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host · 03-15-2006, 02:28 AM

Quote:

Originally Posted by aceventura3

It's kind of strange. If wages are not going up, what is driving up the price of real estate? It has to be low interest rates and low inflation. But that has to be wrong since we are talking about "real" wages. Problem is that nobody knows for sure. What we really have is the theory of unintended consequences at work.

I think what we have is no "real" wage growth because people don't see the real after tax benefit of wage increases....

No "mystery" as to the transfer of the 1999-2000 tech stock bubble into the residential real estate bubble. Record lowering of U.S. interest rates, (intended to mitigate effect of the sudden decline in stock prices, dot com, and telecom busts). No down-payment and "interest only" variable rate mortgages, along with a confluence of speculators (flippers) descending upon the home realty market, created "froth" which allowed sellers at the bottom of the "chain"("starter homes"), to "trade up".

Buyer mentality leaned toward buying "now" because price and interest rates would rise, and there would be a future buyer to unload to at an ever higher price. Speculators created artificial demand, and off we went....

Imagine how much of the job "growth" since 2000 has been in realty sales jobs, mortgage brokering, realty apparaisal, home construction, home improvement, building supplies, and home appliance and home furnishing supply chains. What happens when the "one trick pony" momentum of Americans selling their houses to each other, at ever increasing prices, financed by borrowed Asian money, ends? Has it "ended", already?

Here's a "hint" of what is coming:

Quote:

http://www.citizen-times.com/apps/pb.../51223046/1071
More WNC families depend on food stamps
by Leslie Boyd, STAFF WRITER
published December 24, 2005 6:00 am

....The number of working families receiving food stamps in Buncombe County has risen by nearly 40 percent since 2002. [Buncombe County contains the relatively prosperous and higher growth, Asheville, NC metro area...]

Even with the numbers so high — 362,579 of the 1.1 million families in North Carolina used assistance as of September, state Department of Health and Human Services records show — officials estimate only about 65 percent of people who are eligible actually are receiving food stamps.......

........Rhodes cited a 2005 study by the N.C. Budget & Tax Center of the N.C. Justice Center, “Failing Jobs, Falling Wages: The 2005 North Carolina Living Income Standard.”

The center calculated what families pay in seven categories: food, housing, health care, child care, transportation, taxes and miscellaneous items. It does not include money for extras such as entertainment, cell phone or cable television service, debt payments or meals out of the home. On average, its calculations show, North Carolinians need to earn 231 percent of the federal poverty level to meet expenses.

For a family of four, the federal poverty level is $19,350. To be eligible for food stamps, a family can earn no more than 130 percent of that. The Budget & Tax Center report calculates that on average, a family of two parents and two children in North Carolina needs to earn just under $45,000, what it calls a Living Income Standard. Nearly half of the 1.1 million families in the state live below that standard.........

Quote:

http://www.pimco.com/LeftNav/Late+Br...ember+2005.htm
....But in determining whether or not the sun is rising or beginning to set on our economy and its markets, perhaps it is

best to return to the maestro himself for a hint on the timing of this affair. "Any onset of increased investor caution,"

he wrote at Jackson Hole, "elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation

of the debt that supported higher prices. This is the reason that history has not dealt kindly with the aftermath of

protracted periods of low risk premiums."............

...Take a gander at the remarkable Chart II displayed below. It shows that real estate, not manufacturing, has been the

economic impetus in recent years in terms of net growth. Once price momentum slows or ceases for home prices, job growth

will slow or disappear in the sector as well. How many more mortgage brokers or real estate agents do we really need or

can we legitimately support?.....

Quote:

http://realtytimes.com/rtapages/20060112_arello.htm
ARELLO Announces Number Of Licensees For 2005
by Blanche Evans

If you think everyone you meet is a real estate agent, you're not far wrong. According to new figures from ARELLO, the licensing officials, there are more than 2,636,783 licensees in the United States.

With a U.S. population of about 297,889,053, that's about one licensee for every 113 men, women and children.

Quote:

http://realtytimes.com/rtapages/20041115_lowhours.htm
Published: November 15, 2004
...Still, Marguleas frets, "In California, the number of Realtors has increased 44 percent in the last five years. Now there are almost 400,000 people with real estate licenses in California, 66,000 of them in Los Angeles. In the early part of 2004, the number of real estate agents in Los Angeles outnumbered properties for sale at a ratio of 7:1. These figures make for a cut-throat industry.".....

Quote:

http://rismedia.com/index.php/articl...iew/13478/1/1/
.....Real estate has been so hot -- and the workplace alternatives so tepid -- that membership in the Tampa Bay Association of Realtors swelled by about 2,000 agents the past year.

Statewide, the number of Realtors and sales people has nearly doubled from 79,331 in 2001 to 154,558 in 2005.........

What do you predict, will take the place of the following economic stimulus when real estate no longer "goes up", when there is no more equity to "cash out", and the layoffs in residential construction and realty sales occur, when foreclosure auctions rise as unemployment rates rise and real estate values fall?

Quote:

http://www.mortgagenewsdaily.com/852...efinancing.asp
Refinancing May Be Pumping Billions Into Economy

......Ms. Cutts said that she expected cash-outs from refinancing to total $162 billion for the year but, as rates continue to rise, the figure would fall back to $69 billion for the whole of 2006. In 2004 homeowners extracted $140 billion in equity through refinancing their homes. While Ms. Cutts did not draw any parallels, she pointed out that this was close to the amount that the Harvard Joint Center for Housing Studies recently reported that Americans spent last year on home improvements and remodeling.........

Quote:

http://www.sfgate.com/cgi-bin/articl...EGHHHM7MV1.DTL
A BULL, A BEAR AND THE BUBBLE
What's ahead for the real estate market? Two respected analysts -- and now authors -- hold markedly different views

Dana Perrigan, Special to the Chronicle

Sunday, March 12, 2006

....Novato's RealFacts puts the average Bay Area apartment rent in the fourth quarter at $1,324; DataQuick calculates that the typical home buyer in December committed to a $2,867 mortgage payment.

"It paints a very scary picture," Talbott says. "Something has economic value because it has cash flow. If you discount for general inflation and go back 120 years in history, you'll discover that, in real terms, housing prices were
relatively flat until 1997 -- then (they) shot up about 70 percent."

To buy these overvalued homes, he says, many consumers overextend themselves financially by borrowing more from banks. They end up paying an inordinately high percentage of their monthly income on mortgages. In Los Angeles, he points out, the average new homeowners, usually a young couple, are spending 55 percent of their monthly income on a mortgage payment.

"They have to make decisions about whether they're going to pay the mortgage or go to the movies," Talbott says.Banks are lending more, he says, because they are sticking to their old qualifying formula of computing the ratio of the loan applicant's salary to the mortgage payment. They're doing this, he said, without adjusting for inflation.

"So the banks are using the same stupid formula. They convince these young couples to borrow a million-dollar note that they're never gonna get out from under."

To make matters worse, Talbott says, an increasing number of borrowers are taking out variable-rate and interest-only loans. According to San Francisco's LoanPerformance.com, half of all Bay Area home buyers used interest-only loans to make their purchases last year. With so much of their income already relegated to their mortgage payment, says Talbott, even a small rise in interest rates will push many to -- and beyond -- their limit. For others, a divorce or job loss will spell financial ruin....

There was excessive "artificial demand" as prices rose.....

Quote:

http://www.realtor.org/PublicAffairs...5?OpenDocument

Second-Home Market Surges, Bigger Than Shown in Earlier Studies

WASHINGTON (March 1, 2005) – A new study shows sales of second homes surged in 2004, and that investment property and vacation homes make up a significant portion of the overall housing market, accounting for more than one-third of residential transactions, according to the National Association of Realtors®.

The new study, based on two surveys, shows that 23 percent of all homes purchased in 2004 were for investment, while another 13 percent were vacation homes. In addition, there was a record of 2.82 million second home sales in 2004, up 16.3 percent from 2.42 million 2003. The investment-home component rose 14.4 percent to 1.80 million sales in 2004 from 1.57 million in 2003, while vacation-home sales rose 19.8 percent to 1.02 million in 2004 from 850,000 in 2003.