'The US housing bubble will disappear'

in2perspective ^ | September 11, 2006 | Laurie Osborne

[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.

[ex-Texan]

GGG -- You are wasting your time with some of the dedicated naysayers. You know which ones I mean. They make their living as realtors and/or mortgage brokers. That is why they staulk both of us on FR. They are trying to keep this corrupt ponzi scheme alive. Their goal: To save their jobs while lining their own pockets.

Home Price Drop in San Diego is Largest in 13 Years:

The overall median home price in the county in September was $22,000 lower than it was last year, dropping 4.42 percent to $476,000, DataQuick Information Systems reported Wednesday.The drop was the biggest dollar-amount plunge observed year-on-year by DataQuick since it started monitoring the San Diego market in 1988.

"It is a big drop," said Peter Dennehy, vice president of the Sullivan Group Realty Advisors, of the median price change. "But sales prices have even come down more than that. The median price is finally coming starting to come down with what we're seeing on the street."

"To me, the more serious aspect is the slowing of activity," he said. "Fewer sales, fewer commissions, fewer loans -- that will result in job loss in those industries."

Source: Voice of San Diego

Massive Job Losses Are Coming

The [real estate sector], which employs one in six workers in Sonoma County, lost 1,300 jobs in the three-month period ending June 30, according to a new study.

It could lose 2,000 more jobs before the shakeout is expected to end next year, reducing employment to 28,700, the study forecasted.

The job losses - the largest since the housing market was in retreat in early 1990s - have been deeper than anticipated, even in an industry accustomed to employment swings as housing cycles run hot and cold.

1,300 Jobs Lost in Sonoma County's Housing Slump

[GodGunsGuts]

Come to think of it, what exactly is your view, Petro? Or is your job to sit back and take pot shots while everyone else does the heavy lifting?

[defenderSD]

Just for the record, I don't work in the real estate industry. I'm an independent software consultant and a stock market trader. I just post on these threads because I'm educated in economics and I want to counter poorly reasoned arguments and questionable statistics and help the GOP in the next election.

[Toddsterpatriot]

They are trying to keep this corrupt ponzi scheme alive.

You have something against corrupt ponzi schemes?

To save their jobs while lining their own pockets.

Lining your own pocket is bad?

[GodGunsGuts]

Talk about repitition! You keep saying the same thing over and over with no charts, numbers, or any other authority except your own. Any idiot knows that house prices are more expensive in the cities for the very reasons you describe. What I have been trying to get through to you is that in addition to the premium payed for living in suburban metro areas , there has been a speculative frenzy in real estate that has pushed up real estate prices way beyond fundamentals in the vast majority of the markets across the country. As ex-Texan demonstrates in post #181, median home prices in San Diego country are dropping sharply. Is it your contention that these price drops are limited to only undesirable areas? If past bubbles are any indication, it is usually the desirable, high rent areas that deflated the most, as those markets usually become the most overheated. As for the charts used in my first response, I had never posted those before. Sure, I posted some old ones a few replies down to reinforce that real estate is in a bubble no matter which way you slice it. But the charts posted in my original response to you are all new (with the exception of the link--not chart!--that shows that there is an oversupply of housing). In short, whether we limit our discussion to San Diego's suburban metro area, or whether we talk about real estate nationwide, real estate is in a bubble. In the meantime, I will await your authoritative links and charts that PROVE YOUR CONTENTION that real estate is *not* in a bubble in San Diego (or nationwide).

[GodGunsGuts]

So you admit you're a shill for the real estate market. Interesting.

[defenderSD]

1,300 jobs lost out of 30,000 is not a "massive" job loss. The last national non-farm payrolls report was quite strong with a major upward revision in August employment. If those numbers start to weaken then the Fed will cut interest rates to support the housing and auto sectors.

[defenderSD]

I think Todd is joking about "corrupt Ponzi schemes."

[GodGunsGuts]

So you are willing to misrepresent the real estate market in order to help the GOP?

[Toddsterpatriot]

No, I didn't.

[GodGunsGuts]

So you're not in any way affiliated with the real estate industry?

[durasell]

If those numbers start to weaken then the Fed will cut interest rates to support the housing and auto sectors.




But it won't help Wall Street...

[Toddsterpatriot]

No. The only interest I have is in my home.

[defenderSD]

I do not keep saying the same thing over and over. I've addressed a number of different aspects of this issue. You keep posting the same charts with no source for some of your data, and I'm not sure you even understand what your charts mean. When I talk economic principles, those are principles and concepts, not data, so I'm giving you my educated opinion about economic principles and not data. I don't have time to look up supporting material in my economics books, especially since most of this is fairly basic material. You're the guy who says that ratios of housing value to GDP should stay constant over time, with no rationale for that argument other than your own opinion. I gave you a good example of consumer electronics where this ratio has collapsed over the last 30 years. I explained how increasing commute times are driving the ratio of home values to GDP upward. You just respond with your opinions and the same unsourced data.

You are losing this debate with us because your opinions are too extreme, too vague, and too unsubstantiated.

[defenderSD]

"So you are willing to misrepresent the real estate market in order to help the GOP?"

Absolutely not, and I never said any such thing.

[defenderSD]

The stock market is doing fine. I wouldn't worry about that market as long as oil stays around $60 or lower.

[GodGunsGuts]

BTW, Charts 1, 2 and 4 have the address/source written right on them. Chart number three is displayed over at Wikipedia. They got it from..."Robert Shiller's plot of U.S. home prices, population, building costs, and bond yields (from Irrational Exuberance, 2d ed. Princeton University Press)."

[HarmlessLovableFuzzball]

That brings up a theoretical question that has NEVER been sufficiently explained. Where does wealth come from..

A very very good question; one of the best questions to be every asked on FR.

At the root of all true wealth are manufactured goods. Those who are invested in the manufacturing of goods are the true wealth creators of the world--and this includes food products too. Whatever else you produce or provide-- news, entertainment,novels, poetry, education,marriage counseling, attorney services, theoretical physics research, online stores, brick&mortar stores,dating websites, porn.. ..the chain always ends in your ability to buy a manufactured product.

[GodGunsGuts]

I gave you nationwide statistics in chart form. A chart comparing housing to GDP is not limited to suburban metro areas. And besides, the same factors which drive up suburban metro prices have been in existence for a long time. Even if we just limited ourselves to suburban metro areas, it doesn't explain the spike in NATIONAL home prices relative to GDP.

[durasell]

The market is doing less fine than may be supposed. There are guys doing stuff that make ARMs look as safe as T-bills.