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Is This The Beginning ...

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Toll Brothers, a US builder of luxury homes, is declaring the "boom is over." They and other home-related businesses are experiencing hard times. This was reported in a Canadian newspaper (The Globe and Mail) with the headline "House builder issues warning: investors go home."

Here's the text of the article:

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When economic historians begin the task of identifying the point at which the U.S. housing bubble finally went pop, they might well settle on Nov. 8, 2005.

Yesterday, the largest builder of luxury homes in the United States, Toll Brothers Inc., all but came out and declared the boom over. And its stock -- which has been sliding since last summer -- got positively crushed. So did just about everything else tied to the frothy housing market, from appliance makers and electronics stores to home renovations chains.

On the surface, the news out of Toll seemed innocuous enough. The Horsham, Pa., company cut its estimate for new home deliveries in fiscal 2006 to a range of 9,500 to 10,200 units from a previous estimate of 10,200 to 10,600, and said the drop likely would reduce earnings growth.

Big deal, right? Companies lower earnings forecasts all the time. But it was the words accompanying the numbers that cut through the market like a wrecking ball.

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Robert Toll, the company's chairman and chief executive officer, cited "softening of demand in a number of markets" and said buyers are taking longer to make purchasing decisions since hurricane Katrina hammered the Gulf Coast in early September.

"We attribute this change to the significant decline in consumer confidence in the last two months that was precipitated by the hurricanes and their aftermath, and to record gas prices," he said. "It appears we may be entering a period of more moderate home price increases, more typical of the past decade than the past two years."

While Mr. Toll was trying his best not to panic anyone, the message investors heard was more along the lines of: Get out now. This thing's going down in flames.

Shares of Toll Brothers sank $5.42 (U.S.) or 13.8 per cent to $33.99 on the New York Stock Exchange -- the sharpest drop in seven years. Pulte Homes Inc., the biggest U.S. home builder, fell 8.9 per cent, and No. 2 D. R. Horton Inc. skidded 9.3 per cent.

It wasn't just home builders that got clocked. Home Depot Inc. fell 2.2 per cent, electronics retailer Best Buy Co. Inc. dropped 3.3 per cent and appliance maker Whirlpool Corp. shed 3.1 per cent. Even Canadian renovations chain Rona Inc. saw its stock fall 4.4 per cent, despite matching analysts' expectations for third-quarter profit.

The selloff comes as mortgage rates are rising, making it tougher for consumers to afford homes that have soared, in some cases, 50 to 100 per cent since 1997. The average U.S. 30-year mortgage rate has climbed to a 16-month high of 6.31 per cent, putting a dent into housing demand. Last week, the Mortgage Bankers Association said applications for new mortgages fell to an eight-month low.

If this really is the end of the U.S. housing boom, it's not like investors didn't have any warning. In 2003, John R. Talbott, a former vice-president in the investment banking division of Goldman Sachs, wrote a book called The Coming Crash in the Housing Market. It examined the loose lending policies and lax regulatory oversight that were helping to propel house prices to extreme levels.

While some people dismissed Mr. Talbott as a scaremonger at the time, the sharp selloff in housing-related stocks yesterday suggests the universe may be unfolding as he predicted. In fact, shares of Toll Brothers are down a hefty 42 per cent since mid-July.

"Stock market investors . . . are telling you very clearly they think the home price runup is done," Mr. Talbott said in an interview. "I'd always warned that if rates went up, we'd have problems, and now rates are just starting to tick up."

As ugly as yesterday was, it's nothing compared to what homeowners will feel. When the unwinding begins -- Mr. Talbott isn't convinced we're there yet -- home prices could fall 20 to 25 per cent in a matter of a few months, followed by a further 30-per-cent erosion over five to seven years as the decline plays out. "It hasn't even started yet," he said. "You wait and see. This is going to be huge."

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The media have been seesawing between + and - stories like a drunken sailor!

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Americans seem to be more realistic about these matters compared to us. House prices here seems to be a big factor contributing to our GDP unlike the US. Therefore, it is important for Gordon Brown and the Government to keep it up by whatever means possible.

It is sad that our economists and rulers cannot pick up the signs from the US.

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The amout of VI spin from various news sources especially Blairs Broadcasting Channel re item today: 'Bigger mortgage? Discover the factors that might let you borrow more' are a just a sad attempt to keep the whole thing stringing along longer. What do they think the outcome will be? Don't the VI's realise that prolonging the correction will just suck more people in, damaging more people's lives later down the line?

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Americans seem to be more realistic about these matters compared to us. House prices here seems to be a big factor contributing to our GDP unlike the US. Therefore, it is important for Gordon Brown and the Government to keep it up by whatever means possible.

It is sad that our economists and rulers cannot pick up the signs from the US.

The consenus among US economists, including Al Greenspan, is that the bubble will burst in the US but it will not bring the entire economy down with it as the "froth" is only present in East and West Coast markets. Most houses accross the US have risen 20%-30% over 5 years whereas the coasts have seen HPI in excess of 120% over the same period.

The UK, on the other hand, is all froth (as defined by house prices to income ratios) with an economy dependent on HPI for survival. Gordon Brown must keep the house prices rising in order to sustain the pyramid--er... economic miracle. The problem is that for every action there is a counteraction and HPI eventually becomes HPC. People have simply run out of financial steam and cannot go on paying 20% more for houses year after year while only receiving 5-6% increases in pay over the same period.

The early warning signs are everywhere--precipitous drop in consumer confidence reported today, sterling down to 1.74 against the US dollar--it was almost 1.90 6 months ago, high street tales of woe, consumer credit excesses forcing increasing numbers into bankruptcy (78% increase in bankruptcy in some areas in the UK YOY), rising unemployment caused by declining manufacturing and many more all reported on HPC.com daily.

The following suggests fewer people are believing the miracle:

http://www.mfgonline.co.uk/news/newsarticl...p?unqueid=15171

When the international markets sniff the beginning of the actualization of the long awaited HPC in the UK they will pull the plug on sterling and Christmas will be here! :lol:

Edited by Realistbear

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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