This real estate meltdown watch reminds me of born-again Christians eagerly awaiting the Rapture and the ensuing Tribulation period. Yes, housing prices in certain parts of the country, such as California, are at problematic levels and perhaps there will be considerable distress, but so what? That’s capitalism for you.
One notable aspect of this whole Housing Angst movement is that it is in its entirety a “blue-state” phenomenon: Upper class liberals have bid certain markets into the stratosphere and are now shitting themselves. The hated Anti-Christ, Bush, is somehow, vaguely, supposed to be at fault, because everything bad is his fault (cosmic rule # 1 b).
Large parts of US real estate remain fairly priced.
(The Mid-West ex-Chicago is cheap, actually).

Posted by: Guthman Bey | Aug 17 2006 0:04 utc | 3

One notable aspect of this whole Housing Angst movement is that it is in its entirety a “blue-state” phenomenon
Not quite — it includes metro Atlanta, Phoenix, South Florida (admittedly, a blue area of a red state) Denver (ditto) Northern Virginia (ditto) . . . well, OK, I see your point.
But politically the results could be worse for the Republicans, not better. If Bush and the GOP get the blame (and as the party and president in power they’ll get most of it) it could just about wipe the Republicans out in the Northeast, south Florida and parts of California, and swing some seats in Arizona, New Mexico and the Mountain states. In other words, it could help complete the realignment that began when the Confederacy went GOP. That might — MIGHT, if the world doesn’t go to hell in a handbasket first — leave the Dems clinging to a narrow national majority, if they play their cards right.
But of course, they’re the Dems, so we know they WON’T play them right. Still, it’s the GOP that should be sweating this.
.

Posted by: billmon | Aug 17 2006 0:27 utc | 5

This housing “bubble” will not be as bad as many prognosticators believe. Those that have had the property for over a decade have plenty of equity to ride a large downturn of 30-40%. And even then it will only matter if they can’t keep up with their mortgage payments which they would have been doing for a decade. Those that bought recently especially in the go-go years of 2004 and 2005 have typically purchased with no-money down interest-only mortgages. If their ARMs reset and they can’t make the payments or if the comps show a big dip compared to when they purchased, they’ll just mail the keys to the mortgage company. The mortgage company in turn has packaged up all these mortgages into pools of mortgage-backed securities and sold it to yield hungry investors such as pension funds and of course the Chinese, Russians and Saudis who have plenty of excess dollars. These investors will likely take a hair cut on these MBS but since it is a small part of their portfolios it will not be a major dent.

Posted by: ab initio | Aug 17 2006 1:59 utc | 7

Residential real estate sales and mortgage activity stats are a nightmare. The reason for the bubble was abundant credit. That statement is in fact redundant. Bubbles are always credit phenomina. So the mortgage credit mania did it’s work and drove prices past the point of affordability. Hoping for a drop in rates to save the housing market is only fools and the desperate.
The inventory of existing homes for sale has increased 68% during the 18 months ended this June. The number of new homes increased by 2 million in 05 while the number of households increased by 1.1 million, suggesting a problem.
The one supposed bright spot is average and median sales prices. They rose in the second quarter. A fact that was touted far and wide in order to dispell the talk of a collapsing bubble. Something seems fishy however. What could it be? I think what happend is that the low and middle priced homes have been falling as a percentage of all transactions. Thus since relativly more high priced homes have been selling the average sales price actually rose. Take that rising home price talk for what it is, disinformation.
Sellers are always the last to know that prices are falling. Instead of lowering their price they just sit and wait with an unsold home. Presto, rising inventories, cratering volume, and of course average prices seemingly pretty solid. Distressed sales are rising however and the rising prices BS story is going to end soon, and with it will come the point of recognition.
Will it be a disaster? Nobody knows. It is fair to say however that this down cycle has the potential to be the worst since the 30’s. Along with it will come economic and financial stresses. The mortgage mania was THE source for systematic liquidiy following the stock market wreck. (Stocks are now where they were 8 years ago) With ‘equtiy’ extraction soon to be a thing of the past I wonder how we will maintain the -1.5% savings rate of the second quarter.
On a related note Fannie Mae has not issued an acceptable financial statment in 8 quarters yet is still listed on the NYSE, against all the rules. Foreign central banks, particularly China have been buying up the paper the Fanny and Feddie have been disgorging at an insane pace and now hold near half of all their outstanding paper. Suckers? Perhaps, or maybe it’s part of some subrosa bailout. Whatever. Things are weird and it doesn’t strike me as bullish in any case.
The administration it must be said can’t take the blame for all this. It was a machine built up over two decades and then sent hurtleing down the tracks with knowlege aforethought by Greenspan. In fact the administration went out of its way to reign in Fannie and Freddy and thus help turn of the flood of liquidity. Ending perhaps a bit sooner the mania.

Posted by: rapier | Aug 17 2006 2:16 utc | 9

On a related note Fannie Mae has not issued an acceptable financial statment in 8 quarters yet is still listed on the NYSE, against all the rules.
Keep your eye on that one. There’s an old rule of thumb that when the Fed raises rates it raises them until it breaks something big — Mexico, Orange County, Long-Term Capital Management — something that really could pose a systemic financial risk. Then it stops in a hurry.
Fannie could be it this time.
Is it the end of the world? I don’t think so. But there’s plenty of statistical evidence that housing bubbles tend to last longer and do more damage to the real economy than stock market bubbles. If we do go into recession next year, as a few forecasters are now muttering, I don’t think we’ll have much trouble identifying the cause.

Posted by: billmon | Aug 17 2006 3:03 utc | 11

link

Posted by: Anonymous | Aug 17 2006 3:26 utc | 13

On a related note, Syria and Jordan are both experiencing humongous housing booms because of all the Iraqi and Lebanese refugees (with money), and because the oil money is being redirected from the US and Lebanon to the boom countries. Worth watching too.
The US situation is also a continuation of the restructuring (hollowing out) of the economy. The boom cities are still chock full of jobs servicing the empire. The rest of the country still has some retail openings at Walmart.

Posted by: Malooga | Aug 18 2006 1:28 utc | 15