China Business Big Picture
be Yahoo warning about advertising revenues; let it be Dell’s warning that its eternal rebate programs cannot push sales any more; or let it be the automakers that sell many of their brands at prices below last year’s level, yet are still unable to boost volume. All these incidents are linked to the US consumer; and US consumer spending, in turn, is very closely linked to the health of the housing market. It also comes as no surprise that so far this year, the US dollar has fallen significantly versus a basket of currencies.
The froth that was described so well bny Greenspan seems to be having very real affect on the workforce in Naples, Florida. It will be interesting to see long-term how rich communities deal with worker housing problems.
Locals call Naples the “bubble city,” with home prices that have surged 140 percent since 2001. It’s the most overvalued housing market in the country, driven by an influx of retirees and second-home buyers, according to a June report by National City Corp. and Global Insight economists.
Teachers, nurses, paralegals and other middle-income workers are pursuing housing — and jobs — elsewhere. That’s making it tough for employers, which are giving big raises and housing subsidies and still finding it difficult to hire or keep staff.
“We have a workforce housing problem of acute proportions,” said Edward Morton, chief executive of Naples- based NCH Healthcare System, which operates hospitals employing more than 4,000 people. “It is a crisis that will only get worse.”
Everyone wants to know how new Fed Chief Bernanke will handle what his predecessor coined as the "housing bubble". Here’s one take:
Another quarter-point rate hike at the Fed’s June 28-29 meeting would push short-term rates to 5.25 percent, influencing bank loan rates for consumers and businesses.
That would complicate the housing outlook further.
The hot housing market and cheap lending rates helped fuel much of the current economic expansion. National Realtors Association data show median home prices grew 53.2 percent between 2000 and 2005.
Many economists think that steep rise reflected a speculative bubble fit to burst in the hottest markets on both coasts.
Just about every indicator now suggests a slowing housing market, especially in California and Florida. New housing starts nationwide fell 7.8 percent in March, and prices appear flat for existing homes, which are also lingering longer on the market.
"The anticipated degree of decline in starts for 2006 (6 percent to 7 percent) still qualifies as a ‘soft landing’ for the housing market, following unsustainable exuberance in 2005," David Seiders, chief economist for the National Association of Home Builders, wrote in his April 19 column.
"We expect much of the decline to reflect withdrawal of investors/speculators from housing markets" as double-digit gains in home prices become less likely.
Here’s an excellent story that covers a new paper being put forth to estimate whether there is a "bubble" in a particular market. Here’s the germ of the story, "Is there a bubble? Do the math":
They concluded that not only was the Los Angeles region not in a bubble, but also that many markets others were calling overpriced, including Chicago and Boston, were probably underpriced.
Their findings are at odds with other surveys that use the relationship of home prices to income to determine whether home buyers are overreaching. Homes in Orange County were fairly priced, the Smiths found. Some cities like Dallas, Indianapolis and Atlanta were screaming bargains. Homes they surveyed in San Mateo County, south of San Francisco, were, however, overpriced by about 54 percent.
The key to their work is a paper published here:
In a paper presented at the Brookings
Institution last month, “Bubble, Bubble, Where’s the Housing Bubble?” they said that even though prices had risen rapidly and some buyers
unrealistically expected the trend to continue, “the bubble is not, in
fact, a bubble in most of these areas.”
They argued that the value of a home is
determined by the rent it could fetch. Calculate the future rents,
subtract mortgage payments, taxes and other costs, factor in a good
annual rate of return of 6 percent or more, and one should be looking
at the proper price of a house or condo.
Their bottom line: “Buying a house at current market prices still appears to be an attractive long-term investment.”
If you’ve made a recent investment in Iceland, you may brace yourself for a grimace.
With a population on a par with a midsize city and a gross domestic
product of around $10.3 billion, or just below that of Rwanda, Iceland
would not seem to be on the radar screen of many financial experts. But
analysts from Merrill Lynch, Danske Bank, Fitch, Standard & Poor’s
and Moody’s Investors Service and economists around the world have
weighed in, some expressing concern, others saying fears of an
Icelandic meltdown are overblown.
Nicolas Bouzou, the chief economist of Institut Xerfi, a research
concern in Paris, feels that Iceland could be the "butterfly’s wing"
that sets off serious problems in capital markets around the world.
That is because "many countries have the same macroeconomic
configuration of Iceland," Bouzou said recently by telephone. That
configuration, he said, included a "real estate bubble, very strong
credit expansion and a very high commercial deficit." The same could be
said of New Zealand, Australia and even the United States, he added. If
investors lose money in Iceland, they will pull out of other countries
with similar economic structures, he said.
So, yeah, either the LA portion of the bubble is just puffing for a louder poof or there ain’t no bubble as of Spring 2006.
If this is a bubble, it’s sure taking a long time to pop.
For the first time, the median price of a Los Angeles County home topped the half-million-dollar mark last month, data released Wednesday showed.
Four years ago, the median was half that. By doubling in such a short period, it’s no wonder Los Angeles County appears on many lists of the nation’s most-overvalued home markets.
The increasing prices comfort recent home buyers such as Brian Kite. The West Los Angeles resident waited three years to buy a house because he thought prices were too high. He plunged in about a year ago, spending slightly more than the median price for a three-bedroom home not far from UCLA. The median is the level at which half the homes are sold for more and half for less.
Here in my hometown of Chicago, we’re as confused about the presence of froth as much as any one else: cbs2chicago.com – Analysts: Chicago Home Prices On The Rise.
(Medill News Service) CHICAGO Is there a housing bubble? Are Chicago homes over-valued? Or under-valued? Are prices rising so high that people are in danger of being squeezed out of the housing market?
The answer is yes, depending on whom you ask.
Economists, realtors and lenders are weighing in on the issue, and they are reaching different conclusions. But they all agree that Chicago home prices are increasing and taking a larger chunk of residents’ incomes as they rise.
The issue has strong economic implications, some say.
"Since 9/11, the driving force of this economy has been real estate," said Tracey Taylor, who runs T. L. Taylor Realty on the Near South Side. "When you have this strong of a force, it grabs the attention of the world."
the more deluxe kitchen if you buy a 2 bedroom unit. It even comes
equipped with 1 above the counter cabinet unit and a whole lotta blank
wall to let you exercise you own creativity. Hey, if you own more than
4-5 glasses and plates, you might want to think about using that extra
wall space for…um…more cabinets.
(Guess the nearly 3/4million dollars asking price just gets you the 1 starter cabinet.)
Here’s a window into the possible future of our variable housing bubble:
For 45 years, Robert and Lorraine Brown have lived in their ranch-style home in Florissant, Mo. One of their four children was even born there. But for the past eight months, the couple have been locked in a sleep-wrecking race to keep up with their rising mortgage bills. They’ve switched to cheaper phone service, cut back on groceries and sometimes put off ordering medicine.
When they refinanced their home two years ago to pay off some bills, Robert, now 78, was working as a deliveryman. But his employer went out of business last April. Now he and Lorraine, 72, a retired nurse, are both seeking work. The rate on their mortgage has jumped from 7% to 10.5%.
"We were having a hard time meeting bills at the time we refinanced. It seems once you get behind, you do desperate things to catch up, and you never do," says Lorraine, trying to hold back tears. "At the time of the loan, they tell you, ‘Well, it may go up, but it’s probably going to go down.’ You want it to be so, so you believe it."