‘Bernanke Isn’t Worried About Slowing Growth’
The press reacts to last nights speech by the new Fed chairman. “U.S. two-year Treasury note yields rose for a third straight day after Federal Reserve Chairman Ben S. Bernanke suggested that the central bank will continue to raise interest rates. Thirty-year bond yields fell as he also said low long-term yields don’t signal an economic slowdown.”
“Two-year yields rose above 10-year yields as traders increased bets on the number of times the central bank will lift borrowing costs.”
“‘We’re a little bit more bearish than what’s built into the market,’ said Donald Ellenberger, who oversees about $5 billion of government and mortgage-backed securities. He said there is a ‘decent probability’ the Fed increases its target rate to 5.25 percent from 4.5 percent now.”
“Bernanke said he doesn’t interpret the narrowing gap between short and long-term rates as ‘indicating a significant economic slowdown to come.’ ‘Many, many variables go into making the forecast,’ and the yield curve alone is not ‘by itself a useful benchmark for policymaking,’ Bernanke said. He added the increase in mortgage debt from the housing surge of the last five years ‘may not be a particularly serious problem’ because families have replaced higher rate consumer debt with home loans.”
“A slowdown in the U.S. housing market would still be entirely consistent with economic growth at or near potential, Bernanke said. ‘There has not been but there may be in the future some stress in some areas, but broadly speaking I think that consumer finances are consistent with continued reasonable growth in consumption and enough to keep the economy at or close to its potential output growth rates,’ Bernanke said.”
“‘This increase in mortgage debt may not be a particularly serious problem. First, there has been on the other side of the balance sheet, significant increases in assets, so that balance sheets in general are looking stronger,’ he said.”
“Bernanke said that, even if short-term interest rates rise, the impact on the growing number of people who hold adjustable-rate mortgages would occur with a lag since many of them have fixed-rate ‘lock-in periods’ of three, five or seven years before the adjustable feature kicks in. ‘Our best estimates at the Federal Reserve are that the repricing of these instruments is actually going to take place relatively slowly,’ Bernanke said.” “He said U.S. saving rates were likely to rise over the next year or two, especially if housing prices moderate.”
“Bernanke’s comments yesterday showed he isn’t worried about slowing growth, said Ethan Harris, chief U.S. economist at Lehman Brothers. ‘He’s continuing to be pretty bullish about the outlook for the economy,’ Harris said yesterday. There’s ‘maybe a tiny bit more hawkishness here.’”
Title companies don’t appear to be worried about a slow down either. Check this out.
March 20, 2006
Holly Kincaid
Re: California Housing Bubble
Dear Holly,
This article highlights some interesting points about the California Housing Bubble. I thought it may help…Enjoy!
The rate of home price appreciation will moderate next year following four years of steep increases, while sales in 2006 will decline slightly from 2005’s record pace, according to the California Association of REALTORS® (C.A.R.) “2006 Housing Market Forecast” released today.
The median home price in California will increase 10 percent to $575,500 in 2006 compared with a projected median of $523,150 in 2005, while sales for 2006 are projected to reach 630,610 units, falling 2 percent compared with 2005. The double–digit gain in the median price of a home, which California has experienced for most of the past five years, will again be fueled by the continuing shortage of housing across much of the state, according to C.A.R. economists. California typically gains nearly 250,000 new households, yet only will build about 200,000 new housing units this year, creating a shortfall of about 50,000 units.
“We expect the fixed mortgage interest rate to rise to 6.4 percent 2006, and the adjustable rate to hit 5.1 percent, which will make it more difficult for many families in California to be able to afford a home,” said C.A.R. President Jim Hamilton. “While still near their historic lows, up–ticks in interest rates coupled with the continued increase in the median home price will push affordability in California to a new all–time annual low of 15 percent in 2006.”
“The economic fundamentals at both the state and national level continue to support a strong housing market in the Golden State for the foreseeable future,” said C.A.R. Vice President and Chief Economist Leslie Appleton–Young. “However, we also expect that the wave of new loan products that have flooded the market over the past several years have injected a higher level of risk into the market, while affordability barriers to homeownership will continue to push residents inland and even out of state.
“Declining affordability will constrain sales in 2006 at a greater rate than we’ve previously experienced, especially in markets where there are higher price points compared with the state as a whole,” she said. “Not all areas of the state will continue to experience the unprecedented double–digit median price increases of the past five years. Some high–cost areas, especially those in the more costly coastal regions, face a potential leveling off of median price gains compared with the 10 percent gain we expect for the state as a whole.”
Home sales for California in 2005 reached a record 643,480 units, surpassing the prior sales record of 624,740 set in 2004, according to C.A.R. economists.
Should you need any further information, give me a call!
Sincerely,
George Sines, Account Executive
First American Title Company
“The double–digit gain in the median price of a home, which California has experienced for most of the past five years, will again be fueled by the continuing shortage of housing across much of the state, according to C.A.R. economists.”
I guess this explains the rise in inventories. San Diego just past the 18,000 mark. 19,000 is the record. Inventories are rising in every part of the state. It looks like the CAR and the NAR are totally miscalculating the decline in demand.
The blind leading the blind. Of those 250,000 new households coming to California each year, how many are truely qualified home buyers?!! They must be counting college students, etc. The NAR should be audited of their sources that they divulge to the public. Complete naive garbage.
does BB rent ?
RE jobs 9.8 % of econ
what % is Military Ind Complex ?
if the economy tanks, we “need” more wars.
I agree, but I see another one coming real soon.
I have a hunch that we are going to relive 1970s.
Get out your disco balls!
The 70’s? That’s being charitable. How about the 30’s!!!
I’ll take the 70’s over 2001- current anyday of the week.
An era of 70s-style stagflation is not out of the question.
Unpopular war, high oil price, inflation, public distrust of government, no real economic growth, no jobs, nonexistent increase of wages, military-ind complex, Cheney-Rummy, the full circle.
I am kicking myself that I didn’t see this one coming in 2001.
I refuse to wear a liesure suit… again..lol
How ’bout those “disco pants”?
Now I remember what the Honda Element reminds me of… The VW Thing.
The Thing was pretty cool - but what about the Gremlin!
This is actually good news - it means that Bernanke is not afraid to continue to hike rates.
This bit:
doesn’t say much about the prospects for home prices. Home price deflation will be primarily driven by the contraction of the buying pool, which in turn will be caused by rising rates and tightening lending standards. In other words, just because Joe and Jane Doe can still make the payment on their home doesn’t mean that the price of their home won’t decline. What determines the resale price of their home is what another buyer is willing/able to pay. If Bob and Sue in 2007 can’t get the same crazy 2% rate that Joe and Jane did in 2005, they can’t pay as much as Joe and Jane did. Sure, having a large pool of sellers who are forced to sell helps drive prices down, but there are enough speculators in the pool already who need to get out quickly, not to mention builders with hundreds of unsold units on their hands.
How can you say this is good news? Good news for whom? For you?
contraction of the buying pool is somehow good news? I thought what we want is for more homes to become more affordable to more people.
think a step further, pal!
Hint: what will happen when the buying pool shrinks?
Bingo! — the price comes down.
Hint: what happens when price comes down?
Bingo again! — they become mroe affordable. And that means real affordability, not through magic financing, that is.
No, not more affordable, if interest rates are higher. Do the math. Over the life of the loan, you end up paying more.
Anyway, it’s just a logical contradiction. More people can afford homes if the buying pool shrinks? I don’t think so.
The only people who will benefit in this scenario are the ones who can pay cash, and who are they? Mostly people who already own real estate.
Did anyone mention speculators? High rates will also squeeze out those smart guys/gals, who are mainly responsible for hyping prices.
I agree, only people who have saved lots of cash to buy a home will benefit (and there are probably very few left …).
For the others, homes will probably get LESS affordable in the next years, because mortgage rates would probably rise stronger (by %) than home prices decline.
Only with a real housing crash the ‘monthly cost of ownership’ might decline, but in that case you will probably need lots of cash as well to buy a home (no more easy money after a crash).
It’s better to own an undervalued home with a higher interest rate vs. an overvalued home with a lower interest rate. Sure, you pay more over the life of the loan on a higher rate mortgage. But, your monthly payment would probably be similar to or if not less than current averages. In addition, if rates become more favorable, you can refinance. You also have a better possibility of home value appreciation (value investing 101). Your mortgage interest tax deduction is a lot higher meaning you will get more $ back from uncle Sam as well. Oh yes, I almost left out that your property taxes are a lot more digestable buying a lower priced home (atleast in CA). Affordability really comes down to the averages of what people can pay. By prices decreasing doesn’t necessarily mean that interest rates will go to 15% either. Bottom line is prices need to come down by 50% on average to become affordable again and for those who have left themselves vulnerable to price depreciation are about to learn a good lesson on tactical investments and to not overleverage themselves.
Sipping Koolaid are we? Rewriting history? And since when do people who own realestate have any cash?
I think we are at the crux of the problem. This is where bears and bulls have their “cognitive disconnect”.
Okay, that depends on how over/under valued and how much higher/lower the interest rate. Interest rates only have to move a little bit and then prices have to move a lot to compensate.
I think it is likely you never see rates again this low in your lifetime. Last time, the cycle took 40 years, and interest rates climbed as high as 18%.
That is a good point.
That is a minimally interesting point.
That is a sort of good point
Or, more likely, home prices will simply stay at or near current levels and inflation will bring the economy back in line, eventually.
And how is this likely? Would you care to share your historical data to back that up?
Lingus - My historical data to support Mr. Las Vegas is contained in all the newsclippings from the ’90’s, quoting the Wise Men of Wall Street, who said stock prices would remain high, while corparate earnings caught up. Please.
I enjoy reading all this stuff, but it is starting to get exhausting. All the usual rationalizations on how “it’s different this time” are coming out of the woodwork, as they always do.
And I can’t believe I am starting to hear, even on this board, that it is somehow “better to buy high” because interst rates are low. Is the assumption that as rates increase, home prices will merely dip, just enough to leave monthly payments unchanged? Please.
To say that the handwriting is on the wall would at this juncture be an understatement. It is over.
Yes, more affordable. Let’s say that a house is worth $500k when the interest rates were at 5%. The interest rates go up to 8%, and now the house is worth $350k. If you put 0% down, the monthly payments would be roughly the same in both instances.
HOWEVER, let’s say that you saved up for the 20% downpayment on the $500k house ($100k). Now interest rates have gone up, the house has gone down to $350k, but you still have that $100k for a downpayment. For the $500k/5% scenario, your monthly payments on the $400k loan are $2684. For the $350k/8% scenario, your monthly payments on the $250k loan are $1834, or 68% of what they would have been with the lower interest rate and higher price.
But I’m still waiting for LVlandlord to backup this statement ——–>”Or, more likely, home prices will simply stay at or near current levels and inflation will bring the economy back in line, eventually. “
Most people who can pay cash already own real estate? Complete BS. I could pay cash for RE in 90% of the country, including Las Vegas. I don’t own any US Real Estate. Why? Because it’s too expensive.
Returns from my investments at 4.8% pay my rent.
I’d like to see rates at 10%!!!
Ditto.
DC went flat for 10 years starting around 1990:
http://www.housedata.info/DC/
On the other hand, CA took a clobbering during that same period:
http://www.housedata.info/CA/
NoVaWatcher - I won’t argue with your arithmetic, but you are assuming that the market price of real estate is inextricably linked to mortgage interest rates, with today’s sales prices as the baseline. That is ridiculous.
In today’s bubble markets, prices have risen exponentially relative to the decline in prevailing mortgage rates. Why do people insist that any downward movement in prices will be different? Can you explain why, as long-term, fixed rates fell by about 3%, houses tripled and quadrupled in many bubble markets? Why do you think they will fall a mere 30% if rates move back up 3%, to the 8% range prevalent in the late 90’s?
I will invoke Warren Buffet, again, who has pointed out that, “if markets were that efficient, I would be standing on a corner with a tin cup.” I hope you get his drift.
I too feel my rental costs me close to nothing and when you add in HOA fees and Taxes, I feel I am making money off my rental.
People who live in the DC area know this is not true. Values dropped 20 - 30% on properties. Loook up sales history on properties. We have discussed the flaws in using median price to rewrite history.
I don’t think it is a proper analysis to compare an investment return of 4.8% to a snapshot of today’s real estate returns. Real estate returns long-term depend on when you bought, how much you invested, what your carrying costs are, your after-tax costs, etc.
It is not as easy as saying ING will pay me 4.8%. I am not advocating paying market price for a house today; but I can’t agree that it is logical to use the price “today” and then throw on some anticipated short-term (5-10yr)decrease in price to evaluate the real returns on real estate.
Of course, if it is a rental we are talking a whole different ballgame. I don’t believe that historic “returns” stated for real estate impute any rent factor. Please, anyone, let me know if I am wrong about this. I’ve seen alot of numbers showing that real estate only slightly beats inflation - but does this include any “rent”? Or factor in the principal paydown?
VA Investor - “Returns” on real estate, occupied as one’s primary residence, have indeed been only slightly greater than inflation, over long periods of time. Here is the problem I have with “home” as an investment: housing is an expense, for all of us. There is no free lunch, someone pays, always. The finacial advantage of owning one’s own home lies in our ability to pay for future housing expenses with today’s dollars, and it is a considerable advantage, provided, we assume some degree of price inflation, over time. Paying that future expense with current dollars is the critical difference between buying and renting, over time. And I agree, investment property, from which we collect rents, is a different ballgame.
This discussion, indeed, this forum, is focused on the current state of housing prices. Many of us recognize that those prices are out of whack, and believe that they will correct themselves. The question then, is not, what are the pros and cons of homeownership? Rather, what is the current state of the housing market?
I for one will not tell you that “real estate is a bad investment,” any more than I would say “stocks are a bad investment.” Those are generalizations. However, I do believe, and have put my money where my mouth is by selling into the frenzy, that house prices will fall, considerably, in the near to medium term. That is the issue here, nothing more, nothing less.
It is also a fact that, currently and generaly, that real estate is a losing “investment” over the short to medium term in most of the bubble markets. You will not find, where I live, a residential real estate investment that will outperform the returns available through the purchase of short term, U.S. Treasury securities. And that is true even if you pay cash, on the barrelhead. Should you choose to invest now, you are either speculating on further price appreciation, which is your choice, or, your arithmetic is faulty. It simply makes no financial sense to buy right now, given the available, traditional return on investment.
I agree with you DC that now is not the time to buy. I was addressing real estate long-term and opining that you can’t extrapolate a return using today’s price. You have to use historical averages over 10, 20,30 years or longer. Same as you would with stocks or bonds.
For example, I bought 6 or 8 places in 1988 and 1989. If I calculated my return in 1996, it would have been negative. But, say we use 2006. The result is entirely different. After 20 years, those places are paid for.
I don’t know what time frame is appropriate. I suppose it depends on the individual. Long term vs. short term; market timer; flipper etc. I am only talking long-term.
Your point about the present value of money is well taken and is one reason that Real Estate has always been considered an inflation hedge. Actual “cost” of mortgage payments drop with inflation.
A payment that seems a stretch today will seem very cheap in 15 years; even cheaper when you consider promotions and pay raises.
Anyway, I do not believe the figures used to calculate return factor in leverage, rent, and principal paydown.
LVLandlord said “Or, more likely, home prices will simply stay at or near current levels and inflation will bring the economy back in line, eventually.” Are you kidding me?!!! I feel sorry for those that are going to sit and wait for inflation to catch up. I don’t think you understand economics very well. You see, here are the basics and you can learn this in Econ 101. When there is more demand than supply for a particular asset, the demand drives up the price. When demand goes away, the asking price of that asset will go down. Inflation doesn’t catch up to something way out of it’s historical rate of return. That’s like saying the stock market didn’t need to go down because inflation will simply catch up to it’s high flying level. You might want to read up on this thing called economics, it may help with your investment decisions.
Contraction of the buying pool is bad news if you are a landlord, but good news if you are a forever-priced-out renter
I just rented a place that is 50x better than what I could buy in SE Massachusetts for the same money. I also just rolled my CD’s for another year. Let the rates rise. I will roll em’ again at a higher rate. I am actually not minding being priced out of a home forever. I will just use the interest on my CD’s to pay my rent.
LV, you’ve got some learnin’ to do. What happens is that you have a shrinking buying pool at that price point. The problem today is that there are too many people who can obtain a $500K loan, so they collectively bid up $400K homes to $500K — the classic “too much money chasing too few goods” scenario. When the number of people who can get $500K loans shrinks, it means that there is a smaller buying pool at the $500K price point. However, there may still be a relatively large pool of buyers at the $350K price point. Home prices must then decline to the price point at which supply meets demand — the market-clearing price.
Hiking the interest rates is very good to people who have cash in the bank.
In the good old days, folks could get CDs with 12%+ interest on them. No point in even buying a house when you can get 12% just by keeping your money in the bank!
I nominate Ben Bernanke for God.
Thank you. Thank you Thank you Thank you Thank you.
Thank you.
Guys named ‘Ben’ appear to be popular these days, huh?
5.25%?
Naw.
Mr. Bernanke might go 6% or even 7%.
God Bless America.
Ladies and Gentlemen, the Fed has just pronounced the Housing Boom-
OVER!
(starts singing ‘War is Over…If You Want it…War is Over…La La La La)
The fact we’ve got low inflation (seemingly!) also hints that we aren’t done with increasing interest rates anytime soon.
They will steadily ramp up rates ignoring inflation. That will pop the housing bubble (and eat away at social security benefits and nailing the people who purchased TIPS). Then we get recession / deflation and oh-no! we can lower rates after we’ve shaken out all the saps with HELOCs and pretty SUVs.
gleeful ?
what gov agency do you work for ?
deflation hurts everyone but them
I don’t buy it that he will pause soon. Housing suseptible to default is small comparing to the entire US national debt ( $9 trillion next year). If US rates are not high enough, the entire $$$ system will melt down. I believe he will raise rates to 5.5% and stop, by which time, a lot of those ARMs will be difficult to be met.
Let’s hope Ben B. turns out to be more Paul Volcker and less Alan Greenspan. I agree, a 5.5% FF rate is possible. He has to defend th dollar first.
If Ben wants to establish his credibility, that’s the only thing he can do. Short of that, it will be a serious threat to the global financial system.
I agree with both you guys..he will raise to 5.5%…he is laying the groundwork (these inane speeches) now, and there is no altermative, particularly given his philosophy/views on inflation and how to deal with it. That other guy from the Fed (from last week, I’ve forgotten his name) pretty much gave the warning to homeowners not to expect the Fed to offer them relief.
I absolutely agree with you johndicht. Our prolifigate ways have made us prisoners to foriegn bond holders and purchasors. The FRB has no room to maneuver. This will be no 70s show. They will not be able to inflate the money supply much more without raising taxes to cover the carrying costs of the debt. How else will the government fund the unending war on terroroism along with all the other social and corporate welfare handouts? Printing money is not an option when you are completely dependent on creditors.
Ben has a lot less power than people think.
THIS JUST IN…
“Wall Street reacted to Ben Bernanke’s speech last night…
…by listing all their houses…”
LOL.
IT’S OVER FOLKS! Ben’s going to 7%!
YEAHHHHHHHHH!
No way. 7% rates will k*ll the economy. He will stop at 5.25 or 5.5%
If BB doesn’t raise rates, the global market will by discounting Treasuries (while the dollar tanks). Long-term rates are largely out of his control, as he must recognize. He’ll try to defend the dollar to keep the Fed’s credibility as long as possible. Even though the vanishing of M3 hasn’t helped there…
Comes of relying so heavily on that inflow of foreign capital. One day you wake up and realize your money policy is out of your control.
http://luxuryrealestate.com/105543
85million for a sandbar
well, that sandbar is located among some of the fanciest, most expensive mansions in the country. Manalapan is just south of Palm Beach (which I’m sure you know is where The Donald has his Mar-A-Lago club, where Worth Ave. is, and all that). No doubt, this is a completely ridiculous bubble valuation. But in an area where some individual home sales have been $10 million to $35 million or so (if memory serves, that was the Palm Beach record, purchased by … get this … the founder or owner of the home building company NVR) — it’s not surprising a plot of land that could yield 5 mansions is going for that price.
So long story short, I can understand why it’s priced for that amount. But the fact is, the value of ALL this land and the houses on it will likely sink along with the bubble.
Rising sea levels and a future Class V ‘cane, will take out this stretch of sand in a heartbeat.
Just go ask the stilt-house crowd down at Navarro Beach, FL
the prediction of 10% is unbelievable. Are the new farm workers earning min wage and babies going to pay the average $600k for a house. I would like to see the lender giving them that money. This is so much a crash already in motion. I already left CA
Then you need to change your handle
anyone dumb enough to believe in realtor association propaganda deserves to be caught in the stampede.
need 2 leave ca…
Raising the rate means the end of speculators.
The are no more buyers now.
The fed has effectively killed flipping.
Now we’ll truly see all the ‘hidden inventory’, and the number of homes for sale will SKYROCKET into another spacial dimension.
Once there’s more homes for sale than we’ve ever seen in human history…
THE PRICES COME DOWN…
…and America finally goes back to ‘work’.
GOD BLESS BEN BERNANKE!
Kind of makes you wonder if he will stop at 7%. I think 10% is entirely within the realm of reason. That’ll turn us into a nation of savers.
“That’ll turn us into a nation of savers”
Except, it’ll crush our already bleak competitive businesses to BK, swelling unemployment, so who exactly will be saving anything? This is a perilous balancing act that I doubt has a very good prospect of a successful outcome — short or long term.
I would not want to be the guy that inherited Greenspan’s economy.
I can remember when anything under 12% was a great mortgage.
Well,
All I can say is that Mr. B has big Cajones…
He’s telling the world that he is not intimidated with raising rates, even if he has to go face to face with the PONZI SCHEME business model of real estate we have been witnessing for the last several years in USA.
Good for Mr. B to be a man and stand up to a relatively small minority of speculators, flippers and the general masses that bought in to the greed of QUICK MONEY by continually pushing the envelope of prices.
I agree with AUCTION… this IS good for America! Of course the sting will be felt by all, but a good belting/spanking by DAD in years past always cemented the lesson, for me…
Good for Mr. B to be a man and stand up to a relatively small minority of speculators, flippers and the general masses that bought in to the greed of QUICK MONEY by continually pushing the envelope of prices.
I dont think that these guys have been on BBs radar screen, because I think that the real-estate speculation community, for the most part, hasnt a clue about the causes behind what is coming. How many realtors know what “yen carry trade” means? You have to read Ben’s blog and the comments for a few weeks for the connections to sink in.
See guys/gals, I told you that Bernanke would defend the dollar first, and let the FBs twist. The bondholders are his constituency.
His remarks about the RE market tells me that he believes that the bubble will unwind like in the early 1990’s. Slowly. If so, BB can keep things stable. Its his job to keep the currency stable, after all.
Whether he can pull it off is another question. The counter arguments to the soft landing have been presented by other posters, so I wont repeat them. I will suggest that the following statement
He added the increase in mortgage debt from the housing surge of the last five years ‘may not be a particularly serious problem’ because families have replaced higher rate consumer debt with home loans.”
shows that BB attributes a lot more financial sense to the typical American than we have evidence for. For many folks, having access to “nicer” debt simply encourages them to take on more.
lower interest on equal (and increasing) debt will not save equity-mining homeowners. I can only assume that Ben knows they’re screwed but doesn’t want them to know it yet. No one wants a run on the bank.
Where Greenspan obfuscated, simple Ben just lies outright. Fascinating.
Its a hard job to do, the Fed Chair. The statements you point out may not be truthful, given BB’s knowledge of the economy, but they are what many Americans believe. Frankly, I think there is a high probability that he thinks a soft landing is coming. If he were as bearish as the posters here, why would he have taken the job?
BTW Runs on the banks are a real possibility. I predict that the Fed raises rates as long as it can, but will send the helicopters if one of the big national banks goes into BK. Which one is most leveraged in RE? Ive heard of some that are deep into MSBs, but I dont have personal knowledge.
JP Morgan and Band of America are the largest holders of derivatives. You could wake up one morning to news of a financial meltdown in these institutions. Of course the senior management teams know that they are too big to fail. That’s why they keep their golden parachutes on standby. Talk about moral hazard!
The market won’t unwind like ‘90/’91, because all this ficticious value build-up has been caused not only by low interest rates but primarily by all the lending wizardry which wasn’t prevalent in the ‘87/’89 boom.
FHA/HUD controlled the sub-prime domain-not the private sector bucket shops of today
Plus appraisal management companies (AMC’s) with their low-fee, hacks, weren’t runnin’ around either.
Also much less reliance on HELOC’s to support eroding standards of living.
Much further distance for the FB to fall financially this time around.
Like comparing apples and oranges.
This crash is gonna be a mutha.
Economic Data Suggest Slowing, from the LAT
A slight decline in February in a bellwether index signals a reduced pace of growth in the second half of the year.
If this continues, the Fed won’t hike rates to the moon.
http://tinyurl.com/n2×56
50% Price Reductions…here we come!
And I still say…
NO RECESSION!
(Anyone know Mr. Shiller? I need to buy that guy a beer…)
Ive seen Schiller on the street, but have never met him. He was being interviewed by the local news in CT.
In honor of rising short-term rates, I purchased my first 4-week T-bill today. treasurydirect.gov
LOL That’s a fine idea. I set up an account and bought a $1000 one, too. What the hell. I wonder what the purchase price will be. I’m guessing about $996.50. Not much earnings, but hey!
If you have sold at the peak or are saving a big down payment, you have to park the cash somewhere. Some of the posters here like to short stocks for big gains, but not everyone has the time or temperment for that. 4.6+% interest sound good to me if other investments are too risky.
OK. lets accept that statement for the moment.
Widely published statistics indicate 300b of ARMs will be recast
in 2006 and 1000b (1 Trillion) will be recast in 2007. Does BB’s
statement infer that even greater amounts will recast in 2008,
2009,….or will the apex of the curve be reached in 2007?
I don’t have any stats to support an argument beyond 2007,
but common horse sense indicates that the amount of ARM
debt to be recast will grow well into 2008,2009, 2010.
Comments? Any mortage guys have better info? TIA
or the initial loans will re-reset while new tiers get added as well. under my theory the pressure doesn’t ever let up.
Funny I read the below to suggest Fed hikes will be ending soon:
“The moderation in inflation is certain to be discussed next week when the Federal Reserve meets to decide the course of interest rates. A 15th quarter-point increase in a key rate is widely expected, but many analysts believe that moderating inflation pressures may mean the Fed will raise rates only one more time this year before moving to the sidelines after a two-year campaign to tighten credit as a way to make sure that inflation stays under control.”
http://news.yahoo.com/s/ap/20060321/ap_on_bi_go_ec_fi/economy;_ylt=Ai9gkjiXTCJUP6HwAQdbd5Os0NUE;_ylu=X3oDMTA3bGI2aDNqBHNlYwM3NDk-
That speculation is behind the recent rally on Wall Street.
Housing is doomed at any rate at this stage of the game. As to the stock market, the party, I suspect, will go on for a couple of months before some catastrophe (weather, war, derivatives) ends it all in a bang.
I think Wall Street could be right, and I certainly don’t understand all the ecstatic remarks higher up in the thread about Bernanke raising rates to 6 or 7%, the End of the housing boom etc.
Up to now it is all just ‘tough talk’ in the Greenspan tradition. Look at the 10-year Treasury and similar benchmarks: no change. Yes, shortterm rates are up and some speculators may get burned, but that’s all. Longterm rates are still at historically very low values, real rates are still negative. I don’t see any change in crazy lending and I don’t see any change in the government housing subsidies, backing of Fannie/Freddy etc.
Just a few tenth of a percent higher interest rates will NOT kill the biggest financial mania in history.
They said this numerous times last year too. They always thought there would be “one more and then it’s done” but there continues to be more and more after that. The bond market prices in these additional interest rate hikes in advance so you really need to look there to see where things are most likely heading.
Sounds like broker’s optimism to me. Bernanke is a monetary policy historian as well as an economist. Given the similarities of the current situation to the late 1970s, do you think he would rather follow Miller’s path (see my post below) or Volcker’s?
‘He added that consumer finances appear healthy, and the increase in mortgage debt from the housing surge of the last five years “may not be a particularly serious problem” because families have replaced higher rate consumer debt with home loans.’
I interpret that to mean…
“If you were using your house as an ATM- tough crap. I’m not here to wipe your a$$. Good luck with that. I have bigger fish to fry. Besides, it was your silly idea to leverage your house to buy all those silly properties sight unseen in Phoenix. This is a victory for the common man…and…
…those f’ing renters. Love, Ben.”
Suddenly, I’m even more proud of the ‘Mother of All Downpayments’ that I’ve been saving.
I wonder what the Great DiaLereah will have to say about this turn of events?
“WITH MY MAGIC APPRECIATION WAND, I, THE GREAT DIALEREAH, CAN MAKE PURCHASE LOANS COME FROM NOWHERE! 12% APPRECIATION FOR ALL!”
(as his realtors close in behind him, garnishing sharp knives…)
Dear Mr. BB (Bed & Breakfast) on your statement:“Bernanke said that, even if short-term interest rates rise, the impact on the growing number of people who hold adjustable-rate mortgages would occur with a lag since many of them have fixed-rate ‘lock-in periods’ of three, five or seven years before the adjustable feature kicks in.
You just don’t get it. Too many of these people also have HELOC loans that reset constantly, and soon that ‘how much is it gonna cost me a month’ idiot will be drowning in red ink. Those loans that reset and force people out of their property will in effect reduce market values in those areas, thereby making those who haven’t reset upside down and if they don’t bail right away they sure will when the reset date comes around.
OK, so what is the downside?
I know people like that. Don’t we all?
inventory in DC is growing…the charts prove it click below
http://dcbubble.blogspot.com/2006/03/no-more-talk-of-rising-prices-but-no.html
Look at what a thousand a month rent gets you in Tampa. This is a welfare neighborhood north of Kennedy Blvd (so it isn’t in South Tampa, as claimed), riddled with crack dealers. I can’t wait!
http://www.findtampaapartments.com/2128-nassau.html
A friend of mine used to own one of these shotgun houses in YBOR City totally renovated. After he had a rat crawl across his chest while sleeping one night he said enough is enough and sold it!
Ybor has been pretty HOT the past number of years. Been there once and thought it pretty cool.
You were probably there on a Friday or Saturday night getting smashed. In daylight and on week nights, if one is fully conscious, the place is horrible. Apart from roving gangs and Goths, and a hundred tacky bars, there is nothing there. The Columbia restaurant has got to be the worst.
Tampa keeps wasting money on Ybor trying to make it trendy and “upscale,” when it should be restored the ethnic neighborhood it used to be, with ethic stores, and ethnic restaurants, and everything geared toward ordinary families. It was never beautiful or elegant, but it was once at least interesting.
Not quite smashed, but we did have a few.
I will bite my head off if they can rent this crack box out for 1 grand.
Here’s my favorite part of the whole speech:
Bernanke said: “US savings rates are likely to rise over the next 2 years, especially if housing prices moderate.”
Oh Lordy! Somebody at the top who actually thinks that money in your pocket and affordable housing could be a good thing. I feel like I’ve been waiting FOREVER for the US to get off of the surreal debt=wealth economy.
Can it be??!! Is it finally going to happen??!! Is the US finally going to inch back towards a sane, productive economy.
Looking forward to many nights of peaceful sleep when this boat finally gets turned in the other direction.
Savings and moderated housing prices!! WOW!
Personal savings rate is a bittersweet affair. Yes, it’s currently negative. Yes, we’d like to see it rise positive.
So what happens if everyone decides to save 5% of their income tomorrow?
Great, the savings rate becomes positive, but consumer spending drops dramatically and likely pushes us into a recession.
The savings rate needs to move positive, but it needs to do so in a very slow and orderly fashion.
grim
Northern NJ Real Estate Bubble
I don’t think anyone needs to fear a sudden increase in the savings rate. There is a lot of debt that will have to be paid down before any saving begins.
What is more the cost of living has gone up significantly in the last few years. Utilities, gasoline, food, medical costs — they are all expensive. It’s tough to make ends meet out there on a median income, folks, even if you aren’t paying a mortgage. The government doesn’t want you to know that of course — which is another reason this bubble was allowed to grow.
Yep. This is a nice change for elderly people on fixed incomes as well. Lots of grannies have been fretting about their money slowly wasting away in CD’s the past 5 years.
Rates still aren’t that high. I bought our house at 7.5% over 30 years, since refi’d. Lots of people were buying houses then at 7.5%, so a few more rate hikes won’t kill the economy. It will create lots of FB’s, though. Mwahahaha!
“‘This increase in mortgage debt may not be a particularly serious problem. First, there has been on the other side of the balance sheet, significant increases in assets, so that balance sheets in general are looking stronger,’ he said.”
Ummmmmmmmm, buuuuuuuut, hasn’t been the lose credit situation (lax loan standards, availability of “exotic” loans, low rates) that have enabled these “significant increases in assets” (i.e. higher home ‘valuations’)?
Isn’t he saying “don’t worry about the amount of debt homeowners have, because more debt keeps house prices up, which means they really aren’t in debt?”
“hasn’t it been”, not “hasn’t been”.
Yes, that statement is BS and he knows it. He’s implying that the increase in asset prices is somehow independent of the increase in debt, rather than being a direct result of it.
It seems that these ‘boom’ will play till the end of the decade-
Housing will still rise further in CA and other coastal markets
However by late 2007 into 2008 there will be an economic disaster.
Play your cards right for the doom ahead- go into stocks and bonds- but never be greedy- get out near the top……
Peter,
Are you a homeowner that is cheerleading/buying a little more time for selling your home in CA?
The sign in coastal Santa Barbara is that standard housing has hit a brick wall and pricing has stagnated in this price point. I agree that the super homes will still remain “sellable” because the rich will buy what they want, whenever they want.
But I am only seeing the Flippers and FB’s now coming out of the woodwork in the $900k - $1.8mil “standard/entry level/common housing” market. The stats show that the peak for SB was back in Aug/Sept/Oct. and it has stalled ever since.
I have heard a lot worse about San Diego and LA… other coastal towns in CA. Anyone else have any observations in coastal CA???
I’ve heard from realtors in Los Angeles about the fall 2005 brick wall. Here in 5 cities (south of SLO), people are selling the cream of the crop, but others have to reduce 5%-10%, or just take their stuff off the market. I’ve seen a good number of houses sit for 3 months without selling, after which they get withdrawn.
I agree with you Arroyo Grande,
The “primo” remodeled/move-in conditioned homes (even in the $900k - $1.8mil) ARE SELLING at a relatively good pace still… it is the “original condition” and cheesy “paint ‘n carpet” flipper properties that are just sitting stagnant.
You make another good point of realtors in the practice of pulling properties- only to re-list a day or two later as a NEW listing. The seasoned folks can see straight through this and are actually chuckling at the practice, but I guess it is the real estate industries way of “softening the blow” and their manipulation of the numbers (i.e. days on market, etc) is one way to make it appear that everything is OK.
The fact that you advise holding stocks into some top in 2007-2008 and then plan too get out at “the top” indicates you do not understand how dangerous the situation is. I will keep it simple. The dividend on the DOW Industrials and S&P 500 is 2.5% which is 20% higher then the 1929 (S&P 500 did not exist then) and 1968 tops. That is enough for me. Your logic is like a blindfolded man being paid to jump toward a cliff. He isn’t sure if the distance is three feet or ten. You say “but don’t be greedy”. Man, you’re strategy is greedy. Losers never get out too early.
Salinasron:
BB DOES get it! Time to take back the economy. Time to get off the “dream go ’round”. It was never real. It was never sustainable.
Those who couldn’t afford it but bought in anyway will get trounced. It was their own bad finacial decisions that took them there.
“There’s a sucker born every minute” is a saying we’ve lived with for a long long time. Now it just applies to over-priced housing, that’s all.
BB not worried, gots a gubermint job now- no one gets fired
Guess again…
http://en.wikipedia.org/wiki/G._William_Miller
(Hint: Moving from Federal Reserve chairman to Secretary of the Treasury is not a promotion…)
P.S.
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/19/AR2006031901108.html
There was an interesting article in the USA Today lasy week about how most imigration is going to the sunbelt and west coast where job growth is strongest. The biggest shocker to me was that since 2000 hispanic in-migration to the LA metro area was over 400,000 but the white in-migration was actually -60,000-white flight. So to me saying these new residents are pushing up prices just does not add up, these 400K or so do not have the money to buy expensive homes.
… but obviously, not having the money is no problem at all in this bubble.
CNBC just did a segment on the benefits, joys and stability of the “old and stodgy” CD!
Is saving money and living within your means about to become “hip” !!??
Ladder, baby. Ladder!
Lots of people under 35 don’t know what that means, but they’ll be hearing about it now.
I disagree.
With treasurydirect.gov 6month yielding 4.7% now, there is no reason to buy CD’s Some of these banks have a lot of exposure to the mortgage mkts & hold lots of derivatives & credit default swaps. The financial instruments are too new & very risky. In the event of a liquidity crisis, you will have to get your money back from FDIC & not the bank. I, for one, do not think that the extra 0.2-0.5% on yeild is worth the risk.
There is a time for everything - time to take risk, time to buy a home, time to buy stocks & time to go hiding in your bunker. Ending yen carry trade, end of quant easing in japan, coupled with increasing interest rates around the world is like pushing the needle harder & harder into the bubble. Exploding M3 all over proves that banks & money managers are eitheer too deep in the hole to stop digging now, or are too greedy. However, their final fate is sealed at this time, its only a matter of time now, this thing is not going back anymore. We have passed the inflection point already.
The FSLIC came through just fine with principle on interest on my S&L CD when the last bubble popped. Why do you think this time is different?
I do not think that you would lose the money, eventually. Its the hassle. Also CD rates are not all that high.
If there is some systemic failure, or some bank goes down, the FED will have to tackle FNM/FRE on top of everything else. Note that Greenspan & Ben have been howling all the time about these GSEs, they would not be doing that so publicly unless there was a lot of risk.
Look at CD & treasury rates, they look almost similar to me. Why take the risk with CD when you get the same rate with treasury. They can print all they like and get you back your money.
http://money-rates.com/cdrates.htm
http://wwws.publicdebt.treas.gov/AI/OFBills
Safe with credit unions offering 4.85%? NCUA claims to be as strong as the FDIC. IS it?
Thanks.
To Seattle price drop’
You and I are gonna have to agree to disagree here. BB doesn’t get it. He thinks that time is on his side on this one issue because the unwinding procedure will be slow, the economy will adjust and the Feds will have dodged another bullet.How do you dodge the Florida, Vegas and Phoenix bullit with high inventory going into the summer heat and hurricane season. If these markets tank, the rest of the investor rats will all be headed for higher ground.
Don’t take his statements at face value; the markets are trying hard to put him into a box of predictability, and he is trying hard to stay out of any such boxes. If he were as plainspoken as you seem to think he should be, then the markets would no doubt have sold off by now.
This deserves its own comment:
OBITUARY
Fed Chairman G. William Miller, 81
By Adam Bernstein
Washington Post Staff Writer
Monday, March 20, 2006; Page B04
“During his brief tenure, he was said to act too slowly in increasing interest rates while inflation became unwieldy, but Mr. Miller spoke of concern that higher interest rates would prompt a major downturn in the economy. His successor, Paul A. Volcker, was credited with far greater skill in taming inflation through a major increase in interest rates.”
http://www.washingtonpost.com/wp-dyn/content/article/2006/03/19/AR2006031901108.html
Let’s see what a noted bond market expert reads into BBs speech:
BOND REPORT
Treasurys down after Bernanke, data
By Leslie Wines, MarketWatch
Last Update: 2:32 PM ET Mar 21, 2006
‘Tony Crescenzi, chief bond market strategist at Miller Tabak, said “I think that in some ways Bernanke gave the market a green light to go ahead with the yield curve flattened or inverted.”
‘If he had said he was worried about the yield curve, it would have been a sign that the rates would stop and the short end of the curve would become more attractive,” he said.’
http://www.marketwatch.com/News/Story/Story.aspx?column=Bond+Report&siteid=mktw&dist=
This is the first remotely positive housing report I’ve seen in months.
And I reluctantly type that as the inventory in my area grows (and my exact same house, on the market since Dec, has been reduced from 420k to 399. Yes, it was overpriced to begin with).
Eight months ago it would have been sold for 440k in 1 day. No inspection or appraisal contingencies.
How quickly it has changed.
Sorry, I know this is the wrong blog, but the silver market seems to be looking for a clear sign from BB that he means business on getting inflation under control:
“METALS STOCKS
Silver climbs to 1983 levels; gold dulls
Silver ETF moves closer to approval; copper falls back
By Myra P. Saefong, MarketWatch
Last Update: 2:30 PM ET Mar 21, 2006
SAN FRANCISCO (MarketWatch) — Silver futures closed Tuesday at their highest level since late 1983, up 2% for the session, after a proposed silver exchange-traded fund took a step closer to its potential trading launch.”
http://tinyurl.com/qh9ks
P.S. For a walk down memory lane, check out:
http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt
Get Stucco-
The news today gets better and better! Volker is actually PRAISED for raising intrest rates!
I just may have a good night’s sleep tonight -for the first time in months.
Watching this thing unravel has been like 2 steps forward, one back.
Think we may have just made our very own “Giant Leap Forward”. The ball is finally rolling in the oppposite direction and can start gathering some real momentum now.
My gut tells me we will have 6% Fed Funds relatively soon (I’m taking a chance here, noone else seems to see it). Darn CNBC said they would “cover” Bernanke live last night. They “did,” but just snippets, & their interpretations.
Aaaargh… Don’t you just hate it when they cut precious minutes out of speeches so we can all hear what the “experts” have to say?
This style of “reporting” has got to go. Keeps everyone dumb.
Or I should say- Keeps everyone as dumb as the experts are.
i was just survey by Gallup who is conducting a poll on the housing bubble
they wanted to know whether I was familiar with the term. I said yes.
http://www.dcbubble.blogspot.com
Hu is coming to America? (Someone ought to try this line out on GWB…)
http://news.ft.com/cms/s/cc7d9efc-b90c-11da-b57d-0000779e2340.html
There is an interesting difference of opinion between the new Fed chair and a former FR Board employee (Roach) as to where the blame lies for one of the pillars of the conundrum (America’s record trade deficit).
BB: Those blasted Asian households are saving us under the table!
SR: Given history’s tendency to deal unkindly with the aftermath of protracted periods of low risk premiums, perhaps American households ought to consider alternative forms of saving besides gambling on houses, stocks, hedge funds, or precious metals…