August 28, 2006
-- by Dave Johnson
When the air is expanding inside a speculative balloon, stretching the film of credibility that contains it to an ever-more improbable thinness, you can always find someone to explain why this time it’s different — why technological/demographic/astrological factors justify valuations today that have always proved historically unsupportable.So what might happen next?
Until the bubble actually starts to deflate or burst, there’s just enough doubt about whether prices really will revert to their historical mean to keep us all guessing. Even the most convinced sceptic can never say with any certainty when a bubble will collapse, and so the science of identifying bubbles is an inherently retrospective activity.
But it looks now as though we can say with some confidence that the long American housing bubble is over.
In previous periods of weakness in property markets there have been huge institutional collapses. The savings and loans debacle of the early 1990s is the most recent example. Today, again thanks to increased financial efficiency, the risk of such a massacre seems smaller. The securitisation of the nation’s mortgage market has spread the geographical and sectoral risks to the broader economy.And another from the UK, through Taiwan, US housing slump feeds fears of crash,
But there will still be many financial institutions with significantly impaired balance sheets as the value of their mortgage-backed securities declines sharply over the next year. All in all, even on the most optimistic assumptions, post-bubble conditions in the housing market would be highly uncomfortable for America and could seriously sap demand in the world.
The downturn in the US housing market will force businesses to slash 73,000 jobs a month in the new year and could be more damaging to the world economy than the dotcom crash, economists have warned.From Canada, Downturn leads to higher risk of U.S. recession,
After official figures last week showed that the number of new homes sold last month was 22 percent lower than a year earlier, while prices were almost flat, fears are mounting that the "orderly" housing slowdown predicted by the US Federal Reserve will become a full-blown crash.
"Things do seem to be getting worse very quickly. Freefall is a strong word, but I think it's the right one to use here," said Paul Ashworth, chief US economist at Capital Economics.
Mounting evidence of a slowdown in the U.S. housing market has led some forecasters to increase the chances that the world's largest economy will be limping into a recession next year.
"We have decided to raise the odds of a U.S. hard landing to 40 per cent from 25 per cent," National Bank Financial economists Clément Gignac and Stéfane Marion said in a note yesterday.
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They're even beginning to admit it out loud here in NYC. One of the bigger problems here is going to be that there has been so much wild and crazy speculative investment not in housing in general but only in luxury apartments, the kind that sell for from 3 million up for smallish places. Some famous person, I forget who, sold her place for a million less than asked; others are being taken off the market for now.
The opposite side of that coin is that the nearly unique New York City luxury real estate market (along with London and Paris) is global. As long as anybody, anywhere has the dough to plunk down on a "bargain" six-bedroom triplex overlooking CPW, NYC can avoid a crash. I imagine that San Francisco and LA may enjoy a little of the same thing with respect to the market for pieds-a-terre for megawealthy asians, but not nearly to the same extent as NYC.
Every thing has to equalize at some point.Get a grip.I've seen this happen at least a couple of times in my life time.If it isn't a sellers market, it is a buyers market.People have come to expect that they are going to make an inflated rate on their property, and if they sold at the right time they did.If it takes a little longer to sell now,and buy again,it should even out,I think.Well, we'll see but I do believe that there should be no surprises here and ultimately...ownership will still gain and not lose.Pay attention.Sellers just have to catch on, and they will.Because, if you sell, you are also going to buy something right after.A seller will have to take a bit of a hit but when he reinvests, he'll be sure that that seller takes a hit too.It will even out over a bit of time.If people are in for the short term it probably is a good mess to avoid.But over the long term, I've yet to see an investment in property be a bad investment.
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