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Can Someone Post The Economist Article, Please?

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Thank you! :)

Do you mean this one:

What's that hissing sound?

Aug 24th 2006

From The Economist print edition

A slowing, perhaps even falling, housing market spells trouble for the American economy

IF YOU could watch just one indicator to gauge America's economic prospects over the next few years you should pick house prices. A year ago most economists thought that average prices were unlikely to fall across the nation. Now many of them have begun to worry about the consequences of falling prices for America's economy. Figures out this week from the National Association of Realtors show that average home prices barely rose over the past year, compared with annual growth of around 15% in mid-2005. In some parts of the country, prices are already falling (see article). Adjusted for inflation, the average home is worth less than it was a year ago.

The housing boom has been the main engine of America's economic growth in recent years. Indeed, it is the main reason why the American economy held up better than expected after the stockmarket bubble burst at the start of the decade. Since 2000 the real wages of most American workers have barely budged, yet surging house prices have allowed consumers to keep spending. Over the past five years the total value of American homes has increased by more than $9 trillion, to $22 trillion. These gains helped to offset both the slide in share prices and feeble wage growth.

This is the biggest bubble in American history: in real terms home prices have risen at least three times as much as in any previous housing boom. In the past average nationwide house prices have experienced year-on-year declines for the odd, isolated month, but they have not fallen on a sustained basis since the 1930s. However, most states have seen prices drop at some time in the past three decades. Since the housing market is looking bubbly in more states than ever before, prices could simultaneously fall in enough places to give America its first nationwide price decline since the Great Depression.

On the surface America's housing boom looks more modest than booms elsewhere. Since 1997 average prices have doubled, compared with a gain of almost 180% in Britain. But the economic consequences of a bust could be more severe, because the economy has become so addicted to rising prices.

The boom has lifted the economy in three ways: it has boosted residential construction; it has made people feel wealthier and so encouraged them to spend more; and it has allowed home-owners to use their property as a gigantic cash machine, taking out money by borrowing against their capital gains. Merrill Lynch estimates that the three together accounted for more than half of America's total GDP growth last year. Counting construction, finance and estate agency, the housing boom has also been responsible for one-third of all jobs created since 2001. If house-price rises level off, GDP growth could dip below 2% in 2007. If prices fall, expect a steeper slowdown.

Ben to the rescue?

If house prices do slide, the Federal Reserve will probably slash interest rates so as to save the economy from recession. But the Fed's ability to do this would be limited if inflationary pressures remain strong. And it would surely be wrong for the Fed to support the property market when a slowdown in spending is part of the rebalancing America needs to increase its saving rate. The Fed saw off a fall in spending at the start of this decade after share prices tumbled. To do the same again could damage the long-term health of the economy.

The tech bubble left behind a modern capital stock that continues to yield productivity gains. In contrast, the investment stimulated by a property boom does little to boost long-term growth. Expensive houses merely redistribute wealth to home-owners from non-home-owners. Worse still, the boom has diverted resources away from productive sectors and caused households to save less, exacerbating America's economic imbalances. It is surely better for Americans to start saving in the old-fashioned way by spending less of their income rather than relying on rising asset prices. The party has been fun; but it has to end.

or this one:

House prices in America

Gimme shelter

Aug 24th 2006 | CHICAGO

From The Economist print edition

Now that the party is over, how bad will the hangover be?

AMERICA'S housing market has banged its head on the ceiling; now investors and homeowners alike are wondering how soon—and how hard—it will hit the floor. On August 23rd the latest figures showed that in July prices of previously owned homes rose at their slowest pace in more than 11 years. In the past 12 months they are still (just) up in nominal terms (see chart), but down in real terms. The number of units sold fell by 11.2% from a year earlier, and the stock of unsold homes reached its highest level since 1993. Markets were waiting for figures on prices of new homes, due out the following day. But the softness was enough to stoke the worries that have been mounting about how badly the end of America's housing boom will hurt the rest of the economy.

Falling demand is already pounding the construction industry. Housing starts, seasonally adjusted, fell by 2.5% in July and were 13.3% lower than a year earlier. Building permits for privately owned houses were down by 20.8%, year on year. And although the number of homeowners applying to refinance their mortgages has risen over the past five weeks, the demand for loans to buy new homes has fallen by nearly a quarter in the past year. It is little wonder, then, that an index of housebuilders' confidence has plunged by 56% since June 2005 to a 15-year low.

The slump has been especially harsh at the high end, because rich buyers were at the forefront of the housing boom over the past few years. Toll Brothers, the biggest builder of luxury homes, said this week that in the latest quarter its orders for new units were almost half those of the previous year. The slowdown is also a worry for home-improvement chains such as Home Depot and Lowe's, as well as for other businesses that have benefited from the housing boom.

If most of the pain remains confined to those bits of the economy, America will probably emerge from the end of the housing boom in decent shape. What has spooked investors of late is the risk that slowing demand for homes will be severe enough to blast a wider hole in consumer demand.

The biggest worries involve the parts of America that have seen the frothiest price increases over the past few years. Those include cities in the south-west with fast-growing populations, such as Las Vegas, and places that attract lots of wealthy elderly people who want to retire. Over the past five years, house prices have more than doubled in California, Nevada, Hawaii and Florida, for example, but have increased by less than one-third in some parts of the south and the Great Plains, according to a house-price index kept by the federal government. In some places, such as Detroit and other hard-hit towns in the rust belt, prices are falling year on year.

That regional variation is comforting, because it suggests that parts of the country are in good shape. The trouble, says Ethan Harris, Lehman Brothers' chief economist in America, is that, measured by value, the regions that have experienced frighteningly rapid house-price increases account for about one-third of the country's residential property. So if prices were to fall sharply in those areas, it would take a bite out of Americans' wealth.

How far might prices fall? Since house-price fundamentals depend so much on the wider economy, especially incomes and borrowing rates, opinions vary. Housing bears chiefly fret over two important measures. One ratio—house prices now equal 3.8 times median income—seems too high by historical standards. The other—rental income to house prices—seems too low to offer property owners a decent return, suggesting again that houses are badly overpriced.

Nearly everyone now expects prices to level off for a bit and slow the economy, but optimists find those valuation measures only modestly worrying. The high ratio of house prices to incomes is less alarming, they argue, because low mortgage rates have held down the real cost of owning those homes. That has not changed much, despite a rise in interest rates over the past couple of years. American homeowners remain exposed to a sharp rise in long-term interest rates—say, if foreign investors in American treasury bonds head for the exits—but otherwise are not obviously in trouble.

Also, although rents have failed to keep pace with the rising price of “equivalent” houses, that comparison partly reflects a failure to adjust for the growing quality of the homes Americans have been buying—these are increasingly being fitted with better creature comforts, such as marble countertops. As house prices peak, moreover, Americans seem now to be more willing to rent; so long as incomes keep growing, rising rents could raise the floor under the value of many houses.

Another argument of optimists is that house-price weakness in Britain and Australia, two other countries that worried bubble watchers, has proved much less damaging than many expected. Tim Bond, of Barclays Capital in London, points out that both countries' economies performed so well after house prices peaked that their central banks found it necessary to raise interest rates again afterwards. Yet America has depended particularly heavily on buoyant house prices as a source of jobs and cash that can be extracted through equity withdrawals.

Even if prices do fall in some regions, forecasters do not yet think that will trigger a recession. But everyone on the housing ladder is hoping that the floor will not turn out to be a long way down.

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Comfort from the UK and OZ :lol:

Oz is seeing the return of negantive equity, and the UK has not yet seen the full impact of this month rate rise.

If I was a bull in the US I would be serious nervous. Muppets.

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The tech bubble left behind a modern capital stock that continues to yield productivity gains. In contrast, the investment stimulated by a property boom does little to boost long-term growth.

A $trillion worth of equipment had to be scrapped to prevent oversupply and a collapse in prices causing equipemtn manufacturers to go to the wall, the write-off was painful enough but they did it.

Maybe a few $Trillion's of McMansions and Condos could be raised to the ground to cause the same outcome. :ph34r:

Absolutely right about the growth bit, a proeprty boom adds nothing to an economy's long term growth, just a pile of debt that will reduce growth and investment and opportunity elsewhere. Shame this wasn't realised a long time ago.

Comfort from the UK and OZ :lol:

Oz is seeing the return of negantive equity, and the UK has not yet seen the full impact of this month rate rise.

If I was a bull in the US I would be serious nervous. Muppets.

http://news.goldseek.com/DailyReckoning/1156442127.php

Now, everyone knows that the housing market is coming down. And everyone knows that all those chumps with ARMs are paying through the nose and getting it in the neck. Investors have convinced themselves that the great property boom is floating down to a soft landing. They look at England and Australia, for example, and say, "Look, both had residential real estate booms bigger than in the United States. Both have seen prices come down.

But neither has had any real problems as a result."

But in England, the day of reckoning for property prices is yet to arrive, for prices have been propped up by huge waves of foreign money pouring into London. And in Australia, the economy was only saved by the boom in commodities. What will save the U.S. economy? What will save all the marginal investors, homeowners, and consumers who have chained themselves to the ship of rising property prices?

We have a guess: America will not be so lucky. Our property market will come down in the biggest, hardest landing ever. Homeowners and consumers have so much debt, that when the ship goes down, they will drown in it.

But whom should we blame? Are the luckless home owners willing victims of their own "mistakes?" Or of what? More to come...much more, tomorrow.

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While I have been waiting for the UK HPC, the US has had its own bubble and bust, despite getting on the bandwagon later. Australia too.

For all the false dawns, the UK's HPC has still not come. However, the reality is that bubbles still burst and we are not in a new economic paradigm where prices keep going up forever.

The laws of economics have not changed, the bust has simply been delayed.

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Guest Alright Jack

While I have been waiting for the UK HPC, the US has had its own bubble and bust, despite getting on the bandwagon later. Australia too.

For all the false dawns, the UK's HPC has still not come. However, the reality is that bubbles still burst and we are not in a new economic paradigm where prices keep going up forever.

The laws of economics have not changed, the bust has simply been delayed.

Are you sure?

The laws of economics (I think you're talking about the theory behind supply and demand) are not allowed to operate in free market fashion because we have centrally planned and managed economies thanks to the governments' central banks.

I agree that manipulation cannot last forever and that bubbles must burst but knowing how it will unfold is the salient issue. I for one am not hiding bank notes under my floorboards.

And there is another thing going on too. We do not live in the capitalist model world where there is a theoretical infinite supply of commodities. Growth as we have understood it for most of the twentieth century is colliding with the limits imposed by nature. Does this change your ideology?

I'm not saying you're wrong, but I do think your blind disregard for the POSSIBILITY of a genuinely new era is not sensible.

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I'm not saying you're wrong, but I do think your blind disregard for the POSSIBILITY of a genuinely new era is not sensible.

Sure, there's a POSSIBILITY. Just like there's a possibility that my pet Bengal tiger will wake up tomorrow and bring me tea and toast in bed.

however on the balance of probabilities he's most likely right. And anyone crying 'new paradigm' is, as usual, nutty.

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We do not live in the capitalist model world where there is a theoretical infinite supply of commodities. Growth as we have understood it for most of the twentieth century is colliding with the limits imposed by nature.

and that is the truly frightening thing that applies to everybody, mortgagee or otherwise. Inescapable.

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  • 302 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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