a long top to the market, and people were buying and reselling while still in escrow on the purchase
the balloon burst and we had 20 to 30 % correction with the highest priced properties getting hit the hardest. the correction was actually countered by the Northridge earthquake in 1994 (?) when billions of FEMA dollars flooded the area. if not for the quake, the bottom would have been much longer
I was wondering myself if the bankruptcy changes are being handled as a "must get done" before the bubble bursts.
MJ and Bubbles
Regarding DC and Baltimore: I live in the DC-Baltimore region (Ellicott City, MD) and while prices have been crazy, the Federal Government provides a job market that doesn’t exist anywhere else.
Sometimes I see bubbles in my bathtub....I don't tell anyone either.
The bottom fell out in Houston in 1983 when the oil market crashed. Lots of folks just walked away from their homes.
It's not too crazy here now except inside Loop 610 close to downtown. We just bought new - 2700 sq ft, 1 story, 3 car garage on a 70'x140' lot for less than $75/ sq ft. Fortunately, I don't work downtown so it's only 25 minutes from my office at 5 PM.
I'd love to be able to put a spatula under it and move it to California ... I could retire back here on the proceeds.
"I was wondering myself if the bankruptcy changes are being handled as a "must get done" before the bubble bursts."
That's an interesting point. In actuality, this legislation will only steepen any housing correction because people will have to sell when they don't want to thereby increasing supply and bringing lots of people to the market that MUST sell.
This first sentence of the article appears to be dead wrong. Didn't Alan Greenspan famously talk DOWN markets in 1996 when he coined the phrase irrational exuberance?
Irrational Exuberance story here
If anything, wasn't the Fed criticized for possibly raising rates too aggressively and talking too morosely about the markets during the salad days of the late 90s? Don't people complain that if anything he was too hamhanded in tempering the markets, not the opposite?
And who gets the house if they cannot sell?
Geez...that's cheaper than here!!
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