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I guess there's still bubbles depending upon whether or not your area has already taken a bath. I just bought a house in Florida at a 1993/1994 inflation adjusted price based upon a sales history of area homes. Seriously, zero profit on that property in 16 years. I sold one in another area of Florida that got only 6% annual since 1985, seemed fair enough during this depression. And I know you can buy in other areas now, Cape Coral for instance, for less than the cost of construction and the land is free.
The FHA just tightened lending requirements while the article states they are encouraging people to buy- if anything FHA is encouraging people to act more responsibly - I live in an area that would be considered more stable than most and FHA has become more stringent, which, to me makes the article seem rather one sided. And yes some areas are still deflating and I think most people understand that the buyer incentives were designed for a softer landing not a major spike - and since the article spoke in large - so will I - I highly doubt the market is seen by the nation as a whole right now as good (although not as bad as it was) so the tone of it is off in it mentioning others views as being rosy - it is out of touch with the nations true view - coffee table RE conversations are not rosy, especially for most sellers.
One can in fact make a generalization that things are still pretty bad:
Stocks fall as new home sales drop 7.6 percent - BusinessWeek (http://www.businessweek.com/ap/financialnews/D9DG5KQG0.htm - broken link)
FHA must tighten lending requirements. The government's mortgage buying spree will end in March (or sooner) unless they slow down lending to less qualified buyers.
I fully expect things to fall off the cliff for a very brief period (few weeks) for ALL areas in the US in March/April, and then the Fed or Obama will launch a new lending or MBS buyback or QE program.
The only thing holding the market up right now is Federal government support. Banks do not want to lend without 20% down. What does that tell you? The government is stepping in to lend to people with only 3-5% down. It makes a huge difference in increasing the pool of potential buyers and thereby propping up prices. Without that support prices would be coming down big time in many areas that are still over inflated like the Northeast. The government support can not go on forever but when it will break is anybody's guess. Nobody should be buying a home right now unless they are sure of their employment and willing to live in the house for at least 7-10 years.
The Fed and the gov't are on a slippery slope. They are micromanaging the economy. They are keeping interest rates artificially low, hoping that people will buy homes or keep people in their homes. They hope that they can put a plug in the drain of falling home prices.
As the Fed continues to print money, they will inflate away individuals savings. Home prices may appear to stabilize, but in reality, will be worth less.
The government needs to get out of the way and let business/individuals fail. The welfare/entitlement state that they think is the solution will cripple this country.
Quote:
Originally Posted by trickymost
One can in fact make a generalization that things are still pretty bad:
Stocks fall as new home sales drop 7.6 percent - BusinessWeek (http://www.businessweek.com/ap/financialnews/D9DG5KQG0.htm - broken link)
FHA must tighten lending requirements. The government's mortgage buying spree will end in March (or sooner) unless they slow down lending to less qualified buyers.
I fully expect things to fall off the cliff for a very brief period (few weeks) for ALL areas in the US in March/April, and then the Fed or Obama will launch a new lending or MBS buyback or QE program.
The Fed and the gov't are on a slippery slope. They are micromanaging the economy. They are keeping interest rates artificially low, hoping that people will buy homes or keep people in their homes. They hope that they can put a plug in the drain of falling home prices.
As the Fed continues to print money, they will inflate away individuals savings. Home prices may appear to stabilize, but in reality, will be worth less.
The government needs to get out of the way and let business/individuals fail. The welfare/entitlement state that they think is the solution will cripple this country.
Markets should work the way you're describing. Here's the rub, though.
Despite the unprecedented amount of liquidity put into the economy by the Fed, the velocity of that money remains very low. Banks are borrowing from the Fed at 0%, and instead of lending they're writing off losses or using the money for trading (equities, commodities, metals). Consumers are paying off debt and/or aren't buying goods and services.
Obama has appeared toothless so far in showing a willingness to take away the punch bowl if the hosts aren't serving punchm or more aggressively pushing to increase the velocity of the money supply. Bernanke has said repeatedly he is on a mission to fight deflation, at all costs. Just read his time interview when he was given *cough* man of the year.
It would be very difficult to pin down the point when the velocity either catches up to the actual money supply, or when the velocity becomes so great it appears to be higher than the money supply. So things can go on "as is" for a few weeks, or a few months, or maybe a year or two.
And if they can't plug the hole in housing, and a second mortgage crisis erupts, then you still have the problem of a low velocity of money and the appearance of deflationary forces at work. Hence Bernanke's decision to leave rates where they are for an extended period of time.
Velocity will increase eventually though, at which point I do agree about inflation/stagflation becoming a problem, but I think it doesn't necessarily have to happen in the near or intermediate term.
Markets should work the way you're describing. Here's the rub, though.
Despite the unprecedented amount of liquidity put into the economy by the Fed, the velocity of that money remains very low. Banks are borrowing from the Fed at 0%, and instead of lending they're writing off losses or using the money for trading (equities, commodities, metals). Consumers are paying off debt and/or aren't buying goods and services.
Obama has appeared toothless so far in showing a willingness to take away the punch bowl if the hosts aren't serving punchm or more aggressively pushing to increase the velocity of the money supply. Bernanke has said repeatedly he is on a mission to fight deflation, at all costs. Just read his time interview when he was given *cough* man of the year.
It would be very difficult to pin down the point when the velocity either catches up to the actual money supply, or when the velocity becomes so great it appears to be higher than the money supply. So things can go on "as is" for a few weeks, or a few months, or maybe a year or two.
And if they can't plug the hole in housing, and a second mortgage crisis erupts, then you still have the problem of a low velocity of money and the appearance of deflationary forces at work. Hence Bernanke's decision to leave rates where they are for an extended period of time.
Velocity will increase eventually though, at which point I do agree about inflation/stagflation becoming a problem, but I think it doesn't necessarily have to happen in the near or intermediate term.
Just sayin
Banking on keeping housing propped up until the broader economy recovers is tenous.
The question is would the recovery be faster if we let the market dictate?
Banking on keeping housing propped up until the broader economy recovers is tenous.
The question is would the recovery be faster if we let the market dictate?
Most certainly yes, but...
In that situation, if all the people who lose homes go further underwater, or are then unable to buy due to the stop in lending would probably vote everyone and anyone in office out of office.
The problem is the people in powers are not going to leave it to free market economics to solve the problem. And there's no point in fighting it, even if it will ultimately have a spectacular failure.
IMO this is like the Titanic sinking in slow motion. They know the end game. They're just trying to get as many people to safety before the ship snaps in two and goes underwater.
My opinion is they keep fighting deflation aggressively through mid term elections. After that, all bets are off. 2011 is going to be a difficult year, regardless of whether we see inflation or deflation, regardless of whether housing stabilizes or deteriorates much further. And if they can punt it down the road further, most certainly by 2012-2013 it'll be clear we're in a full blown depression.
We'll see!
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