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David Stockman deems U.S. in a housing bubble


By Call it Crazy   Follow   Mon, 4 Feb 2013, 2:11am PST   1,309 views   18 comments
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“We don’t have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren’t what they appear to be,” argued David Stockman, former director of the Office of Management and Budget in the Reagan Administration."

“It’s happening in the most speculative sub-prime markets, where massive amounts of 'fast money' is rolling in to buy, to rent, on a speculative basis for a quick trade,” he contends. “And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”

http://finance.yahoo.com/blogs/daily-ticker/housing-bubble-2-0-david-stockman-133026817.html

Comments 1-18 of 18     Last »

David9   Mon, 4 Feb 2013, 2:51am PST   Share   Quote   Permalink   Like   Dislike     Comment 1

Forbes thinks so too:

http://www.forbes.com/sites/modeledbehavior/2013/01/14/housing-in-2013/

David Losh   Mon, 4 Feb 2013, 5:17am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 2

Absolutely, it happened before after the Savings, and Loan Scandal.

These big time investors scooped up a bunch of well priced properties, rented them, sold the REIT rights, then liqudated.

It was smooth moving, and any one could have played along.

I was offered 125 houses in a new development on a one year Note ballon payment. That to me was high risk, but a Real Estate agent took the deal, and sold every frigging one of them during the course of the year.

MsBennet   Mon, 4 Feb 2013, 9:12am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 3

Wow, some common sense talk there.

JodyChunder   Mon, 4 Feb 2013, 10:09am PST   Share   Quote   Permalink   Like (3)   Dislike     Comment 4

It's seemed pretty obvious to me for a good while now. The model for our economy is serial bubble boom/bust/boom/bust.

Now, when everyone says "nobody and I mean NOBODY could have seen this second bubble coming," these guys can say they did.

Mark D   Mon, 4 Feb 2013, 10:39am PST   Share   Quote   Permalink   Like   Dislike     Comment 5

i don't understand why is "cheap money" a bad thing.

i'm sure no one has a problem with interest rates rising when inflation and business activity increase but when the opposite happens it's bad economic policies. aren't they two sides of the same coin?

David Losh   Mon, 4 Feb 2013, 10:45am PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 6

Mark D says

i don't understand why is "cheap money" a bad thing.

Cheap money means a return on that investment. Buying a house isn't an investment, it's debt.

Consumer spending is debt, no matter how low the payments are.

If you are buying corn at a $1 a bushel, and selling it for $2 a bushel cheap money is good for you, bad for the consumer who ends up paying the higher price.

Cheap money is choking our economy by making specualtion more profitable than innovation.

Specualtion is short term, innovation is long term.

bmwman91   Mon, 4 Feb 2013, 11:03am PST   Share   Quote   Permalink   Like (4)   Dislike     Comment 7

Mark D says

i don't understand why is "cheap money" a bad thing.

i'm sure no one has a problem with interest rates rising when inflation and business activity increase but when the opposite happens it's bad economic policies. aren't they two sides of the same coin?

It's because of how it is applied. What we have now is nothing more than a wealth transfer mechanism from the productive working class (albeit a stupid class if observation teaches us anything) to the unproductive vampiric financial sector. Consumers are being herded into debt so that the fruits of their labors are guaranteed to the oligarchy for decades to come. On top of that, the old invisible hand tries to cope with the increased spending power that cheap money seems to give to everyone, and asset prices simply rise to a level where people end up with the same purchasing power as they had without the cheap money, except now they owe their future labor to someone else to get whatever it is that they wanted in the present.

Wages are not rising for the working class, but our way of life requires continually expanding consumption. Cheap debt is a temporary solution to a very real sustainability problem. For now, people can grow their debt loads to continue enjoying this quality of life via ever-increasing consumer spending. When the rest of the world suddenly sees that US dollars are not actually worth anything, we'll stop getting real goods for our dollars and shit will hit the fan. For now, the rest of the world is the real fool, giving us real goods in exchange for some shuffling some numbers in a database somewhere. It's the only way that we have gotten away with this for so long.

Anyway, asking how cheap debt is bad is equivalent to asking why the cost of living increasing by 3.5% when your income is the same is bad. It's not sustainable, and you will be stripped of everything along the way to something that is sustainable.

inflection point   Mon, 4 Feb 2013, 12:18pm PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 8

Wealth for the many is grown by investment, discipline, and savings. Cheap money is generated by the Federal Reserve by stealing from the savers and distributing to their freinds the bankers and connected few.

Cheap money money and the expansion of debt only serves the connected few.

HEY YOU   Mon, 4 Feb 2013, 2:07pm PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 9

Not an organic market. No jobs(including low pay & short hours)= No Consumers. With all the possible store closings coming & the effect on the local economies, the unemployed will have time & money to buy all housing inventory,creating new demand & price increases. Just put on my Bull horns.

David Losh   Tue, 5 Feb 2013, 1:56am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 10

bmwman91 says

When the rest of the world suddenly sees that US dollars are not actually worth anything, we'll stop getting real goods for our dollars and shit will hit the fan.

The United States dollar, in my opinion, has the best chance of survival because we have a means of addressing our debt, and deficits.

Just because Congress can't pass a budget doesn't mean there isn't a budget that can be balanced.

If Congress got serious about the budget we have Billions of dollars we can cut, from Military, Health Care, and Social Security by redirecting funds into more effecient means of providing a Public Safety net.

Our military budget alone is bloated beyond recognition. We play games with health care while our population is dying. Social Security has money, but we pussy foot around like it's a Public Pension Plan rather than a tax.

Our Congress has a lot of options other governments do not. We have the ability to tax, and cut our way to a balanced budget. We can also move forward with debt reduction according to what I read.

I think when the smoke clears, and if we adjust the mirrors ever so slightly, the United States can lead a global economic recovery.

grendel   Wed, 6 Feb 2013, 1:24am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

I think this is sloppy semantics. You have a bubble when speculation leads to high prices detached from fundamentals which leads to a massive increase in supply.

If anything, supply is still contracting. New housing starts are still in the gutter. REO houses are still rotting on the sidelines. It's not a bubble.

Prices have gone up in 2012, but I think it was more that prices went WAY down in 2011 and the fed panicked enough that it held us to a stable level. Not that there's anything actually positive about 2012.

Does this mean that we've finally "hit bottom"? No. Once the pricing supports by the Fed are removed, prices will continue to fall. But is this a bubble? Not even close.

ELC   Wed, 6 Feb 2013, 11:40am PST   Share   Quote   Permalink   Like   Dislike     Comment 12

Mark D says

i don't understand why is "cheap money" a bad thing.

It depends why the money was made cheap. So the country can make the payment on their national debt is not a good reason.

thomaswong.1986   Wed, 6 Feb 2013, 4:10pm PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 13

grendel says

Does this mean that we've finally "hit bottom"? No. Once the pricing supports by the Fed are removed, prices will continue to fall. But is this a bubble? Not even close.

if your in Miami or Vegas maybe not a bubble.. but SFBA certainly not yet fully corrected downwards. The causes of the SFBA pre-2000 bubble was mainly driven by free money from sale of highly inflated IPO stock, which after sold to public sank by 90%. And of course many pissed it on highly priced homes which were half as much a few years before. None of it can be called by real fundamental. We never really corrected for doubling in prices from 1998-2000.. even after 10+ years the irrational mindset and bubble heads are still in the Bay Area.

deepcgi   Wed, 6 Feb 2013, 8:59pm PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 14

Real Estate all through the boom years proved to be a horrible investment. The only reason any of you have happy stories to tell is because the Fed bought up all of the failed CDA's that were funding the mortgages. (taxpayers say, "you're welcome"). They cannot continue to do this forever. Now, the market must strengthen to a point where it is self-sustaining. If the Fed's actions have NOT artificially buoyed up the market, then the Democrats should stop screaming about taxes. The tax revenue increase they are hoping for is tenths of a penny on the dollar. You just have to hope that 1.5 quadrillion dollars in unregulated derivatives debt is risk free.

epitaph   Wed, 6 Feb 2013, 11:26pm PST   Share   Quote   Permalink   Like   Dislike     Comment 15

thomaswong.1986 says

if your in Miami or Vegas maybe not a bubble.. but SFBA certainly not yet fully corrected downwards. The causes of the SFBA pre-2000 bubble was mainly driven by free money from sale of highly inflated IPO stock, which after sold to public sank by 90%. And of course many pissed it on highly priced homes which were half as much a few years before. None of it can be called by real fundamental. We never really corrected for doubling in prices from 1998-2000.. even after 10+ years the irrational mindset and bubble heads are still in the Bay Area.

The bay area also has the strongest job market in the US.

Call it Crazy   Wed, 6 Feb 2013, 11:50pm PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 16

David Losh says

Our Congress has a lot of options other governments do not. We have the ability to tax, and cut our way to a balanced budget.

Ability to tax, Yup... cut our way to a balanced budget, will NEVER happen!!

David Losh says

I think when the smoke clears, and if we adjust the mirrors ever so slightly, the United States can lead a global economic recovery

I hope you're right.... but it might be more towards a global bankruptcy....

Quigley   Wed, 6 Feb 2013, 11:54pm PST   Share   Quote   Permalink   Like   Dislike     Comment 17

What I'm seeing is this:
1) no inventory. Or almost none. The houses that come up are usually low quality, small, ok a major street, or just overpriced flips.
2) shadow inventory sitting and sitting. Some is auctioned and bought by said flippers and other investors. No REO property at all. Short sales seem dead.
3) crazy many offers on anything decent from families who've been sitting and waiting for months or years. Still, if the only good house in town got 20 offers, to me that means 20 active buyers. If the market had reasonable inventory there would be 200 such houses for sale here, and this exhaust demand quickly.
4) inflation is happening. But not wage inflation. Just reduced buying power with our dollars. I want to say that this will drive house prices upward, but if people also have to put more of their income towards essentials like food, utilities, clothing, gas, and medical care, how will they be able to spend more on housing?

In conclusion I think the first poster may be correct. Limited supply is creating an opportunity for investors who are snapping up almost all available property. Eventually this will change and the real market will assert itself.
I just find it really annoying.

Call it Crazy   Thu, 7 Feb 2013, 12:06am PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 18

Quigley says

What I'm seeing is this:

1) no inventory. Or almost none. The houses that come up are usually low quality, small, ok a major street, or just overpriced flips.

I'm seeing the same thing. Plus, many of the houses are priced unrealistically high because the owners are trying to get out from their underwater mortgages.

Quigley says

2) shadow inventory sitting and sitting. Some is auctioned and bought by said flippers and other investors. No REO property at all. Short sales seem dead.

The amount of empty houses I see when driving around is unbelievable... no "for sale" signs, nobody living in them and when I do a look up, they have never been offered for sale in the past. The banks are just letting them sit and rot away.....

I don't see this situation changing any time soon in the future..

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