From the New York Times:
Bursting Bubble Blues
By PAUL KRUGMAN
Here are the five stages of housing grief:
1. Housing bubble? What housing bubble? “A national severe price distortion [in housing] seems most unlikely in the United States.” (Alan Greenspan, October 2004)
2. “There’s a little froth in this market,” but “we don’t perceive that there is a national bubble.” (Alan Greenspan, May 2005)
3. Housing is slumping, but “despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon.” (Richard Fisher, president of the Federal Reserve Bank of Dallas, August 2006)
4. Well, that was a lousy quarter, but “I feel good about the U.S. economy, I really do.” (Henry Paulson, the Treasury secretary, last Friday)
5. Insert expletive here.
We’ve now reached stage 4. Will we move on to stage 5?
Over the last few years, most good U.S. economic news has been the result of soaring home prices. Spending on new houses created jobs and poured cash into the economy. Consumers borrowed against the rising values of existing homes and went on a buying spree, spending more than they earned for the first time since the great depression.
But the housing boom became a bubble, fueled by a surge of irresponsible bank lending, which continues even now. (Yesterday’s Denver Post tells of a runaway prisoner who managed to borrow enough to buy three expensive houses while on the lam, then bought two more while in prison.) The question now is how much pain the bursting bubble will inflict.
Last week’s report on G.D.P. showed the first signs of serious economic damage. According to the “advance” estimates (which are often subject to major revisions), growth in the third quarter of 2006 slowed to its worst level since early 2003. A plunge in spending on residential construction, which fell at an annual rate of 17 percent, was the main culprit. But was that just a temporary setback, or the beginning of something much worse?
Some say the worst is already over. Mr. Greenspan, who’s been an optimist all the way, now argues that the latest data on new-home sales and mortgage applications suggest that housing has already bottomed out. Business investment is still growing briskly, and so far consumers haven’t cut their spending. So maybe this is as bad as it gets.
But I think the pessimists have a stronger case. There’s a lot of evidence that home prices, although they’ve started to decline, are still way out of line. Spending on home construction remains abnormally high as a percentage of G.D.P., because banks are still lending freely in spite of rapidly rising foreclosure rates.
This means that home sales probably still have a long way to fall. And you don’t want to make too much of the fact that some housing indicators have turned up; those indicators tend to bounce around a lot from month to month.
Moreover, much of the good news in the latest economic report is unsustainable at best, suspect at worst. Almost half of last quarter’s estimated growth was the result of a reported surge in automobile output, which some observers think was a statistical illusion, not something that really happened.
So this is probably just the beginning. How bad can it get? Well, you don’t have to go far to find grim forecasts: Merrill Lynch predicts that the unemployment rate will rise from 4.6 percent now to 5.8 percent by the end of next year.
In case you’re wondering, I don’t blame the Bush administration for the latest bad economic numbers. If anyone is to blame for the current situation, it’s Mr. Greenspan, who pooh-poohed warnings about an emerging bubble and did nothing to crack down on irresponsible lending.
Still, the bad news will have political consequences. The Bush administration has been trying to shift attention away from the disaster in Iraq to an allegedly booming economy. That strategy wasn’t working too well even when the headline numbers were good, because it never felt like a boom to most Americans. But now even the headline numbers have turned lousy.
And if that hurts the G.O.P. in next week’s election, well, there’s a certain poetic justice involved. The administration tried to claim undeserved credit for the positive effects of the housing boom, so why shouldn’t it receive some blame for the negative effects of the housing bust?
Mr. Krugman hit the bullseye on who is to blame for this bubble and who has been so wrong from recommending homeowners take out arm’s at the bottom to calling no bubble. spring is going to be much worse for homeowners.
“And if that hurts the G.O.P. in next week’s election, well, there’s a certain poetic justice involved.”
And therein is the sole purpose of Krugman’s rant. He’s nothing but a partisan hack, as well as a certifiable lunatic.
He wrote the following 10 weeks after September 11th:
“I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society.”
The New York Times
January 29th, 2002
“The Great Divide”
By Paul Krugman
http://www.nytimes.com/2002/01/29/opinion/29KRUG.html
Sorry, 20 weeks after 9-11, not 10.
“How bad can it get? Well, you don’t have to go far to find grim forecasts: Merrill Lynch predicts that the unemployment rate will rise from 4.6 percent now to 5.8 percent by the end of next year.”
So we’ll transition from “full employment” to “full employment.”
Sounds like a nightmare.
So what if Krugman’s a partisan hack? Who isn’t?
You think Greenspan was non-partisan?
Krugman’s “That Hissing Sound” from 8/05 looks pretty timely and prescient to me. Although the hiss he forecast from the leaking bubble might be more of a pop this spring, so he may have been too optimistic in this case, which must be some kind of a first for him.
Krugman’s a mainstream has-been crackpot. He’s turned into a Kramer wanna be and as such I’m suspect with whatever he says. Still he’s widely read by the sheeple and as such could help influence psychology to make something more likely to happen than might not of been as prevalent before.
in the markets predicting timing is the difference between being right and wrong. don’t give krugman a free pass on this one.
UnRealtor,
I’m a registered Republican, but it’s hard to argue his points. The Republicans spew as much BS as the Dems these days regarding the economy. Not surprising when you see the way they’ve spent money since Bush got in office. Where did the “fiscal conservatives” go?
waters, when you find them, lemme know. I’m gonna vote for them. Just don’t seem to have any fancy card mailings from them among all the stacks of junk collecting on the kitchen counter.
Unrealtor,
This forum has been a pretty well-mannered place to discuss real estate and economic issues. There are certainly plenty of us who have exposed our political leanings here, but there hasn’t been a lot of overt political hackery, (though certainly some).
You’re comment on Krugman shows a kneejerk political bias that in the long run serves neither the forum or you.
People make personal attacks when the facts aren’t with them. Every person I know (including me) holds some crazy ideas that have no basis in fact. When you make a commitment to a group, or even an ideology, over facts you can guarantee that your heading for trouble.
As twice-shy noted, partisan hackery got us into this mess but, no matter which side it comes from, it’s not going to get us out.
You might not like Krugman’s politics, but it has nothing to do with his ability to understand economics, and his ability to share that understanding.
Where’s Ross Perot when you need him?
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krugman writes for the NY Slimes so you have to take it that he’s going to be biased in a particular direction but this is just plain poor journalism wrought with assumptions and opinions leading to supported conclusions. this is why when talking about the housing bubble i prefer cold hard facts even if the correlation or lack thereof is debatable. i mean look at these statements:
“MOST good US economic news has been the result of soaring home prices”
“fueled by a surge or IRRESPONSIBLE bank lending”
“SOME SAY the worst is already over.”
“THERE’S A LOT OF EVIDENCE…”
“This means that HOME SALES PROBABLY STILL have a long way to fall.”
“Morever, MUCH of the good news…”
“which SOME observers think…”
Was Q3 GDP growth manipulated upwards because of the coming elections or is the US government clueless about measuring output?
http://www.rgemonitor.com/blog/roubini/154588
Jay, the child in me really hopes our leaders are simply honorably clueless, rather than despicably devious.
The adult sitting here is shaking my head in disgust and hoping a specific, clear explanation(not back-peddling) about this hits immediately.
Press not questioning loudly or quickly enough.
Camden is no longer the most dangerous city in the country. Honors goes to St. Louis, with Detroit and Flint, Michigan following. Brick was the safest city.
Pat, you have summed up my feelings exactly.
“Goodyear to close Texas plant, cut jobs”
http://news.yahoo.com/s/ap/20061030/ap_on_bi_ge/goodyear_job_cuts
But hey….these guys can always get a job handing out stickers at your local WalMart ;)
(that was sarcasm by the way…..)
SAS
WASHINGTON (AFX) – Consumer spending rose by the smallest amount in more than a year, even as a key measure of inflation fell for the first time since November 2005, the Commerce Department said Monday.
http://www.forbes.com/markets/feeds/afx/2006/10/30/afx3129531.html
Bunch of tightwads! Take out that HELOC!
BTW it rose by 0.01%
“krugman writes for the NY Slimes so you have to take it that he’s going to be biased in a particular direction”
Richard, how can you criticize bias with a post like this? Don’t you see how hypocritical you sound?
“The slowdown has caused an astounding 49-month supply of existing homes for sale in Palm Beach County, Regional Multiple Listing Service records show.”
http://www.palmbeachpost.com/business/content/business/epaper/2006/10/30/m1a_auctions_1030.html?imw=Y
4 years of inventory? Major crash looming in Florida.
Jay the point is we’re all biased. Use your noggin mon!
No, that’s not the point. Objectivity, honesty, truth, integrity, ethics and the lack thereof is the point.
Richard, there is bias and there is bias.
Krugman’s one of the only economists out there writing honestly about what’s going on in terms that lay people can understand. Unfortunately, it seems the facts are biased against you these days. Hence the cognitive dissonance and angry lashing out at the messenger.
“but it’s hard to argue [Krugman’s] points.”
Not at all, see post #4.
Lindsey, step down from your pedestal at any time. Sheesh, get over yourself, please.
“Krugman’s one of the only economists out there writing honestly…”
Come on, give me a break. His articles are filled with half-truths, distortions, and omissions. Just listen to him rail against Enron, saying it’s worse than 9-11 (!) while he fails to disclose he was a paid Enron advisor — hypocrisy and chutzpah in the extreme.
I think you’ve got to question the worth of a writer who is so distrusted that he makes his opponents question the obvious.
>>Objectivity, honesty, truth, integrity, ethics and the lack thereof is the point.
maybe you can find another planet where that still exists.
>>Unfortunately, it seems the facts are biased against you these days. Hence the cognitive dissonance and angry lashing out at the messenger.
yeah that’s it, you have me completely pegged. LOL! take a course in logic before you want to intellectually spar.
To: waters
I am a pissed off Republican too. Can’t believe these neo-cons hijacked the party. What happened to fiscal repsonsible leaders of this country.
“Objectivity, honesty, truth, integrity, ethics and the lack thereof is the point.
maybe you can find another planet where that still exists. ”
I guess it’s people like you that are determined to eliminate all traces.
Richard, sorry, that was a bit harsh.
no worries jay. i don’t disagree. i guess i’m a bit more pessimistic these days. you start out life with such ideals and time and reality kind of wear that down. i find the northeast is getting more materialistic and self indulgent as time marches on. seems all people care about is getting theirs and screw things like sharing, self sacrifice and ethics. it’s a shame and makes one long for accepting surroundings.
for those interested, Westchester 3d quarter housing data came out today
http://www.wcbr.net
***SFH Sales down about 21%****
some choice excerpts from the surprisingly bearish report:
SALES
“The national real estate correction or recession, as one may prefer, got a firm grip on
the spring market in the Westchester – Putnam area this year. Its effects were quite
noticeable in third quarter closed transaction volumes that were well below last year’s in
both counties and in all of the property types tracked by the Multiple Listing Service.”
“On a year-to-date (January through September) basis, Westchester’s closed
transactions were about 12% below last year’s level [SFH down 16%]. However, that nine-month
average masks a deceleration that intensified each quarter after the peak record-setting
second quarter of 2005”
“The most recent third quarter [sales] rate is in the same league with
rates experienced in 2002 and 2003”
INVENTORY
“Westchester’s recent end-of-quarter inventory of 7,326 units was 22% higher than last
year’s third quarter level”
PRICE
“The third quarter median sale
price2 of a single family house in Westchester was $716,125 or just over one-half
percentage point higher than last year’s price.”
CONCLUSIONS
“Considering that third quarter closings normally reflect peak market activity in the spring selling season and that this year’s performance was lackluster, there is little reason to expect a turn-around with the fourth quarter results.”
“Prices likely will decrease, too, and by more than the usual seasonal decrease that
occurs from the third to the fourth quarter of each year. In the fourth quarter we may
well see the first real year-to-year decrease in the median and mean sales price of a
single family house in Westchester since the 1990-91 recession.”
A PARTING PLATITUDE
“The market needs this rest time to reset to a gentler, more sustainable pace.”
Thanks for the Westchester update.
jb
From Marketwatch:
Consumer loan, mortgage demand weakens in last quarter: Fed
Demand for both residential mortgage loans and commercial real estate loans weakened over the last three months, the Federal Reserve said in a report Monday. The lower demand for home mortgages comes in spite of little changed credit standards for such loans, the Fed said in a survey of bank loan officers. At the same time, more banks reported a dwindling demand for consumer loans of all types in the past three months compared to the quarter before. The Fed survey is based on responses from 55 domestic banks and 17 foreign banks.
To Un, whom I admire greatly (really!), everyone in the world except the GOP has some sort of agenda.
A 20% increase in (reported) unemployment is a 20% increase. No agenda there.
West Coast bleeding liberal here. So I am not going to get into a political debate.
But what Krugman says makes a lot of sense even though he is politically biased.
P.S. Unrealtor, I know where you stand. So no need to debate. :) I just hope that Democrats win both the House of Rep as well as the Senate this election.
Unrealtor,
I was trying to keep it polite, but hey, we can go the other way if you want.
Simple-minded personal attacks such as those espoused by you and Richard really do point up the weakness of your case. That garbage can work with the smiling dopes who fill the ranks of your cohorts, but here in the real world where thinking and logic count, it’s not going to wash.
I’ve been driven into the left’s arms by clowns like you guys who are nothing more than the amen chorus for the lunatics who currently control the levers of power in this country and have done more to destroy it in six years than the worst of their predecessors managed in 225.
Stop sucking up to and enabling people who are destroying this country and I can go back to doing my job, raising my kids and paying attention to sports just like everyone else wants to.
Am I off my pedestal now?
What housing bubble? Any thoughts on this article from the star ledger? I posted it earlier today under another thread. Interested to hear any comments from the crew.
http://www.nj.com/news/ledger/index.ssf?/base/news-9/1162097106226220.xml&coll=1
“The median sale price for a home or condominium in urban communities rose 18 percent in the first six months of 2006, compared with a relatively modest 8 percent jump in the suburbs, according to a Star-Ledger analysis of home sales.”
JB had that article posted over the weekend, too. I wrote a long comment, basically that something must be really messed up with the Star-Ledger’s analysis team if they are generalizing from median prices that “Housing prices still surging in Jersey’s cities.” Then I deleted it because I didn’t want to preach to the choir.
Somebody send them a concise description of why they should be ignoring median, or else firing their “analysis team.”
And regarding the political comments so close to the election. They are to be expected. Tough to keep silent, isn’t it? I like to see people fired up. Just wish it happened consistently, not just against the wire.
Should have just snipped out those political paragraphs.
Can’t we all just get along!
jb
The article made its way to the NJN channel today too. Sorry you didnt get to post your ideas on this one Pat. Something is surely stinky about the analysis though. I have seen the slumping jersey city market right before my eyes. SPeaking to realtors in the area confirm that it has lost its momentum months ago. The article is taking a snapshot of time though; the first six months.
“When you make a commitment to a group, or even an ideology, over facts you can guarantee that your heading for trouble.”
Lindsey, you nailed it. As an independent I am frustrated by people loyally spouting unthinking consensus rhetoric and viewpoints, substituting group-think for their own considered and thoughtful opinions.
Lindsey,
You go girl! :-)
“you start out life with such ideals and time and reality kind of wear that down.”
rich, it’s so true, and so easy to become cynical. but it’s obvious in your last post that your ideals are still intact, don’t let them go.
I am pretty independent, and I’d definately consider Krugman to be extremely partisan, but this piece is one of the least partisan op-ed’s of his I have ever read.
does anyone have the 5 steps of grieving? can we repost it please
I thought Lindsey was a boy?
Either way you go girl/boy
KL
I think JB will think twice before he posts another Krugman piece again, even though he was right on the money and echoes many of the comments and stories that have appeared on this blog.
It is all about engaging in a lively debate. Krugman did say that remark about Enron, however he does disclose his relationship with enron. It is even on his bio page at Princeton.
I think the news has been so bad as of late for the administration and congress that reality has taken on a liberal bias.
“Simple-minded personal attacks such as those espoused by you and Richard really do point up the weakness of your case.”
Sorry, I cited Krugman’s own words. But continue to stick your finger in your ears and say “La, La, La, La, La, La” if it makes you feel better.
And what’s this nonsense:
“smiling dopes who fill the ranks of your cohorts”
Strong case you have there.
And:
“here in the real world where thinking and logic count”
Apparently you’re not concerned with these things, as any objective observer can see Krugman is off the deep end. Enron worse than 9-11? The man is unhinged.
“clowns like you guys”
Nice.
“the lunatics who currently control the levers of power in this country and have done more to destroy it in six years than the worst of their predecessors managed in 225”
Wow, no wonder you can’t see that Krugman is off the deep end. You might want to check the voting history of “the left” in Congress and the Senate. Much of the things they denounce others for, they voted into law. It’s a shame they play cheap politics, and have no core beliefs, but the Internet exposes these political opportunist losers:
http://freedomagenda.com/iraq/wmd_quotes.html
“Am I off my pedestal now?”
Not intentionally.
“Should have just snipped out those political paragraphs. Can’t we all just get along!”
It wasn’t certain paragraphs, it was Krugman. Anyone who thinks Enron was more significant than 9-11 (two months after 9-11 no less!) has gone off the deep end.
My comments about Krugmam were not directed at you in any way for posting, he’s just way out there, and apparently has some fans.
“To Un, whom I admire greatly (really!), everyone in the world except the GOP has some sort of agenda.”
Come on now, that’s your straw man, not mine. :)
“A 20% increase in (reported) unemployment is a 20% increase. No agenda there.”
Right, and “full employment” is still “full employment.” Bear in mind Krugman is an “economist” and knows damn well what “full employment” is, yet describes it as “grim” and “how bad can it get.” Dishonesty, and partisan hackery.
That’s how I feel today. I closed the sale on my house (in Fla), and got the wire transfer. Up until one minute prior to closing today, I was praying (literally, here at my desk) that it would go through.
I really do feel a burden lifted. And I consider myself extremely lucky (or fortunate, or smart, whatever want to call it) to have bought low and sold high. Granted, I lowered the price of my home at good 30k just to sell it.
Now we play the waiting game. Getting married in April, and we don’t buy before then. For the time being, the money will be locked up in ING or HSBC, liquid and enjoying 4-5% gains. Maybe I’ll get lasik, but that’ll be my only splurge.
We’ve already scouted out a few houses that are probably 100k overprice in the area we want (North Jersey), and hope is that 8 months from now, we’ll make some offers if they’re still around.
Have we guessed a time when the NYC/NJ market will turn? I must give credit to this blog and others; i saw the market turning in November/Dec thanks to blogs, and put a sell plan into action.
Thanks, guys.
Well I guess at the same time you can consider the one who purchased your Fliper-House in Florida is one unlucky dumb slob. Since you’re so proud of yourself (enough to post)
Could you give us more details of your transaction?
Thanks
* 1. Denial.
* 2. Anger.
* 3. Bargaining.
* 4. Depression.
* 5. Acceptance.
Lucky Dog, Yes and please do tell us where the houses that are overpriced by only 100K are.
Actually, I was thanking you guys more than anything. And there was no intention to flip – at least not initially. Once this blog and others started with the doom and gloom, I panicked and instantly wanted to get the hell out. I told my buddy (in VA) to lower his, but he took out some equity and can’t go too low. So he’s going to look to rent. I wanted nothing to do with that.
Please do not take the post as gloating. Relieved is more like it.
As I type this, I’m trying to talk the guy sitting in front of me OUT of buying. He just came with realtor speak that you guys would cut off his balls for: ‘But the NY market is impervious to a crash!’
He offered 30k less than the sale price (somewhere between 500k-600k), and his realtor came back with – ‘if you throw in 10k more, they’ll do it.’ I have directed him here and to Housing Bubble 2.
Anyone have the link to the NJ website (or NY one) where you can find out what people paid for their house/condo/townhouse?
Lucky Dog
http://www.njactb.org
sorry to see the political back and forth as this blog is very good on discussing the facts of the market. For what its worth, I think that bubble economies eat up everything, including apparachniks and politicians. There is no leadership in either Republicans or the dems because one has been hijacked by radical right wingers and the other can’t get itself together.
In “asset based economies” (aka a bubble) a recession is a disaster. Has anyone noticed how wall street and the MSM talk about a recession as if it were armageddon and deny the very possibility of a recession in the US. This, even though all the data say that the US needs to reduce demand to lower imbalances and take the air out of the bubbles. Instead, they do everything they can to keep the bubble going for a bit longer and pass the buck to the next guy.
The resolution is likely to be disastrous for everyone and not just in the US just as Krugman and Roubini say. For the record, I think they’re hacks too because they never seem to talk about timing or feedback loops. Instead, they just point out the obvious and blame the republicans.
interest rates have peaked and will only head down, so it might be a good time for those knowing how long they want to lock money up to grab a CD and do so. if the economy continues to weaken (GDP less than 2.5% in Q4 and ’06 Q1) the Fed will cut rates.
Thanks, Metroplexual.
First, I am a boy, or more precisely, a cranky middle-aged man.
Nice try Unrealtor.
First you try and put words in Krugman’s mouth and thoughts into his head.
Here’s your quote of Krugman:
“I predict that in the years ahead Enron, not Sept. 11, will come to be seen as the greater turning point in U.S. society.”
Then, your intrepretation:
“Enron worse than 9-11? The man is unhinged.”
How does “greater turning point” become “worse”?
From post 56:
“smiling dopes who fill the ranks of your cohorts”
Strong case you have there.
Let me help you out here, that’s not a case, it’s an insult. I’m not arguing any point there.
And:
“here in the real world where thinking and logic count”
“clowns like you guys”
Nice.
At least you figured out this one was an insult.
I’ll stand by my lunatics comment and I’ll add that the current administration is clearly sadistic and has no respect for the rule of law.
Since the Democrats (even the slimiest and ones) present the only potential check on the psychopaths, my decision was made for me. I hope to hell they get control of Congress and if they don’t impeach this current crew then they’re every bit as bad.
First, I am a boy, or more precisely, a cranky middle-aged man.
Oops. Sorry. Hate it when that happens.
No worries, just keeping the record straight. It’s been happening all my life.
I guess nobody else around here is on a happy chocolate high after filling Halloween bags, huh..just me.
Some things ARE good out there, and make it worth trying to fix it.
Being pissed off and getting nowhere fast, well that’s not as rewarding. Neither is revenge. Lotsa lost opportunity, cost and time down the road to recrimination.
Richard: The Fed will not be cutting rates in 2007, they will remain on hold,and their bias is toward further tightening.
If they do lower, it will be in late 2007, and it will be in increments. Mr. Bernanke knows that this housing mess has to be cleaned up, and to help do that you need realtively high short rates, and if that risks recession, then so be it. He will take that chance, and then lower rates significantly to clean up the recession, and of course look like a hero.