Housing Prices

All you need to read.

Call Your State Attorney General and "Just Say No"

All you need to read.

So, who're you gonna believe, your NYC broker or your lyin' eyes???? Another Reggie Middleton "I told 'ya so" exclusive...

Brief and concise summary of the week's key bullish and bearish events.

Despite the barrage of geopolitical headlines involving Iran, and as of today, the US and Israel, especially as pertains to wargame exercises in the Straits of Hormuz, a different, and potentially much more important story is to be found in the country's capital markets, and specifically its currency, which has continued to tumble ever since Obama signed the Iran financial boycott on New Year's Day as reported here. And, as we predicted, it is the aftershocks of the boycott which may have the most adverse impact on geopolitics. Because if the Iran regime finds itself in a lose-lose situation with its economy imploding and its currency crashing, the opportunity cost of doing something very irrational, from a military standpoint or otherwise, gets lower and lower. Then again, something tells us the US administration has been well aware of this sequence of events all along. Here is Art Cashing explaining it all.

Wondering why the future for housing as an asset is so bleak, why median housing prices continue to tumble and recently saw their biggest three month drop ever, and why there is no bottom in sight? Simple: the American public appears to have woken up to the reality that homes are no longer a flippable asset, and in fact continue to drop in price, an observation that is obvious to virtually all now. So what happens next? Why renting of course. Here is Morgan Stanley explaining (granted in a pitchbook for REITs but the underlying data is quite useful) why the Housing 2.0 paradigm is all about renting.

1349 Florence?

There never was a housing recovery, just a reflex reaction from .gov bubble blowing. Now that that's over, we return to our regularly scheduled housing crash...

Watch out! The Truth is GOING VIRAL! Reggie Middleton discusses residential real estate, Case Shiller and over exuberance on Bloomberg TV.

Things are much worse than the Case Shiller index, and the media that quotes it ad nauseum, are leading many to believe...

My last post "Correlation of mortgage rates with real housing prices: how increasing inflation could affect housing prices", raised some questions. I didn't have the chance to respond to them. But before I do, let me go back to the original purpose of the article. I asked the question, "What could happen to real estate in the event of higher inflation?" If inflation shot up from 1% to 7%, what would happen to the real value of your home. My thesis was: you're screwed. You will lose what little equity you have and real housing prices could drop by as high as 50%. - Taylor Cottam

The Chinese Shanghai index was lower by almost 3% overnight after a series of disappointing economic releases out of the country. The first showed a further cooling in property prices, leaving many to speculate if the housing ponzi was not beginning to unravel/ As Xinhua reports: "Housing prices in major Chinese cities rose 10.3 percent year on year in July, down from the 11.4 percent growth in June, the National Bureau of Statistics (NBS) said Tuesday. It was the third consecutive month that China's property prices rose at a slower pace and the lowest growth rate in six months." Adding to the downward pressure was news released from the Customs Administration (which we will spread later), which indicated that "China's exports rose 38.1 percent year on year to 145.52 billion U.S. dollars in July, but the growth rate was down from the 43.9-percent surge in June, the General Administration of Customs (GAC) said Tuesday." Concluding the Asian trifecta of negative news, was the Bank of Japan's refusal to further ease its monetary policy. US futures are lower by about 0.5% although all the action in the US will be focused on the FOMC statement released early this afternoon.

I was talking with a friend who was telling me that it was the absolute perfect time to buy a house because housing prices have tumbled and interest rates are low. I asked him, "What happens to housing prices if there is inflation and rates go up?" "Housing prices should go up with inflation as they do for all goods. Housing is a natural hedge for inflation" Did my friend have a point? Yes and no. Yes, he was right that in a high inflationary environment, housing prices should rise with all other assets. Rents will go up, as will the price of all the inputs into housing such as lumber and labor costs. Obviously, housing prices will go up to reflect this reality. But no, when inflation and thus nominal interest rates increase, housing prices tumble. When rates fall, housing prices tend to increase.

"Moody's now expects that a trough in home prices will not be reached until the middle of 2010. In addition, based on recent loan loss severities, Moody's will increase its projected lifetime loan losses for pools backing U.S. Jumbo, Alt-A, Option ARM, and Subprime RMBS issued between 2005 and 2008." - Moody's Investors Services