Friday, August 25, 2006

Brownie Bubble

I always thought it was apple pie, but maybe that's just a regional thing.

From the Philly Inquirer:

What would a housing recession mean?
Mmmm... smell the brownies?

They're gooey, chocolaty - and they carry the unmistakable whiff of economic trouble.

All across America, that warm, inviting aroma of homes-for-sale is filling the air.

Of course, it's one of the oldest tricks in every real estate broker's book. Stick a plate of brownies in the oven just before the prospective buyers show up, hoping the olfactory rush will make them reach for their checkbooks.

If the data out this week are any kind of indicator, boxes of instant brownie mix should be flying off supermarket shelves for at least the rest of this year. And unless they do the trick, it looks as if the first big housing boom of the new millennium is finally over.
There's a term for what this looks like, but until now, few forecasters were willing to utter it. No longer: "We have what could be called a housing recession," Wall Street economist James O'Sullivan told Bloomberg News yesterday.
Certainly the passing of the bubble, if that's what it is, will be felt: Housing and all its related activities (construction, sales, financing, etc.) have accounted for something like a third of all the jobs added in the United States since 2001.

Even beyond job creation, rising home prices have stimulated consumer spending. People feel richer when they think their house is gaining value. And thanks to an explosion of easy-credit financing, it's been a snap for consumers to use their homes as cash machines, using home-equity loans to pay for everything from college tuition to holiday gifts.
Soaring house prices are much more ephemeral. Yes, the boom brought needed residential investment to cities such as Philadelphia, but it's still unclear how that will produce better long-term growth.
Better prepare yourself - but have another brownie first.


Anonymous Anonymous said...

{{{And thanks to an explosion of easy-credit financing, it's been a snap for consumers to use their homes as cash machines, using home-equity loans to pay for everything from college tuition to holiday gifts.}}

And not to mention, spending $20,000 on clothing each year and buying every cool electronic toy to hit the market.

Those who can't or don't participate in this consumer spending orgy are seen as poor & inferior.

8/25/2006 06:25:00 AM  
Blogger jayb said...

"In many places, moreover, house-price inflation merely redistributes wealth, rather than creating it."

Shouldn't he have used the word appreciation and not inflation? Just making sure I understand the difference.

8/25/2006 07:07:00 AM  
Blogger grim said...

When the price of gasoline goes up, it's inflation.

When the price of food goes up, it's inflation.

When the price of clothing goes up, it's inflation.

When the price of automobiles go up, it's inflation.

When the price of homes go up, it's..

Appreciation or inflation?

8/25/2006 07:55:00 AM  
Blogger yo me said...

Abode attitude
How Americans feel about their homes.
By Les Christie, staff writer
August 21 2006: 3:31 PM EDT

NEW YORK ( -- There's a lot of money riding on just how Americans feel about their homes. The value of residential real estate in the United States is worth upwards of $20 trillion, according to the Federal Reserve.

The National Association of Realtors (NAR) reports that close to seven million single family homes are expected to change hands this year alone, at a median price of about $227,000.

Despite the big money to be made - or lost - in real estate, only 5 percent of Americans regard their houses primarily as investments, according to a recent report on the attitudes of Americans toward their homes.

Coldwell Banker surveyed more than 2,500 U.S. homeowners over 25 years old with household income of at least $75,000. The responses from this moderately well-off group revealed that the vast majority, 67 percent, think of the house they live in primarily as a home, not a financial vehicle.

That loyalty to their existing home was further demonstrated by their answers to a question about whether or not they would trade up from it to a better one if they could do so without affecting the rest of their lifestyle. Most (53 percent) said no or probably not.

This demographic seems to be well satisfied with the lives they lead and the reports of Americans draining equity out of their homes to finance lavish lifestyles may be exaggerated. The survey found that 63 percent of respondents said they had taken no cash out of their homes for at least three years and 77 percent had no intention of doing so in coming years.

"The majority don't look at their homes as piggy banks," says Coldwell Banker CEO Jim Gillespie.

All that seems to indicate a high level of attachment, one that may seem surprising in people as mobile as Americans, who move an average of every seven years, according to NAR.

When they do move
The survey found that most of the Americans moving relocate to either equally crowded or even more densely populated areas; two-thirds moved either from one city to another, from one suburb to another or from suburb to city.

Most of us leave our hometowns; 81 percent live someplace other than where they were raised and 52 percent live at least 200 miles from there.

And although almost everyone has more than one reason for moving, the ones they cite most often include their careers (48 percent) or to improve their lifestyles (45 percent). More than 27 percent relocate to pursue a relationship.

Other reasons for moving include finding a more affordable location (15 percent) or a more affordable house (13 percent), a need for more space to serve a growing family (15 percent) and to be closer to extended family (16 percent). Divorce plays a role in 11 percent of these moves and displeasure with their current homes is cited by 12 percent of respondents.

Many people (13 percent) just want to leave winters behind by going to a warmer climate.

What Americans don't want
What these Americans are not doing is moving into "handy-man specials." Sixty-eight percent said they bought spanking new homes or ones requiring very little updating.

Gillespie sounds a bit rueful over that. He says, "Homebuyers may be missing opportunities to get more house for their dollar. . . . Sweat equity can transform a home from a fixer upper into a beautiful living space worth much more than its purchase price."

Perhaps lower-income Americans than the ones covered in this survey are buying the fixer-uppers. Or maybe these folks just don't have the time, skills or inclination to spend their all-too-short vacations scraping, spackling and painting.

Gillespie says, "People in [the higher] income range are looking for lifestyle, in a home that's already completed. Only 9 percent of them bought a fixer-upper and many of them were in high priced markets such as California," where even moderately high income people face affordability problems.

8/25/2006 02:23:00 PM  
Anonymous Anonymous said...

It's the end of the line folks.

No more magical bail out for a lack of productivity. Every card has been played. Lower interest rates? Already low. Increase productivity? Can't beat China and India. Moratorium on debt? Creditors bail and crush the dollar.

Our economy, based mostly on debt will go to pull the rip chord and find out, there is no parachute packed.

As fuel prices rise, you won't be able to GIVE away an SUV. Neighborhoods will be peppered with boarded up foreclosures that no one wants. Jobs will dry up. If you don't work for the government, you have my deepest sympathies. Social Security benefits will be cut in half and young people will have their taxes double. A dollar will be worth a dime.

When the government is allowed to print money freely and irresponsibly just to avoid losing votes by raising taxes, this is what you get.

8/26/2006 04:57:00 AM  

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