Wednesday, May 11, 2005

RE Boom Takes Over The Economy

Ms. DiMartino at Dallas News has article that reaches some questionable conclusions. "The Bank Credit Analyst research firm published three statistics on the housing industry this week that show how heavily the economy is leaning on the housing market."

"•Real estate lending represents a record 53 percent of bank loans.
•Housing accounts for a record 29 percent of household assets.
•Residential real estate has captured 35 percent of private investment, the highest in 35 years."

"This recovery's been driven by asset appreciation, which draws its sustainability into question. To feed the machine, lenders have all but dismissed any pretense of lending standards. This has introduced unprecedented credit risk into the financial system."

"Of course, the Fed is doing all it can to prevent this 'accident' from happening." I can't agree with that. How about all the liquidity injected into the system? Funds rates aren't all the Fed does. And could the ridiculous lending go on without Fed approval, and are generations of lending standards abandoned just by accident?

"'The Fed is uncomfortable about the housing boom,' the report said, 'but it has a tiger by the tail because the fallout will be severe when the bubble bursts.'"

10 Comments:

At 9:02 AM, Anonymous Anonymous said...

Putting Pressure On China's Peg

http://www.washingtonpost.com/wp-dyn/content/article/2005/05/10/AR2005051001460.html

I can foresee china changing its yen which will result in china buying less U.S. Treasury bonds which will result in higher interest’s rates.

Be prepared!

Even Greenspan and member of congress wants china to change its currancy but be careful of what you wish for ...

 
At 9:04 AM, Anonymous economagician said...

And this overinvestment in real estate is killing the stock market. That's why I think the worm will turn. The Fed (and other corp leaders) know that it's a big net negative to have so much of our investment $$ going into unproductive, consumption-based assets. They are going to try and break the back of the housing bubble one way or another this year so that we can get asset allocation away from housing and back into more productive pursuits.

 
At 9:08 AM, Anonymous economagician said...

Today's trade deficit figures---while only one month data---show a decent-sized decline. If this becomes a trend, watch out for its' effect on housing.

Housing prices have moved up in lockstep with growing trade deficits. The bigger the deficit, the more dollars that China/Japan/etc have to plow back into Treasuries and MBS. If the deficit shrinks---though some will say it's a positive---it will have a very negative impact on US interest rates and mortgage liquidity because our trade partners will be buying fewer of our dollar-denominated assets.

 
At 9:15 AM, Anonymous Justin said...

Reminds me of Robert Blumen's Essay

http://www.lewrockwell.com/orig3/blumen4.html

 
At 10:05 AM, Blogger deb said...

Precter (or someone there) had an essay about the trade deficit, that it actually rises during boom times as consumers spend like wild. They said the downturn will be at hand when we see the trade deficit narrow. There was a graph showing that their is actually a positive correlation between groth in the trade deficit and economic growth, not negative, as most of us are led to believe. Wish I had more details on the essay. It was very interesting.

 
At 11:03 AM, Anonymous Anonymous said...

Just a comment a bit off topic...I thought of something after reading Justin's link. My generation (I'm 28) doesn't understand the whole idea of debt because the idea that credit is good or OK was presented to us at an early age (as opposed to our parents - the boomers) and the idea has stayed with us. Most laws in CA have made it OK for people to get into debt and then stay there like everyone is doing it so it's fine. There are no consequences as of yet. I think my generation as first time buyers are in for a rude awakening. It seems like if you don't learn from the past, it'll eventually catch up. It happens every generation! It's all psychological.

 
At 12:21 PM, Anonymous Anonymous said...

I don't know. As sane as I am, I sometimes think I'm the stupid one for not getting in to debt. Instead of coming up with creative ways to save money, I sometimes think I should have been figuring out clever ways to use credit. Those creative credit users seem to be a lot better off than me at this point. Depressing. It seems like they never will have to face the music.

 
At 5:41 PM, Anonymous Anonymous said...

Even more depressing and scarier to me is that not only will those credit cowboys never personally face the music, but when things finally shake out, it will be the fiscally responsible that end up paying the piper!

--Larry

 
At 11:59 PM, Anonymous Anonymous said...

this is getting to Charles Mckay type standards, fit for a book..."keep your head while everyone else is losing theirs"

 
At 6:54 AM, Anonymous Anonymous said...

To both of the last Anons,

Oh, those credit cowboys will pay a price... they always do... and they will find out the hard way that there's no such thing as a Free Lunch...

 

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