American Real Estate - the Big Bubble?
Sam
past few months - to well over $200,000... and rising! It's the fastest
surge in house prices in 25 years. It's the highest growth since 1980.
Apartment prices have risen even faster recently.
Much of this rise is due to short-term investment and speculation. It's
not difficult to see why. In the US, national average home prices have
not declined since the Great Depression. Real estate seems a safe place
to invest in, especially when interest rates are low and the
sharemarket looks risky. Watch the share prices and dividend outlooks
of giants like GM and Ford, and it's no surprise that investors are
worried. This is a disturbing development - a country that puts most of
its wealth in real estate cannot make much progress economically, can
it? Japan is still struggling with the effects of its real estate
bubble many years ago.
Alan Greenspan recently warned investors: "We don't perceive that there
is a national bubble, but it's hard not to see ... that there are a lot
of local bubbles", he said to the Economic Club of New York recently.
The fear is that Greenspan will increase interest rates further in
response, perhaps with more than just the usual quarter percentage
point rise.
The risk is that rapidly rising interest rates will cause this bubble
to burst. Is it a bubble? Good question! Many investors take out 110%
loans at variable interest rates, seeking to sell the property again
within months. As long as interest rates remain low and real estate
keeps rising, they can and will take out ever-bigger loans.
Interestingly, prices have declined for many materials used to build
homes. It's not so much that it has become more expensive to build a
home, it's the price of land that has gone up and especially so in some
areas. In essence, it's government pushing up the prices, especially
where councils refuse to release more land for new development, while
increasing the cost of new connections to water, sewerage, roads, etc.
More fundamentally, we should question the role of government at
various levels, not only at federal level where interest rates are set,
but also town planning and the register of who owns real estate, etc.
Indeed, if this real estate bubble bursts, it may well put the
spotlight on the biggest bubble of all, government itself.
After all, what does one pay for when buying a piece of land? The
support of government in case of disputes? What if government turns out
to be too broke to give you support? Will that be the really big bubble
that will burst?
I am Sam, showing you the big picture
More Sense
boomers are the the top of their income-earning capacity. Many of them
earn huge salaries and want to buy even more expensive houses, which
seems the best move tax-wise. Other types of investment would add
further income to their already highly taxed income. Others have
received golden handshakes or are cashing in the superannuation.
Additionally, many of these baby boomers have over the past few years
inherited money from their parents, or they are looking forward to
inherit. Among them are also many who never owned a house before and
now suddenly are in the position to buy.
In short, the baby boomers, who constitute a huge demographic group,
are cashed up and ready to buy. This could suggest that the boom could
continue for some years to come, at least that appears to be what
speculators think. They are observing this demand and are frantically
buying houses in the hope of selling them at a profit within a few
years or so. It's the speculators who might go broke, as well as the
poorer families who borrow beyond their means, but we'll have to see
how this works out.
It remains interesting speculation to discuss what will happen and
what's good or bad about it. You mention that a country that puts most
some industries and thus doesn't contribute as much to a trade
deficit. Any views, anyone?
Deborah
Sam
group, at:
http://groups-beta.google.com/group/epistemology/msg/e36ac8494b4be92f
I thought it was also applicable to this topic here. Let me know your
views!
>start:
Look around you! Prices of houses are booming. There's a huge demand
for bricklayers, plumbers, electricians, etc. Try to renovate your
house and you'll be surprised at what you'll have to pay to get
something done. To get it done well, you'll have to pay even more. Why
is this the case? Because of this "education" system that was supposed
to benefit the poor and that was supposed to deliver skilled and
qualified people. As it turns out, school doesn't produce skilled
people at all. School-leavers have to undergo massive deprogramming in
order to become employable.
This situation is most destructive for boys and girls from a poor
background who could have earned a high income and learned valuable
skills, but are instead forced to sit in classrooms listening to
teachers who preach maths. Ask a classroom how many kids do not want to
hear about maths and count the fingers. Ask whether they want to earn a
honest living and count those fingers again. Then ask who they would
trust would return their wallet, if they had left it behind, an
accountant, a lawyer, a postman, a carpenter or an electrician?
Why do schools insist that everyone should learn mathematical nonsense
that they'll never use in their entire life in the first place? Who of
all the members in this group here does use any maths on a daily basis
anyway, I mean other than primary school maths, which one picks up
naturally in the first place even if one never went to school? Well,
when was to last time you calculated the root of something? Why should
that kind of thing be forced upon people who don't have the slightest
interest in it? Isn't forcing these kind of things upon kids creating
the very antipathy against it that is so noticable in our rurrent
society?
We should re-evaluate the education system. The people who claim to be
doing this evaluation either seem to be refusing to do so or they are
deliberately falsifying the situation. The education system is in deep
shit! The "researchers", due to massive conflicts of interest, are a
disgrace to the very objectivity and neutrality they claim to uphold.
Sam
Mean Mr Mustard
> Any views, anyone?
>
> Deborah
The "demographic shift" reason for the housing boom is nothing more
that national realtor assoc propaganda. The US population has not
changed that much from the pre-bubble conditions of 2001, not to
mention the fact that rents have not kept pace.
The real reason for the housing bubble is of course record low interest
rates spawned by the following:
a. Fed funds rate to the point of free borrowing (ARMs and interest
only mortgages)
b. Massive acquisition of T-notes and other debt securities by Asia.
(Low 15 & 30yr rates)
... add some speculators, REITs, investment clubs, loose lending
standards and you have yourself a bubble that will burst into a long
recession.
Sam
as a result of low interest rates, shaky stockmarkets and demographics.
Are there further factors, such as government bureacracy making it ever
harder for new development of land to occur? It seems that there is
plenty of land available in the US for a population that hasn't grown
fast nor is expected to grow fast in future. So, could that be a
contributing factor? Let's realize that the entire demand for a piece
of paper that says that someone was the owner, is actually fabricated
by government. In the end, it's just a piece of paper and its value
hinges on the backup government will and can provide.
So, what can government do? Will government further increase interest
rates to stop the bubble from growing much further? Recent experience
in Britain, Australia and the Netherlands suggests that it doesn't take
a big rise in interest rates for the bubble to stop growing. Making
available more land and raising interest rates are the conventional
instruments government will use to do so. But here's a court ruling
that might just pop the real estate bubble. The Connecticut Supreme
Court ruled today against a group of homeowners who didn't want to sell
their property.
In dispute was the extent of government's power to take property. The
plans were to redevelop a 90-acre parcel into a waterfront hotel and
conference center, office space and 80 residential properties,
following a decision by pharmaceutical giant Pfizer to build a research
facility nearby. The New London city argued that this would generate
thousands of jobs and significant revenue.
The ruling shows that government can and will take away ownership
rights and give them to another person as it pleases, in this case on
the mere perception that this would result in more tax revenue and
employment opportunities.
http://www.usatoday.com/news/nation/2004-09-28-justices-property_x.htm
It's time we realize that ownership of real estate exists only on
paper. Only on paper is the owner the owner, and only for as long as
government will allow the respective owner to be the owner.
Effectively, government simply claims to be the ultimate owner, owning
everything and everyone, making us merely tenants of our own bodies and
the real estate we may believe to be buying.
Similarly, the money issued by government exists only on paper and has
value for as long as this bubble doesn't burst. If the real estate
bubble bursts, that might just happen. The global increase in the value
of real estate over the past five years constitutes the biggest
financial bubble in history. When the stockmarket crashed in 2000,
interest rates were high and the US had a budget surplus.
Today, interest rates are low, leaving little room to lower interest
rates in an effort to avoid a global recession. In the US, government
debts and private borrowing have never before been as high, and there
is a huge current accounts deficit. In addition to cheaper labor luring
many industries abroad, the rise in the cost of land is sending out the
message that bussiness is better off abroad for new industrial
development.
This time, it's more obvious than before that a simple change in
interest rates - combined with Alan Greenspan's warning words - will
not do the trick. We need a more fundamental reform package that
stimulates economic activity, instead of directing our most productive
minds and efforts into a pre-industrial society of feudal landlords and
bureacratic government. We need a shift away from currency manipulation
towards investment in shares. We need a reform package that covers all
sectors of society.
Sam Carana