Really as everyone here pretty much knows this is what the issue is going forward. I think thats where the Focus should be~ as far as im concerned.

on September 6th, 2007 at 8:59 pm

This is the most prosperous time in the history of the world. If you think otherwise your probably a liberal and liberalism is amental disorder.

FIRST OFF: Mademillionsinrealestate: The Name implys a Dream… not reality- Reality is ALMOST anyone who Made the wealth of millions doenst need a screen name to prove it.. your remarks or Not Wealthy Remarks to say the least.. your passage has the financial ramblings of some 20 something thats caught up between MTv and Kiyosaki- Anthony Robbins.. your just not sure who yet.. Maybe the beer Binges from Thursday to Saturday night better spell your investor prospectives.

This is the most prosperous time in the history of the world- (Well there Might be some truth to this depends on which side of fence your on~!)

I was going to start off by Beating down each remark however- I dont want to spend so much time trying to educate someone thats apparently still to build a Rocket Ship out of Plastic.. The moon is still very far away unfortunatly. Why even waste my time.

http://seattlepi.nwsource.com/business/330697_mortgage07.html

(ya right)

I love that yesterday I’m accused of being a Tim Eyman-loving Republican, and today I’m a mentally deficient liberal.

You guys crack me up!

There is no new wealth, and has not been, since the early 80’s. The pie has not grown larger, but those who gain do so at the expense of others. No where is it more stark than in housing, but also in other necessities. We have not seen this type of credit bubble since just before the Great Depression. We now know it is/was all hot air, and hot air evaporates quicker.

Worst case: Depression, social unreste, people rioting, not just walking away from property, but destroying it out of anger and/or insurance money–don’t laugh, many are pissed NOW.

Best Case: Stagflation, with severe political repercussions. Housing costs revert to the mean: 1996, Federal WPA-style work programs to restore neglected basic infrastructure.

Most likely case: somewhere between the two above.

My two cents from the economic street level.

There is no new wealth, and has not been, since the early 80’s. The pie has not grown larger, but those who gain do so at the expense of others. No where is it more stark than in housing, but also in other necessities. We have not seen this type of credit bubble since just before the Great Depression. We now know it is/was all hot air, and hot air evaporates quicker.

Worst case: Depression, social unreste, people rioting, not just walking away from property, but destroying it out of anger and/or insurance money–don’t laugh, many are pissed NOW.

Best Case: Stagflation, with severe political repercussions. Housing costs revert to the mean: 1996, Federal WPA-style work programs to restore neglected basic infrastructure.

Most likely case: somewhere between the two above.

My two cents from the street.

Yes, and on the way to “home ownership” the middle man must be paid off so he can buy a home bigger than yours, and vacation home in the country, and a condo in the city, and on and on.

Everyone’s renting a place from the Federal govt.
Aren’t we doing that already? Fannie Mae, Freddie Mac, FHA, and VA loans?

(except for that credit thing)

Are you kidding me? PLease allow me to be the first to contribute to the cost of moving you to the “socialist European” county of your choice. I imagine one checked bag should just about do it since you’ll be living in a rent controlled apartment complete with a mattress on the ground, a table and chair, and four blank walls waiting for your artistic touch. But don’t get too artistic or your fellow comrades might turn you in for your avant garde ways.

Meanwhile I’ll be shopping in that wasteland known as Home Depot.

American’s will see the socialist European governments reforming their economic systems to stabilize home ownership as well as rentals pricing and they’ll demand the same action from their own government.

Best case: The bottom drops out of the economy and there’s a deflationary spiral across the board on all commodities. President John Edwards become the next great Franklin Roosevelt leading the American people in the second Socialist Revolution.

You don’t think the American people are ready and willing?

Look at the poll numbers on Universal Health Care. What killed the Bush presidency wasn’t the failed Iraq occupation so much as his attempt to privatize Social Security. The conservatives in this country have been trying and failing to privatize the public utilities and schools for the last forty years. American’s understand that the private sector can not be trusted with the most fundamental aspects of daily life. They will want their homes made just as safe as their drinking water.

I think what Greenspan did was appropriate at the time, and I believe, as you said, that it prevented a significant recession. But still, that is what caused the housing speculation. And he certainly did play ball with the politicians. But this is the man that, after famously stating the market was usurped by “irrational exuberance,” did nothing while the equity market skyrocketed to unseen P/E ratios. He just sat there and enjoyed the party, right next to the punch bowl.

Monetary policy can extend beyond rate manipulation. There are a host of things that could have prevented the stock bubble from bursting – margin calls, IPO regulation, etc. Greenspan came close but stopped short of anything effective.

Which brings up an interesting salient point: Will Bernanke play ball, especially going into an election year? I feel he will.

But what choice did Greenspan have when the tech bubble was blowing up? If he hadn’t dropped interest rates we may have had a full-blown recession. That would have been political suicide and Greenspan would never have been re-appointed by Bush. A major recession also would have ensured that Bush would never have won a second term.

I remember back in 2001 that EVERYONE was demanding lower interest rates. Especially after 9/11. Had Greenspan not lowered rates after 9/11 he would have been the first against the wall in the revolution.

In short, it was IMPERATIVE that any measure possible be taken to avoid a recession with the equity bubble implosion of 2001/2002. It’s one thing to say that lowering rates was a bad policy decision, but when you put yourself back in the context of the time it’s hard to see how any central banker could have done anything different.

Keep in mind that the primary reason Greenspan was able to remain as Fed chairman for so long was precisely because of his willingness to play ball with politicians. Presidents kept re-appointing him because he kept coming up with the economic goods, allowing them to get re-elected. It is silly to even imagine that we could have had a Fed chairman with a back-bone who would have defied the political masters.

Don’t forget that Volcker (perhaps the soundest Fed chairman of all-time) was appointed by Jimmy Carter, one of the weakest presidents of all time. Carter cared more about doing what was the “right” thing than the politically expedient and look what that got him (i.e. a short stay in the White House).

It was inevitable we would wind up with a snivelling Fed chairman who made bad policy decisions, and it was inevitable that we would create even bigger problems by attempting to avoid a recession in 2001.

The Tim – Your math is a little off (must be new math?). 10%+20%+50% = 80% TOTAL…doesnt your precentages have to add to 100% of your prediction estimations, lol?

You should brush up on your reading comprehension skills, finance. I didn’t say “these are all possible scenarios.” I said those are what I consider to be the best, worst, and most likely scenarios. There are many other ways this could all shake out that make up the remaining 20% of probability.

The market never holds near the mean, its usually either much higher or lower and can be volitile.

So, your argument is that after 5-10 years of far above-mean performance, a volatile market is going to remain higher than the mean, rather than turning “much lower” to correct for the high times? That makes no sense.

“Kime, Why the housing bubble and why now? I think this idea that Greenspan wanted to baby tech investors and bail them out as the reason for this mess is completely ludicrous. The reasons why this happened will affect how it all plays out, but no one wants to talk about it other than to call Greenspan an incompetent.”

I don’t understand your question. I never said that Greenspan was the reason for this mess, I just said that the government would do the wrong thing by meddling. I never said anyone was incompetent, I just said that they do what gets votes. The Fed Chairman is not elected, but he gets pressure from elected officials. I think this mess is part of a normal cycle, as someone else mentioned, that happens as everyone dies off who remembers the last bust cycle. No elected official can stop the cycle, because it is caused by mass sentiment. If an official tried to stop the cycle before it reached its natural ending, the official would be removed and another one put in place who would play along with the public sentiment.

Kime – I’m not sure I get your drift. What I think will happen is that the collapse of the real estate / credit bubble will be somewhat cushioned by inflation due to increased money supply as a result of financing the war.”

I am saying that the cushioning effect will be small because the increase in the money supply from the war is tiny compared to the probable loss in the money supply from the housing bust.

Your best case senerio is a little low…3% for 10 years? I think the best case would be that the market has a moderate decline for a year or two (maybe 3 at the most) then the market appreciates for 5% for several years.

The market never holds near the mean, its usually either much higher or lower and can be volitile.

This is a “things will turn out OK” country. “You’ll land on your feet”. No matter how hard I tried to teach them differently, my children take every comfort for granted. This is what drives high debt. Nobody remembers hard times; nobody lived through really hard times. Just look at our politicians, they campaign on abortion, and gay marriage. Health insurance? Ehhh, only 15% don’t have it. Poverty? Only 13%.
Does not look good for 2008, 2009.

worst case: City of Seattle and King Co. invents a new tax on renters, so all the government workers can keep thier jobs,, oh no!

I’d like to believe you’re right, but the fundamentals are staring us in the face. How much of your monthly income are you willing to pay on a house that will not appreciate for 15 years? You won’t buy the house when it drops 30% because you’ll know it’s a poor investment. Cities will buy up unfinished condo ghost towns and try to repurpose them, maybe, but rich knights in white armor won’t buy the land, because there are much better investments (and people who won’t sell still live on small bits of the land they would need). The truly sweet land will hold its value better than most, but mile after mile of oversold neighborhoods will fall into disrepair. There are however always unseen events looming. Punctuated Equilibrium it is called in Evolutionary Biology. On the negative side, it is the occasional terrorist attack, volcanic eruption, asteroid collision. On the positive side it is the discovery of electricity, movable type, the microchip, gun powder. Here’s hoping for good news.

“We will have mid-90s prices with a borderline recession-depression”

Inflation will suck most of the savings out of Americans’ checkbooks.

Bravo! Recession and inflation in the same post!

There is a piece of the puzzle missing. I agree that the US market has some very fundamental flaws. I also agree that the world is different that it ever was. Something tells me that there is a knight in shining armor that no one here can visualize… something global… if the whole market drops like what you all are saying then I am on the wrong blog…. we should be on the ‘next great depression blog’ trying to figure out how we are going to survive the next 10 years.

I still don’t buy a 50% decline scenario…

Best case: Regional economic growth keeps coming to the rescue! Slower growth but no downturn. Bank error in your favor!

Likely scenario:

The Seattle market is reportedly overvalued over 30 percent based on historic fundamentals. Things do change of course so that number is probably high.
Real issue is how long does it take to play out? My hunch is a long time. Lot of sellers won’t believe it at first.

So starting in early 2008 we see drops; overcorrects to the downside by around 2014. 25 percent lower? Back up to where we are now by 2017-2018.

Conclusion: Renters will do the best in real estate over the next decade.

Best Case:
Dealer Dogs for everyone.

Most Likely Case:
Pretzels

Worst Case:
What dealerships.

Most likely case: Prices fall to the inflation-adjusted low from the last cycle, 1996 in most markets. This happens by 2010, with recovery beginning in 2011 or later. Probability: 50%

Worst case: Economic depression. Prices fall and get a brief bounce in 2008, followed by a complete collapse that turns the U.S.-Mexico immigration to the same magnitude as in 2006, but in the opposite direction. Home prices fall 50% nominal, 80% real by 2012. Probability: 10%

Japan-style deflation is about a 10% probability, and is second-worst case.

It’s not a matter of being “smart”, it’s a matter of being able to go your own way without being caught up in the crowd. Even today there are plenty of Wall Street types who recognized there were issues, but felt they’d might as well just play along and make as much money as they could while it lasted.

Even the CEO of Countrywide has commented that he can’t see how his firm would have done anything different even if he had a crystal ball as to what was going to happen. In fact, Messr Mozillo made some very insightful points about how taking actions to reign in lending at Countrywide several years ago would have meant almost going out of business since competitors who didn’t care about prudence would gladly take up the slack.

Greenspan couldn’t do anything to prevent the credit bubble. If he had taken severe actions to stop credit formation in the mid ’90s (as things were starting up) he would have been hung from the yard-arm, and unceremoniously fired as Fed Chairman. Policy makers can only take serious actions AFTER a crisis. Otherwise your life-span is severely shortened. No one will thank you for preventing a crisis that never happened…

Further, I don’t believe this bubble started in 2001. The machine of debt securitzation and expanding credit began back in the ’90s. I thought we were in a housing bubble in ‘97! Everyone acknowledges we had a “stock” bubble in 2000. Well, it never really went away and migrated into other spheres. In fact, we never had a “stock” bubble to begin with. What we’ve had is a CREDIT bubble.

And now, the whole thing is going to start to come appart.

Kime – I’m not sure I get your drift. What I think will happen is that the collapse of the real estate / credit bubble will be somewhat cushioned by inflation due to increased money supply as a result of financing the war.

I didn’t say this bubble has been “random”. In fact, I think it is entirely predictable as part of a generation economic pattern. Yes, we were asked to “spend, spend, spend”, but that was all part of the lack of concern all of us have had about risk. Don’t forget that our politicians and policy makers are part of society too. It was inevitable that policy makers would make the kinds of decisions they did which contributed to the bubble just as it was inevitable for buyers to stop worrying about buying homes they really couldn’t afford.