A Ripple in the Bubble...
Got to love the AP catching on... (even if they did a pretty good job back peddling all the way through the tough facts.)
"The five-year housing boom is indeed over, judging from growing statistical evidence and the performance of some of the nation's leading builders, and the slowdown is already rippling through the economy."
"Housing has played a major role in the economic recovery since 2001, so even slower growth in home sales and prices could have major repercussions."
"Asha Bangalore, an economist for The Northern Trust Co. in Chicago, estimates housing created 43 percent of all new jobs from late 2001 until mid-2005. That included the obvious, such as jobs in construction and mortgage services, but also retail and service jobs that were created because consumers tapped their rising home equity to buy more things."
"Rising prices and interest rates pushed more buyers out of the market. When prices finally did cool, sellers couldn't command a high enough price on their old house to buy the new one, said Marceau, who believes the slowdown is temporary."
"Builders don't like to cut prices — it angers customers who paid more — but last week, Centex Corp. advertised $25,000 off on select homes in the Dallas area after making a successful similar offer in California. Around the country, builders are throwing in incentives ranging from financing help to free upgrades like swimming pools and granite countertops. Some equal 10 percent of the home's list price."
"We started to see the strain in July and August, and by the fourth quarter the market definitely had slowed," said Layne Marceau, president of the Northern California region for Shea Homes, one of the nation's largest private builders.
David Seiders, chief economist for the National Association of Home Builders, said California, Las Vegas, Florida and the Washington, D.C., area "have the largest potential for a price slowdown."
"The rising prices in those markets were fed by speculators who bought homes intending to "flip" or sell them for a quick profit, Seiders said. "The biggest fear I have is investor-owned units coming back on the market in large numbers," he said."
"Alex Barron, an analyst in San Francisco for JMP Securities, said builder stocks have been trading at relatively low multiples of their earnings since the late 1990s because investors always believed the strong housing market was too good to last."
"Investors kept saying, 'Next year housing will go down,'" Barron said. "I guess they're finally right."
"In the last week, the Commerce Department reported that January sales of new single-family homes fell 5 percent — the fourth decline in seven months — and the backlog of unsold new homes hit a record."
But of course we already knew this...
Remember that comment by Greenspan where he made reference that he thought some markets had gotten a little "frothy?"
From American Heritage Dictionary
froth·y (frôth, frth)
ADJECTIVE: froth·i·er , froth·i·est
1. Made of, covered with, or resembling froth; foamy.
2. Playfully frivolous in character or content
froth (frôth, frth)
1. A mass of bubbles in or on a liquid; foam.
2. Salivary foam released as a result of disease or exhaustion.
3. Something unsubstantial or trivial.
My question is... do you think this guy might have some economic frame of reference for saying such a thing?
So what is wrong with those in denial?
I saw a great ad in the Sonoma Index Tribune Real Estate section yesterday... from a real estate agent no less asking: "What Bubble?"
So Greenspan sees froth in the market. The market is made up of numbers.
Who's math do you think is more reliable?