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278 comments on DrumBeat: July 26, 2007

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Donal on July 26, 2007 - 8:07am Permalink | Subthread | Comments top

“Home Prices Are Falling Like Almost Never Before”
By Dean Baker

... we are looking at a downward cascading price path. Increasing defaults lead to more desperation sales, which puts further downward pressure on prices. Further declines in prices, lead to more defaults. The soaring default rate also constricts mortgage loans as investors become less anxious to give away money for people to buy overpriced homes. When buyers have more difficulty getting mortgages, many get shut out of the market, which puts more downward pressure on prices.
... house prices have tracked inflation going to 1895. ... In the period from 1995 to 2006, house prices rose by more than 70 percent, after adjusting for inflation.

...

In short, there was no explanation for this sudden run-up in house sale prices based on fundamentals. ...

... 1995 was the beginning of the stock bubble, when prices really started to diverge from fundamentals in a big way. It is easy to tell a story of a housing bubble growing side by side with a stock bubble; we had just seen it in Japan in the 1980s.

... Alan Greenspan dismissed the idea ...

... we should be especially attentive towards efforts to rewrite history. It is common for people to now say that everyone recognized the stock bubble in the 90s. This is not true, which can be easily shown by reading what economists said at the time http://www.phil.frb.org/files/liv/livjun01.pdf
... The vast majority of the economics profession either missed the housing bubble altogether or dismissed its importance at the time. This should not be forgotten.

http://www.tpmcafe.com/blog/coffeehouse/2007/jul/25/home_prices_are_fall...

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Leanan on July 26, 2007 - 8:15am Permalink | Subthread | Parent | Comments top

CNN covered the housing market this morning. (It ended on a hopeful note, of course. They might lower interest rates this fall - great news for buyers and sellers!)

One thing they mentioned...a lot of local governments are setting up funds to help people in danger of foreclosure.

Which is what Wall St. Journal Reports predicted three years ago. They had an episode that was basically devoted to peak oil (though they didn't say it that way). Their talking heads predicted that high gas prices would cause the value of suburban real estate to plummet...and predicted the politicians would not be able to resist the pressure to provide mortgage bailouts.

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River on July 26, 2007 - 5:54pm Permalink | Subthread | Parent | Comments top

Leanan, great pic you posted of Florida. Thanks for all that you do.

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bruce from chicago on July 26, 2007 - 8:57am Permalink | Subthread | Parent | Comments top

I knew for certain the housing bubble was ready to pop when my dim neighbor told me he was thinking of buying investment property. When Joe Blow notices the latest investment scheme it's time to get out. Never fails.

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PigglyWiggly on July 26, 2007 - 1:19pm Permalink | Subthread | Parent | Comments top

Haha, this is so true, I overheard a checkout girl and bag boy (they were much younger than me so I am allowed to refer to them as a boy and girl) in a Safeway in early 2000 talking about their margin accounts. Freaked me out.

Anyway, who cares about all this peak oil stuff. I'm more concerned about peak gambling:

Electricity shortage threatens Macau gambling industry

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Leanan on July 26, 2007 - 9:20am Permalink | Subthread | Parent | Comments top

New home sales tumble 6.6% in June to 834,000 annual rate, well below forecasts, Reuters reports.

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Burgundy on July 26, 2007 - 4:02pm Permalink | Subthread | Parent | Comments top

Ireland was also a hot property market once. Seems like globalisation is a double edged sword. No doubt people will be calling for protection from it before long.

House prices plummet by up to €10,000 [$13800] every month
http://www.independent.ie/national-news/house-prices-plummet-by-up-to-eu...

THE value of average priced homes in some areas of the country is plummeting by €10,000 each month.

Estate agents last night confirmed that - despite recent concessions for first time buyers - there has been an alarming drop in house and apartment prices across the country over the past three months.

Experts say the drop is being fuelled by the growing number of homeowners who are selling their properties because they can no longer afford to meet mortgage repayments.

They are being forced to drop the price of their homes in a desperate bid to sell as nervous buyers continue to sit on the fence.

Triumvirate of collapse - Economy, Ecosystem, Energy

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Burgundy on July 26, 2007 - 4:44pm Permalink | Subthread | Parent | Comments top

The UK housing market is also now failing. A global housing bubble problem?

UK house prices 'stall' in July
http://news.bbc.co.uk/2/hi/business/6916823.stm

The sharp slowdown in July's house price numbers could show that potential homebuyers are thinking twice about overstretching themselves in a higher interest rate environment

Considering that the UK is more in debt per capita than the US, I'd imagine they're considering how massively overstreatched they already are.

The UK fails horribly on economic, ecosystem and energy... they're toast.

Triumvirate of collapse - Economy, Ecosystem, Energy

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ozkrenske on July 29, 2007 - 5:48am Permalink | Subthread | Parent | Comments top

"The UK fails horribly on economic, ecosystem and energy... they're toast."

I have to disagree a little here. The UK is getting more and more integrated with Europe at the economic level every year. And Europe while not exactly booming over the last 3-5 years has also been making much more effetive use of it's advances. More public transport, more alternative energy, Less debt (excluding Britain and Spain) at the personal level.

Also the UK has only just started importing Oil and Gas. The US can't say that they are still 90% domestic for their Oil but the UK can (mind you it will be dropping quicker). Cut off British oil imports and prices of petrol would spike causing a shift of travel to the public tansport infrastructure. Cut off US imports and people start to starve, no public transport to fall back on and people have to travel just to get to food (you could limit use to food distribution, and the military/emergency services, but people may still need to travel 10 mile round trips for food in desert climates).

I suspect no country will handle the situation well but I disagree with the UK failing horribly in the short to mid term (2-5 years).

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