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This should be interesting for those who believe that bringing in the "bright guys" will fix our current problems.
I've noticed a few ongoing discussions about which party was more to blame for the housing crisis that ultimately caused our current economic meltdown.
I went back to the period prior to the problem beginning, to see what was being said by the "smart guys" at that time. I found this "gem" called The State of the Nation's Housing 2006, from the Harvard University Joint Center for Housing Studies. It was published at the end of 2005:
In 2001, none of the large metros experienced nearly the level and duration of job losses seen during the previous two cycles. Equally important, building activity has been much less intense. In metros experiencing major house price declines in the past, three-year average development levels exceeded the 20-year median by about 74 percent (Table W-4). In 2001–2004, development in these same metros was only ten percent above normal. These signs of moderation provide good reason to believe that the next house price correction will be milder than in the past.
And the conclusion:
THE OUTLOOK
Unless the broader economy stumbles and job losses mount, home sales and construction activity will likely dip only modestly. House price appreciation should also remain positive in most markets. Rising house prices, in turn, will encourage further home equity borrowing and spending, although the pace of borrowing will slow if interest rates keep climbing. Housing’s contribution to economic growth is already diminishing and will begin to turn negative if home sales, starts, and home equity borrowing continue to decline.
Over the longer term, the outlook for housing markets is favorable. With household growth accelerating and second-home demand climbing, the number of conventional homes completed and manufactured homes placed in the coming decade should easily exceed the 18.1 million units added from 1995 to 2004. In addition, improvements in the mortgage finance system over the past several years, together with stricter inventory management in the home building industry, will help to dampen boom-bust cycles in the future.
Has any think tank report ever been so far off the mark???
Well, there's all the right-wing think tanks that cheerleaded us into Iraq. But you're right - many people should have known better (including the Dems in congress charged with oversight from 2006 on) and Clinton for hs deregulation policies.
We just need to be careful not to listen to the conservatives when they talk about the inerrancy of the free market and the self-regulation of corporate interests.
The authors of the report didn't "follow the money" and so didn't notice the scam collateralized debt obligation (CDO) marketplace that had become out of control on Wall Street.
The authors of the report didn't "follow the money" and so didn't notice the scam collateralized debt obligation (CDO) marketplace that had become out of control on Wall Street.
They critically analyzed the lending practices, and discuss it quite extensively in the report. Their conclusion about loan issues was:
If the economy instead stumbles and job growth falters, a larger number of subprime borrowers will be at greater risk. At the same time, however, the lower interest rates that usually accompany such slowdowns would help adjustable-rate borrowers and create opportunities for other homeowners to refinance their loans on more favorable terms.
This should be interesting for those who believe that bringing in the "bright guys" will fix our current problems.
I've noticed a few ongoing discussions about which party was more to blame for the housing crisis that ultimately caused our current economic meltdown.
I went back to the period prior to the problem beginning, to see what was being said by the "smart guys" at that time. I found this "gem" called The State of the Nation's Housing 2006, from the Harvard University Joint Center for Housing Studies. It was published at the end of 2005:
In 2001, none of the large metros experienced nearly the level and duration of job losses seen during the previous two cycles. Equally important, building activity has been much less intense. In metros experiencing major house price declines in the past, three-year average development levels exceeded the 20-year median by about 74 percent (Table W-4). In 2001–2004, development in these same metros was only ten percent above normal. These signs of moderation provide good reason to believe that the next house price correction will be milder than in the past.
And the conclusion:
THE OUTLOOK
Unless the broader economy stumbles and job losses mount, home sales and construction activity will likely dip only modestly. House price appreciation should also remain positive in most markets. Rising house prices, in turn, will encourage further home equity borrowing and spending, although the pace of borrowing will slow if interest rates keep climbing. Housing’s contribution to economic growth is already diminishing and will begin to turn negative if home sales, starts, and home equity borrowing continue to decline.
Over the longer term, the outlook for housing markets is favorable. With household growth accelerating and second-home demand climbing, the number of conventional homes completed and manufactured homes placed in the coming decade should easily exceed the 18.1 million units added from 1995 to 2004. In addition, improvements in the mortgage finance system over the past several years, together with stricter inventory management in the home building industry, will help to dampen boom-bust cycles in the future.
Has any think tank report ever been so far off the mark???
Well I would point to the PNAC and the AEI but that is for another day.
I certainly realize that how a person lives a personal life and manages a home and bills, etc... can hardly be used to compare a nations economic situation but at some levels it should have been.
During a period of time when I was in Florida, I recall reading in the Tribune that the neighborhood I resided in average a home appreciation of 8.5% over the course of seven years. Some years as high as 10%. Now I'm far from any kind of credible opinion on economics but I do know that something foul was a foot at the Circle K, Ted. I know that in general, real estate increases fairly gradually and is generally a pretty good long term investment but when I am witnessing returns that are matching the stock market, something seemed out of balance. I remember the debacles of previous bubbles and couldn't help but think to myself, man... got to sell and get out of here while the going is good and suckers abound because this train ride isn't going to last forever.
Now I'm a dumb ole hillbilly, and I had a feeling something was wrong, so either I simply got lucky or those really sharp folks in a variety of think tanks weren't as visionary as they thought they were.
Maybe folks weren't raised on things like Aesop's fables as I was, but remember learning some things as a child, like, "if it sounds too good to be true"...
Topper, the report specifically addressed the appreciation rates, and why they felt the problem wasn't going to dive the housing market (see pgs 7 &8):
It is no surprise, then, that media reports of a housing bubble reached a fever pitch last year. According to Factiva, the number of articles mentioning that term increased to 3,492 in 2005, up from 789 in 2004, 614 in 2003, and 907 in 2002. But, when and if house prices do fall, the so-called bubble is more likely to deflate slowly rather than burst suddenly. History suggests that appreciation eases for a year or two before prices come down in nominal terms. While dips of a few percentage points are common, nominal house prices rarely drop by 10 percent or more.
They acknowledged the appreciation, but blew off a significant downturn resulting from the pricing.
They critically analyzed the lending practices, and discuss it quite extensively in the report. Their conclusion about loan issues was:
If the economy instead stumbles and job growth falters, a larger number of subprime borrowers will be at greater risk. At the same time, however, the lower interest rates that usually accompany such slowdowns would help adjustable-rate borrowers and create opportunities for other homeowners to refinance their loans on more favorable terms.
Very superficial analysis, wouldn't you say? After you sell sub-prime mortgages to the masses, who's left? Only population gain will continue to grow the market. Wall Street demanded MORE supply, and the thing went totally out of control (zero documentation loans, zero percent down loans, etc.), with CDOs having no visibility into the risk profiles involved. All was predicated on the notion that housing prices would continue rising due to underlying fundamentals. The authors didn't look at enough of the true economic fundamentals.
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