Posted on 12/14/2004 10:42:46 PM PST by nanak
As the Federal Reserve moves to raise short-term interest rates once again, flags are raised about the effect on housing prices. With housing being the largest household asset -- and one that has risen sharply over the last several years -- a downturn in housing prices akin to the fall in stock prices since 2000 would be devastating to families and the economy. According to the latest Federal Reserve data, American households owned $16.6 trillion in real estate in third-quarter of 2004, up $2.2 trillion in the last year, an increase of 15.4 percent. By contrast, they owned just $9.4 trillion in corporate equities and mutual funds, which rose $923 billion over the same period, an increase of just 10.9 percent. The Office of Federal Housing Enterprise Oversight reports...
(Excerpt) Read more at washingtontimes.com ...
There is a danger here, IMHO, primarily in the overpriced areas on the coasts (NYC, New England, California). I think in most other places there isn't as much danger as prices haven't inflated as much to begin with.
Marysville,CA , a city 40 miles north of SACRAMENTO and in the middle of nowhere, a brand new 3-Bed/2.5-Bath house appreciated from $315,000 to $355,000 between June 2004 and December 2004.
Housing bubble is across the spectrum and not just in few pockets.
Personally, I wouldn't get too uptight about the real estate market crashing out here. The prices are way beyond ridiculous now. They need to come back down to earth, big time.
For the past 25 years I have watched people predict a crash to the housing "bubble" in CA. The closest thing I have ever seen to a crash was about a 20% downward correction.
Meanwhile, by ignoring all of the predictions I have made pretty good profits on CA real estate.
And, I have watched a few nice young couples rent houses when they could afford to buy because "prices are too high" or "prices will crash soon". Well, these people are now looking at serious downgrades from what they could have bought even three years ago, and even if there is a 20% drop in prices, will still be behind where they were 3 years ago.
There are two engines driving this increase in prices.
Inflation, and look for it to increase soon just because the feds are spending more than they take in, and
RAT-controlled "smart growth" policies. Anytime most of the local cities start embracing "smart growth", "limited growth" or anything that sounds like that these are code words for forcing everyone into high-rise apartments or condos at best, when what people really want is the traditional single family house.
If the politicians create an artificial shortage of single family houses, the price will go up. This is not a buble, it is simple economics.
Good, time to see some people squirm.
If interest rates do, indeed, skyrocket, I hope they can wait a couple more years yet so I can get a house built where I want it, and max out the value on my current one.
When will this bubble pop so I can finally afford a house?
LOL! Supply and demand, and as the population grows older, which it is, the last place most want to go is to the brutal cold. Places with the best weather will be the most desirable, as always, but even more so as folks get older.
The danger your about to see is brutal, nasty mama winter quickly bearing down on you.
The legs of this bubble are the low borrowing costs (interest rates) and the assumption of valuation increases. The moment you take one of those two away the valuations of real property will plummet. It's even so bad in many cases I would strongly advise against purchasing real estate in many markets (this is mainly commercial properties). The strong growth in property valuations combined with the low costs of borrowing have made it so rental properties have a very low return based on current valuations (1.5-2% roi), combine this with the glut of lease properites (from the strong growth during the dotcom era) made it so many properties are leasing for vastly less than they were 4 years ago (and this is just about everywhere). The low borrowing costs made it appear that real property was a good investment for the costs involved, and has further strained roi for commercial properties (and any good property manager would sell a fully preforming property making only 1-2% roi based on current valuations). The housing market is a it different but it basicly boils down to this, I as a realtor will give a client a market price which is based on the value of what that last homes sold for the neighborhood. If the liquidity in the market is taken away it drives down the amount of money people can borrow based on income (32% basicly for homes), any increase in lending costs would drive down the number of people who can afford a property based on current valuations. Toss in the assumption that Real property will only increase in value it will be a very quick tumble for some properties in price (or they will just stay on the market until the owner can get "what it's worth".
The only time we've seen such rapid price valuations for properties is durring the 70's due to the high level of inflation at that time. Prices will not fall below what they were durring the mid 90's but I can see them falling down to a point that is in relation to the increase in wages durring that time (per market). So if you own property in a market where property values have far outstriped wage growth, I'm going to be suprised if you don't see a signification contraction.
My unscientific observation from central Illinois, is that housing sales have cooled off a bit. There are a bunch of new built homes that have gone unsold for months. I think it is a combination of asking too much and new homes being over built.
In San Diego, for a while people were literally talking about how much appreciation they were making per DAY on their homes. As things have cooled a bit, folks are now realizing their children won't be able to afford homes and will be forced to move out of state to buy.
WE MUST PRESERVE THE BUBBLE.
Even here in upstate New york houses have appreciated from $250,000 to $350,000 in 2 years. That's dangerous.
Indeed, the unintended consequence of smart growth is elevating prices and keeping the minorities priced out of the suburbs.
In upstate NY? Wow. Appreciation here is modest.
In low taxed high growth suburbs.
Sell your US Property and retire abroad!
There are a lot of places in the world where you can live like a king with that money.
On "BBC Prime", a European Channel, they have a television show dedicated to people who have sold their overpriced London properties to invest in locales abroad.
Some of them have chosen locations in Africa or bought islands. Others have just bought villas in Tuscany, France, or Wales. Some have gone to Australia.
The show is called, "No Going Back".
If you have access to BBC Prime, watch it!
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