The Housing Bubble

..enjoy shooting financial fish in barrels..

make sure you don’t let off a stray bullet and puncture the stock market bubble.

How about a large vibrating egg?

Investments?

Soon, very soon in fact due to our collapsing greenback…

There will be more foreigners visiting our country, than ever before.

Cater to their needs, and you’ll do very well.

They are the rich “Americans” now.

3rd REIC’rs

Funny, the villains who come to mind for me are my own FB acquaintances. The cousin who up-sized in Malibu in 2006 (yup, SIX) knowing that she and her husband would have to flip in two years when their ARM resets. The friend paying 50% of her gross income for IO who refi’d in 2006 (yup, SIX) in CA (exposing herself to recourse), saying she will refi again before 2011 when the I/O ARM changes to PITI(LIBOR+2%) and claims 80% of gross. The 35-yo nephew with the $100K job who refi’d in SE CT in 2006 (yup, SIX), choosing an ARM because “it’s so much cheaper.” I can’t say these people have pocketed ill-gotten gains (see NYCB’s post), but they certainly wanted to, and they have certainly spewed plenty of nonsense…and they WILL be held accountable! Without thousands — no, millions — of people like these, the REIC scheme would’ve had no legs.

Themesong; Lets Lynch the Landlord by the Dead Kennedys

health insurance I guess. Even in the Netherlands more than 5% of the population (mostly illegal immigrants, official immigrants who pretend they cannot read the insurance bills and other freeriders) are not paying their health insurance; they get treatment anyway …

I’d like to get an idea what basic rental prices are in the different areas as it is what we as HBBers are recommending as people sit this one out.

For instance what is the asking price of a 1500 sqft condo, a 2 or 3 br in a multi apt building, an 1800 sfh in a starter neighborhood, a 3500-well appointed sfh in the executive neighborhood.

I’ve checked out a few prices in a few different areas that didn’t include a major city. I was surprised that a basic and not so clean looking 3 BR home in Portsmouth, NH was asking $2400-$2700 while a more cared for oceanfront in Hull, MA could be had for $1800. Locally (outside Syracuse) that type of home is renting for $1250-$1600. There is an executive home over 3000 sq ft the next town over being offered for $2600/mo. (If I understand which one it is its a spec home that never sold)

Sorry, they only loan the “principal”. The principle stays at school where she belongs.

Ok, riddle this. The bank loans $100 @ 10% interest. They created the $100 (argue this with the FRB if you disagree). The borrower owes the bannk $110, which they can never pay because the bank never creates the $10. (Example: the mistaken poster who said I “got it backwards”.)

I see many people on this forum who still don’t understand this fundamental principle about our fiat-based money system. Consequently, they mistakenly blame the borrowers instead of they system itself.

My confusion is with regard to why people who should understand this, don’t.

‘Banks “create” money whenever they make loans. But, they only loan (create) the principle, they never loan (create) the interest. Where does the interest come from to satisfy all the loans?’

That is along the lines of profit, too. Where does that come from? My gut instinct tells me it all comes from faith in a system that is believed to be too big to fail. What is that Police song? I get it stuck in my head during times like this: “When The World Is Running Down”.

Sorry folks, but not a single person on this line have any clue as to what they’re talking about. Go read.

C’mon mMF, that’s not even a topic! (In a word, “no.”) But a related topic could be, what constellation of signs or events will tell us when it IS time to buy.

The benchmark 30-year fixed-rate mortgage rose for the 3rd straight week, climbing 8 basis points in the week ending Sept. 27th to 6.34%

The government should leave Fannie and Freddie alone. It’s time for a new agency — SuckerMae. SuckerMae would be mandated to go around the globe and buy up all those losing subprime, near prime, and prime loan packages.

‘Allowing Fannie and Freddie to expand their core business would certainly help their bottom lines and please shareholders. But it would do little, if anything, to fix home lending woes. Here’s why:’
———————–
The reason we are in this mess (foreclosure “crisis”) in the first place is TOO MUCH MONEY in the mortgage market. Increasing Fannie and Freddies portfoloios only serves to add fuel to the fire. It does not solve the problem of **affordability**. Likewise, increasing loan limits only serves to make housing even more UNaffordable. True affordability comes in the form of lower prices, not gimmicky mortgages (higher DEBT!!!).

Why can’t Americans get their heads around the fact that debt is a BAD thing??? It only serves to increase costs while incomes tend to remain stagnant. Additionally, the credit markets exist largely to transfer wealth from the poor/working class to the rich via interest payments.

And we have an administration that thinks spending 190 billion EXTRA on DOD to continue the conflicts in SWA next year is prudent BUT spending 35 billion over 5 years for health/medical insurance for American Children is a waste and will be vetoed.

WTF? 190 billion for death or 35 billion for life, in my world (which is reality) the latter is the more prudent investment for our borrowed dollars

I thought the blogospere had established that every bubble eventually must end in collapse. I’m wondering if we have any examples in history where there was reinflation of the same industry of a maturing bubble?

reinflate the bubble
it’s 1:55 am and “Last Call” was announced a while ago. A few of the drunkards might protest and refuse to leave, but they will be tossed out on their ears in any event.

Scary thought—- what happens when the hip hop rap music bubble bursts?…….maybe create jobs digging ditches?

THE INFRASTRUCTURE REDEVELOPMENT ACT OF 2008

On your (1): Not a friend or relative, but my new (Maine) landlord closed on this house just a month ago. He is a retiring Federal employee, maybe he got a lump-sum distribution. He thinks he got a good deal here, because the price he paid is 30% below the original 2005 asking price of $650K. Shorefront, 2000+ s.f. When he told me he had done very well with the purchase, I “yessed” him - why ask for trouble? I am paying him $1,000 a month to rent his $450,000 alligator, and during the winter, when I am not here, the young couple of housemates with local parents will pay me $420/mo, most of which will go on heat. You might say that it is I who am spending foolishly, and there is some truth in that; my point really is that the landlord is fortunate to collect even $1000/mo from a creditworthy customer. He thinks he will sell his inland NH house within a year. Stay tuned.

They are thinking in exactly the same way investors in the tech bubble thought. That is, “It can’t drop much more can it?”

Only if you have been through (and experienced the financial pain) of a bubble bursting, do you NOT reach out and catch a falling knife. Almost all who were invested in the tech bubble had very little experience with the stock market (myself being one of them) and thought the prices would bounce back. I myself was invested very heavily in the QQQQ’s (then the QQQ’s).

As it happens, I was away in europe and I got out of the market before I left because I couldn’t watch it on a daily basis. As in the property bubble, the buying and selling was fast and furious at the height. Bubbles are ALWAYS the same. I was following an “expert” called Bob Brinker who advised his news letter subscribers to buy the QQQQ’s (long) at $84.00. They had already dropped from $120.00 at that point and Brinker said they were a bargain. (Gee, where have I heard that before?)

However, and here’s the lesson and the irony, when I got back from europe, the QQQQ’s had dropped to $65.00! I read Brinker’s letter and he had made no mention to his readers that they should sell. “Wow!,” I thought, “How can I go wrong!?” I plowed big bucks into the QQQQ’s at $63.00, thinking, “If an expert like Brinker thought the QQQQ’s were a bargain at $85.00, what must they be at $64.00!”

Well folks, what is going to happen with property (I am FAR more savvy about the stock market now AND I got back the 6 figures I lost during the tech bust but it took 5 years) is what happened with the QQQ’s. I and others (the mirror images of todays FB’s and speculators ) hung in. It had to bounce back. Right? Wrong. Thousands of ‘hot companies’ tanked and many went bust. Just like some of the builders, banks and realtors and brokers are going to go bust.

Where I was concerned, the QQQQ’s dropped to $55.00. (That’s okay they will bounce back soon). Then $45.00. (That’s okay they will bounce back soon). Then $35.00. (That’s okay they will bounce back soon). Then $25.00. (Jeez, I wish I’d sold at $60.00 but it’s okay they will bounce back soon).

Of course there were the odd mini-rallies as the “falling knife catchers” jumped in and bought but the bubble continued to deflate. As it always does until capitulation day arrives. The QQQ’s finally hit a $20.00 low after falling from $120.00.

THAT is exactly what is going to happen to property values. Other forces could come into play which might affect, one way or the other, the eventual outcome. A recession will speed up the burst. Of course, one has to factor in the meddling politicians who are always on the look out for a “cause” or “photo-op” which will make them look caring and sensitive to the, “Needs of ordinary Americans.” That means printing and throwing money at the problem. Not a good idea for a country $9 trillion in debt but politician’s don’t care. Image over substance.

However, it will make no difference. This problem is worldwide. I fully expect prices to drop at least 50% from the highs. Possibly much more. A property worth $700,000 at the height will drop to $350,000. THAT is the path ALL bubbles have taken. I’ve now read volumes on the outcome of bubbles and it’s amazing how the pattern repeats time and time again for hundreds of years.

THUS: Now is NOT a good time to buy. Now is a good time to sell if you own property ’cause you are on a train to a town called Financial Misery.

I’m considering buying soon. Background: I’m one of you. I have been watching this bubble for quite a while now, before even finding this blog. I have some academic exposure to economics (a minor) and have continued feeding that interest/knowledge over the years. I’m also a follower of Austrian economics (www.mises.org), I understand (to varying degrees) market cycles, why the Fed is a bad thing and how they excacerbate market cycles, how bubbles typically are created and can independently see/verify some clear market/economic signals that the housing market is continuing to deflate locally. In fact, in central arkansas we tend to lag the national trend. The bubble lagged and the deflation is lagging.

Motive for buying? Well, for starters my motive is much like anyone else who might want to buy. In my case, my wife and I have been in a small home (1144 sq. ft) we bought new in 1998 for 70k; very small lot on a hill. The payment is nice (20% to put down on such a house. Other than the house, the debt we will have at that point is a $160/mo student loan.

I expect prices to continue to decline, but it’s going to be slow. I have said I don’t recommend using a residence as an “investment”. So I’m not going to try to time the tops OR the bottoms. Just buy conservatively, put 20% down and get a fixed loan (fewer years the better). If I lived in a huge bubble area, I wouldn’t consider it, but the area I’m in was not as volatile and I’m not willing to wait ten years to find the bottom of the housing market before I can start doing some of the things I want to do.

“Throw in a brief bio from everyone else (age, sex and location) so we know whom we’re spending most of our free time with.”

(Old, not nearly enough, ummmm, San Diego.)

I wouldn’t own rental property. Too many problems too numerous to list. Life is too short to deal with bad tenants, repair problems, insurance and, of course, taxes. However, EVERYONE will know when property has reached the bottom. I suspect several years + from now UNLESS there is a monster of a dollar meltdown. With the US in so much debt (very, very scary) and now totally lacking any kind of credibility around the world, which does not give foreign investors confidence, a financial meltdown might be reasonably remote but it is in the picture.

Inventory is one of the keys. Once we get rid of the backlog (there’s a lot of it and what’s worse much more coming down the line) the bottom will be in. Look for several big builders to go bankrupt first and their assets sold off at bargain basement prices.

However, people will be so scared of property ownership by then, values will remain weak for several years. The bottom might be in by 2010 but prices will remain flat for many years after that. Very low price increases.

I have often thought we should pool our resources to buy an 8BR shorefront mansion, just $100K apiece from (let’s say) 50 of us. The mathematically-inclined could send out maintenance and utility bills reflecting actual use of the time-shared property.
(Little Al, did you ever hear this rule? — “I before E, except after C, except in ‘weird’ and ’seize’ ” — I’m not making it up.)

I was sort of alluding to this above when asking when to start buying and live happily ever after off the cash flow. Would be more than happy with the right partners. As I’ve heard, 50% of something is better than 100% of nothing.

I swear to God i was daydreaming of sending Txchick 100K just to play and win.

I miss the days of seeing my portfolio explode to upside.

It’s difficult to get people to take risk after they’ve been whacked a couple times. There has been a lot of whacking in the housing industry and it’s getting worse. After a while, fewer and fewer sign up for whacking. Whack me once… You know the rest.

excellent idea, my story is similiar, we transferred here at the end of 2005 and I was astounded by the prices, started researching and found this blog, and thanks the blog and the information here, I persuaded my spouse to give up the points etc. from our relocation package and continue renting. I have never been so grateful for a financial decision in my life.

My name is Dan, a software engineer turned economist from Virginia Tech and I am a HBB addict.

I found this site as part of an overall enlightening experience. I was starting to research presidential candidates and was throughly discusted with republicans and was starting to see if any democrats made any sence (hahaha). I came across freedom to fasicm and Ron Paul. From there I started learning more about how money was created/destroyed/devalued. In the process I learned about our debt bubble and eventually found a site doing a rent vs own comparison at which point my eyes were opened (I currently own, for two more LONG weeks). I started searching out all the information I could find and this blog seemed to have the most enlightened conversations! I am now hooked and spend way too much time here.

As a result of this blog and my other research I have gained enough confidence in the market direction that I listed and sold my house. I have advised many friends and family who have saved money as a result.

I figure if you want to know what is going to happen this blog will give the most warning outside of insider information. Thanks everyone!

Oh yeah, and Ron Paul is only presidential candidate who says the very same things said on this blog! I gave him money for the first time and will give more after closing! He is raising money faster than John Edwards (they are both having compititions to raise $1,000,000 by the 30. Ron Paul gave Edwards a 5 day head start in a 10 day contest and will surpass Edwards today.)

Good topic

I was a new dad of a 3 year old and shopping for a house in 2001 when the now Ex walked out. After a few years and a costly custody battle I started looking again and was blown away by the price escalation that had happened while I patched up the holes in the hull of my life. Every RE Agent I would talk with would answer my questions about affordability with the pitch to get into an ARM. When queried about restets, it was always, “You can refi in a few years into a fixed”. Hogwash. I wrote Lansner at the OC Register calling this a fiasco in the making because our communities were becoming investment farms. I am not sure exactly when I found this blog, but I know that it was a homecoming when I did. There were folks here who understood what I saw and shared my opinion about it. Man, I was glad to be here and am to this day. Thanks Ben, you done good. Thanks to everyone else here as well. A special thanks to GS/PB, John Law, twist, Melody, Thomas, la_investor_girl, crispy&cole, txchick57, aldinsane. and the list just goes on and on, y’all are the best!

Visit them now or be priced out forever!

Luckily around 85% of our countrymen don’t have passports, so there will be little financial trauma overseas for the hoi polloi…

Careful….if the dollar falls too far, they might come visit YOU.

Seems like the Fed is flirting with abandonment of the dollar’s reserve currency status in order to make sure that the stock market always goes up. Just my opinion, of course…

I think PMI insurance will be the wave of the future in lending ,(even on 80% loans ). How else are they going to get investors to invest in loans after all these foreclosures .Insurance will just raise the cost of money ,so again another cost of the greedy bastards ponzi schemes .

“Why should they all be able to skate through??”

Apparently the Fed has decided to support the stock market and let the dollar do whatever. There is a potential silver lining out into the future — a lower dollar makes U.S. products cheaper on the export market, which should stimulate production in export industries going forward. Higher exports may actually (eventually) drive a rebound in the dollar, at which point the War on Savers may give way to a “cash is king” regime.

The future’s uncertain and the end is always near…

http://www.youtube.com/watch?v=3KPhOjF_H3o

Good topic PB. Interesting how the market soared on the concept of leverage against a item of hyped up value like real estate .

Some MSM commentators find the Fed’s War on Savers rather disturbing.

Investors to Fed: Thanks for nothing
The reckless are getting relief from Bernanke while the prudent are paying the price, argues Fortune’s Allan Sloan.
FORTUNE Magazine
By Allan Sloan, Fortune senior-editor-at-large
September 28 2007: 1:07 PM EDT

(Fortune Magazine) — One of the core principles - of the U.S. medical profession is the Hippocratic oath, the most famous part of which is “Do no harm.” It’s too bad that the governors of the Federal Reserve Board don’t have to take such a pledge when they assume office, because their recent interest rate cut has done a lot of harm to those of us who’ve managed our finances prudently.

Even though the Fed’s stated reason for cutting short-term interest rates by half a point was to help keep the economy from falling into recession, anyone who’s been paying attention knows that a major motivation - if not the major motivation - was to try to calm the turbulence that has been roiling the markets since August.

The stock market has never seen a rate cut it didn’t like. But Fed Chairman Ben Bernanke is penalizing the prudent.
…
…if we taxpayers are going to bail out the likes of Countrywide Financial (Charts, Fortune 500), even indirectly, I’d like us to get a market return on our money. That would reward us for the risk we’re taking and seriously penalize companies that so overindulge that they need Dr. Ben’s Magical Money Elixir.

http://money.cnn.com/2007/09/28/news/economy/sloan_bernanke.fortune/?postversion=2007092811

In response to this writer’s kvetch, I raise the serious question: Is there a viable alternative to the current global central banking cartel, which would move the world economy away from a focus on financial manipulation through serial crises and subsequent bailouts designed to funnel money into the hands of the top 3%, and towards a renewed focus on real economic production activities which work to the benefit of the greater societal good?

THE BEAR’S LAIR
The Goetterdammerung of central banking
By Martin Hutchinson

After pretending an unwonted firmness for a few weeks, the central banks in both Britain and the United States caved last week, accepting financial-sector bailouts and, in the US Federal Reserve’s case, lowering interest rates. Moral hazard has thus been made immoral certainty; financial-market participants who indulge in grossly speculative activity can be “highly confident” (in the words of the old Drexel Burnham commitment letters) that they will be bailed out by the taxpayer. Rarely has there been such an obvious subsidy of the overpaid by the beleaguered. It raises the question: What if anything is the point of central banks in the new world we have entered?

http://www.atimes.com/atimes/Global_Economy/II26Dj01.html

Some big wigs see no moral hazard issues facing the Fed, and are busy editorializing their gospel truth in every corner of the globe. Did it ever dawn on these folks that a standing policy of free bailout insurance for dumb financial decisions might increase the incidence of dumb financial decisions, and that this might be very costly to economies (say, in the form of 2.6 million vacant homes that nobody wants or needs)???

Fed can’t be captive to ‘moral hazard’ fundamentalism
Lawrence Summers | September 25, 2007

CENTRAL to every policy discussion in response to a financial crisis or the prospect of a crisis is the concept of moral hazard.

Unfortunately, there is great confusion in many quarters about the circumstances when moral hazard is, and is not, a problem. The world has at least as much to fear from a moral hazard fundamentalism that precludes actions enhancing confidence and stability as it does from moral hazard itself.

The term “moral hazard” originally comes from the area of insurance. It refers to the prospect that insurance will distort behaviour, for example when holders of fire insurance take less precaution to avoid fire or when holders of health insurance use more healthcare than they would if they were not insured.

In the financial arena the spectre of moral hazard is invoked to oppose policies that reduce the losses of financial institutions that have made bad decisions. It is used to caution against creating an expectation that there will be future “bailouts”.

http://www.theaustralian.news.com.au/story/0,25197,22473275-36375,00.html

“2) Do economies perform better when participants are irrationally exuberant, or when they have a level-headed assessment of the economic picture, including a healthy fear of potential downside risks to balance out hope for potential rewards?”

The first exhibit I have to present on this subject are all the POS McMansions that were hastily spewed across the U.S. landscape over the bubble years (1998-2007). Speculative euphoria tends to cloud the judgment of buyers, leading to a willingness to pay for shoddy construction far in excess of rational valuations.

Seems like this discussion extends to time bombs on lender balance sheets as well — didn’t they book the increase in debt balances due to negative amortization in the asset column?

“Your search has returned the first 200 of 21023 homes”

DING DING DING!!!

SD ziprealty.com inventory has just hit 21,000 SFRs+Condos for the first time in 2007, just in time for the ice cold holiday sales season!

Time for me to go enjoy another glass of fine but cheaply-priced low-end California wine…

San Malo, California.

1) http://www.panoramio.com/photo/2110548
Fauntlee Hills, Seattle, WA (Overlooking Puget Sound bove the ferry dock to Vashon Island.)

(Shameless plug for my photo

2) also West Seattle. http://www.zillow.com/HomeDetails.htm?zprop=48933754
I helped build a deck on this house or a close neighbor in late 1980s (didn’t recognize the address). Friends bought it for $85k, sold it a couple years later for $140k. Now probably over 400K (This one is $423 for $1300 sqft) It is a block off the sound with one of those sliver views of water if you crane your neck on the sofa.

I’m not really claiming it is overpriced. Just: I want my part of that “deck money”

2,4,6,8 Education usually comes too late…

Go Team!

Disclosure: My parents’ So Cal home still features Brady Bunch colors and decorating style

Strangely enough, its starting to come back into fashion. First, we get flares a.k.a ‘Boot Cu’t pants, now we get dark brown and orange as a ‘fashionable’ colours.

Go figure.

You and everybody else, it would appear..

I would also suggest getting a piece of the U.S. stock market at this point, as it is clear the Fed intends to ensure the stock market always goes up, no matter how far down the dollar goes.

Good thing most wealthy European countries face looming housing crashes of their own, or else your point would be cause for concern.

I frankly do not believe that any foreign individual (with the exception of Canadians) would buy any POS house/condo in the US. The culture of Southern California is traffic jams and for $700k US it is easier and more desirable to buy a place on the Aegean. Canadians in British Columbia could conceivably buy a second home in Washington State for half the price in BC. But I can buy an ocean front place in the Bay of Fundy for less than I can buy in Maine.

European second home buyers have other concerns at the moment besides investing in dollar-devalued U.S. real estate…

Warning on European second homes
By Jim Pickard in London and Mark Mulligan in Madrid
Published: September 28 2007 18:41 | Last updated: September 28 2007 18:41

The price of second homes in the Mediterranean and eastern Europe could fall as a result of the credit crisis, a leading property expert has warned.

Michael Ball, a professor of property at Reading ­University, England, and an adviser to the UK government, said holiday homes in many parts of Europe were exposed to a correction.

Not only had prices risen fast amid speculative interest and the easy availability of credit, but the supply of new flats had been increasing at a prolific rate.

Prof Ball pinpointed the Mediterranean and central and eastern Europe as being particularly “vulnerable” to falling prices.

“There are a variety of reasons in that in both of those areas, credit has been used and people have been very optimistic about long term values,” he told an audience of property professionals on Thursday night.

“There has been a boom, the market has been driven by foreign investors and now that is beginning to turn.”

http://www.ft.com/cms/s/0/f29aeeb8-6de8-11dc-b8ab-0000779fd2ac.html

How will the GSEs ever hope to fulfill their affordable housing mandate if they proceed to subsidize demand for unaffordably-priced housing (over $417,000)? Certainly their economists learned in their undergraduate micro course that increasing demand leads to higher, not lower, prices. This course seems rather like shooting one’s self in the foot.

Freddie Mac chief warns of recession
By Saskia Scholtes, David Wighton and Stacy-Marie Ishmael in New York
Published: September 27 2007 22:18 | Last updated: September 28 2007 00:33

The US economy faces a 40 to 45 per cent risk of recession induced by the housing market downturn, the chief executive of Freddie Mac warned on Thursday as data showed sales of new homes hit a seven-year low in August.

Richard Syron, chief executive of the government-sponsored mortgage company, said the credit squeeze had left some parts of the US housing market “literally frozen”. This was a “substantial depressive to the overall economy”. He forecast the Federal Reserve would make another “material” cut in interest rates.

He said the $417,000 ceiling on the size of home loans they can buy was likely to be raised to help support the US mortgage market.

http://www.ft.com/cms/s/0/8b86afc6-6d36-11dc-ab19-0000779fd2ac.html

“As you are aware, the liquidity crisis in the mortgage lending industry has adversely impacted nearly every major mortgage originator, mortgage investor, and warehouse lender. SCME is no exception. We have spent a great deal of time analyzing the market and SCME’s role in the future of mortgage banking. There is every indication that the liquidity crisis will continue for the foreseeable future, causing significant challenges to our organization.”

Are they saying in as many words that every major mortgage originator, mortgage investor, and warehouse lender is screwed?

At least the (clueless) U.S. consumer remains unfazed…

US consumers unfazed by market turmoil
By Daniel Pimlott in New York
Published: September 28 2007 18:54 | Last updated: September 28 2007 18:54

US consumer spending was strong in August in spite of the credit squeeze and market turmoil, while inflation fell, in a hopeful sign for the country’s economy’s ability to avoid a recession.

Spending adjusted for inflation grew at its fastest pace of the year at 0.6 per cent last month, up from a 0.4 rise in July, although personal incomes grew slightly slower than forecasts, according to data from the commerce department.

Real consumer durable goods spending, which covers big-ticket items such as cars, refrigerators, and flat-screen televisions, jumped 2.8 per cent, also the highest level this year. Spending on such expensive items is significant because it can be an indication of consumer confidence. Figures out last week had indicated that consumer confidence in September was at a near two-year low.

http://www.ft.com/cms/s/0/687f7a80-6dea-11dc-b8ab-0000779fd2ac.html

Oops…

Credit markets
Still gloomy
Sep 27th 2007
From The Economist print edition
Debt markets threaten to undermine the Fed’s goal of restoring order

WAS that it then? From a shareholder’s standpoint, it certainly looked as if the Federal Reserve had administered a miracle cure to stockmarkets with its spoonful of easy money on September 18th. Bankers began to talk of the worst being over and done with. In the debt markets, however, a more jaundiced view prevails. Lingering pessimism—in overnight money markets right along the yield curve to long-term bonds—is likely to make the Fed’s task harder as it seeks to revive the economy.

For one thing, the reaction of America’s bond market to the interest-rate cut was different from previous rate-cutting cycles (see chart). Instead of falling, as they have in the recent past, ten-year bond yields rose, as investors fretted that the Fed’s largesse would stoke inflation. In America and the euro zone yields came off their highs on September 25th, when weak economic data eased inflationary concerns. But economists polled by Bloomberg still expect ten-year yields in America to remain above their levels before the rate cut.

That does not bode well for American mortgage rates, which tend to rise along with long-term Treasury-bond yields. Indeed, the price of a 30-year fixed-rate mortgage has risen by seven basis points since last week, according to bankrate.com, a personal-finance website. That raises concerns about how little the Fed’s rate cuts may help the housing market.

http://economist.com/finance/displaystory.cfm?story_id=9867498

Canaries in the coal mines of national and international housing markets:

San Diego is the U.S. national housing market’s canary, and the U.S. national housing market is the rest of the first-world bubble markets’ canary.

Correction: Fannie Mae and Freddie Mac
Sep 27th 2007
From The Economist print edition

The authorised limit for mortgages purchased by Fannie Mae and Freddie Mac rose to today’s level of $417,000 in 2006. It was not increased this year as we said on September 13th (see article). Sorry.

http://economist.com/finance/displaystory.cfm?story_id=9867523

They even mention that speculators drive up *property taxes*, something that few people seem to care about or notice. (Why anyone who plans to live in his house would want the assessed value to *increase* has always been a mystery to me! I want the perceived value of my house to be as little as possible.)