The Fed Cant Save Housing, even if it wanted to
Chuck Ponzi August 15th, 2006
http://www.newyorkfed.org/markets/statistics/dlyrates/fedrate.html
Recent chatter on various news articles are that the FED’s pause is helping to stabilize housing prices.
Not a chance. In Orange county, the inventory numbers speak for themselves. Despite calls by local Realtors that the inventory is ‘waning“, OCrenter at Bubble Market Tracking has shown that the numbers are steadily climbing and have already reached nosebleed levels. We are likely going to see a pull-back in inventory numbers late this fall, only to go to new historical records next year. We are already at over 7 months inventory in OC, and over 9 months in San Diego. Could we go to 14, 15, or 16 months by the end of the year with slipping sales? I think so.
More importantly, history does not support this claim.
Fed Funds rates dropped from 9 3/4 in Feb 89 to 3% in September 92, and California still had one of the worst housing-busts in recorded history in the US. A total drop of 6 3/4%! We currently stand at 5.25%. Not possible to even drop that much this time.
While in the late 80s, housing prices was 3 standard devaiations above the mean, we are now 4 standard deviations above the mean, and our Fed Funds rate stands at 5 1/4%. Even dropping to Zero (like Japanese-stype ZIRP), we will not be able to save housing if you believe that history can repeat itself.
Mike Shedlock believes strongly in a deflationary scenario. If you believe in history repeating, or at least rhyming, housing is toast, as is pretty much everything else. I highly recommend following his blog daily.
OK, before anyone goes and ruins the bear party… remember this will take some time to run out. The Fed will do everything in its power to run down the clock on the coming recession by fiddling with sentiment by talking tough with interest rate policy and meanwhile fiddling with the interest rate here and there. We are likely to see much more disinformation coming from the FED in the future.
***Interesting note, as I was writing this, I came across this article on the OCR (Jon Lansner’s) Blog only confirming the FED’s wish to sweet talk the public with bizarro psychology.***
—Never mind the man behind the curtain… 40% of housing sales to speculation, or 4X the historical norm means nothing…Forget about land prices going up 10X over 5 years…Negative savings rates are irrelevant…cash-out refi’s are a healthy portion of the economy… all is well, now go away and sip your cares away with your $5, er.. I mean $6 Latte—
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Kool-Aid Drinker –
Your tone has changed in the course of a week. You sound scared.
Why would I be scared? People are still buying property and I’m still selling it. I’m one of the guys who will weather the storm.
As far as my tune changing, a week ago I wrote “Are prices coming down? Yes. 10%? For sure. 20% Maybe. 30% and more? I don’t see it.”
If my current clients get these properties for last years prices, that is a zero percent drop. Last month’s numbers for July had a 6.3% YOY gain from 2005. It’s going to be zero soon and then you’ll see negative numbers. How far is the question??
Koolaid,
You say, “I’m one of the guys who will weather the storm. “
Unless I’m reading you wrong, that implies other agents won’t. Just curious why you think you will weather the storm if others will drown. Do you have more experience, saved your money, have more connections in the industry that you’ve made over time? You love what you do and are determined to stick it out no matter what? I’m just curious and tend to agree with you for a very simple reason: You have confidence, and that’s half the battle right there. Good luck!
“If my current clients get these properties for last years prices, that is a zero percent drop.”
nope, not if prices went up a bunch from a year ago and then fell back down. then there has been a price drop. the way you’re doing math, if prices fall 50 percent, you could say “my client got his house for the same price he could have in 2000, that is a zero percent drop since 2000.” it don’t work that way!
“If my current clients get these properties for last years prices, that is a zero percent drop.”
nope, not if prices went up a bunch from a year ago and then fell back down. then there has been a price drop. the way you’re doing math, if prices fall 50 percent, you could say “my client got his house for the same price he could have in 2000, that is a zero percent drop since 2000.” it don’t work that way!
Larry,
I don’t necessarily disagree, but YOY is a pretty standard benchmark. Our host, John Doe, has been predicting a 30% drop for well over a year. Is he wrong if it only drops 30% from this year’s current high? Let’s not split hairs, the market appears to be headed south.
Koolaid,
Agreed, However I still think we’ll drop 25-30% from last years’ amount. San Diego is already lower than last years’, and once we gain some momentum, there will be little that could stop it. After the 2007-2009 recession begins, we will see quite a few job losses – especially in the housing sector which accounts for a substantial portion of the OC job base.
Of course, there will still be people buying and selling properties, just at slower rates and lower prices. Motivated sellers can still induce a sale with price concessions.
“I don’t necessarily disagree, but YOY is a pretty standard benchmark.”
I see. You’re not disagreeing even though you are. Because to disagree would be an obvious lie. So instead you make up some gobbledy-gook about prices not dropping from a year ago. What a clown you are! Spewing the typical pablum. So if gas prices were 2.50 a year ago and then went to 3.50 a gallon and then fell back to 2.50 no one would think there was a price drop? Hardly. Oh well, do whatever you need to do to convince yourself you won’t be calling up your in-laws begging for a loan in a year or two when you have ZERO business. You come on this board and act like you’re “better” than other agents because you are not the kind to deny that things could be headed “south.” You know what has headed south? Your credibility. In fact, the market in that crashed a long time ago.
“Fed Funds rates dropped from 9 3/4 in Feb 89 to 3% in September 92, and California still had one of the worst housing-busts in recorded history in the US. A total drop of 6 3/4%!”
There was more to it than that.
There was mass unemployment in the high paying Areospace industry at the time. Not only that, but LA was hit with riots and then the 94 quake. I lived there, I saw this happen. I worked in REO. It was not because of the run up in housing prices. It was because of the unemployment followed by those two things.
This bubble is different, so I don’t think we can draw comparisions to So Cal.
Hello Anon 2:41 the real estate agent. You wrote:
“This bubble is different, so I don’t think we can draw comparisions to So Cal.”
You are right, this bubble is exponentially greater. It will lead the way to the massive unemployment rather than the other way around. But if I were you, I wouldn’t worry about your job. You seem really, really smart.
You realtor haters have been quiet this week. Must have felt good to have someone post something positive so Mr. Anon could spill out some vile. What a bunch of pathetic losers.
“What a bunch of pathetic losers.”
A real estate agent calling someone ELSE a loser? now THAT’S funny!
mr real estate agent: what are you so sore about? i’m sure you’ve got TONS of transferable skills that will help you out when your business dries up completely next year.
“It was not because of the run up in housing prices. It was because of the unemployment followed by those two things.”
What’s funny is how obvious it is that you’re trying to convince yourself.
Do all of you whiners feel better now? Realtors are such a convenient target. So sorry you didn’t listen to your agent when he told you to buy in 2003. Oh yeah, you thought prices were too high and the bubble was going to pop. Good decison smart guys. You’ll miss the next boat too.
You are such an idiot. I mean seriously, do you know your IQ? It’s only two digits, right?
“So sorry you didn’t listen to your agent when he told you to buy in 2003.”
I have no doubt that you’re STILL telling people to buy. And you know what? That was BAD advice to give someone in 2003, especially since you knew they had to stretch to do it.
If you were a stock broker and told someone to buy Amazon in 1999 when it was $300 a share on its way up to $400, that doesn’t mean you gave them good advice.
“You’ll miss the next boat too.” The next boat? Hey, trust me, take your time packing. That boat’s not sailing for ten years or more.
Besides, do you really think people should listen to a real estate agent for financial advice? I mean, it’s amazing to me that most agents I meet are even capable of tying their shoes or figuring out how to put the key in the ignition and start their car.
If you’re still in such extreme denial that you don’t think there’s a bubble that’s popping, do me a favor and buy ten “bargain” properties tomorrow, because hey, they’re only going up and you don’t want to miss the boat! Okay, so do this tomorrow. Please. I’m not kidding. It would make me feel great. Thanks!
3 years ago you could buy a nice house for HALF what it would cost today. It was great advice then.
You’re just bitter because you’re still on the outside looking in.
It is fun to hear you squeal though.
do your parents know what you do for a living? or are you too embarrassed to tell them?
by the way, prices were half FIVE years ago, not three. you don’t even know the basics of your own business. pathetic.
Ding! Ding! Ding!
We Have a New Winner!!
Couldn’t form an intelligent argument so had to bring someone’s family into the fray.
What race is that evil realtor? How else can we possibly shame him?
We must impugn his character and integrity immediately!! He must be punished for his success!!
Thank you for making this so easy.
“He must be punished for his success!!”
i don’t think anyone would call being a real estate agent a “success.” unless it’s what you dreamed about when you were a little kid and told people you wanted to be when you a grow up. i mean, as opposed to when you failed at whatever that was you tried to do with your life and had to fall back on a career for frat boys with fake smiles and questionable ethics. i can’t be bothere with this any more, so i’ll just sign off and wish you continued “success.”
Ouch!! Stinging Rebuke. I’m going to have to take a glass of wine out to the swimming pool and soak my sorrows.
Ooh!!! Zinger!!! Clang clang clang!!! Gadzooks!!! Yikes!!! Loser!!!
“I’m going to have to take a glass of wine out to the swimming pool and soak my sorrows.”
I could buy and sell you.
And ideally, the phrase is “drown your sorrows.”
That sounded too harsh. I’m sorry. This is too silly. Let’s have lunch instead. And discuss the bursting bubble in a fact-based emotionless way.
Your blog entry was very interesting. I am a realtor specializing in Tampa Bay Florida Real Estate .