Housing.com News, Analysis & Opinion: Housing Bubble: It Has Begun

I was trying to get an article from the New London Day on another topic, when I came across this proclamation of the bubble's burst. (Registration required, sadly.)

A real estate slowdown that began in a handful of cities this summer has spread to almost every hot housing market in the country, including New York.

“We are seeing a market in transition,” Leslie Appleton-Young, the association's chief economist, said.

No! Seriously? You mean Alan Greenspan's prognostications were actually based in the real world for once? I am shocked...SHOCKED, I tell you.

The point made here contradicts what Greenspan was advocating so strenuously in his recent remarks to bankers and business: Homeowners CANNOT rely on the "debt cushion" of their home equity anymore. As the author says here:

Although most experts think home prices wouldn't drop more than 20 percent or 30 percent over a couple of years if the much-discussed bubble bursts, even a small drop in prices could do serious damage to equity and fixed-income portfolios, they warn.

"If real estate cools dramatically, there goes half our economic growth," says Barry Ritholtz, chief market strategist at Maxim Group. "There is danger of recession — and you know what recessions do to the stock market."

However, once again, the data paints a conflicting picture. The AP reported that manufacturing data jumped in September, and construction did along with it, thanks to Hurricane Katrina.

My biggest fear is that people will look at Katrina and think that what's happening in the Gulf Coast will somehow maintain high housing markets in the rest of the country. Just as the bubbles themselves are localized, the deflation of the bubbles will also be localized.

If you want to invest in a company involved in the Katrina reconstruction, or maybe buy some property down there to get in on the ground floor of the rebuilding, that's one thing. It's quite another to think that you can still fetch top-dollar prices for an overvalued home in the Northeast or Bay Area because of that.

As I said before, everything is connected. But a rising tide does NOT always lift all boats, and before we can reap the gains from the massive rebuilding effort in the Gulf, we have to face the fact that the markets need to slow down and cool off. Unfortunately, that "cooling off" may involve a lot of foreclosures and sales for less than the asking price, plus high heating bills and more credit card delinquencies. All of these will contribute to an "accelerated slowdown," if you will, of the overall market.

We will get through it. I believe this completely. Home ownership is still a reality for most Americans, with amazing potential benefits. But the time of "flipping" and buying property just to speculate is over. It's time to be smart, be realistic, and play it safe.

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"Mortal Kombat!!!!" I was trying to get an article from the New London Day on another topic, when I came across this proclamation of the bubble's burst. (Registration required, sadly.) Here're some quotes from the article in question: A real estate slowdown that began in a handful of cities this summer has spread to almost every hot housing market in the country, including New York. More sellers are putting their homes on the market, houses are selling less quickly and prices are no longer increasing as rapidly as they were in the spring, according to local data and interviews with brokers. In Manhattan, the average sales price fell almost 13 percent in the third quarter, according to a widely followed report to be released Tuesday by Miller Samuel, an appraisal firm, and Prudential Douglas Elliman, a real estate firm. The amount of time it took to sell a home was also up nearly 24 percent over the previous year. In Fairfax County, Va., outside Washington, D.C., the number of homes on the market rose nearly 50 percent from August, 2004, to August of this year. In the Boston suburb of Brookline, Mass., where typical three-bedroom houses cost about $1 million, the inventory of homes for sale has increased in just the last few weeks, said Chobee Hoy, a broker there. For-sale listings have also swelled throughout California, according to the California Association of Realtors. In just the San Francisco area, they have increased 16 percent in the last year, according to Coldwell Banker Residential Brokerage. “We are seeing a market in transition,” Leslie Appleton-Young, the association's chief economist, said. No! Seriously? You mean Alan Greenspan's prognostications were actually based in the real world for once? I am shocked...SHOCKED, I tell you. Found via MSNBC: If Housing Slumps, How Safe Are You? The point made here contradicts what Greenspan was advocating so strenuously in his recent remarks to bankers and business: Homeowners CANNOT rely on the "debt cushion" of their home equity anymore. As the author says here: Although most experts think home prices wouldn't drop more than 20 percent or 30 percent over a couple of years if the much-discussed bubble bursts, even a small drop in prices could do serious damage to equity and fixed-income portfolios, they warn. "If real estate cools dramatically, there goes half our economic growth," says Barry Ritholtz, chief market strategist at Maxim Group. "There is danger of recession — and you know what recessions do to the stock market." However, once again, the data paints a conflicting picture. The AP reported that manufacturing data jumped in September, and construction did along with it, thanks to Hurricane Katrina. My biggest fear is that people will look at Katrina and think that what's happening in the Gulf Coast will somehow maintain high housing markets in the rest of the country. Just as the bubbles themselves are localized, the deflation of the bubbles will also be localized. If you want to invest in a company involved in the Katrina reconstruction, or maybe buy some property down there to get in on the ground floor of the rebuilding, that's one thing. It's quite another to think that you can still fetch top-dollar prices for an overvalued home in the Northeast or Bay Area because of that. As I said before, everything is connected. But a rising tide does NOT always lift all boats, and before we can reap the gains from the massive rebuilding effort in the Gulf, we have to face the fact that the markets need to slow down and cool off. Unfortunately, that "cooling off" may involve a lot of foreclosures and sales for less than the asking price, plus high heating bills and more credit card delinquencies. All of these will contribute to an "accelerated slowdown," if you will, of the overall market. We will get through it. I believe this completely. Home ownership is still a reality for most Americans, with amazing potential benefits. But the time of "flipping" and buying property just to speculate is over. It's time to be smart, be realistic, and play it safe.