You didn't ask me what I thought was going to happen in 2011-2012.... but that's another story and I haven't fully worked that through yet.
I may have it backwards but I think that high energy prices has helped contain inflation. I say this for three reasons. One because energy is a non core cpi component. Secondly because energy soaks up money that would be spent on durable and non durable items that are in the core numbers. Lastly because the higher energy prices have not completely transferred to the non core items because of competition and lack of pricing power. I am saying that the net effect of higher energy prices have been lower consumer spending which will be freed up if energy comes down significantly. If spending picks up due to lower energy then it will show up in the non core items which will increase inflation and cause the Fed to raise rates. I guess I am saying the higher energy works like a tax increase and lower energy works like a tax decrease and lower taxes stimulates the economy. What am I missing? John
fyi, i think we are seeing a low and we are going to see rates squeeze much much higher , there has been a 20 year decline in interest rates, so even if they rallied for 10 years and rates went over 10-12% it wouldn't be unreasonable. But, for the record, now that everyone is in and trying to refi there will be more ppl chasing less and less money, squeezing rates higher and higher (trapped rats). So, I'm stating that we are a cyclical low for interest rates and we won't see them this low again for many many many years if ever (meaning at least 10, probably at least 15, potentially 50+, too far to predict) But, the cyclical low is in for interest rates. Since most ppl finance, all houses will have to be repriced in a higher interest environment that is coming.
I'm about as bearish on housing in my areas as you can get. I don't care what's going on nationally, cause it really doesn't matter to my neighbor selling their place. We have about 150 houses in my community ranging in price from 325K to 600K. Prices per sq ft run from 150 to 275. The 600K folks are smoking crack IMHO. Priced to last years peak values. Some have never been lived in and are over 1 year old. Sellers refuse to see the market has changed. 8 houses went into escrow, 6 with contingencies (I'm guessing sale of old residence or financing)... In the last three weeks 1 closed, 2 are pending and 5 fell out. On the financing front, I don't think you will see a mad rush to buy again if rates drop a bit as lending practices have tightened up since the "free money" days as I call it. Additionally, once people get used to 4.5% fixed rate loan, even though 5.5% is historically low, they still aren't as motivated to buy at the higher rate. And anyone that could fog a mirror already has a home loan, whether it's a FR or some type of hybrid. I went to an open house in my neighborhood the other day and asked the listing agent how it was going for traffic. In three weeks of open houses, I was the ONLY person to look at the place. And to draw a bit of a comparison to the stock market.... is it a healthy market when sales volume is off 25-50% and prices rise. That's what happened starting in spring of 2005. Median prices rose 5% from Apr 05 (400k) to Apr 06 (420K), volume off 30%. Today median fell below 395K and volumes are down 30%. 6 times as many homes available than 2 years ago. Hmmm All this is only my opinion and worth even less than you paid for it.
since i have a home on the market i am keeping close watch on the statistics. my realtor told me this weekend that there are 1800 homes for sale in this city of 140,000 people. that equals a 7 year supply. needless to say i am not getting offers on my place. i dont have to sell but we have purchased a lot in the mountains here and would like to build there someday.
historically low rates won't matter. A huge percentage of those with ARM's will not be able to afford fixed rates, and will not be able to refi with ARM's again. When you are extended at 3%, just to get into a house, you are toast at six %. lots of people didn't think that through. That, and the inventory problem. I don't see a hard landing. I see a full on crash in many markets. All depends where you are of course. This is the largest RE bubble in the US ever, so its without precedent as to what could happen.
Interesting research report from Merrill Lynch on US and global economy, and US housing market for 2007. http://rsch1.ml.com/9093/24013/ds/_46854_8.PDF
Interesting point of view to me. Its a shell game, I think. energy and real estate prices are not part of core CPI. But in reality, they eventually pass on to the entire economy. expensive real estate, if substantiated, eventually shows as increased rent. expensive energy shows as increased food costs, shipping costs, and squeezes buying power out of wages. Expensive energy functions the same as high interest rates, except it has a potentially devaluing effect on currency. Higher interest rates do the opposite. Since both forces exert the same net force on business expenses, wages are potentially squeezed as well. also, let me admit I have a lot to learn, but increased consumer spending doesn't necessarily connect to inflation, does it? Net inflation is merely the decreased buying power of a currency. There's nothing wrong with growth - its price stability that is at issue here. Price stability is core to security of our way of life, and prevents depression-like circumstance.
"Dr. Bernanke â The Housing Market Needs an Orderly!" by ML http://rsch1.ml.com/9093/24013/ds/07045450.PDF
Most? Are you sure that most homeowners have more than 50% equity in their home? Because if they don't, a 50% crash in prices will bankrupt them. Anyway it will be a lot more than 5% who will be badly hurt. Already 10% have no equity at all left. http://www.comstockfunds.com/index.cfm/CFID/8162040/CFTOKEN/76697441/MenuItemID/29.htm Another interesting thread: http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1382618 Wareco and miscsales, thanks for the Merrill reports. Is there an index of all recent ML commentary available for the public?