UNITED STATES HOUSING BUBBLE
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The 'United States housing bubble' is the economic bubble in many parts of the U.S. housing market that has existed since roughly 2001, especially in populous areas such as California, Florida, New York, the suburbs of Chicago and Detroit in the midwest, the BosWash megalopolis, and the Southwest markets. It reached its peak in 2005–2006, and has been deflating and accelerating since. Greatly increased foreclosure rates in 2006–2007 by U.S. homeowners unable to pay their mortgages caused a crisis in the subprime, Alt-A, CDO, CDX, mortgage, credit, hedge fund, and foreign bank markets.[3] A real estate bubble is a type of economic bubble that occurs periodically in local or global real estate markets. The housing bubble in the U.S. was caused by historically low interest rates, poor lending standards, and a mania for purchasing houses. This bubble is related to the stock market or dot-com bubble of the 1990s.
A housing bubble is characterized by rapid increases in the valuations of real property such as housing until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This in turn is followed by decreases in home prices that can result in many owners holding negative equity, a mortgage debt higher than the value of the property.
Bubbles may be definitively identified only in hindsight, after a market correction,[4] which began for the U.S. housing market in 2005–2006. In the wake of the subprime mortgage crisis in 2007, which was caused by a large number of home owners unable to pay the mortgage as their home values declined, Freddie Mac CEO Richard Syron concluded, "We had a bubble,"[5] and concurred with Yale economist Robert Shiller's warning that home prices appear overvalued and that the correction could last years with trillions of dollars of home value being lost. Problems for home owners with good credit surfaced in mid-2007, causing the U.S.'s largest mortgage lender Countrywide Financial to warn that a recovery in the housing sector is not expected to occur at least until 2009 because home prices are falling “almost like never before, with the exception of the Great Depression.â€[6] The impact of booming home valuations on the U.S. economy since the 2001–2002 recession was an important factor in the recovery because a large component of consumer spending came from the related refinancing boom, which simultaneously allowed people to reduce their monthly mortgage payments with lower interest rates and withdraw equity from their homes as values increased.[7] The collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation's mortgage markets, home builders, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President Bush and Fed Chairman Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners unable to pay their mortgage debts.[8]
Timeline
Robert Shiller's plot of U.S. home prices, population, building costs, and bond yields, from ''Irrational Exuberance'', 2d ed. Shiller shows that inflation-adjusted U.S. home prices increased 0.4% per year from 1890–2004, and 0.7% per year from 1940–2004, whereas U.S. census data from 1940–2004 shows that the self-assessed value increased 2% per year.
★ '1995–2001': Dot-com bubble
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★ '1998': inflation-adjusted home price appreciation exceeds 10%/year in most West Coast metropolitan areas[9]
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★ '2001': dot-com bubble collapse
★ '2000–2003': Early 2000s recession (exact time varies by country)
★ '2001–2005': United States housing bubble (part of the world housing bubble)
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★ '2001': US Federal Reserve lowers Federal funds rate 11 times, from 6.5% to 1.75%, starting the housing bubble [10]
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★ '2002': Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states.
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★ '2004-2005': Arizona, California, Florida, Hawaii, and Nevada record price increases in excess of 25% per year.
★ '2005–ongoing': Market correction ("bubble bursting")
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★ '2005': Boom ended August 2005. The booming housing market halted abruptly for many parts of the U.S. in late summer of 2005.
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★ '2006': Continued market slowdown. Prices are flat, home sales fall, resulting in inventory buildup. U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
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★ '2007': Home sales continue to fall. The plunge in existing-home sales is the steepest since 1989. In Q1/2007, S&P/Case-Shiller house price index records first year-over-year decline in nationwide house prices since 1991.[11] The subprime mortgage industry collapses, and a surge of foreclosure activity (twice as bad as 2006 Huffington Post quotes the FDIC's Quarterly Banking Profile: ''The next sign of mortgage related financial problems came out in the FDIC's Quarterly Banking Profile. The report noted on page 1, "Reflecting an erosion in asset quality, provisions for loan losses totaled $9.2 billion in the first quarter [of 2007], an increase of $3.2 billion (54.6%) from a year earlier." The reason for the loan-loss provision increases was an across the board increase in delinquencies and charge offs which increased 48.4% from year ago levels. The report noted on page 2 that "Net charge-offs of 1-4 family residential mortgage loans were up by $268 million (93.2%) [from year ago levels]."'' ) and rising interest rates threaten to depress prices further as problems in the subprime markets spread to the near-prime and prime mortgage markets.
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★ 'February–March': Subprime industry collapse; more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale.
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★ 'April 2': New Century Financial, largest U.S. subprime lender, files for chapter 11 bankruptcy.
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★ 'July 19': Dow-Jones closes above 14,000 for the first time in its history.[12]
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★ 'August': worldwide "credit crunch" as subprime mortgage backed securities are discovered in portfolios of banks and hedge funds around the world, from BNP Paribas to Bank of China. Many lenders stop offering home equity loans and "stated income" loans.
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★ 'August 6': American Home Mortgage files for chapter 11 bankruptcy.
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★ 'August 7': Democratic presidential front-runner Hillary Clinton proposes a $1 billion bailout fund to help homeowners at risk for foreclosure.[13]
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★ 'August 16': Countrywide Financial Corporation, the biggest U.S. mortgage lender, narrowly avoids bankruptcy by taking out an emergency loan of $11 billion from a group of banks.[14]
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★ 'August 17': Federal Reserve lowers the discount rate by 50 basis points to 5.75% from 6.25%.
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★ 'August 31': President Bush announces a limited bailout of U.S. homeowners unable to pay the rising costs of their debts. Ameriquest, once the largest subprime lender in the U.S., goes out of business;[15] Roland E. Arnall, the former CEO and the largest Bush campaign contributor remains the U.S. Ambassador to the Netherlands.[16]
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★ 'September 1–3': Fed Economic Symposium in Jackson Hole, WY addressed the housing recession that jeopardizes U.S. growth. Several critics argued that the Fed should use regulation and interest rates to prevent asset-price bubbles,[17] blamed former Fed-chairman Alan Greenspan's low interest rate policies for stoking the U.S. housing boom and subsequent bust,[18][19], and Yale University economist Robert Shiller warned of possible home price declines of fifty percent.[20]
Identifying the housing bubble
''The Economist'' magazine cover, 16 June 2005, with a prediction about the direction of home prices after the "fall" of 2005.
Any type of economic bubble is difficult to identify except in hindsight, after the crash, although many economic and cultural factors have led several economists to argue that a housing bubble exists in the U.S.[21][22][23][24][25][26] The ''Economist'' magazine said that "the worldwide rise in house prices is the biggest bubble in history,"[27] so any explanation must consider global causes as well as those specific to the United States. Former Federal Reserve Chairman Alan Greenspan said in mid-2005 that "at a minimum, there's a little 'froth' (in the U.S. housing market) … it's hard not to see that there are a lot of local bubbles." President Bush said of the U.S. housing boom in early 2006: "If houses get too expensive, people will stop buying them … Economies should cycle."[28]
Based on markedly declining 2006 market data, including lower sales, rising inventories, falling median prices, and increased foreclosure rates,[29] some economists have concluded that the correction in the U.S. housing market began in 2006.[30][31] A May 2006 ''Fortune'' magazine report on the US housing bubble states: "The great housing bubble has finally started to deflate … In many once-sizzling markets around the country, accounts of dropping list prices have replaced tales of waiting lists for unbuilt condos and bidding wars over humdrum three-bedroom colonials."[32] The chief economist of Freddie Mac and the director of Harvard University's Joint Center for Housing Studies (JCHS) deny the existence of a national housing bubble and express doubt that any significant decline in home prices are possible, citing consistently rising prices since the Great Depression, expected increasing demand by the Baby Boom generation, and healthy employment.[33][34][35] However, some have questioned the funding that the JCHS receives from the real estate industry.[36] David Lereah, former chief economist of the National Association of Realtors, distributed "Anti-Bubble Reports" in August 2005 to "respond to the irresponsible bubble accusations made by your local media and local academics."[37] Among other statements, the reports say that people "should [not] be concerned that home prices are rising faster than family income", that "there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors", and that "a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms."[38] Following reports of rapid sales declines and price depreciation in August 2006,[39][40] Lereah admitted that "he expects home prices to come down 5% nationally, more in some markets, less in others. And a few cities in Florida and California, where home prices soared to nose-bleed heights, could have 'hard landings'."[41]
National home sales and prices both fell dramatically in March 2007—the steepest plunge since 1989—according to NAR data, with sales down 13% to 482,000 from the peak of 554,000 in March 2006 and the national median price falling nearly 6% to $217,000 from the peak of $230,200 in July 2006 .[42]
John A. Kilpatrick, of Greenfield Advisors, was cited by Bloomberg News on June 14, 2007, on the linkage between increased foreclosures and localized housing price declines. "Living in an area with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values." He went on to say, "In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth. The innocent houses that just happen to be sitting next to those properties are going to take a hit."[43] He echoed his own comments from the April 5, 2007, issue of the ''International Herald Tribune'', in which he said, "Living on a block with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values. In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth. If you see a neighborhood with a couple of foreclosures on the block, a couple of auction signs in the yards, that's going to be a neighborhood that's stigmatized. The innocent houses that just happen to be sitting next to those properties are going to take a hit."[44]
The US Senate Banking Committee held hearings on the housing bubble and related loan practices in 2006, titled "The Housing Bubble and its Implications for the Economy" and "Calculated Risk: Assessing Non-Traditional Mortgage Products".[45] Following the collapse of the subprime mortgage industry in March 2007, Senator Chris Dodd, Chairman of the Banking Committee held hearings and asked executives from the top five subprime mortgage companies to testify and explain their lending practices. Dodd said that "predatory lending practices" endangered the home ownership for millions of people.[46] Moreover, Democratic senators such as Senator Charles Schumer of New York are already proposing a federal government bailout of subprime borrowers in order to save homeowners from losing their residences.
Causes
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Inflation-adjusted housing prices in Japan (1980–2005) compared to home price appreciation the United States, Britain, and Australia (1995–2005).
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'Approximate cost to own mortgaged property vs. renting.'
An approximate formula for the monthly cost of owning a home is obtained by computing the monthly mortgage, property tax, and maintenance costs, accounting for the U.S. tax deduction available for mortgage interest payments and property taxes.
This formula does not include the cost of foregoing the standard deduction (required for taking the tax deduction). Assuming a home cost of ''P'' dollars, yearly interest rate ''r'' fixed over ''N'' years, marginal income tax rate , property tax rate (assumed to be ½–2% of ''P''), and yearly maintenance cost rate (assumed to be ½–1% of ''P''), the monthly cost of home ownership is approximately[47]
::
::
For example, the monthly cost of a $250,000 home at 6% interest fixed over 30 years, with 1% property taxes, 0.75% maintenance costs, and a 30% federal income tax rate is approximately $1361 per month. The rental cost for an equivalent home may be less in many U.S. cities as of 2006. Adding a down payment or home equity to this calculation can significantly reduce the monthly cost of ownership, while significantly reducing the income stream that the downpayment would generate in a long term CD. Including the monthly cost of forgoing the standard deduction ($10000 for a married couple), the added cost (the reduction in tax savings) of (deduction
★ tax_rate / 12) would increase the cost to buy a home by $250/mo, to $1611 for a married couple filing jointly in the example above.
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|'Equivalent price-to-earnings (P/E) ratio for homes.'
To compute the P/E ratio for the case of a rented house, divide the price of the house by its potential yearly earnings or net income, which is the market rent of the house minus expenses, which include property taxes, maintenance and fees. This formula is:
::
For the example of the $250,000 home considered above, the P/E ratio would be 24 if this home rents for $1250 per month. ''Fortune magazine'' cites a historic range of 11 or 12 for the simpler price-to-rent ratio.[48]
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Mania for home ownership
Americans' love of their homes is widely known and acknowledged; however, many believe that enthusiasm for home ownership is currently high even by American standards, calling the real estate market "frothy"[49], "speculative madness"[50] , and a "mania". Many observers have commented on this phenomenon[51][52][53]—as evidenced by the cover of the June 13, 2005 issue of ''Time Magazine'' (seen above, itself taken as a sign of the bubble's peak)—but as a 2007 article in ''Forbes'' warns, "to realize that America's mania for home-buying is out of all proportion to sober reality, one needs to look no further than the current subprime lending mess. … As interest rates—and mortgage payments—have started to climb, many of these new owners are having difficulty making ends meet. … Those borrowers are much worse off than before they bought."[54] The boom in housing has also created a boom in the real estate profession; for example, California has a record half-million real estate licencees—one for every 52 adults living in the state, up 57% in the last five years.[55]
During the 2004 Presidential election campaign, President George W. Bush boasted that "the overall U.S. homeownership rate in the second quarter of 2004 was at an all time high of 69.2 percent."[56] Bush's 2004 campaign slogan "the ownership society" indicates the strong preference and societal influence of Americans to own the homes they live in, as opposed to renting. However, in many parts of the United States, rent does not cover mortgage costs; the national median mortgage payment is $1,687 per month, nearly twice the median rent payment of $868 per month, although this ratio can vary signifcantly from market to market.[57]
Belief that housing is a good investment
Among Americans, home ownership is widely accepted as preferable to renting in many cases, especially when the ownership term is expected to be at least five years. This is partly due to the fact that the fraction of a fixed-rate mortgage used to pay down the principal builds equity for the homeowner over time, while the interest portion of the loan payments qualifies for a tax break, whereas, except for the personal tax deduction oftentimes available to renters but not to homeowners, money spent on rent does neither. However, when considered as an investment, that is, an asset that is expected to grow in value over time, as opposed to the utility of shelter that home ownership provides, housing is not a risk-free investment. The popular notion that, unlike stocks, homes do not fall in value is believed to have contributed to the mania for purchasing homes. This assertion has been true for the United States as a whole since the Great Depression, and appears to be encouraged by the real estate industry.[58] However, housing prices can move both up and down in local markets, as evidenced by the relatively recent price history in locations such as New York, Los Angeles, Boston, Japan, Vancouver, Sydney, and Hong Kong; large trends of up and down price fluctuations can be seen in many U.S. cities (see graph). Since 2005, the year-over-year median sale prices (inflation-adjusted) of single family homes in Massachusetts fell over 10% in 2006.[59] David Lereah formerly of the NAR said in August 2006 that "he expects home prices to come down 5% nationally, more in some markets, less in others." Commenting in August 2005 on the perceived low risk of housing as an investment vehicle, Alan Greenspan said, "history has not dealt kindly with the aftermath of protracted periods of low risk premiums."[60]
Compounding the popular expectation that home prices do not fall, it is also widely believed that home values will yield average or better-than-average returns as investments. The investment motive for purchasing homes should not be conflated with the necessity of shelter that housing provides; an economic comparison of the relative costs of owning versus renting the equivalent utility of shelter can be made separately (see boxed text). Over the holding periods of decades, inflation-adjusted house prices have increased less than 1% per year.[61] Robert Shiller shows that over long periods, inflation adjusted U.S. home prices increased 0.4% per year from 1890–2004, and 0.7% per year from 1940–2004. Shiller also showed comparable results for housing prices on a single street in Amsterdam (the site of the fabled tulip mania, and where the housing supply is notably limited) over a 350 year period. Such meager returns are dwarfed by investments in the stock and bond markets. If historic trends hold, it is reasonable to expect home prices to only slightly beat inflation over the long term. Furthermore, one way to assess the quality of any investment is to compute its price-to-earnings (P/E) ratio, which for houses can be defined as the price of the house divided by the potential annual rental income, minus expenses including property taxes, maintenance, insurance, and condominium fees. For many locations, this computation yields a P/E ratio of about 30–40, which is considered by economists to be high for both the housing and the stock markets; historical price-to-rent ratios are 11–12. For comparison, just before the dot-com crash the P/E ratio of the S&P 500 was 45. In a 2007 article comparing the cost and risks of renting to buying using a buy vs. rent calculator, the ''New York Times'' concluded, "Homeownership, [realtors] argue, is a way to achieve the American dream, save on taxes and earn a solid investment return all at the same time. … [I]t’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country … recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters."[62] A 2007 ''Forbes'' article titled "Don't Buy That House" invokes similar arguments and concludes that for now, "resist the pressure [to buy]. There may be no place like home, but there's no reason you can't rent it."
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Promotion in the media
In late 2005 and into 2006, there were an abundance of television programs promoting real estate investment and flipping.[65][66]
In addition to the numerous television shows, book stores in cities throughout the United States could be seen showing large displays of books touting real-estate investment, such as NAR chief economist David Lereah's book ''Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them'' published in February 2005. One year later in February 2006, Lereah retitled his book ''Why the Real Estate Boom Will Not Bust—And How You Can Profit from It''.
However, following Fed chairman Ben Bernanke's comments on the "downturn of the housing market" in August 2006,[67] Lereah said in an NBC interview that "we've had a boom marketplace: you've got to correct because booms cannot sustain itself forever [''sic'']."[68] Commenting on the phenomenon of shifting NAR accounts of the national housing market (see David Lereah's comments[69][70]), the Motley Fool reported, "There's nothing funnier or more satisfying … than watching the National Association of Realtors (NAR) change its tune these days. … the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well."
Upon leaving the NAR in May 2007, Lereah explained to Robert Siegel of National Public Radio that using the word "boom" in the title was actually his publisher's idea, and "a poor choice of titles".[71]
Speculative fever
As median home prices began to rise dramatically in 2000–2001 following the fall in interest rates, speculative purchases of homes also increased.[72] ''Fortune'' magazine's article on housing speculation in 2005 said, "America was awash in a stark, raving frenzy that looked every bit as crazy as dot-com stocks."[73] In a 2006 interview in ''BusinessWeek'' magazine, Yale economist Robert Shiller said of the impact of speculators on long term valuations, "I worry about a big fall because prices today are being supported by a speculative fever,"[74] and former NAR chief economist David Lereah said in 2005 that "[t]here's a speculative element in home buying now." Speculation in some local markets has been greater than others, and any correction in valuations is expected to be strongly related to the percentage amount of speculative purchases.[75] In the same ''BusinessWeek'' interview, Angelo Mozilo, CEO of mortgage lender Countrywide Financial, said in March 2006, "in areas where you have had heavy speculation, you could have 30% [home price declines]. … A year or a year and half from now, you will have seen a slow deterioration of home values and a substantial deterioration in those areas where there has been speculative excess.â€[76] The chief economist for the National Association of Home Builders, David Seiders, said that California, Las Vegas, Florida and the Washington, D.C., area “have the largest potential for a price slowdown†because the rising prices in those markets were fed by speculators who bought homes intending to “flip†or sell them for a quick profit.[77] Dallas Fed president Richard Fisher said in 2006 that the Fed held its target rate at 1 percent "longer than it should have been" and unintentionally prompted speculation in the housing market.[78][79]
Crash of the dot-com bubble
Several economists have argued that the stock market crash, especially in the dot-com and technology sectors, in 2000 and the subsequent 70% (or so) drop of the NASDAQ composite index resulted in many people taking their money out of the stock market and purchasing real estate, which many believed to be a more reliable investment.[80][81] Yale economist Robert Shiller argued further that "irrational exuberance" was displaced from the fallen stock market to housing: "Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed."[82]
Historically low interest rates
Another important consequence of the dot-com crash and the subsequent 2001–2002 recession was that the Federal Reserve cut short-term interest rates to historically low levels, from about 6.5% to just 1%. In United States, mortgage rates are typically set in relation to 10-year treasury bond yields, which, in turn, are affected by Federal Funds rates. The Federal Reserve acknowledges the connection between lower interest rates, higher home values, and the increased liquidity the higher home values bring to the overall economy.[83] A Federal Reserve report reads,
Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission.[84]For this reason some have criticized then Fed Chairman Alan Greenspan for "engineering" the housing bubble,[85][86][87][88][89][90] saying, e.g., "It was the Federal Reserve-engineered decline in rates that inflated the housing bubble."[91] Between 2000 and 2003, the interest rate on 30-year fixed-rate mortgages fell 2.5 percentage points (from 8% to all-time historical low of about 5.5%). The interest rate on one-year adjustable rate mortgages (1/1 ARMs) fell 3 percentage points (from about 7% to about 4%). Richard Fisher, president of the Dallas Fed, said in 2006 that the Fed's low interest-rate policies unintentionally prompted speculation in the housing market, and that the subsequent "substantial correction [is] inflicting real costs to millions of homeowners."
A drop in mortgage interest rates reduces the cost of borrowing and should logically result in an increase in prices in a market where most people borrow money to purchase a home (for instance, in the United States), so that average payments remain constant. If one assumes that the housing market is efficient, the expected change in housing prices (relative to interest rates) can be computed mathematically. The calculation in the sidebox shows that a 1 percentage point change in interest rates would theoretically affect home prices by about 10% (given 2005 rates on fixed-rate mortgages). This represents a 10-to-1 multiplier between percentage point changes in interest rates and percentage change in home prices. For interest-only mortgages (at 2005 rates), this yields about a 16% change in principal for a 1% change in interest rates at current rates. Therefore, the 2% drop in long-term interest rates can account for about a 10 × 2% = 20% rise in home prices if every buyer is using a fixed-rate mortgage (FRM), or about 16 × 3% ≈ 50% if every buyer is using an adjustable rate mortgage (ARM) whose interest rates dropped 3%. Robert Shiller shows that the inflation adjusted U.S. home price increase has been about 45% during this period, an increase in valuations that is approximately consistent with most buyers financing their purchases using ARMs. In areas of the United States believed to have a housing bubble, price increases have far exceeded the 50% that might be explained by the cost of borrowing using ARMs. For example, in San Diego area, average mortgage payments grew 50% between 2001 and 2004. When interest rates rise, a reasonable question is how much house prices will fall, and what effect this will have on those holding negative equity, as well as on the U.S. economy in general. The salient question is whether interest rates are a determining factor in specific markets where there is high sensitivity to housing affordability.
Between 2004 and 2006, the Fed raised interest rates 17 times, increasing them from 1% to 5.25%, before pausing.[92] The Fed paused raising interest rates because of the concern that an accelerating downturn in the housing market could undermine the overall economy, just as the crash of the dot-com bubble in 2000 contributed to the subsequent recession. However, New York University economist Nouriel Roubini asserted that "The Fed should have tightened earlier to avoid a festering of the housing bubble early on."[93]
There has been a great debate as to whether or not the Fed will lower rates in the near future. The majority of economists expect the Fed to maintain the Fed funds rate at 5.25 percent through 2008.[94].
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'Differential relationship between interest rates and affordability.'
An approximate formula can be obtained that provides the relationship between changes in interest rates and changes in home affordability. The computation proceeds by designating affordability (the monthly mortgage payment) constant, and differentiating the equation for monthly payments
::
with respect to the interest rate ''r'', then solving for the change in . Using the approximation (''K'' → ∞, and ''e'' = 2.718… is the base of the natural logarithm) for continuously compounded interest, this results in the approximate equation
::
(fixed-rate loans). For interest-only mortgages, the change in principal yielding the same monthly payment is
::
(interest-only loans). This calculation shows that a 1 percentage point change in interest rates would theoretically affect home prices by about 10% (given 2005 rates) on fixed-rate mortgages, and about 16% for interest-only mortgages. Robert Shiller does compare interest rates and overall U.S. home prices over the period 1890–2004 and concludes that interest rates do not explain historic trends for the country.
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Risky mortgage products and lax lending standards
The recent use of subprime mortgages, adjustable rate mortgages, interest-only mortgages, and "stated income" loans (also known as "liar loans"—a subset of "Alt-A" loans) to finance home purchases described above have raised concerns about the quality of these loans should interest rates rise again or the borrower is unable to pay the mortgage.[95][96][97] In many areas, particularly in those with most appreciation, non-standard loans went from almost unheard of to prevalent. For example, 80% of all mortgages initiated in San Diego region in 2004 were adjustable-rate, and 47% were interest only.
In March 2007, the United States' subprime mortgage industry collapsed due to higher-than-expected home foreclosure rates, with more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale.[98] ''Harper's Magazine'' warned of the danger of rising interest rates for recent homebuyers holding such mortgages, as well as the U.S. economy as a whole: "The problem [is] that prices are falling even as the buyers' total mortgage remains the same or even increases. … Rising debt-service payments will further divert income from new consumer spending. Taken together, these factors will further shrink the “real†economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagnation or worse." Factors that could contribute to rising rates are the U.S. national debt, inflationary pressure caused by such factors as increased fuel and housing costs, and changes in foreign investments in the U.S. economy. The Fed raised rates 17 times, increasing them from 1% to 5.25%, between 2004 and 2006. ''BusinessWeek'' magazine called the option ARM "the riskiest and most complicated home loan product ever created" and warned that over one million borrowers took out $466 billion in option ARMs in 2004 through the second quarter of 2006, citing concerns that these financial products could hurt individual borrowers the most and "worsen the [housing] bust."[99] To address the problems arising from "liar loans", the Internal Revenue Service updated an income verification tool used by lenders to make confirmation of borrower's claimed income to be faster and easier. In April 2007, financial problems similar to the subprime mortgages began to appear with Alt-A loans made to homeowners who were thought to be less risky; the delinquency rate for Alt-A mortgages has been rising in 2007. The manager of the world's largest bond fund PIMCO, warned in June 2007 that the subprime mortgage crisis was not an isolated event and will eventually take a toll on the economy and whose ultimate impact will be on the impaired prices of homes.[100]
National bubble or local bubbles?
Inflation-adjusted housing prices in the United States by state, 1998-2006.
Home price appreciation has been non-uniform to such an extent that some economists, including Alan Greenspan, have argued that United States did not have a nationwide housing bubble per se, but rather a number of local bubbles. [101] Despite greatly relaxed lending standards and low interest rates, many regions of the country have seen very little growth during the "bubble period". Out of 20 largest metropolitan areas tracked by S&P/Case-Shiller house price index, six (Dallas, Cleveland, Detroit, Denver, Atlanta, and Charlotte) have seen less than 10% price growth in inflation-adjusted terms in 2001-2006.[102] Seven metropolitan areas (Tampa, Miami, San Diego, Los Angeles, Las Vegas, Phoenix, and Washington DC) have appreciated more than 80% in the same period of time.
Furthermore, housing bubble did not manifest itself in each one of these seven areas at the same time. San Diego and Los Angeles maintained consistently high appreciation rates since late 1990's. Las Vegas and Phoenix didn't develop a bubble until 2003 and 2004, respectively.
Somewhat paradoxically, as the bubble deflates, [103] some metropolitan areas (such as Denver and Atlanta) are experiencing high foreclosure rates, even though they didn't record much house appreciation in the first place, and, therefore, did not appear to be part of the national bubble.
Side effects
Unprecedented runup in house prices between 1997 and 2005 had a number of wide ranging effects on the economy of the United States.
★ One of the most direct effects was on construction of new houses. In 2005, 1,283 thousand new single-family houses were sold, compared with an average of 609 thousand per year during 1990-1995. [104] Largest home builders, such as D. R. Horton, Pulte, and Lennar, saw their largest share prices and revenues in 2004-2005. D. R. Horton's stock went from $3 in early 1997 to all-time high of $42.82 on July 20th, 2005. Pulte Corp's revenues grew from $2.33 billion in 1996 to $14.69 billion in 2005.[105][106]
[107]
★ Mortgage equity withdrawals - primarily home equity loans and cash-out refinancings - grew considerably since early 1990's. According to estimates by US Federal Reserve, in 2005, homeowners extracted $750 billion from equity of their homes (up from $106 billion in 1996), spending two thirds of it on personal consumption, home improvements, and credit card debt.[108]
★ It is widely believed that increased economic activity caused by expanding housing bubble in 2001-2003 was partly responsible for prevention of full-scale recession in U.S. economy following dot-com bust.[109]
★ Rapidly growing house prices and increasing price gradients forced many residents to flee expensive centers of many metropolitan areas, resulting in explosive growth of exurbs in some regions. Population of Riverside County, California almost doubled from 1,170,413 in 1990 to 2,026,803 in 2006, due to its relative proximity to San Diego and Los Angeles. On the East Coast, Loudoun County, Virginia, near Washington, DC, saw its population triple between 1990 and 2006.
Real estate market correction of 2006-2007 resulted in reversal of these trends. As of August 2007, D.R.Horton's and Pulte Corp's shares are down to 1/3 of their respective peaks. Annual new residential home sales are down (but did not fall to pre-bubble levels yet). Some cities and regions that experienced fastest growth during 2000-2005 are now showing high foreclosure rates. It is sometimes claimed that weakness in housing industry and loss of mortgage equity withdrawal driven consumption will eventually result in recession, but so far this recession has not materialized. [110]
Housing market correction
Main articles: United States housing market correction
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Comparison the percentage change of the Case-Shiller Home Price Index for the housing correction beginning in 2005 (red) and the 1980s–1990s correction (blue), comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.
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NAR chief economist David Lereah's Explanation of "What Happened" from the 2006 NAR Leadership Conference[111]
★ Boom ended August 2005
★ Mortgage rates rose almost one point
★ Affordability conditions deteriorated
★ Speculative investors pulled out
★ Homebuyer confidence plunged
★ Resort buyers went to sidelines
★ Trade-up buyers to sidelines
★ First-time buyers priced out of market
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Based on the historic trends in valuations of U.S. housing,[112] many economists and business writers have predicted a market correction, ranging from a few percentage points, to 50% or more from peak values in some markets,[113][114][115][116][117] and, in spite of the fact that this cooling has not affected all areas of the U.S., some have warned that it could and that the correction would be "nasty" and "severe".[118][119] Chief economist Mark Zandi of the investor service Moody's predicted a "crash" of double-digit depreciation in some U.S. cities by 2007–2009.[120][121] In a paper presented at a Federal Reserve Board economic symposium in August 2007, Yale University economist Robert Shiller warned, “the examples we have of past cycles indicate that major declines in real home prices—even 50 percent declines in some places—are entirely possible going forward from today or from the not too distant future.â€
Bubble bursts
The booming housing market appears to have halted abruptly for many parts of the U.S. in late summer of 2005, and as of summer 2006, several markets are facing the issues of ballooning inventories, falling prices, and sharply reduced sales volumes. In August 2006, ''Barron's'' magazine warned, "a housing crisis approaches", and noted that the median price of new homes has dropped almost 3% since January 2006, that new-home inventories hit a record in April and remain near all-time highs, that existing-home inventories are 39% higher than they were just one year ago, and that sales are down more than 10%, and predicts that "the national median price of housing will probably fall by close to 30% in the next three years … simple reversion to the mean." ''Fortune'' magazine labelled many previously strong housing markets as "Dead Zones;" other areas are classified as "Danger Zones" and "Safe Havens." ''Fortune'' also dispelled "four myths about the future of home prices." In Boston, year-over-year prices are dropping,[122] sales are falling, inventory is increasing, foreclosures are up, and the correction in Massachusetts has been called a "hard landing".[123]
The previously booming housing markets in Washington DC, San Diego CA, Phoenix AZ, and other cities have stalled as well.[124][125] Searching the Arizona Regional Multiple Listing Service (ARMLS) shows that in summer 2006, the for-sale housing inventory in Phoenix has grown to over 50,000 homes, of which nearly half are vacant (see graphic).[126] Several home builders have revised their forecasts sharply downward during summer 2006, e.g., D.R. Horton cut its yearly earnings forecast by one-third in July 2006,[127] the value of luxury home builder Toll Brothers' stock fell 50% between August 2005 and August 2006,[128] and the Dow Jones U.S. Home Construction Index was down over 40% as of mid-August 2006.[129] CEO Robert Toll of Toll Brothers explained, "builders that built speculative homes are trying to move them by offering large incentives and discounts; and some anxious buyers are canceling contracts for homes already being built."[130] Homebuilder Kara Homes, known for their construction of "McMansions", announced on 13 September 2006 the "two most profitable quarters in the history of our company", yet filed for bankruptcy protection less than one month later on 6 October.[131] Six months later on 10 April 2007, Kara Homes sold unfinished developments, causing prospective buyers from the previous year to lose deposits, some of whom put down more than $100,000.[132]
As the housing market began to soften in winter 2005 through summer 2006,[133][134] NAR chief economist David Lereah predicted a "soft landing" for the market.[135] However, based on unprecedented rises in inventory and a sharply slowing market throughout 2006, Leslie Appleton-Young, the chief economist of the California Association of Realtors, said that she is not comfortable with the mild term "soft landing" to describe what is actually happening in California's real estate market.[136] The ''Financial Times'' warned of the impact on the U.S. economy of the "hard edge" in the "soft landing" scenario, saying "A slowdown in these red-hot markets is inevitable. It may be gentle, but it is impossible to rule out a collapse of sentiment and of prices. … If housing wealth stops rising … the effect on the world's economy could be depressing indeed."[137]
"It would be difficult to characterize the position of home builders as other than in a hard landing", said Robert Toll, CEO of Toll Brothers.[138] Angelo Mozilo, CEO of Countrywide Financial, said "I've never seen a soft-landing in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen."[139] Following these reports, Lereah admitted that "he expects home prices to come down 5% nationally", and said that some cities in Florida and California could have "hard landings." National home sales and prices both fell dramatically again in March 2007 according to NAR data, with sales down 13% to 482,000 from the peak of 554,000 in March 2006 and the national median price falling nearly 6% to $217,000 from the peak of $230,200 in July 2006 . The plunge in existing-home sales is the steepest since 1989 . The new home market is also suffering. The biggest year over year drop in median home prices since 1970 occurred in April of 2007. Median prices for new homes fell 10.9 percent according to the Commerce Department.[140]
Based on slumping sales and prices in August 2006, economist Nouriel Roubini warned that the housing sector is in "free fall" and will derail the rest of the economy, causing a recession in 2007. Joseph Stiglitz, winner of the Nobel Prize in economics in 2001, agreed, saying that the U.S. may enter a recession as house prices decline.[141] The extent to which the economic slowdown, or possible recession, will last depends in large part on the resiliency of the U.S. consumer spending, which now makes up approximately 70% of the US$13.7 trillion economy. The evaporation of the wealth effect amid the current housing downturn could negatively affect the consumer confidence and provide further headwind for the U.S. economy and that of the rest of the world. The World Bank recently lowered the global economic growth rate due to a housing slowdown in the United States, but it does not believe that the U.S. housing malaise will further spread to the rest of the world. The Fed chairman Benjamin Bernanke said in October 2006 that there is currently a "substantial correction" going on in the housing market and that the decline of residential housing construction is one of the "major drags that is causing the economy to slow"; he predicted that the correcting market will decrease U.S. economic growth by about one percent in the second half of 2006 and remain a drag on expansion into 2007.[142]
Others speculate on the negative impact of the retirement of the Baby Boom generation and the relative cost to rent on the declining housing market.[143][144] In many parts of the United States, it is significantly cheaper to rent the same property than to purchase it; the national median mortgage payment is $1,687 per month, nearly twice the median rent payment of $868 per month.
Subprime mortgage industry collapse
Federal Reserve Open Market Purchases of Repo Mortgage Backed Securities (MBS), 2000–2007. After the Federal Reserve Board's low-interest rate policies first contributed to inflating the bubble between 2001–2005, then higher rates and sharply increased foreclosures caused a crisis in the the mortgage and credit markets, the Fed purchased an unprecedented US$38 billion dollars of mortgage-backed securities on 10 August 2007 in an effort to inject money and to calm the markets falling in response to concerns about this crisis. Source: New York Federal Reserve.
In March 2007, the United States' subprime mortgage industry collapsed due to higher-than-expected home foreclosure rates, with more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale. The stock of the country's largest subprime lender, New Century Financial, plunged 84% amid Justice Department investigations, before ultimately filing for Chapter 11 bankruptcy on 2 April 2007 with liabilities exceeding $100 million.[145] The manager of the world's largest bond fund PIMCO, warned in June 2007 that the subprime mortgage crisis was not an isolated event and will eventually take a toll on the economy and whose ultimate impact will be on the impaired prices of homes. Bill Gross, "a most reputable financial guru", sarcastically and ominously criticized the credit ratings of the mortgage-based CDOs now facing collapse:
AAA? You were wooed Mr. Moody’s and Mr. Poor’s, by the makeup, those six-inch hooker heels, and a “tramp stamp.†Many of these good looking girls are not high-class assets worth 100 cents on the dollar. … [T]he point is that there are hundreds of billions of dollars of this toxic waste … This problem [ultimately] resides in America’s heartland, with millions and millions of overpriced homes[.][146]
Financial analysts predict that the subprime mortgage market meltdown will result in earnings reductions for large Wall Street investment banks trading in mortgage-backed securities, especially Bear Stearns, Lehman Brothers, Goldman Sachs, Merrill Lynch, and Morgan Stanley. The solvency of two troubled hedge funds managed by Bear Stearns was imperiled in June 2007 after Merrill Lynch sold off assets seized from the funds and three other banks closed out their positions with them. The Bear Stearns funds once had over $20 billion of assets, but lost billions of dollars on securities backed by subprime mortgages.[147] H&R Block reported that it made a quarterly loss of $677 million on discontinued operations, which included subprime lender Option One, as well as writedowns, loss provisions on mortgage loans and the lower prices available for mortgages in the secondary market for mortgages. The units net asset value fell 21% to $1.1 billion as of April 30 2007.[148] The head of the mortgage industry consulting firm Wakefield Co. warned, "This is going to be a meltdown of unparalleled proportions. Billions will be lost." Bear Stearns pledged up to US$3.2 billion in loans on 22 June 2007 to bail out one of its hedge funds that was collapsing because of bad bets on subprime mortgages.[149] Peter Schiff, president of Euro Pacific Capital, argued that if the bonds in the Bear Stearns funds were auctioned on the open market, much weaker values would be plainly revealed. Schiff added, "This would force other hedge funds to similarly mark down the value of their holdings. Is it any wonder that Wall street is pulling out the stops to avoid such a catastrophe? … Their true weakness will finally reveal the abyss into which the housing market is about to plummet."[150] The ''New York Times'' report connects this hedge fund crisis with lax lending standards: "The crisis this week from the near collapse of two hedge funds managed by Bear Stearns stems directly from the slumping housing market and the fallout from loose lending practices that showered money on people with weak, or subprime, credit, leaving many of them struggling to stay in their homes."
On 9 August 2007 BNP Paribas announced that it could not fairly value the underlying assets in three funds as a result of exposure to U.S. subprime mortgage lending markets.[151] Faced with potentially massive (though unquantifiable) exposure, the European Central Bank (ECB) immediately stepped in to ease market worries by opening lines of €96.8 billion (US$130 billion) in low-interest credit.[152] One day after the financial panic about a credit crunch swept through Europe, U.S. Federal Reserve Bank conducted an "open market operation" to inject US$38 billion in temporary reserves into the system to help overcome the ill effects of a spreading credit crunch, on top of a similar move the day before.[153] In order to further ease the credit crunch in the U.S. credit market, the chairman of the Federal Reserve Bank Ben Bernanke decided to lower the discount window rate, which is the lending rate between banks and the Federal Reserve Bank, by 50 basis points to 5.75% from 6.25% at 8:15 a.m. on August 17, 2007. The Federal Reserve Bank stated that the recent turmoil in the U.S. financial markets raised the risk of an economic downturn.
In the wake of the mortgage industry meltdown, Senator Chris Dodd, Chairman of the Banking Committee held hearings in March 2007 and asked executives from the top five subprime mortgage companies to testify and explain their lending practices; Dodd said, "predatory lending practices" endangered the home ownership for millions of people. Moreover, Democratic senators such as Senator Charles Schumer of New York are already proposing a federal government bailout of subprime borrowers in order to save homeowners from losing their residences. Opponents of such proposal assert that government bailout of subprime borrowers is not in the best interests of the U.S. economy because it will simply set a bad precedent, create a moral hazard, and worsen the speculation problem in the housing market. Lou Ranieri of Salomon Brothers, inventor of the mortgage-backed securities market in the 1970s, warned of the future impact of mortgage defaults: "This is the leading edge of the storm. … If you think this is bad, imagine what it's going to be like in the middle of the crisis." In his opinion, more than $100 billion of home loans are likely to default when the problems in the subprime industry appear in the prime mortgage markets.[154] Fed Chairman Alan Greenspan praised the rise of the subprime mortgage industry and the tools which it uses to assess credit-worthiness in an April 2005 speech.[155] Because of these remarks, along with his encouragement for the use of adjustable-rate mortgages, Greenspan has been criticized for his role in the rise of the housing bubble and the subsequent problems in the mortgage industry.[156][157]
Alt-A mortgage problems
American Home Mortgage (AMH) Stock Price and Volume History, 2007. American Home Mortgage, the 10th largest retail mortgage lender in the United States, filed for bankruptcy in August 2007.
Subprime and Alt-A (including "stated income" or "liar's loans" which are basically loans made to home buyers without the verification of borrowers' incomes; home buyers tend to overstate their incomes in order to get the loan amounts they desire to purchase their dream homes, thus called the "liar's loans") loans account for about 21 percent of loans outstanding and 39 percent of mortgages made in 2006.[158] In April 2007, financial problems similar to the subprime mortgages began to appear with Alt-A loans made to homeowners who were thought to be less risky. American Home Mortgage said that it would earn less and pay out a smaller dividend to its shareholders because it was being asked to buy back and write down the value of Alt-A loans made to borrowers with decent credit; causing company stocks to tumble 15.2 percent. American Home Mortgage filed for bankruptcy in August 2007.[159] The delinquency rate for Alt-A mortgages has been rising in 2007. In June 2007, Standard & Poor's warned that U.S. homeowners with good credit are increasingly falling behind on mortgage payments, an indication that lenders have been offering higher risk loans outside the subprime market; they said that rising late payments and defaults on Alt-A mortgages made in 2006 are "disconcerting" and delinquent borrowers appear to be "finding it increasingly difficult to refinance" or catch up on their payments.[160] Late payments of at least 90 days and defaults on 2006 Alt-A mortgages have increased to 4.21 percent, up from 1.59 percent for 2005 mortgages and 0.81 percent for 2004, indicating that "subprime carnage is now spreading to near prime mortgages."
Foreclosure rates increase
The 30-year mortgage rates increased by more than a half a percentage point to 6.74 percent during May–June 2007, affecting borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the NAR reported that supply of unsold homes is at a record 4.2 million. Goldman Sachs and Bear Stearns, respectively the world's largest securities firm and largest underwriter of mortgage-backed securities in 2006, said in June 2007 that rising foreclosures reduced their earnings and the loss of billions from bad investments in the subprime market imperiled the solvency of several hedge funds. Mark Kiesel, executive vice president of a California-based Pacific Investment Management Co. said,
It's a blood bath. … We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.[161]
Government bailouts
Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President Bush and Fed Chairman Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners unable to pay their mortgage debts on 31 August 2007. Mr. Bush said that his administration wished to alleviate the subprime mortgage crisis by "helping people who have good credit but who have not made all of their payments on time because of rising mortgage payments."[162] However, homeowners with subprime loans have poor credit by definition; therefore, the immediate intent and scope of Bush's announced plan is not entirely clear.
See also
★ 2007 Subprime mortgage financial crisis
★ Subprime lending
★ Subprime Mortgage Meltdown
★ Mortgage loan
★ Real estate bubble
★ List of entities involved in 2007 finance crises
★ 'The world housing bubble'
★
★ British property bubble
★
★ Chinese property bubble
★
★ Indian property bubble
★
★ Irish property bubble
★
★ Japanese asset price bubble
★
★ New Zealand property bubble
★
★ Russian property bubble
★
★ Spanish property bubble
★ Economic bubble
★ dot-com bubble
★ Real estate pricing
★ Real estate appraisal
★ Real estate economics
★ Real estate trends
★ Creative Real Estate Investing
★ Deed in lieu of foreclosure
★ Foreclosure consultant
★ Debt-based monetary system
References and notes
These references and endnotes contain quotations from the sources cited above, using ''The Chicago Manual of Style''’s format.[163]
1. Home $weet Home
2. The Pin That Bursts The Housing Bubble
3. PBS’s Bill Moyers interview with the ''New York Times'' Gretchen Morgenson: "We're just starting to see … the shaky ground that is the result of [the] was excessive amounts of loans made to people who could not afford them and excessive amounts of money thrown into the mortgage arena by investors who were very eager for high-yielding investments. I think it was a mania. It fed the real estate mania, the real estate bubble in many parts of the country.
BILL MOYERS: Is it conceivable to you that Bear Stearns and some of these other firms could trigger, in fact, a meltdown, a falling domino all the way through the economic cycle that everybody would be affected by this?
GRETCHEN MORGENSON: Well, I think the economy is already being affected by it, Bill, because real estate has been such a driver. The increase in home prices was such a driver of the economy for so long. You know, people were withdrawing equity from their homes. As they saw the value of their homes go up, they were taking them out. They were using them like an ATM[.] … You're seeing it in the home builder stocks that are down. You're seeing it in Home Depot, companies like that that are not having the revenues and earnings that they did because people are not [buying]. … [I]t's already started to affect the economy in the overall. …
GRETCHEN MORGENSON: The lender in the old days kept the loan on the balance sheet, had an interest in seeing that it was repaid. Now this lender sells it to someone else. Not his problem anymore. Gets the money back to make another loan. The lenders now are more interested in earning the fees associated with the mortgages, which are extremely lucrative. And they have no credit risk because they have pawned off the loan on somebody else; it's somebody else's problem. That helped to feed this mania for mortgage securities that then played into this idea of giving a mortgage to anybody who was ambulatory."
4. A prediction of a correction in the housing market, possibly after the "fall" of 2005, is implied by ''The Economist'' magazine's cover story for the article "After the fall", which illustrates a brick falling, with the label "House Prices": . After the fall: Soaring house prices have given a huge boost to the world economy. What happens when they drop?
5. Subprime shockwaves
6. Lender Sees Mortgage Woes for ‘Good’ Risks
7. "The crux of the debate is house prices.
.png)
Distribution of U.S. Median Home Values
If the inflated prices are justified by economic fundamentals and sustainable, then the 82 percent increase in mortgage debt since 2000 will probably turn out to be innocuous and the risks to the economy minimal. If, on the other hand, prices are out of whack, painful adjustments lie ahead. Unfortunately, the weight of the evidence strongly suggests a bubble. The price of the median home is up an inflation-adjusted 50 percent during the last five years, an unprecedented national increase. … Just as cheerleaders of the high-tech bubble of the late 1990s developed ever more creative explanations for why traditional metrics of valuing stocks no longer applied, the same has been true during the housing bubble. Housing bulls point to immigration, building restrictions, Baby Boomer demand for second homes, and other seemingly plausible justifications for skyrocketing home prices. But examining the value of housing using time-tested and common-sense metrics such as price-to-income and price-to-rent ratios suggest the gains in the bubble areas can't be explained by economic fundamentals. … People are buying in the face of sky-high prices because they've seen so many of their friends or relatives make a fortune in real estate; besides (they tell themselves), everyone knows real estate prices never fall. As with the stock market during the tech bubble, many are basing purchasing decisions not on underlying economic value, but on what they think they can sell a property for in the future—the very definition of a speculative bubble. … Even flat home prices would therefore slow economic growth unless other parts of the economy rapidly accelerate. But a hard landing—meaning a recession—is a real risk. If home prices fall modestly, millions of homeowners will see their equity wiped out. Many of those with the least amount of equity, as we've already shown, are going to face significant increases in their monthly payments. So what has been a virtuous but unsustainable cycle for the economy—higher home prices, more borrowing against home equity, higher spending, increased job creation, even higher home prices—could easily reverse and become a vicious cycle—higher monthly payments, declining home prices, less spending, job losses, foreclosures, even lower home prices." Housing Bubble Trouble: Have we been living beyond our means?
8. Bush Moves to Aid Homeowners
9. Understanding Recent Trends in House Prices and Home Ownership Robert J. Shiller
10. Intended federal funds rate, Change and level, 1990 to present
11. S&P/Case-Shiller house price index
12. Dow-Jones historical prices
13. Clinton proposes crackdown in mortgage market
14. Countrywide Taps .5 Billion Credit Line From Banks
15. Ameriquest closes, Citigroup buys mortgage assets
16. Bush Picks Ameriquest Owner as Ambassador: Firm's Lending Tactics Investigated
17. Fed, Blamed for Asset-Price Inaction, Is Told `Tide Is Turning'
18. Ultra-low Fed rates stoked US housing boom—Taylor
19. Fed Misread Housing, Gets `F' for Policy Failures, Leamer Says
20. “The examples we have of past cycles indicate that major declines in real home prices—even 50 percent declines in some places—are entirely possible going forward from today or from the not too distant future.†Two top US economists present scary scenarios for US economy; House prices in some areas may fall as much as 50% - Housing contraction threatens a broader recession
21. "People in much of the world are still overconfident that the stock market, and in many places the housing market, will do extremely well, and this overconfidence can lead to instability. Significant further rises in these markets could lead, eventually, to even more significant declines. The bad outcome could be that eventual declines would result in a substantial increase in the rate of personal bankruptcies, which could lead to a secondary string of bankruptcies of financial institutions as well. Another long-run consequence could be a decline in consumer and business confidence, and another, possibly worldwide, recession. This extreme outcome—like the situation in Japan since 1990 writ large—is not inevitable, but it is a much more serious risk than is widely acknowledged." Irrational Exuberance (2d ed.), , Robert, Shiller, Princeton University Press, 2005, ISBN 0-691-12335-7
22. "[A]lthough home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value. Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The bubble will burst, and when it does, the people who thought they would be living the easy life of a landlord will soon find that what they really signed up for was the hard servitude of debt serfdom. … America holds record mortgage debt in a declining housing market. Even ''that'' at first might seem okay—we can just weather the storm in our nice new houses. And in fact things ''will'' be okay for homeowners who bought long ago and have seen the price of their homes double and then double again. But for more recent homebuyers, who bought at the top and who now face decades of payments on houses that soon will be worth less than they paid for them, serious trouble is brewing. And they are not an insignificant bunch. The problem for recent home-buyers is not just that prices are falling; it's that prices are falling even as the buyers' total mortgage remains the same or even increases. Eventually the price of the house will fall ''below'' what homeowners owe, a state that economists call negative equity. They can't sell—the declining market price won't cover what they owe the bank—but they still have to make those (often growing) monthly payments. Their only “choice†is to cut back spending in other areas or lose the house—and everything they paid for it—in foreclosure. Free markets are based on choice. But more and more homeowners are discovering that what they got for their money is fewer and fewer choices. A real estate boom that began with the promise of “economic freedom†will almost certainly end with a growing number of workers locked into a lifetime of debt servitude that absorbs every spare penny. … Rising debt-service payments will further divert income from new consumer spending. Taken together, these factors will further shrink the “real†economy, drive down those already declining real wages, and push our debt-ridden economy into Japan-style stagnation or worse. Then only the debt itself will remain, a bitter monument to our love of easy freedom." The New Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse Michael Hudson
23. "This soft-landing scenario is a fantasy. … Anything housing-related is going to feel like a recession, almost like a depression." Is economy headed to a soft landing? Ed Leamer
24. "No question about it, the housing downturn is here now, and it's big." New home sales continue to fall Jim Hamilton
25. Bloomberg Interview of Robert Shiller Robert Shiller
26. "A lot of spin is being furiously spinned around–often from folks close to real estate interests–to minimize the importance of this housing bust, it is worth to point out a number of flawed arguments and misperception that are being peddled around. You will hear many of these arguments over and over again in the financial pages of the media, in sell-side research reports and in innumerous TV programs. So, be prepared to understand this misinformation, myths and spins." Eight Market Spins About Housing by Perma-Bull Spin-Doctors … And the Reality of the Coming Ugliest Housing Bust Ever … Nouriel Roubini
27. "The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops." In come the waves: The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.
28. President George W. Bush was asked about the housing boom's impact on the ability of the questioner's children to purchase a home. The President answered "… If houses get too expensive, people will stop buying them, which will cause people to adjust their spending habits. … Let the market function properly. I guarantee that your kind of question has been asked throughout the history of homebuilding—you know, prices for my homes are getting bid up so high that I'm afraid I'm not going to have any consumers—or my kid—and yet, things cycle. That's just the way it works. Economies should cycle." President Highlights Importance of Small Business in Economic Growth George W. Bush
29. "The number of Bay State homeowners falling into foreclosure has shot up 56 percent—and more than doubled in parts of Eastern Massachusetts. … Things are even worse in much of Greater Boston. Foreclosure.com said filings rose 102.4 percent in Plymouth County, 72 percent in Bristol County, 65.2 percent in Worcester County and 63.1 percent in Suffolk County. Statewide, foreclosures have risen more than 50 percent from year-earlier levels for three straight months. ForeclosuresMass.com President Jeremy Shapiro attributed the increases to a combination of “soaring energy costs … our slumping housing market and tightening economy—with no end in sight.†He particularly noted that Massachusetts home sales have cooled at a time when mortgage rates have risen. That means homeowners in jams—say, someone whose adjustable—rate mortgage’s interest rate has shot up—are often unable to either refinance or sell." Mass. home foreclosures rise quickly
30. "This is the biggest housing slump in the last four or five decades: every housing indicator is in free fall, including now housing prices." Recession will be nasty and deep, economist says: Housing is in a free fall and is pulling the economy down with it, Roubini says Nouriel Roubini
31. "We have enough data at this point (lower sales, rising inventories, falling median prices) that I feel confident in saying that the crash has begun. We don't yet know the speed of the decline or the full repercussions in terms of the financial havoc or the extent of the economic downturn.
Of course, the housing crash, like the stock crash, was entirely predictable. Housing prices had never risen like this in the past and NO ONE has identified anything that made the period after 1996 different from the period prior to 1996. The press can be given a bit of a pass on this one—as with the stock bubble, most of the blame lies with my profession. In both cases, economists were more worried about the possibility that we might have to raise Social Security taxes in 50 years or tariffs on imported shirts, than trillions of dollars of paper wealth disappearing with the collapse of a financial bubble. … [F]inancial bubbles can have an enormous impact on the economy, as Japan has demonstrated over the last 15 years. Most economists like to pretend bubbles don't exist. The fact is that they do exist, and any economist who can't recognize a multi-trillion dollar bubble staring them in the face does not deserve to be taken seriously.
One final point: the crash of the housing bubble will not be pretty. Millions of people stand to lose their home and/or their life savings. However, it was inevitable. The bubble created a fantasy world that could not continue. At the peak of the bubble, 160,000 people a week were buying a home, most at bubble inflated prices. The longer the bubble persists, the larger the group of people who paid way too much for their home. While it is not good that so many dreams had to be ruined, the number will be even larger if the bubble deflates slowly. So I make no apologies about hoping for the hasty demise of the housing bubble." The Slow Motion Train Wreck Dean Baker
32. "Welcome to the dead zone: The great housing bubble has finally started to deflate, and the fall will be harder in some markets than others." This article classified several U.S. real-estate regions as "Dead Zones", "Danger Zones", and "Safe Havens."
| "Dead Zones" | "Danger Zones" | "Safe Havens" |
|---|---|---|
| Boston | Chicago | Cleveland |
| Las Vegas | Los Angeles | Columbus |
| Miami | New York | Dallas |
| Washington D.C. / Northern Virginia | San Francisco / Oakland | Houston |
| Phoenix | Seattle | Kansas City |
| Sacramento | Omaha | |
| San Diego | Pittsburgh |
Welcome to the Dead Zone
33. Housing Bubble—or Bunk? Are home prices soaring unsustainably and due for plunge? A group of experts takes a look—and come to very different conclusions
34. "By 2005, nominal house prices were rising at their fastest pace since 1978. Inflation-adjusted prices were up 9.4 percent, the largest increase in more than 40 years of recordkeeping. It is no surprise, then, that media reports of a housing bubble reached a fever pitch last year. … [W]hen and if house prices do fall, the so-called bubble is more likely to deflate slowly rather than burst suddenly. History suggests that appreciation eases for a year or two before prices come down in nominal terms. While dips of a few percentage points are common, nominal house prices rarely drop by 10 percent or more. Still, over the past 30 years, nominal house prices have in fact fallen by five percent or more at least once in about half of the nation’s 75 largest metros. In most cases, it takes significant job losses—or a combination of overbuilding, modest job losses and population outflows—to drive house prices down substantially. In terms of magnitude, price declines associated with episodes of major job losses alone average 4.5 percent, while those occurring in and around periods of overbuilding alone average 8.3 percent (Figure 11). While low interest rates certainly helped, house prices probably continued to appreciate throughout the last recession simply because these two conditions were absent." The State of the Nation's Housing 2006
35. "The headline hints of catastrophe: a dot-com repeat, a bubble bursting, an economic apocalypse. Cassandra, though, can stop wailing: the expected price corrections mark a slowing in the rate of increase - not a precipitous decline. This will not spark a chain reaction that will devastate homeowners, builders and communities. Contradicting another gloomy seer, Chicken Little, the sky is not falling." The housing wail Nicolas Retsinas
36. "Why would [Retsinas and the Harvard JCHS] pump out to the press a defense of the bubble without a single, salient data point to back it up? What's the motive? I think the answer might be found in the cozy relationship between Harvard's JCHS and the home-building, -selling, and -supply industry. Take a look at the "policy advisory board" at the JCHS. It just happens to be made up of a few dozen companies with an enormous financial stake in the continuation of the housing bubble, like Centex (NYSE: CTX), scandal-plagued Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM), and UBS (NYSE: UBS). Oh please. Don't be shocked. You knew something like this was coming, didn't you? Well, it gets even better: These companies are also cutting checks to the JCHS. … I've got a message into Harvard to find out just how much dough is changing hands here. If it's much more than a pittance, I consider that an interesting—and by interesting, I mean scandalous—conflict of interest." Harvard Hypes Housing, but Why?
37. Anti-Bubble Reports David Lereah
38. Housing Bubble Prospects Q&A
39. Getting real about the real estate bubble: Fortune's Shawn Tully dispels four myths about the future of home prices Shawn Tully
40. Housing market may be on ice, but the blame market is red hot
41. Existing home sales drop 4.1% in July, median prices drop in most regions David Lereah
42. Existing Home Sales See Highest Monthly Drop Since 1989
43. U.S. Mortgages Enter Foreclosure at Record Pace, by Kathleen Howley
44. Rising Foreclosures Flood Detroit Market
45. Lawmakers to probe housing "bubble", mortgages Streaming video is available at the "Paper-Money" blog for both the hearings of "The Housing Bubble and its Implications for the Economy" and "Calculated Risk: Assessing Non-Traditional Mortgage Products."
46. Top five US subprime lenders asked to testify -Dodd
47. A derivation is provided at usenet's sci.math FAQ.
48. "Economists reckon that the rental value of a house closely follows the trends for apartment rents in the same area. Both are tied to the underlying economics. If a region creates a slew of jobs and companies boost wages, rents climb. Ditto house prices.
One way to look at the economics of your home is to use what we'll call a price-to-annual-rent ratio (or P/R), the rough equivalent of a price/earnings ratio for a stock. Like stock P/Es, they hew toward long-term averages. But also like P/Es, P/Rs can defy gravity and reason. Prices sometimes jump far faster than underlying rents, driving P/R multiples to extremely high levels. Danger looms when future rents look as if they can't grow fast enough to satisfy the market's Brobdingnagian expectations.
That's precisely what has happened. The P/R multiple is extremely high both by historical standards and compared with ratios for apartment buildings. Over the years P/Rs for both single-family dwellings and larger rental structures have averaged between 11 and 12. Since the beginning of the boom in '98, however, when both stood near 11, P/Rs for houses have blown ahead of those for apartment buildings. Rental P/Rs rose sharply with the strong economy, then fell with the recession. As rents dropped or leveled off, apartment prices cooled but kept the gains they'd registered from 1998 to 2001. Their multiples rose from 11 to around 13 in most markets.
By contrast, houses totally broke loose from the pull of falling rents. Prices just kept skyrocketing. Since 1998, P/Rs in the 20 hottest markets, including San Diego, Los Angeles, Denver, Boston, and New York City, have jumped, on average, from 11 to 20—an incredible 82%." The New Home Economics: With heavier mortgage and tax rates looming, your one can't-miss investment—your house—may soon be worth less than you're counting on Shawn Tully
49. "At a minimum, there's a little froth [in the U.S. housing market] … It's hard not to see that there are a lot of local bubbles." Greenspan Calls Home-Price Speculation Unsustainable Alan Greenspan
50. "[T]he American housing boom is now the mother of all bubbles—in sheer volume, if not in degrees of speculative madness." No mercy now, no bail-out later
51. "Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement. … People go crazy in economics periodically, in all kinds of ways … when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences." The oracle speaks: Warren Buffett and Charles Munger warn of real estate 'bubble,' the risk of terrorist nukes. Warren Buffett
52. "Soros said he believed the U.S. housing bubble, a major factor behind strong U.S. consumption, had reached its peak and was in the process of being deflated." The oracle speaks: Warren Buffett and Charles Munger warn of real estate 'bubble,' the risk of terrorist nukes. George Soros
53. "Lately, I have been asked if we are in a real estate bubble. My answer is, ‘Duh!’ In my opinion, this is the biggest real estate bubble I have ever lived through. Next, I am asked, ‘Will the bubble burst?’ Again, my answer is, ‘Duh!’" All Booms Bust Robert Kiosaki
54. Don't Buy That House
55. "To accommodate the demand for real estate licenses, the DRE conducted numerous "mega-exams" in which thousands of applicants took the real estate license examination. … “The level of interest in real estate licensure is unprecedentedâ€" New record: Nearly a half-million real estate licenses
56. Fact Sheet: America's Ownership Society: Expanding Opportunities
57. "The financial reasons for renting instead of buying are the strongest they've been in 25 years. … What's alarming this time is that interest rates are still historically low. That means rents need to go up, and home prices to come down in some areas, for the balance to be regained. And that may be a painful process that takes between a year to 18 months. The market was thrown out of kilter during the five-year real estate boom. Renters stampeded at the sight of an "open house" sign, trying to buy anything they could afford. Prices soared by 40%, and by even more along the coasts and in such places as Las Vegas and Phoenix. Landlords couldn't raise rents as fast, so many apartment owners simply gave up and converted their buildings into condos for sale. … The national median mortgage payment is ,687 a month, nearly twice the median rent payment of 8 a month. The financial gap is even larger in cities where home prices recently rose to sky-scraping heights, such as New York, San Francisco, Los Angeles and Washington. … Add rising interest rates, and it's easy to see why many would-be home buyers are sitting on the sidelines and why even some homeowners are cashing out. By renting, they gain the flexibility of a lease and freedom from home repairs. They can also invest more money in stocks, bonds and other assets that could appreciate faster than real estate over the next couple of years. “For someone debating whether to rent or buy in a market that's experienced recent and substantial house-price run-up, it may be better to delay the home purchase and see what the market looks like a year or two down the road.â€" For some, renting makes more sense
58. "There's nothing funnier or more satisfying (for me, at least) than watching the National Association of Realtors (NAR) change its tune these days. The latest news release from this sunny-Jim industry group finally fesses up to its past fiction, but even when it admits the bubble's going to pop, it can't muster the courage to just come out and say it. … the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well. … [T]he cracks began to show in subsequent remarks from former NAR 'Chief Economist' David Lereah. The head outfit that ridiculed the idea of a housing bubble for years is now crying for Ben Bernanke to bring it back. … The real problem here isn’t the NAR, of course. You have to expect these people to spin the facts for their industry. No, the real problem here is the uncritical press out there, which is all too happy to pepper every contrary indicator or bearish remark with an NAR official’s informed-sounding bubble denial. Never mind if what the NAR folks are saying doesn't seem to make sense (or contradicts what they said just a few months back). … It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking." I want my bubble back
59. , plot of Massachusetts Single Family Home Inflation Adjusted Median Prices, 2003–2006, from publically available U.S. government and Massachusetts Association of Realtors data. (Source: bostonbubble.com.)
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Massachusetts Single Family Home Year-Over-Year Inflation Adjusted Price Changes, 2004–2006, from publically available U.S. government and Massachusetts Association of Realtors data. Note that: (1) the inflation-adjusted year-over-year price is decreasing; (2) the rate of price decrease is accelerating; (3) the overall shape of this curve is consistent with a market that peaked in summer 2005, with a critical point at mid-August, and is falling. (Source: bostonbubble.com.)
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60. Remarks by Chairman Alan Greenspan: Reflections on central banking, At a symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming Alan Greenspan
61. "The home-price bubble feels like the stock-market mania in the fall of 1999, just before the stock bubble burst in early 2000, with all the hype, herd investing and absolute confidence in the inevitability of continuing price appreciation. My blood ran slightly cold at a cocktail party the other night when a recent Yale Medical School graduate told me that she was buying a condo to live in Boston during her year-long internship, so that she could flip it for a profit next year. Tulipmania reigns." The Bubble's New Home Robert Shiller Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005:
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Plot of inflation-adjusted home price appreciation in several U.S. cities, 1990–2005.
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62. A Word of Advice During a Housing Slump: Rent
63. Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through The End of The Decade—And How to Profit From Them, , David, Lereah, Currency, 2005,
64. Why the Real Estate Boom Will Not Bust—And How You Can Profit from It, , David, Lereah, Currency, 2006,
65. TV's Hot Properties: Real Estate Reality Shows
66. These include:
★ HGTV's "House Hunters"
★ HGTV's "What You Get for the Money"
★ HGTV's "Designed to Sell"
★ BBC America's "Location, Location, Location"
★ HGTV's "Buy Me"
★ Discovery Home Channel's "Double Agents"
★ Bravo's "", "a six-episode original series chronicling the high-stakes, cutthroat world of real estate in a thriving market."
★ Fine Living to release a show in 2006 on home architecture
★ Fine Living to release a show in 2006 on "the anatomy of the real-estate deal".
★ The Learning Channel's "The Adam Carolla Project" in which the host of Comedy Central's "Too Late With Adam Carolla" (a former carpenter) "guts his childhood home with the goal of flipping it for more than million."
★ TLC's "Property Ladder"
★ A&E's "Sell This House"
★ A&E's "Flip This House"
★ TLC's "Flip That House" (not to be confused with A&E's "Flip This House")
67. For Whom the Housing Bell Tolls
68. Bubble Trouble: End of the Real Estate Boom David Lereah
69. "There's a speculative element in home buying now." Average price of home tops 0,000 amid sales frenzy David Lereah
70. Some builders will get caught with their pants down, because they built too much. … Prices got a 'little' too high, we got ahead of ourselves. … We need to catch our breath. … It happened in the stock market. How many people purchased Qualcomm, Lucent, I doubled down on Lucent. We became irrational during the stock market craze. … There were lotteries to get into [real estate] deals. I got into one! … Go to Miami to see the excess. … 40% of all loans in 2006 were interest only … Prices went higher because of the artificial energy in the real estate market … that’s what took the punch bowl out of the party. … We made a mistake. It’s going to hurt. You are going to have a double digit drop. Expect it." Public remarks from NAR chief economist David Lereah
71. A Real Estate Bull Has a Change of Heart
72. "There's clearly speculative excess going on", said Joshua Shapiro, the chief United States economist at MFR Inc., an economic research group in New York. "A lot of people view real estate as a can't lose." Steep Rise in Prices for Homes Adds to Worry About a Bubble
73. "America was awash in a stark, raving frenzy that looked every bit as crazy as dot-com stocks." Lowering the Boom? Speculators Gone Mild
74. "I worry about a big fall because prices today are being supported by a speculative fever." Jitters On The Home Front Robert Shiller
75. "No one who makes a living in real estate really wants to see the end of this immensely profitable boom. For that matter, neither do most homeowners, who have been treating their homes like ATM machines and relying on price boosts to fund everything from retirement to vacations in Aruba. … But please don't shoot the messenger. My job is to report facts and expert opinions, even if the news is unwelcome. And ''every forecast I've heard from economists and other experts has projected a cooling of the U.S. housing market this year'' (though how quickly and by how much remain matters of debate), fueled by such factors as rising interest rates and lack of affordability. Even real-estate trade associations are predicting the boom's demise. … Across the country, real-estate agents tell me, the number of days houses sit on the market is creeping up, and inventory levels are on the rise. ''Both are early warning signs that prices are poised to fall.'' And according to the latest statistics from Foreclosure.com, which offers a database of U.S. foreclosure, preforeclosure, government-owned, and bankruptcy properties available to private individuals and tracks the number of these properties, new foreclosures were up 9% in February [2006] over the year before. If this trend holds, the company says, new foreclosures will reach higher levels this year than they have in previous years, especially in places like California and Nevada, where speculators are currently pulling out of overheated markets. … It will take some time—perhaps a few months—for homeowners to come to grips with the fact that their vinyl-clad nest eggs aren't expanding anymore, or, in some overheated markets, may even be shrinking. But once they do, they'll be more likely to guard them, and less likely to tap into them for everyday expenses. According to Freddie Mac, the nation's second-biggest buyer of mortgages, the amount of cash home buyers took out of their homes, which reached an estimated 3 billion last year, will fall by more than half in 2006, to about 7 billion. … Your success in good markets and bad teaches us a valuable lesson in how to weather the changes ahead: Do your homework, and don't get greedy." [italics added] Is There Still Profit to Be Made From Buying Fixer-Upper Homes?
76. "in areas where you have had heavy speculation, you could have 30% [home price declines]. … A year or a year and half from now, you will have seen a slow deterioration of home values and a substantial deterioration in those areas where there has been speculative excess.†Jitters On The Home Front Angelo Mozilo
77. Housing cooling off: Could chill economy David Seiders
78. "In retrospect, the real Fed funds rate turned out to be lower than what was deemed appropriate at the time and was held lower longer than it should have been … In this case, poor data led to a policy action that amplified speculative activity in the housing and other markets. … Today … the housing market is undergoing a substantial correction and inflicting real costs to millions of homeowners across the country. It is complicating the [Fed's] task of achieving … sustainable noninflationary growth." Official Says Bad Data Fueled Rate Cuts, Housing Speculation
79. Fed's Bies, Fisher See Inflation Rate Beginning to Come Down
80. "The overheating is greatest in markets such as Los Angeles, San Francisco, San Diego, Washington, New York, and Boston. The takeoff in coastal real estate started around 2000—suggesting that the speculative fever of the late 1990s did not die but instead jumped from stocks to real estate. From 2000 through the first quarter of 2004, single-family home prices are up at an annual rate of 8.2% in the Pacific region, 8% in New England, and 7% in the Middle Atlantic region, according to the Office of Federal Housing Enterprise Oversight. Prices rose 18% in Los Angeles, 14% in Miami, and 13% in Washington in the year through the first quarter, says the agency. … Today's housing prices are predicated on an impossible combination: the strong growth in income and asset values of a strong economy, plus the ultra-low rates of a weak economy. Either the economy's long-term prospects will get worse or rates will rise. In either scenario, housing will weaken." Is A Housing Bubble About To Burst? As rising rates send mortgage payments higher, demand may cool
81. "The generalized bubble in housing prices is comparable to the bubble in stock prices in the late 1990s. The eventual collapse of the housing bubble will have an even larger impact than the collapse of the stock bubble, since housing wealth is far more evenly distributed than stock wealth." The Housing Bubble Fact Sheet Dean Baker
82. "Once stocks fell, real estate became the primary outlet for the speculative frenzy that the stock market had unleashed. Where else could plungers apply their newly acquired trading talents? The materialistic display of the big house also has become a salve to bruised egos of disappointed stock investors. These days, the only thing that comes close to real estate as a national obsession is poker." The Bubble's New Home Robert Shiller
83. "Froth in housing markets may be spilling over into mortgage markets." Housing Bubble Bursts in the Market for U.S. Mortgage Bonds Alan Greenspan
84. "Like other asset prices, house prices are influenced by interest rates, and in some countries, the housing market is a key channel of monetary policy transmission." International Finance Discussion Papers, Number 841, House Prices and Monetary Policy: A Cross-Country Study
85. "The Fed, in effect, has become a serial bubble blower." The American economy: A phoney recovery, Drug addicts get only a temporary high. America's economy, addicted to asset appreciation and debt, is no different Stephen Roach
86. "Let's assume for a moment that enough people get fooled, and the refinancing boom gets extended for another year. Then what? The real problem hits. Because if you think Greenspan's being cagey on refinancing, the truth he's really avoiding talking about is that we're in the midst of a huge housing bubble, on a scale only seen once before since the Depression. Worse, the inflated housing market is now in an historically unique position, as the motor of the rest of the economy. Within the next year or two, that bubble is likely to burst, and when it does, it very well may take the American economy down with it." There Goes the Neighborhood: Why home prices are about to plummet—and take the recovery with them. Benjamin Wallace-Wells
87. "[T]he asset-based spending model has given rise to many of the distortions and imbalances evident in the US today. That’s especially true of low saving rates, the housing bubble, high debt loads, and a runaway current account deficit. … To the extent that equity extraction from ever-rising property appreciation was viewed as a substitute for organic sources of labor income generation, hard-pressed consumers went deeply into debt to monetize the windfall. As a result, household sector indebtedness surged to nearly 90% of US GDP—an all-time record … Secure in the asset-driven spending posture that resulted, consumers saw no need to save the old-fashioned way out of earned labor income. That’s why the personal saving rate has collapsed and currently stands near zero. … Federal Reserve policy makers have taken the lead role as proselytizers of a new macro spin that condones the saving, debt, property bubble, and current-account excesses of the Asset Economy. The examples are far too numerous to mention, but consider the following highlights:
:
★ "Chairman Greenspan has made light of traditional measures of household indebtedness—even going so far as to urge consumers to move from fixed to floating rate obligations (see his February 23 2004, speech, ''Understanding Household Debt Obligations''. Note: All references are to speeches available on the Fed’s website at www.federalreserve.gov).
:
★ "Fed governors have also borrowed a page from the Roaring 1990s in denying the possibility of a housing bubble …
"When consumers hear from a Fed chairman that it makes little sense to take on fixed rate debt, they rush to floating rate instruments; not by coincidence, the adjustable rate portion of newly originated mortgage debt shot up in the immediate aftermath of Chairman Greenspan’s comments on consumer indebtedness. And should asset-dependent, saving-short, overly indebted American consumers feel at risk if the Fed assures them that there is no housing bubble—that the asset-based underpinnings of their decision making are well grounded? A record consumption share in the U.S. economy—71% of GDP since 2002 versus a 67% norm over the 1975 to 2000 period—speaks for itself." Morgan Stanley Global Economic Forum: Original Sin Stephen Roach See also James Wolcott's comments.
88. "Over the last 25 years, I have warned frequently of these political, economic and historical (but not religious) precedents. The concentration of wealth that developed in the United States in the bull market of 1982 to 2000 was also typical of the zeniths of previous world economic powers as their elites pursued surfeit in Mediterranean villas or in the country-house splendor of Edwardian England. In a nation's early years, debt is a vital and creative collaborator in economic expansion; in late stages, it becomes what Mr. Hyde was to Dr. Jekyll: an increasingly dominant mood and facial distortion. The United States of the early 21st century is well into this debt-driven climax, with some analysts arguing—all too plausibly—that an unsustainable credit bubble has replaced the stock bubble that burst in 2000." American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century, , Kevin, Phillips, Viking, 2006,
89. “Signs of a deflating housing bubble began appearing a year ago, but for a while it was possible to argue that eliminating a bit of "froth" in the housing market wouldn't do the overall economy much harm. Now, for the first time, problems in the housing market are starting to seriously reduce economic growth: the latest G.D.P. data show real residential investment falling at an accelerating pace. The latest job numbers show falling employment in home construction, and retail employment has fallen over the past year, suggesting that consumer spending is running out of steam. … A snarky but accurate description of monetary policy over the past five years is that the Federal Reserve successfully replaced the technology bubble with a housing bubble. But where will the Fed find another bubble?†Intimations of a Recession Paul Krugman
90. "Alan Greenspan managed to make folks' lives ultimately even worse, in attempting to bail out his equity bubble with a real-estate bubble. Let's never forget who the un-indicted architect of this mess was: Alan Greenspan and the other merry pranksters at the Fed. Of course, those folks who didn't learn anything from the equity mania, and who will turn out to have gotten themselves trapped in the housing mania, really have only themselves to blame. As I have been warning for at least a couple of years now, all of this was going to be wonderful until it ''wasn't''. That moment in time is upon us." Face it: The housing bust is here Bill Fleckenstein
91. Is A Housing Bubble About To Burst?
92. Fed holds rates for first time in two years
93. "The Fed should have tightened earlier to avoid a festering of the housing bubble early on. The Fed is facing a nightmare now: the recession will come and easing will not prevent it." Fed Holds Interest Rates Steady As Slowdown Outweighs Inflation Nouriel Roubini
94. Poll: Fed to leave U.S. rates at 5.25 percent through end-2008
95. Adjustable-rate loans come home to roost: Some squeezed as interest rises, home values sag
96. Lenders Will Be Spotting Income Fibs Much Faster
97. "So, have you heard the one about the 24-year-old "real estate investor" who's million in debt and still hasn't gone back to his day job? No? … Last week, a Californian named Casey Serin started a blog called "Iamfacingforclosure.com", detailing how he got himself half a dozen sinking properties and million in debt. … After taking some courses in real estate investing, this eager kid ''lied'' his way into a slew of loans he, admittedly, didn't deserve, and now that he's bleeding to the tune of ,000 a month, and the housing market is crashing around his ears, he thought taking his story to the Web might somehow help." 24 Years Old, Million in the Hole
98. The Mortgage Mess Spreads: The subprime lending industry is getting hammered, and hedge funds and investment banks are feeling the pain
99. "The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home—or so they thought. The option ARM's low payments are only temporary. And the less a borrower chooses to pay now, the more is tacked onto the balance.
The bill is coming due. Many of the option ARMs taken out in 2004 and 2005 are resetting at much higher payment schedules—often to the astonishment of people who thought the low installments were fixed for at least five years. And because home prices have leveled off, borrowers can't count on rising equity to bail them out. What's more, steep penalties prevent them from refinancing. The most diligent home buyers asked enough questions to know that option ARMs can be fraught with risk. But others, caught up in real estate mania, ignored or failed to appreciate the risk.
There was plenty more going on behind the scenes they didn't know about, either: that their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan's interest rates and up-front fees might not have been set by their bank but rather by a hedge fund; and that they'll soon be confronted with the choice of coughing up higher payments or coughing up their home. The option ARM is "like the neutron bomb", says George McCarthy, a housing economist at New York's Ford Foundation. “It's going to kill all the people but leave the houses standing.â€" Nightmare Mortgages: They promise the American Dream: A home of your own—with ultra-low rates and payments anyone can afford. Now, the trap has sprung Mara Der Hovanesian
100. PIMCO's Gross: Subprime crisis not 'isolated'
101. Greenspan: 'Local bubbles' build in housing sector
102. S&P/Case-Shiller® Home Price Indices - historical spreadsheets
103. California cities fill top 10 foreclosure list
104. Number of Stories in New One-Family Houses Sold
105. DR Horton Inc. historical share prices
106. Pulte Corp. 2006 Annual Report
107. Pulte Corp. 1996 Form 10-K -- Annual report
108. Sources and Uses of Equity Extracted from Homes
109. America's Unsustainable Boom
110. Bureau of Economic Analysis GDP estimate, Q2 2007
111. Real Estate Reality Check (Powerpoint talk) David Lereah NAR plot of Condominium Price Appreciation (percentages) in the south and west United States, 2002–2006:
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Condominium Price Appreciation (percentages) in the south and west United States, 2002–2006. (Source: NAR.)
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112. "There has never been a run up in home prices like this." The bubble question: How will rising interest rates affect housing prices? Dean Baker
113. "Alan Greenspan, the United States’ central banker, warned American homebuyers that they risk a crash if they continue to drive property prices higher. … On traditional tests, about a third of U.S. local homes markets are now markedly overpriced." US heading for house price crash, Greenspan tells buyers
114. "Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing … Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins & mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun—and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice." Buffett: Real estate slowdown ahead; The Oracle of Omaha expects the housing market to see "significant downward adjustments", and warns on mortgage financing.
115. "A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks." Surviving a Real-Estate Slowdown: A 'Loud Pop' Is Coming, But Mr. Heebner Sees Harm Limited to Inflated Regions
116. The No-Money-Down Disaster
117. Bubble Blog: A popular blogger explains how he predicted the cooling of the real estate market and what the mainstream business press can learn from sites like his.
118. "[T]he overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead." No bubble trouble? Paul Krugman
119. Housing bubble correction could be severe
120. Study sees '07 `crash' in some housing
121. Moody's predicts big drop in Washington housing prices
122. Housing slowdown deepens in Mass.: Single-family prices, sales slip in March
123. Sellers chop asking prices as housing market slows: Cuts of up to 20% are now common as analysts see signs of a 'hard landing'.
124. Bubble, Bubble—Then Trouble: Is the chill in once-red-hot Loudoun County, Va., a portent of what's ahead?
125. San Diego Home Prices Drop
126. Over 14,000 Phoenix For-Sale Homes Vacant Plot of Phoenix inventory:
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Inventory of houses for sale in Phoenix, AZ from July 2005 through March 2006. As of March 10 2006, well over 14,000 (nearly half) of these for-sale homes are vacant. (Source: Arizona Regional Multiple Listing Service.)
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127. D.R. Horton warning weighs on builders: Largest home builder cuts 2006 outlook on difficult housing market
128. Toll Brothers, Inc. (NYSE:TOL)
129. U.S. Home Construction Index (DJ_3728)
130. Toll Brothers lowers outlook: Luxury home builder says buyers still waiting on sidelines
131. BANKRUPTCY CONSIDERED: Kara Homes lays off staff; talk of filing for Chapter 11 makes local clients anxious
132. Kara Homes buyers may lose deposits
133. "Reports of falling sales and investors stuck with properties they can't sell are just the beginning. Property owners should worry; so should their lenders." The housing bubble has popped Bill Fleckenstein
134. “A variety of experts now say, the housing industry appears to be moving from a boom to something that is starting to look a lot like a bust.†Sales Slow for Homes New and Old
135. Realtors' Lereah: Housing To Make 'Soft Landing' David Lereah
136. “Leslie Appleton-Young is at a loss for words. The chief economist of the California Assn. of Realtors has stopped using the term ’soft landing’ to describe the state’s real estate market, saying she no longer feels comfortable with that mild label. … ‘Maybe we need something new. That’s all I’m prepared to say,’ Appleton-Young said Thursday. … The Realtors association last month lowered its 2006 sales prediction. That was when Appleton-Young first told the San Diego Union-Tribune that she didn’t feel comfortable any longer using ’soft landing.’ ‘I’m sorry I ever made that comment,’ she said Thursday. … For real estate optimists, the phrase ’soft landing’ conveyed the soothing notion that the run-up in values over the last few years would be permanent.†Housing Expert: 'Soft Landing' Off Mark Leslie Appleton-Young
137. Hard edge of a soft landing for housing
138. Housing Slump Proves Painful For Some Owners and Builders: 'Hard Landing' on the Coasts Jolts Those Who Must Sell; Ms. Guth Tries an Auction; 'We're Preparing for the Worst' Robert Toll
139. Countrywide Financial putting on the brakes Angelo Mozilo
140. http://www.msnbc.msn.com/id/18842917/
141. Stiglitz Says U.S. May Have Recession as House Prices Decline Jospeh Stiglitz
142. Bernanke Says `Substantial' Housing Downturn Is Slowing Growth
143. "The golden age of McMansions may be coming to an end. These oversized homes—characterized by sprawling layouts on small lots, and built in cookie-cutter style by big developers—fueled much of the housing boom. But thanks to rising energy and mortgage costs, shrinking families and a growing number of retirement-age baby boomers set on downsizing, there are signs of an emerging glut. … Some boomers in their late 50s are counting on selling their huge houses to help fund retirement. Yet a number of factors are weighing down demand. With the rise in home heating and cooling costs, McMansions are increasingly expensive to maintain. … The overall slump in the housing market also is crimping big-home sales. … Meantime, the jump in interest rates has put the cost of a big house out of more people's reach." Slowing Sales, Baby Boomers Spur a Glut of McMansions June Fletcher
144. "With economic signals flashing that the housing boom is over, speculation has now turned to how deep the slump will be and how long it will last … conventional wisdom holds that as long as you don’t plan to sell your house any time soon … you can cash in later. Or can you? The downturn in housing is overlapping with the retirement of the baby boom generation, which starts officially in 2008 … Most of them are homeowners, and many of them will presumably want to sell their homes, extracting some cash for retirement in the process. Theoretically, that implies a glut of houses for sale, which would surely mitigate an upturn in prices, and could drive them ever lower. … The house party is over, but we don’t yet know how bad the hangover is going to be." It Was Fun While It Lasted
145. New Century Financial files for Chapter 11 bankruptcy
146. "AAA? You were wooed Mr. Moody’s and Mr. Poor’s, by the makeup, those six-inch hooker heels, and a “tramp stamp.†Many of these good looking girls are not high-class assets worth 100 cents on the dollar. … And sorry Ben, but derivatives are a two-edged sword. Yes, they diversify risk and direct it away from the banking system into the eventual hands of unknown buyers, but they multiply leverage like the Andromeda strain. When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets. Houses anyone? … AAAs? [T]he point is that there are hundreds of billions of dollars of this toxic waste and whether or not they’re in CDOs or Bear Stearns hedge funds matters only to the extent of the timing of the unwind. [T]he subprime crisis is not an isolated event and it won’t be contained by a few days of headlines in ''The New York Times'' … The flaw lies in the homes that were financed with cheap and in some cases gratuitous money in 2004, 2005, and 2006. Because while the Bear hedge funds are now primarily history, those millions and millions of homes are not. They’re not going anywhere … except for their mortgages that is. Mortgage payments are going up, up, and up … and so are delinquencies and defaults. A recent research piece by Bank of America estimates that approximately 0 billion of adjustable rate mortgages are scheduled to reset skyward in 2007 by an average of over 200 basis points. 2008 holds even more surprises with nearly 0 billion ARMS subject to reset, nearly ¾ of which are subprimes … This problem—aided and abetted by Wall Street—ultimately resides in America’s heartland, with millions and millions of overpriced homes and asset-backed collateral with a different address—Main Street." When mainstream analysts compare CDOs to “subslimeâ€, “toxic waste†and “six-inch hooker heelsâ€â€¦
147. Merrill sells off assets from Bear hedge funds
148. H&R Block struck by subprime loss
149. .2 Billion Move by Bear Stearns to Rescue Fund
150. Bear Stearns Hedge Fund Woes Stir Worry In CDO Market
151. BNP Paribas Investment Partners temporally suspends the calculation of the Net Asset Value of the following funds: Parvest Dynamic ABS, BNP Paribas ABS EURIBOR and BNP Paribas ABS EONIA
152. Big French Bank Suspends Funds
153.
154. Next: The real estate market freeze
155. "Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country …
With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s." Remarks by Chairman Alan Greenspan, Consumer Finance At the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C.
156. "In early 2004, he urged homeowners to shift from fixed to floating rate mortgages, and in early 2005, he extolled the virtues of sub-prime borrowing—the extension of credit to unworthy borrowers. Far from the heartless central banker that is supposed to “take the punchbowl away just when the party is getting good,†Alan Greenspan turned into an unabashed cheerleader for the excesses of an increasingly asset-dependent U.S. economy. I fear history will not judge the Maestro's legacy kindly." The Great Unraveling
157. "Greenspan allowed the tech bubble to fester by first warning about irrational exuberance and then doing nothing about via either monetary policy or, better, proper regulation of the financial system while at the same time becoming the “cheerleader of the new economyâ€. And Greenspan/Bernanke allowed the housing bubble to develop in three ways of increasing importance: first, easy Fed Funds policy (but this was a minor role); second, being asleep at the wheel (together with all the banking regulators) in regulating housing lending; third, by becoming the cheerleaders of the monstrosities that were going under the name of “financial innovations†of housing finance. Specifically, Greenspan explicitly supported in public speeches the development and growth of the risky option ARMs and other exotic mortgage innovations that allowed the subprime and near-prime toxic waste to mushroom." Who is to Blame for the Mortgage Carnage and Coming Financial Disaster? Unregulated Free Market Fundamentalism Zealotry
158. Defaults Rise in Next Level of Mortgages
159. American Home Mortgage Gets Bankruptcy Court OK
160. Alt A Loans `Disconcerting,' Jumbos Weaker, S&P Says
161. Rate Rise Pushes Housing, Economy to `Blood Bath'
162. White House Has It all WRONG On Subprime
163. "'Quotation within a note.' When a note includes a quotation, the source normally follows the terminal punctuation of the quotation. The entire source need not be put in parentheses, which involves changing existing parentheses to brackets and creating unnecessary clutter." The Chicago Manual of Style, , , , , 2007,
164. Chicken Little's revenge
165. As bubble sags, market critics are busting out Carol Lloyd
166. Renters gloat over housing slump: Some who missed the boom are feeling vindicated now; resisting 'nesting instincts'
167. My turn: The renter who blogs on real estate
168. Chicken Little's revenge
169. Oh, the Humanity! Peter Coy
170. Blog if you love real estate: Bloggers are changing the equation when it comes to buying a house or condo
171. Blogs from the Financial Front, 5 not to miss
172. When Bubbles Attack!
Further reading
★ ''The Economist'', 8 December 2005, "Hear that hissing sound?."
★ ''The Economist'', 16 June 2005, "After the fall."
★ ''The Economist'', 16 June 2005, "In come the waves."
★ ''The Economist'', 20 April 2005, "Will the walls come falling down?"
★ ''The Economist'', 3 May 2005, "Still want to buy?"
★ ''The Economist'', 26 February 2004, " The American economy: A phoney recovery."
★ ''The Economist'', 29 May 2003, "House of cards."
★ ''The Economist'', 28 May 2002, "Going through the roof."
★ ''The New York Times'', 25 December 2005, Take It From Japan: Bubbles Hurt.
★ ''The Wall Street Journal'', 10 February 2006, Is the Party Really Over For the Housing Boom?, by June Fletcher.
★ Dean Baker, July 2005, "The Housing Bubble Fact Sheet" PDF file, Center for Economic and Policy Research.
★ June Fletcher (2005), ''House Poor: Pumped Up Prices, Rising Rates, and Mortgages on Steroids—How to Survive the Coming Housing Crisis (ISBN 0-06-087322-1)'', New York: Collins.
★ Fred E. Foldvary (1997), "The Business Cycle: A Georgist-Austrian Synthesis," [1], ''American Journal of Economics and Sociology'' '56'(4):521–41, October.
★ Fred E. Foldvary (2007), ''The Depression of 2008. (ISBN 0-9603872-0-X)'', Berkeley: The Gutenberg Press.
★ Paul Krugman, 25 August 2006, "Housing Gets Ugly", The New York Times.
★ N. Gregory Mankiw and David N. Weil (1989). "The baby boom, the baby bust, and the housing market, ''Regional Science and Urban Economics'', Volume 19, Issue 2, May 1989, Pages 235-258.
★ John R. Talbott (2006). ''Sell Now!: The End of the Housing Bubble (ISBN 0-312-35788-5)'', New York: St. Martin's Griffin.
★ John R. Talbott (2003). ''The Coming Crash in the Housing Market (ISBN 0-07-142220-X)'', New York: McGraw-Hill, Inc.
★ Elizabeth Warren and Amelia Warren Tyagi (2003). ''The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke (ISBN 0-465-09082-6)'', New York: Basic Books.
★ Robert J. Samuelson, October 11 2006, "Home Is Where the Worry Is", The Washington Post.
External links
★ The ''New York Times's Buy vs. Rent Calculator
★ Center for Economic and Policy Research — CEPR regularly releases reports on the U.S. Housing Bubble
★ CNBC's Reality Check with Diane Orlick
★ Housing bubble weblogs, cited in ''Newsweek'' magazine, ''BusinessWeek'' magazine, and elsewhere
:
★ TheHousingBubbleBlog.com — Ben Jones's comprehensive, news-oriented weblog, as featured in ''Newsweek'' magazine, ''Salon'',[164] and the ''San Francisco Chronicle''[165]
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★ housingpanic.blogspot.com — Housing Panic, opinionated and irreverent bubble blog as mentioned in ''Newsweek'' magazine, the ''Motley Fool'', and the ''San Francisco Chronicle''; broke the iamfacingforeclosure.com "liar loan" blog story of Casey Serin
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★ bubblemeter.blogspot.com — Bubble Meter, as mentioned in the ''Washington Post'' and ''Newsweek'' magazine
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★ calculatedrisk.blogspot.com — Calculated Risk, as mentioned in ''Newsweek'' magazine
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★ bubbletrack.blogspot.com — Bubble Track, as mentioned in ''Newsweek'' magazine
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★ patrick.net — patrick.net, as mentioned in ''Newsweek'' magazine, the ''San Francisco Chronicle'', and the ''Wall Street Journal''[166]
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★ piggington.com — Professor Piggington, as mentioned in ''Newsweek'' magazine and the ''San Francisco Chronicle''
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★ njrereport.com — New Jersey Real Estate Report, as mentioned in ''Newsweek'' magazine
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★ housebubble.com — House Bubble, as mentioned in ''Newsweek'' magazine and featured in ''The Times'' of Trenton, New Jersey[167]
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★ davidlereahwatch.blogspot.com — Monitoring the varying pronouncements from the NAR's chief economist, as mentioned in the ''Chicago Tribune'', ''Salon'',[164] ''BusinessWeek'',[169] the ''San Francisco Chronicle'', and the ''Wall Street Journal''
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★ matrix.millersamuel.com — Matrix: Interpreting the real estate economy, as mentioned in ''CNN'' CNN/Money[170]
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★ housingbubblecasualty.com — Another Borrower, Casualty of the Housing Bubble, as mentioned in ''CNN'' CNN/Money[171]
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★ paper-money.blogspot.com — Paper-Money: A US Real Estate Bubble Blog, as mentioned in the ''Motley Fool'',[172] also providing streaming video of the Senate Banking Committee's housing bubble hearings, and the producer of "BNN" (the Bubble News Network) and "The Bubble Times"
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