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Originally Posted by aceventura3
.....My point is that real-estate has intrisic value. That value will increase over time and has historically increased over time. Speculative value is currently being taken out of the market. This is good. Smart money wants this to happen. Smart money sees this as healthy, you don't. All the citations, quotes, stats in the world won't prove the above - you either get it or you don't.
Those who don't get it will generally always be on the wrong side of the trend.
Six months from now when we look at the stats we will see that today we have already hit and past the real-estate bottom. You can say you heard it here first.
That is my market call. What's yours?
How about a wager. If you are correct and I am wrong I will donate $100 to your favorite charity, and you do it if the opposit is true.
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ace, thank you for the reasonable tenor I detected in your last post, and your offer of a wager between us that would ulitmately benefit a charity of our choosing, but....as I posted earlier, I'm already putting my money where my mouth is, via stock market investments in the direction of the deteriorating economic trend that I am forecasting.
If you turn out to be correct about the direction of the economy in the next six months, I promise to post the dollar figure of the losses from making the "wrong bets" in the stock market.
I also do not want to make a wager with you until you can post something similar to this Feb. 20 Forbes article, with facts to counter reasons for a downturn.
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http://www.forbes.com/business/2007/...219oxford.html
Risks Still Cloud U.S. Economic Outlook
Oxford Analytica 02.20.07, 6:00 AM ET
The U.S. Federal Reserve on Jan. 14 forecast sustained healthy economic growth in 2007. Most analysts believe the Fed has put the economy on a glide path to a "soft landing" of only slightly below-trend growth, and financial markets have reacted positively. However, disquieting economic data suggests growth may be more fragile than expected.
......The details of the 2006 fourth-quarter preliminary GDP report reveal soft spots:
--Weak investment spending. While real consumer spending was the positive linchpin of the report, investment spending was surprisingly weak.
--Plummeting residential investment. Residential investment spending declined in the fourth quarter.
--Government spending stimulus. A key boost to growth in the fourth quarter came from a rise in federal defense spending.
--Downward growth revision. Most data releases since the GDP report have come in weaker than expected, which suggests that the government's revised GDP data for the fourth quarter will reduce the quarterly growth estimate to 2.5% to 3.0%.
A number of economic statistics suggest that the U.S. economy is somewhat fragile:
1. Employment. The economy created only 111,000 jobs in January.
While the pace of job growth hit 2.1% year-on-year in March 2006, it eased steadily over the course of 2006, and by last month had slowed to 1.6% year-on-year. Manufacturing jobs declined since the third quarter of last year. All measures of hours worked were weak in January.
One key indicator of future employment growth is the temporary worker category. Recently this has turned flat.
2. Purchasing Managers Index (PMI). This survey is a "diffusion index" that measures whether business conditions in the manufacturing sector are increasing or decreasing. The PMI dropped to 49.3 last month. Readings below 50 indicate that the U.S. manufacturing sector is declining.
3. Yield curve. The "yield curve" is commonly defined as the yield on 10-year government bonds less the interest rate on 90-day commercial paper. An inverted yield curve is taken as a signal that credit conditions are tight and monetary authorities are trying actively to discourage borrowing. The typical reaction to tightened credit conditions is that capital spending and housing weaken--developments now underway:
--Since 1970, there have been six episodes when this measure of the yield curve has been inverted for at least nine months, and all were followed by recessions.
--The lag between the beginning of the yield curve inversion and the onset of recession ranged from three to six quarters.
--The present yield curve inversion began in July 2006, meaning that if the yield curve remains inverted through the end of March 2007 a "recession watch" would start.
4. Mortgage equity withdrawal. MEW is turning decidedly more negative. MEW boosted consumer spending in recent years and helps explain the negative U.S. saving rate. However, with home prices flattening off and declining in many areas, refinancing has slowed sharply, and MEW has softened.
Consumer spending remained robust during the fourth quarter, but this may not continue if MEW remains weak. Meanwhile, rising interest rates and the resetting of many adjustable-rate mortgages have driven the ratio of the median mortgage interest payment to median family income to its highest level in nearly 25 years.
5. Other weak indicators. A series of other measures suggest caution:
--Industrial production fell an unexpected 0.5% month-on-month in January.
--Trucking industry volumes turned weaker in the final months of 2006--this weakness has persisted.
--Large homebuilders continue to report tumbling orders for new homes.
--Automobile industry sales at General Motors (nyse: GM - news - people ) and Ford Motor (nyse: F - news - people ) dropped by double-digit year-on-year rates in January.
The market's sanguine estimate of U.S. economic prospects this year may yet be proved accurate. However, given recent mixed economic signals, and the persistence of significant downside risk, U.S. economic statistics bear a close watch in the coming months for further signs of trouble ahead........
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ace, what I want to read from you are answers to where the economic stimulus will come from to mitigate the loss of a sizeable portion of the consumer financial "bonus" that the recent $800 billion per year of "MEW" - "Mortgage Equity Extraction" was, to expand GDP, and now, to even sustain it at a $13 trillion annual level.
Below, in the Bloomberg.com article:
Quote:
The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble -- and the money tied up in it.
``We've created an unproductive asset,'' says Joe Carson, director of global economic research at AllianceBernstein. ``A house doesn't produce income.''
Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed's Flow of Funds report. ``We created as much debt in housing in the last six years as we did in the prior 50,'' Carson says.
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....ace, supply us with your "take" on what will drive further GDP growth, or even sustain it, if what has driven it to where it is today....a $4.7 trillion mortgage lending binge that drove the homebuilding, realty, and mortgage underwriting industries, and the quadrupling of "MEW" in just five years, the effect of federal tax cuts that
are in the past now....priced in....and federal spending deficits that exceeded $500 billion per year, but are now, in your own belief, declining significantly? How will the decline in housing sales and in the prices offered for houses, avoid "feeding on itself", just as it did in the run up phase? How will increasing homeowner mortgage defaults not result in more foreclosures, auctioned into a housing market already suffering from lower demand and lower prices?
How will a consumer who grew accustomed, every 18 months, to refinancing his credit card balances and car loan into a new mortgage refi, while taking cash out...to boot...begin and sustain a new cycle of spending and trading up to an even bigger and better home, when he can no longer do the "cash out", debt consolidating "refi"...stuck paying his recent credit card balances and newest car loan, with no hope of again......making it disappear into his mortgage balance?
Will the new homeowners who are forced to refi their "no money down"...."buyer's ARM" into a mortgage that raises their monthly payment by 50 percent, while they observe a drop in value of a home that they already had no equity in...react to their dramatically higher mortgage payment? Will they pay...or will they walk away?
ace....the subprime lenders who I earlier covered, about 30 of them now....in distress, acquisition or BK, just since December, flamed out, even with no increase in the US unemployment rate. Explain how job losses in the realty boom related segments, and in building materials, trucking, construction equipment, etc., will be minimal, if the decline in realty related activity continues. What will replace the lost jobs and the related activity, to prevent the decline of GDP growth?
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http://www.washingtonpost.com/wp-dyn...030601980.html
Greenspan Lays Odds On U.S. Recession
'One-Third Probability' in '07, Former Fed Chief Says
By Craig Torres
Bloomberg News
Wednesday, March 7, 2007; Page D01
Former Federal Reserve Chairman Alan Greenspan said yesterday that there is a "one-third probability" of a U.S. recession this year and that the current economic expansion won't have the staying power of its decade-long predecessor.
"We are in the sixth year of a recovery; imbalances can emerge as a result," Greenspan said in an interview at his District office. "The historically normal business cycle is much shorter" than a decade and is likely to be this time, he said.
Alan Greenspan is back in the economic forecasting business.
Greenspan's outlook contrasts with the prediction of his successor, Ben S. Bernanke, who told Congress last week that the economy might strengthen this year. Bernanke's upbeat assessment helped steady stock markets on Feb. 28 after a plunge the day before that some traders attributed partly to Greenspan's musing that a recession could not be ruled out.
"It is possible that we can have a recession at the end of this year," said Greenspan, who ran the central bank for 18 years until January 2006. Bernanke declined comment.
Little more than a year after leaving the central bank, Greenspan, 81, is returning to economic forecasting, which he did before entering the government in 1974. He isn't trying to predict a number for gross domestic product or inflation; instead, he's trying to capture trends and when they might change.
Private-sector economists and policymakers are predicting that the expansion, which began in 2001, will continue. The Fed expects the economy to grow 2.5 to 3 percent this year, and 2.75 to 3 percent next year, according to forecasts presented to Congress last month.
Greenspan said he had been careful to avoid making life difficult for his successor.... to Read the Rest of this Article click to show
In appearances he makes for clients, his contracts stipulate that no reporters may be admitted and no recordings made. He said he tries to have an exchange with an audience, in which he often learns something that helps him hone skills he has worked on for 50 years.
"I was aware of the problem that if I stayed public, I could make it difficult for Ben," he said. "For the most part it has worked. I was beginning to feel quite comfortable that I was fully back to the anonymity I was seeking.
"I was surprised at this recent episode," he said.
Investors may have taken notice of his comments on Feb. 26 in Hong Kong because they considered them prescient. The day after he mentioned the risk of a recession, a Commerce Department report showed sales of nonmilitary capital goods, excluding aircraft, dropped 2.7 percent in January, the biggest decline since September 2001. Orders slumped by the most in three years.
Broader capital spending is also weakening. Corporate purchases of equipment and software declined at an annual rate of 3.2 percent last quarter, the biggest decline since the final three months of 2002, according to Commerce Department figures.
Greenspan said he did not think that so-called point forecasts, in which economists refine their projections down to decimal points, could be accurate in the near term. "We really can't forecast" the economy over the next two years, he said.
Greenspan worked for what is now the Conference Board, a New York business group, as an industrial-metals analyst from 1950 to 1953. Tracking inventories, he was able to come up with a model of final demand. He expanded that model to textiles, aluminum and oil.
He found that large-scale models that used aggregate data averaged out the nuances and changes he could pick up at an industry level. Finally, some of the assumptions of firms' pricing power didn't hold up.
"I realized I was trying to see how the world works in the context of individual entities," Greenspan said.
Under his chairmanship, the Fed staff began surveying companies directly on how their businesses were doing.
"We certainly devoted some resources to our own gathering of anecdotal information," said Michael J. Prell, former head of the Division of Research and Statistics, the Fed's central forecasting unit. "Every other week, we would contact some subset of a sizable group of firms."
Greenspan's unique discipline both frustrated and amazed Fed colleagues, especially those trained in sophisticated economic modeling.
"His great value is that he has an idiosyncratic approach," said Laurence H. Meyer, a Fed governor from 1996 to 2002 who often sparred with the chairman over the outlook. "The reason why Greenspan gets and deserves disproportionate weight is that he doesn't get caught up in all the themes that tie together in a consensus forecast. He is looking at all the different strands of data."
Once, Meyer said, he was sitting in a meeting with the Fed staff discussing the inflation implications of import prices. Out of nowhere, Greenspan asked about steel-ingot prices. Meyer said he wasn't even sure what an ingot was.
"Why would I ever even ask that?" Meyer, a founder and vice chairman of the model-based forecasting firm Macroeconomic Advisers in St. Louis, said in an interview.
Macroeconomic Advisers isn't forecasting a recession this year, and Meyer said markets "over-responded" to what Greenspan said.
"Who wouldn't agree that it is possible we could have a recession?" Meyer said. "I think we are closer to the middle of an expansion than the end of an expansion."
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Quote:
http://www.forbes.com/markets/2007/0...markets48.html
Market Takes Greenspan's Odds
Matthew Kirdahy, 03.06.07, 5:21 PM ET
The market ignored Alan Greenspan's dispatches on the state of the U.S. economy Tuesday, behaving more in line with U.S. Treasury Secretary Henry Paulson's remarks on the proverbial glass being half full.
The Dow Jones industrial average soared 157.18 points, or 1.3%, to close at 12,207.59 following strong gains late in the session. All but one of the stocks in the index, Johnson & Johnson, were in the green as the Dow logged its best one-day gain since July. However, the industrial average is on pace for its worst quarter since the first quarter of 2005.
The broader Standard & Poor's 500 gained 1.6% and the Nasdaq Composite, home to many leading technology companies, finished up 1.9%.
Things were looking almost too good, in which case, the New York Stock Exchange had to institute a trading collar -- which does not halt all trading, but is meant to curb certain arbitrage and computer-driven trading -- at about 3:13 p.m......
....Regardless, Greenspan couldn't spook the market the way he did last month, when the former Federal Reserve chairman first raised the prospect of recession <b>and said investors aren't braced for a hit.....</b>
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a huge number of articles in the following piece, ace. They detail the last realty run up, and decline....from 1981 to 1995.
Explain ace, given that the recent run up was much longer and peaked much higher, how it will "be different, this time"?
Quote:
http://njrereport.com/80sbubble.htm
Home Prices Do Fall
<b>A Look At The Collapse Of The 1980's Real Estate Bubble
Through The Eyes Of The New York Times</b>
by
James Bednar
New Jersey Real Estate Report
http://njrereport.com
Introduction
"Home prices never go down" is a quote often heard spoken by real estate agents. It isn't true. Real estate bubbles do exist and they do burst. The after effects of a real estate bubble burst are felt for years afterwards.
Thanks to the online search capability of the New York Times, I was able to compile a list of articles that appeared in the New York Times during the real estate bubble from 1981 to 1988 and then from the resultant crash, from 1989 onwards.
All the readers that have seen the preliminary compilation gave the same remark, "It's like deja-vu."
Indeed, it is. We've quickly forgotten the 80's bubble that swept over the Northeast, in particular the New York Metropolitan area. We've convinced ourselves that "this time is different." Unfortunately, all we've proven is that we lack the ability to learn from history and our mistakes.
.....<b>1981 - Slow After 70's Slump</b>
Your Money; Buying Houses As Investments
May 23, 1981, Saturday
By ALAN S. OSER (NYT); Financial Desk
Late City Final Edition, Section 2, Page 30, Column 1, 947 words
http://select.nytimes.com/gst/abstra...AC0894D9484D81
''DO you think we did the right thing?'' the nervous woman asked the supposed authority. She and her husband, already owners of a summer home in Southampton, L.I., had just contracted to buy a condominium there, purely as an investment. They had seen home prices in the Hamptons rise...
<b>1987 - Cracks Appear At The Top</b>
<b>Home Buying Drops Sharply In the Suburbs</b>
By THOMAS J. LUECK, SPECIAL TO THE NEW YORK TIMES
Published: July 27, 1987
http://query.nytimes.com/gst/fullpag...54C0A961948260
The surging market for homes in the suburbs of New York City has abruptly shifted gears. In many suburban communities, where real-estate prices have more than doubled since 1980, industry experts say there is a huge inventory of unsold homes, and a sudden paucity of buyers.
In May, June and early July - normally the peak of the home-buying season - anxious sellers in much of the suburban region have been lowering their prices, sometimes repeatedly.
''The number of properties on the market is unbelievable,'' said Richard Palmer, regional vice president of the National Board of Realtors for New York, New Jersey and Pennsylvania. ''For the moment, the unsatiable demand for homes seems to be satisfied.''
<b>1995 - Uncertainty As The Bottom Is Hit</b>
For Suburban Homes, Modest Recovery
By NICK RAVO
Published: February 19, 1995
http://query.nytimes.com/gst/fullpag...51C0A963958260
RECOVERY that was reserved in most areas and robust in some reigned over the residential real estate market in the New York suburbs last year. Home sales surged in much of Connecticut and Long Island and in Westchester and Rockland Counties and parts of Northern New Jersey -- but fell short of their mid-1980's peaks. Sale prices, in most places, were flat or rose only slightly, barely bouncing off the bottoms hit during the recession in the early 90's.
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Quote:
http://www.bloomberg.com/apps/news?p...d=aQKw_vL7cuLQ
As Housing Goes Bust, Lenders Become Predators?: Caroline Baum
By Caroline Baum
March 6 (Bloomberg) -- Congress is gearing up for hearings on predatory lending, the latest chapter in its long history of barn-door-closings on already-departed horses.
Just some background in case anyone hasn't picked up a U.S. newspaper in the last month. The subprime lending market is in trouble as borrowers who are, by definition, poor credit risks live up to their reputation.
Delinquency rates on these risky home loans are rising, subprime lenders are going belly up at an alarming rate, criminal probes of some lenders are under way (the trial lawyers must be salivating at the prospect of a whole new class of class-action suits), and front-page stories are proliferating almost as fast as you can get a no-money-down, no-questions- asked mortgage.
Make that as fast as you could have gotten a loan, before the regulatory agencies got wind of the trouble.
Last week, federal financial regulators, including the Federal Reserve, Office of the Controller of the Currency and the Federal Deposit Insurance Corp., proposed a series of guidelines ``to address certain risks and emerging issues related to subprime mortgage lending practices, specifically, particular adjustable-rate mortgage (ARM) lending products.''
The feds are concerned that (my interpolation) borrowers may not appreciate that a 2 percent teaser rate might not be good for 30 years. (See, ``If it sounds too good to be true, it probably is.'') They're afraid lenders may be unaware of the risks these loans pose to financial institutions. (The risk of making risky loans? Really?)
Full Disclosure...... To Read the Middle of this Article click to show
Now, full disclosure is important in any business. The more both parties know -- in this case, the lender and the borrower - - the more informed decisions they can make.
Fraudulent practices or misrepresenting the terms of a loan undermine the soundness of the financial system.
But where was it written that a lender should dispense with normal due diligence -- verification of income and assets -- before extending credit to a deadbeat to finance 100 percent of the purchase price of a house? Does that qualify as best practices suggested by both federal and state regulators, or in the best interest of either party if the borrower doesn't have the ability to repay the loan?
``Credit scoring has had a dynamic impact on lending,'' says Steve Fritts, associate director of risk management policy at the FDIC in Washington. ``It's a proxy for capacity and character,'' two of the three ``C's'' of credit (the third is collateral). ``But it's a limited proxy'' compared with the in- depth financial analysis and verification of a full underwriting, he says.
In Rerun
The widening cracks in the home-loan market aren't solely the fault of lenders.
``Investors were irrationally exuberant'' at the same time ``lenders and brokers were given incentives -- a big pay package -- to get customers into subprime loans,'' says Andy LaPerriere, a managing director at the ISI Group in Washington.
``Innovation may have made it easier to mislead,'' he says. ``But the key driver was the willingness on the part of lenders and mortgage purchasers to take on high risk, which will turn out to be a big mistake.''
And low interest rates created artificial (read: speculative) demand.
During a bubble, be it in the stock market or real estate prices, we want the government to stay out of the way. The bust produces finger-pointing, congressional hearings and new regulations.
Playing to Constituents
Congressional committee chairmen have already invoked the idea of ``predatory lending'' to create interest in planned hearings. Both Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, and Christopher Dodd, Connecticut Democrat and chairman of the Senate Banking Committee, want to ensure that borrowers have adequate protection.
In an opening statement at a Feb. 7 hearing, Dodd said ``that predatory and irresponsible lending practices are creating a crisis for millions of American homeowners.'' The Reverend Jesse Jackson testified, which is guaranteed to make the issue about race.
This may buy votes, but it misses the point. There is enough irresponsibility to go around on the part of both lenders and borrowers. As the bodies float to the surface, shady lending practices become obvious.
But predatory?
The interest rates weren't high, the standards weren't tight, and access to credit was wide open. Based on characteristics most folks associate with predatory lending, the accusation seems unfounded.
Easy Credit
To the contrary, any schnook who could sign on the dotted line qualified for a home loan.
The word ``predatory,'' with all its negative connotations, is popping up elsewhere; specifically, to describe loss- mitigation practices.
There is nothing predatory about ``improving the collectability of the loan,'' says Scott Valentin, managing director, specialty finance research, at Friedman, Billings, Ramsey & Co. in Arlington, Virginia.
Loss-mitigation tactics are fairly standard: Extend the terms of the loan, and if that fails, sell the loan for pennies on the dollar. There's nothing predatory about either. It's loan management. And it's in both parties' self-interest to find terms that can be met because ``no one makes money foreclosing,'' Valentin says.
Cause or Cure?
He estimates the loss of foreclosing at 40 percent to 50 percent of the initial value of the loan.
<b>The problems in the subprime market may be just the tip of the iceberg, given the depth and duration of the housing bubble -- and the money tied up in it.
``We've created an unproductive asset,'' says Joe Carson, director of global economic research at AllianceBernstein. ``A house doesn't produce income.''
Mortgage debt rose by $4.7 trillion from the end of 2000 through the third quarter of 2006, according to the Fed's Flow of Funds report. ``We created as much debt in housing in the last six years as we did in the prior 50,'' Carson says.</b>
After the late 1990s stock market bubble, the economy recovered with a combination of interest-rate relief and income growth, he says.
That rate relief was the cause of the current housing bubble, former Fed Chairman Alan Greenspan's claim about the Berlin Wall coming down notwithstanding. How can the cause also be the cure?
(Caroline Baum, author of ``Just What I Said,'' is a columnist for Bloomberg News. The opinions expressed are her own.)
To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .
Last Updated: March 6, 2007 00:04 EST
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You've convinced me that you "feel" good about our recent and continued economic growth, and you've told me that you believe in the "intrinsic value" of residential realty properties. I know, from my own experience, that....when you have to sell, because of the circumstance you find yourself in at a given point in time, even if you have waited, three, four, or more years for a "better market", you sell for the price that "that market" will bear. It is of no consequence, at that moment in time, whether you are selling for less than your own cost, or even for less than it would cost to buy the lot and build a clone of that residence. You can only get what the market into which you are selling, "will bear"
I predict that the decline will last more than ten years, ace, in the majority of US local realty markets....ten years from now, or from sometime in 2005, depending on local conditions. I predict, that...just as the housing boom drove a period of unparalled prosperity for a fortunate, and sizeable minority of American homeowners, speculators, and realty industry participants, and that it is already, and will continue to "spill over"on the broader economy, affecting US GDP to the point of a sustained period of negative GDP, low enough and long enough to be declared by the Federal Reserve as an economic depression, accompanied by double digit unemployment numbers and record personal BK filings and residential foreclosures.
Earliest date when national median home price is equal to that of the high during the last two years, and when new and existing home sales are equal to the highest monthly median number during the last two years, (even a collapse of the dollar would not make both median price and number of units sold, quickly achievable, IMO), is at least no sooner than the spring of 2015, IMO. |