‘The Bigger The Boom, The Bigger The Bust’
This Australian report show what government officials think of a housing bubble after the fact. “The government would be happy to never see another housing boom, Treasurer Peter Costello says. Apart from WA and the Northern Territory, housing prices have flattened in recent times, after booming through the early part of this decade.”
“Mr Costello said it was a welcome thing that housing had been slowing for some time. ‘I think house prices got too high and as a consequence of that, you would expect a correction and we’re getting a correction,’ he told Southern Cross Broadcasting.”
“‘I want a see a correction, once you have had that correction, what you would like to see is stable prices, maybe small increments, but I don’t want to go back to the situation where house prices were booming in the way they were a couple of years ago.’”
“‘That’s not good for an economy. Remember this point, the bigger the boom, the bigger the bust. The reason we’re against booms, is we’re against busts.’”
Story on the Today show this morning about the “white-hot” housing market cooling. Same realtor BS - only remember two guys being quoted, both realtors. The first guy was president of NAR and he said he wasn’t worried - of course not. The other guy, however was a bit worried, and I think he had a property himself that he couldn’t sell. Too bad NBC didn’t use this opportunity to get an independent expert on to give the story balance.
They did say, however that Spring was going to be the real test for the market, because so far there aren’t many buyers out there and inventory is going through the roof.
Spring will bring more doom! I would just like some stability in the housing market. This whole mess has caused me a lot of stress:)
How can you feel confident buying a house in a bubbly market?
It helps to be a bit short on grey matter…
Who today counts as an independent expert? It seems like just about everybody has been caught up in it in one way or another–though perhaps something to counter the obvious bias of realtors would have been useful.
“The bigger the boom, the bigger the bust”
- ya think? … and these guys get paid to do this.
He could sell it by listing it at the market price, but I guess it would not occur to anyone working for the NAR that the market price might have dropped…
The boom/bust cycle has always been around, but there must be something in human nature that prevents the majority from acting to snuff it out.
It’s called greed.
Greed alone is insufficient; greed and stupidity are the ticket!
And easy credit. In my readings it seems that no bubble ever appeared without easy access to money being a precursor.
Read Galbraith’s “A Short History of Financial Euphoria” for support of the view that all bubbles are credit bubbles…
Yes,Yes,YES!!!! We see this evey week end as these same people drive off to Las Vegas in search of easy money. Why do you think Vegas is in the greed business I mean the gambing business. Makes no difference what the vehicle is stupid greedy people always loose including these RE grifters.
Actually, Ben, the majority is not what matters, but rather the extremes — the outliers in the distribution of rationality drive the market to the top of a bubble runup. Think about the highly leveraged fools who might still be buying CA homes, even though the majority has figured out long ago that they cannot afford to be owners.
lying sht, they love to assesment tax revenue
What did this comment add to the discussion?
I posit nothing, if you cannot use complete sentences don’t bother!
And in fact even the intent of the statement isn’t true. Costello is the Federal Treasurer, and property and consumption taxes in Oz are State/Territory taxes.
So all the taxes (except income tax :)) emanating from the bubble go to the State and Territorial governments, who happen at present to all be from Costello’s opposition.
MSNBC article on Housing Bubble:
http://tinyurl.com/reaaj
some nice quotes:
“It’s amazing to me,” Baras said. “They expect more and they’re buying more. The first-time buyer, when I started in the business, they were willing to do a lot of fixing up, get a small house, build up some equity. Now, young people are looking for move-in condition. They are not prone to doing some work. They have to have a big bedroom, because maybe the furniture they already bought is huge. It’s a completely different buyer.”
The market has a way of punishing this type of excess. These types of buyers have never seen a RE bear market and will get clobbered when prices fall. Maybe they’ll get lucky and Mommy and Daddy will bail them out when they have to bring a load of cash to closing.
They will be livng with mommy and daddy real soon
Yes, doing chores to work off that 150K payoff.
Gosh, kids today–they don’t know what they’re missing. They’ve never wanted to hit a wall with a sledgehammer? It’s fun! Wam! Wam! Wam! I mean, you can’t do it in someone else’s house, now can you? You just have to think of your house as a giant arts&crafts project.
Well, let these lazybones get the crap from KB and Centex and leave the nice little fixer-uppers for those of us who aren’t afraid of tools, even if we are afraid of heights (let the wife go up the ladder).
That was hilarious. I also agree that no one wants to fix their homes. They don’t know what they’re missing. It’s really fun and very satisfying.
The best thing is that it teaches people the difference between a high quality well-crafted home, and the garbage, matchstick houses that these home builders are pawning off.
However, new home buyers will learn soon enough because when their homes fall apart in 5 years and prices fall apart in 2, they won’t be able to sell or refinance for repair. They have to roll up their sleeves and get to work. Then they’ll finally understand the difference between 1/4″ and 5/8″ plywood.
When the bubble has hit St. Louis, which is close to the geographic center of the lower 48, you can no longer claim that it is a local phenomena, or isolated to the coasts …
If the cure for Australia’s boom is a decade or so of relatively flat prices, they will be very lucky indeed.
Hopefully they did not suffer from the insanity of the housing ATM cashout-financed wealth effect which drained equity down to zero for many US homeowners right about the time when prices hit an all-time high…
Not to mention all the fools who started out with zero equity thanks to 100% piggyback-financed I/O ARMS (see above post on young fools in St. Louis).
There are some here in Australia who have done exactly that - extracted all the equity in their house - and others who start out with 105% loans (yes, I keep hearing ads for these sorts of loans). The real estate agents are saying the bust has bottomed but I think we’ve got a while more to go …
Even proportionally I don’t think there’s as many here as in the US.
What we do have many more of, compared to any other country as a percentage of population, is negative cash-flow landlords.
The sad thing (and very scary) is the fact that a lot of people are just now discovering RE, and are itching to buy in. When these “new” investors go out and see all the choices a buyer has, they will jump in not realizing how the supply and demand factors work.
Basically, some will view the large inventory as the same as picking a stock from all the choices on the NYSE or NASDAQ. I feel sorry for these late newcomers (wana-be flippers).
Somebody has to pay for it all. Unfortunately it will be the rookies holding the bag as usual. Remember back it the tech heyday? Everybody was making money and the good times seemed like they would last forever. Everybody was a daytrder back then. Who got left holding that nasty looking bag? I just cannot believe we went form one bubble right to another.
Absolutely, I remember hearing the kid at the sandwich shop talking about stocks (not literally) and the one not buying tech stocks would be considered the odd man out.
When I was receiving my haircut here in Houston, the stylist was talking about how her relatives were investing in Long Beach, CA. I moved away from LA a few years ago, and I almost laughed at the fact that someone from a cheap place such as Texas was interested in RE in LA. Talk about reverse flow, it should be people from (actually it is happening) CA buying in TX, not reverse. Anyhow, the fact that I heard of someone actually taking part in reverse flow (selling from a cheap market and buying into a major bubble market) shocked me. I definitely see a spring bounce, and then it is all over. I think come fall, and early 2007 there will be a sudden rush of defaults.
Finally, back in 1999/2000 rookies at the most would buy a few thousand dollars in stock and that was it. This time the rookies are playing with hundreds of thousands of dollars and a future of ruined credit. I would compare the tech bubble with the RE bubble with the following: “A 12 year old might try a cigarette (stocks) and cough, but now they are jumping right into crack (RE)”.
who will lend them the money? i seemed to have read recently that it is drying up.
Two great business lessons my father taught me-
1. If you are buying something, remember your the one holding the cash, not the sellers. You can always walk away if your not getting a good deal and they are left holding the product.
2. Just because a 13 carat diamond is 13 carats does not mean the price is going to be as high as you think. There are few people in the market for it so prices are suprisingly deflated due to lack of demand.
- Right now buyers are either priced out or just waiting. We are in no rush to buy, its not like we are homeless. Surely we can pay a much lower rent for a few more months, even years until we find the right deal.
Sellers on the other hand especially investors are the ones left paying the overhead.
Why buy a home in South Florida, California, or other pricey areas when you can buy a house in a cheaper local? Its just like that 13 carat diamond, why buy it do you really need to live in Florida, California or own a vacation or investment home in that area?
Here in Florida we are already having serious problems both keeping and attracting low and middle even people making over 6 figures to the area. Our teachers, nurses, engineers and other professionals are leaving due to sky high housing costs and insurence costs, the warm weather and over crowded condo ridden beaches are not worth the cost. Ever been to a beach in West Palm, Broward or Dade County? get there after 8am and good luck finding a parking spot and if you do they usually run $20 or .25 every 10 minutes at a meter. Then good luck finding a spot on the beach to set your stuff down, if you do, best not leave it there or it will get stolen or someone else will come along throw your stuff to the side and take your place… South Florida has been voted by many magazines as home to some of the rudest people on earth.
Back in the early 80’s there was a t-shirt that said “Welcome to FLorida-NOW GO HOME!”
If I could get my hands on one these days , I might have to buy one and wear it.
type that phrase in quotes in google, you can get it on a bumper sticker.
“‘I want a see a correction, once you have had that correction, what you would like to see is stable prices, maybe small increments, but I don’t want to go back to the situation where house prices were booming in the way they were a couple of years ago.’”
The way these govt types avoid discussing the possibility that price might fall or might have already fallen brings to mind an image of them tiptoeing gingerly through a mindfield. Funny how the NYC mayor seems to miss this issue, or maybe he is just too wealthy to care about hiding the truth?
‘What you would like to see is a high, stable taxbase’
As an aside, that quote about first-time buyers is such BS. Look at houses of the Baby Boomers you know. How many of them were “fixer-uppers” at one time? Did any of the 40 and 50-somethings you know do ANY home improvements on their own homes more complicated than painting? I will tell you this — none of the homeowners at my office were out in the backyard with the chop saw 20 years ago. Nope, they bought homes that were in “move-in” conditon.
Also, hiring a contractor to fix something or build something does not count. We are talking about home improvements that you do YOURSELF.
I mean, when is the last time a Boomer whose home you were visiting proudly pointed out his garage workbench, or the downstairs bathroom he installed himself? I bet if you were to visit 100 homes in a typical middle or upper-middle class community, you’d find maybe 1-2 examples of this. Obviously, blue collar guys do this a lot more becuase they have the necessary skills.
Personally, my dream is to buy a house needing home improvements. If I have to replace some avacado green appliances, rip out some tacky shag carpeting, and rewire a light fixture that hasn’t worked in years, that’s more than fine by me. I enjoy working with my hands and would like to learn some basic plumbing/carpentry/etc. skills. The problem is, a house like that costs $700,000.
For today’s buyers, the “fixer-uppers” available generally have problems that can’t be fixed. For example, about a year ago I found a SFH for only $268,000 in the middle-class suburb of San Gabriel, California. 2BR/1ba, 900 sq ft. It needed a lot of work; the paint on the exterior was flaking off, and the front porch was sagging. Why didn’t I snap up this bargain, put in a little elbow grease, and turn that frog into a swan?
Because the railroad tracks ran right through the backyard, that’s why. I mean, they were literally 10 feet away. Also, two of the neighbors on the street collected scrap metal out of garbage cans for a living; their 30-year old pickups piled high with twisted metal were parked in the driveway. Three of the homes had pit bulls running around in the yard, untethered. The house we had come to see had a Realtor’s sign out front — and there was grafitti on the sign!! There was a man standing in a sleeveless shirt with prison tattoos and bugling muscles on the corner, who gave us a puzzled look when we drove by. Incidentally, the foregoing description is 100% accurate and has not been embellished in any way. It was just as I have described it.
Sure, I could have bought the house, put in grainte countertops and stainless steel appliances, and painted all of the walls in neutral colors — but there would still have been a lot of needed “fixing up” that I cannot do, unless I want to burn the surrounding neighborhood down and reroute the railroad tracks.
But hey, I guess I’m just a greedy first-time buyer who is picky and unwilling to put in the needed work, right?
After all, the Baby Boomers all live in houses that looked just like this one at one time — right?
… and I’d imagine that that gem went for over asking price?
I think you would be surprised with the amount of people who can’t fix anything themselves. A lot of people just rely on someone else to deal with it. Alot of people can run a computer but are clueless about construction skills.
Actually, a lot of those people aren’t very good with computers either, but that’s a different discussion.
You are right on B-Fish…I have been training my son (26) for the last couple of years in multi trades (Elec,Plumbing,Carpenter etc..) In a few more years he will be able to multi task for houseing repairs….
Sorry…I ment Arizona not B-Fish….
Arizonadude,
Just because you are not handy with tools does not mean you are lazy. Many young Americans were PUSHED by their parents to become educated and many working class parents took pride in NOT having them rely on knowing how to work a power drill to make a living. Construction is VERY difficult physical work with often sporadic income.
My hubby works about 60 hours a week so YES we hire a local handyman to do smalll projects because by the time hubby runs to home depot, figures out what he needs, then screws up the job, we are out time labor and materials to just hire someone else to redo it anyway. Believe me we tried unsuccessfully to do things ourselves and YES I can work a drill, but not all of us were born with the ability to tear down our own walls. It is much less stressfull and easier on the ego to hire a “professional”.
I get a little annoyed with the asssumption that my generation (mid thirties) is a selfish, lazy, want it all now generation! It’s my baby boomer uncles who are now getting into the RE game and looking for property in San Antonio as “the last place to make money in real estate.” They are the ones still motivated by greed. Why would anyone buy RE anywhere right now?
We could afford to by a larger home now and pay CASH- yes CASH and yet we don’t want to suffer the 30% decline on the next house, so we’ll wait……boy those youngin’s sure are stupid!
I don’t agree. It’s all about how you want to spend your time. Personally, I don’t want to spend evenings and weekends fixing the toilet. I’d prefer to call the landlord and have him fix it. That’s a big attraction to renting. Some people like to be creative with their houses, and that’s OK for them. It’s just not me. I want to spend time working at the job I love and being with friends, not mowing the lawn.
Plus, I don’t know if I could make the repairs look nice. I know that I can do my job better than a contractor could, and I certainly don’t expect that I can do his job better than he can. It’s all about comparative advantage, baby!
You must be an economist, sir. You remind me of my $100/hr+ attorney father-in-law, who for some reason doesn’t mind spending his free time fixing toilets.
Your attorney father in law is most likely very comfortable around toilets as he has spent most of his day slinging poop around anyway……….
What you guys don’t get is that we are not looking down on the WORK as something that we are too GOOD for. It is actually our own Ineptitude that keeps us from doing it, enjoying it, or we simply have no interest.
Why this big badge of honor for home repair? People CHOOSE to spend their time differently, it’s not a matter of right or wrong. I have a friend who can’t believe not everyone would LOVE scrapbooking and claims that people just aren’t “creative” enough…gimme a break- get my point?
You don’t know what you are talking about, and why are you so bitter? We happen to be late 40 somethingers and our last house was indeed very nice when we bought it. Our first house was much smaller and we finished the basement doing all the work ourselves, including the drywall and the plumbing. My husband collected “free” hardwood flooring from a house that was being torn down, and after pulling out all the nails, we installed it in the kitchen and dining room and finished it ourselves. We did do a lot of painting, too, inside and outside. My husband replaced the roof doing all the work himself. The second house was a 20 year old mobile home, but now we had 5 acres, too, and after living in it for a few years we tore out the whole kitchen, including the rotting floor and replaced everything ourselves, I even constructed and laminated the counters myself, although I did have the advantage of using my father’s wood working shop. My husband did the other carpentry work.
My point here is that you cannot tell by looking at people and their houses that they are currently living in how much work they have done on houses they lived in in the past. When I was 35 I did indeed like to point out the countertops that I had made myself. But now that I am older and more tired, and dealing with problems like a teenage son with schizophrenia, I don’t have the energy anymore to put into fixing up a house like I did when I was younger. You need to drop the bitter attitude and realize that everyone has problems and difficulties to deal with, even those older people living in such nice houses. I agree the housing prices are too expensive right now, more expensive compared with income than when we bought our first house, but that will change and you will have your chance too.
Problem with your synopsis is; Most people don’t have a daddyohhh that has a full blown wood shop…
What? Only one thing out of all the many hundrends of hours of work we did on our homes involved my dad’s workshop. My point was that you can’t tell how much work a person has done on their past houses by looking at their present houses.
I think they are talking about our younger first-time homebuyers who shouldn’t have the same issues as us (teenagers, being tired, etc.). Not the 30 and 40 year olds. My husband and I are in our late 30’s and we just sold our first home of 17 years (and now proudly renting… temporarily). It was literally a 17 year construction project for us. We are a different generation than those 15-20 years younger than us.
Angela (in the IE)
Nice to hear there is still some good old fashioned do-it-yourself home improvement going on out there.
Do it yourself is cool if you have the time. I am in my 30s and by nature I am lazy. Only reason I own is because I got married and my wife encouraged ne to buy. Sometimes I reallt miss renting and the no-hassle. It seems like every weekend theres some kind of maintenance for me to do. I can handle small stiff but for bigger projects I just hire a pro and my wife is ok with that. Her reasoning is that I just muight F it up and cost us more. By the way, I am a whiz with computers. I work in Software Developing. My borhter in law always criticized me for being lazy when it comes to home improvement but he cant even bakance a check book.
Do it yourself is cool if you have the time. I am in my 30s and by nature I am lazy. Only reason I own is because I got married and my wife encouraged ne to buy. Sometimes I reallt miss renting and the no-hassle. It seems like every weekend theres some kind of maintenance for me to do. I can handle small stuff but for bigger projects I just hire a pro and my wife is ok with that. Her reasoning is that I just muight F it up and cost us more. By the way, I am a whiz with computers. I work in Software Developing. My brother in law always criticizes me for being lazy when it comes to home improvement but he cant even balance a check book.
A report from OZ…………
Now you might ask………..what bust?
http://dailytelegraph.news.com.au/story/0,20281,18330512-5001021,00.html
nowadays, a ‘bust’ seems to be defined as less than double digit yearly appreciation …
I guess that if new building permits/numbers in Oz are really dropping like a rock we will soon see how solid the fundamentals for their housing bubble were. If price growth was based on easy money and speculation the bust is only just starting.
coming back to the original statement from australian government officials:
At least they get the message in Oz, better late than never. It looks more and more like my country (the Netherlands) is the exception to the rule. Government officials and politicians (from left to right) do everything they can to prolong and stimulate the housing boom, especially now that it’s time for local elections again. Lately there have been several new crazy ideas (most of them coming from the labour party) for huge new housing subsidies for starters, elderly people etc. which will again push prices up. Government has been warned by many supranational organisations (like OECD) and banks (like BIS) that this cannot go on and that there will be hell to pay, but they prefer not to listen. Of course, most of them are up to their neck in the RE industry …
The Dutch bubble is now about 15 years old and has price gains (for individual homes) of 500-1000%. In 2003-2004 the gains were relatively small, but in my area the gains over the last year were again over 20% - despite the huge runup in the years before. So it looks like the Dutch bubble is accelerating again (I’m in a rural area with plenty of land, close to zero population growth and low local wages).
Seems like it will never end. At least let’s hope that the current surge it the blow-off phase and that ‘the bigger the boom, the bigger the bust’. Than the Netherlands will for sure have the biggest housing bust ever.
nhz, as fellow Dutchie I tend to think the big difference in Holland is that there is an ‘artificial’ shortage in supply which prevents a normal supply/demand cycle. It is just nearly impossible to build here through all regulations. 16.5 million people on this small patch and a desire to keep a countryside and nature imposes an impossible constraint.
I agree it is getting more rediculous all the time…. what about the new pre-election idea/proposal from the politicians today to have governmental 0% interest ’starter mortgages’ for first time buyers.
Let me do a prediction…. housing prices will go up again and it will remain just as unaffordable.
I am glad we will emigrate at the end of the year …. to Australia.
yes, the ‘grondpolitiek’ (zoning for US viewers) is a major culprit. There is plenty of land, it’s just not available for building.
The starter mortgages are not just an idea unfortunately, we already have them here (Zeeland) and more silly stuff (similar subsidies for pensioners) just around the corner. Obviously, with an inelastic market a 50.000 euro starter subsidy simply increases prices of starter homes by 50.000 euro … to be paid by the people who are not recognized as ’starters’.