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« The TED Spread | Main | The Role of Financial Blogs - Part 2 »

September 06, 2007


Bill aka NO DooDahs!

WEB did better on that house than he did on his Silver or USD trades ...


Where I live (Orange County) there are a lot of pretend-rich with affordability about 50% (difficult to say with today's loan terms) above the long-term housing cost/income ratio average here of 34%.
Will they hold up -- it looks like those at the margin will pull prices down with same-home prices down about 5-7% over the last one year. There are also some interesting happenings on the new-home scene where those who "bought because the sales reps told them prices won't go down" are now protesting because of the price drops and incentives.

I've seen stats produced by the OC Register's Jon Lansner and other articles, it seems like flippers were not much of a factor late in the cycle and the primary cause of the runup here is of owner-occupants using exotic loans (Business Week's map of misery to use their description)

One thing though -- in the last cycle, although the housing market topped out in 1990, it wasn't until 1995 that sentiment towards housing really soured.
That was of course a great time to buy a home here and Warren Buffett did (which he sold in September 2005 for a tremendous profit)! Talk about picking both the bottom and the top correctly.


RB -
Good question, and it certainly seems plausible. As I read the Mauldin piece I found myself wondering about the passage you cite. Some people who took a teaser rate did so because they knew their stay would be temporary or because the anticipated a change in job status. There are many different cases and we have no idea how many fit the stereotyped pattern.

In some areas, people purchased multiple homes for speculation and then tried to rent. This did not work! Presumably it pushed up prices in those areas creating a greater "wealth effect" for other, uninvolved homeowners. I don't see any evidence of that where I live. Do you?

Those who want to see a big wealth effect always go to the reliable ATM machine stereotype. Do you believe that 2% of GDP growth was "wealth effect"?

We need to find some other sources on these topics. Meanwhile, Mauldin's treatment of the employment revisions is incorrect, another thing for the agenda.

Thanks for a great question.



This from Mauldin's latest:
"...many of the mortgages sold in the past two years only made sense in a housing market that was rising by 10-15% a year."

Is it correct to say that effects on the margin for house prices on the upside as well as downside due to the overextended borrowers affect home prices for all homeowners and with a corresponding impact on the wealth effect related spending pattern?


"We are suckers for those who help us navigate uncertainty, whether the fortune teller or the "well published" dull academics or civil servants using phony mathematics." - Taleb.

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