Posted on 11/29/2005 7:03:30 AM PST by SoFloFreeper
WASHINGTON (AP) -- The Commerce Department reports that sales of new homes surged to a record annual rate of 1.42 million units in October.
That's basically my argument, that we're going to return to equilibrium - and that current home prices are well above equilibrium.
What do you mean by equilibrium? Housing prices are up more than 100% in Miami since 1999. Are you saying that the market there is going to lose half its value?
How will equilibrium, whatever that is, force mortgage rates to 10%?
Notice those who "prophesied" a major housing bubble are often from Wall Street?
Housing prices fluctuate with the availability of money to buy them. They go up under conditions favorable to people having that money, such as low unemployment, low interest rates, and low debt. The key here is that someone who is already leveraged out with loans can't borrow more - and we have gotten to the point where people are recklessly leveraging themselves (interest-only loans). You can't make a more speculative loan than that without charging a higher interest rate. Because any negative change in personal circumstances can cause a default on one of these loans, rising defaults will force banks to make such loans only at a higher interest rate that will offset the risk. At the moment they are clearly depending on a government bailout if too many of these loans invert - a strong likelyhood if there is any softening of the market at all.
Is the price of a house impacted by the size of the house and the upgrades included? I don't think the U.S. housing market has shown a year over year decline in values in the past 50 years. The average annual rate of inflation over the past ten years has been about 2%. Look at what's happened to housing values during that same time. Does this mean that the money supply is growing faster than GDP? If so, where's the inflation?
They go up under conditions favorable to people having that money, such as low unemployment, low interest rates, and low debt. The key here is that someone who is already leveraged out with loans can't borrow more - and we have gotten to the point where people are recklessly leveraging themselves ..
If this is so, how is it that American household net worth (that's assets minus liabilities) is now $50 trillion, which is double what it was just 10 years ago? Our wealth is growing at a much faster pace than our debt which is why we can afford much larger homes with all the comforts and upgrades. That's the main reason housing prices have increased over the past 25 years. Inflation has very little to do with it.
Also, if large numbers of home buyers are recklessly speculating with high risk loans, why is the 30-year mortgage still around 6% after 12 increases in 20 months by the fed? You can say that all this is happening but unless you can show, somewhere, its impact, it's not happening.
In my area the housing market went bust several months ago. Unfortunately, the local builders didn't get the word, because they're still building them as fast as they can and developing more land for more homes.
Not true................30year mortgage under 6% again....who hoo...buying opportunity>
Today's National Averages:
....Loan Type Rate APR
30-yr Fixed 5.76% 5.93%
15-yr Fixed 5.33% 5.61%
5/1 ARM 5.24% 6.46%
"If we deported the 10 million or so illegals, would that do it ?"
I can't say how many illegals have bought houses, but certainly some have. But, the big hit would be to new construction. All the crews are Mexican, making around $10.00 hour in my neck of the woods, which is about half what natives in construction trades would have been paid. Doubling the cost of labor, on top of the rapid increase in materials costs due to storms and continued high demand in China, would either kill new construction or push the so-called "bubble" to new heights, depending on employment, interest rates and overall consumer sentiment, imho.
"Inflationary pressure from low rates and low unemployment will cause a tightening of the money supply at some point"
Inflation will ultimately support residential real estate prices. My parents sold their first home in 1972, for $27,000.00. Same house, unchanged other than routine maintenance, resold in 1979 for $85,000.00. This is in NC, which has never been a boom and bust real estate market.
Builders are typically heavily leveraged. They have a hard time surviving for very long if no one is buying their product. For them to still be building spec homes, when the market is dead, makes no sense at all especially if they are local or regional in size. There are a few big guys who can carry the debt and wait until the market recovers, but they wouldn't be spending their capital in markets where the product isn't selling. Keep an eye on those homes, you may be able to pick up a great deal in the near future.
My house is one of them!
"Would you agree that any housing bubble will only be regional in nature?"
I think its only my neighborhood that the bubble has burst.
Keep an eye on those homes, you may be able to pick up a great deal in the near future.
That's right. Shop only the big guys in the best school districts, in a cul-de-sac, master on the first floor. Tell the sales associate that you only want a deal, and they can call at any time. I picked up two new homes at approx. $69/sf because the builders wanted to move them to get the monthly numbers, and gained about $20/sf in equity just by moving in.
I don't think that a 10% rate on mortages, two years down the line, is too radical a prediction to make.I remember when a 10% mortgage was the norm if not a bargain and real estate was still appreciating.
BTW, mortgage rates actually dipped a few days ago.
You make a good point. Many "homes" are actually investments as the wealth gap grows. Some of us are unable to afford a home, while others have several. I guess the bubble will continue to grow and make things more out of reach....but that's part of being a conservative. I'm not going to become a socialist just to have a home!
I hope the bubble burst as well. It's just gone past healthy and into absurd and is being fueled by foreign investors. Coincidently many of these foreign investors come from countries in which Americans are not allowed to buy property.
Sad and ironic.
"I'm not going to become a socialist just to have a home!"
There are plenty of areas in the US with healthy economies, that aren't priced into the stratosphere. You should seriously consider relocating. Between monster.com for jobs nationwide, and realtor.com for real estate listings nationwide, you should be able to find a good fit somewhere, where the relationship between salary and cost of living is less distorted.
ping
There is also a ton of evidence that builders are doing everything they can to get people to close before the end of the year. In essence, these numbers are worthless.
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