Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
By 2006, housing was already slowing down, and by slowing down, I mean we built more housing cumulatively in the US in 2000 than in 2006, and are building much less now. It's interesting that this is still getting painted as a 'too much inventory' story in 2017 as housing prices have soared in most of the US and we have a total population 20 million people higher. Chart at the link.
BTW: as soon as the feds stopped underwriting jumbo rates, they fell, and are still barely above standard rates and in many states are lower. As an example, here's WellsFargo 4.375% 30 year fixed, 4.25% jumbo 30 year fixed. https://www.wellsfargo.com/mortgage/rates/
Depends on where you were. In that very good article you suggested, the graph does speak to housing permits falling off a cliff in 2006. But the timing of the drop off varies widely. For example, in that graph, Phoenix began plummeting in early 2006, while Atlanta didn't really go south until late that year. And Houston didn't fall off the map until well into 2007. In other words, construction continued unabated in Texas and the South. I would offer the theory that it's because it's cheaper to build in those regions, allowing home prices to remain the thresholds of the time.
I remember the timing as June, 2006, when the drop started happening. FHA had just put the kibosh on Jumbo loans that morning as I was driving to meet with the developer of a 5,000 unit development. I literally walk into a room with the developer and a dozen real estate agents, told them what happened, and they all gave me blank looks. "So?" was what one woman asked.
When I discussed the ramification, I was shouted down. The developer didn't look too happy either. I guess they just didn't want to be told bad news. But I bet that developer now wishes he had listened that day. He just kept right on building and went under in a pretty spectacular way.
Unless there are mass layoffs, housing is not going to crash, and without those layoffs we aren't in a bubble.
When compared to affordability indexes, many area are most certainly in a bubble.
Historically, a 20% down payment and a monthly PITA of no more than roughly a third of your gross income was "affordable". That worked pretty well. The bubble through the 2000s was fueled by reducing those figures, and allowing people to buy with smaller and smaller down payments, borrowing the down, ARMs, etc.
Today, you can easily find areas where the median income isn't enough to afford the median house price. That's a sure sign that there is "magic" afoot, pumping fuel into the market to prop up prices. When, not if, that magic fails, the bubble pops, and prices retract. The "demand" that's driving prices is artificial. It's the same as your "demand" for a Lamborghini... wanting one isn't "demand", being actually in the market and able to afford one is. I could promise you a $300 a month payment for that Lamborghini, and you might rush out to buy it based on that. But the demand there is a phantom, and wouldn't exist if you read the fine print. As to why would I loan someone $400,000 to buy a car and expect $300 a month? Easy... it's because I anticipate selling that loan for $405,000, pocketing the $5K, and dumping all of the risk on someone else. When we run out of "someone elses" willing and able to accept the counterparty risk of someone who cannot actually afford a house, the game of musical chairs stops.
When compared to affordability indexes, many area are most certainly in a bubble.
Historically, a 20% down payment and a monthly PITA of no more than roughly a third of your gross income was "affordable". That worked pretty well. The bubble through the 2000s was fueled by reducing those figures, and allowing people to buy with smaller and smaller down payments, borrowing the down, ARMs, etc.
Today, you can easily find areas where the median income isn't enough to afford the median house price. That's a sure sign that there is "magic" afoot, pumping fuel into the market to prop up prices. When, not if, that magic fails, the bubble pops, and prices retract. The "demand" that's driving prices is artificial. It's the same as your "demand" for a Lamborghini... wanting one isn't "demand", being actually in the market and able to afford one is. I could promise you a $300 a month payment for that Lamborghini, and you might rush out to buy it based on that. But the demand there is a phantom, and wouldn't exist if you read the fine print. As to why would I loan someone $400,000 to buy a car and expect $300 a month? Easy... it's because I anticipate selling that loan for $405,000, pocketing the $5K, and dumping all of the risk on someone else. When we run out of "someone elses" willing and able to accept the counterparty risk of someone who cannot actually afford a house, the game of musical chairs stops.
Or when one of those highly leveraged asset classes begins to falter, there is simply not enough liquidity to cover the losses. This is magnified substantially when you consider the amount and magnitude of derivatives pegged to these assets.
The fact that they've raised interest rates twice in a few months, while lowering them for the past 8 years, with the exception of one time, which managed to caused pandemonium in the market, implies to me that they are gearing up to pop this bubble.
I just can't believe that in the last eight years we accumulated $20T of debt with absolutely nothing to show for it. The fact that they're raising interest rates at a time where we are discussing the modernization of our infrastructure, tells you all you need to know about the Fed. They are a politically motivated group of treasonous bastards that threaten the entire financial system and ultimately, US sovereignty.
The fact that they've raised interest rates twice in a few months, while lowering them for the past 8 years, with the exception of one time, which managed to caused pandemonium in the market, implies to me that they are gearing up to pop this bubble.
There is evidence to suggest that the Fed raised rates to promote the appearance of an economy that would require raising rates.
Note: zerohedge is a highly partisan Chicken Little site that has been predicting total economic collapse for years. There's a good amount of stuff they're right about, at least what they report if not their interpretation. I always look for the "real news" behind them. Just posted these quickly so anyone who's interested can do the same ;-)
Quote:
I just can't believe that in the last eight years we accumulated $20T of debt with absolutely nothing to show for it.
We accrued $10 trillion (approximately) over the last eight years, and about $5 trillion in the eight before that.
Quote:
The fact that they're raising interest rates at a time where we are discussing the modernization of our infrastructure, tells you all you need to know about the Fed. They are a politically motivated group of treasonous bastards that threaten the entire financial system and ultimately, US sovereignty.
Talking about "modernizing our infrastructure" has nothing to do with it. If low rates = good, then we'd just set the Fed funds rate at 0%, or .25%, and be done with it. There are absolutely times when raising rates is called for (end of carter era and exploding inflation). And higher rates reward savers instead of incentivizing borrowers, with is a good thing, although that can lead to deflation, which is far worse than inflation. We can and should always have some inflation... that's a symptom of a growing economy, and it stimulates economic activity. Deflation is the death knell for an economy.
Note: zerohedge is a highly partisan Chicken Little site that has been predicting total economic collapse for years. There's a good amount of stuff they're right about, at least what they report if not their interpretation. I always look for the "real news" behind them. Just posted these quickly so anyone who's interested can do the same ;-)
We accrued $10 trillion (approximately) over the last eight years, and about $5 trillion in the eight before that.
Talking about "modernizing our infrastructure" has nothing to do with it. If low rates = good, then we'd just set the Fed funds rate at 0%, or .25%, and be done with it. There are absolutely times when raising rates is called for (end of carter era and exploding inflation). And higher rates reward savers instead of incentivizing borrowers, with is a good thing, although that can lead to deflation, which is far worse than inflation. We can and should always have some inflation... that's a symptom of a growing economy, and it stimulates economic activity. Deflation is the death knell for an economy.
Zerohedge is a great website. If every US citizen read it, they would understand all the potential and perhaps, inevitable crises looming on the horizon. You're right on the $10T figure. I mistakenly used the aggregate debt, but regardless $10T is a lot for what was accomplished during that time period.
I understand that the normalization of rates has to occur in our current economic environment, particularly if you want to encourage saving and to salvage pension plans that are being placed in increasingly riskier assets to search for yield, but ultimately, I believe it's too late.
The point about infrastructure is that it should have been done in the last eight years to help us build something sustainable and less dependent on foreign commodities. It wasn't done. Now we have an artificially inflated economy with only one way to go and nothing long term to show for it. If they didn't develop infrastructure during that time period, they should have at least raised interest rates starting a few years ago to "normalize" the economy. Given how rapidly the fed is raising interest rates when there are currently many distressed asset classes, and the fact that the dollar is inversely related with crude which is falling in price, it seems to me that there is an attempt to sabotage what remains of the economy. Manufacturers are already having trouble selling exports due to a strong dollar, which we can anticipate getting stronger as more fed increases become priced in. While parity conditions suggest that eventually the dollar will fall in value, US exporters don't have forever to wait.
It seems to me as if the Fed has been politicized in order to keep the incumbent party in power, which obviously failed, so now it's time to close the show.
Ultimately, our current economic model, predicated on unlimited growth is destined to fail no matter what we do, but at this point, it won't take much pressure to bring down the entire house of cards. Personally, I predict the catalyst will be in the energy market which will eventually lead to a global liquidity crises. Furthermore, it will also lead to a supply squeeze which will cause an "oil shock" putting the final nail in the coffin that is retail and potentially collapsing the housing market.
I think people in this country have become entirely too complacent, but that's also because we lack any real leadership. If we had real leadership, they would be discussing the biggest threat to our existence, which is the replacement of human labor capital with automation. The fact is, we need a NEW economic system.
It won't happen. Expect a global liquidity crisis so large that it will result in the centralization of all formerly sovereign banking functions into one global entity. Why? Because he who controls the finances controls the world.
Then what do we have? We have hundreds of millions...or actually billions of unemployed...or actually unemployable global citizens. What do you think will happen next?
That's why infrastructure is so important, assuming its sustainable and not dependent on foreign entities. Remember, a federal republic has not existed before in history for good reason. The elite do not want to be held accountable by the people.
Or when one of those highly leveraged asset classes begins to falter, there is simply not enough liquidity to cover the losses. This is magnified substantially when you consider the amount and magnitude of derivatives pegged to these assets.
The fact that they've raised interest rates twice in a few months, while lowering them for the past 8 years, with the exception of one time, which managed to caused pandemonium in the market, implies to me that they are gearing up to pop this bubble.
I just can't believe that in the last eight years we accumulated $20T of debt with absolutely nothing to show for it. The fact that they're raising interest rates at a time where we are discussing the modernization of our infrastructure, tells you all you need to know about the Fed. They are a politically motivated group of treasonous bastards that threaten the entire financial system and ultimately, US sovereignty.
They're raising rates because the other central banks are providing the liquidity to offset its effect. The Fed has only raised interest rates once in the last 15 years when there was no QE. That policy action occurred only a few months after the Bank of Japan stopped its buying program in March 2006, and that interest rate hike was the last one in the cycle. If one counts the Treasury cash balance drawdown of the last four months as a synthetic form of quantitative easing, there were 245 to 275 billion dollars of debt purchases each month. The moonshot in the markets is largely due to this extra-large infusion of liquidity.
Last edited by lchoro; 03-17-2017 at 07:59 AM..
Reason: 2006, not 2016
Depends on where you were. In that very good article you suggested, the graph does speak to housing permits falling off a cliff in 2006. But the timing of the drop off varies widely. For example, in that graph, Phoenix began plummeting in early 2006, while Atlanta didn't really go south until late that year. And Houston didn't fall off the map until well into 2007. In other words, construction continued unabated in Texas and the South. I would offer the theory that it's because it's cheaper to build in those regions, allowing home prices to remain the thresholds of the time.
I remember the timing as June, 2006, when the drop started happening. FHA had just put the kibosh on Jumbo loans that morning as I was driving to meet with the developer of a 5,000 unit development. I literally walk into a room with the developer and a dozen real estate agents, told them what happened, and they all gave me blank looks. "So?" was what one woman asked.
When I discussed the ramification, I was shouted down. The developer didn't look too happy either. I guess they just didn't want to be told bad news. But I bet that developer now wishes he had listened that day. He just kept right on building and went under in a pretty spectacular way.
A lot of condos were sold pre-construction in S. Florida and other places. The same has been going on during this cycle.
Oh, you mean it's the truth. Do you hate the truth? Because I just see numbers. You see, people lie, but numbers don't. At least get familiar with the site before you dismiss everyone as crackpots.
They're raising rates because the other central banks are providing the liquidity to offset its effect. The Fed has only raised interest rates once in the last 15 years when there was no QE. That policy action occurred only a few months after the Bank of Japan stopped its buying program in March 2006, and that interest rate hike was the last one in the cycle. If one counts the Treasury cash balance drawdown of the last four months as a synthetic form of quantitative easing, there were 245 to 275 billion dollars of debt purchases each month. The moonshot in the markets is largely due to this extra-large infusion of liquidity.
It's insane, and a major conflict of interest that reeks of collusion.
It seems that this quote will be realized sooner than anyone anticipated.
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
- Thomas Jefferson
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
