October 27, 2006 at 7:05 AM #7786PDParticipant
The bubble is history and GDP is suffering. Economic growth slowed to 1.6, significantly lower than the 2.1 that was predicted.
Recession anyone?October 27, 2006 at 7:15 AM #38550PDParticipant
Roubini predicted 1.0 – 1.5. His was a little off but he was closer than most economists. He predicts recession by Q1 2007.
I wrote months ago that I thought the recession would start around Thanksgiving. The next six months are going to be interesting. What is going to happen to the economy? What is going to happen to housing? We are entering a slow time for home purchases, coupled with a rising number of people who must sell due to resets. Are we going to see big drops this winter? A recession will grease the slide……. Dooooowwwnnnn…….October 27, 2006 at 7:44 AM #38551Steve BeeboParticipant
The housing market seems to be weakest in California and the southwest, the northeast, and Florida. That’s a large part of the U.S. population, but it doesn’t necessarily mean that the country is headed for a recession in the next year. Think back to the early to mid 1990’s – The housing market was pretty bad in Southern California, and to a lesser extent in the Northeast, but the U.S. economy was still growing and producing lots of jobs.
In a large part of the U.S. that didn’t participate in housing price run-ups, the housing market is doing much better than we are.
Even in San Diego, where construction and real estate-related businesses may be in their own recession for the next several years, the overall economy may do OK. Lower housing prices aren’t all bad.October 27, 2006 at 8:45 AM #38555North County JimParticipant
That makes sense to me but it doesn’t explain why the early wave of foreclosures are hitting places like Colorado, Indiana and Georgia.
While bubble pricing may be limited to the areas you mentioned, the MEW ATM seems to have been a nationwide phenomenon. If so, the fallout from housing could take a serious bite out of the national economy.October 27, 2006 at 9:28 AM #38563PerryChaseParticipant
We had a brief 6-month recession in 1991/1992 (if I remember well). However short-lived that was, it remained in the public’s mind for much longer and cost GHWB the elections, despite the victory in the Gulf.
I’m afraid that the the coming recession will last 1-2 years. Imagine what that’ll do to psychology.October 27, 2006 at 9:37 AM #38565powaysellerParticipant
Steve, the housing market is slowing nationwide due to the high liquidity and investors chasing MBS yields, which caused the housing market to take off nationwide. The supply-demand imbalance is nationwide, even in Omaha, NE, and that is the reason the median price is falling nationwide.
This is no longer a bubble-city problem. The housing market price drops are now a national problem.
Lower housing prices are not bad? That’s like saying when your stock portfolio drops 5%, that’s not bad either because now you can pick up stocks much cheaper. I think most people who own homes think it’s really bad.
Dropping prices are a result of the supply demand imbalance. The only time dropping prices are good is if they result from an easing of a supply shortage. But now we are seeing a glut of homes, coupled with lower demand, and the result is that prices must fall. This will ultimately be good for new buyers, but is very bad for boomers who are counting on their home for their retirement. Homes are Americans’ biggest asset. Lower prices are bad for people with mortgages resetting too, as they won’t be able to refinance if they lack equity.
I met a mortgage broker this morning, and he knows nothing about the new mortgage guidelines. He thinks the state regulators cannot regulate what investors want to buy, but he seemed a bit concerned. His view is that borrowing is the American way, and a downturn in housing will be the downturn of our economy. He said a typical deal is a refinance, where the borrower uses home equity to pay off credit cards. Americans shop up a storm on credit cards, then when the credit card minimum payments come to $2,000/month it’s time to refinance the house. I asked what happens when they can’t refinance anymore. His answer: “that’s why you’re seeing more foreclosures now”.
So foreclosures result not only from resetting mortgages, but also from inability to refinance debt. Now I understand why Countrywide runs all those consolidation loan ads: they are a huge business.
He also said that short sales used to take the lender 1 month to process, but now they are so inundated it is taking 3-4 months.October 27, 2006 at 11:27 AM #38588Steve BeeboParticipant
When I said that lower housing prices aren’t “all bad”, I mean that they aren’t bad for everyone. If you bought your property in the last year or two, especially with 100% financing, then it’s very bad, especially if you need to sell or to refinance. But a lot of people have owned their homes, or have traded up from other homes, and their inital investment was made 5, 10, or 20 years ago. If prices go down x% in the next two years, it may not matter to them, especially if they have no intention of selling their property in the next 5 years.
But the appreciation we have seen, especially in the past 5 years, has been ridiculous. Only an idiot would have thought they we would contine to see double digit annual appreication. Even slightly lower home prices would be good for a lot of renters or young people who hope to buy in the next 3-5 years.
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