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.
What makes you think a goldshilling "prudent bear" would have a chart like that?
Yeah, but while mortgage debt has been increasing, mortgage interest rates have been steadily declining and so total mortgage interest payments haven't risen much as a % of GDP. It's the intereste payments that affect people financially more than the total amount of their mortgage.
Your analogy breaks down when you consider REAL housing crashes. They're not making any more land in Japan or Argentina either.
And that is what will be the final pin in the real estate bubble...when interest rates rise again.
GDP will increase (even/especially after a recession). Inflation will increase. Even without those considerations, drops are not inevitable, stagnation is just as likely an alternative as sellers refuse to sell and lenders refuse to foreclose. Also a lot of lien holders are also interested in real estate, not just payments. There's a fair number of them ready to snap up any desirable properties they can get their hands on. They will then hold them until the next bubble.
Huh? Are you saying free people in a free market system did not cause the price of housing to increase through their investment decisions?
Just got a sales flyer on the door about a house just down the street fom me. Great house asking $50,00 below appraisal. (Phoenix, Az)
Well what happened in Japan, as far as I know, was a true speculative frenzy driven by very limited supplies of real estate in Japan and a strong economy generating lots of savings. People went crazy in Japan, but we haven't seen anything like the kind of price increases that happened in Japan. That was a classic vertical price move to a buying climax that leaves a vacume of buyers afterwards and a big price decline. But we haven't had nearly that kind of speculation in the US housing market. There has been some rampant speculation in a few areas, as always, but generally our housing market is much too big to get seriously overheated like Japan's market.
No, I'm saying that their investment decisions were artificially induced by insanely low interest rates brought on by the FED and foreign purchasers of US debt instruments.
No need for any wrist slashing.
Depends on if your in debt up to your eye-teeth with ARM's and such or debt free.
That tells me the appraisal is probably too high. Last I heard, the median price is up 7% in the Phoenix area in the last 12 months. I'm hoping for a dip from that increase to buy a bigger house early next year.
My food just got here. We'll continue this later. And no, I'm not avoiding you. At least you are able to argue your position (as opposed to resorting to insults)! More later, if you're up to it. All the best--GGG
People borrow more when rates are low?
When interest rates rise...watch out below!
Why? My rate is fixed.
We just put a house on the market in the Pinetop area great house on a lake. It is not the best timing, should have put it up in summer.
Well the 10-year treasury bond reached a yield of about 3.5% during the lows in interest rates in 2002-2003. Today the yield is about 4.8%. Most mortgages are based on this rate, so that would imply that a 15 year mortgage, which is around 5.7% today, would have been 4.4% at the low point. I don't think 4.4% was an "insanely low" rate, and it only lasted at that level for about 10 months, and then bounced up to 4.8%. You have to keep in mind the long-term decline in inflation, which stopped this year because of oil price increases, but I think will resume again in the current quarter of this year. There have been major improvements in oil drilling/exploration/production technology which is increasing oil production rapidly. The Peak Oil crowd is going to go bonkers as prices stabilize around $60 for the next several years.
LOL!!!
Buy one of Bill Bonners "newsletters" today! He must have a 100 under different names/clubs/associations....
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