Posted on 12/10/2004 9:05:07 PM PST by nanak
OK. This time they mean it, really. Economists in San Diego and around the country are saying the biggest housing boom in the region's history is slowing and may be finished by the end of 2005.
"The phenomenon of doubling your money in three years is over for this cycle," said Jim Teak, a San Diego-based economist with Prudential Realty of California.
A lot of people agree with Teak. The influential UCLA Anderson Forecast says in a report out today that 2005 could be the year that "reality and reason" finally cool off the housing market.
Higher interest rates will keep overall price increases in the single digits, and may force small price drops in the more expensive neighborhoods, the report said.
Although most homeowners will be able to weather the slowdown, it could be bad news for first-time home buyers and speculators who have bought in recent months.
"If you locked into a great long-term rate, then you are OK," Anderson economist Edward Leamer said. "But people who think they are going flip – get in and get out in the next several years – are the people who need to rethink their strategy."
Of course, some economists have been saying the housing market is overpriced for the past year or longer. UCLA's economists said a year ago that they were starting to worry about a housing bubble, but prices have continued to rise.
The median price for existing single-family homes in San Diego County reached $489,000 in October, up nearly $100,000 from a year ago and a 44 percent increase from October 2002.
Leamer said the elevated prices are more the result of easy-to-get financing than robust economic growth. In the end, economic growth is needed to support the prices, he said.
There are indications all over the county that the market is already softening. Houses that in April would have sold in six days are staying on the market for 90 days, Teak said. Owners of higher-priced homes are being told to prepare to have their homes on the market for as long as six months.
"Six months ago, if you had a house at $900,000, you would have gotten it," Teak said. "Now you're lucky to get $850,000."
The housing slowdown won't be limited to Southern California and could shave as much as a half-point off the growth in the country's gross national product in 2005, Leamer and others said.
"Housing will be the one sector driving the anticipated slowdown in economic growth next year," said Bill Strauss, a senior economist with the Federal Reserve Bank of Chicago.
Beyond 2005, economists are concerned about the large number of adjustable-rate mortgages being sold and what would happen if the rates go up. Several are concerned about the growing possibility of a housing-led recession.
Leamer said the only reason a housing bubble didn't burst in the recession of 2001 was aggressive cuts in short-term interest rates by the Federal Reserve.
The Federal Reserve worked to keep mortgage rates low by cutting the federal funds rate from 6 percent to 1 percent from January 2001 to June 2003. Those low interest rates helped push home prices to the point where the ratio of prices to rental rates has reached record highs.
Leamer likens this ratio to the price-to-earnings ratio on a stock. And as anyone who studies the stock market knows, inflated price-to-earnings ratios are often a sign of a coming bust.
"We are in very uncertain times," said Robert Shiller, a Yale economist who studies economic bubbles. "Some of the adjustables (mortgages) people got in a couple years ago are already losing their interest-rate protections."
Shiller sees the possibility of a long, slow slide similar to what happened in Southern California in the 1990s. Los Angeles home prices dropped more than 30 percent from 1991 to 1997, and prices in San Diego dropped nearly 10 percent from 1991 to 1995.
It could get ugly if prices drop and consumers are unable to handle the increased mortgage debt on top of all the installment debt they have piled up in recent years.
"It may well be that the big win for reality and reason will come in 2006," Leamer wrote in his report. "We are talking a recession driven by a plunge in consumer spending on homes and durables."
Then I guess I'm your MASTER, TROLL!
...and Texas Chrystal taught economics to Ludwig Von Mises.
Jeez. Why don't you lighten up a bit?
Those jobs that went to India won't even exist in 20 years. They will become not needed due to technological advances.
John
Sorry, I learned not to click a link in a flame war.
Jeez. Why don't you lighten up a bit?
A flame war is all fun and games until someone loses an eye.hehe! Yeah. Or a screen name. :^D
Truer words have never been spoken.
That is until when my wife speaks to me.
I must log out for she beckons.
Okay, then. See you later. :^D
Some basic archiecture and design jobs are among those that went to India. Accounting jobs, as well.
Buy now. Buy now. Buy now.
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