December 24, 2007

Collapsing Bubble: The Picture from Ground Zero

Back in February 23, 2004, Alan Greenspan was urging people to take advantage of the historically low interest rates and to forego the stodgy old fixed rate mortgages.

American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.

It seems that the February 2004 date would be a very good date for marking the start of the housing bubble. Everyone believes we are just getting started on seeing housing prices drop because there is too much inventory and too many houses that are close to foreclosure to be anywhere near the end. So this picture from the Irving Housing Blog is quite an eyeopener.

house prices

Notice that the monthly median price in November was only 10K more than the price in March 2004. Where do you think the prices in San Diego will bottom out? And what will that do to the California economy?

Posted by Mary at December 24, 2007 12:06 AM | Economy | Technorati links |

Iran intends to build 19 NPPs

Posted by: ccoaler at December 24, 2007 04:55 AM

Iran intends to build 19NPPs
(sry bad link b4)

Posted by: ccoaler at December 24, 2007 04:56 AM

housing curve gif

(post creep)

Posted by: Huskarl at December 24, 2007 07:50 AM

The chart would be a lot more useful if it started a few years before the hump that it shows, so we could get a contrast between normal growth vs. the so-called bubble.

Posted by: Mike at December 24, 2007 12:17 PM

Of the first two of the three booms and, now, three busts I've survived out here on the Oregon High Desert, housing fell twenty-four and twenty-seven percent, respectively, before plateauing out at about fourteen percent below original resale value. Based on that one could view that chart as indicative the the end is almost near - prices are about par, they'll only fall another twenty-five or so percent before rising slightly and everything will be just groovy again.

The difference, however, is those first two busts were financed by traditional mid-seventies and late-eighties mortgages. The sub-prime credit bubble, part and parcel of the housing bubble, hyper-inflated the value of all housing, and as you know, my dear, physics is everything - not only is a perpetual motion machine as the credit/housing surge has been is bound to fail, to implode, hyper-inflation can only result in hyper-deflation. The end is nowhere near.

I don't know if this will sum it up, but, it costs eighty-five thousand dollars to build a half-million dollar house here, I just did. A not-local builder/investor two weeks ago put twenty-eight of these homes to auction at one-eighty-five... and not a one of them sold.

Posted by: Ten Bears at December 25, 2007 02:06 PM

So if the price of housing falls, perhaps it will become cheap enough for those who were smart/frugal enough not to walk into the hornets' nest earlier.

Posted by: Huskarl at December 25, 2007 04:12 PM