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August 27, 2006

Today's Housing Bubble Post - HARD Landing

-- by Dave Johnson

All of a sudden, lots of bad news. Except that some of us have been talking about what's coming for some time now. The signs were all there.

How much of the seeming prosperity of recent years was based on borrowed money? People were refinancing their houses as prices rose, and using the money to buy SUVs, etc. But now we have the opposite situation - these people now owe that money yet prices are falling. And with prices falling few new people will be refinancing. Meanwhile the government has borrowed massive amounts of money and pumped it into the economy - something usually done only to get us out of downturns - so if there is a downturn they won't be able to borrow money to pump into the economy. Bush has used up that trick during the good times when we should have been paying off debt. (Clinton paid off debt, which is what allowed Bush to borrow so much...)

Here are a few of today's stories:

How a Housing Slowdown Will Cause a Recession

The news has been universally bad: inventories are rising to 10-year high levels, buyers are already saddled with massive amounts of debt, homebuilders are cutting profit projections and overall investment is negative. And here is more from Nouriel Roubini: housing is already in free fall and will cause a recession by the summer of 2007.

Housing Ponders a Hard Landing,

...last week was one big series of uh-ohs.

[. . .]So where is the market headed? Nobody can be certain; much depends on whether the number of unsold homes continues to rise. Last week, doom-and-gloomers, emboldened by the new data, were citing reasons to believe that the latest bulge in inventories is just a taste of things to come. Plenty of new homes remain under construction. Speculators who haven't yet unloaded their properties will do so for fear that things will get even worse. And then there are the hordes of recent buyers who, having assumed adjustable-rate mortgages that are becoming increasingly unaffordable as interest rates rise, may be forced to sell.

Housing Numbers Dampen Investors’ Outlook,
Stocks declined last week as investors worried that rising energy costs and a slowdown in the housing market could send the economy into a slump.
And the theme is sinking in around the country -- Heartland Housing Market in Buyers Favor,
It can be a nightmare...as you wait and wait and wait for that house to sell. The bad news, it seems the housing boom is over.

Posted by Dave Johnson at August 27, 2006 12:17 PM

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Comments

My grandfather, who started out with a push cart selling veggies when he first got to America and worked up to a tiny grocery store, got rich during the depression by buying up foreclosed property during the depression. Misfortune for many can be an opportunity for some.

Note what party was in office when the Great Depression started, by the way. They don't seem to have learned much from the experience, and neither did those who keep voting them back into office.

Posted by: MJ [TypeKey Profile Page] at August 27, 2006 1:31 PM

"They don't seem to have learned much from the experience, and neither did those who keep voting them back into office."

To the contrary, I think a lot has been learned by those in power and those who put them there. But money was more of an impetus for that, not votes.
Profits are soaring, there are no hard lessons being dispensed on the higher levels, they're all having a field day.

They've tamed the vote, and if that's ever in question, the opposing candidate we're then given as the "Democratic" choice will serve them just as well.

And even though I share your view of opportunity in times that look dark, I see many different things going wrong on many different levels, and times could get darker than we'd like to think. The Great Depression might've been Great, but the next one could be Not So Great, and that could be worse than just Depressing.

But shit! The sun came out today in the Rocky Mountains, after months of cloudy skies. It's a good day to die.

Posted by: The Cosmic Fluke [TypeKey Profile Page] at August 28, 2006 9:14 AM

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