Dean Baker and David Rosnick from The Center for Economic and Policy Research (CEPR) have released one of the most compelling papers on the housing bubble yet.
I won’t paraphrase or summarize the paper, this is a *must read*.
Will a Bursting Bubble Trouble Bernanke? The Evidence for a Housing Bubble
Caveat Emptor,
Grim
I don’t think Bernanke will “fix” the bubble burst. He will “fix” the overall economy and inflation first. He can probably blame on Greenspan. Either way, there is no thing he can do now.
if i could show a doubter just one article, this would be it
If anyone has questions on the paper, please ask and we’ll try our best to answer.
grim
The government is really good at passing blame, the best in my opinion.
-Richie
Should the bubble burst, no amount of rate cuts will reinflate it. It didn’t work for Japan, and it most certainly won’t work here.
grim
I just heard today that a girl i work with (she rents in a 2 family house) has to move because the landlord is going to sell the house. it is on the market for 475,00 (its in west patterson NJ). she talked to the landlord, who said she would be more than happy with 400k.
this is a microcosm of what is wrong with the market today. people who are selling just throw a huge number out there, and then someone will come in and undercut it by 5% or so and think they are getting a deal, when in reality most of these sellers I am sure would be happy with 50-100k below their initial asking price.
we need to get the word out to buyers that they have the power, and can easily drop the price by 15-20%
“Should the bubble burst, no amount of rate cuts will reinflate it. It didn’t work for Japan, and it most certainly won’t work here.”
I agree. Housing prices fell in the early 1990’s in an environment of falling mortgage rates. The “jump in before I get priced-out” mentality will be replaced by “wait it out and get a better deal”. The market is driven more by psychology (expectations for the future) than affordability. Making housing more affordable by cutting rates won’t do much if people no longer see homes as a no-risk, get rich quick investment.
Well said.
On another note, thanks to everyone that got the message out and handed the link to the blog out. Traffic the past week has been at a record high, amazing really, and each day that passes it only gets higher. Please keep it up, we need to get the message out!
Thanks!
Boston researchers predicting a 3% decline next year with a flat market until 2007..
Housing forecast: downturn until ’07
At least these folks are now acknowledging that prices are going to decline.. Now only if we could get them to really take a look at the numbers.. Only a 3% decline, sounds highly unlinely to me, the numbers I’ve come up with are significantly higher (for the entire Northeast).
Media and public sentiment is changing by the minute.
Caveat Emptor,
Grim
The damn house prices went up 80-100% last 5 years. Normally 5% is good growth so lets say 7% to be very generous.
So lets say a house that sold for $350 5 years what rationally should it be worth?
$490,000 at a generous 7% increase in prices. They want $750,000 right now. FU!
If you go back to 1995 prices this houses sold for about $250k. 4 bedroom colonial in N. NJ. $350k in year 2000 at a generous 7% increase.
SO I AM SAYING TO GET THINGS BACK TO 7% TRENDLINE WHICH IS VERY VERY GENEROUS HOME APPRECIATION OVER TIME HOME PRICES NEED TO DROP ABOUT 34%. CONDOS JUST FORGETIT UNLESS DROPS ARE OF 50%!
Do not waste your time looking at houses now. Do not bid nothing.
SELLERS AND REALTORS NEED TO BE DRIVEN INTO THE GROUND TO BECOME DESPERATE.
Prices need to drop 34% and 50% for condos to RATIONAL LEVELS. WHICH IS STILL GENEROUS AT THE 7% TRENDLINE COMPOUNDED GROWTH LINE.
PEOPLE ARE NOT GETTING 7% INCOME INCREASES.
IF YOU TAKE 5% TRENDLINE HOME APPRECIATION HOME PRICES NEED TO DROP ABOUT 43%!!!!
The real estate industry including greedy Bob “Fast Talker” Tol are trying to convince buyers that you must spend a higher % of your take home pay to buy a house. I say they are conmen.
do not listen to them. Buy a house be a debt slave? Yeah okay Bob.
I still can not believe how much people pay for condo’s and town homes. Its as much, if not more than a stand alone house sometimes! I know taxes are slightly cheaper, but you do pay maintenence. I know someone who is about to spend 435 for a 2 bedroom 2 bath townhouse in Morris, NJ. I mean that just sickens me
Yeah, the local market is unaffordable. I went 2 “starter home” open house in Summit last Sunday. Both are about 1600 sf with 3 bed and 1.5 bath. They want 650k and 675k. It is crazy. 1.5 bath will be diffcult to resale. The 675k one is next to the train track. I probably won’t be able to sleep there either. Crazy
I remember a friend bought a condo in flemington for $120 in 1988 and 3 yers later was lucky to get $85k for it.
The mron in morris buy 2 bedroom for $400’s going to get huge harcut.
Now, I realize, it’s always been a stretch to afford housing. All of us here understand it. While it might have been marginally easier to afford a home in earlier years, it was never a trivial move.
But Today? What can you say? It’s not even a stretch anymore, difficult doesn’t describe it. It’s just about impossible without using risky (funny money) lending. Even then you don’t own your home, you are simply paying interest to the bank for the privilege of living in their home. Homeowner? Never. A lifetime homedebtor.
You know, they say homeownership is at an all time high in America, it’s the American Dream ™. Unfortunately, it seems very few Americans really own their homes anymore, the banks do..
grim
It is crazy. 1.5 bath will be diffcult to resale. The 675k one is next to the train track. I probably won’t be able to sleep there either. Crazy
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scary stuff. Summit is a nice town & all….but i’m guessing those homes sold for under 40K 20-25 years ago.
I know housing prices will inevitably revert back to their historic mean, but it is truly ashame what the Greenspan led FED did to the purchasing power of our dollars over his tenure.
$1 buys us less than 1/2 of what it did back in 1987 (year Greenie took the raines). constant pumping of the money supply almosts offsets the rise in interest rates.
talk about your stealth tax (inflation). simply pathetic.
remember a friend bought a condo in flemington for $120 in 1988 and 3 yers later was lucky to get $85k for it.
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Anon
a good friend of mine did something similar right out of college in 1989.
he was one of the 1st to buy into a new townhouse (2 bed 2 bth) development in New Brunswick for 105K.
needless to say, the complex was never fully completed (some of the unfinished homes became crack dens) & fortunately/unfortunately the monthly condo fee had to be raised to pay for security (forget about the other planned ammenities) 24/7.
at its low point….they were selling for between 25 & 30K. He didn’t want to declare bankruptcy, so he lived there with college students renting the extra room, until he finally was able to get out in 1998-99ish.
I believe he sold it for around 70K. basicly walked away with only losing his initial downpayment (time value of $) & closing fees.
however, he endured a number of years of being STUCK in lousy living conditions & burdened by carrying costs (headaches).
to this day he looks back & realizes how naive he was to believe what a great investment “homeownership” is.
my friend (like most) also regrets not heeding the advice from many seasoned elders (businesspeople) who were trying to look out for him (warning against him buying) at the time.
I guess RE doesn’t “always” go up.
Gravitymatters, you know what’s a shame? Those same elders who warned your friend years ago are the ones now putting pressure on us younger crowd to buy! It’s all I ever hear nowadays and it’s crazy – it’s the same people who lost a lot of their money in the stock market urging me to invest in real estate. It just blows my mind how some folk never learn.