Biggest economic bubble in world history ready to collapse

Tue Jun 21 12:03:09 EDT 2005

Hey Igor:  How tha devil ya doin ole son.  I wrote you several times about the reunion, never got a reply, was really looking forward to meeting U again after all these years ?  Hey U ever make it up Bastrop way give me a shout, would love to show U the Smith Plantation otherwise known as "Southern Comfort".  Nothing special here just chickens, doves, pigeons, dogs, cats, rabbits, 40 acres and a mule, and some of the best ice tea ya ever tasted....Call so I'll know your comming 512/581-9223....Amigos as Always, WS

Igor Loving <lovingigor at hotmail.com> wrote:Huh?

Charlie Loving

>From: "Clark Santos" 
<clarksantos at earthlink.net>
>Reply-To: survivors' reminiscences 
about Austin Ghetto Daze in the 60s 
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>To: "Remembrances of 
Austin Ghetto" 
<GHETTO2 at LISTS.WHATHELPS.COM>,austin-ghetto-list at pairlist.net
>Subject: 
Re: Biggest economic bubble in world history ready to collapse
>Date: 
Mon, 20 Jun 2005 12:42:36 -0500 (CDT)
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>
>How 
well I remember, spent $20,000 and a lot of time on improving a 
49K
>tax valued rent house, only to have it lowered to 26K value. The 
rent
>dropped from 425 to 390 and it took six months for Alice 
(Rivers)
>Whitley's company to rent it. Good thing it was an 
unpermited 20K
>improvement.
>
>Don't get in a hurry or 
string yourself out to thin, that house has rented
>for $750 to 
$950/month since 1993 and will sell this month for 125K net
>before 
the bubble breaks. If it doesn't, and the bubble breaks, I'll rent
>it 
till 12/21/2012 of Maya calendar fame.
>
>Clark
>El 
Patron
>
>
> > Texans should remember the fall of 
'86-'88. In Austin you couldn't buy a
> > house for a few years 
because no one could determine the value and the
> > banks which 
were left solvent would not issue mortgage loans. Lots of
> > 
people caught it in the teeth. The largest banks in the state went 
belly
> > up. Remember downtown Austin where building projects were 
halted when the
> > money ran out? The state bought some of those 
buildings for a song and
> > converted them into office 
space.
> >
> > I had been consulting with friends on the 
inside of the bubble and they
> > told me to sell. I did, in '84. 
The house I sold was vacant for 2 or 3
> > years after the crash. I 
used to come to Austin to hang out and drive to
> > my old place 
and camp overnight in the driveway. Neighbors dogs all knew
> > me, 
etc.
> >
> > But Austin recovered and returned to normal 
(inflated values) within a few
> > years. Those big banks are still 
owned by North Carolina interests which
> > bought them very 
reasonably at the bottom of the bust.
> >
> > If you own a 
house in Austin, hang on! Or sell it soon. This next crash
> > will 
be nationwide.
> > G
> >
> >> Gee 
motherfuckin' willakers! So sell your house now and use a little
> 
>> of the proceeds to pay rent? Could be. Also, the current high 
dollar
> >> homes homes tend to be the worst energy guzzlers; 
overall energy
> >> efficiency will be the new mantra. Which 
means small, central city,
> >> transit friendly, near job, in a 
moderate climate, etc. We're
> >> entering Kunstler's "long 
emergency". Waves of California homeless? -- R
> >>
> 
>> ******************************
> 
>>
> >> 
http://www.economist.com/finance/displayStory.cfm?story_id=4079027
> 
>>
> >> The global housing boom
> >>
> 
>> In come the waves
> >> Jun 16th 2005
> >> 
>From The Economist print edition
> >>
> >>
> 
>> ï¿¼
> >>
> >>
> >> The 
worldwide rise in house prices is the biggest bubble in history.
> 
>> Prepare for the economic pain when it pops
> >> NEVER 
before have real house prices risen so fast, for so long, in so
> 
>> many countries. Property markets have been frothing from 
America,
> >> Britain and Australia to France, Spain and China. 
Rising property
> >> prices helped to prop up the world economy 
after the stockmarket
> >> bubble burst in 2000. What if the 
housing boom now turns to bust?
> >>
> >> According 
to estimates by The Economist, the total value of
> >> 
residential property in developed economies rose by more than $30
> 
>> trillion over the past five years, to over $70 trillion, an 
increase
> >> equivalent to 100% of those countries' combined 
GDPs. Not only does
> >> this dwarf any previous house-price 
boom, it is larger than the
> >> global stockmarket bubble in 
the late 1990s (an increase over five
> >> years of 80% of GDP) 
or America's stockmarket bubble in the late
> >> 1920s (55% of 
GDP). In other words, it looks like the biggest bubble
> >> in 
history.
> >>
> >>
> >>
> >> 
ï¿¼
> >>
> >> The global boom in house prices has 
been driven by two common
> >> factors: historically low 
interest rates have encouraged home buyers
> >> to borrow more 
money; and households have lost faith in equities
> >> after 
stockmarkets plunged, making property look attractive. Will
> >> 
prices now fall, or simply flatten off? And in either case, what 
will
> >> be the consequences for economies around the globe? 
The likely
> >> answers to all these questions are not 
comforting.
> >>
> >> The increasing importance of 
house prices in the world economy
> >> prompted The Economist to 
start publishing a set of global house-
> >> price indices in 
2002 (see article). These now cover 20 countries,
> >> using 
data from lending institutions, estate agents and national
> >> 
statistics. Our latest quarterly update shows that home prices
> 
>> continue to rise by 10% or more in half of the countries (see 
table).
> >> America has seen one of the biggest increases in 
house-price
> >> inflation over the past year, with the average 
price of homes jumping
> >> by 12.5% in the year to the first 
quarter. In California, Florida,
> >> Nevada. Hawaii, Maryland 
and Washington, DC, they soared by more than
> >> 20%.
> 
>>
> >> In Europe, prices have long been at dizzy heights 
in Ireland and
> >> Spain, but over the past year have also 
spurted at rates of 9% or
> >> more in France, Italy, Belgium, 
Denmark and Sweden. Both France (15%)
> >> and Spain (15.5%) 
have faster house-price inflation than the United
> >> 
States.
> >>
> >> By contrast, some housing booms 
have now fizzled out. In Australia,
> >> according to official 
figures, the 12-month rate of increase in house
> >> prices 
slowed sharply to only 0.4% in the first quarter of this year,
> 
>> down from almost 20% in late 2003. Wishful thinkers call this a 
soft
> >> landing, but another index, calculated by the 
Commonwealth Bank of
> >> Australia, which is based on prices 
when contracts are agreed rather
> >> than at settlement, shows 
that average house prices have actually
> >> fallen by 7% since 
2003; prices in once-hot Sydney have plunged by 16%.
> 
>>
> >>
> >> ï¿¼
> >>
> 
>> ï¿¼
> >> The danger of a global house-price 
collapse
> >> Jun 16th 2005
> >> Economic slowdown 
ï¿¼
> >> Jun 9th 2005
> >> The frothy housing 
market
> >> May 26th 2005
> >> Global house price 
ï¿¼
> >> Mar 3rd 2005
> >> The Economist's global 
house-price index ï¿¼
> >> Mar 28th 2002
> 
>>
> >>
> >> ï¿¼
> >> America's 
economy
> >>
> >> Asian economies
> 
>>
> >> Britain's economy
> >>
> 
>> Property
> >>
> >>
> >> 
ï¿¼
> >> Click to buy from Amazon.com: â??Irrational 
Exuberanceâ?? (second
> >> edition), by Robert Shiller 
(Amazon.co.uk).
> >>
> >> Housepricecrash.co.uk 
collates information and statistics on house
> >> prices in 
Britain. Nationwide and the Royal Institution of Chartered
> >> 
Surveyors give differing appraisals of Britainâ??s housing market. A
> 
>> study from America's National Association of Realtors, 
summarised
> >> here, found that one-quarter of houses bought in 
2004 were for
> >> investment, not owner-occupation. See also 
the Federal Reserve.
> >>
> >>
> >> 
ï¿¼
> >>
> >> ï¿¼
> >>
> 
>>
> >> ï¿¼
> >> Britain's housing market has 
also cooled rapidly. The Nationwide
> >> index, which we use, 
rose by 5.5% in the year to May, down from 20%
> >> growth in 
July 2004. But once again, other surveys offer a gloomier
> >> 
picture. The Royal Institution of Chartered Surveyors (RICS) reports
> 
>> that prices have fallen for ten consecutive months, with a 
net
> >> balance of 49% of surveyors reporting falling prices in 
May, the
> >> weakest number since 1992 during Britain's 
previous house-price bust.
> >> The volume of sales has slumped 
by one-third compared with a year ago
> >> as both sellers and 
buyers have lost confidence in house valuations.
> >> 
House-price inflation has also slowed significantly in Ireland, the
> 
>> Netherlands and New Zealand over the past year.
> 
>>
> >> Since 1997, home prices in most countries have 
risen by much more in
> >> real terms (ie, after adjusting for 
inflation) than during any
> >> previous boom. (The glaring 
exceptions are Germany and Japan, where
> >> prices have been 
falling.) American prices have risen by less than
> >> those in 
Britain, yet this is still by far the biggest boom in
> >> 
American history, with real gains more than three times bigger than
> 
>> in previous housing booms in the 1970s or the 1980s.
> 
>>
> >> The most compelling evidence that home prices are 
over-valued in many
> >> countries is the diverging relationship 
between house prices and
> >> rents. The ratio of prices to 
rents is a sort of price/earnings ratio
> >> for the housing 
market. Just as the price of a share should equal the
> >> 
discounted present value of future dividends, so the price of a 
house
> >> should reflect the future benefits of ownership, 
either as rental
> >> income for an investor or the rent saved 
by an owner-occupier.
> >>
> >> Calculations by The 
Economist show that house prices have hit record
> >> levels in 
relation to rents in America, Britain, Australia, New
> >> 
Zealand, France, Spain, the Netherlands, Ireland and Belgium. This
> 
>> suggests that homes are even more over-valued than at previous 
peaks,
> >> from which prices typically fell in real terms. 
House prices are also
> >> at record levels in relation to 
incomes in these nine countries.
> >>
> >>
> 
>>
> >> ï¿¼
> >>
> >> America's 
ratio of prices to rents is 35% above its average level
> >> 
during 1975-2000 (see chart 1). By the same gauge, property is
> 
>> â??overvaluedâ?? by 50% or more in Britain, Australia and 
Spain.
> >> Rental yields have fallen to well below current 
mortgage rates,
> >> making it impossible for many landlords to 
make money.
> >>
> >> To bring the ratio of prices 
to rents back to some sort of fair
> >> value, either rents must 
rise sharply or prices must fall. After many
> >> previous 
house-price booms most of the adjustment came through
> >> 
inflation pushing up rents and incomes, while home prices stayed
> 
>> broadly flat. But today, with inflation much lower, a similar 
process
> >> would take years. For example, if rents rise by an 
annual 2.5%, house
> >> prices would need to remain flat for 12 
years to bring America's
> >> ratio of house prices to rents 
back to its long-term norm. Elsewhere
> >> it would take even 
longer. It seems more likely, then, that prices
> >> will 
fall.
> >>
> >> A common objection to this analysis 
is that low interest rates make
> >> buying a home cheaper and 
so justify higher prices in relation to
> >> rents. But this 
argument is incorrectly based on nominal, not real,
> >> 
interest rates and so ignores the impact of inflation in eroding the
> 
>> real burden of mortgage debt. If real interest rates are 
permanently
> >> lower, this could indeed justify higher prices 
in relation to rents
> >> or income. For example, real rates in 
Ireland and Spain were reduced
> >> significantly by these 
countries' membership of Europe's single
> >> currencyâ??though 
not by enough to explain all of the surge in house
> >> prices. 
But in America and Britain, real after-tax interest rates are
> 
>> not especially low by historical standards.
> 
>>
> >>
> >> Betting the house
> 
>> America's housing market heated up later than those in 
other
> >> countries, such as Britain and Australia, but it is 
now looking more
> >> and more similar. Even the Federal Reserve 
is at last starting to
> >> fret about what is happening. Prices 
are being driven by speculative
> >> demand. A study by the 
National Association of Realtors (NAR) found
> >> that 23% of 
all American houses bought in 2004 were for investment,
> >> not 
owner-occupation. Another 13% were bought as second homes.
> >> 
Investors are prepared to buy houses they will rent out at a loss,
> 
>> just because they think prices will keep risingâ??the very 
definition
> >> of a financial bubble. â??Flippersâ?? buy and 
sell new properties even
> >> before they are built in the hope 
of a large gain. In Miami, as many
> >> as half of the original 
buyers resell new apartments in this way.
> >> Many properties 
change hands two or three times before somebody
> >> finally 
moves in.
> >>
> >> New, riskier forms of mortgage 
finance also allow buyers to borrow
> >> more. According to the 
NAR, 42% of all first-time buyers and 25% of
> >> all buyers 
made no down-payment on their home purchase last year.
> >> 
Indeed, homebuyers can get 105% loans to cover buying costs. And,
> 
>> increasingly, little or no documentation of a borrower's 
assets,
> >> employment and income is required for a 
loan.
> >>
> >> Interest-only mortgages are all the 
rage, along with so-called
> >> â??negative amortisation 
loansâ?? (the buyer pays less than the
> >> interest due and the 
unpaid principal and interest is added on to the
> >> loan). 
After an initial period, payments surge as principal repayment
> 
>> kicks in. In California, over 60% of all new mortgages this year 
are
> >> interest-only or negative-amortisation, up from 8% in 
2002. The
> >> national figure is one-third. The new loans are 
essentially a gamble
> >> that prices will continue to rise 
rapidly, allowing the borrower to
> >> sell the home at a profit 
or refinance before any principal has to be
> >> repaid. Such 
loans are usually adjustable-rate mortgages (ARMs),
> >> which 
leave the borrower additionally exposed to higher interest
> >> 
rates. This year, ARMs have risen to 50% of all mortgages in those
> 
>> states with the biggest price rises.
> >>
> 
>> The rapid house-price inflation of recent years is clearly
> 
>> unsustainable, yet most economists in most countries (even in 
Britain
> >> and Australia, where prices are already falling) 
still cling to the
> >> hope that house prices will flatten 
rather than collapse. It is true
> >> that, unlike share prices, 
house prices tend to be somewhat
> >> â??stickyâ?? downwards. 
People have to live somewhere and owners are
> >> loth to accept 
a capital loss. As long as they can afford their
> >> mortgage 
payments, they will stay put until conditions improve. The
> >> 
snag is that eventually some owners have to sellâ??because of
> 
>> relocation, or job lossâ??and they will be forced to accept 
lower
> >> prices.
> >>
> >> Indeed, a 
drop in nominal prices is today more likely than after
> >> 

=== message truncated ===

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