Wednesday, July 13, 2005
Bush administration has head in sand
Ben Bernanke, the new chair of the President's Council of Economic Advisors, says that the current run-up in housing prices is market driven, not caused by speculators. He either doesn't know what he is talking about or he is trying to cover up the administration's lack of interest in this serious economic threat.
"While speculative behavior appears to be surfacing in some local markets, strong economic fundamentals are contributing importantly to the housing boom," says Bernanke. "For example, states exhibiting higher rates of job growth also tend to have experienced greater appreciation in house prices."
This is simply not true. Instead, places with high unemployment rates such as San Jose are still seeing rapid growth rates in housing. According to the Office of Federal Housing Enterprise Oversight (click on "1Q 2005 manipulatable data for the Metropolitan Statistical Areas" to download data file), San Jose prices grew by nearly 17 percent in the last year. By comparison, prices in the rapidly growing Atlanta region grew by less than 5 percent.
The increase in housing prices is taking place mainly in regions that have adopted smart growth or other growth-management regulations. Low interest rates and a shift in investors' interests from the stock market to real estate have caused a huge increase in speculation in these markets. The speculation can be seen in the high percentages of homes sold in these markets that are not owner-occupied and that are sold with interest-only loans (suggesting that the buyer expects to "flip" the property before it becomes time to pay the principle on the loan). These types of purchases are also predominantly in markets subjected to growth-management planning.
This poses a serious danger for the economy. At least a quarter of the nation's housing is in regions with housing bubbles, and a collapse of markets in these regions would have serious repercussions throughout the nation. Bernanke pooh-poohing this danger is as irresponsible as Bernie Ebbers trying to reassure investors a few weeks before WorldCom went bankrupt. And they say that Bernanke may succeed Alan Greenspan when the latter retires!
"While speculative behavior appears to be surfacing in some local markets, strong economic fundamentals are contributing importantly to the housing boom," says Bernanke. "For example, states exhibiting higher rates of job growth also tend to have experienced greater appreciation in house prices."
This is simply not true. Instead, places with high unemployment rates such as San Jose are still seeing rapid growth rates in housing. According to the Office of Federal Housing Enterprise Oversight (click on "1Q 2005 manipulatable data for the Metropolitan Statistical Areas" to download data file), San Jose prices grew by nearly 17 percent in the last year. By comparison, prices in the rapidly growing Atlanta region grew by less than 5 percent.
The increase in housing prices is taking place mainly in regions that have adopted smart growth or other growth-management regulations. Low interest rates and a shift in investors' interests from the stock market to real estate have caused a huge increase in speculation in these markets. The speculation can be seen in the high percentages of homes sold in these markets that are not owner-occupied and that are sold with interest-only loans (suggesting that the buyer expects to "flip" the property before it becomes time to pay the principle on the loan). These types of purchases are also predominantly in markets subjected to growth-management planning.
This poses a serious danger for the economy. At least a quarter of the nation's housing is in regions with housing bubbles, and a collapse of markets in these regions would have serious repercussions throughout the nation. Bernanke pooh-poohing this danger is as irresponsible as Bernie Ebbers trying to reassure investors a few weeks before WorldCom went bankrupt. And they say that Bernanke may succeed Alan Greenspan when the latter retires!
Comments:
>>>>>The increase in housing prices is taking place mainly in regions that have adopted smart growth or other growth-management regulations.<<<<<
False:
Housing prices increased in the burbs like Long Island and New Jersey. In fact, pricing for homes in the burbs in many cities have outpriced middle income couples. The federal reserve kept interest rates historically low to fight off inflation and pump up the slugglish economy.
2 >>>>>>This poses a serious danger for the economy. At least a quarter of the nation's housing is in regions with housing bubbles, and a collapse of markets in these regions would have serious repercussions throughout the nation.
People have been predicting the housing bust for two years and it won't happen. There is no danger because the federal reserve is not going to raise interest rates by more than a few percentage points thus homes will continue to hold their value. Were the federal reserve to increase rates by 10 points thus killing the housing market, we would fall into a depression but this will not happen.
However, we are going to enter a deep recession soon once the speculation expires but you will not see "cheap" homes for sale as those with interest only mortagages will end up in forclosure with banks taking the property back and reselling them at even higher prices!
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False:
Housing prices increased in the burbs like Long Island and New Jersey. In fact, pricing for homes in the burbs in many cities have outpriced middle income couples. The federal reserve kept interest rates historically low to fight off inflation and pump up the slugglish economy.
2 >>>>>>This poses a serious danger for the economy. At least a quarter of the nation's housing is in regions with housing bubbles, and a collapse of markets in these regions would have serious repercussions throughout the nation.
People have been predicting the housing bust for two years and it won't happen. There is no danger because the federal reserve is not going to raise interest rates by more than a few percentage points thus homes will continue to hold their value. Were the federal reserve to increase rates by 10 points thus killing the housing market, we would fall into a depression but this will not happen.
However, we are going to enter a deep recession soon once the speculation expires but you will not see "cheap" homes for sale as those with interest only mortagages will end up in forclosure with banks taking the property back and reselling them at even higher prices!
