America's housing bubble still deflating

[CHIMO]

How many economists does it take to see an $8tn housing bubble?

The answer to that question has to be many more economists than we have in the United States. Very few economists saw or understood the growth of the $8tn housing bubble, whose collapse wrecked the economy. This involved a degree of inexcusable incompetence from the economists at the Treasury, the Fed and other regulatory institutions who had the responsibility for managing the economy and the financial system.

There really was nothing mysterious about the bubble. Nationwide house prices in the United States had just kept even with the overall rate of inflation for 100 years from the mid 1890s to the mid 1990s. Suddenly, house prices began to hugely outpace the overall rate of inflation. By their peak in 2006, house prices had risen by more than 70%, after adjusting for inflation. Remarkably, virtually no US economists paid any attention to this extraordinary movement in the largest market in the world.

Had they bothered, they would have quickly seen that there was no plausible explanation for this jump in prices in either the supply or demand side of the market. There were no major new restrictions on supply, with the builders putting up homes at near record rates. Nothing on the demand side suggested that prices should rise. The healthy income growth of the late 90s was followed by stagnation in the last decade and population growth was relatively subdued. Finally, there was no unusual rise in rents, which just slightly outpaced inflation over this period.

http://www.guardian.co.uk/commentisfree/cifamerica/2011/jan/03/useconomy-economics

[RKP5637]

1. Everyone was too busy flipping houses to give a F. A lot of us were

saying this is going to fall apart, of course Greenspan, the magical orator that many worshiped, just let it plow ahead too. Everyone was too busy making money to care. Great management. In any of the corps. I've worked in the whole lot of us would have been fired so quickly we wouldn't even remembered being kicked out the door.

[Lint Head]

2. Anchor Homes in California are making a killing flipping homes.

The VP of the company talked about it on NPR the day before yesterday.
Mr. ROBERT FRAGOSO (Vice President, Anchor Loans): "This house was pretty well neglected. It looked like it was a hodge podge of different remodels and we'll essentially take it back down to the basics and remodel it."
http://www.npr.org/2011/01/03/132613636/Savy-Real-Estate-Investors-Still-Flipping-Properties

[TheMadMonk]

4. At the LEVEL at which you worked perhaps. And of course size...

...of the organisations will also have a hell of a lot to do with it.

But the truth is, above a certain level, there are fucking few who are neither in it up to their necks, nor keeping their mouths shut while they clean up on spillover and fallout.

Furthermore, in the greater scheme of things, money is not important to the powers that be, except insofar as it has the power to mesmerise far too many who believe they don't have enough of it. Savings and Loans, Dot Com, this and other financial scandals about the world, NONE of them make sense in purely ecconomic terms. In a lot of cases, "doing it right" would have proffitted both sides in perpetuity, but instead almost everyone lost. On paper.

HOWEVER, if you look at all those economic kerfuffels in terms of power shifting, a whole different picture emerges.


You (or your employers) just aren't big enough to be allowed to play "big boy" games.

[RKP5637]

8. All very good points!!! n/t

[jtuck004]

3. They saw it. The Bernank even went on TV and said not only were values

high, but he thought there was a very low chance that they would drop.

Uh huh.

Btw, the housing price drop didn't cause our financial crisis. The whole subprime market was only $1.3 trillion - we could have bought the whole thing for that, even the ones that were not defaulting.

It was the leveraged money: the bonds that were bought with borrowed money, the insurance that was sold to people without an insurable interest and multiple times without having reserves.

Because it is all secret, off-the-books, shady, manipulative, Ponzi-like robbery, the details are hidden behind the Federal Reserve's doors and in the rooms of the investment banks all around the world. That said, there are estimates that the total market for all this bad paper ranged from $450 to $750 trillion.

All this on a housing market that was a total of about $13.something trillion.

Housing didn't cause this. The investment banks and their friends in the government did.

[Adsos Letter]

5. Brooksley Born specifically tried to warn about the derivatives market

and was specifically told by Greenspan, Summers, Geithner and Rubin to STFU.

Excellent FRONTLINE video, The Warning at: http://www.pbs.org/wgbh/pages/frontline/warning/

[dixiegrrrrl]

13. Adsos, you did it again!!! I had not seen that.

Many thanks, my friend.

:hi:

[clixtox]

11. $450 to $750 Trillion...

Yes, jtuck004, exactly.

The problem can be laid at the feet of those profiting while selling this unimaginably huge pile of toxic assets.

The amount siphoned out during the sale transactions by those packaging and selling the various derivatives, and those insuring that the cash flow would cover the obligations inherent in the bonds and those maladroitly assessing the risk explains actually how folks were enticed into getting mortgages that required the most optimistic scenarios to persist longterm to remain viable.

No "black swan", meaning an unexpected calamity, could occur, but it did... Housing values changed direction, they started going down, unexpectedly, surprising most people.

The home buyers were truly victims, but victims that the whole problem could be pinned on while obfuscating the reality of who was truly guilty of creating the debacle. The banks, especially the "investment banks".

Paradoxically these banks themselves didn't understand the risks in these derivatives and ended up holding huge positions when the derivatives became pretty much worthless. That's why they are all "upside down" now, bankrupt. Only kept on life-support because they are considered "too big to fail". These banks are what caused the financial malaise, they lost literally trillions of dollars while paying themselves extravagantly and perhaps knowing that they would be bailed out if/when their investment soured.

[G. Odoreida]

14. While the zombie banks have been propped up

what's been going on behind that facade?

(a) a serious attempt to restore solvency and transparency, under the leadership of Obama, Geithner, and Bernanke; or

(b) the same boyz, making the same bux, in pretty much the same way

???

[Crazy Dave]

6. I'm so thankful that I bought my home to actually use as a home

Like our parents and grandparents used to do. Buy a home and live in it for 30 plus years. I paid my home off 11 years ago and will probably die under it's roof.

Never bought it as an investment but I might do a reverse mortgage on it in my later years. I always tell my kids that I'm taking everything with me when I die.

[Adsos Letter]

7. Same strategy we followed, and glad of it. n/t

[RKP5637]

9. Same here! n/t

[Yavin4]

10. Housing Was Allowed To "Bubble Up" in Order to Quell The Masses

Globalization is nothing more than a currency game that's used to lower the cost of labor, and in order to lower labor costs without protest, the Fed allowed for the creation of a credit bubble.

[JustAnotherGen]

12. k/r

I believe it. My boyfriend and I are in the process of looking for a home - to live in. However - we've watched several homes from Tewksbury NJ, to Princeton, to High Bridge, to New Hope PA go down, down, down each month for the past few months. I really don't see them holding or increasing for a long time - so for us it's a matter of Wait And See How Low It Goes. Do we wait until next year? Later this year? And my personal thought? The homes in Central NJ were over priced/inflated just two years ago.

The same house that would sell in Pittsford NY for $150K (I'm originally from Rochester NY - this is a suburb a VERY nice suburb) easily selling for $750K to $1 Million. Who can TRULY afford that? Not many. So as an outsider of 5 years living here and looking in? And now trying to buy? Homes continue to deflate.