Greenspan is senile

[Paddy]

and interfering with my inheritance.  My parents died earlier this year and my brothers & I have listed their home for sale.  Now Greenspan says this

US heading for house price crash, Greenspan tells buyers

at exactly the wrong time.  Why can't he just keep his mouth shut?  Who is he to meddle with the free market?
http://business.timesonline.co.uk/article/0,,16849-1752866,00.html

[roo_ster]

Greenspan wants to cool down some of hte housing markets, as in some parts of Florida's & California's housing markets are kinda overvalued, sometimes by as much as 50%.  DFW, OTOH, is generally thought to be undervalued (by 11%).

Both Greenspan and hte market can't both be right.

[Sylvilagus Aquaticus]

Yeah, I have to wonder what's happening with the water in some markets when I can buy a new house from a national builder in Dallas for 150k and the same, identical house in LV or suburban areas of CA sells for 800k, with folks climbing over each other to out-bid them at a premium.

....not that I'd buy a new home that was built in 4 weeks from pouring the slab to laying the carpet....

I'm looking at houses in the 20-30 year old range now.  You can get a really nice, well-built custom home in Dallas or one of the 'next door' suburbs- Richardson, Plano, Grand Prairie, Duncanville- well under 200k...WELL under.

My first degree is in economics.  Even though I don't work in the field, I read things, I listen, and I research...a lot.  I don't see anything 'turning down' anytime soon, at least around DFW. Housing prices have been rising steadily, albeit slowly, in the area, especially in the new-construction market.  Currently, lumber prices are going down, the 'nearly-new' market is cooling as builders are discounting inventory to sell their inventory. If you bought one of their houses a year ago and have to sell today, you're going to be sitting on it awhile or you're going to have to take a little loss or skip some 'profit'.  The DMN ran an article earlier this week regarding this. It goes hand-in-glove with what some of my real estate sources tell me they're experiencing.  Older existing houses are selling on an average market time of 55 days in my area. Homes 1 to 3 years old in the northern 'burbs are almost 160 days out.

I'm in the same boat as you, Riley. My dad passes away last month and my brother and I have his house on the market.  We have a contract on his house after 21 days in the market for 3% under the listed (and appraised) price.  

Location, location, location.


Regards,
Rabbit.

[TarpleyG]

We are planning to sell next summer as soon as my wife finishes up the school year and I can find a job.  Our house will not be worth what it will be worth in about a year for a long time I don't think.  Keeping my fingers crossed.

Greg

[roo_ster]

Currently, lumber prices are going down, the 'nearly-new' market is cooling as builders are discounting inventory to sell their inventory. If you bought one of their houses a year ago and have to sell today, you're going to be sitting on it awhile or you're going to have to take a little loss or skip some 'profit'.

This jibes with the experience of a friend of ours.  She & her worthless husband bought existing (but relatively new) housing in Frisco (a booming, high growth area for y'all not in DFW) three years ago.  It took her 6 months to unload the house at a break-even price.

[mtnbkr]

I personally believe any market slowdown is because the "pundits" have been predicting it for over 3 years now.  After being beat over the head with the message that the housing bubble is getting ready to burst, some are believing it.  A coworker of mine refused to buy a house when he moved to this area 3 years ago because of this talk.  Had he bought a house then, he could sell it today for a 6 figure profit.  A townhouse that would cost him $450k today was only $250-300k back then.  But...but...the housing market is getting ready to collapse.

Chris

[Azrael256]

But...but...the housing market is getting ready to collapse.

Maybe, maybe not.  In a few years, I'd say it might, but I don't expect it anytime soon.  I think everybody is nervous because of what happened both with the real estate market and the tech boom in recent years.  Things might be slowing down, but the market is not, in my opinion, inflated enough to have a serious crash anytime soon.

That said, interest-only loans used to flip a house in a year are just a dumb idea.

[Ben]

Interesting current ranking of home price "over-valuations" (at least for me, since I live in Santa Barbara -- well Goleta actually -- same problem). You have to click on the link to get the full ranking chart. Median home price in my area is currently 1.2mil. I paid $130K for my condo in 1996.

Still not sure "bubble" is the correct term for what's happened to housing in the last few years. The  market fluctuates, sometimes more than other times. In the 80's many Californians saw their houses more than double, then take a nice big drop, and now go a good deal higher up again.

If you buy wisely, you can ride out these market fluctuations. Hint: Multiple interest only loans, and taking out home equity loans every time the bank tells you your home value has increased is not investing wisely. This is a scary common practice in these parts.

---------------------------------------------
http://www.usatoday.com/money/economy/housing/2005-08-16-home-prices-usat_x.htm

Home prices 'extremely overvalued' in 53 cities
By Sue Kirchhoff, USA TODAY
WASHINGTON  Single-family home prices are "extremely overvalued" in 53 cities that make up nearly a third of the overall U.S. housing market, putting them at high risk of price declines, according to a study released today.
      Workers put finishing touches on a new home in Sacramento.   
By Rich Pedroncelli, AP

The report, by Richard DeKaser, chief economist of National City Corp., examined 299 metro areas accounting for 80% of the U.S. housing market. (Chart: High-priced housing faces risks; 299 metro areas ranked)
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DeKaser terms a market extremely overvalued if prices are 30% above where he estimates they should be based on historic price data, area income, mortgage rates and population density  a proxy for land scarcity.

Based on those criteria, Santa Barbara, Calif., is the nation's most out-of-whack market, with houses 69% overpriced. Rounding out the top five: Salinas, Calif.; Naples, Fla.; and Riverside and Merced, Calif.

College Station, Texas, is the most undervalued, priced 19% below where the data suggest it should be. Other inexpensive communities include El Paso, Odessa and Killeen, Texas, and Montgomery, Ala.

The highest-risk markets are in California; Southern Florida; parts of the Boston area; the Long Island, N.Y., counties of Nassau and Suffolk; and Ocean City, N.J.

The big culprit: in 85% of the cities surveyed, home-price gains outpaced income gains during the past year. In Bakersfield, Calif., prices rose 33% while incomes increased 3%. In 29% of areas, prices outpaced income growth by at least 10 percentage points.

Just 2% of markets were in bubbly territory at the start of 2004, vs. 31% in the first quarter of 2005.

Some of the most expensive areas or those with the fastest growth aren't necessarily the most overpriced, according to DeKaser's model. Pricey Honolulu, Hawaii, for example, isn't in the top 53.

DeKaser says his study doesn't mean big corrections are imminent, though he sees evidence the housing market could be at or near a crest.

"For the U.S. as a whole, I expect we're going to have an orderly correction. But that doesn't mean it's going to be equally orderly in all places," DeKaser says.

He says it's rare for property to depreciate, even in overvalued markets, without an economic shock such as rising unemployment. Price corrections might not occur at the same time, and declines in one area could be partly offset by gains elsewhere.

DeKaser's 30% threshold for overvalued markets is based on prices in 63 areas since 1985 that later had housing price declines.

[The Rabbi]

Ach.
Home prices move opposite of interest rates.  Rates have been at historic lows for about 5years.  Home prices have moved up for about 5 years.  When rates rise, prices will fall.  All those waiting to get in after the collapse and scoop up bargains will be sorely dissapointed when they discover their monthly payment will be the same before and after.

[Standing Wolf]

I'm staying where I am, thanks all the same.

[Sergeant Bob]

I think Alan Greenspan's economic genius is highly overrated.

[Sylvilagus Aquaticus]

jfruser shows a good example. Last March my oldest Incubii's girlfriend sold her house in Frisco, one of the northern mushroom 'burbs of Dallas. The house was 8 years old and she'd owned it for 5 years. 2 story, 2000 square feet, 4 bedrooms 2 1/2 baths.  It was appraised for $174,900 before listing it, and she paid $160,000 for it. It went on the market for 5182,500 with a little 'wiggle room' built in.  It was on the market for 10 months in a fierce market with lots of houses almost exactly like it in her price range and almost exactly like it within a mile or two of her subdivision.  When she finally did sell it, she took $155,000. for it after she replaced half the carpet downstairs and repaired the foundation which had settled 3 inches across the front half of the house at a cost of $4000...a common problem in north central Texas with our black clay soils.


Frisco is so overbuilt that they're considering a moratorium on new construction until the builders in the area bring up their quality to a level where buyers aren't having to turn around and sue them to get a house that meets code and doesn't leak in the rain or split down the middle during the summer when the ground dries out.  Murphy, Wylie, Saginaw, Sachse, Little Elm and other small towns around Dallas are experiencing the same problems. Allen, just north of Plano, another suburb, can't build up their municipal infrastructure fast enough to keep up, along with McKinney, called now the fastest growing suburb in Texas.  Taxes on a 200k house in Allen are upwards of $8,000 a year due to the cost of running water, sewer and streets into the subdivsions.  In Richardson, the taxes on the same value house are about $3000.

Ask me again why I'm not buying a new house in the 'Burbs.


Regards,
Rabbit.

[Sylvilagus Aquaticus]

Oh, and in case you haven't seen this...more insanity, but consider the source- bankers trying to drum up more business....

http://www.latimes.com/business/la-fi-homedebt28aug28,0,6044251.story?coll=la-home-headlines

a sample -

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

He called it "very unsophisticated."

Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. "If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing."


Regards,
Rabbit.

[mtnbkr]

I saw that article yesterday.  It's the silliest thing I've ever read.

Chris

[Ben]

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,"

Stupidest statement by an "expert" that I believe I've ever read. I'm willing to bet he's one of those "rich" investors that's making $1000 a month payments on his Mercedes, which he's driving to show how well off he is.

[The Rabbi]

Stupidest statement by an "expert" that I believe I've ever read. I'm willing to bet he's one of those "rich" investors that's making $1000 a month payments on his Mercedes, which he's driving to show how well off he is.

Not necessarily.  While getting the mortgage paid off is not a bad idea, his contention is probably correct.
Let's say someone has a mortgage at 6%.  In addition to the low rate he also gets tax benefit that may bring the effective rate down to 4.8% or even less.  If he took his extra payments and instead dollar-cost averaged into the stock market or some other higher yielding investment than 5% he will end up after 30 years with much more money than merely paying off the mortgage early.
That said, early repayment is an easy and certain form of investment.

[Ben]

Not necessarily.  While getting the mortgage paid off is not a bad idea, his contention is probably correct.

I'll make the caveat that anytime I post something regarding investing, it's from the simple and very conservative side of things. It has a lot to do with how I was raised, which was to not be beholden to anyone, especially with money. So I guess I also took that guy's statement somewhat personally, since I paid my mortgages off a ways back, and pay cash for everything nowadays. I always figured the money I'm not paying towards mortgages every month is what goes into my retirement and real estate funds.

I recognize that my way of doing things takes longer to earn money because I don't necessarily take advantage of every profit opportunity available to me, but it's a comfortable way for me to invest at this point in my life.  

[Azrael256]

Y'know, there's a profit to be made in all of this by normal people who passed 5th grade math.  I haven't quite figured out what it is, but I'm willing to bet I could go to law school, become a bankruptcy attorney, and graduate right about the time this all explodes.

Rabbi, you're clearly more financially savvy than these folks are.  You follow that strategy, and I'll do the same, and the two of us can sit around and have fruity drinks with little umbrellas on some tropical island while everybody else is defaulting on their debts.

Of course, you realize that your strategy is based on the concept of saving and wise investment, so you're talking way over the heads of just about the entire population.

[The Rabbi]

Azrael, I indicated that the money advisor had a point.  I also mentioned that those opposed also have a point.  for myself, I have to say that I owe all of $45,000 on a house worth about $190k so I dont always follow my advice.  Sometimes sleeping well at night is worth a lot more than just doing the right thing.
Really, getting wealthy is not that hard.  It takes hard work and discipline and good spending habits.  And you are right: that puts it out of reach of most people.
But if people ate reasonably, got moderate exercise, didnt smoke, drank in moderation, and made wise decisions about money and spending and their personal lives, half of us would be out of a job.

[Paddy]

If Greenspan wants to do something productive, why doesn't he lecture about the dangers of a completely consumer based economy.  An economy that no longer produces durable goods for domestic use and export, but instead imports almost everything from third world countries.  He can point out the vulnerabilities of huge trade deficits with these countries that use what amounts to slave labor.

And while he's at it, he can expound on the self destructive practice of exporting employment to these countries while importing illegal workers to the U.S. so that they can send their wages out of this country while receiving free food, housing and healthcare at the expense of American taxpayers.  There's plenty of real problems for him to preach about.  The real estate market is self balancing IMO; prices will stabilize when demand lessens.

[Guest]

and interfering with my inheritance.  My parents died earlier this year and my brothers & I have listed their home for sale.  Now Greenspan says this

US heading for house price crash, Greenspan tells buyers

at exactly the wrong time.  Why can't he just keep his mouth shut?  Who is he to meddle with the free market?
http://business.timesonline.co.uk/article/0,,16849-1752866,00.html

He is a dangerous, plotting tyrant. His devious and Satanic meddling with the economy is made all the worse since we know that at one time he was a libertarian free-market, hard-money, Austrian economist who sold out to the Keynesian central-planners to attain power.

[The Rabbi]

If Greenspan wants to do something productive, why doesn't he lecture about the dangers of a completely consumer based economy.  An economy that no longer produces durable goods for domestic use and export, but instead imports almost everything from third world countries.  He can point out the vulnerabilities of huge trade deficits with these countries that use what amounts to slave labor.

Why doesnt he?  Because those things are neither important nor true.
In fact the U.S. is a net importer of jobs.  A dirty little secret no one mentions but true nonetheless.
Does the term "specialization" mean anything to you?  If not then get Thomas Sowell's Economics for the Citizen (or whatever it is called) and read his chapter on trade.
The U.S. is running a deficit because foreigners are sending their money here more than their goods.  Why?  Because the U.S. provides the best investment environment in the world currently.  I remember people screaming about the deficit under Reagan and we had the best economy we ever had.  When foreigners start pulling money then watch out.

He is a dangerous, plotting tyrant. His devious and Satanic meddling with the economy is made all the worse since we know that at one time he was a libertarian free-market, hard-money, Austrian economist who sold out to the Keynesian central-planners to attain power.

Don't you need an irony "roll-eyes" smiley after that ill-informed rant?

[Paddy]

uhhhh..........apparently, Greenspan disagrees with you, Rabbi.  He said

.... that the US house-price spiral had become an economic imbalance, threatening stability like the countrys trade gap or its budget deficit.

He equates a thriving housing market with deficit spending, which makes no sense whatsoever.

And how much of that 'foreign investment' is really the purchase of public debt in the form of treasury notes?

Part of the reason the U.S. provides the 'best investment environment in the world currently' is because the corporate/government outsourcing of labor IMO.

The deficit under Reagan had a legitimate purpose-to collapse the Soviet Union.  What is the purpose of Bush's deficit?

[Paddy]

I'm in the same boat as you, Riley. My dad passes away last month and my brother and I have his house on the market.  We have a contract on his house after 21 days in the market for 3% under the listed (and appraised) price.

That's pretty good.  We've got the house listed for $749,900.  We've gotten a couple lowball offers in the 600 range and are negotiating.

It was very difficult to go through the house and dispose of our parents belongings; it was like throwing their whole lives away.  Mom knew what was coming and had me arrange an estate sale last fall.  We sold most of her antiques and collectibles then, but later, I found out the dealer burned us.  Dad had a  stroke back in June 2003 and had been in a nursing home.  Mom moved up to Oregon and stayed in an assisted living facility near my brother.  She passed away March 31.  Four days later, Dad had a second stroke, on the other side.  He was completely paralyzed, and died April 15.

He was a WWII vet and we had a military funeral, with an Episopal priest and an Anglican bagpipe player.

[The Rabbi]

The deficit under Reagan had a legitimate purpose-to collapse the Soviet Union.  What is the purpose of Bush's deficit?

Deficits dont have purposes.  They are a phenomenon of the economy.  But in case you are interested take a look at the latest forecasts for the deficit and notice how it is declining rapidly.