Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, March 10, 2006

History Unlearned....

.... Repeats Itself

From Forbes:

"What we seem to have is a showdown between a stable, if not bullish, technical climate and a risky housing bubble. The bull market appears intact when one looks at the major indices, which have all continued to trend upward. Only the interest-rate-sensitive Dow Jones Utility Average is looking a little "toppy."

"If this bellwether composite of homebuilding, mortgage and real estate stocks breaks sharply to new lows in the next several months, it means the housing bubble unwinding is about to turn ugly."

"Historically, all bubbles are dangerous if they can affect a large portion of the public. And nothing has potentially more impact on consumer confidence than the falling value of one’s home."

"Bubbles usually require an external event to create the first pinhole. For stock market bubbles (1999, 1929 and Japan in 1989), it was central bank tightening. For the housing bubble, it may be a combination of rate hikes (14 so far), plus the U.S. Federal Reserve pulling the rug out from under the speculators."

"Another larger pinhole could develop if the dollar starts slipping and long-term bond yields begin rising. That, too, is an ominous warning flag for the stock market."

Bubble Bellwether Index Graphs

"The path so far exactly replicates that of a popped bubble, whether you look at the Internet Index of the late 1990s or oil service sector of the early 1980s."

"After the initial popping, there is a reflex rally that reignites the hopes and expectations of participants. Then (only after the break through key support levels) investors start to realize the boom is over. Fundamentals start to change, too. The media headlines start to recognize surprises, downside surprises."

"(Bloomberg) -- A U.S. housing-market slump is ``the single largest downside risk to the 2007 economic outlook,'' says David Rosenberg, the chief economist for North America at Merrill Lynch & Co. in New York. Paul Ashworth at Capital Economics Ltd. in London calls it ``arguably the biggest risk to the U.S. economic outlook over the next couple of years.''

"Figures this week showed the supply of unsold U.S. homes at its highest level since 1998."

"Should supply continue to grow faster than demand, it's likely that housing prices will continue to drop. As for the stockpile of existing homes, it's up, too. The Realtors association reported a 5.3 months' supply of existing homes currently on the market. That's nearly double from January 2005.

"National Association of Realtors reports that last year an "eye-popping 43% of first-time home buyers purchased their homes with no-money-down loans." Meanwhile, foreclosure monitor RealtyTrac has announced that nationwide foreclosures jumped 24.5% between the first and fourth quarters last year."

"So yes, Virginia, everything is fine. Santa is on his way."


At 3/10/2006 08:50:00 AM , Blogger Bubble-X said...

"Another larger pinhole could develop if the dollar starts slipping and long-term bond yields begin rising. That, too, is an ominous warning flag for the stock market."

And, the bond market has been creeping up..


At 3/10/2006 12:23:00 PM , Blogger Athena said...

yes it has...

you know what? Ask any person you know what subject bores them the most... guess what they are most likely to say?


I had this great professor at SRJC a long time ago. Gus P'Manolis and one of his favorite sayings when discussing how the more things change the more they stay the same was:

"History un-learned, repeats itself."
(hence where I got the nifty title) :-D

So I zillowed a friend's house the other night. The purchase price of it in 2004 was somewhere in the high 300'sk

Zillow shows that in the past 30 days his house value is down by 2%. The whole zipcode of 95476 is down 1.1% and Sonoma county as a whole is down 1.4%

and here is some history...

in 1993 the house was sold for near $175k

in 1997 just four years later it was sold for near 120k

over four years time the price actually WENT DOWN.

Wait... I thought real estate always goes up?

in 1998 just a year after the last sale it sold for about 30k more than 1997.

Then 7 years later it sold for near $380k in 2004

What will history tell us next do you think?

At 3/10/2006 01:26:00 PM , Blogger marin_explorer said...

"in 1993 the house was sold for near $ 1997 just four years later it was sold for near 120k...over four years time the price actually WENT DOWN."

And subtract from that, whatever losses due to inflation, perhaps another 15%?


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