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housing crash
- Thread starter silk
- Start date
Quote from Billbuild:
Bloomberg is kind of a corporate shill IMO. So this is an odd piece. I'd say they are being nice and letting some of the herd escape. Whatever is coming here it comes:
Also, UK yield curve is inverted, which in the US is the best indicator of an equity market top. Should be interesting ...
<IMG SRC=http://ichart.finance.yahoo.com/z?s=^GSPC&t=6m&q=l&l=on&z=m&c=tol&a=v&p=s>
Ain't that purdy. That is Toll Brothers vs the S&P500 since that other thread, "Real Estate is dying," was started. Yup, RE died and rose to the heavens.
Ain't that purdy. That is Toll Brothers vs the S&P500 since that other thread, "Real Estate is dying," was started. Yup, RE died and rose to the heavens.
Extra
Housing bubble is real, report says
Bank predicts a 'hard landing' by mid-2005. And regulators say too many homeowners are cashing out their equity to play the market.
By Reuters
Economists at HSBC have waded into the debate over whether the U.S. housing market is overinflated, declaring a bubble exists, something the Federal Reserve has long been reluctant to do.
Only days after the Federal Reserve Bank of New York said there was little evidence of a nationwide housing bubble, HSBC, a giant bank and financial services company, issued its assessment of the situation with a report titled, "The U.S. Housing Bubble -- The case for a home-brewed hangover." The bank insists that a bubble exists and prices are likely to deflate gradually over a few years, triggered by Federal Reserve interest rate rises.
"This bubble-psychology has manifested itself in very rich valuations,'' HSBC chief U.S. economist Ian Morris wrote.
House prices relative to income, rent, replacement-cost and home-equity have all set new highs, Morris said.
"Expectations of future house price appreciation are spectacularly, and unrealistically, high,'' he said.
The debate over whether a housing bubble exists has raged in recent years as prices have surged. But the Federal Reserve has often said it does not see a bubble.
Over the four years to the first quarter of 2004, official figures show house prices rose 33% nationally. Over the same period, prices in Washington, D.C., were up 70%, in California 60% and in New York and Florida 50%.
Cashing out to play the market
If anything, the trend has sped up. The Office of Federal Housing Enterprise and Oversight reported that prices as of Sept. 30 were 13% higher than a year earlier. Just weeks later, though, Federal Reserve Chairman Alan Greenspan sought to reassure lenders that the ride wasn't over.
"Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities," Greenspan told America's Community Bankers.
Stock brokers are apparently reaching out, too. Wednesday, the regulatory agency NASD warned that too many house-rich Americans are borrowing money against their homes to play the stock market.
In an alert to brokers who may be encouraging the trend, the NASD reminded Wall Street that it has a responsibility to steer investors away from unsuitable financial strategies.
About 11% of gains from mortgage refinancings were plowed into the stock market and other financial investments in 2001 through mid-2002, up from less than 2% in 1998 through mid-1999, a recent Federal Reserve study showed.
A hard landing ahead
The New York Fed has said the decline in interest rates in recent years justified the price increases.
Related news and commentary on MSN Money
Related resources image
⢠The nation's hottest housing markets
⢠7 ways to spot a sleazy mortgage lender
⢠Borrowers gamble with adjustable-rate mortgages
⢠Don't bite off too much house
⢠Don't get trapped in a housing bubble
Its 12-page Fed said the rapid increase in home prices was itself not evidence of a bubble. "Rather, it appears that home prices have risen in line with increases in personal income and declines in nominal interest rates,'' it said.
Some economists worry that the run-up in housing prices in recent years has created a bubble similar to the stock market excesses of the late 1990s and could jeopardize the entire U.S. economy if prices fall sharply.
The 47-page HSBC report, issued in late June, said a "hard landing'' is typical after a housing bust because the wealth effects -- which can affect consumer spending -- from real estate are more powerful than from stocks.
"Prices are 10 to 20% too high and can overshoot on the way down,'' HSBC's Morris said, most likely deflating gradually over a few years rather than crashing like stocks.
"We think the party stops by mid-2005. A series of rate hikes will cause a reassessment of likely future house price risks and its associated debt, thereby triggering housing's fall.''
Morris said that as the hangover hits around the middle of next year, he expects relief in the form of renewed Fed easing will be required.
Much of the difference in how HSBC views the run-up in prices compared with the Fed's assessment stems from a debate over which price measures are used.
The New York Fed said it was important to adjust for quality improvements due to renovations and extensions. Unfortunately, such a price index does not exist, so the Fed uses a quality-adjusted "new'' home price index.
HSBC's Morris argued that this approach has pitfalls because the existing stock of housing does not improve in quality by anywhere near as much as the improvement in new homes.
Housing bubble is real, report says
Bank predicts a 'hard landing' by mid-2005. And regulators say too many homeowners are cashing out their equity to play the market.
By Reuters
Economists at HSBC have waded into the debate over whether the U.S. housing market is overinflated, declaring a bubble exists, something the Federal Reserve has long been reluctant to do.
Only days after the Federal Reserve Bank of New York said there was little evidence of a nationwide housing bubble, HSBC, a giant bank and financial services company, issued its assessment of the situation with a report titled, "The U.S. Housing Bubble -- The case for a home-brewed hangover." The bank insists that a bubble exists and prices are likely to deflate gradually over a few years, triggered by Federal Reserve interest rate rises.
"This bubble-psychology has manifested itself in very rich valuations,'' HSBC chief U.S. economist Ian Morris wrote.
House prices relative to income, rent, replacement-cost and home-equity have all set new highs, Morris said.
"Expectations of future house price appreciation are spectacularly, and unrealistically, high,'' he said.
The debate over whether a housing bubble exists has raged in recent years as prices have surged. But the Federal Reserve has often said it does not see a bubble.
Over the four years to the first quarter of 2004, official figures show house prices rose 33% nationally. Over the same period, prices in Washington, D.C., were up 70%, in California 60% and in New York and Florida 50%.
Cashing out to play the market
If anything, the trend has sped up. The Office of Federal Housing Enterprise and Oversight reported that prices as of Sept. 30 were 13% higher than a year earlier. Just weeks later, though, Federal Reserve Chairman Alan Greenspan sought to reassure lenders that the ride wasn't over.
"Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities," Greenspan told America's Community Bankers.
Stock brokers are apparently reaching out, too. Wednesday, the regulatory agency NASD warned that too many house-rich Americans are borrowing money against their homes to play the stock market.
In an alert to brokers who may be encouraging the trend, the NASD reminded Wall Street that it has a responsibility to steer investors away from unsuitable financial strategies.
About 11% of gains from mortgage refinancings were plowed into the stock market and other financial investments in 2001 through mid-2002, up from less than 2% in 1998 through mid-1999, a recent Federal Reserve study showed.
A hard landing ahead
The New York Fed has said the decline in interest rates in recent years justified the price increases.
Related news and commentary on MSN Money
Related resources image
⢠The nation's hottest housing markets
⢠7 ways to spot a sleazy mortgage lender
⢠Borrowers gamble with adjustable-rate mortgages
⢠Don't bite off too much house
⢠Don't get trapped in a housing bubble
Its 12-page Fed said the rapid increase in home prices was itself not evidence of a bubble. "Rather, it appears that home prices have risen in line with increases in personal income and declines in nominal interest rates,'' it said.
Some economists worry that the run-up in housing prices in recent years has created a bubble similar to the stock market excesses of the late 1990s and could jeopardize the entire U.S. economy if prices fall sharply.
The 47-page HSBC report, issued in late June, said a "hard landing'' is typical after a housing bust because the wealth effects -- which can affect consumer spending -- from real estate are more powerful than from stocks.
"Prices are 10 to 20% too high and can overshoot on the way down,'' HSBC's Morris said, most likely deflating gradually over a few years rather than crashing like stocks.
"We think the party stops by mid-2005. A series of rate hikes will cause a reassessment of likely future house price risks and its associated debt, thereby triggering housing's fall.''
Morris said that as the hangover hits around the middle of next year, he expects relief in the form of renewed Fed easing will be required.
Much of the difference in how HSBC views the run-up in prices compared with the Fed's assessment stems from a debate over which price measures are used.
The New York Fed said it was important to adjust for quality improvements due to renovations and extensions. Unfortunately, such a price index does not exist, so the Fed uses a quality-adjusted "new'' home price index.
HSBC's Morris argued that this approach has pitfalls because the existing stock of housing does not improve in quality by anywhere near as much as the improvement in new homes.
U.K. Real-Estate Slump May Cause Equities Decline: Matthew Lynn
Jan. 10 (Bloomberg) -- The long-predicted slowdown in Britain's fevered real-estate market finally seems to be happening.
What will that mean for stock prices? Will the property market bring down equities with it? Or have the two markets decoupled, allowing shares to soar in value as property slumps?
The record suggests equities can escape unscathed. Yet common sense tells us there may be some nasty shocks ahead for people who own British shares.
It isn't just in the U.K. that real-estate prices have surged. They've been rising in the U.S., France, Spain and Australia. All of those nations may witness a sharp correction in property prices and will be watching the U.K. to see how it responds to a reversal in house prices.
Nobody can doubt that the British real-estate boom is ending. Figures released last week showed U.K. net mortgage lending in November rose at the slowest pace since June 2002, while home-loan approvals slumped to the lowest in almost a decade.
Last week, HBOS Plc, the country's biggest mortgage lender, said house prices rebounded slightly in December. Yet it added that prices would probably fall 2 percent in 2005.
Will it be a soft or hard landing? Prices may well stagnate for a year, or fall slightly. Or they may crash, with values plummeting 20 percent or more, as they did in the early 1990s. Since the U.K. property market has cooled faster than most people predicted, there isn't much reason to be optimistic.
20 Percent Decline
``The sharp drop off in housing market activity over the second half of last year suggests that the falls in house prices seen over recent months are likely to persist for some time to come,'' said Ed Stansfield, property economist at London-based Capital Economics Ltd., in a report last week. ``Our forecast of a 20 percent peak-to-trough fall in average house prices over the next 2-3 years remains on track.''
Whether they stagnate or crash, property prices will be the key factor in the U.K. economy this year. What are the implications for equity markets?
History is surprisingly reassuring. HSBC Holdings Plc says ``equity and house price indexes are essentially uncorrelated in the U.K.'' Why is that? ``The overseas exposure of the U.K. equity market, the fact that it is defensive in nature, and that equities are a competing asset class to property, all seem to offer support to the equity market during a domestic shock.''
Historical Comparison
Indeed, from 1989 to the beginning of 1993, as the U.K. property market slumped, the benchmark FTSE 100 index jumped from about 1800 points to about 2800. That suggests the next three years would be good for shares.
Others draw comfort from international experience. In a comparison between the Australian and U.K. property markets, Brian Hilliard, chief economist at Societe Generale SA in London, says a fevered Australian housing market has started to cool with little damage done to the rest of the economy. ``This provides support for our view that the U.K. economy will be able to withstand the downturn in the housing market, currently in progress, with a fair degree of resilience,'' he wrote in a report last month.
So why might it be different this time?
There are two reasons for thinking a decline in the value of real estate might spill into share prices.
First, the British economy has become heavily dependent on the property market as an engine of growth. That's because soaring house prices make people feel richer, so they spend more. And at least some people take advantage of the rising value of their houses by remortgaging and spending the extra money. A housing slump would suck that demand out of the economy, hurting the stock market.
Banking Shares
Next, financial services have grown in importance in the British economy. Banking accounted for just 5.3 percent of the U.K. market at the previous peak in the property cycle in 1988, according to HSBC. That compares with almost 20 percent now. Of the 10 biggest companies in the FTSE 100 index, five are banks.
Those banks may not be stuck with many bad loans as the property market declines -- most lending has been relatively conservative. Yet as mortgage sales slow, banks will be hurt. And consumers may well be reluctant to take out fresh loans as the value of their houses crumbles.
More widely, retailing and leisure stocks, which make up another big chunk of the U.K. equity market, would slump if consumer spending slows.
History might suggest the equity market will survive the real- estate slump unscathed. So might international comparisons. Don't be fooled. The U.K. stock market is about to enter territory for which there are no maps.
It will be different this time around.
To contact the writer of this column:
Matthew Lynn in London at matthewlynn@bloomberg.net.
Jan. 10 (Bloomberg) -- The long-predicted slowdown in Britain's fevered real-estate market finally seems to be happening.
What will that mean for stock prices? Will the property market bring down equities with it? Or have the two markets decoupled, allowing shares to soar in value as property slumps?
The record suggests equities can escape unscathed. Yet common sense tells us there may be some nasty shocks ahead for people who own British shares.
It isn't just in the U.K. that real-estate prices have surged. They've been rising in the U.S., France, Spain and Australia. All of those nations may witness a sharp correction in property prices and will be watching the U.K. to see how it responds to a reversal in house prices.
Nobody can doubt that the British real-estate boom is ending. Figures released last week showed U.K. net mortgage lending in November rose at the slowest pace since June 2002, while home-loan approvals slumped to the lowest in almost a decade.
Last week, HBOS Plc, the country's biggest mortgage lender, said house prices rebounded slightly in December. Yet it added that prices would probably fall 2 percent in 2005.
Will it be a soft or hard landing? Prices may well stagnate for a year, or fall slightly. Or they may crash, with values plummeting 20 percent or more, as they did in the early 1990s. Since the U.K. property market has cooled faster than most people predicted, there isn't much reason to be optimistic.
20 Percent Decline
``The sharp drop off in housing market activity over the second half of last year suggests that the falls in house prices seen over recent months are likely to persist for some time to come,'' said Ed Stansfield, property economist at London-based Capital Economics Ltd., in a report last week. ``Our forecast of a 20 percent peak-to-trough fall in average house prices over the next 2-3 years remains on track.''
Whether they stagnate or crash, property prices will be the key factor in the U.K. economy this year. What are the implications for equity markets?
History is surprisingly reassuring. HSBC Holdings Plc says ``equity and house price indexes are essentially uncorrelated in the U.K.'' Why is that? ``The overseas exposure of the U.K. equity market, the fact that it is defensive in nature, and that equities are a competing asset class to property, all seem to offer support to the equity market during a domestic shock.''
Historical Comparison
Indeed, from 1989 to the beginning of 1993, as the U.K. property market slumped, the benchmark FTSE 100 index jumped from about 1800 points to about 2800. That suggests the next three years would be good for shares.
Others draw comfort from international experience. In a comparison between the Australian and U.K. property markets, Brian Hilliard, chief economist at Societe Generale SA in London, says a fevered Australian housing market has started to cool with little damage done to the rest of the economy. ``This provides support for our view that the U.K. economy will be able to withstand the downturn in the housing market, currently in progress, with a fair degree of resilience,'' he wrote in a report last month.
So why might it be different this time?
There are two reasons for thinking a decline in the value of real estate might spill into share prices.
First, the British economy has become heavily dependent on the property market as an engine of growth. That's because soaring house prices make people feel richer, so they spend more. And at least some people take advantage of the rising value of their houses by remortgaging and spending the extra money. A housing slump would suck that demand out of the economy, hurting the stock market.
Banking Shares
Next, financial services have grown in importance in the British economy. Banking accounted for just 5.3 percent of the U.K. market at the previous peak in the property cycle in 1988, according to HSBC. That compares with almost 20 percent now. Of the 10 biggest companies in the FTSE 100 index, five are banks.
Those banks may not be stuck with many bad loans as the property market declines -- most lending has been relatively conservative. Yet as mortgage sales slow, banks will be hurt. And consumers may well be reluctant to take out fresh loans as the value of their houses crumbles.
More widely, retailing and leisure stocks, which make up another big chunk of the U.K. equity market, would slump if consumer spending slows.
History might suggest the equity market will survive the real- estate slump unscathed. So might international comparisons. Don't be fooled. The U.K. stock market is about to enter territory for which there are no maps.
It will be different this time around.
To contact the writer of this column:
Matthew Lynn in London at matthewlynn@bloomberg.net.
Billbuild>Bloomberg is kind of a corporate shill IMO.
To suggest someone is generally a shill for corporations is to suggest that all corporations have a vested interest in the same outcomes. Perhaps it might be reasonable to suggest that institutional fixed income traders and institutional equities traders have preferences for contradictory outcomes such that it is difficult to pander to all sides of the capital markets.
Billbuild>So this is an odd piece. I'd say they are being nice and letting some of the herd escape.
So, might you be suggesting that generalizations are sometimes imprecise?
i.e. my own generalizations about quality differences between old and new houses might be a demonstration of imprecision ;-)
To suggest someone is generally a shill for corporations is to suggest that all corporations have a vested interest in the same outcomes. Perhaps it might be reasonable to suggest that institutional fixed income traders and institutional equities traders have preferences for contradictory outcomes such that it is difficult to pander to all sides of the capital markets.
Billbuild>So this is an odd piece. I'd say they are being nice and letting some of the herd escape.
So, might you be suggesting that generalizations are sometimes imprecise?
i.e. my own generalizations about quality differences between old and new houses might be a demonstration of imprecision ;-)
KC, off course you're right. It is all opinion here. I usually try to put in "IMO".
What you probably haven't heard is some of the building trade talk in suppliers shops etc. No offense to you at all, the standard old joke in the trades is "they don't build them like they used to, thank goodness". It is hard to restore. You often can't use old material for code or scarcity reasons.
An old well-built home can be saved and restored. It is more a labor of love than profit. I'm all for it if one has the money. I think of it like a hobby and respect those who restore.
I don't like building inspectors always poking in and making things harder. But, they do increase the structural and safety aspects of new homes. They have nothing to do with style and taste. That is outside their pervue.
I love the old home styles. I do a lot of infill building and always try to match or come close to the existing style with a tear down and rebuild. I'm proud when I can make the house look "old" and live new with all the upgrades we have now. I don't want it to look like a flying saucer landed in an old Tudor neighborhood.
Just for fun: look at any home and imagine the roof being gone. Then put on whatever roof style (pitch) you like. You'll find that many home styles rely on the roof to establish the skeletal styling. An ugly flat roofed house could look great with a new pitched roof of some kind. Rough cost about $18-$25K. You can leave the old roof on and just cut off the eves and slide new trusses into cutout spaces.
Cheers
What you probably haven't heard is some of the building trade talk in suppliers shops etc. No offense to you at all, the standard old joke in the trades is "they don't build them like they used to, thank goodness". It is hard to restore. You often can't use old material for code or scarcity reasons.
An old well-built home can be saved and restored. It is more a labor of love than profit. I'm all for it if one has the money. I think of it like a hobby and respect those who restore.
I don't like building inspectors always poking in and making things harder. But, they do increase the structural and safety aspects of new homes. They have nothing to do with style and taste. That is outside their pervue.
I love the old home styles. I do a lot of infill building and always try to match or come close to the existing style with a tear down and rebuild. I'm proud when I can make the house look "old" and live new with all the upgrades we have now. I don't want it to look like a flying saucer landed in an old Tudor neighborhood.
Just for fun: look at any home and imagine the roof being gone. Then put on whatever roof style (pitch) you like. You'll find that many home styles rely on the roof to establish the skeletal styling. An ugly flat roofed house could look great with a new pitched roof of some kind. Rough cost about $18-$25K. You can leave the old roof on and just cut off the eves and slide new trusses into cutout spaces.
Cheers
Ok people...this deal takes the cake. You have heard all those radio spots pitching "no-payments, no-principal" real estate loans, etc.
This one does it one better...check out these payments, as low as $25 bucks a month for a $1 Million loan!
https://www.rockfinancial.com/lpweb...der/rck/content_rb1/315.en.html?RCKhptxt=0034
The bubble lives!
This one does it one better...check out these payments, as low as $25 bucks a month for a $1 Million loan!
https://www.rockfinancial.com/lpweb...der/rck/content_rb1/315.en.html?RCKhptxt=0034
The bubble lives!
Quote from onewaypockets:
Ok people...this deal takes the cake. You have heard all those radio spots pitching "no-payments, no-principal" real estate loans, etc.
This one does it one better...check out these payments, as low as $25 bucks a month for a $1 Million loan!
https://www.rockfinancial.com/lpweb...der/rck/content_rb1/315.en.html?RCKhptxt=0034
The bubble lives!
Wow. Makes me wonder where Japan's mortgage rates have been all these years. They must be enjoying 0% mortgages ...
Summarizing your excellent post:Quote from Billbuild:
Oh boy KC, just read your whole post on older homes. Did you ever here of the catalogue home of about 100 yrs ago? Sears did a lot of them. One could buy the whole package real cheap and slap it up. So many looked alike because they were. Out of the same catalogues. Not as many left now. Didn't stand that long or look very good. ...
SURVIVOR BIAS.