Pop goes the Housing Bubble. A Hindenburg of a Ka-Boom?

[Karmadillo]

Here's hoping someone can debunk this analysis.

http://www.counterpunch.com/whitney12272005.html

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In November the sales of new homes plunged by the largest amount in 12 years. The 11.5% decline from October was 4 points higher than expected by Wall Street analysts, fueling the belief that the red-hot housing market is headed for the dumpster.

This sudden downturn is expected to slow the wave of speculation that has kept the market booming for the last few years. According to an Associated Press report, sales dropped by "22% in the West, the biggest decline in the region since February 1995."

Many readers will wonder why trimming the spec-market threatens the overall economy. The reason is, as The Economist points out is that "23% of all American houses bought in 2004 were for investment, not owner-occupation. Another 13% were bought as second homes. Investors are prepared to buy houses they will rent out at a loss; just because they think prices will keep rising -- the very definition of a financial bubble."

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As Paul Van Eeden says in 'the End of the Real Estate Boom",

'this is not a trivial matterAs the real estate market goes, so goes the economy and the stock market. The only thing that could keep the US on life-support a little longer is another round of interest rate reductions, but this time it could hurt the dollar, and that would mean higher gasoline prices again, so it's a double-edged sword."

Van Eeden provides a good description of the mess that Greenspan has created; a blind alley from which there is no foreseeable escape. The Federal Reserve has managed to keep the economy running on fumes by dropping rates 12 times to a rock bottom 1% after the fall of the stock market (another Greenspan fiasco which cost the American people $7 trillion) It was basically "free money" loaned out to keep the country limping along (and to facilitate Bush's tax cuts) while millions of Americans tried to recoup from their losses. Regrettably, the cheap money and shaky loans simply created an even bigger and more lethal bubble that is following the same trajectory as the Hindenburg.


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[midnight armadillo]

1. Nice screen name

:)

[Karmadillo]

7. Ha! Same to you.

:)

[yankeedem]

2. The market has definitely topped

It remains to be seen whether prices will fall, but they aren't going up any more. If the lackluster predictions of a poor Christmas at retailers are true, it will probably be because the re-fi gravy train is finished with.

[msongs]

3. in CA the market is driven by population growth ->

supply & demand with population chasing a limited supply of available housing. It is possible that
the rate of increase in value is slowing somewhat now (bummer only 15% increase instead of 30%)but for now here until people
want to start living 20 to a house, there will be a growing market. Unless, I think, there is a national economic turndown so severe that even CA real estate suffers.

Msongs
www.msongs.com/political-shirts.htm

[omega minimo]

10. Speculation and greed have driven the market and ruined it

Ruined the landscape with a lot of speculator crap tract homes and McMansions.

[1932]

16. I think I read somewhere that Bay Area population dropped in 2004.

I could be wrong. Maybe it was just Alameda County, or something like that. But, in any event, I don't think you can take as given that there will always be increasing demand with flat supply in CA.

[HereSince1628]

4. In general, money will seek to be invested in something

What's next? Objects of Art to fill both homes? Precious metals, gems? Funeral plots and mausoleums?

[bbinacan]

5. My thought is that

the RE bubble will pop more geographically. Places like NY, Chicago, CA, Fl, and resort type areas. Speculation has run rampant in these places and it WILL end.:shrug:

[MercutioATC]

14. Agreed. It won't be widespread.

It should be mainly limited to markets that have seen double-digit yearly appreciation for the last 5-10 years. Most of us shouldn't feel it much, if at all.

[acmavm]

6. Call me stupid but I NEVER understood the Greenspan 'mystique'. He

always struck me as being exactly like the character Peter Sellers played in 'Being There'. You know, Chauncey Gardiner.

[Tactical Progressive]

12. Greenspan is nothing like Chauncey Gardiner

Chauncey was a lovable oaf who didn't know what he was doing.

Greenspan isn't lovable or an oaf, and he knew exactly what he was doing when he tried to strangle the Clinton economy for Bush and the Republicans in election-year 2000 using an unprecedented series of interest rate hikes, resulting in the collapse of the nascent internet boom. Just as he knew exactly what he was doing when, immediately after George W Bush was selected he turned on a dime, calling emergency Fed meeting after emergency Fed meeting to bring the rates back down in another unprecedented series of interest rate reductions.

He was an extreme-rightwing libertarian insurgent doing whatever he could, and it was considerable, to use the Fed's control over the economy to impose his right-wing politics on the nation. He used it against Gore, then with Bush in, he opened the free-money spigot, and kept it open for nearly half a decade, for his fellow right-wingers to suck down trillions in tax cuts and wars. He was as treasonous towards this nation in 2000 as the Supreme Crooks were when they manhandled the 2000 election for Bush.

Greenspan was as corrupt as anyone on the national stage in our generation, and that's the exact opposite of an innocent like Chauncey Gardiner. The mystique is nothing more than the usual: right-wingers and their mainstream media shills venerating a right-wing thug.

[1932]

18. I'm not sure whether Greenspan is the demon here.

Don't forget, when Reagan was killing the economy with misguided, mean-spirited monetary policies (high interest rates), Greenspan was the one who started using Keynesian, microeconomic tinkering at the corners to prod the economy. IIRC, people like Milton Friedman really didn't like what Greenspan was doing, while people like Galbraith did like it.

[Tactical Progressive]

19. Paul Volcker was Reagan's Fed Chairman

throughout his entire term. He appointed Greenspan to replace Volcker just a couple of months before he left office. Greenspan was Bush Sr, Clinton, and W's Fed chairman.

One of Clinton's biggest mistakes was to back down from appointing Felix Rohatyn to the Fed chairmanship in 1996 because Senate Republicans were opposed to him. Rohatyn, who believed in broad-based economic growth, was one of the good guys if you ever heard him speak. Dems do that, they back down and compromise, in this case give in. When was the last time you saw a Repub not scream until they get what they want? So we got Greenspan, friend to Wall Street and not Main Street, for another six years, and what a wonderful job he did with breaking the internet economy and then supporting Bush's three trillion dollars in tax cut deficits.

Harry Reid called Greenspan "one of the biggest political hacks" in Washington this year, for those things and for supporting Social Security privatization. Senate leaders don't do that kind of thing lightly. Supporting SS privatization should tell you a little about where Greenspan comes from, if you don't know about his extreme libertarian beliefs already. And his support of huge deficits runups under Republicans, fine by hard-right Greenspan as long as it was used to enable tax cuts for the wealthy, ought to make apparent what a political hack he really is. He talked Clinton out of middle-class tax cuts in 1998 after the Clinton economy had taken off and was producing surpluses, to instead pay down the debt. Clinton listened. That was a political mistake by Clinton, and as we saw later another Greenspan political treachery, whose fiscal hypocrisy only became evident later when Bush assumed office and he flipped in a split-second to support what would become huge deficit-based tax cuts. Running deficits in a time of surplus for moderate middle-class tax cuts: bad. Running outrageous deficits in a time of budget deficits for huge upper-class tax cuts: good. That's the level of hack that Greenspan is.

[Phoebe Loosinhouse]

8. Interesting article in the Sunday NYT about the Japanese bubble

of the late eighties/early nineties that has not corrected TO THIS DAY! This was a huge bubble made more horrific because it was the end result of a stock and real estate boom that co-existed and blew up simultaneously. If you read the story, creative financing was partly culpable (hey, at least we don't have multi-generational 100 year mortgages!)as well as a sepculative frenzy. The people who were hurt the most were those who were driven to the exurbs of Tokyo and paid exhorbitant prices in outlying areas that are now in disfavor as prices in the city and nearer suburbs have become more reasonable. I recently heard the phrase "drive until you qualify" in a real estate context - this story was the reason you should not drive until you qualify. You might qualify to live there indefinately with no hope of escape.

[1932]

17. Wasn't inflating currency and trade suprluses also a problem in Japan?

They had a trade surplus, were bringing in loads of money into Japan and had no place to put it so they ended up bidding up the price of real estate?

I guess with a flat stock market in the US, at least part of that formula applies in the US. We don't have loads of cash coming into the country with no where to go, but we don't have many investments in the US the last couple years which could bring in large returns.

[Rainscents]

9. Lot of people here DU had been predicting this for sometime!

And it looks like, it's right around the coner...

[catnhatnh]

11. The Hindenburg....

Ain't your best symbol to tie to...deaths were low-less than 50-the technology was nazi-and the burning related to our refusal to sell Germany helium...anyhow, describe this train wreck differently...

[Neil Lisst]

13. I absolutely believe the housing bubble bursts in 2006.

It's coming if it's not here already.

[Tierra_y_Libertad]

15. The speculators are selling to the speculators.

Trying to cash in before bottom drops out. They've effectively priced themselves out of the market.