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Realistbear

Wall St. Journal: Biggest Boom In History Is Ending

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http://www.realestatejournal.com/buysell/m...whitehouse.html

WSJ RealEstateJournal

Housing Market May Land HarderThan Economists Expect

By Mark Whitehouse
From The Wall Street Journal Online
Home prices in some parts of the country are falling. Builders are scaling back. Bubble or not, the biggest housing boom in recent U.S. history is coming to an end.
Now here is the big question: How bad will the aftermath be? At this point, most economists expect a "soft landing," a gradual decline that won't derail the nation's economic expansion, now in its fifth year.
But there is a good chance they are being too optimistic. The boom has depended heavily on the upbeat psychology of consumers, builders and lenders. As moods swing, the landing could be very hard indeed.
"
We could be underestimating the dark side
," says Mark Zandi, chief U.S. economist at Moody's Economy.com and among the first to seek to quantify the housing boom's broader effects. "Euphoria could turn into abject pessimism very quickly."

All bad things must come to an end and we are next. History shows us that our property market crashes about 6 months after the US tanks.

It cannot continue here due to IR hikes, growth in unemployment, affordability long gone, fantastic multiples, declining BTL yields and more regulation, twin deficits growing indicating much higher taxes, discretionary spending under attack from higher fule bills, council tax, travel cost and just about anything else that is required for survival.

Edited by Realistbear

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Interesting, I had not considered the concept of real interest rates in the housing sector alone. I may need to go away and do some thinking...

Edited by charmer

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Interesting, I had not considered the concept of real interest rates in the housing sector alone. I may need to go away and do some thinking...

They contain within them the seeds of their child's destruction. :)

The poison pill of MEW:

"But modern mortgage finance has magnified the effect of home values on spending, says Jan Hatzius, chief U.S. economist at Goldman Sachs in New York. He estimates that when people take cash out of their homes through home-equity loans and refinancings -- which they were doing at an annualized rate of $558 billion in the first quarter -- they tend to spend about 50 cents of every dollar. If house prices merely stabilize, people's diminished ability to use their houses like automated-teller machines would subtract about 0.75 percentage point from annualized GDP growth in 2007, Mr. Hatzius says."

Gordon's HPI-MEW economy cannot last for much longer. The banks are feeling the pain with defaults and they will be forced to tighten and remove liquidity.

Edited by Realistbear

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Interesting, I had not considered the concept of real interest rates in the housing sector alone. I may need to go away and do some thinking...

I think this is the bit from the report you're referring to:

But there is reason to believe home builders will have to pull back more sharply. That is because the leveling off of house prices changes the equation of homeownership. When mortgage rates were less than 6% and house prices were rising at about double that rate, people could reasonably expect to make more on their house's appreciation than they would pay in interest on their mortgages. Now, though, inflation-adjusted mortgage rates -- the interest rate on a typical 30-year mortgage minus the percentage rise in home prices -- are on track to turn positive for the first time since 2001.

I too hadn't really thought about very low or negative HPI in these terms.

A clear case of when paying for a mortgage is dead money.

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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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