Tuesday, May 24, 2005

Speculators In Charge Of This Bubble

There isn't a lot of celebrating at the NAR this morning, or even much discussion in the media of their existing home sales report. For months their economists have predicted sales and prices to 'level off'. Nothing of the sort in April 2005. "Existing-home sales hit a record high in April, defying expectations of a modest slowing trend in 2005, according to the National Association of Realtors."

"David Lereah, NAR’s chief economist, said sales had been expected to hold at high levels. 'A new record is a bit unexpected.'"

How's this for a parabolic move. "The national median existing-home price for all housing types was $206,000 in April, up 15.1 percent from April 2004 when the median price was $179,000. The last time prices rose at a stronger pace was in November 1980 when the median price rose 15.6 percent."

A double digit gain on top of the biggest gains ever, but no 'B' words in their report. They slipped this in at the bottom of the page. "The median existing-home price in the West was $305,000, up 21.0 percent from the same month a year ago."

Does this look like a plateau or a cooling market? Alan Greenspan said recently that only those who bought at the top would get hurt, financially. It looks like there will be many millions of those. And as for the recent warning about risk in lending, there isn't any shortage of that either.

22 Comments:

At 8:04 AM, Anonymous Anonymous said...

60% of new buyers in CA are using IO's for their purchases and the NAR has nothing to say about that. This bubble will continue until the lending environment changes. When that happens nobody knows.

 
At 8:14 AM, Anonymous Anonymous said...

Ben,

You're totally right... the speculators are in charge of this bubble... remember, everyone, this is the first year that condo sales and prices are being included into these EHS numbers... i live in the northeast(NY/NJ area) and i can tell you that there's no way that home prices have gone up 15% compared to last april... in the condo market they apparently have but not in the single family home market... they're flat to 5-10% down... best of luck to everyone!!!

 
At 8:23 AM, Anonymous Anonymous said...

"This bubble will continue until the lending environment changes. When that happens nobody knows."

Exactly my thoughts too. As long as people can get money they will spend it foolishly. As far as I can see, the Fed will keep supplying money at low interest rates and the banks will keep giving it out until we are on the brink of a collapse. Nobody can see anything wrong, nobody will admit we have a bubble and thus we are heading for disaster.

What a terrible reflection on the leadership of our country.

 
At 8:34 AM, Anonymous Anonymous said...

8:04AM & 8:24AM,

You are completely right... this bubble is going to continue to inflate as long as there's easy money out there... lax lending standards are going to drive this into a total disaster... man...i hope greenspan wakes up soon and does something about this real soon... i don't know if our economy will really be able to stand the massive collapse that will happen if he waits until next year... this is really terrible...

 
At 8:51 AM, Anonymous Anonymous said...

""i hope greenspan wakes up soon and does something about this real soon...""


no way. his eyes are wide open and leading the way...all the way off the CLIFF.

lol.

 
At 9:21 AM, Anonymous jibberjabber said...

(Does this look like a plateau or a cooling market? Alan Greenspan said recently that only those who bought at the top would get hurt, financially. It looks like there will be many millions of those.)

I live in Calif's wealthiest county, Marin. The median home price in my town is over $1M. Yet I read today that 70% of buyers in Marin are using interest-only this year. If the wealthiest are resorting to loans that build no equity in order to "afford" homes, what does that portend for the rest of the market?

 
At 9:29 AM, Anonymous punchbowl said...

I am of two minds. The more rational side of me sees the incredible harm that will be done to our economy as a result of the forthcoming housing bust -- and therefore the more rational side is alarmed and disgusted that the bubble continues to expand. The more emotional side of me, however, wants the bubble to expand as much as physically possible: envelop every fool and get them all in variable-rate, neg-ams. I'm not sure which side of me is winning out at the moment -- only that I great this news with both disgust and titillation...

 
At 9:36 AM, Anonymous Anonymous said...

This is actually getting terrifying.

What will happen if prices and sales keep increasing each month, 15%, 20%, while the experts stand around puzzled? The mother of all bubbles keeps growing, the evidence keeps mounting, but nobody buying seems to have noticed.

What does it take to stop this thing?

I'm reminded of that Monty Python sketch, the obese man who's offered a wafer-thin mint after an enourmous meal. He eats the mint and his stomach violently explodes.

"Thank you, sir, and now, here's ze check."

 
At 9:45 AM, Anonymous Anonymous said...

I'm essentially trapped by the housing market. Of course it would be nice to own and have somekind of tax shelter and yada yada yada. But when I look out there for my price range in LV I see nothing but dumps and conversions. So my choice as a first time single home buyer who makes fairly decent money is rent a nice top of the line apt or buy a crappy 1970 townhouse in a lousy part of town. Or buy a condo conversion that hey, no matter how you look at it apartment is an apartment. Apartments are built to different code than condos and I'm not gonna be fooled by granite countertops. Ok, I'll buy your conversion for 50,000 not 150,000. I also refuse to engage in exotic loan packages like I/O and ARMs. Somebody has got to fight it. This is gotten ridiculous and guess I'll try and ride it out and hope for the best. Had to vent.

 
At 9:49 AM, Blogger deb said...

"I'm reminded of that Monty Python sketch, the obese man who's offered a wafer-thin mint after an enourmous meal. He eats the mint and his stomach violently explodes"

Very visual analogy!

The fact that buyers are willing to sign up to mortgage their future away, with now practically every expert acknowleging "the bubble", astounds me more each day. Do these people ever pick up a paper? Maybe just the Nat'l Enquirer.

 
At 9:50 AM, Anonymous Anonymous said...

Re: Greenspan- he has been working on this for 30 years. His doctoral thesis was on interest rates and house prices. I will find and link ASAP.

 
At 9:51 AM, Anonymous Anonymous said...

"What does it take to stop this thing?"

well, a 1/2% increase in the Fed Funds rate, instead of the expected 1/4%, at the next meeting might be a start..

with all the comments of concern about lending standards and real estate prices out of Alan's, and other's, mouths lately makes me think this could happen

 
At 10:20 AM, Anonymous boulderbo said...

"What does it take to stop this thing?"

alan and the powers that be are pressuring short term rates, agreed that a 1/2 would shake things up. then let's pressure the chinese to revalue the yuan and put some upward movement on the bond. mix in a little legislation to curb reckless lending and i think your be able to effect a soft landing for the market. prices will stabalize and remain at their current levels until income catches up with pricing, which by my estimates would be around 2031. yikes.

 
At 10:21 AM, Anonymous Pete said...

What will stop this thing? These 4 non-negotiable requirements for mortgage lending:

1. 20% down, NO EXCEPTIONS!
2. Debt to income ratio for PITI 25% MAXIMUM!
3. Income verification required, NO EXCEPTIONS!
4. NO neg. amorts, NO I/O's, NO ARM's. Fixed rate, fully amortizing loans only.

End of bubble faster than you could blink.

Pete in SD

 
At 10:26 AM, Anonymous Anonymous said...

"well, a 1/2% increase in the Fed Funds rate, instead of the expected 1/4%, at the next meeting might be a start.."

Nope. That won't do it. Mortgage rates are down in spite of the last 2 rate hikes. Everytime greenspan hikes rates investors sell off stocks and go into bonds and other fixed income investments like MBSs.

I don't know what is going to stop this train from running off the cliff.

 
At 10:37 AM, Blogger deb said...

10:26 anon,

ARMs are tied to short term rate. Doesn't matter what bonds do.

**************

("i think your be able to effect a soft landing for the market. prices will stabalize and remain at their current levels until income catches up with pricing, which by my estimates would be around 2031")

And the speculators will hold onto their neg cash flow ARM IO properties why? and how?

Not to mention the end of the cash out, equity line spending binge that has kept our economy moving. That alone would cause a severe recession.

 
At 10:50 AM, Anonymous boulderbo said...

deb,

i was being a little sarcastic, i have never seen a real estate market level off; they go far too high and reverse their course just as dramatically. this one is on nitro fuel in my opinion.

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

15% *nationwide* appreciation, huh? Gee, I guess that destroys the "no national bubble" theory!

"David Lereah, NAR’s chief economist, said sales had been expected to hold at high levels. 'A new record is a bit unexpected.'"

I'm going to go out on a limb here and say this bubble will not stop until the pimps themselves are wringing their hands and calling it unsustainable.

 
At 4:12 PM, Anonymous Anonymous said...

it'll run up for a few more years coz I'm not bying. I only need to buy it, then it'll tank I'm sure.
I donno who can still afford it, they must be printing money, oh wait they just oil the machine that Greenspan uses for printing :)
while carefully hinding an actual inflation picture, one thing I don't get is why housing is not in a CPI. don't I need a lot more money to buy now then only 3 years ago?

 
At 9:36 AM, Anonymous Anonymous said...

all I can say, is that I hope everyone on this blog is right. I've been sitting on the sidelines for 3 years now, declaring bubble, bubble, bubble. Recently, I said screw this, I cant wait anylonger - but the house I purchased fell through due to a title issue. I'm taking this as a sign from a higher power, and once again, plan to sit on the sidelines and watch this bubble burst.

 
At 9:17 PM, Anonymous Anonymous said...

How about the little thing called OIL. Let's say a year from now the price of the black gold reaches 80 $. How about a nice conflict between USA and Iran. These are the types of things that will explode the bubble real quick. Or hey another nice surprise by Ben Laden or really nasty situation in Irak. Or China dumping the 711$ BILLION dollars it has as reserves or the revaluation of the chineese Yuan. The truth is that the bubble that this jerk called Greenspan created with his buddies bankers, will destroy the independance of USA and in the process alson destroy the middle class. The bubble has already contributed doing that. George W. Bush is one of the worst president of US History. I do not envy the person that will replace this corrupt and bankrupted administration.

 
At 9:14 AM, Blogger Voltaire said...

No it's the BANKS the BANKS, these criminals that are doing the real vicious stuff. Bankers make me puke. They destroyed the US stock market and the NASDAQ. Theese irresponsible crooks but mostly greedy pigs will destroys the real estate sector for many years to come. Want to bet ? No. Don't even try a bet. I know that I am wright.

 

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