Let's talk about the economy...

[hahn]

I'm sure this topic will get political, so I picked this forum. Anyhow, I've been watching the housing market fairly closely because my parents will very likely be looking for a place in the next year to buy for retirement.

As I've been perusing through the articles, it seems like there are more and more warning signs popping up on the housing market bubble that is about to burst. Sure, they've always been there, but we've had the benefit of low interest rates for quite a few years now to protect that bubble. But now, they're going back up (30 year fixed rates went over 6.00% for the first time in years), and it seems as if a LOT of mortgages were taken out using ARM's. Projections show that if the interest rates keep going up (and most economic analysts seem to think they will), a lot of the people who own these ARM's are going to be hurting. BIG time. Already there has been an increase in defaults and foreclosures. If you look at the 6 month graph for Fannie Mae, it's dropped over $20 in 2 months time.

One of the articles I read talked about how along with the rising costs of oil, these could essentially be the warning signs of an economic apocalypse. A "perfect storm". You always see these kinds of articles, but I've been watching the stock market, interest rates, housing markets, and oil prices a LOT lately, and I'm starting to get this bad feeling that they may not be too far off the mark this time.

So...anyone else worried about the coming year?

[DVD Polizei]

I was wondering if you lived in Oregon, and BINGO, you do. Is it just me or are we seeing many more houses going up for sale and rent than usual. I think Portland's housing market is a certainly a big bubble, not to mention the outer metro areas.

What many don't realize, is that a $600 monthly mortgage ARM can turn into a $1000 monthly mortgage in 2-3 years. I think this is why we are seeing so many houses going up for sale in the area. Everyone has exhausted their time period, and the houses just aren't selling. Number one reason is the prices are just unrealistic. Few are buying. I say about a year to two years, and it will be a buyers market again.

It's kind of like playing musical chairs. Back in 2002, it was a great time to sell or buy. But now, if you're one of those people who bought a house back in 2002 or even 2003, and think you can make some fast money buy selling it, it may not be so easy as Carlton Sheets says it will be.

[nemein]

Already there has been an increase in defaults and foreclosures.

How much of that is due to the pending changes in the bankruptcy laws though? I heard a piece on NPR the other day how lawyers are recommending their clients who may even be casually thinking about declaring bankruptcy to go ahead and do it now. Of course this still means people have over extended themselves and gotten to the point where they are in trouble, and this could have an impact on the housing market.

[VinVega]

Housing prices have so outstripped income, it's inevitable that the bubble will burst. Hopefully at the same time the stock market will kick into gear. They seem to be diametrically opposed most of the time. Economy was shitty in the early 90's and the housing market was insane. Market was up in the late 90's and the housing market was low. We'll see what happens, but housing right now is unaffordable for many people and those who do own are up to their eyeballs in debt. Regardless, it's always a good idea to have your money spread around.

[Pharoh]

No.

[classicman2]

How much of that is due to the pending changes in the bankruptcy laws though? I heard a piece on NPR the other day how lawyers are recommending their clients who may even be casually thinking about declaring bankruptcy to go ahead and do it now. Of course this still means people have over extended themselves and gotten to the point where they are in trouble, and this could have an impact on the housing market.

When is the effective date of the new bankruptcy law?

[nemein]

When is the effective date of the new bankruptcy law?

I don't recall from the NPR piece... I think it was a few months away though which is why the lawyers were pushing people to do it now.

[gcbrowni]

The latest issue of Forbes cited 'The housing bubble will burst soon' as one of the 5 great finance myths.

[VinVega]

The latest issue of Forbes cited 'The housing bubble will burst soon' as one of the 5 great finance myths.
Nobody thought the dot bomb bubble would burst either.

[nemein]

Nobody thought the dot bomb bubble would burst either.

I disagree w/ that... some people were cautionary early on (although some are just usually pessimistic about anything/everything) but towards the middle/end the number of people who knew it couldn't last was growing IMHO. Some of us just timed it wrong and lost a lot money :(

Regarding the housing bubble I think there may be areas that'll be hit but baring something significant happening to the economy overall I'd be surprised if there was a nationwide "burst".

[wendersfan]

I'm not worried about the economy, personally. My financial situation is quite stable I think.

[classicman2]

Regarding the housing bubble I think there may be areas that'll be hit but baring something significant happening to the economy overall I'd be surprised if there was a nationwide "burst".

With double-digit interest rates, who'll be able to afford to buy a house?

[nemein]

With double-digit interest rates, who'll be able to afford to buy a house?

We have double-digit interest rates? Sure it might happen, and that would qualify as "something significant happening to the economy overall", but I don't think it's a certainty at this point.

[DVD Polizei]

The dot com bubble was exacerbated by shady accounting techniques as SOP by their superiors. Failure to admit a company was doing poorly, while reporting amazing profits. The 90's experienced the most corrupt accounting behaviors ever.

I haven't read the Forbes financial myths article, but I would certainly get a second opinion or three before concluding that it is indeed a myth. Also, location is very much a determinant of just how bad the financial housing market will be.

I can say without a doubt, Portland is headed for trouble. We don't have the jobs to support all of the high prices new sellers are wanting, and few properties are "fixers". We are certainly headed for stagnation in the housing market.

Now, the apartment housing is just exponentially growing, and if you're a contractor of a particular trade, you're always busy. If you're a builder, competition is fierce.

Unfortunately what I'm seeing is many Section 8 apartments going up, and after it's done, very little to poor management. I won't say where at the moment, but a friend of mine who works for a contractor already demolished one complex that was only 2 years old. He basically told me one word of why it was demolished: insurance. There's some very shady apartment contracts going on in the Portland area. I'm sure we'll see it in WW and then in The Oregonian in a year or so from now, after all of the damage has already been done.

Anyway, I got off track. Properties are becoming way too expensive for the economic output of Portland, and I think many are just surviving. Also, we have indications of people who are in the lower-middle class to middle class, moving from Oregon, because of the high-density populations forming due to apartment cramming, and traffic becoming unbearable for commuting. In addition, Oregon's social services are in chaos.

[VinVega]

I disagree w/ that... some people were cautionary early on (although some are just usually pessimistic about anything/everything) but towards the middle/end the number of people who knew it couldn't last was growing IMHO. Some of us just timed it wrong and lost a lot money :(

Regarding the housing bubble I think there may be areas that'll be hit but baring something significant happening to the economy overall I'd be surprised if there was a nationwide "burst".
Well, Greenspan was pretty damn cautionary back then, but the average Joe Sixpack was always talking about how amazing the dot com market boom was and how it would last forever, how the internet was magic.

I'm sure there are places in the US where there is affordable housing and given that, they will not be greatly effected by a housing market burst. But places like NYC, DC and all the coastal areas of CA will be effected. A friend of mine (the same one who was shipped out to Iraq, but has since returned since he got medically discharged, but I digress...) was looking to purchase a home in the Poconos and commute 2.5 hrs into NYC each way. Now he's moving to upstate NY and commuting in (about 90 miles out). That's how out of control the housing market has gotten in some areas. Now some of it can be attributed to urban sprawl, but the prices also have a lot to do with it. Interest rates were a big part of the housing boom and I think the other thing was people were scared off the stock market and any cash they had, they put into Real Estate. I don't have a study to back that up, it's just my personal opinion. However, now that the prices have more than outstripped the demand or people's ability to realistically pay off their houses, I think we'll see a pull back. Maybe it won't tumble too horribly (and we can debate the severity of the drop all day), but it cannot continue to increase at the level it currently is.

[al_bundy]

There is a huge thread on Fatwallet about this.

In some markets the housing market is cooling off and sales are dropping. In some markets like LV investors are losing money.

The thing is that there is no big national housing market and all the local markets are driven by local events. In california you have prop 13 and immigrants buying up 1 family homes and having 20 people live there that is pushing up prices.

In NYC Wall Street has been giving out bonuses and this has created a buying frenzy in Manhattan.

If there is a crash, the effects will also be based on the local events. I don't think NYC will be hit very hard simply because it's hard to buy a home on an ARM here and walk away in a few years. You can do it with a free standing home, but not apartments which are most of the market here. In the co-op apartment market you have to get approved by the HOA before you can close and this involves submitting yourself and family to a full investigation. You have to submit to a credit check, submit several years of tax returns, financial statements, etc. Then the HOA looks at it and verifies that you meet the requirements which are usually 20% down payment and 6 months of liquid assets after you close in case you lose your job. They also can deny you if they think your housing payment will be too much compared to your income. You can get a no-doc mortgage all you want, but you can't take ownership of a co-op without disclosing your finances.

This makes it very hard for unqualified people to buy into the building and walk away when things go bad. It's one thing for people who don't live here to say that $1 million average for apartments is a bubble, but it's another thing when you actually know what goes into closing a transaction like this. In these cases a lot of buildings have higher standards than 20% down and 6 months liquid assets.

[nemein]

average Joe Sixpack

Isn't this the same Joe6pack who prefers P&S over ORA :hscratch: I rest my case -ptth-



I'm sure there are places in the US where there is affordable housing and given that, they will not be greatly effected by a housing market burst. But places like NYC, DC and all the coastal areas of CA will be effected.

Each of those areas is dependent upon the local economy though. Where NYC and coastal CA may be effected by the companies that move in and out, the main business of DC is the Gov't. I don't see either party making big strides in trying to cut the size of Gov't anymore so while I'm not discounting the possibility of a crash in the DC area, I suspect it'll take more to bring it about than some place like NYC.

[X]

Nobody thought the dot bomb bubble would burst either.:lol:

Being right in the middle of it I knew it would. The problem was I had a business education and knew that business models not based on an eventual profit within a reasonable amount of time wouldn't work for long.

[al_bundy]

you mean eyeballs per month or cash burn rate is not a valid metric of a company's success?

[X]

you mean eyeballs per month or cash burn rate is not a valid metric of a company's success?It was crazy. Not to mention the double booking of revenues, expenses being called revenue, etc.

It truly depended on the "greater sucker" theory. The only question was how long the supply of suckers would last.

[Brain Stew]

http://www.toothpastefordinner.com/122804/the-dot-com-era-ended.gif

[X]

Regarding the housing market, I read an article in Business Week the other day that said the real housing bubble danger is in Los Angeles/San Diego, Las Vegas, New York City, Washington D.C., and Miami. There are several reasons for that, speculation is a big one.

Here's some info:

http://bwnt.businessweek.com/housing_boom/index.asp
http://www.businessweek.com/magazine/content/05_15/b3928001_mz001.htm
http://www.businessweek.com/magazine/content/05_15/b3928005_mz001.htm
http://www.businessweek.com/magazine/content/05_15/b3928007_mz001.htm

[Pharoh]

My biggest worry about the US economy, (which is on very solid footing currently), continues to be craptacular fiscal policies in the Eurozone and Japan.

[X]

My biggest worry about the US economy, (which is on very solid footing currently), continues to be craptacular fiscal policies in the Eurozone and Japan.I just heard about European economic projections being revised downward.

[Pharoh]

I just heard about European economic projections being revised downward.



Yep. Yet they continue to do nothing about it. The continued lack of domestic growth there is my fear.

[al_bundy]

I still think that the NYC market can be divided into the home/condo part and co-op parts. The first are subject to speculation since anyone can buy, flip, rent etc.

To add to my other post, you can't just buy a co-op and rent it out. All renters have to be approved by the HOA and go through the same process as the buyer. Many co-ops also have rules to turn away investors. These consist of having a requirement that you live in the apartment for two or more years before renting it. A tax on the rental income you receive or anything else to discourage people from buying up apartments just to rent them out.

[X]

Yep. Yet they continue to do nothing about it. The continued lack of domestic growth there is my fear.Now if they all just all banded together they would create the world's largest...pile of junk economies.

[classicman2]

BTW: Has anyone kept up with the cost of building supplies lately?

[Red Dog]

Housing prices have so outstripped income, it's inevitable that the bubble will burst. Hopefully at the same time the stock market will kick into gear. They seem to be diametrically opposed most of the time. Economy was shitty in the early 90's and the housing market was insane. Market was up in the late 90's and the housing market was low.


I would love to see that flip-flop.

[kvrdave]

BTW: Has anyone kept up with the cost of building supplies lately?

They fluctutate a fair amount. The last piece of oak plywood I bought was nearly half the price it was over a year ago. But other things have gone up. Lumber and steel seem to be the most volatile, though both have been significantly higher than they are today. They go through lots of mini bubbles. If I were to build today, the material would be cheaper than in 1993, but there was a decent little lumber bubble then.

hahn - don't read much into the price of Fannie Mae stock. It has taken huge hits on accounting, not on the houseing market. Same goes for Freddie Mac.

I don't see a bubble where I am, but housing is very much a local, or at least regional, thing. If you are really worried about it, the easiest way to look at it is to break down the cost of real estate and figure out how much "blue sky" is involved. It is pretty easy to figure out how much a house costs per square foot depending on the quality of house you want. Then figure out what building fees, etc. are (those vary wildly), and finally the cost of the land (this is very important, and it is best to figure out the cost of developing new lots for a real price, though in some areas it is not possible because there is no more bare land). Finally depreciate the house from the cost per square foot if it is not new.

Regionally, I thought Hood River, OR would burst before now since it is basically a trust fund, wind surfing community. It has held strong. The Dalles, OR has gotten hot with Google buying 30 acres, etc. and other jobs coming into the area. My own area is good because retirees see value here. But I understand that many people are leaving Portland (families) and relocating in Vancouver simply because of the schools. Oregon has a few knocks against it for retirees, which are a huge force in housing. The state income tax sends a lot over to WA to live on the border so they can jump over to buy stuff with no sales tax, and yet their retirement isn't being taxed by the state.

But ORegon needs to seriously fix the schools first. It seems obvious that a state wide funding formula would be the way to go, but Oregon doesn't seem to really care about funding education equally.


And I disagree that housing has outstripped income. I think it is more likely that most people don't control their spending habits when they decide to buy a house. And that's find. We need renters, too. :D

[classicman2]

Building projects (including a couple of banks) in this area have been cancelled due to the rising cost of materials.

[classicman2]

Speaking of the economy - I just saw a Wall Street Journal Poll where 41% approve of the President's handling of the economy. 53% disapprove.

[Pharoh]

Building projects (including a couple of banks) in this area have been cancelled due to the rising cost of materials.


Yet nonresidential fixed investment was up considerably up in the 4Q of 2004, continues up this year, and is forecasted to remain at these levels or better.
:shrug:

[Pharoh]

Speaking of the economy - I just saw a Wall Street Journal Poll where 41% approve of the President's handling of the economy. 53% disapprove.



If gas were 1.25/gallon I suspect those numbers would be reversed.

[wendersfan]

Speaking of the economy - I just saw a Wall Street Journal Poll where 41% approve of the President's handling of the economy. 53% disapprove.Gas prices.

[classicman2]

If a frog had wings.................... :lol:

[Pharoh]

If a frog had wings.................... :lol:



The point made by the both of us, one which I hope you fully realised, was that the public likely is only looking at one issue, not the economy as a whole.

[Pharoh]

Now if they all just all banded together they would create the world's largest...pile of junk economies.



:lol:

I'm sure it seemed like a good idea at the time.

[wendersfan]

I've long felt that the public's opinion of how well the President is "handling" the economy has less to do with the condition of the economy and more to do with how the President empathizes with the "average" person's financial difficulties (the "I feel your pain" syndrome). George HW Bush was harmed more by the fact he seemed disconnected from the sluggish economy in 91-92, than by the sluggish economy itself.

[Red Dog]

I wish someone would commission a poll of carbon blobs asking them what a President should do to handle the economy. ;)

[wendersfan]

I wish someone would commission a poll of carbon blobs asking them what a President should do to handle the economy. ;)Create jobs, lower prices, reverse the trade imbalance, reduce the budget deficit, and make us less dependent on foreign oil, all while decreasing regulation and taxes, and not hurting the environment.

Sounds easy. Where do I sign up?

[classicman2]

Speaking of high gasoline prices - Sen. Lautenberg is proposing an amendment for the U. S. to 'bring charges' against OPEC to WTO for violating WTO's trade practices.

[hahn]

I'm not so worried for myself. Financially, I'm stable. My family is stable. I guess I shouldn't have said "worried". More that I see something bad happening in the future and I think it will start this year. I think it will start with the housing market because I believe it is in a huge bubble. The stock market has not significantly gone up. The average income has not gone up. And yet, there is a LOT of 'promised' money (debt) going into mortgages. A lot of which are ARM's that are set to be unlocked this year right when the interest rates are clearly about to increase (by every indication given by the feds). I don't think people quite comprehend what even a 0.5% increase in interest rates can do to the monthly payment. I was shocked myself, when I checked. When that happens, and combine it with these $70-80 gas fillups that some SUV owners are dealing with, and I see a recipe for some MAJOR spending cutbacks. When that happens, I see disaster for businesses.

JMO.

FYI, my parents are looking the Bay Area, which I know skews my view quite a bit. But the housing prices there ARE ridiculous. But I've noticed in the past few months there has been a significantly increased number of houses being put on sale (I am on a mailing list) and the price per sq foot has been falling. It's starting to take on an air of desperation. I imagine quite a few people are trying to sell second properties and lock in profits before interest rates REALLY take off. But that just adds downward pressure to the prices, AND causes potential buyers to be a bit more patient because they see more 'deals' on the market. Which in turn causes more downward pressure on prices. And the cycle continues...

[hahn]

Speaking of high gasoline prices - Sen. Lautenberg is proposing an amendment for the U. S. to 'bring charges' against OPEC to WTO for violating WTO's trade practices.

They call OPEC a "cartel" for a reason. I would argue that the US government has less "real" power than OPEC in regards to trade practices.

[sfsdfd]

I've long felt that the public's opinion of how well the President is "handling" the economy has less to do with the condition of the economy and more to do with how the President empathizes with the "average" person's financial difficulties (the "I feel your pain" syndrome).
I think it has more to do with how much effort they see the President exerting to fix the problem. Over the past four years, Bush's stimulus efforts have included (a) tax cuts favoring the wealthy and (b) "saving" Social Security by slowly strangling it.

The resulting impression is that the President isn't really trying to fix the sluggish economy, but rather take advantage of it to push his agenda. When it doesn't suit his purpose, his focus shifts elsewhere.

- David Stein

[wendersfan]

I think it has more to do with how much effort they see the President exerting to fix the problem. Over the past four years, Bush's stimulus efforts have included (a) tax cuts favoring the wealthy and (b) "saving" Social Security by slowly strangling it.

The resulting impression is that the President isn't really trying to fix the sluggish economy, but rather take advantage of it to push his agenda. When it doesn't suit his purpose, his focus shifts elsewhere.I would agree that the amount of effort the President appears to be expending on "fixing" the economy is a major factor. But I really think that what we are both saying is fundamentally the same thing.

[classicman2]

I'll make a prediction about Bush's plan for 'fixing' the economy. Late summer (at the latest) the House Ways & Means Committee will consider a reduction in the top income tax rate.

[X]

I'll make a prediction about Bush's plan for 'fixing' the economy. Late summer (at the latest) the House Ways & Means Committee will consider a reduction in the top income tax rate. :banana:

More incentive for me to try to get into the top income bracket!

[classicman2]

Yeah, that's just what is needed.

Not to worry, however. Like Bush's SS privitization scheme, that one will be also dead in the water.

[Pharoh]

I'll make a prediction about Bush's plan for 'fixing' the economy. Late summer (at the latest) the House Ways & Means Committee will consider a reduction in the top income tax rate.


While I doubt it, I can hope.

[Ranger]

Wouldn't the bursting of the housing market bubble be a good thing for buyers? I mean if the Boston housing market bursts, and I want to buy a condo there, wouldn't I be able to buy it at a lower price?

[X]

Wouldn't the bursting of the housing market bubble be a good thing for buyers? I mean if the Boston housing market bursts, and I want to buy a condo there, wouldn't I be able to buy it at a lower price?Perhaps. Or it would stay at the same price longer. Or you wouldn't have so many competing bids driving up the asking price.

But the payments may be close to the same due to rising interest rates. However interest is deductible, higher price reflected in principal isn't.

[classicman2]

While I doubt it, I can hope.

It's tough on you Republicans to come to the realization that every major initiative that Bush had plans to propose this year is going down in flames. ;)

Bush is about in the middle of his 60-day blitz to sell his SS 'reform' package. The Republicans in Congress have hundreds of town meetings to promote, and the polls indicate that less Americans favor his plan than did when he started. Americans are not as dumb as he/they thought. :lol:

Seriously - agenda wise, this President is in trouble.

[VinVega]

It's tough on you Republicans to come to the realization that every major initiative that Bush had plans to propose this year is going down in flames. ;)

Bush is about in the middle of his 60-day blitz to sell his SS 'reform' package. The Republicans in Congress have hundreds of town meetings to promote, and the polls indicate that less Americans favor his plan than did when he started. Americans are not as dumb as he/they thought. :lol:

Seriously - agenda wise, this President is in trouble.
Could just be the 2nd term blues. Don't a lot of 2 termers fall victim to this?

[classicman2]

Granted Clinton didn't get much passed during his second term.

He has an excuse.

He was busy with other things. ;)

[hahn]

Well, it looks like my timing was good. There was much discussion in the finance world today about housing markets and interest rates today...

CNN Article about the looming rise in mortgage rates and the threat it poses to the economy... (http://money.cnn.com/2005/04/07/news/economy/debt_consumers/index.htm)

CNN Article about Fannie and Freddie worries... (http://money.cnn.com/2005/04/07/news/economy/snow_gse.reut/index.htm)

CNN Article about risky mortgage plans... (http://money.cnn.com/2005/03/07/real_estate/financing/riskyloans/index.htm) A whopping 69% of first-time homebuyers are not even putting in 10% of the downpayment!!!

[al_bundy]

I'm thinking that there won't be any bubble burst, but a stop to the rise of home prices for the next decade. If everyone is predicting a bubble then I don't think it will happen. When the NASDAQ burst everyone thought that a 5000 NASDAQ at a PE of 100 was completely normal.