housing crash

gas in LA is at around 2.70$ for regular. and the price is finally getting to me driving a car getting 40mpg on the freeway.

i heard from NPR a week ago that credit card usage in gas stations are up to 70% from 50% a year ago. you figure...

also this:
http://www.npr.org/templates/story/story.php?storyId=4797922


this story tells it all... it seals the deal...

http://news.yahoo.com/s/usatoday/20...wsDW7oF;_ylu=X3oDMTBiMW04NW9mBHNlYwMlJVRPUCUl
Gas prices bring on new ways to cut corners

....

There are no more pizza outings on Friday nights. "It's cheaper to cook at home," says the $12-an-hour clerical worker and mother of two.

.....

Trips to Wal-Mart are out. The closest one is about 15 miles away. Just to get there and back costs more than she might save by going.

.....

For more affluent Americans, gas at almost $3 a gallon provides ample fodder for griping, perhaps regret at having bought a gas-guzzling SUV and low-level anxiety as tank fill-ups cross the $50 mark. But for the most part, the higher costs get absorbed by the monthly budget with little attention to how much they add up.

.....

They also gather at home on Friday nights instead of going out, and their kids play in the backyard.

"We cannot go anywhere because of the gas," Puicon says.

....

The single mother recently bought a 1996 Chevrolet Blazer, which gets 15 miles to the gallon. She pays for her own gas, and it has been rough. One recent month, she received $400 in tips. Of that, $300 was funneled back into gasoline - and that was before this summer's price run-up.

....

 

lilboy716: I think your post about gas prices raises an interesting question about the real estate bubble. Will the price of gas be a catalyst for higher rates of home price declines as a function of driving distance from major employment centers? One can imagine a bubble deflation occurring as a 'ring' around large cities, with the worst deflation in newer, more remote distant suburbs, while renovated older homes within cities fare better.

 

http://www.latimes.com/business/la-fi-fed26aug26,1,7185861.story?coll=la-headlines-business
If 'Bubble' Bursts, Legacy of Greenspan May Deflate
By Bill Sing
Times Staff Writer

August 26, 2005

As central bankers and prominent economists gather today in Wyoming to assess Alan Greenspan's 18-year stewardship of the U.S. economy, the Federal Reserve chairman is expected to win widespread plaudits for fostering solid economic growth while deftly managing several financial crises.

But the final chapter of Greenspan's legacy might be based on how well the central bank manages what many experts say is a crisis looming on the horizon: a housing bubble.

Many experts say the nation's real estate market draws disturbing similarities to stocks in the late 1990s — a market driven to unsustainable price levels by what Greenspan famously called "irrational exuberance." They fear a similar ending: a sharp fall in prices that could bite the net worth of many Americans and trigger a recession.

And some experts say Greenspan deserves at least some of the blame for fostering housing market conditions that the Fed chairman himself has called "frothy." The Fed, they say, hasn't done enough to damp real estate speculation, while maintaining cheap credit for too long.

Although Greenspan has warned of the pitfalls of "interest only" loans and other riskier mortgages, the central bank should be doing more to tighten lending standards and discourage their use, these experts say.

"The Fed deserves some criticism for its handling of the stock bubble and now the housing bubble," says Mark Zandi, chief economist for Economy.com, a research firm in West Chester, Pa. Among other things, Zandi says, Greenspan should be "talking more forcefully" about housing conditions while tightening lending standards.

"The more he waits, the more the bubble inflates, the more risk" of a blowup, Zandi says.

The issue of how the central bank handles any housing bubble is expected to be discussed at the 29th annual Fed conference in Jackson Hole, Wyo. It will be the 79-year-old chairman's last official appearance at the prestigious two-day gathering before his retirement in January.

The conference, hosted by the Federal Reserve Bank of Kansas City, has become one of the most important forums to discuss key economic issues. And this year's theme, "The Greenspan Era: Lessons for the Future," is expected to fuel speculation about who will succeed the second-longest-serving Fed chairman.

Three prominent economists often cited as among the leading contenders are expected to attend the gathering. They are Martin Feldstein, a former Reagan administration economic advisor and now a Harvard University economist; Ben Bernanke, a former Fed official and now chairman of President Bush's Council of Economic Advisors; and Glenn Hubbard, Bush's top economic advisor during his first term and now dean of Columbia University's business school.

Many economists who praise Greenspan's overall record nonetheless are critical of his handling of the housing market.

"This will have been the most successful period in the history of the Federal Reserve system," William A. Niskanen, a Reagan administration economic advisor and now chairman of the conservative Cato Institute in Washington, says of Greenspan's tenure. But, he says, the Fed chief made three major mistakes, including fostering banking regulations that helped precipitate today's low mortgage rates — "a condition that has contributed to what now looks like a housing bubble."

Not everyone agrees that the housing market is a bubble in danger of popping. Housing industry leaders and others say the boom, which has driven up prices by as much as 40% in Southern California and other hot markets in the last two years, is justified by growing population, strong buyer demand and a limited supply of homes. And while double-digit price rises are already slowing in California and elsewhere, thanks in part to the Fed's interest rate hikes, they are more likely to level off instead of plunge, industry leaders say.

For their part, Greenspan and other Fed officials have said they can't and shouldn't target possible bubbles in stocks, housing or other assets, partly because it's hard to know precisely what constitutes a bubble. Policies aimed at attacking bubbles could produce other unwanted side effects, they have said.

Instead, Fed officials have suggested they would seek to ease the aftermath of any bubbles — as they did following the 2000 stock crash. Their quick efforts then to cut interest rates, experts say, helped make the 2001 recession relatively mild.

But some economists say the Fed cut rates too far, and kept them low too long. The 2001 recession was primarily caused by a pullback in spending by businesses, not by consumers. Historically low rates, designed to stimulate an economic recovery, encouraged consumers and investors to bid up home prices abnormally high, with signs of speculation emerging as early as 2002, says Edward Leamer, director of the UCLA Anderson Forecast and one of the first economists to label the current housing market a bubble.

"There's no question that the Fed should have much earlier raised interest rates, not to kill the housing sector, but to keep it sustainable," Leamer says.

He adds that today's housing market is different from the dot-com stock mania of the late 1990s, in that soaring Internet stock prices could at least be justified by the perception that technology was changing the world, creating a "new economy." Greenspan was blamed for helping fuel the stock bubble with statements in the late 1990s touting the "new economy."

But "houses are exactly the same now as two years ago. There is no 'new economy' when it comes to homes," Leamer says. Thus, cooling off housing should have been "an easy call to make."

The Fed began raising its benchmark short-term interest rate in June 2004, and has done so 10 times since, in increments of a quarter percentage point each, to the current level of 3.5%.

The Fed's ideal, economists say, is to engineer a "soft landing" similar to the one in 1994-95. Then, Fed rate hikes cooled off the economy without triggering a recession. The 1990s boom was the longest economic expansion in the postwar period, often cited as one of Greenspan's crowning achievements.

But soft landings aren't easy. It's difficult to deflate a bubble without causing a crash.

Another complication for the Fed chairman: high energy prices. With consumers suffering at the gasoline pump and businesses facing bigger energy bills, raising rates too aggressively could trigger an economic slowdown. All postwar recessions, except the one in 1960, were preceded by energy price surges.

"Today's extraordinarily low real borrowing costs just might spare the U.S. economy from another energy-related slump," says John Lonski, chief economist at Moody's Investors Service in New York.

Another problem that Greenspan faces in managing a possible bubble: The Fed doesn't control long-term interest rates, which help determine the level of long-term mortgages. Long-term interest rates, such as the yield on 10-year Treasury notes, are influenced by bond market investors, including foreign central banks, pension funds and speculators. They have kept long-term rates relatively low, defying repeated Fed hikes in short-term rates.

"The Fed has been singularly unsuccessful in cooling down the hot U.S. housing market, primarily because its rate hikes have had little impact on long-term interest rates — so far," says Nariman Behravesh, chief global economist at Global Insight, an economic consulting firm in Waltham, Mass.

Some economists say that Greenspan's methods of signaling Fed rate increases — making them fairly predictable — have had the unwanted effect of encouraging housing speculation.

"There is not enough uncertainty about Fed rate hikes…. That causes people to take on too much risk," says Zandi of Economy.com.

Speculators are further encouraged by the Fed's stance that it won't target asset bubbles, Zandi says. "The view that policymakers have nothing to say about asset markets is counterproductive." Fed officials "need to have the courage of their convictions and weigh in."

Greenspan early last year praised the advantages of adjustable-rate mortgages. The riskiest versions of adjustable-rate mortgages are now widely cited for aggravating a possible bubble by helping people overextend themselves to buy homes they otherwise couldn't afford.

In any event, the dilemma of the housing market will soon be inherited by Greenspan's successor. Greenspan became Fed chairman in August 1987 — two months before the 1987 stock market crash.

 

This is the strongest statement from Greenspan, the Mr. Bubble, himself on the house bubble.

Only last yr, Mr. Bubble was prasing the adjust-rate mortgages as a means for house affordbility.

 

its not all about Greenspan and the easy money making circles from one bubble to another,i think that RE was "prepared" to be what it is right now...and easy money just follows--->>>
In 1997, Congress allowed homeowners to exclude up to US$500,000 in gains when homes they occupy are sold(taxes rates prior to 1997 were going up to 39.6%).
taxes on the sale of homes that are not a primary residence were reduced several times i think since 1997 to the 5% now .
of further interest in the coming months will be : the Advisory Panel, with senators Mack(FL) and Breaux(LA) and is due to report to the President by September 30, it is considering options to lower taxes on many types of investments to meet the President's goal of encouragement on savings and economic growth etc. Changes to housing-related tax incentives would also be considered...guess they will conclude that more fuel should be added to RE&"house savings".
also there are proposals that individual taxpayers should be allowed to either pay taxes under the current rules, or instead forego deductions for mortgage interest and others and pay some 20% on a "broader measure of income" whatever that will mean.

 

'And this year's theme, "The Greenspan Era: Lessons for the Future," is expected to fuel speculation about who will succeed the second-longest-serving Fed chairman.'

interesting choice of words

'fueling speculation' pretty much sums up the greenspan era

 

Another brilliant statement from the head "Realtor" (cheerleader)....

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

He called it "very unsophisticated."

http://www.latimes.com/business/la-fi-homedebt28aug28,0,6044251.story?coll=la-home-headlines

 

Mortgage Applications Fall Despite Lower Rates

NEW YORK — Applications for U.S. home mortgages fell for the second consecutive week despite a steady decline in fixed mortgage interest rates in August, an industry group's figures showed on Wednesday.

The Mortgage Bankers Association (search) said its seasonally adjusted index of mortgage applications — which includes both purchase and refinancing loans — fell 4.5 percent to 722.5 in the week ended August 26. In the previous week, the index fell 0.7 percent.

The MBA's seasonally adjusted purchase index dropped 3.6 percent to 470.6, adding to the previous week's 2.2 percent loss.

The MBA's seasonally adjusted refinancing index fell 5.4 percent to 2,187.8, more than erasing the previous week's 1.2 percent gain.

Fixed 30-year mortgage rates (search) fell 5 basis points, or 0.05 of a percentage point, to an average of 5.73 percent, excluding fees, compared with 5.78 percent in the previous week. The 30-year rate, considered the industry benchmark, has steadily declined from 5.91 percent in the week ending August 5.

The 30-year rate is below the 2005 high of 6.08 percent reached in late March and above the 2005 low of 5.47 percent of late June. It is also slightly higher than where it stood a year ago when it was 5.75 percent.

Fixed 15-year mortgage rates last week averaged 5.36 percent, down from 5.41 percent the previous week.

Rates on one-year adjustable-rate mortgages increased to 4.88 percent last week from 4.84 percent one week earlier.

Demand for adjustable-rate mortgages (search) fell for a third consecutive week. ARMs accounted for 27.8 percent of total applications last week, down from 28.1 percent the previous week and a 2005 high of 36.6 percent in late March.

With ARMs, low initial payments allow borrowers to buy homes they may not be able to afford with a fixed-rate loan.

Thirty- and 15-year fixed-rate mortgages comprise about 70 percent of the market, with ARMs accounting for nearly all the rest, the MBA recently said.

In its data for the week ending August 26, the MBA said refinancings increased as a percentage of all mortgage applications, up to 43.8 percent from 43.7 percent.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.

 

The house market today is very similar to the nifty-fifty in the 70s.
Both occurred after a major stock market collapse (1969-70 and 2001-2002), and amid secular bear markets. Both were considered safe heaven when other assets became too volatile.
And, unfortunately, both will be taken out and shot one-by-one.

 

i cannot believe this man calls himself an economist.