Tuesday, June 13, 2006

THE POP HEARD 'ROUND THE WORLD

In yet another sign that the housing bubble is no longer growing, and has, in fact, probably burst, even A.P.'s "Business Writer" reports that "housing prices are drooping." When the mainstream media gets onto a story, my friends, it's time to stop looking for Chicken Little and realize the sky probably is falling.

I'm not even gonna go off on the goofy headline describing "drooping" prices, nor will I discuss the "low-ball bidders," "persnickety buyers," or cooling investments the article addresses. No. Instead, I'll note once again that this is a serious turning point for our economy. The housing bubble -- supported by the Fed through massive influxes of liquidity and low interest rates following 2000's tech bubble collapse and 2001's terror attacks -- supported the U.S. economy. It kept an investment vehicle alive for those who ran from the NASDAQ; it provided a conduit for much of the private, foreign money that entered the country; it supplied jobs; and perhaps most importantly, the "value" of all the new homes created a personal ATM for every man, woman & child.

Say what, you ask? A personal ATM? Well, as interest rates plummeted and housing appraisal values (and purchasing costs) went up, folks took out second mortgages and home equity loans. Even if they didn't, looking only at the supposed value of their homes, as opposed to any real assets, they certainly saw themselves are far wealthier than they were. Through either tactic, this excess cash seemed free . . . so long as the homes retained their value. Without even going into the manifold problems associated with this mania, such as ARMs, negative amortizing of equity with interest-only mortgages, and insane prices, there's a bigger problem: because much of the economic "growth" over the past few years was tied to housing, what on earth does that mean now that rates are going up, housing starts are dropping, and inventories are going up? What happens now that the industry that supported booming private sector employment and supplied the liquidity to pay for our consumer-driven economy dries up?

Trouble, that's what. This piece from Whiskey & Gunpowder gets further into some of the underlying factors, and also adds rhythm to the "Don't Believe The Hype" drum that I've banged here from time-to-time.

4 Comments:

Anonymous Barry said...

Nice 'nutshell' summary, Mike. Too many ATM's, not enough 'real value.' Interest rates going up and up and up. What a combo.

11:08 AM  
Blogger Mike said...

Some of the gang that gets foreclosed will be living in nutshells soon.

11:44 AM  
Anonymous monsieury said...

I was driving home early Sunday morning through Bakersfield
Listening to real estate ads on the christian radio station
And the realtor said, "You know you always have the
appreciation by your side"

And I was so pleased to be informed of this that I bought
Twenty houses in his honor
Thank you appreciation, thank you Lord!

I had an arrangement to meet a realtor, and I was kind of late
And I thought by the time I got there she'd sell off
To the nearest flipper she could find
Much to my surprise, there she was

Sittin' in the corner of her condo
A little bleary, worse for wear and tear
Was a realtor with far away lies

So if you're down on your luck
And you can't qualify
Find a realtor with far away lies

Well the realtor kept right on saying that all I had to do was send
Ten dollars to the church of the sacred no doc no down loan
Located somewhere in Los Angeles, California
And next week they'd buy my house for me
And all my dreams would come true
So I did, and the next week, I got a house, and a realtor
Well, you know what kind of lies she got

So if you're down on your luck
And life ain't worth a dime
Get a realtor with far away lies

12:01 AM  
Anonymous mr. xyz said...

I tell you a secret, this is going to be the biggest real estate crash in history, nay, the biggest economic crash in history. What we are looking at is the biggest real estate crash ever in the history of the world. Why ten years from now they'll be giving houses away to anyone who promises to live in them and pay the taxes and insurance. I have taken a look at some of these modern day "investors". Why a stiff breeze would knock them off their perch and there is a tsunami of epic proportions coming. Those who are in deep debt doo doo will be carried away by the flood and will end up in servitude for the rest of their lives, if they manage to stay out of prison for mortgage fraud this is. Save your money folks, don't tie yourself down too heavily to any location or onerous debt level that you cannot easily manage. Check the foreclosure numbers in 6 months, a year, two years, this thing is going to get ugly. Don't say you weren't warned. 'nuff said.

12:51 AM  

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