Posted on 10/14/2006 9:48:44 AM PDT by GodGunsGuts
'The US housing bubble will disappear'
By Laurie Osborne, Editor
Published 11th Sep 2006
That the US housing bubble will disappear someday is a certainty. That it will blow up catastrophically is a fair bet, warns The Daily Reckoning's Bill Bonner.
Observing recent statistics, Bonner calls the evidence "formidable".
The total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years – eclipsing the combined GDPs of those nations.
Consumer spending and residential construction have accounted for 90 percent of the total growth in the American GDP over the last four years, and more than 40 percent of all private-sector jobs created since 2001 have been in housing-related sectors, including construction and mortgage brokering.
America made some of its biggest gains this past year, with average prices of homes rising 12.5% in the year and prices in Florida, California, Nevada, Hawaii, Maryland and Washington, DC, rising more than 20 percent, while in Palm Beach County, Florida, it rose over 35%. Sales of existing homes in the US set a new high at 7.18 million in April.
Some foreign countries showed bigger gains than the US in the last year, with prices up by 23.6 percent in South Africa, 19 percent in Hong Kong and over 15 percent in Spain and France. But average house prices have actually fallen by 7% in Australia since 2003; Sydney's bubblicious prices have plunged by 16%. In Britain, sales have contracted by a third from last year and have also slowed down in Ireland, the Netherlands and New Zealand. In Britain and Australia, these declines followed what were only very modest interest rate increases.
23 percent of all American houses bought last year were for investment and in Miami, one speculation hot spot, 70% of condo buyers are investors/speculators.
Last year, 42 percent of America's first-time buyers – and 25 percent of all buyers – put no money down.
In California, 60 percent of all new mortgages this year are interest-only or negative-amortization.
House prices in relation to rent have hit all-time highs in the US, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. In the US, the ratio is 35 percent above its 1975-2000 average. The price to rent ratio is a cardinal indicator of over valuation.
The original question was "why you're repeatedly posting articles..."
Please point to one article I've posted about real estate.
Thanks. I'm standing by for your retraction.
As of today, are you registered to vote in the Democrat party?
I'm predicting a drop in price that will bring real estate back into line with inflation and GDP. That's a huge drop no matter which way you slice it. Sure some areas will be spared the carnage, but overall we are talking a huge hit to both real estate and the larger economy.
I think GGG made a mistake there. He posted a generic reference link that points to each person's own posts based on your login ID. So for example, when I click that same link at #94 it takes me to my posts.
Please be more specific. What do you mean by "a drop in price that will bring real estate back into line with inflation and GDP."? I'm not sure what you're saying there.
That's because it's deliberately-vague gibberish.
I don't think the political will is there to decrease spending regardless of what happens in Iraq. I'm not sure what it will take, higher long term rates perhaps. Long term rates are currently suppressed because of our trade deficit, but that effect (foreigners buying 10 year treasuries with their extra dollars) and/or the trade deficit won't last forever.
"Consumer spending and residential construction have accounted for 90 percent of the total growth in the American GDP over the last four years,"
Ok, how does that compare to some other four year period? How much of each of the two?
But who I am, nothing to see here, believe all the quotes that fit your agenda....
In the 3rd Quarter 2006, the number of sales, price, and price per square foot of New York City condos rose unexpectedly.
If you were to take a look at the market value of consumer audio electronics owned by individuals, guess what, you'll see that the exact opposite has happened. The ratio of the value of consumer audio electronics to GDP has collapsed in the last 30 years. I can buy a stereo receiver today for one third the price in real dollars that a receiver cost in 1976, and it's a much better product than 30 years ago. Product sectors do not have to maintain a steady ratio of price to GDP. That is not happening in many sectors. Sectors like Consumer electronics and long-distance telephone service have been collapsing in price while real estate and health care have been rising steadily. Much of this is caused by advancing technology.
How about a chart of household assets as % of GDP?
One of the biggest reasons why we've seen a big increase in real estate prices is because there is stricly limited supply of real estate in good suburban metro areas. As the saying goes, they're not making any more land. The supply of computers, electronics, telephone service, and cars keeps increasing steadly but real estate close to cities has a limited supply so it has been rising in price. The price increases then generate some speculative excess increases in price that you see in every market from time to time, and some people will get nailed by speculating in housing. It happpens every day in the stock market. But you will not see a collapse in housing prices. There's too much demand and not enough supply for a major collapse to happen.
I disagree. It's not a reallocation based on free economics. I think the real estate bubble is directly correlated to the credit bubble that has been created by the FED and foreign purchases of US debt instruments.
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