Thursday, March 16, 2006

Fed won't act to preserve high home prices

From Marketwatch:

Fed's Kohn says Fed won't act to preserve high home prices

WASHINGTON (MarketWatch) - The Federal Reserve has no intention of preserving all of the recent gains in home price values, said Federal Reserve board governor Donald Kohn on Thursday. "If real estate prices begin to erode, homeowners should not expect to see all the gains of recent years preserved by monetary policy actions,' Kohn said in a speech prepared for delivery to a European Central Bank forum in Frankfurt, Germany. In his remarks, Kohn attacked the popular 'Greenspan put' theory that Fed policy would always protect investors from sharp asset market drops while doing nothing to restrain these markets when prices. "This argument strikes me as a misreading of history," Kohn said. "Conventional policy as practiced by the Federal Reserve has not insulated investors from downside risk," he said.

This is a big one folks. One of the greatest concerns with bubble sitters was that the Fed would drop rates dramatically to protect home price gains. The drop in rates would push mortgage rates low and reignite the boom. The Fed is making it very clear that it will not act to protect housing prices. This is without a doubt one of the most significant articles released to date.

Caveat Emptor,
Grim

38 Comments:

Anonymous Anonymous said...

This is a warning shot across the bow.

Don't count on the FED to bail you out if you are underwater.

Let the free markets work. You make a dumb financial decision you must learn the lesson.

3/16/2006 10:59:00 AM  
Blogger Bubbletracker said...

I think this is true, too. While on TV the Fed talks about either there not being a bubble, or just regional ones, if you read the minutes of thier meetings, the Fed has been quite concerned about the bubble.

Thanks for the link, Grim- we are adding one back to you. :-)

Bubbletracker
BubbleTrack.blogspot.com

3/16/2006 11:14:00 AM  
Anonymous Anonymous said...

It looks like the FED is trying to coverup for their inept policies. Passing the buck.

3/16/2006 11:27:00 AM  
Anonymous Anonymous said...

Once millions of idiots (read: voters) feel that somebody else should bail them out politicians take notice.

I know FED is independent but is there anything admin or congress can do? Tax cuts or refunds for those who have seen their home prices declined "unfairly" ?

Democrats will surely attack Bush on this so Bush may feel obligated to "do something".

3/16/2006 11:28:00 AM  
Anonymous Anonymous said...

"Sellers Are Chasing Last Years Market"

http://thehousingbubbleblog.com/?p=291


"In the last 15 years, I think this has been the weakest start to spring that I've seen," says Bob Moulton, a mortgage broker in Manhasset, Long Island.

3/16/2006 11:42:00 AM  
Blogger Otis Wildflower said...

Saving high home prices == inflation, which will never be permitted because it's far worse than letting speculators take a bath.

My folks empty-nested out of high taxland a couple years ago, missed out on another year of gains, but better to sell early and profit than sell late and lose.

3/16/2006 11:57:00 AM  
Blogger Boston-Real-Estate-Watch said...

This comment has been removed by a blog administrator.

3/16/2006 01:06:00 PM  
Anonymous Anonymous said...

Boston Real Estate Shill,

That IS depressing!

You need to drop your web site anywhere you can in the hopes of finding a sale.

3/16/2006 01:16:00 PM  
Anonymous gary said...

Realtors: The new used car salesmen.

3/16/2006 01:33:00 PM  
Blogger Richie said...

Boston:

You're approach to advertising your website is as thoughtful as smoking companies trying to sell cigarettes to non-smokers.

-Richie

3/16/2006 01:34:00 PM  
Blogger grim said...

Blatant advertisement will be deleted.

3/16/2006 01:35:00 PM  
Blogger Marinite said...

I'm not so sure. Maybe this is just the sowing of doubt necessary for an effective Lender of Last Resort?

Marinite
Marin Real Estate Bubble

3/16/2006 01:55:00 PM  
Blogger skep-tic said...

the ability of the U.S. to sell treasuries is far more important than joe schmoe's home value. anyone who thought the reverse was dreaming.

I think a lot of people have underestimated Bernanke's desire to kill inflation

3/16/2006 01:56:00 PM  
Blogger chicagofinance said...

IMHO all FED bashing is unfounded.

You want to vilify guilty parties:

1. Go blame the Japanese Government for their sponsorship of a backward banking system that kept that country in recession/depression for 15 years. It killed our ability to export there and drove down yen interest rates to literally zero, sending cash abroad looking for yield

2. Go blame socialist/left leaning Eurozone economies and societies built for the 1950's who are long on the political rhetoric, and pathetic on integration, assimilation, and forward thinking economic planning.

3. Go blame the Chinese central bank for enforcing an effective US dollar peg in the face of a rampant trade imbalance with the US.

4. Go blame the US government for failing to provide policy stimulus for alternative energy sources so that the US continues to be dependent on international "hot-zones" for energy.

These factors have all caused there to be tremendous amounts of global liquidity. In turn, the sloshing around of all this cash has created an environment of implicit and explicit outsized risk taking without proper compensation. It is this risk taking that has allowed an environment of I/O loans, negative ARMS, and financial institutions that are willing to securitize anything to stuff into the pockets of people with too much cash on hand.

If you blame Greenspan for the housing bubble, then you probably blame you stock broker for not putting you entire life savings in to Google at the IPO price.

chicago "the bubble boy"

3/16/2006 02:22:00 PM  
Anonymous Anonymous said...

$40,000 price drop:
MLS 2243399
63 Wade Dr, Summit
639,000 => $599,000
Days on Market: 39

3/16/2006 03:02:00 PM  
Anonymous Anonymous said...

CNBC has been negative on housing ALL...DAY...LONG.

3/16/2006 03:16:00 PM  
Blogger Pointlines said...

ChicagoFinance:

I dont blame the Fed. I blame the easy money lending institutions that sell IO and NegAm loans to the masses as a low payment, without ever fully disclosing the built in risk.

I blame the Realtor and Mortgage company media machine in duping the masses to believe you dont need to work hard and instead can retire by investing in Real Estate with no money down as Real Estate only goes up!!

3/16/2006 03:18:00 PM  
Blogger Richard said...

i'm not buying it. the Fed is talking tough because they can as the market is still healthy. RE is critical to the vitality of today's US economy. if it goes so could go many other things like the viability of the banking system which the Fed is in the business of protecting first and foremost. the Fed will act if asset values drop too far, you can bet on it.

3/16/2006 03:20:00 PM  
Anonymous Anonymous said...

Building bigger and excess housing does absolutely nothing to make our economy more competitive. I expect businesses to start upping capital investment to stay ahead. Consumers on the other hand will be pressured by ecessive debtloads that need to be services thus lower spending. maybe for once the savings rate will start going up for once after all the housing bankruptcies first.
Greenspan and his cohorts are to blame for keeping rates at ridiculous levels allowing to print money non-stop and turning their backs on the risky mtg schemes widespread being offered to get in on an overpriced house.

3/16/2006 04:05:00 PM  
Anonymous Anonymous said...

Richard,
I left you a message on "Who's Buying" about a wonderful townhome complex in Summit- I swear I am not getting a commision on this- We just LOVED being in this location and even when we looked in surrounding areas did not find anything of comparable value.

We moved here and we took our time getting to know the area. The townhome was so spacious and convenient, we were more than comfortable. We never felt in a rush until we found the perfect house. The other benefit of living in a town where you are looking to buy is word of mouth and private sales.

We ended up getting a great deal on our house beacuse we heard about it through a friend of a friend!

It is really a wonderful location, walk to town, the train station and mid town direct and convenient to tons of childrens activities, the ymca, the connection, parks. OK I know I totally sound like a realtor, but I am not. In fact they never pay broker comissions on these places as they don't have to.

I am just really trying to help you out and pacify your desire to "buy". These prices are ridiculous!

3/16/2006 05:13:00 PM  
Anonymous Anonymous said...

Does anyone have opinions on West Orange?

Good schools? Safe to live there?

South Orange seems quite close -- don't want to find a nice house only to get killed in a drive by shooting...

3/16/2006 05:49:00 PM  
Anonymous Anonymous said...

GSML inventories in NJ


March 6 - 24,111
March 16 - 24,767

It's getting ugly. But this is ONLY the start. Patience.

There will be a time when realtors will be harassing you and sellers will be very nice and desperate. Watch.

3/16/2006 06:02:00 PM  
Anonymous Anonymous said...

Does anyone have opinions on West Orange?

West Orange and South Orange are safe places to live. Though they do receive their fair share of negative publicity being that they are close to Orange, Irvington, and Newark.

As for schools, the Gregory schools are fine, and West Orange High school ranks pretty high. However, can't say the same for South Orange--they share a school system with Maplewood.


I have lived in West Orange since 2001, after leaving Upper Montclair due to the taxes. The problem is that both West and South Orange have high property taxes--no longer a bargain. My property taxes increased about $1,600 per year in West Orange--not sure why.

Just keep in mind that back in the mid-to-late 90's West and South Orange were considered less desirable and that is beginning to reflect in the fact that there are numerous listings in these areas that are months old. Remember: the spillover from Montclair came to West Orange, and the tide is moving out.

What was not hot then, is not hot now.

3/16/2006 06:03:00 PM  
Blogger Richard said...

i currently live in south orange. hate it. while it has a professional city commuting crowd there's a sketchy element with irvington and newark right next door. it's also liberal to the point of disillusion. the board of trustees can't get their act together and the village looks like a town in the making with many prominent stores shuttered for years.

3/16/2006 08:42:00 PM  
Blogger Richard said...

thanks anon 5:13. i have friends in summit and know the area well. you can't get into a decent 3 bedroom for less than $650k. if you don't work in the city or need to use the school system i don't see the point of paying the premium. still we're looking there and also in madison, westfield, chatham, new providence.

here's something i don't get. since when did Madison become more expensive than Westfield and equally as expensive as Chatham and Summit? those Madisonites are a wee bit too arrogant IMO.

3/16/2006 08:45:00 PM  
Anonymous trroll said...

chicagofinance, “You want to vilify guilty parties:…”

I usually agree with you opinions but not on this one. It’s kind of typical for Americans to blame every body else but themselves – we love to do that. It’s not Japan, China, Germany or France fault that the house prices are out of control. Every body is running their economy as they see it fit – it’s called democracy and FREE market. We do not have to have as enormous export deficit with Japan as we have now – we do not have to buy their products – and when they impose embargo on our products we should do the same. We do not need to drive German cars, eat sushi or drink French wine – we have a choice. Our housing market was not over inflated by Germans or Chinese buying houses here – it was our own doing. As to “global liquidity” remember money follows the margin – lots of money left US and went to Europe because of that – higher interest rates. And it was us (read American banks and financial institutions) that came up with all of those “are you out of you f*ken mind” financing we had (and still have) in last 5 years. Plus, we are so used to the idea that United States is so big and powerful that we are immune to shifts in market (global and local) moods – well we clearly forgot ‘20s. As to the “cash on hand” well that means that we are better of than others as we have s**t loads of cash to spend on houses we can’t afford – figures.

3/16/2006 10:07:00 PM  
Anonymous Anonymous said...

Thanks for the info on West Orange.

There's a house for sale on Beverly Road, is anyone familiar with that area/street?

Here's a google map view of the location:

http://www.google.com/local?q=Beverly+Road,07052

3/16/2006 10:09:00 PM  
Blogger chicagofinance said...

all:

thx for the rebuttals!

3/16/2006 10:44:00 PM  
Anonymous Anonymous said...

Here's an interesting website that allows you to compare crime in 2 towns:

http://westorange.areaconnect.com/crime/compare.htm?c1=West+Orange&s1=NJ&c2=Summit&s2=NJ

I compared West Orange vs Summit, just to see the difference.

And here's West Orange vs South Orange:

http://westorange.areaconnect.com/crime/compare.htm?c1=West+Orange&s1=NJ&c2=South+Orange&s2=NJ

South Orange is scary stuff. Wear a bullet proof vest.

Lots of property crime (theft) in West Orange, and lots of physical crimes (rape, murder, assault) in South Orange.

3/16/2006 11:14:00 PM  
Anonymous trroll said...

For those looking for stats and info about different cities (all over the US): crime, population, mid salaries, house values... etc (note: data on house value is outdated)– go to:

www.city-data.com

3/16/2006 11:50:00 PM  
Anonymous Anonymous said...

$60,000 price drop:
MLS 2245849
5 Mountain Av, Summit
$629,900 => $569,900
Days on Market: 39

3/17/2006 08:33:00 AM  
Blogger njAndrew said...

Re S. Orange/W. Orange etc

I grew up in S. Orange (70s-late 90's), it was a nice town to grow up in, upper class incomes and good schools (good sports and many ivy league top college upon graduation), direct train to NYC (45min) but things have changed. The schools are no longer as good as they were and crime is up. Now when I say crime is up it is mostly theft, the people making this out to be an inner city are crazy. Today west orange is the better town (father now lives there) but there is no NYC train. I actually wouldn't live anywhere in Essex county because of the high property taxes.

Union county (Scotch Plains, Fanwood, Berkley Heights) might be a better choice.

Andrew

3/17/2006 11:19:00 AM  
Anonymous Anonymous said...

Just found this on Vanguard's home page.

https://flagship3.vanguard.com/VGApp/hnw/VanguardViewsArticlePublic?ArticleJSP=/freshness/News_and_Views/news_ALL_housing_03172006_ALL.jsp

3/17/2006 01:26:00 PM  
Anonymous Anonymous said...

Richard,
From Annon 5:13
What you are seeing for 650K in Summit used to sell around 300-400K only a few years ago....that's why i suggest waiting. We also looked in Westfield, Madison and Chatham and found that we got no more for our money. We did not like the feel of New Providence since many of the homes/neighborhoods are 50's splitsvilles.

All towns have equally great schools for your young one. Westfield is very close to Plainfield, spend a few Sat nights in both towns before you buy. We also hated rt22 which you would travel a lot in Westfield..

We loved Madison, but we were also shocked that the prices were so high. If you are going to pay the price- we bought in the town we had established ties and never regreted it. The lifestyle is great for anyone working in NYC. If hubby worked West we may have chosen something different. Not an option for us.

Patience- the market is really slowing.

Good luck- time is on your side.

3/17/2006 10:32:00 PM  
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