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.
I remember the 21% interest rate period of time and for anyone to think that now we have 6% up from 5% (but down from the average during the Clinton Administration) that the market should crash and burn is being led by a media that wants the housing market to crash so they can say I told you so... fact is, rates are cheap and anyone who doesn't own a home and can scrape up a down payment should take advantage of these low rates and purchase a home.
Certainly there will be corrections in the market, there has always been corrections in the housing market, just as in the stock market, but when push comes to shove a home is a great investment over time.
If people think the price of housing in the USA is high, they need to look at the price people pay for much less around the world. A home in this country is still a great bargin and 6% interest is an even better bargin. If the Dems are elected, trust me the days of 6% will disappear.
Ultimately, GrieviouslyGratuitousGoldbug is just a pro-Pelosi, anti-capitalist troll.
Many of the loans made in California over the last two years have been POAs, option ARMs, which give far less protection to the borrower than the ARM that most people think of. These permit negative amortization, and it's not sophisticated borrowers taking them. It's buyers who cannot afford the payments necessary with conventional loans. All they are looking at is the monthly payment. These loans can reset quicker than normal ARMs. We may get a test of just how safe these loans are over the next year.
Isn't that the truth. Not to mention that if I tap the equity I can write off the interest on my Mercedes.
LOL! You better go play elsewhere, Petronski. Your temper tantrum is only going to provide amusement here.
That one's a keeper. If my printer worked I'd frame a copy.
We may get a test of just how safe our anti-asteroid defense mechanisms are over the next year.
We may get a test of just how safe our ant-ET lasers are over the next year.
We may get a test of just how safe we are from killer robots like the Cylons over the next year.
We may get a test of just how safe we are from pond-dwelling eye-sucking alligatormen over the next year.
If your printer worked?
LOL
You poor thing.
If you mean pop it in a major way, you are certainly right. 21% interest rates will stop lending dead in its tracks. But it would be a boon to savers beyond their wildest expectations.
Hey, cane sugar rules. Far better than that nasty corn syrup they keep trying to pawn off on us.
I've just talked to my broker. Sugar's out. I'm putting everything I have in twine and string futures!
I see you've called in the hyenas. Do consider them trolls like yourself?
Our freshest pro-Pelosi troll considers you to be hyenas. Just FYI.
You didn't really mean to go there...Did you?
Dem Speak: "Oh sure the cloud has a silver lining, but, but, it's gray all over the outside."
Every thing is a bubble according to the scientific genuises who proclaim the BIG BANG theory, and will one day implode upon itself.
Okay, But in the mean time we are living, loving, raising children and grand children and preparing for the future.
There will be plenty of time to mourn and grieve, if/or when the bubbles burst.
What are you, twelve years old?
If you aren't posting from mommy's basement you need to get a grip.
That stuff just won't work for my coffee.
N00b-troll thinks he's more clever than the million internet trolls who came before him: they always think "projection is the key, donchaknow."
It's up to the buyer and the lender to make sure the buyer has enough income to handle upward rate adjustments. Reputable lenders will only lend to people who have the income to cover their interest payments under almost all forseeable interest rates in the future. Disreputable lenders could cause some problems in the next few years if their income standards were too low, but I doubt that defaults will be a major economic problem. The risk to the economy is more that interest payments will go up and slow down consumer spending. We're at the point where we really need to increase exports to China and developing countries to create more jobs that aren't driven by US consumer spending.
I'll corner the market on twine -- build my empire on string!
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