The Housing Bubble

It’s Friday desk clearing time for this blogger. “Southern Utah homebuyers and sellers may both breathe a sigh of relief as a steady flow of houses are being listed and sold, said Vardell Curtis, CEO for the Washington County Board of Realtors. Curtis said buyers are listing homes for lower prices than before. ‘If you are not a motivated seller, it will seem like everything has come to a halt,’ Curtis said. ‘If your home is overpriced, absolutely, it won’t sell. It’s not 2005 anymore.’”

“The sky is not falling, Chicken Little. But home sales are. And while it’s not the end of the world, the housing industry has caused a lot of pain to the economy. According to an August report from the Arkansas Realtors Association, only eight of the ARA reporting 37 counties have sold more homes this year than in 2006.”

“The most time a house priced at more than $350,000 has been on the current market in Fort Smith is two years and three months. That house, located at 1900 Wheaton Trace, is priced at $895,000, has 6,400-square-feet, four bedrooms, four baths and two half-baths. Two others have been listed since the end of 2005, and nine have been on the market since 2006.”

“There’s a 22.5-month supply of homes priced at more than $350,000 on the market. ‘I think we’re going to see some surplus in these higher-end homes the further we go along,’ said broker Mont Sagely in Fort Smith.”

“Home resales on the Big Island and Kaua’i last month trailed year-ago levels by 24 percent to 56 percent, as Hawai’i’s residential real estate market continued to soften.”

“Kaua’i single-family home sales suffered the biggest decline, at 56 percent, according to Hawai’i Information Service.”

“According to a real estate consultancy, the real estate markets in Hanoi, HCM City, Da Nang, Binh Duong and Ba Ria-Vung Tau have seen the fastest development recently. In 2007, real estate prices have been dramatically increasing, especially in the last months of the year.”

“Though the demand for buying houses is increasing, VietRees said that it was not because of the increased demand for accommodation. It said that 60% of buyers bought houses and apartments to resell to make profit. The market in 2008 is believed will witness further increases in real estate prices.”

“Peak season for the property market in Shenzhen, the southern city neighboring Hong Kong is usually in the autumn months of September and October. But this year the number of transactions dropped sharply over that period, as banks tighten credit and the local government prepares to issue a new policy trying to curb rising prices.”

“Daily transactions from October 1 to 9 plunged almost 80 percent from September, according to the housing management authority. ‘Micro-control policies have begun working to cool down the overheated real estate market in Shenzhen,’ said Wang Feng, director of the Shenzhen Real Estate Research Center. ‘Both investors and homebuyers are taking a wait-and-see approach, and that’s creating a stagnant market,’ he said.”

“Home owners in Sydney’s south and west are paying more for less after eight interest rate rises and a drop in house values of up to 15 per cent since the end of the property boom in 2003. As median house prices in the Fairfield and Liverpool region fell by more than $60,000, the total 2 per cent rate rise added $5472 a year to repayments on a typical $350,000 mortgage.”

“In Canterbury-Bankstown values have fallen by 8.8 per cent, at an average $47,000, over the past four years while in Gosford-Wyong homeowners have lost an average $24,000, a drop of 6 per cent.”

“‘Prices overshot the market during growth between 2000 and the end of 2003 and many of the buyers in this market overstretched themselves, taking advantage of easy finance,’ said RP Data research director Tim Lawless.”

“Two union-affiliated pension groups critical of embattled Countrywide Financial Corp have demanded that Harley Snyder resign as lead director. CtW wants CEO Angelo Mozilo to resign, and AFSCME wants him to step down as chairman. Both groups said directors are also overpaid, and AFSCME demanded the resignations of Robert Donato and Oscar Robertson, the other compensation committee members.”

“‘Your excessive compensation, together with your aggressive divestment of your own Countrywide stock at the peak of the housing bubble, militates powerfully against any inclination you might have to lead your fellow independent directors or hold Mr. Mozilo accountable,’ CtW Executive Director William Patterson wrote in a November 7 letter to Snyder.”

“Some cause-and-effect riddles are easy to answer, like ‘which came first, the chicken or the egg?’ Other riddles are tougher, like ‘which came first, a social problem or the media’s yapping about it?’”

“Take for example the problem of housing prices. For several years, especially since the popping of the dot-com bubble, housing has grown steadily more expensive at a rate higher than inflation. That’s been the case throughout the country, and Connecticut’s no exception. But now, after a decade of increases, home prices — and sales — have stalled.”

“Which brings us back to that tough-to-answer riddle. ‘The media’s saying nationally, prices are dropping,’ Evan Berman, a Realtor in West Hartford, said to explain the current slump. ‘Buyers are coming in with lower prices because the media says [the market's] bad.’”

“Sorry. Actually, this particular member of the media hasn’t said much about the housing market one way or the other. But Ben Jones surely has. He says that housing prices are in a bubble unsustained by basic market fundamentals.”

“‘Homes historically haven’t been more than 120 times [monthly] rent,’ Jones said in a phone interview with the Advocate. ‘If you’re paying 1,000 dollars in rent, you shouldn’t be paying more than 120 [or] 125 thousand for a house.’”

“When times get tough, everyone looks for someone to blame, and for the housing industry, the glut of unsold homes must be the media’s fault. Officials from the National Association of Realtors and Realogy (the nation’s largest broker) have suggested that things would be just fine if not for the nattering nabobs of negativism in the media.”

“Intriguingly enough, we never hear Wall Street types blame the media for bear markets, and we don’t hear Wayne Huizenga blaming the media for the Dolphins’ dismal season. But somehow, falling home prices are always the media’s fault.”

“Everyone knows that the business cycle hasn’t been repealed, and so another recession is inevitable. Some indicators suggest that it might be sooner rather than later.”

“Economist Richard Berner of Morgan Stanley notes that sales of new and existing homes have dropped 42 percent and 30 percent, respectively, from their peaks of more than two years ago. As supplies of unsold homes grow, real estate prices continue to fall. One index finds that prices in August were down 4.4 percent nationally from a year earlier.”

“Recessions have often-overlooked benefits. They dampen inflation. Similarly, recessions punish reckless financial speculation and poor corporate investments. These disciplining effects contribute to the economy’s long-term strength.”

“In the 1960s and 1970s, the Fed followed easy-credit policies on the belief that government could end recessions and constantly keep the economy close to ‘full employment.’ The bad behavior thus encouraged was inflationary wage and price increases by firms and workers relieved of the fear of recession.”

“The experiment boomeranged: Double-digit inflation ensued along with the savage 1973-75 and 1981-82 recessions (peak unemployment: 9 percent, 10.8 percent). The real ‘moral hazard’ problem today is not starting down that path again.”

“In response to your editorial on the pending mortgage reform, I say oh, bosh.”

“Lenders recklessly wrote mortgages on houses at above their sustainable price, taking advantage of capital fleeing the dot-com bust and fueling a price bubble. Reality is now reasserting itself.”

“If community lending laws were to blame, the problem would have arisen in the 1980s and 1990s as well. It didn’t. And mortgage failures would be confined to the sort of houses the poor live in. They aren’t.”

“Granted, federal action will probably make things worse, and for the wrong people, but that’s the government for you. That doesn’t change the fact that lenders were greedy, shortsighted and reckless and did fail their fiduciary duty to borrowers.”