Monday, September 11, 2006

Did 9/11 play a role in the housing boom?

From TheStreet.com:

Housing Rises in Terror's Wake

When the Twin Towers fell on Sept. 11, 2001, a glowing symbol of American capitalism was destroyed. Just a few months later, Americans were already talking about a new symbol of the nation's mighty wealth potential: the U.S. housing boom.

But could there have been a U.S. housing boom without the events of 9/11? It's a matter of much debate. What is clear is that certain factors that would lead to a real estate recovery were already in place before the attacks, most prominently the Nasdaq's plunge earlier that year.

Perahaps it's best, then, to say that without 9/11, there would have been a recovery in the housing market, which was in a funk in 2000 and the first half of 2001. But the terror attacks unleashed a series of policy actions that insted spurred a boom.

Most experts agree that the U.S. housing boom was caused by a confluence of factors set in motion in 2001 -- including very low mortgage rates and a newfound desire for tangible assets like real estate.

"In terms of the nationwide housing market boom, certainly the interest rate declines helped," says Lawrence Yun, an economist with the National Association of Realtors. "But there is also some element that is hard to quantify. In more uncertain times, people prefer having a tangible asset."

It's a mistake, though, to think that 9/11 alone created these factors. In fact, the Nasdaq's plunge in the spring of 2001 first put the ball in motion for the Federal Reserve's rate cuts and the flight to hard assets after millions of Americans saw their paper wealth evaporate in the dot-com bust.

30 Comments:

Anonymous Anonymous said...

For those fools that signed the bottom line you are toast but to prevent a few last Dummies to sign up for monthly slavery-bankruptcy listen to this.

http://calculatedrisk.blogspot
.com/

9/11/2006 12:04:00 PM  
Blogger Richard said...

i agree with the article 100%. it's tough to pinpoint cause and effect as there are usually a # of factors involved. forget about trying to quantify them.

9/11/2006 12:05:00 PM  
Blogger Richard said...

anon 1:04pm, bubble believers may all be wrong in the end. look at the UK housing market. farther into the cycle than us and so far no death and destruction. i happen to believe we'll see pain, some areas more than others depending on speculation but saying people buying today are toast either makes you a prophet or just another with an opinion on the matter. i'll guess the latter.

9/11/2006 12:07:00 PM  
Anonymous Anonymous said...

Richard,

UK is a house of cards.

I lost money on a flat in London.

SAS

9/11/2006 12:18:00 PM  
Anonymous Anonymous said...

This is not the UK.
Take the emotion out of the analysis and it becomes quite apparent things are overinflated anyway you look at it.

2007 ARM resets are going to be disastrous to these folks.

Future home demand has been soaked up so that many sellers will have to battle for the dwindling number of buyers left standing. With the buyer sentiment shifting, sellers will be giving alot to move those properties.

9/11/2006 12:21:00 PM  
Anonymous Anonymous said...

Richard said...
anon 1:04pm, "bubble believers may all be wrong in the end."

I certainly may be wrong. I try to judge any market on the fundamentals and technicals of that particular market. One ominous technical aspect recently became apparent. Realty Trac was ranked the 53rd fastest growing private firm by INC magazine. Everybody has their own reasons for what they believe regarding this market. However, when foreclosures become a growth business, we should all conclude that the housing market is entering tumultous (saying it kindly) times.

BC Bob

9/11/2006 12:56:00 PM  
Blogger skep-tic said...

I don't understand why everyone has concluded that the UK dodged the bullet. Prices are still widely divergeant from fundamentals there. just because the downturn hasn't happened yet there doesn't mean it won't

9/11/2006 01:21:00 PM  
Blogger skep-tic said...

from the Economist:

"housing is now 35-50% overvalued in Britain and Australia and perhaps 20% too dear in America. A return to fair value will mean either rising rents or falling prices. If rents continue to rise at today's pace, many years of stagnant prices will be required to bring the price/rent ratio back to its long-term average. Especially after a giddy ascent, it is too soon to talk about a soft landing before a return to firm ground."

9/11/2006 01:32:00 PM  
Blogger Richard said...

bc bob has a good perspective. he states belief based upon whatever empirical data exists. on the 'bubble believer' side by the same token don't let your emotions make you think this market will crash. there are so many variables in this equation its tough to really know what'll happen. remember what should happen isn't always what does. what can be said is the next couple of years should be quite interesting. let's all hope no matter what happens the pain is minimal even if people 'deserve it' due to their ignorance or stupidity. we're all inexorably linked that is no one lives entirely independent of what goes on around them, so if your neighbor needs a HELOC to keep his house give em one! ;)

9/11/2006 02:18:00 PM  
Anonymous Anonymous said...

http://flippersintrouble.
blogspot.com/

take a look at these losers.

9/11/2006 02:38:00 PM  
Anonymous Anonymous said...

"let's all hope no matter what happens the pain is minimal even if people 'deserve it' due to their ignorance or stupidity."

It's going to be minimal for many people who acted rational and prudent. The dummies are going to be pummeled for their idiotic behavior. They have been fooled into believing they are well off.

Well off is when you have NO debt and cash in the bank earning big interest. Not some show & Teller looking like a hotshot but up to their eyeballs in monthly payments.

9/11/2006 02:47:00 PM  
Blogger Richard said...

there's going to be alot of wet behind the ears landlord wannabe's who bought in the last 18 months who are going to get burned in the coming years. those with at least half a brain in this situations should get out now while they can still break even or lose a little. even if the most optimistic projections of price stalls occur, no one wants to rent at prices that are required to just break even if the property was bought in the last 18 months. these are the guys who are you going to feel it.

9/11/2006 02:48:00 PM  
Anonymous Anonymous said...

"break even or lose a little" After the transactions cost these bozos are going to lose a lot. And as the market is dropping like a rock.

The exit doors have nearly closed.

9/11/2006 02:50:00 PM  
Anonymous Anonymous said...

"The exit doors have nearly closed."

9/11/2006 03:50:40 PM

I believe that they ARE closed. The herd is trapped, the market sucked them all in and there is no room to maneuver. The only questions I have is how long/severe.

BC Bob

9/11/2006 02:59:00 PM  
Anonymous Anonymous said...

ok folks heres one in PA.
Zillow for some reason show this property as $725k worth. Note that the owner bought it for 385k in 2002 and is now trying to sell for $640k.

Wife is very interested, i dont think the property is worth more that 469k based on a 5% YOY increment on original sales price..

thoughts?
http://www.zillow.com/HomeDetails.htm?city=LANGHORNE+&state=PA&zprop=9070221

9/11/2006 03:03:00 PM  
Blogger grim said...

I'd suggest that you ignore Zillow.

grim

9/11/2006 03:07:00 PM  
Anonymous Anonymous said...

WESTFIELD TOWN, NJ? 07090
MLS ID#: 2316012

Another greey seller:
Sold: 1/2005 $760000
Now ask for $910000

9/11/2006 03:28:00 PM  
Anonymous Anonymous said...

Keep us posted on this greedy grubbing seller.
A perfect lesson in greed and chasing the market down.

9/11/2006 03:35:00 PM  
Blogger Richard said...

there's alot of smug, in denial sellers in westfield. then again it's a very desirable town and i've seen properties even recently that i never thought would sell that have while other town properties sit.

IMO if you're going to buy in this market the best situation you can muster would be buying a SFH in a town like westfield. not that's it's 'different there' but it's highly desirable for a # of reasons like good commute to NYC, a greater proportion of high income earners comparatively speaking, the wall street effect (yes it does permeate here), well established town, excellent schools and minimal speculation. i expect everything to take a hit in the coming downturn but you might ride it out a bit better here than say in a condo or in clifton.

9/11/2006 03:53:00 PM  
Blogger chicagofinance said...

Clifton: A Ramapo Indian word

it means sewer water debris from Paterson caught in the valley below Upper Montaclair

9/11/2006 04:15:00 PM  
Blogger Housing Boom Gone Bust said...

9/11 alone certainly didn't create these factors...

9/11/2006 04:29:00 PM  
Anonymous Anonymous said...

http://www.rockymountainnews.com/drmn/news_columnists/article/0,1299,DRMN_86_4983839,00.html

Great article, not in NJ, but it could

9/11/2006 04:37:00 PM  
Anonymous Anonymous said...

What 9/11 did was to force Greenspan to cut rates to their lowest imaginable levels and to justify keeping them at that level for far longer than was necessary. For 36 months, Fedfunds rates were under 2%. This enabled an entire new class of Toxic mortgages to evolve which ensnared gullible, unsophisticated buyers into taking misguided risks. Had 9/11 not taken place, then maybe Greenspan would not have lowered rates to below 3%. Maybe all we would have had was a hot market due to comparatively lower Long term rates, but not a bubble due to teasor toxics.

EconRealist

9/11/2006 04:45:00 PM  
Blogger grim said...

Richard,

I'm not sure I buy into your viewpoint.

There are a number of towns and areas in New Jersey that were once considered "elite" communities, East Side Park in Paterson, Plainfield, Branchbrook Park in Newark, portions of Passaic, etc.

These were all highly desirable communities in their day.

What happened?

grim

9/11/2006 05:11:00 PM  
Blogger grim said...

As well as portions of East Orange, Irvington, etc.

9/11/2006 05:14:00 PM  
Blogger grim said...

Other than the '67 riots of course.

(sorry for the split reply).

grim

9/11/2006 05:29:00 PM  
Blogger grim said...

Other than the '67 riots of course.

(sorry for the split reply).

grim

9/11/2006 05:29:00 PM  
Anonymous Anonymous said...

Look at it this way, without them, the boom wouldn't have happened at all. A 6 figure income, say, oh, 130k/year, spending no more that 1/3rd gross on housing cost, on a traditional loan (20% down, 6.2%, 30yr fixed), would only be able to get a $500k home.

Lets do something closer to median like $80k/year, thats a $300k home. That will barely, BARELY buy you a 1 bedroom condo-converted apartment in the San Francisco Bay Area.

But change that to an interest only loan with a 4% teaser rate, and the amount becomes $470k. Big difference.

Without the relaxed lending standards, you would have never gotten this huge bubble.

9/11/2006 05:30:00 PM  
Blogger Richard said...

>>These were all highly desirable communities in their day.

grim, there are many reasons why the aforementioned towns declined. still you're looking at decades of slow deterioriation. orange was THE PLACE to be in the 50's. westfield was founded and has been a highly touted community since 1895 and i see nothing to challenge that today. 110 years is nothing to sneeze at. now let me tell you about some communities that i would say are showing decline and are risky to buy into. south orange, maplewood and montclair.

9/11/2006 06:40:00 PM  
Anonymous Anonymous said...

I would say the entire state
is in decline.

White flight along with company
flight.

Go now to any MV office or
SSI office , take a look around.

NJ is now a welfare state,the
delcine is rapid.

And many towns are like third world
towns.

9/11/2006 07:07:00 PM  

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