Saturday, November 10, 2007

Salvation is Close at Hand

The purpose of this blog was meant illuminate the Economic Disconnect that exists between what is reported and published by the government, television, and print mediums with reality. One of the major problems that I focus on the the current housing bubble implosion. While the housing market has started a severe correction, I must regretfully inform the readers that housing has now been saved. That's right, no more price declines. An end to foreclosure acceleration is coming. The real estate market is about to reignite into a burning Sun of economic prosperity. How is this going to happen? Its all right here (from Yahoo Finance headlines today):
AP
Foreign Cash Could Boost Housing Market
Saturday November 10, 2:35 am ET By Stephen Bernard, AP Business Writer
Foreign Cash Could Provide Much Needed Relief for U.S. Housing Market Thanks to Weak Dollar
NEW YORK (AP) -- The weakening dollar has caused many problems for consumers, but it may also be providing the fuel for one unintended -- and very welcome -- benefit: a rally in the struggling housing market driven by foreign investors.
Link: http://biz.yahoo.com/ap/071110/wall_main.html

Well there you go. Game over. I suggest reading the entire piece. What passes for economic journalism is pretty weak these days. Some snippets with commentary:

"The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.
That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years
."
Comment: So the weak dollar will entice foreign buying of homes in the US? Say I agree with the premise, what numbers are we talking here? What is the foreign purchase rate right now or historically for residential real estate? Are there enough Ireland or France natives looking to buy in Phoenix Arizona to even make a dent in the 50,000 homes for sale there? We don't know, and the article offers no information to gauge the veracity of the claim.

"The dollar is on sale," said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.
Comment: "On sale" usually implies something is priced below what it is worth on the open market in an attempt to increase sales volume. The dollar trades on the open market and thus is set to it's true value. Wharton business school is a Donald trump favorite, so I guess I would expect this kind of thinking. If Mrs. Wachter thinks the dollar is on sale now, wait for the "going out of business sale"!

"Some mortgage brokers are already seeing a boost in inquiries about buying property from overseas. Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com, said the number of inquiries he's received from outside the U.S. is probably five to 10 times larger than it was a year ago. The influx of foreign investors can help set a floor for the real estate market, Green said"
Comment: Five to ten times larger? Larger than what baseline? Is this a significant number? Again, we have no idea and the writer provides nothing comparative to work with. How bout that range, 5-10 times? That's pretty broad. 5x20 is 100 inquiries, and 10x20 is 200 inquiries, a 100% difference. Is Mr. Green not sure? As far as setting a floor to housing prices, that would require a enormous amount of foreign buying. Remember when Japan was going to buy all the property up in the US after the last real estate bubble collapsed in the late 80's to early 90's? How did that work out?

First the FED was going to slash interest rates and that would save housing. Then the SIV Superfund was going to put a floor underneath the mortgage credit markets. Then housing was only 5% of the economy anyway. Then the worst was over in September. That's a lot of saving going on for housing! Now we are left with foreign buyers propping up a bubble market. It seems that Salvation is Close at Hand all the time, yet things are still deteriorating.

There are I thinks two central questions that need to be answered in the next year or two. How the answers play out will have a lasting effect on the US economy and perhaps even the US consumerism way of life:
  • Can and Should homes require over 50% of net income to own?
  • Should interest rates be so low as to encourage borrowing at any cost, even at the cost of destroying the dollar and pushing inflation?

Obviously, homes should not be eating up over 50% of a households net income. The 50% is a low figure. I know people right now that commit 70% of their net income to "owning" a home. Until buying a home comes down to somewhere even near it's historical ratio of income commitment, the housing bust is going to continue. Its that simple. Any other argument is smoke and mirrors. There is no other final analysis. Another point lost in the debate is whether it is a good thing for home to cost so much that a severe financial strain is required to buy one. How many 2nd jobs and lost nights of sleep are required by overpriced homes? Theres a chart I would like to see.

The US does not seem any longer to be able to function unless more debt can be piled on at ultra low interest rates. If the FED cannot raise rates to lower inflation or protect the currency there is a systemic problem. This is a key point. When a possible action is ruled off the table, the threat of it no longer exists. If the currency traders out there want to short the dollar sort of speak and continue to push the dollar down, they know there is no counter force to stop them. What happens when the fear of being stopped is gone? You guessed it.

As I have stated before, the problem with financial event watching is the glacier like speed at which things move. The dollar continues is slow drop. Home prices continue their slow bleed. Slowly the rocks of "goldilocks" and "soft landing" are worn away by the tides of reality. The true extent of the damage that the housing bubble has done will not be evident and clear perhaps for years. This spring will be another milestone for the deterioration of the US bubble economy. Until such a time when things resolve themselves, we will have to have fun with the latest Salvation story.

Enough serious stuff!

In the event that the scores of cute realtor women out there need another line of work, perhaps stripper school would suffice:

Imagine if someone hijacked a television broadcast and woke people up to the problems facing the US economy. On November 22, 1987 a joker hijacked a TV broadcast in Chicago, but he didn't offer any economic forecasts:

For more on the above, try Damn Interesting: http://www.damninteresting.com/?p=776

Have a good night.

2 comments:

first time home buyers said...

dont know what your videos were about

Anonymous said...

Ted foreigners are going to save retailer also.

BLUE CHRISTMAS
OIL SPIKE, CREDIT CRUNCH SOUR CONSUMERS

"Even though American budgets might be tight, a bunch of Europeans could spend [a bundle here] during the holidays," said Herb Daroff, a financial planner with Boston's Baystate Financial Services.

"If I was handling retail sales, I'd want to put a lot of my ads in the London Times. That foreign capital can help bolster our American economy."

http://www.nypost.com/seven/11112007/business/blue_christmas_779728.htm

They might spend a bundle but I don't think it is going to be enough:-)

Kevin