Wednesday, July 19, 2006

Will This Time Be Different?

From the Philadelphia Inquirer:

This time, things will be different
By Andrew Cassel

Seem like old times? It might if you remember the late 1980s, says regional economist Jim Diffley.

Back then, the nation was bifurcated; growth was booming along the East and West Coasts, while Middle America - what sophisticates called the flyover states - struggled with a host of industrial, agricultural and energy-related woes.

More recently, something similar has been happening, particularly when you look at housing prices.
If that rings an ominous bell, it should. The boom of the mid- to late 1980s was followed by a bust that took its biggest toll on the same bicoastal set of states and metro regions, Diffley said.

As a reminder, he dug out some regional house-price statistics from that era that most real estate salespeople would prefer to forget:

In Boston, average home prices fell 11 percent between 1989 and 1991. Northern New Jersey fell even more - 14 percent - in the same period.

The trend took a little longer to reach the West Coast, but it lasted longer when it did. San Francisco home prices dropped 11 percent between 1990 and 1994. Los Angeles' average house plummeted 21 percent from '91 to '95.

Philadelphia's price drop back then wasn't as pronounced, mainly because our gains in the mid-1980s weren't as large either. Houses stayed roughly flat here through about 1996.


Anonymous Anonymous said...

A much bigger bubble requires much bigger correction.

NO MAAS to Ripoff homes prices.

Why should grubbers pay 2-4 times income while they ask you to pay 7-10 times income?
Tell'em no MAAS

Lots of foreclosures hitting daily




7/19/2006 06:18:00 AM  
Anonymous Anonymous said...

Hey Bubbleheads

Homebuilder Confidence At 15 Year Low

The homebuilders association has their monthly report out. “Increased concerns about interest rates and housing affordability caused builder confidence in the market for new single-family homes to slip three more notches to 39, according to the National Association of Home Builders.”

“‘The HMI is down from its most recent cyclical high of 72 in June of last year, and reflects growing builder uncertainly on the heels of reduced sales and increased cancellations related to eroding affordability as well as an ongoing withdrawal of investors/speculators from the marketplace,’ said NAHB Chief Economist David Seiders.”

“‘But just as concerning to many builders is the potential for more monetary tightening by the Federal Reserve that could drive interest rates, and thereby homeownership costs, even higher,’ Seiders added.”

“All three component indexes fell in July. The largest decline was in the index gauging sales expectations for the next six months, which fell five points to 46. The index gauging current sales of new single-family homes fell four points to 43 and the index gauging traffic of prospective buyers fell two points to 27. Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.”

From MarketWatch. “Home builders’ confidence plunged to a 15-year low in July. It’s the fastest decline in the 21-year history of the index, which has had a fairly good record of predicting the number of new homes started.”

15 year LOW!

I remember well. About 15 years ago in the last "Little" bubble Condos fell about 50% in price and houses about 25%. This is the Biggest bubble so condos probably could drop more than 50% and houses 30-40%.

Buy a house and watch it lose value. 30% drop in value will put most into negative equity position. Hope you don't have to sell in the meantime.



7/19/2006 06:25:00 AM  
Anonymous Anonymous said...



No MAAS to monthly slave payments. Want to sell your house lower your price by 25-35% from 2005 peak prices not some jacked up manipulated con-job. NOONE is falling for it anymore or most are priced out anyway with soaring interest rates!

7/19/2006 06:28:00 AM  
Blogger thatbigwindow said...

The NAR will be working with the lenders to figure out new ways to make houses affordable

7/19/2006 06:36:00 AM  
Anonymous Anonymous said...

Just ask those Interest only Teaser rate Option ARM buyers now how they feel?


How about Bankrutcy!



7/19/2006 06:46:00 AM  
Blogger grim said...

Great blog Big Window.

As for affordability, we're long past the point of financial alchemy being able to make homes more "affordable".

There already plenty of loans that allow for the absolute minimization of monthly payments through delaying or negatively amortizing principal payments.

I know it sounds counterintuitive, but I've got a great way to make homes in this area more affordable:

Cap the mortgage interest deduction.


7/19/2006 06:51:00 AM  
Anonymous Anonymous said...

good article... a little watered down... but if you look at what is being said, it's quite clear... this economist is acknowledging that there's a bubble in the philly area... and it can't be justified thru job growth.

7/19/2006 08:43:00 AM  
Anonymous Anonymous said...

Can anybody tell me what trigger the last bust. There must be something that prick the bubble.

7/19/2006 08:51:00 AM  
Blogger skep-tic said...

there doesn't need to be any outside event to prick a bubble. bubbles usually collapse under their own weight. as prices get further and further out of wack, more and more people start to question them. at a certain point, these skeptics reach a critical mass and start to outnumber the cheerleaders. price appreciation stops, causing even more people to doubt. the process reverses itself.

7/19/2006 09:02:00 AM  
Anonymous Anonymous said...

Bernanke still worried about inflation
Fed chief tells Congress that the central bank remains vigilant, trying to protect economy from harm.

Its assured now. A .25% increase at next meeting.


7/19/2006 09:18:00 AM  
Anonymous Anonymous said...

Rate shock

State Farm's math confounds consumers like Eddie Moran, who moved his family here from California five years ago. Now the commercial airline pilot is ready to bail from Florida.

"If I move out, which I'm seriously considering, who's going to move into my house?" he asked. "Can they afford the property taxes, have kids who go to public schools, be two people who work? Or is it going to be New Jersey or New York retirees who spend six months a year living elsewhere?"

In 2001, State Farm charged $1,800 to insure Moran's dockside home on Merritt Island. The premium now is $5,361 and, if the state approves the company's rate hike, Moran's bill will top $12,000. Even his agent finds the premium hard to digest, Moran said.
Let's see...... $1,800 in insurance cost soars to a proposed $12,000 annual insurance cost.
What about property taxes? What did those do? Hmmm. In Florida the bulk of those do not kick in until he sells and the new buyer has to pay those property tax increases.

Prices have nowhere to go but down BIG!!!!!!!!!!!



7/19/2006 09:35:00 AM  
Anonymous Anonymous said...

I agree with Grim on capping the mortgage interest deduction. Base it on a percentage of income ??
In the early eighties my Bergen C. house when from 175,000 to 135,000 overnight, it wasn't a problem since I needed a place to live for the next twenty years but guy's I worked with were selling there condos for 90,000 and were taking 20,000 to the closing.Not happy campers !!

7/19/2006 09:51:00 AM  
Blogger chicagofinance said...

Cap the mortgage interest deduction.

cap exists

$1M principle original mortgage debt

$100K home-equity line

cash outs above original level are NOT deductible, but people [especially in mortgage sales] seem to gloss over that fact

7/19/2006 10:31:00 AM  
Blogger Flop that house said...


could you put it in layman terms.

I don't quite get it


7/19/2006 10:41:00 AM  
Anonymous Anonymous said...

Except for very high-margin, skill-intensive firms, businesses are reluctant to locate in expensive areas like ours, Diffley noted. That's why employment in states such as Nevada or Arizona is growing two or three times as fast as in Pennsylvania.
Inside Philadelphia city, growth will be "relatively flat" thanks to business-unfriendly taxes and other costs.

But the larger metro area will grow at what is - for the Northeast - "a fairly healthy pace," Diffley said.

Wow, an article about the high cost of doing business in the NE, thanks to the ridiculous levels of taxation? How did this survive the liberal Philadelphia Inquirer editorial gauntlet??

Hmm, maybe if the paper spent some more time railing against the ridiculous levels of taxation, there'd be change, and not quite so many jobs would flee the region??

(oh yeah, the crime would drive 'em out since there isn't a single liberal who has the stones to take effective measures against urban crime. It's Giuliani Time!!!)

7/19/2006 11:09:00 AM  
Blogger grim said...

Should have qualified my statement by saying "a realistic mortgage interest cap".


7/19/2006 11:13:00 AM  
Blogger chicagofinance said...

Ph.D. said...
could you put it in layman terms.
I don't quite get it
7/19/2006 11:41:55 AM

You buy a home for $200K in 1990, and take out a $150K mortgage, then you pay down the mortgage by 2005 to $75K.

In 2005 your home has increased in value to $500K and your mortgage is $75K principle.

You decide to take a cashout re-fi for $200K. You have $125K left over. By the IRS Code, you can only deduct the interest expense generated by up to $150K of the $200K mortgage AND that is ONLY IF you plow the money back into your home. People don't follow this rule, and you would be snagged under audit.

If you buy a car with your cashout - CANNOT DEDUCT interest on that portion of the mortgage.

If you buy a boat with your cashout - CANNOT DEDUCT interest on that portion of the mortgage.

If you redo your kitchen with your cashout - CAN DEDUCT interest on that portion of the mortgage, but ONLY up to the level of the original mortgage.

7/19/2006 11:50:00 AM  

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