The Housing Bubble

A weekend topic starting with Fox 17 in Michigan. “There’s no doubt about it, Grand Rapids is a seller’s market. If you’re selling a home, people are virtually lining up with offers. ‘I never thought it was going to be like this. It’s like war,’ says Tanesha Gadlen. ‘We looked at eight houses this weekend. We looked at 10 last weekend. We bid on all of them over the asking price and didn’t get any of them.’”

From GoSkagit in Washington. “The median price for homes in Skagit County rose 10.75 percent in 2017, according to a report from Northwest Multiple Listing Service. With an average of 2.14 months on the market, 1,122 homes sold in the county last year for a median price of $313,000, according to the report. The double-digit appreciation rates have buyers and sellers wondering if the rapid increase could foreshadow a housing crash similar to the 2000s, said Realtor Jamie Yantis.”

”A lot of people are concerned about this being a bubble,’ Yantis said. ‘But if you look at the trend of appreciation historically, yes in 2008, 2009, 2010 we had a dump, but now we are just back on track to where the normal trajectory should have been.’”

From the News Press in Florida. “It was a cycle that repeated often — default, foreclosure, repossession, and eviction. All too familiar to thousands in Lee County beginning in 2008. Jobs were lost, incomes were reduced, homes became unaffordable. More than 40,000 foreclosures were filed in 2008 on homes in Lee County. More than 9,000 were filed in Collier County. The market glut led to lower prices at auction, and ultimately to the ghost of the Great Recession haunting people who thought the crisis was behind them.”

“Randy Johns, owner of Phoenix & Associates, a construction company in North Naples, said the impact fell on a company he worked more than 20 years to build. ‘We all extended ourselves too much,’ Johns said. ‘Investors were buying from other investors and not end users. It all came to a crash so fast we couldn’t liquidate. We lost all our cash.’”

“Since the deluge of foreclosures, housing markets have rebounded. The Florida Realtors’ association says demand once again is outstripping supply. The median price for a Lee house was $243,500 in 2017, up 7.1 percent. In Collier it was $434,900, up 3.5 percent.”

“Lisa Davidson, living and working in Southwest Florida, looks ahead to finishing paying off the deficiency judgment left from her foreclosed house. The payments have been on time, month after month, but for a while it was no help. ‘I’m optimistic,’ she sad. ‘I have two more years of paying these bloodsuckers, I just want it over with.’”

From Malaysia Kini. “Macroeconomic management is about anticipating and managing imbalances as they arise. It is certainly not just confined to describing and telling us the problems after they have become acute. This is my take on the story by Bank Negara Malaysia, on its recent narrative on affordable housing in Malaysia.”

“Why tell us now there is a mismatch of demand and supply of affordable housing? Why tell us now household income growth has not been able to keep pace with escalation in prices of houses? Why tell us now that developers have been focusing too much on high-end houses? And why tell us now that efforts by agencies set up to provide affordable housing have been too disorganised and dissipating?”

“May I ask for how long the imbalances mentioned above have been perpetuating? As far as I know, some of these problems have been in existence for decades. What were we doing during those years? What the authorities did in the past was not to correct the imbalances. Instead, they have often taken measures to make the situation worse.”

“Whenever the housing market experienced some slowdown, interest rates were lowered and loan eligibilities were relaxed to encourage more imbalances. After many years, of course the problems have become acute, as manifested today.”

“The preoccupation of our macroeconomic management is growth and political expediency, nothing else. We do not care about is the quality of growth or its sustainability. We do not care about the imbalances that will eventually sink us.”

From the Daily Sabah. “I have a Bear Stearns shirt that I purchased 10 years ago, following the collapse of the investment bank. I bought it as a novelty item as its collapse would be a once in a lifetime event I thought to myself. Little did I know many firms would suffer similar fates. Bear Stearns’ bailout by the Federal Reserve (Fed) in March 2008 was the canary in the coal mine that warned financial markets of the imminent collapse of all other holders of toxic mortgaged back securities.”

“What’s interesting then and what is still interesting to this day is that many of the same policies that allowed Madoff to run his Ponzi scheme and Bear Stearns to enjoy high credit ratings before its collapse are still in place today.”

“Ten years later, what has changed? What if any regulations and oversight do governments have to regulate credit rating agencies? Are their assessments based on quantitative rules that are free from the biases of employees of these agencies? Do business relationships with companies being rated by these agencies get in the way of their credit ratings? Ratings agencies are allowed to make whatever ratings decisions they want without fear of impeachment. No quantitative formulas have been offered to the investor public to satisfy its need for transparency.”

“As for Ponzi scheme-like acts of fraud, we are in the midst of one that may someday rival that of Madoff’s, the cryptocurrency bubble. While I have no evidence of a Ponzi scheme in the initial coin offerings of these ‘currencies,’ what’s clear is that regulators are again asleep at the wheel. Ignorant investors have been taken advantage of and are plowing their hard-earned money into ’securities’ they do not understand with the promise of quick riskless returns.”

“While many of these currencies have already gone completely bust or are down over 50 percent from their highs, bitcoin among them, the SEC and other government agencies have done nothing. By the time these regulatory bodies take any action it will be too late to reign in the ridiculous valuations that are certain to hurt thousands of investors. While nothing close to the housing bubble of the Great Recession or the losses of Madoff’s Ponzi scheme, this bubble will burst and with it, the hopes and dreams of thousands of investors.”

“It has been 10 years this month since the Great Recession’s first major event but we have yet to learn any meaningful lessons it appears.”