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Thread: Are we still in the housing bubble?

  1. #1
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    Are we still in the housing bubble?

    It was reported today that new home sales fell to a new record low http://money.cnn.com/2010/06/23/real...ales/index.htm If I understand correctly, in order for our economy to "get back to normal" the number of new home sales has to be around 800,000 to 900,000. That requires jobs. the housing section accounts for a significant portion of construction jobs, but there are fewer houses being built because of lower sales based on fewer jobs based on less construction.....
    I recall that the reason we have the home mortgage system we do today was, in part, to the drop in home sales during the Great Depression and foreclosures back then. Supposedly, the housing bubble burst back about 2008 but we still seem to be locked in a cycle of wading for housing sales to rise in order to feel better about the economy. I have never really thought of Housing construction as the most stable sector. It reminds me of playing the stock market. Too often people build when we donít need the units and then stop building when we do.
    If construction is so important, why didnít more of the stimulus money go to infrastructure? We HAVE to have that, yet fiscal conservatives still tout tax breaks for businesses are the way to go. What makes them think that road, rail, and utility construction doesnít create jobs? Maybe we need to shift away from relying on housing construction to drive our economy or at least have as major an influence as it does.

  2. #2
    Cyburbian DetroitPlanner's avatar
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    Lets see... 15 year mortgages at 4 percent, tons of empty home everywhere, huge decreases in revenues from property taxes, very few if any homes, condo, or apartments being built, yep we're still in the housing bubble!

    Tons of ARRA money did go to infrastructure. Last year was like two years in one in terms of construction activity. The problem was that none of the funding was available to help locals plan or engineer things so most of it went towards resurfacing type projects, unless they had engineered larger ones previously.

    I don't think we have seen the full impact of all the contracts awarded in the last year yet.
    We hope for better things; it will arise from the ashes - Fr Gabriel Richard 1805

  3. #3
    OH....IO Hink's avatar
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    We have too many homes. Period. My belief is that supply will crush demand for many years. If we never build a large subdivision again, it will be too soon. I saw a report that in 10 years we would have over 20million vacant homes.

    I also remember an article from the NYT about whether it was really a bubble...

    http://economix.blogs.nytimes.com/20...ally-a-bubble/


    Quote Originally posted by Article
    Meanwhile, bubble theorists also say that today America is “overbuilt” as a result of the bubble. With too much housing and no additional demand to be supported by market fundamentals, real housing prices should, according to the bubble theory, be lower today than they were in the late 1990s.

    A reasonable estimate, based on bubble theory, is that housing inventory is about 3 or 4 percent above what it would have been without the bubble and without the temptation to overbuild. In order to make these excess homes worth buying, prices need to fall further; economists would generally estimate that an extra 1 percentage point of housing inventory requires a matching 1 percentage point decline in price to make those excess homes look like a good deal.

    So if we believe we had 3 or 4 percent more homes than we really needed last year, based on market fundamentals, that means that housing prices would eventually be about 3 or 4 percent below what they were before the bubble, to make those extra houses worth purchasing.

    ps. I still don't understand why so many people are against infrastructure - rail especially... I have a hard time when someone says..."Just because it works in Europe doesn't mean it would work here". Drives me nuts.

    As an asside (and slightly off topic)- If we invest in updated power grid, alternate forms of transportation, and green buildings, we would create these jobs that President Obama seems to tout all the time... but for some reason we created a program that helps repave roads... not that it isn't something - it creates jobs... just not really what I thought we were trying to do.
    A common mistake people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. -Douglas Adams

  4. #4
    Cyburbian DetroitPlanner's avatar
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    Quote Originally posted by Hink_Planner View post
    ps. I still don't understand why so many people are against infrastructure - rail especially... I have a hard time when someone says..."Just because it works in Europe doesn't mean it would work here". Drives me nuts.

    As an asside (and slightly off topic)- If we invest in updated power grid, alternate forms of transportation, and green buildings, we would create these jobs that President Obama seems to tout all the time... but for some reason we created a program that helps repave roads... not that it isn't something - it creates jobs... just not really what I thought we were trying to do.
    There was a considerable set-aside for High Speed Rail, though that is not how things resulted for me. The doling out of money was very political, and since Detroit is at the end of the corridor and Chicago its hub, the improvements in Chicago will help us, though it has not created many jobs in Michigan where we only got $40 million of several billion that was available.

    I am a transportation planner who works mostly on programming funding so it biased my view on ARRA in my previous post. I am certain that funding went toards the 'greening' of public facilities, though I have no idea how much.

    Metro Detroit has contracted considerably during this last recession. We lost most of our manufacturing base and about 400,000 jobs that provided serious spin-offs. This has led to an obscene number of foreclosures, and many households increasing thier size. Neighborhoods of small (like mine) and huge homes have borne the brunt of housing bubble problems as folks consolidate to save money (room-mates, home with mom and pop...).
    We hope for better things; it will arise from the ashes - Fr Gabriel Richard 1805

  5. #5
    Cyburbian
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    I said on another thread that housing construction is one of the strongest indicators of an improving economy. However, new construction comes at the tail end of a recovery and we are several years away from seeing that.

    WE think that stimulus funding for infrastructure is important. However, more people are directly impacted by stimulus funds to aid small and medium sized businesses. I have always thought that the stimulus funds for infrastructure improvements were to improve interstate commerce and lower transportation costs for shipping goods across state lines (again, stimulus fiunds used indirectly to aid business).

    A healthy at-large planning profession depends on a significant percentage of planners working in planning specializations tied directly or indirectly to new housing construction (see previous posts). I have never thought that was a healthy way to go. Let's face it, we built too many bedrooms AND we gradauted too many planning students. Now there is shortage in both and it will take years for us to return to a "status quo" of building too many bedrooms for our needs.
    "This is great, honey. What's the crunchy stuff?"
    "M&Ms. I ran out of paprika."

    Family Guy

  6. #6
    Cyburbian
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    Don't make the mistake of confusing politics with sound economic policy. The overriding sentiment among Americans today is that the government free ride is over and everyone is on their own, sink or swim. Building infrastructure is always a politically viable idea. Everyone wants better roads and is willing to spend government funding to provide them. Bailing out homeowners who have lost their jobs and can't pay their mortgages anymore, well we're just sorry about that. We believe that America doesn't benefit from keeping the housing market strong and if you were a better employee you wouldn't have lost your job in the first place.

    Not all markets have too many homes. Unemployment is the reason why the housing market is still stalled. During the Great Depression, FDR bucked the system and started creating projects that would put people back to work. It was very unpopular at first but worked over time. I don't believe that the free market alone is going to solve the unemployment that we have right now and I believe the sentiment of groups like the Tea Party will just worsen the economy. Very little is going to happen between now and the November election because politicians are afraid of the unwarranted American backlash associated with federal spending policy during an economic crisis.

    The system is now broke and just standing by and saying that it should have been more careful before won't fix it. Some kind of sound economic plan that puts unemployed Americans back to work needs to be implemented.

  7. #7
    Cyburbian Brocktoon's avatar
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    The housing market varies from city to city. In the Phoenix area things are not expected to rebound significantly until 2014 or 2015. This will be the first recovery in the past 60 years where Phoenix will lag the nation in terms of the recovery. To moany houses were built and now too many houses are being purchased by investors. This along with the increase in SF permits being issued the glut of homes will remain for quite some time. With the current supply and the future supply waiting to come on the market it could keep housing prices depressed in the Phoenix metro for quite some time. Investors bought the homes to sell again. Once you see price appreciation many of these investors will sell their investment creating further excess supply.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  8. #8
    Cyburbian
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    Why don't you ask bubble boy?


  9. #9
    Cyburbian Plus PlannerGirl's avatar
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    Oh yes still very much in a bubble, we had one little glide now for the next bottom to drop. I don't think this one will be as big as the last but no we are not at the bottom yet and its all going to depend on how nutty folks act.
    "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." Ben Franklin

    Remember this motto to live by: "Life should NOT be a journey to the grave with the intention of arriving safely in an attractive well preserved body, but rather to skid in sideways, chocolate in one hand, martini in the other, body thoroughly used up, totally worn out and screaming 'WOO- HOO what a ride!'"

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