Monday, April 18, 2005

Fed Gov.: Housing Prices May Be Reaching Peak

CBS MarketWatch covered Fed Gov. Susan Schmidt Bies, and she made a rare comment about the housing market. "Although 'we are beginning to see signs that housing prices may be reaching a peak in some markets,' Bies expressed no concern that housing prices are set to decline."

If she sees a "peak", what follows that? "'Although pockets of financial stress exist among households, the sector as a whole appears to be in good shape,' Bies said."

19 Comments:

At 7:00 PM, Blogger John Law said...

well at least she didn't say prices would level off.

 
At 7:07 PM, Blogger Ben Jones said...

john,
Thats what stuck me as odd. They have a lot of data. Maybe they see something we aren't privy to?

 
At 7:33 PM, Anonymous Anonymous said...

Sounds like true to form "Fedspeak"!!

 
At 7:37 PM, Anonymous Anonymous said...

Report on Business TV had 2 housing people on today. One was from the builders association and the other was from the broker association. Both were bullish, but the broker guy was much more so, saying that the current housing problem was caused by a lack of supply. The builder guy said that things were slowing down, but that the market probably wouldn't collapse.

I don't believe either one of them.

 
At 7:46 PM, Anonymous Anonymous said...

The feds dont seem to concerned that alot of the appreciation is
based on mortgage fraud,appraisal fraud and unethical sales tactics by homebuilders,abnormally low interest rates, and rampant speculation.It just blows me away.
They have created a monster and wont take any responsibility.
Housing typically goes up 5% a year,now we are having up to 10 years worth of appreciation in 1 year in some places!The feds see no big deal?They see No bubble?
Just maybe some pockets.One could throw a dart and the craze is almost everywhere.The pockets are the pockets that are not bubbles!

 
At 8:42 PM, Blogger Ben Jones said...

(The feds dont seem to concerned that alot of the appreciation is
based on mortgage fraud,appraisal fraud and unethical sales tactics by homebuilders,abnormally low interest rates, and rampant speculation.)

Ain't that the truth. When I first started digging into the subject, I realized the feds know this situation and you never hear them mention it. The experts say it's "unknowable" how many homes are falsly appraised but I bet its a huge number, like 20% in some areas.
They see it, but for whatever reason, they are silent.

Your right about it being everywhere. That's because the underlying problem is a credit bubble. South Africa, Australia, UK, China, Pakistan and all over N. America. When you hear the statement that housing is a local market, that's true. But the bubble is worldwide, in many local markets. Thx.

 
At 9:11 PM, Anonymous Anonymous said...

During the tech bubble, it was a lot more plausible to accept that things really might be on the edge of a new era. We could cite record productivity, major advances such as the Internet, cell phones, PDA, Moore's law, etc. which improved all of our lives. The valuation arguments nearly held water if you looked out a few years, and I personally don't blame anyone for not seeing the bubble until it burst.

But a house, for heaven's sake, is just shelter. There is no major difference in a new house or a 20 year old house, or even a well maintained 150 year old house. They are still put together on-site using the most inefficient manufacturing techniques I have ever seen. Do you know of any other product assembled utilizing manual labor to place each and every tiny component in place from the studs to the tiles? No robotics, no pre-fabricated pieces, nothing that would make us proud of our manufacturing prowess. (Can you imagine how much home prices would fall if one of the geniuses at Toll or Pulte invented a home construction robot that would precisely build a luxury home on the spot with only delivery trucks driving up?) Houses are only valuable in their ability to provide shelter and thus the simple metric of rental cost vs ownership cost provides an adequate assessment of value. Unlike high P/E ratios in stocks, which can be justified based on future advancements in the companies, the house will NEVER do anything more than provide shelter, and thus the rent vs. own comparison provides a very reliable measure of whether an economic distortion is present. I really think the Fed governors are all sticking to the "no bubble" line, because the alternative would at this point be unthinkable.

 
At 9:32 PM, Anonymous Anonymous said...

I think the Fed is denying the bubble precisely because they know there is one, and they don't want to be blamed when it bursts for causing it to burst by using naughty words like "bubble". As Krugman puts it, central bankers who speak the truth always get into trouble, and so they learn to be hypocrites, which is fine, unless they start to believe their own lies. Given that the Fed currently IS raising interest rates, I don't think we've reached the last stage, however.

 
At 9:34 PM, Anonymous John Vosilla said...

"During the tech bubble, it was a lot more plausible to accept that things really might be on the edge of a new era."

Notice no one talks about the 'new economy' anymore. Now it's all about the 'new ownership society' and participating in the housing boom. The odds are very high JDS Uniphase and Lucent outperform housing in urban coastal blue bubble markets by a mile this next cycle.

 
At 9:55 PM, Anonymous Anonymous said...

"I really think the Fed governors are all sticking to the "no bubble" line, because the alternative would at this point be unthinkable."

Excellent post Anon - my favorite today. Toll Bros. would probably RAISE prices if they could build a house with a robot. They LOVE to raise prices and they would probably come up with some lame marketing reason as to why a house built by a robot was better and should cost more. :-)

 
At 9:55 PM, Anonymous Anonymous said...

Who is right ?
Warren Buffett charges the States is headed for a massive dollar crisis caused by a trade deficit.
Alan Greenspan, counters the economy is headed for a soft landing and the debt owed to foreign investors and savers is no big deal.

One of these guys is wrong.
who should I put my money on ?

 
At 10:01 PM, Anonymous Anonymous said...

Put your money Buffett. Nobody ever went broke betting on the Oracle from Omaha. It's hard to imagine someone with a better track record over the last 40+ years.

Besides AG has already been wrong calling many pivotal events. The whole "irrational exhuberance" in '96 doesn't count as a sufficient warning of anything, especially in light of the Fed's bubble-inflating monetary policies at the time.

 
At 10:06 PM, Blogger John Law said...

the last time greenspan made sense was in 1966.

Gold and Economic Freedom
by Alan Greenspan
(1966)

 
At 10:19 PM, Anonymous studentofparabolas said...

So the Fed says we might be at a peak in some markets. No problemo, they say. Guess we'll just sit at the peak for a few years and then skyrocket even higher.

Yeah, that's how parabolic moves work. Pitiful.

 
At 10:29 PM, Blogger John Law said...

parabolic moves are disastrous. so disastrous even I can't bring myself to believe a housing crash of that magnitude could happen. bubbles always go below where they started...let's hope it start in the late 90s!

 
At 10:52 PM, Anonymous Anonymous said...

I'll talk about the "New Economy".

What I see is a bunch of tech stocks STILL overpriced ! What exactly does Intel do to earn its multiple ? As far as I can tell, AMD is the technology leader or at least co leader, not Intel.

Is google really worth its multiple ? When will Amazon really make the money to earn its ? It has been 5+ years and it is still trying to become really profitable.

Truthfully, what I saw on Friday was investors losing their faith (once again) in tech stocks.

The thing I really don't understand is this: our country has no oil, but needs lots of it and has lots of technology and doesn't need it. Which sector *should* have the 25x earnings and which one has the 12x earnings ?

I think it is time America stopped thinking about yesterday's stocks and got with the program. Oil is where it is at these days. Given how many SUVs we drive, it is surprising it hasn't happened sooner.

 
At 11:05 PM, Anonymous Anonymous said...

What do poeple do when they are in financial squeeze ? They tell "untruths". Yes everybody knows it is a BIG FAT LIE. And yes even and particularly people at Fed, like politicians, are really good at it. World economy presently is based on a big far lie that everything is just going great.

 
At 3:31 AM, Anonymous Anonymous said...

From the April 19th Hartford (CT)Courant
Sales of single-family homes in Greater Hartford slowed for the second month in a row in March, but prices continued to head higher at a double-digit clip.

Fewer sales reflect the typically slower winter home-buying season, but real estate experts also said Greater Hartford had an exceptionally robust sales year in 2004. Closed sales rose 4.5 percent last year, compared with 2003.

"We can't expect 2005 to be as strong," said Jeff Arakelian, chief executive of the Greater Hartford Association of Realtors.

In March, closed sales of existing homes in the 57-town Hartford area fell by 6.7 percent, to 790, from 847 for the same month a year earlier, according to the association.

Deposits slid by 11.3 percent, to 1,123, from 1,266 a year earlier. And new listings declined by 8.5 percent, to 1,550, from 1,694.

Despite the slowing, sales prices in March jumped again. The average sales price rose 12.3 percent, to $280,841, from $250,040 for the same month a year earlier.

The association's statistics include most existing-home sales, but some for-sale-by-owner transactions are not included.

Economists said the figures may point to a market that is coming off a peak reached last year. But they still expect the buying and selling of single-family homes to remain healthy this year.

"Even though it has slowed down, it hasn't slowed enough to give us concern about the market," said Ronald F. Van Winkle, a West Hartford economist.

The inventory of homes on the market, particularly ones in good condition and in desirable locations, remains tight. Competition for those properties is contributing to the increases in sales prices, Van Winkle said.

A slowdown in the area's housing market from the frenzied pace of the past four years has been expected, however.

Mortgage rates have started to rise, though in the past two weeks the average for the 30-year, fixed-rate home loan has dipped below 6 percent.

As rates rise, buying a home becomes less affordable for an increasing number of consumers. And although rates are higher, they are still low by historical standards.

But Van Winkle said other price increases are taking a bigger bite out of consumers' wallets at the same time, including the rising cost of gasoline.

Combined with higher mortgage rates, bigger gas bills could cool the appetites of potential home buyers, Van Winkle said.

Experts said last week's stock market plunge provided clear indication that investors believe higher gas prices are curbing consumer spending.

 
At 8:09 AM, Anonymous Melissa said...

They are still put together on-site using the most inefficient manufacturing techniques I have ever seen

Actually, check this out:

http://www.washingtonpost.com/wp-dyn/articles/A55765-2004Dec10.html

The day is blustery, but at a new-home subdivision in Chantilly, no subcontractor for Pulte Homes Inc. is steeling himself against the wind trying to drive nails into wood studs. No one is pouring concrete for the foundation in bad weather, either.

Instead, a few miles away, a huge gray bridge is gliding overhead in a climate-controlled factory driving screws, cutting holes and marking wall partitions. Cutting machines are slicing wall panels into the shapes needed to go into the houses. Rather than wielding tools, workers are peering at computer screens for their next instruction.

 

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