Housing Froth

Awesome Asian Take on American Economic Denial

Asia Times Online :: Asian news and current affairs - US housing bubble: Economy in denial

Let it

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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.

"Froth" Getting Some Etymological Play in the NYT

The New York Times has a fun story covering a number of breakout words and phrases for 2205. Our friend Froth made the list. Here is the original story and here is the froth excerpt:

The soap opera that is the housing market.
By DAVID LEONHARDT

ALAN GREENSPAN has earned a reputation in his 18 years as Federal Reserve chairman as a master of the 50-word sentence whose meaning is nearly impossible to untangle. Once in a while, though, he turns a phrase that seems to capture the country's economic anxieties.

In response to a question after a speech in May, Mr. Greenspan said that "at a minimum, there's a little froth" in the housing market. He was not the first person to use the word, but after it passed his lips, it quickly became part of the national conversation.

Part of its allure is simple: it's a fun word to say, one that conjures the image of a baby's bath or a hot cappuccino. But "froth" - like "frothy," which has become more common since May - has the added virtue of describing the nation's real estate obsession in a more nuanced way than "bubble" does.

Froth, the dictionaries say, refers to a bunch of bubbles rather than a single big one. In May, Mr. Greenspan emphasized that there was no nationwide housing bubble, a position shared by most economists. If you have owned a home in Indiana or upstate New York over the last two decades and watched its value rise little faster than inflation, you understand this notion better than many big-city residents do.

But the rapid increases in house values in much of the rest of the country cannot continue long, Mr. Greenspan added. "It's hard not to see that there are a lot of local bubbles," he said.

When prices continued rising in the weeks that followed, Mr. Greenspan looked as if he could be repeating his flirtation with bubble-ology almost a decade ago. In 1996, he asked whether "irrational exuberance" had consumed stock-market investors, and equity prices around the world briefly tumbled before resuming their ascent.

Mr. Greenspan then backed off, saying that bubbles usually could not be detected until after they popped.

This year, however, he continued his gentle warnings, and the housing market had already begun cooling by the start of summer. Houses now take longer to sell on average, and prices have stopped rising in some areas.

What happens from here is not clear, but soon it will not be Mr. Greenspan's problem. He will retire Jan. 31, to be replaced by Ben S. Bernanke, a White House adviser and former Princeton economist who can become the nation's new economic phrasemaker.

The Sky is, in Fact, Falling

Here's what happens when an editor tells a reporter, "Go Get Me a 'The Economy is Going to be Bad' Story!'" from the Lincoln Journal Star.

Buy now, pay later: It’s been the mantra of American consumers for decades.

The results are obvious in the ballooning balances on credit cards and mortgage loans, and in the expanding U.S. trade deficit, which reflects the nation’s nearly insatiable appetite for cheap, imported goods.

Low interest rates, especially since the end of the 2001 recession, have fed the debt beast at home, allowing American consumers to accumulate nearly $11 trillion in debt as they buy more homes, more cars, more clothes, more dinners out.

Hot & Cold Froth in Masachusetts

Here's a story from Masachusetts that is representative of the mixed housing market. House Sales Slip Again; Condos Surge.

Aug. 24--The Massachusetts real estate market is running hot and cold.

The state's condominium market continued its blistering, double-digit pace of sales increases last month amid surging demand for luxury, low-maintenance housing. Sales of 2,395 condos in July represented a 12.4 percent jump over July 2004, according to yesterday's monthly report by the Massachusetts Association of Realtors.

Yet sales of single-family homes slipped 7.4 percent, to 5,328, the third drop in sales from the previous year in the last four months.

Prices Still Rising, Sales Volume Slowing

More evidence on the froth parade from Bloomberg.com

U.S. Economy: Home Resales Slow to 7.16 Million Rate (Update1)

Aug. 23 (Bloomberg) -- U.S. previously owned home sales slowed in July and the number of houses for sale rose to a 17-year high, suggesting the real estate market is beginning to cool.

Existing home sales fell 2.6 percent to a 7.16

Ironic Iconic Bubble Shirts

T-shirts are the new meme-makers. You can buy your own bubble shirt here.

WASHINGTON (Reuters) - Striking a chord with uneasy U.S. property investors, T-shirtHumor.com's latest design -- "Mr. Housing Bubble" -- has become its best seller in less than a week. ADVERTISEMENT

The parody of the decades-old Mr. Bubble bath foam package offers a "Free Balloon Mortgage Inside." But the smiling pink house-shaped bubble also warns: "If I pop, you're screwed."

A disclaimer at the bottom reads, "Not affiliated with Mr. Internet Bubble."

Origins of Exhubrance and the Nature of Froth

The news cycle is driven by the utterances of the big wigs-- the President, Chairmen of the Board, Supreme Court Justices, and so on. But all of those advised by and come in contact with dozens and hundreds of influencers. Here's some insight into the coining of the term, "Irrational Exhuberance", and some dire words re: housing froth:

Be Warned: Mr. Bubble's Worried Again - New York Times.

Mr. Greenspan listened without giving his opinion, and Mr. Shiller went home assuming that he had been farther away from Mr. Greenspan than Ms. Cohen in more ways than one. Three days later, however, driving his son to school in the family Volvo, Mr. Shiller heard on the radio that stocks were plunging because Mr. Greenspan had asked in a speech whether "irrational exuberance" was infecting the markets.

"I may have just started a worldwide stock-market crash," the professor told his wife, Virginia, who accused him of delusions of grandeur.

Today, nine years after his lunch with Mr. Greenspan and five years after the markets finally did crash, Mr. Shiller is sounding the same warning for real estate that he did for stocks. In speeches, in television and radio interviews and in a second edition of his prophetic 2000 book, "Irrational Exuberance," he is arguing that the housing craze is another bubble destined to end badly, just as every other real-estate boom on record has.

These, in short, are his second 15 minutes of gloom. He predicts that prices could fall 40 percent in inflation-adjusted terms over the next generation and that the end of the bubble will probably cause a recession at some point.

Froth at Home

Here's a great story on how to tell if you live in a housing bubble:

Do Try This at Home: Assess Your Area's Real Estate Bubble.

Do Try This at Home: Assess Your Area's Real Estate Bubble
New York Times
August 13, 2005 | DAMON DARLIN

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For the first time since the residential real estate marathon began 13 years ago, parts of the country are showing signs of exhaustion. But if you rely on the experts to declare that a particular area's bubble has popped, you may have waited too long.

So how can a homeowner tell if a market is about to go bust? This may be one of those rare occasions when professionals parsing data are at a disadvantage to regular people watching the market. That's because the main driver of today's market is consumer psychology.

Home prices go up as long as people expect them to go up.

When they stop believing, prices fall - and no economist in Washington can get wind of that faster than someone chatting over knockwurst at a neighborhood block party. "Economists looking at the macrodata will be the last to know," said Richard A. Brown, chief economist at the Federal Deposit Insurance Corporation.

Prices Frothy

New data has prices continuing a frothy climb.

Link: The Sun News | 06/24/2005 | Existing-home sales drop slightly; prices set a record.

WASHINGTON - Sales of existing homes slowed slightly in May but still came in at the second-highest level on record with home prices hitting an all-time high.

Sales of previously owned homes and condominiums edged down 0.7 percent last month, the National Association of Realtors reported Thursday. The small decline left sales at a seasonally adjusted annual rate of 7.13 million units, down only slightly from the 7.18 million sales pace in April, which had been an all-time high.

Even with the small drop in sales, home prices moved higher, to a record of $207,000 for the median price, the point at which half the homes sold for more and half for less.

The Chinese Take on Froth

Link: The Standard - US homes bubble warning - Markets Section.

Rising short-term US interest rates may be good for the dollar, attracting foreign investment into US debt markets, but higher rates are expected to slow the red-hot US housing market, which would likely slow the economy and undermine the greenback's rally.

After a three-year decline, the dollar has recovered some ground in the first half of 2005, helped by the US Federal Reserve raising interest rates eight times in the past year.

As a result, US interest rates are higher than in Europe and Japan, and the interest rate differential has drawn foreign investment into the US bond market, boosting the dollar.

But foreign interest in safe-haven Treasury bonds has also helped to keep longer term US bond yields and home mortgage rates at historically low levels, fueling a home price boom.