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Thread summary:

Housing downturn: construction fueled economy, speculated home values, flattening prices

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Old 09-16-2007, 09:05 AM
 
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The attached provides interesting reading and suggests how the housing downturn can really send things south.

washingtonpost.com

I love sharing food for thought
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Old 09-16-2007, 01:43 PM
 
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I think that if you read the article though, you'll realize it's a much different situation here. That was an economy that was fueled by construction, and homewoners borrowing against speculated home values. This quote helps explain the sitation here somewhat:

"The effect could be less dramatic in places like Washington, where government contracting and other industries may provide a cushion."

Now, we have not had triple increases in values like what has been seen in DC, and the majority of the jobs in this area are b/c of RTP. If RTP died, then we would be in trouble.
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Old 09-16-2007, 05:48 PM
 
Location: Raleigh, NC
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Sensationalism and the Housing Bubble

by Rich Levin

This makes me mad every time I see it. Either the National Association of Business Economists is full of people with no real business experience or fools.

This is a headline from a major online Real Estate publication,

"Economists See Credit Problems as Bigger Threat than Terrorism."

I know they were all alive just seven years ago when terrorism cost the lives of three thousand American citizens. That headline goes beyond sensationalism. It is rude and insensitive.

The article goes on to say that one in three members of the NABE, "...Said the housing boom can be described as a 'serious National bubble." Then later in the article three in four said they would "buy a house today if they intended to use it as their primary residence."

Would someone please tell these academic fools that housing is local in nature? While many major markets suffered and are suffering from the over-zealousness of investors followed by the over-zealousness of foolish sub prime lenders; there are many markets that are healthy and many more that are suffering a softening but nothing close to a collapse.

These gloom and doom headlines supported by a minority of questionable economist opinions feed the problem they are describing. While the facts support the opposite conclusion. Even the economists own research supports the opposite conclusion.

In the same article, "Asked to look five years into the future, 42 percent expected US home prices to remain flat, 41 percent said prices would rise." How did 34 percent of the same group call this a bubble that is fed by a threat bigger than terrorism.

Let's give credit where it is due. "59 percent still say there is no national housing bubble, only significant local bubbles. Another 8 percent said there's no bubble at all and that the market is functioning correctly."

Hooray for those groups. They got it right. There are some local bubbles where there were hundreds and thousands of development parcels and homes developed and built in anticipation of future sales and the sales that were feeding that demand was investor speculation (Boise and Sarasota to name two).

In late 2005 and through 2006 the investors realized that the boom was being fed by their own demand so withdrew. This left a tremendous inventory in some cities or areas of cities.

Unfortunately, in 2006, the secondary market lenders realizing that they had allowed a foolish combination of underwriting standards for the previous five years or so immediately followed this. They were buying loans that allowed buyers to have both, little or no down payment and marginal credit. How this happened (and who should be prosecuted for it) is a mystery that will likely to remain such.

The result was that in some communities around the country, particularly where there were high priced homes and with less sophisticated buyers; many of these mortgages were used to purchase homes. That created additional pockets of excess inventory which stalled prices in those areas.

Now in the fall of 2007 the majority of lenders loaning jumbo loans, over $417,000 have stopped funding these high-end loans for some period. This will further increase inventory and dampen prices in some areas.

Notice the language, dampen prices in some areas. Most of the country is experiencing a normal buyer's market that normally follows a long healthy seller's market.

The latter group of economists put it perfectly. The market is functioning correctly. In 1986 after two to three years of a soft buyer's market not unlike what we are experiencing now (Although it was driven by different causes.) there was a long strong period of a healthy seller's market with steady appreciation.

There was a momentary softer buyer's market around the Gulf War in 1991 (although not caused by it) followed by over a decade of a healthy buyers market that lasted until 2006. If we learn from history strong seller's markets last longer than softer buyer's markets.

So again, the economists got this right. The same article said 58% of the economists predicted a 'meaningful' recovery in U.S. housing markets before the second half of 2008 or in the second half of 2008. The majority of the other 42% predicted the recovery in 2009.

This is completely consistent with history. This two or three years of soft buyer's market with slightly flattening prices will likely be followed by five or more years of a healthy seller's market with equally healthy price appreciation.

REALTORSĀ® all learned in their first Real Estate class that the market is driven by supply and demand. As long as there is an increasing population of people with reasonable or better incomes, the demand will keep the market healthy.

Add to that the fact that the Federal government repeatedly states that they realize that the Real Estate market is critical to the health of the economy and they will do whatever is necessary to keep mortgage money available.

It all adds up to a principle residence continuing to be the safest and smartest investment for a person living in this fabulous nation. (Just be careful of areas that have experienced rapid appreciation for more than twenty-four months. There could be a windfall or just a fall looming.)

If you are associated with Real Estate, please separate the sensationalism from the truth. If you are in most communities in this country, everything is pretty normal. Prices are appreciating a little slower but still appreciating. Houses are on the market longer. Buyers are fussier. Yes, it is tougher to sell Real Estate. But you still have one of the best jobs in the world with more personal freedom and opportunity for success than any other business person or professional on earth.

If you are in one of those tougher markets, my heart is with you. You do have an uphill battle for another twelve to twenty four months. You have my strongest wish that you can survive and succeed through this. If not, come back to the business in a couple of years. I feel comfortable promising you that the good times will roll again in the not too distant future.

I love this business for what it provides to our society, the people in it, and the strong bright professionals that make me proud to be a part of it.
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Old 09-16-2007, 08:34 PM
 
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Thanks for the link, TuborgP. Sadly, the article only deepens the hysteria presently caused by the turmoil in the real-estate market. The plain and simple truth about house prices is that they should be approximately 20% higher than in 2001. That takes in to account the rate of inflation over the 6 years since the Housing Bubble started. Any market that has seen house prices increase faster than that will suffer a dramatic correction. In fact, Alan Greenspan intimated as much tonight on 60 minutes.
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Old 09-17-2007, 07:29 AM
 
Location: Wake Forest
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TugorgB great article thanks for sharing. I found this statement very interesting:
"We are in a real estate recession," said Laurance Baer, manager of the Fort Myers-based Baer's Furniture chain, where sales are plummeting. "And we have an economy that's much more tied to real estate than anyone realized."

Parts of the country are already in that and it will affect everyone. At least we have not had the run up other markets encountered but we will still be affected by slower sales which we are already seeing. Some will run to the south for salvation but how long will this last? About as long as they find out this is not utopia or the panacea of good high paying jobs.

Hopefully we will learn that we need to make things again to rebuild our manufacturing know how which will create needs for engineers and technical workers. Shopping Center being turned into manufacturing sites and not the inverse we see today. yea that's the America I remember...............where did it go?
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Old 09-17-2007, 08:03 AM
 
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While the South is no Panacea, North Carolina is still the best place for retiring Baby Boomer government workers from the Washington DC area. They’ll continue their Southern migration to NC because they won’t have to pay taxes on their government pensions here. Believe me when I tell you that’s why most people in DC are talking about moving to NC. In fact, the flood gates really haven’t opened yet since the leading edge of the Boomers will turn 62 next year and that’s when the mass exodus to the South is really expected to begin, according to most experts. Also keep in mind that retirees won’t be so concerned with the employment opportunities in NC as they’ll have their pensions and the profits from Northern home sales.

Yes the housing market here in NC has slowed but economic and demographics forces are at work that will create a mini boom for the next five years. That’s the time frame in which the Boomer’s will reach the retirement ages of 62 to 65.

Smart local builders should prepare for that inevitability by building the type of homes that retirees will want. Please, no more Mc Mansions instead focus on ranch or rambler homes with features geared towards older people. Features such as high counter tops, high toilets and hand rails in bath rooms.
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Old 09-17-2007, 08:06 AM
 
Location: Raleigh, NC
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Talking No bubble?

Just what I've been saying...not that we are immune to a slowdown but that MARKETS ARE LOCAL.

Vicki
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Old 09-17-2007, 09:14 AM
 
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The NABE tend to look at things on the big scale, big picture. House prices in the big markets CA, AZ, NE, FL are in real trouble. If you want to get an idea just how bad those markets are just listen to the Toll Brothers conference call last week. How it effects your particular market depends, but it certainly doesn't help...the market in NC is driven by people moving from the big cities.
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Old 09-17-2007, 10:05 AM
 
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Default The Coming Job Boom

Anyone interested in demographics and future employment conditions should read this article.

The Coming Job Boom

My mother-in-law laughed when she first read it in 2003, but then retired from her government job at the US Census Bureau in 2006 and moved to a beautiful ranch home on three acres in Youngsville, NC. Now she’s glad she sold her house in Maryland when she did because she got top dollar while the market was still hot.

Last edited by Grizzmeister; 09-17-2007 at 10:31 AM..
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Old 09-17-2007, 12:21 PM
 
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Housing became another speculative investment like internet stocks before 2000.

Prices didn't really reflect true value and purchases were financed "on margin" like the precursor to the 1929 Stock Market implosion.

Trash in government allowed the financial services sector to fuel the madness with ridiculous loan products.

What can you expect but a painful correction?
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