Posted by Jonathan J. Miller -Wednesday, August 31, 2005, 11:14 PM
[Seoul] raises property taxes to cool surging prices [Note: Reg.]
[Spanish] Housing loans up 26% in May amid ongoing boom
[South Africa] Property boom driving demand for materials
[UK] rate cuts could spark another housing boom
[New Zealand] Headed for Heartbreak?
[China] Concerns deepen over housing boom
[Iceland] Name Europe’s latest ‘tiger.’ Hint: look toward the Arctic Circle.
Is there a pattern here? It seems to me that there has been a lot of analysis on what the Fed will do to cool of the housing boom, but its apparent that many parts of the world are dealing with the same thing the US is at the same time. Australia and the UK just came out of their housing boom 2 years ago.
I would think that any solutions for a soft landing for the US real estate markets must come from internationally-orientated strategies.
Posted by Jonathan J. Miller -Tuesday, August 30, 2005, 10:04 PM
We are going through a challenging economic climate right now. Ever notice how many “economists” are out there?
What is an economist? (Besides someone who studies the economy).
According to the U.S. Department of Labor Bureau of Labor Statistics (BLS) Occupational Outlook Handbook economists:
“study how society distributes scarce resources such as land, labor, raw materials, and machinery to produce goods and services. They conduct research, collect and analyze data, monitor economic trends, and develop forecasts. They research issues such as energy costs, inflation, interest rates, exchange rates, business cycles, taxes, or employment levels.”
An economist friend once told me that “economists are paid to worry.” There’s that old joke: “if you put a group of economists in the same room, not only can they not agree on where the economy is going, they can’t agree on where it came from.” and of course, “economics is the only field in which two people can share a Nobel Prize for saying opposing things.” For such a serious profession, there sure are a lot of economist joke sites on the web.
But I digress…
The BLS definition is all well and good for government and academia, but what about trade groups and corporations that have economists and chief economists? Where there are profits and influence, there may be a credibility problem. Many are using the title “Chief Economist” in the real estate economy these days, including appraisers, brokers, analysts and others.
Wall Street has been using this title for years. I never really thought about the potential conflicts until now, since I see economists as a profession of independent critical analysis, but perhaps thats just the idealist in me.
Although, I’m concerned, I’m not angry. I’ll leave that to one of my favorite blogs, The Angry Economist.
Posted by Jonathan J. Miller -Monday, August 29, 2005, 8:18 PM
For the fourth month in a row, the Advisors Confidence Index (ACI) showed an improved outlook. The ACI provides a measurement of the US economy and the stock markets. The Advisor Confidence Index is based on a survey of 150 independent registered investment advisors.
The quotes from the advisors provide interesting insight. They touched on the main factors that will provide the most impact on the direction of the markets and the economy: Oil & Housing. The next 6-months appear to look better than the following 6-months.
However, this conflicts with consumers perceptions of the state of the economy. The University of Michigan Consumer Confidence Index fell sharply in August, further than analysts projections, the second drop in the past two months.
Apparently investor advisors are more optomistic about the future than consumers are.
Posted by Jonathan J. Miller -Monday, August 29, 2005, 7:23 PM
Late last week, as the hurricane threat to the Gulf of Mexico increased, the oil futures market became concerned that production would be affected. Futures traders bid up the price of oil and gasoline due to the perceived future constraints on supply and now oil seems headed for $70 per barrel. The futures market seems hyper-sensitive to any threat to oil production these days.
How can this impact housing prices?
Simple. Higher Mortgage Rates.
As this and other inflationary factors gain momentum (if they do), bond investors would likely become concerned about the inflation risk in the long term, which eventually translates into higher borrowing costs. Higher borrowing costs generally translate into lower home prices.
Then again, thats just one theory of many. Lets ride the storm out.
Posted by Jonathan J. Miller -Monday, August 29, 2005, 6:36 PM
The interest in real estate is keeping newspapers seeing black ink. [Note: Paid Sub.] Besides homeowners who have seen the value of their properties rise over the past several years, it is newspapers, specifically classified advertising, that have enjoyed the rise but the recovery has been slow.
Real estate comprises 1/4 of all classified advertising. Gains in real estate advertising has possibly masked increased competition from web site listings. Correspondingly, newspaper stocks have not done well in 2005.
Could the intensity of bubble talk be more influenced by the
thirst for dollars than we give it credit for? Could the media make the
bubble a self-fullfilling prophecy?
Posted by Jonathan J. Miller -Sunday, August 28, 2005, 12:41 AM
Homeowners can save thousands by canceling private mortgage insurance [PMI]. PMI is an insurance on the top 20% of the loan so the lender is assured that they will get the full 80% or balance of the funds outstanding if the property goes into foreclosure.
The Homebuyers Protection Act was passed by Congress in 1998 requiring lenders to notify homeowners when the equity in their home reached a level where PMI was no longer required.
“Your home falls under this act if you purchased, constructed, or refinanced your single-family home after July 29, 1999, and your loan is not a government-insured FHA or VA loan. If you purchased your home before July 29, 1999, your lender is not required to cancel your PMI when you reach 20 or 22% equity, but many lenders will do so if you ask.”
How to Cancel PMI
Here’s a great article on removing PMI from your loan by Chip Wagner, an accomplished appraiser in the Chicagoland area. Most lenders require and approved and state certified appraiser to perform the evaluation.
Here’s how they do it in Minnesota. I suspect it is not much different than other states.
Note: Check with your lender for specific instructions.
Posted by Jonathan J. Miller -Sunday, August 28, 2005, 12:18 AM
Greenspan said today that the US housing boom is sure to end eventually and there should be a drop in home prices.
[Webmaster's Note: I'm am fairly certain most people do not believe the housing boom will go on forever so tell us something we don't know.]
A weakened housing market would take the punch out of an inflation threat and therefore the pressure off the Fed to keep raising short term rates. Consumer spending is reported to account for 70% of the US economy and this driven largely by the ability to tap home equity.
To date, some US economists believe the “wealth effect” of housing are offsetting the negative influence of rising oil prices. [Note: Paid Subcr.] The ability to pull equity out of the housing sector has helped consumers maintain discretionary spending despite rising oil prices.
Besides rising oil prices, labor costs are expected to rise keeping pressure on the Fed to raise short term rates.
The Fed believes that home prices will continue at their brisk pace through the third quarter, before easing in the final quarter of the year.
Here’s a great article written last May called “Don’t Buy Housing Bubble Propaganda” by the webmaster of one of the best economic blogs out there: Big Picture
The author discusses mortgage rates and changing demographics better than any article I have read on this topic. One item of particular interest: More than 80% of all stock purchases are speculative. According to the NAR, housing is currently at 23% which seems to pale in comparison, doesn’t it?
Posted by Jonathan J. Miller -Saturday, August 27, 2005, 2:09 PM
Greenspan spoke this week at symposium, held in Jackson Hole, Wyoming, sponsored by the Federal Reserve on the legacy of his 18 year era. He took the position that the housing market now suffers an imbalance.
The Federal Reserve is paying closer attention to the rising values of assets such as stocks, bonds and homes, as low interest rates encourage more risk-taking, Fed Chairman Alan Greenspan said.
Low “Risk Premiums” (A new mantra?)
This trend reflects what Mr. Greenspan said was the increased willingness of investors to accept low “risk premiums, a willingness based on a complacent assumption that the low interest rates, low inflation and strong growth of recent years are likely to be permanent.”
His concern is when (bond) investors become more cautious, yields will rise, lowering housing values and then selloff of bonds that caused rates to drop in the first place. “This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”
Other notable Greenspan-speak, etched in the public conscience are:
A Conundrum –
An inverted yield curve appears to loom on the horizon.
A Frothy Housing Market –
“The Fed feels it needs to squeeze more air out of the market – the housing market in particular, although the Fed has stressed that it’s not targeting housing with interest-rate policy.”
Irrational Exuberance –
Greenspan first used the phrase in 1996 several years before the stock market corrected in 2000 but it came to define the rapid run up in stocks in the 1990’s. The analysts that missed the dot com bubble now seem to be the ones warning us about the housing market boom’s eventual conversion to bust.
Posted by Jonathan J. Miller -Saturday, August 27, 2005, 10:01 AM
According to Investopedia.com an inverted yield curve is a “Usually a chart showing long-term debt instruments that have lower yields than short-term debt instruments. It is sometimes referred to as a negative yield curve.” But they are cause for concern:
“History has shown that inversions of the yield curve have preceded the last five U.S. recessions. The yield curve can accurately forecast the turning points of the business cycle.”
Why would investors accept lower long terms rates than short term rates?
According to SmartMoney.com “The answer is that long-term investors will settle for lower yields now if they think rates â€” and the economy â€” are going even lower in the future. They’re betting that this is their last chance to lock in rates before the bottom falls out. Inverted yield curves are rare. Never ignore them. They are always followed by economic slowdown â€” or outright recession â€” as well as lower interest rates across the board.”
Perhaps this is an indicator that the economy will stall, and rates will go down even further. Stay tuned.
See previous post Yield Curve Enters Kitchen Table Talk
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