Tuesday, May 03, 2005

Bubble Grows, Defies Experts

As all the experts predict home prices will level off, not burst, the facts continue to show a bubble expanding. "Freddie Mac said 64 percent of its loans that were refinanced in 2005's first quarter resulted in new mortgages with loan amounts at least 5 percent higher than the original mortgage balances."

"In comparison, in the fourth quarter of 2005, 56 percent of refinanced loans had higher new loan amounts. That quarter was the highest since the fourth quarter of 2000."

"The share of borrowers who decided to cash out some home equity as part of their refinancing increased as well, Nothaft said. This helped prop up consumer spending on home improvements."

14 Comments:

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

why do you people hate homeowners?

freddie mac and fannie mae exist to help citizens live the american dream- homeownership.

they also help minorities get into homes they otherwise would not be able to get a loan for from racist mainstream banks.

face it- you people are racists.

 
At 10:06 AM, Blogger deb said...

Can all the wonderful intellegent people that I have so enjoyed sharing thoughtful ideas with about the state of our economy, specifically housing, please not respond to these types (anon 10:01)? This blog is great because we all come with data and specifics to back up our views.

If a bull wants to bring some actual ideas to the table, that would be great!

 
At 10:22 AM, Anonymous Anonymous said...

10:01AM Anon - I love your extropolation that people who like economic theory, are placing their financial bets on something other than housing and choose to discuss the current RE boom are somehow racists.

Did you buy a house with 0 down? Do you have an ARM mortgage? If so, I can understand why you are worrying. Unless you have significant cash reserves (equal to 1/3 of your loan principal) you will probably lose your house to foreclosure if the Fed gets back to 6%.

I look forward to foreclosing on your house.

The Foreclosinator

 
At 10:27 AM, Anonymous MikeMo said...

Thought I'd share something, my father-in-law went to the the real estate cheerleading pom-pom expo in LA this weekend. I didn't have a chance to talk to him about it at length yet, but one thing he did tell me was that The Donald was asked about the housing bubble, and his answer was, "There is no bubble, the reason prices are high right now is because the cost of steel, concrete, and gasoline are so high, therefore driving up prices." Trump then ripped into Dubya for buddying up to the Saudis when they're the ones driving up the price of oil.

Granted, Trump was probably focusing on commercial more than residential real estate. Anyone care to comment on Trump's thesis?

 
At 10:41 AM, Blogger deb said...

Prices in my area are probably about triple what they were in '95. The percentage of that cost increase that can be attributed to the rising cost of materials has to be pretty small. The actual cost of materials makes up only a portion of the cost of the home anyway. I know the laborers around here are probably not getting much more per hour than they were 10 years ago.

No, materials costs cannot explain much at all.

I'd love to hear more about what went on at that cheerleading convention! Anybody?

 
At 10:43 AM, Blogger Ben Jones said...

Mike,
Thanks for the Trump info. It would be interesting to hear more from that seminar.

 
At 10:46 AM, Anonymous Anonymous said...

Foreclosinator:

Haven't you heard? If you aren't poor & brown, you're automatically racist.

Don't deny it!

mikemo:

I think The Economist had an essay claiming that nearly all increase in housing costs over the last 30 or 40 years in the U.S. was due to regulation, not parts or labor.

Of course, that was 'cost' not 'price,' --which as we know-- is going up because It Only Goes Up.

 
At 10:51 AM, Blogger SoldAtThePeak said...

Trump's comments are interesting... Does that mean that if the prices of those commodities were to drop then RE prices should come down, too? Some other bloggers think we're in a commodities bubble as well. I think he's just far off on this one because there is not a strong correlation between the replacement cost and current prices--it's the land that's been rising.

 
At 11:12 AM, Anonymous monk said...

I think we will see both commodities and home prices fall in tandem. It's called deflation.

We've just been through the mother of all "reflations". Everything went up, except the dollar. And one of the reasons everything went up is because the dollar went down. Oil, for example, didn't go up in euro or yen terms until recently. The powers-that-be in the US had to pump the economy full of money (via low interest rates and credit) to combat the falling dollar. SO you can look at the stock market since 2002 and see how much higher it is. But in constant dollar terms, it hasn't gone anywhere. It's all a big mirage.

Most of the "reflation" wound up in the consumer credit/mortgage markets---ergo, housing boom.

So now that the reflation is being unwound, we will likely see the credit binge retrench---ergo, housing bust.

This will remove the pressure on commodities too. So both commodities and homes deflate. Yet Trump blames housing price inflation on commodities. Nonsense. How will he explain it when both of them fall together?

 
At 11:33 AM, Blogger Melody said...

Senator George Allen (R-VA) may have gotten in a bit over his head, this morning, on Meet the Press. On private accounts, he suggested that Americans might have to sell their homes to survive in retirement. But, that would be a good thing, because they wouldn't have to trim hedges and cut grass, he noted.

All this "land flipping" is not only creating false equity people are borrowing against, but it is running up the property taxes as well, which is why government isn't intervening as the S&L industry heads towards another debacle.

 
At 11:39 AM, Anonymous Anonymous said...

Didn't Warren Buffett just make the point about how the rebuild cost of homes is so much lower than the market value? Clearly increasing raw material costs have only a minimal impact on the price of a home, and labor costs have been flat all through the boom. I find Trump's explanation hard to believe, although I enjoy his TV show.

 
At 12:02 PM, Anonymous Anonymous said...

Agree with deb - feeding the trolls only encourages them. Of course, for those of us who enjoy the occasional pigfight with our housing bubble, there's the f*ckedcompany bbs.

 
At 12:13 PM, Anonymous Anonymous said...

Just a thought -- maybe Trump just has the cause and the effect reversed. That is, the commodities are expensive because of the housing bubble.

It's similar to how computer industry salaries were high during the dotcom bubble. There were all these companies like Webvan and Pets.com and AllAdvantage.com competing for workers and bidding up prices in the labor market.

Now, the homebuilders are bidding up prices for steel and concrete and lumber and everything else that goes into building a house. Of course this isn't the only explanation (the Chinese government has been using up a lot of concrete lately) but it'll be interesting to see what happens in the commodity markets once the housing prices start coming back down.

 
At 10:45 AM, Blogger John Doe said...

Yes, but concrete is largely localized. It's not a commodity that is traded nationally that I know of like steel or lumber. This is because the cost of transportation would easily outweigh the cost of production locally.

 

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