Posted on 10/08/2005 2:35:32 PM PDT by wagglebee
Well, there are also fundamentals that eventually come into play. Such as with the dot-com bubble, when people thought that companies that never made a profit were worth $180 a share and believed the share values would be at $300 a share six months later.
But, sooner or later, market reality trumps expectations. In the case of the housing market, sooner or later there will not be buyers at the price homeowners are wanting, because those buyers will not be able to afford to buy.
It really isn't "illogical"....it is math. Right now I pay about $1,800 per month payment. about $550 comes back in increased equity. Since about $9,000 of the annual mortage is interest, that further lowers my monthly cost.
Anyone wanting to rent my house will now pay about $2,500 to $3,000 monthly.
You can't tell me that salaries won't go up in the future. If anything, we will eventually have inflation, which a home will help you protect against.
I agree there are some bubbles, like in Florida, where people are even buying condos before construction with the intent of flipping.
If one lives in a good area where most people are buyers, rather than renters or flippers, the future looks good.
All this crap don't matter. I ask X--Dont want to pay? No deal. I'd ratehr sit on it anyway.
"...about 60 percent of homeowners expect the value of their homes to increase by at least 5 percent annually during the next several years,..."
What did they think their 401k's would do in 1999? 20%? 25%? 30%?
They was wrong, WRONG I tell you. Wrong!
In addition, it is clear that you wither do not know the notion of opportunity costs or do not apply it in this case.
rather...too. Home goes for sale in my neighborhood, it's like Parana. No shortage of buyers.
But if they've borrowed against equity that has evaporated, some loan contracts can become immediately due and payable. Mortgage companies that like to stay in business do not issue unsecured loans. If the equity has disappeared the loan can be called.
Can you say mass bankruptcy?
Forgive me, but this expression is completely nonsensical.
Overstimulating the economy can be worse than doing nothing at all.
???????
Even he admitted that there's some serious distortions in the economy.
You don't appear to understand the meaning of the words you use. Distortions are deviations from a norm or a given, well-defined set of circumstances. What is the norm for an economy? What distortions are you talking about and in what parameters of the economy?
These distortions were caused the by excess money and credit created by the Fed. SO, now you are claiming that A, which you are unable to define and speak about in a completely nonsensical way is caused by B. Causation is difficult to establish even for well-defined quantities.
Why don't you read something and study the issue. The scientific method dictates that one reserves judgment until sufficient evidence is collected. You pass judgment not only in the absence of evidence but without even understanding what the issue is.
Market forces are influenced by people's confidence in that market. The Nasdaq crashed because some people lost confidence of it and started liquidating thier positions. The falling price then gave rise to the herd mentality which caused everyone else to start selling as well. Prices don't crash in the housing market, but they can go down significantely over time. A crash happens when people need to unload an asset at any price, but there aren't any buyers (suckers) willing to buy it. What will happen in the housing market is gradually people realize that prices won't go up anymore and all the marginal buyers have been scraped from the bottom of the barrel with the interest only ARM loans. In other words, there's no more suckers willing to buy at those sky-high prices. You have people trying to sell at their asking prices. Someone comes along and offers them less. They hold fast and insist that they know what their house is worth, after all it appraised for XXX,XXX and Joe Blow down the street sold it a few months back for a similar price. This may go on for awhile until the seller gives up selling or gives into one of the "lowball" offers. Then the neighbors realize that house prices are going down and want to get out of their house to lock in their profits. Does everyone see where this is going???? House prices can crash as far as the Nasdaq did, but would do it over a longer period of time. I predict that after housing prices have gone down 30-40% with Fannie Mae and Freddie Mac belly up, we will have the Congressional blowhards come in and fix things the way they fix everything-congressional hearings. They'll say that "no one could have seen this coming....How did this happen?" Watch the blowhards in congress then proceed to bailout Fannie Mae, Freddie Mac, and the idiots that bought a 500sq.ft. condo for $500,000 with an interest only loan. Bush, being the compassionate socialist that he is will sign it.
Hate to rain on your happy parade, but the real estate market is controlled by the "MARKET FORCES" not the "happy homeowners confidence."
Market forces are influenced by people's confidence in that market. The Nasdaq crashed because some people lost confidence of it and started liquidating thier positions. The falling price then gave rise to the herd mentality which caused everyone else to start selling as well.
Prices don't crash in the housing market, but they can go down significantely over time. A crash happens when people need to unload an asset at any price, but there aren't any buyers (suckers) willing to buy it.
What will happen in the housing market is gradually people realize that prices won't go up anymore and all the marginal buyers have been scraped from the bottom of the barrel with the interest only ARM loans. In other words, there's no more suckers willing to buy at those sky-high prices.
You have people trying to sell at their asking prices. Someone comes along and offers them less. They hold fast and insist that they know what their house is worth, after all it appraised for XXX,XXX and Joe Blow down the street sold it a few months back for a similar price. This may go on for awhile until the seller gives up selling or gives into one of the "lowball" offers.
Then the neighbors realize that house prices are going down and want to get out of their house to lock in their profits.
Does everyone see where this is going???? House prices can crash as far as the Nasdaq did, but would do it over a longer period of time.
I predict that after housing prices have gone down 30-40% with Fannie Mae and Freddie Mac belly up, we will have the Congressional blowhards come in and fix things the way they fix everything-congressional hearings. They'll say that "no one could have seen this coming....How did this happen?"
Watch the blowhards in congress then proceed to bailout Fannie Mae, Freddie Mac, and the idiots that bought a 500sq.ft. condo for $500,000 with an interest only loan. Bush, being the compassionate socialist that he is will sign it.
The basic premise is wrong. An increase or decrease in the value of a house (or a stock or a painting) is not a profit or a loss if the property is not sold. If you stay in the house during a market downturn you have lost nothing. Don't believe me? Try to get the IRS to accept a loss on your next return if your home value dips below what you paid.
The raising of interest rates by Greenspan will certainly create pressure on those with 3 year option ARM loans etc. However, the demand will also create an outcry for governmental relief. We have already seen the 40 year loan. What's next. If millions are effected by the problem, then you will see rising pressure on elected officials for relief.
Some argue that the housing market has been good for the economy, another factor which could hold a lid on increases or create pressure for reversals.
I don't know what's going to happen, but I'm betting on the demand prerssure to win out. And I'm keeping my three rentals in socal AND building storage facilities.
OK, now I understand were you are coming from.
You are talking about accounting losses and profits, and you do speak of those correctly. As you have probably heard in your first accounting (or economics) course, accounting losses have very little to do with economic losses.
When you hold an asset for a month, you are essentially decide to buy it every second of every day of that month. In other words, if you are rational and did hold it for that long, it means that it was the best choice at all of those instances of time.
In the case Hildy brought up, this is clearly not the case. If you bought a house a year ago for $600,000 and now it is $400,000, you hold a house that you can sell for $400,000. If you did not buy that house and held $600,000 in cash for a year, you could buy this very house today for $400,000 and have $200,000 in cash left. These 200,000 you've lost by buying the house. It matters not what you do from this point onward: you ARE $200,000 more poor. Hildy was correct thus.
What do I mean by overstimulate? The Fed uses monetary policy to stimulate the economy. It does this through the creation of credit (Fed Funds rate), and the printing press. If the Fed goes too far in stimulating the economy, it creates inflation. This is Econ 101. The Fed. Funds rate dropped to 1% and the money supply has increased by 50% since 2000. How can that not be going too far?
You have to be blind not to see that the dot com speculators left the stock market in 2000 and got into the housing market. At the same time, the Fed lowered the Fed. funds rate down to 1%, which is essentially free money, which caused mortgage rates to plumment. The low rates and decreased lending standards helped feed the housing bubble.
The artificially low interest rates made available a nearly limitless supply of money for borrowing in the housing market. That distorted the housing market and caused prices to go up.
What else could have caused the price of housing to go up 50% on a nationwide basis since 2000? Incomes since 2000 are pretty flat. You can't explain it with illegal aliens, they can't afford to buy houses.
Not at all. Fed's has neither objective nor mandate to stimulate the economy. If ever, this issue may be a part of fiscal, not monetary policy.
The objective of the Fed is to control inflation without stifling growth. Growth is thus a constraint, not hte objective of their decision-making. to do so It does this through the creation of credit (Fed Funds rate), and the printing press. If the Fed goes too far in stimulating the economy, it creates inflation.
No, it it puts in more money than is necessary for growth --- that creates inflation.
This is Econ 101. P>Thank you.
The Fed. Funds rate dropped to 1% and the money supply has increased by 50% since 2000. How can that not be going too far?
Well, with inflation being just a few percentage points and in line with growth, this is by definition on target.
You are making the same mistake as people who claimed racism in New Orleans. Just because the number of black victims is large --- say, 80% --- it does not indicate racism. To show disproportionate impact one has to compare the number to the percentage of blacks in the city. The same is here: you point to growth in money supply and ask how can that not be excessive. You are looking at a wrong number: to show that it is excessive you have to point to detrimental consequences; that is, high inflation. Such inflation is absent; you have no case.
There is no intrinsic value in a house or land or anything else.
Actually there is .... things that enhance daily life have value.
A roof keeps rain off your head, a garden puts food in your belly.
The very concept of value is based on the desire to satisfy these basic wants.
Some things have value ...
You confuse value with satisfaction of basic needs. It is not really relevant whether something one values satisfies basic or higher-level needs.
The point was that it is not things but people who have values for things. Things in themselves do not have value.
heh. I had half my money in bonds, a quarter in blue chips, and a quarter in growth companies. I didn't see a big gain when everybody else was scrutinizing their ports on a daily basis and I was wondering what was wrong with me. Then the bubble popped, and I didn't lose much either.
I just bought a house yesterday for $110,000. It's a cute lil' ol' 45 year old 1614 sq ft 3 BR gem with a great yard. I believe that pricing pressures even just a few blocks away are going to drive my prop values up.
I also have 4500 shares in a startup I was involved in that has actually become a player in the outsourcing game. That actually may turn out to be something someday.
I can hardly believe it but I'm actually mustering some assets in my life.
The morsal of food in a beggers hand has value .
some things have value
value is the worth in usefulness or importance to the possessor
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