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."
maaaaaaaaaaamaaaaaaaaaaaamaaaaaaaaaamaaaaaaaaa
Why is our republic bankrupt? Thomas Jefferson on evils of paper money
Here in NYC the Wall Street people seem a little jittery. Could just be that bonus time is here again or that something is in the air.
Also, if average mortgage payment is higher than average rent in the same area, the real estate is overvalued.
Yep. Paper money is evil. So cancel your ISP service since you oppose paying for it with American currency.
Buh bye, troll.
Bwwwwwaaaaaaaaaaaaaaaaaaaaaaahahahahahahahahahahahahahahaha
You'd really be so very much happier over at LP and/or FU;I suggest you go there.Or,are you already a member over there? :-)
regardless of whether real estate is on the verge of a bubble pop or downturn of a cycle; its not the same as the stock market, and will affect only certain regional areas.
I dont think its a bubble,but a long cyclical downturn is possible. depends on all the variables
I am personally fond of Gold Bugs. They're.....quaint.
Until the apartments are converted into condos, with a resulting shortage in rental units again.
I agree.
"It is a [disputed] question, whether the circulation of paper, rather than of specie, is a good or an evil... I believe it to be one of those cases where mercantile clamor will bear down reason, until it is corrected by ruin." --Thomas Jefferson to John W. Eppes, 1813. ME 13:409
The same people who deny the existence of housing bubble were also predicting DOW 25000 and NASDAQ 30000.
In the end, fundamentals do matter. If the stock of any company has a P/E ratio >10, dump the stock.
As far as I know,bonuses aren't going to be "bad" this year.
GOLD BUGS are so funny and this one is also a KNOW NOTHING;as in that now long dead political party.
That's a "nice" way of putting it! ROTFLOL
Bonuses are up on Wall Street this year. But none of them seem particularly happy. These people pretend to be rational and calculating, but really, they're like these little nervous animals (in nice suits) who sniff at the air.
According to who? That isn't the way things are calculated at all.
You really,really,REALLY love making yourself a laughing stock...don't do? LOL
It isn't the bonuses,it's the other stuff I said in my earlier reply;especially the Grasso bit. That's REALLY thrown many for a loop,as they wait for other shoes to drop.
I like the way they see gold as a "constant," like a North Star or something. It's an ancient belief system. And it relies on a commodity to ward off catastrophe -- like a totem. So what's not to like?
In the end, gold is just another commodity, like soy beans or pork bellies. That's why I have five safety deposit boxes filled with soy beans and another two filled with Quaker State 40 weight.
...I had a half dozen safety deposit boxes filled with bacon, but the smell seemed to annoy bank employees and they asked me to remove them.
When two of my friends(both with MS degrees in Computer Science from one of the best college) were laid off; one went on to be a salesman for BEST BUY and the second one is working as a long haul driver.
During the glorious days of our republic under Green-Scum, we are certainly making a big leap forward in technical arena.
In fact the top engineering school that I graduated from; the CS enrollment at that school is down 60% today as compared to 1997. I know most of you will hate the school, but it is still the best in ENGINEERING & COMPUTER SCIENCE and it is called UC-Berkeley(College of Engineering).
Goldbugs are amusing. It's the goldbuggery that I don't like.
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