There's a problem that I think is brewing, and that is the end of the housing boom in the United States and the ability of households to spend more than they earn because the value of their house is rising. ~ George Soros. Implications and comments ?deflationary?? How does the problem manifest itself? does it unwind the markets? Do they start the printing presses?General Markets seem solid inspite of these problems BEER ,HOORAY BEER
Housing booms always end... the only question is when. In Toronto in 1989... Complete idiots were buying homes and other property at the market peak... Just letting it sit... not even renting... Assuming they could just flip for 10% to an even bigger idiot. Between 1989 and 1993 Toronto real estate prices went DOWN 25%. 1000s of amatuer speculators were wiped out. It's easy to envision worst case scenarios for the US... Stagflation, real estate bust, expanded war on terror... All under an incompetent Democratic administration... As opposed to the current incompetent Republican administration. Vote Rudi Giuliani.
I saw a chart the other day of housing trends (can't find the link unfortunately). There were some big dips in the Great Depression obviously and another large dip in I think the 60s or 70s. The point is, too many people have their head in the clouds. The housing bubble will correct at some stage, and it could take 10-20 years for it to resurface, which is a long time if you are locked into a mortgage. So many people are buying with the claim that housing prices double every ten years on average or something, but it isn't a continuous trend, there are peaks and troughs, and buying at a peak could really affect someone who's only in it for a quick return. And yes, I believe we are on shaky ground. There are much better investments than property at the moment IMO.
I give soros the same credibility that I give cindy sheehan. They can take what was a kernel of truth and turn it into sheer flatulence(talking out of their asses) with their conclusions. one must remember every utterance must cast aspersions on the bush administration
Housing is tied to interest rates. It is not all that tied to the general economy. Right now the US economy is expanding and the business cycle is moving into the portion where wages start to rise. Workers are the last ones to ride up on the rise of the business cycle. Soros is trying to tell us that it will be different this time, at the end of the housing cycle he is saying that the US under the current administration, for some reason, will not continue the normal business cycle. Can anybody point to an aborted business cycle since WW2? I don't think there has been one. Regarding Soros, he has to spread FUD [Fear, Uncertainty, Doubt] for whatever reasons he has. He is a well known critic of the current administration and a leftist I guess. I am guessing that he is wrong at this point, time will tell.
I am worried about a kind of hidden Government obligation that can quickly become debt. When I sold my house the buyers had only $ 200 for a down payment. I had to charity donate $ 7000 to the Genesis Foundation so the Genesis Foundation can give the buyer about $ 3000 for a down payment. With $ 3000 down the buyer qualifies for a FHA low income mortgage. It means The Government is guaranteeing the mortgage. People that can only save $ 200 have no business buying a house. They can not handle it. The Government guarantee does not appear as debt because it is not debt. If economic activity slows and buyers lose their job then they can not pay the mortgage. Suddenly The Government must pay the mortgage. Suddenly The Government experiences a surge in debt.
I wonder if we can develop an analog model for real estate similar to the analog model used by Paul Tudor Jones to time the stock market crash of 1987.
Even if the government didn't directly guarantee the mortgage ... ... they did bail out all the insolvent mortgage bankers in 1990-1991 when the likes of City Federal Savings went under in the last Real Estate Cycle bust ... the equity stock holders of City Federal got zero'd out and we, the taxpayers footed the rest of the bill. I remember, back then these condos in Morristown NJ were selling for 380k at the peak in 1988. My friend bought one from a desperate seller for 180k in 1991. They were just about at that 380k level again last summer (2005). Granted, they were only 5 years old in 1989 versus today. History repeats itself, the trick is figuring out exactly when ?