Friday, July 16, 2004

Housing Bubble Watch: CA Prices Soar

The oldman has written about the extreme denial present in the real estate market. He's also criticized even Brad Delong for arguing that Greenspan shouldn't have urged raising interest rates more than the Fed did. The problem was that mortgage rates fell indicating that the market had been expecting a more aggressive tightening. The drop in mortgage rates then had the expected effect of spurring on a genuine bubble in housing prices. (LAT

July 16, 2004

CALIFORNIA
Southland Housing Prices Hit New Highs


By Debora Vrana, Times Staff Writer


Home prices in five of Southern California's six major counties hit new highs in June as demand for housing continued to far outstrip supply.

The median price in Ventura County reached the half-million-dollar mark for the first time and sales in Riverside and San Bernardino counties set records.

Overall, the median price — the point at which half the homes sold for more and half for less — of a Southland home rose to a record $406,000 in June, DataQuick Information Systems reported Thursday. That was up 2.5% from May and 26.5% from June 2003.

"Things are still going strong," said DataQuick analyst John Karevoll. "We're not seeing a lot of slowdown."

The number of sales increased nearly 11% from the same time last year, as 34,731 homes sold, the most in a single month since 35,339 were sold in August 1988.

With the drop in mortgage rates the recent decelleration of the housing bidding will now reaccellerate. (USAToday)
Posted 7/16/2004 12:23 PM

Mortgage rates drop for fourth straight week
WASHINGTON (AP) — Rates on 30-year and 15-year mortgages dropped for the fourth week in a row, welcome news for people wanting to buy a home.
Freddie Mac said Thursday in its weekly nationwide survey that rates on benchmark 30-year, fixed-rate mortgages fell to 6% this week, down slightly from 6.01% last week. This week's rate was the lowest since the week ending April 22, when 30-year rates averaged 5.94%.

Thirty-year rates hit a low this year of 5.38% in the middle of March.

Rates for 15-year, fixed-rate mortgages, a popular option for refinancing, dropped to 5.40% this week from 5.42% last week.

The dollar has also begun falling as of today, with the AP reporting a lot of dollar bulls throwing in the towel. Of course it's going to take a bit before all the damage becomes obvious but even people in the public domain of investing are beginning to feel the squeeze.
Don't let a dead market bury you
By Adam Shell, USA TODAY

NEW YORK — In an era of $500,000 starter homes and $2-a-gallon gas, $156 doesn't buy financial happiness.

But that is the measly profit a buy-and-hold investor would have made, excluding dividends, investing $10,000 in the Dow Jones industrial average on March 29, 1999, the day the Dow first closed above 10,000. More distressing: An investor who pumped that same 10 grand into the Nasdaq composite exactly six years ago, when it first topped 2000, would be sitting on a loss. Real estate, bonds and cash have all posted better returns during this time.

Welcome to the age of "dead money" on Wall Street, a frustrating period in which turning a profit in the stock market is about as tough as getting ahead without a high school diploma. [emphasis added]

Half a million dollar starter homes. That's what the LAT article was talking about too. Not everywhere of course. That was in California. But as the last article points out it has wider implications. In a period of a sidewise trading, even stagnant market, returns on equities are depressed compared to real estate or futures speculation. Therefore these areas of investment start drawing speculative money. That is what truly fuels a bubble. With mortgage rates falling again this will only continue. Until it becomes a undeniable bubble with attendant liquidation, credit crunch, and rapid devaluation. Of course it doesn't have to happen. However more denial and excessively behind the curve Central Bank policies will ensure that it does.

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