Chicago Home Sales Down 19.9% in the First Qtr.- Median Price Rises
The sales numbers are out on the first quarter (Jan-March). From Crain’s:
In the city of Chicago, sales of homes and condos fell 19.9% in the quarter to 4,618. The median sale price, meanwhile, rose 5.4% to $295,000.
In the nine-county Chicagoland area, sales were down 29.9% and median price fell 0.6% to $243,500. The Illinois Association of Realtors blames it on the weather…and the economy:
“Extreme winter weather on top of shaky consumer confidence due to rising gas and food prices and the uncertain economy affected overall home sales activity statewide,” Kay Wirth, president of the Realtors group, said in a press release. “Realtors do anticipate a boost in activity as we enter the spring housing market from pent-up demand held over for so many months.”
Thirty year fixed mortgage rates were down compared to the first quarter 2007 at 5.91% versus 6.24% in 2007.
But if you want to rent instead, the Chicago Tribune reports that rents are rising and landlords are in control:
The vacancy rate in Chicago for the first quarter of the year was 4.7 percent, according to Hendricks & Partners, a Phoenix-based real estate management company.
“Anything below 5 percent is considered a landlord’s market,” said Walter Molony, a spokesman for the National Association of Realtors. He noted that the national vacancy rate also stood at 4.7 percent for the quarter.
In past years, a rate of 7 percent was not considered abnormal.
“Renters are hesitating to get into the homeownership market,” Molony said. “They are staying in rentals.”
Because of the demand for rentals, rents are on the rise:
Chicago-area rents went down between 2001 and 2003, according to CBRE Torto Wheaton Research.
In 2001, the average rent was $1,035 a month, according to Torto Wheaton. By 2003, the average rent had fallen to $980 a month. The average derives from all apartments in buildings with five or more units located in the greater Chicago area.
By the end of 2007, the average rental cost had rebounded to $1,079.
But some analysts do not expect rents to spike as housing prices did in recent years.
“Generally, a slowing economy is hurting” rentals, said John Coumarianos, an equity analyst with Morningstar.
We’ve been chattering about the thousands of units coming on-line in the downtown area in the next two years. Can students really rent all of those one bedrooms with granite and stainless steel appliances? And what about the $2500-$3000 two bedrooms?
The rental activity in buildings like Library Tower – which is right across from the multi-college dorm at State and Congress Parkway- will be a good indicator of what the market will bare.
Matthew Lawton, senior managing director of Holliday, Fenoglio Fowler, sees about 7,000 new rental units coming on the market in the next three years, well over the 4,500 that is typical.
And they won’t fall under the category of low-income housing, he said.
“It’s all going to be at the top of the market,” Lawton said.
i’ve been looking to buy a one br in gold coast/river north/streeterville. my current lease ends 7/31 so i briefly started looking at rentals and there appears to be very LIMITED supply in these areas.
i expected to see tons of rentals available in buildings like millenium center, 2 e erie, stearlings, etc. due to troubled investors but it appears that there are very few places available for rent. i think a lot of people must have decided to rent instead of buy and thus there is a very limited supply of rentals. its clearly not a renters market…
When the sales drop steeply and the median price rises in tandem, it can only mean that the low end has been totally knocked out, and only higher-income buyers remain.
It also means that high end sales will topple, since there is developing a shortage of “move up” buyers, owing to the shortage of first-time buyers, who have been eliminated by the high prices and tighter credit.
HMMM! Rising rents and falling home sales. Looks like housing will begin the appreciation process again in the next year or two. All the new rentals coming on the market offset the lack of condos coming on. Much of the planned new construction condo market is turning rental. Developers are always late to the party! If everyone is looking to rent it is certainly time to look for a good buy. To quote Caddyshack – “If everyone is selling then buy buy buy!” Don’t give the general population credit. They are ususally always wrong!
Well put.
Landlords, enjoy the rent increases while they last; for they will be short-lived. What will all these new condos, new rentals, new foreclosures do to the rental market? When banks get serious about selling their numerous foreclosures, what will many of the new owners do with their “investments”? What does additional supply, coupled with reduced demand do to price? The reason I say reduced demand is because the demand for rentals almost always goes down during a recession. People downsize, move in with family members, live on the street, whatever they have to during a recession. Anyone who thinks they’re going to get rich renting out 1 bedroom apartments for $2500/mo during a recession is dreaming. Once the job market goes, so does the demand for expensive 1 bedrooms.
Yes Pete, but we are already in the recession (if there is one) now! It may not improve immediately, but it’s very likely that now is about as bad as it will get.
D
If was tough driving down the street back in 2001 with all those people living on the street. Oh, that’s right! The housing market took off during the last recession. While I don’t expect the market to act the same (tighter lending standards), I certainly don’t think the recession will have much of an effect on the Chicago market at all. Q1 2008 was slow in terms of transactions and Q2 is expected to be slow as well. The recession and its effect ont he market are here now and should be gone in by the end of 2008.
If was tough driving down the street back in 2001 with all those people living on the street. Oh, that’s right, the housing market took off during the last recession. While I don’t expect the market to act the same (tighter lending standards), I certainly don’t think the recession will have much of an effect on the Chicago market at all. Q1 2008 was slow in terms of transactions and Q2 is expected to be slow as well. The recession and its effect ont he market are here now and should be gone in by the end of 2008.
An MAyor Daley will raise taxes because the real estate transfer tax didn’t raise enoug revenue.
Laura: I thought the same thing when I saw that the median was still rising.
It means that the upper end is still selling but the lower end is not.
40% of home buyers are first time buyers. You can’t have a healthy housing market unless they are buying. With credit being squeezed, a good portion of them are now out of the picture.
Dan the Man:
You can’t honestly believe that the recent run we had in the housing market- which DID start to take off during the last recession- can be repeated when the reason it took off was historically low interest rates and free money- both of which are going away now- can you?
In every other recession in the last 50 years, housing has performed poorly and has taken several years to recover- not just months as you are proposing.
I don’t think the crisis will be over until 2012..take a look at this chart:
http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html
Option ARM resets are the next shoe to drop. Prices are still falling and haven’t even stabilized yet. I doubt prices will decline 15%/yr for the next three years, but I definitely don’t see them rising until we’re through the woods on this financial crisis.
Anybody who is thinking about buying now should see a graph of the Chicagoland Case-Shiller index: it really looks a falling knife right now.
This is certainly not the bottom of the RE market. That, as I believe, will happen late this year/early next year. Don’t fool yourself otherwise.
We will not see peak prices again until 2015. Many well-respected, and very accurate, appraisal groups are coming in around that claim. Especially for some urban areas.
And there is great risk of the higher-end market falling through this year. I wouldn’t buy now in that range.
Just wait for the option ARMs to reset…no stabilization seen until 2012, they truly are the other shoe waiting to drop after subprime and Alt-A.
http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html
Also plot Chicagoland case-shiller index in Excel, it shows that anybody buying now is indeed buying a knife.
Old stock market saw – “volume leads price” – It’s applicable to any market – supply and demand is universal. Overhanging supply continues to increase. That supply will eventually be cleared out at lower prices. My educated guess is 2010 for washout.
We aren’t near a recovery. This blog auto-deletes posts with links but google Option ARM resets and you will see there is plenty of pain through 2011. Will housing prices continue to decline precipitously until 2012? Probably not. -10%/year until 2012 would be close to 40%, not likely for Chicago but I don’t see price appreciation until 2012 at the absolute earliest. Option ARM resets are the next shoe to drop after subprime and Alt-A defaults and haven’t even started yet.
How does ARM resets hurt anyone with interest rates as low as they currently are? 5.625% on a 30-year and 5% on a 5/1 ARM is not the end of the world.
Just a few comments:
(1) The real estate price bottom (at least in real dollar terms) is years away. In nominal terms, it will probably hit in 2010, not this year or next, but the rate of decline will ease. Markets like Chicago will follow the rest of the country albeit not to the extremes of FL, CA and Las Vegas. Peak prices may come back in 2015…it is anybody’s guess, but a range of 2012-2020 is reasonable.
(2) The high end market is already showing weakness as “rich” people don’t want to put their money into a declining asset and watch 20%+ disappear. The wannabe’s are out of the market too.
(3) The pool of potential buyers is getting smaller, not larger, as the supply continues to grow and grow. People buy homes with financing, even a lot of “rich” people, and bank loans are getting much more difficult to obtain (esp. in Florida!) with full documentation requirements and large downpayment (at least 20% in the markets where PMI is pretty much no longer being readily issued). The large downpayment requirement will be one of the major causes of continued slowdown in home purchases. How will you pay for it???
(4) ARM resets will hurt people since many people would like to change to a fixed rate mortgage but few are able to refinance their mortgage…..AND many have second mortgages, HELOCs and the like that they would like to consolidate into one fixed rate but can not. Welcome to the end of the line in the housing debt trap. There is nothing wrong with owning a home, it is the DEBT that one takes on that is the problem right now. Banks aren’t will to lend as easily and get burned after realizing all of these huge, historic losses. There is plenty of liquidity out there but what bank wants to take over an ARM and HELOC for 120% of the appraised value and have the owner walk away later??? By continuing to allow the home asset to be used as collateral against ever larger loans, banks have essentially been making unsecured loans on what they thought was a secured asset that is worth less and less. So now, more people are treating their home debt like they do with credit card debt…being reckless and walking away with no skin in the game and taking the credit hit instead of continuing to be a debt slave. Banks will never return to those lending standards. The best hope is to get banks (or any mortgage holder) that currently hold a mortgage to refinance loans already on the books to refinance their existing mortgages into fixed rate mortgages to mitigate their total loss (once they completely get out of denial).
(5) Until supply comes down substantially, home pricing will continue to decline and in some markets prices will decline BELOW construction and land costs. Once that happens, then new home construction will continue to decline and decline and decline which will help reduce supply. It will be a long drawn out process. Homebuilders are in for a very long home building depression esp. those that depend on volume construction.
It is a matter of supply and demand. The funny money of easy financing (with low interest rates and home appreciation rates far exceeding mortgage interest rate which essentially made it that you were being paid to own as much housing as you could) is gone gone gone. Half the demand is gone and not coming back anytime soon. Supply is up up up. This will be a VERY long drawn out process for much of the US and esp. in the bubble markets.
The median is unreliable for exactly the reasons people have stated, that it is susceptible to changes in the composition of houses being sold. The Case-Shiller index follows sales of the same houses over time. Not sure it corrects well for renovations. It may also not cover all houses representatively but for those it does track, the price index is probably the most reliable. Note that it reports an 8.5% decline YOY for Feb 2008, last month I saw reported, and that it predicts further declines.
How are you guys comming up with these dates for a recovery? A recovery means returning to normal, as in: I broke my leg and waited 6 months to recover. Recovering to 2006 prices must mean that 2006 prices were normal. Those prices were a result of being on a free money bender, and we are now recovering to normal. “Normal” being required down payments, only prime borrowers, moderately high interest rates, bid prices no more than 3x income. THAT is what is normal. To return to 2006, would require another bender. Or, fundamentally, require wages to skyrocket. Considering all the layoffs people should be happy to have a job, and not consider raises anytime soon. Another bender would require banks to forget the ugly results of too much free money. The banks only started their hangover. Look at the front page of USA Today. The credit crisis is hitting prime borrowers. The banks won’t go on another pub crawl for a LONG time.
The Case-Shiller index does take into account variables such as renovations and additions to existing homes.
Recovery means, in my posts, price recovery…i.e., return to the previous price level. How this comes about will be determined by a myriad of factors including inflation. A recovery is not a return to the bubble heyday bender.
Dan the man,
The problem with option ARM resets is that many people were given teaser payments (negative amortization) until the ARM resets. When it resets their payment oftentimes will go up by 50% or more, possibly double. Theres going to be a lot of defaults on these.
“Option ARMs — wildly popular in high-cost markets in California, the Southwest, and the East coast during 2003-2005 — allow borrowers to choose to make minimum monthly payments that are insufficient to pay the full interest due or to reduce the principal. When borrowers choose that option, their deferred payments are lumped onto their principal balance — raising the debt they owe the lender higher than their original loan amount.
The other two options available to borrowers are a fully-amortized payment — principal plus interest — or an interest-only payment where no principal debt is paid off. Mortgage industry research has found that roughly 75 percent of all option ARM borrowers choose the minimum payment. “
Lets have a show of hands: Who thinks lenders will lend for the new condo supply coming online in chicago? anyone? Lenders are walking (no running) away from declining markets and especially condo projects. This game is over, big money has moved on to blow other bubbles (see commodities).
Couple things:
The Case-Shiller index only tracks the 20 largest metropolitan markets, which is where all the bubble was focused. There is nothing wrong with that, but it does make things look worse than they truly are nationally. The NAR tracks over 340 markets and believe it or not 78% of them are UP YOY. Marketwatch had a whole article about this recently, it may still be on the website.
Secondly, personal incomes are actually increasing at a rapid rate, about 6% over the last 12 months. Even with an uptick in unemployment, first quarter personal income growth was ahead of inflation, which is a really good thing. Incomes tend to accelerate after periods of high corporate profit margins. In the 90’s, personal incomes didn’t really accelerate until the late 90’s, so this cycle is very similar to what we’ve seen in the past. Surprisingly, incomes increased more during the first 5 years of this economic cycle than the first five of the 90’s (although the media and politicians will never mention this).
Finally, the peak amount of ARM resets for this cycle were in March and April this year. It generally takes about 6 months for a reset to cause a foreclosure, so we will probably know by the end of the year how bad it will get.
D
CalculatedRisk had an article on misconceptions about Case-Shiller on May 2nd. They explain that there are really three Case-Shiller measures: Composite 10, Composite 20, and National. When compared side-by-side, the Composite 10 and 20 (both large, bubbly cities) *did* rise higher than the National. However, all three have been falling equally fast since about Q1 2006. URL below.
http://calculatedrisk.blogspot.com/2008/05/flawed-house-price-indices-flawed.html
Minor correction: all three indices were rising at similar (but decreasing) rates from Q1 2006 to Q1 2007. Since then, all three have been falling at similar (and increasingly negative) rates. The Q1 2008 National numbers should be out in a few weeks.
One thing this bubble should prove is that you don’t trust the NAR for unbiased data. They are a trade group and their responsibility is to generate commissions for their members.
The bubble was not focused on the 20 largest metro areas – it was everywhere because it was due to easy lending. If a market did not increase much, it would have fallen if not for the free money.
There have been many excellent comments above. DtM and deaconblue might want to re-read them. Especially this one from Chris, “volume leads price.” Some markets have already seen this, Chicago is just later to the collapse.
Here is the link to the article I mentioned:
http://www.marketwatch.com/news/story/market-anomalies-skew-home-price-data/story.aspx?guid=%7BB242EC7A%2D7A08%2D49E4%2D8CB7%2DF0808F8EF52D%7D&dist=msr_7
The picture isn’t all rosey but it explains why te indexes are making things look worse than they really are.
D
Bubble pricing was primarily focused in major metropolitan areas with limited real estate to build on. There are many areas of the country that the bubble simply missed and those areas are not experiencing the fallout. Here is an article about Texas: http://www.marketwatch.com/news/story/envious-eyes-cast-texas-housing/story.aspx?guid=%7BA5667CD0%2D95C4%2D4CB7%2D82DD%2D32E20158811A%7D&dist=msr_1
“Bubble pricing was primarily focused in major metropolitan areas with limited real estate to build on.”
This is complete nonsense.
Ya, they seem to be building plenty of more “Chicago” in the south loop! Almost TOO much…
Complete nonsense might be a bit strong. The places where prices are collapsing (and thus were obviously bubbles) seem to be in metro areas where there was plenty of land. Newer suburbs (exurbs) seem to be the ones getting killed today. Old cities (with no land) don’t seem to be collapsing (except for the condo tower market). Truly rural areas, where commuting to the city is impossible, seem slightly safer. You’d be surprised how far the halo extends into farmland, however.
Just saw a story on Brentwood (the city in northern CA, not the neighborhood in Los Angeles). I had friends who lived there a few years back — it was 40 minute drive through rolling hills and wind farms to reach the *edge* of suburbia. Lots of land, and now a complete collapse of the housing market. Building permits have fallen from 1400-1600 per year to nine (9) year-to-date.
I expect that the limited real estate areas are bubbly too, but they aren’t collapsing like the newly built areas (yet). Compare, for instance, Irvine (new) and Santa Monica (old) — both have dedicated bubble blogs, but the Irvine one regularly posts things selling at pre-2004 prices, while Santa Monica is still in the 2005-6 realm.
Global Pool of Money Got Too Hungry:
http://www.npr.org/templates/story/story.php?storyId=90327686
The part at the beginning when they talk to the guy making 45k/year who got a 540k mortgage is priceless.
“You basically borrowed 540 thousand dollars from the bank and they never checked your income…would you have loaned you the money?”
“I wouldn’t have loaned me the money and nobody that I know would have loaned me 540 thousand dollars, I’m not sure why the bank did it”
Why is it nonsense? Take a drive down to Danville, IL if you want to see a non-bubble. There are many communities that never experienced double digit increases, it was primarily major metropolitan areas that had the huge run up and subsequent decline. Feel free to provide data to substantiate your claim if you disagree.
D
Let’s take Cook County as the exemplar for Deaconblue’s claim — call it a “major metropolitan area with limited real estate to build on”. The year-over-year median price growth in Cook county for 2005 (over 2004) was 9.2% according to the Illinois Association of Realtors.
The following counties had price growth faster than Cook county that year (* indicates fewer than 100 sales in one year): Bond*, Boone, Calhoun*, Clinton, DeWitt, Douglas, Effingham, Fayette, Franklin, Fulton, Hardin*, Henderson*, Henry, Jackson, Jasper, Jersey, Jo Daviess, Johnson*, Kendal, La Salle, Madison, Marshall*, Montgomery, Ogle, Peoria, Pike*, Pope*, Randolph, Richland*, Rock Island, Saint Clair, Saline, Shelby, Stark*, Wabash*, Wayne*, Will, Winnebago.
(Vermillion County, with Danville, grew 7.2% that year.)
I count 26 counties in IL that had a respectable number of sales and had price growth at least as fast as Cook. Rather few of these are close to urban areas.
So: Danville maybe not a bubble. Vandalia (seat of Fayette county) maybe a bubble. But 7000 people do not a major metro area make…
Why did you only count one year? One year of double digit appreciation does not make a bubble. The bubble in the major cities definitely propelled the more rural areas at the top in 2005, but over the past 8 years most rural places didn’t appreciate nearly as much as the larger cities, particularly on the coast. Look at this map from wikipedia- http://en.wikipedia.org/wiki/Image:USA_home_appreciation_1998_2006.svg
It’s pretty clear that the really bubbly appreciation rates passed over a large portion of the country.
D
Why did you only count one year? One year of double digit appreciation does not make a bubble. The bubble in the major cities definitely propelled the more rural areas at the top in 2005, but over the past 8 years most rural places didn’t appreciate nearly as much as the larger cities, particularly on the coast. Look at this map from wikipedia- en.wikipedia.org/wiki/Image:USA_home_appreciation_1998_2006.svg
It’s pretty clear that the really bubbly appreciation rates passed over a large portion of the country.
D
Wikipedia doesn’t cite sources for that map, and it isn’t particularly detailed.
Let’s look at a credible source: OFHEO. They publish separate quarterly price data for each Metropolitan Statistical Area and for each state’s non-MSA homes. Both are scaled so that 1995 Q1 is 100. See http://www.ofheo.gov/hpi_download.aspx
The average price index for MSAs in 2007 Q4 is 202.4 (standard error 4.6).
The average price for non-MSA areas in 2007 Q4 is 212.4 (standard error 3.8).
This difference is statistically significant (95% confidence level, one-tailed).
Deaconblue’s hypothesis is demonstrably wrong — *rural* areas saw more price inflation between 1995 and 2007 than metropolitan areas.
I think most people can agree that the majority of price increases (and therefore the focus of the bubble) occurred in the metropolitan areas. Whether or not rural areas experienced a similar bubble is mostly irrelevant because the majority of wealth is concentrated in the top 20 MSA’s (Metropolitan Statistical Areas). And this blog isn’t focused on rural farmland – its about Chicagoland.
Thank you, Kevin, it was complete nonsense.
Speaking of which, what is the relevance of PF’s comment?
Not all metropolitan areas saw bubblelike behavior. That home in Edgewater that was 45k in 1998 that is now 200k, I can say for sure that in other towns like Cincinnati a home in 1998 at 45k would be around 60k today with no major work done.
The bubble was mostly concentrated in blue state metro areas with some exceptions like Nevada.
The bubble was everywhere. If an area did not see a lot of appreciation it still saw suicidal lending practices that created unsustainable demand which propped up prices. In other words, many areas should have seen housing value decreases without the easy money that was available.
Sales volume has dropped pretty much in every market. If an area was truly “missed” by the bubble, they should have experienced “normal” sales volume as well as appreciation over the past decade with no current decline. Does anyone know of such a place?
G: “Sales volume has dropped pretty much in every market. If an area was truly “missed” by the bubble, they should have experienced “normal” sales volume as well as appreciation over the past decade with no current decline. Does anyone know of such a place?”
C’mon G, that isn’t a fair question, as the tightening of credit has affected lending everywhere, even if there wasn’t a bubble (NB: I believe that the bubble was everywhere, just in different severities). Even if there were a market with NO bubble-effect, the current credit environment would slow sales volumes.
TO Deaconblue: real incomes have decreased for most people over the last 7 years. Feel free to go look at the BLS or any other economic blog. The end result is that if incomes (real) dont increase prices will continue to fall
Anon, that’s my point. Every place had the recently expired credit environment and it increased sales everywhere. I see the bubble as any sales increase due to unsustainable demand, not just appreciation.
G is exactly right. In many rural areas or dying urban areas like Detroit, prices should have been dropping over the last few years as jobs left the area. Instead, prices were propped up by lax lending. This is the effect of the bubble in these areas, rather than huge increases in prices. Remember, this wasn’t so much a real estate bubble as it was a global credit bubble. We’re seeing it in all kinds of markets like corporate bonds, student loans, credit card debt, etc. So yes, prices can decline even in places that didn’t see a huge runup.
G: “Speaking of which, what is the relevance of PF’s comment?”
The relevance was to move the conversation away from a debate of if this is a metro only bubble or metro/rural bubble that Deacon and Kevin were having. It doesn’t matter if it was metro only because metro areas have a disproportionate amount of wealth. What was the relevance of your comment questioning the relevance of my post?
Rural areas wouldn’t have much of a bubble would they, since they are still losing population to metro areas where the overwhelming bulk of American reside. Hence, it’s really irrelevant.
Another worry with ARM’s; those who haven’t walked away yet and are scraping by (and can’t sell or refinance) will be hit by any rate increases, badly.
ND,
Good point on the ARMs. I recently read an article noting that the housing bubble isn’t as bad as the rental yields in isolation show as market interest rates play a big factor. The gist was that demand for housing is in large part payment based, which makes sense–homeowners make buying decisions based on whether they can afford the monthly payment.
In 1980 annual rent yields were 6% of property prices, in 2005 they were 3.5%. However in 1980 interest rates were double digits, which factors into a homeowner’s payment thus lowering the price of their asset.
This also means that any rise in interest rates will have a pronounced negative effect on real estate prices. The Fed is hamstrung with this: if inflation crops up they cannot raise rates without have a huge negative impact on an already depressed housing market.
Me? I’d rather the Fed raise rates and help deflate this pig sooner rather than later. I’d rather pay more in interest on a lower asset value than less interest on a price inflated asset due to the way interest is treated on your taxes (and you can always refinance at any time).
PF, that wasn’t a debate. That was Kevin giving deaconblue a free education.
Once again, what is the relevance of your comment that “It doesn’t matter if it was metro only because metro areas have a disproportionate amount of wealth” in the context of the free education that Kevin so generously provided?
Ignoring the issue of whether my original post was relevant (because it would be subject to the opinion of the reader) – isn’t a post solely questioning the relevance of another post inherently lacking relevance? And yes, by the same logic this post will be irrelevant.
Thanks for giving me a free education, I desperately need it. Anyone trying to argue that the largest price increases did not occur in primarily major metropolitan areas on the coast is smoking crack. I don’t care what numbers you take from anywhere, you know that it’s true.
It’s so pathetic so see people who enjoying watching other people lose money so much. Usually that is the behavioral of those who are envious because they weren’t able to take part in the upswing. This is exactly what we saw when the internet bubble burst and all the people who had no money to invest in the 90’s rejoiced when other people lost money. Really sad!
D
BTW,
The median income hasn’t risen over the past 7 years, but that isn’t always representative of the typical person’s experience (because of illegal immigration, for example). The CBO came out with a report earlier this year that tracked specific individuals’ incomes over the past 10 years and there were significant gains. Incomes have certainly not skyrocketed but for most people it’s better than the broad stats suggest.
D
Deconblue: I do not enjoy watching other people’s misery. However, I do not have pity when they are losing money based on their decisions. Do I get a warm hug at the end of the day, when I lose my money in the market due to my trading decisions? Do I get a bail out from the big brother for my losses? Not really, and that’s how the market works to fix its problems.
Also, why should I bail out others to took on risky propositions when I sat out in the sidelines responsibly and did not participate? If you play, you must pay but I don’t agree with your reasoning about how we are sadistically enjoying the homeowner’s pains. The market needs the bears to keep the bulls in line.
Josh,
Good points raised. In fact today the WSJ ran an op-ed about how us renters were going to bail out the homeowners. The only issue I took with the article is that it did not provide any context for this government spending. Sure Barney Frank’s bill is going to provide 27 BILLION DOLLARS in government spending to help BAIL OUT homeowners. But the article didn’t mention other government spending recently to put it into context: how many times has our President came on TV and notified us that he was spending an extra ninety BILLION DOLLARS on the Iraq war. I can remember at least three times. Wikipedia estimates 500 billion has been spent on the war thus far, with two more billion being spend per week. So thats around 14 weeks to cover Barney Frank’s proposal.
In more normal times I’d agree with you it is ridiculous. But when our president has been spending like a drunken sailor in a house of ill repute, 27 billion is chump change. If you want to get riled up as to who is wasting your money, there are bigger issues than housing.
Bob,
Two wrongs don’t make a right. If you disagree with Bush’s wasteful spending in Iraq you should also disagree with Frank’s proposal to bail out homeowners / speculators. Unless of course you are going to benefit from Frank’s proposal.
“Bubble pricing was primarily focused in major metropolitan areas with limited real estate to build on.”
This can be read in two ways:
1. Appreciation occured mostly in major metropolitan areas
2. Relative value increased in major metropolitan areas
1: Someone gave you numbers. Maybe they’re wrong, but saying “Anyone trying to argue that the largest price increases did not occur in primarily major metropolitan areas on the coast is smoking crack. I don’t care what numbers you take from anywhere, you know that it’s true.” isn’t convincing. Give your own numbers to debunk the others.
2: G’s point, that *bubble pricing* can also be interpreted as saying that even though no appreciation might have occurred in a given town, the prices should have dropped and therefore they are in a bubble (artifically buttressed prices).
It seems to me that the bubble was created by two factors: lax lending standards as well as heavy investors. Which one was the more influential will determine which of you is right (since it *seems* investors were primarily focused on major metropolitan areas).
Do you have something against drunken sailors in houses of ill repute? ;0(