american housing bubble?

Question

Do u think the american housing market has finally started to collapse due to all the intrest rate increases

Answer 1

The collapse in the housing market that many were predicting has been regional. Some areas are almost unaffected.

Prices should certainly ease off some, but there should not be a collapse, unless the economy collapses. Here are some reasons why that may happen, from an article by Dr. Irwin Kellner for MarketWatch.

Economic Crisis

All recessions that have occurred since 1970 followed periods in which the Fed was actively tightening money. And all tightening cycles except two have produced a recession within at least two years after they ended.
The two exceptions took place in 1983-84 and 1994-95. They were called "soft landings," because the economy slowed enough to dampen inflation, yet not so much that growth disappeared altogether causing a jump in joblessness.
But these considerations aside, there was plenty of pain during these soft landings, as well as during the more widely recognized hard landings. This is because a number of collapses and bankruptcies occurred in the wake of each tightening cycle.
What follows are some of the better known crises and the years in which they occurred:
-- Penn Central went bankrupt in 1970;
-- Franklin National Bank went bankrupt in 1974;
-- The Farm Belt and Latin American Debt crisis in 1982;
-- Drysdale Securities and Penn Square Bank collapsed in 1983;
-- Continental Illinois Bank went bankrupt in 1984;
-- Stock market crashed in 1987;
-- Savings & Loan crisis/real estate collapse/junk bond crisis in 1990;
-- Mexican Peso crisis/Orange County went bankrupt in 1994;
-- Asian currency crisis/Long Term Capital Management/Russian default in 1997;
-- Internet/telecom/ bubbles burst in 2000;
-- Stocks collapsed into worst bear market since the Great Depression in 2000.
For 2006, we have a number of events to choose from, starting with the bursting of the real estate bubble. Two other industries with problems that could evolve into something worse are autos and airlines. And, of course, something completely unexpected could arise -- as it has many times before.
The message: whether the economy experiences a hard landing or a soft landing as a result of the current round of Fed rate hikes, it will most likely be only the tip of the iceberg.

Answer 2

The Housing market has not hit the bubble to the point of where it is retracting (collapsing) because of the Interest Rate Increases ... but rather ...

Because of the speculation and all the 'get rich quick' schemes that have driven the price of purchasing your own single family home right out of the reach of most even Middle Income potential buyers -- and in some areas especially (like California, hot real estate markets that are all built up and landlocked with no more available building space), then this overpricing of the units on the market is making it IMPOSSIBLE for the average American Worker to afford to live in thier homes. With this overpricing comes an increase in violent crime and crimes both victimless and with victims -- burglaries, robberies, whatever along with thefts, purse snatchings, identity theft, etc.

Answer 3

Watching the markets and reports, you can see how home sales and new home construction is starting to level out -- but is this an indication of an all out collapse? I don't think so. People are highly optimistic about the prices they have on their homes for sale-- and while the economy and job markets are generally ok, you won't see a big decline in housing prices, unless something catastrophic happens. Like a big earthquake in the SF Bay area for example. I am secretly awaiting that day to pounce on the bay market lol.

Answer 4

How low will real estate go?
No one's arguing that the boom is over. But just how far prices may drop is much less certain. Here's what some economists expect nationally, along with predictions for 15 metro areas.

By Lacey Rose, Forbes.com

Slideshow: Predictions for 15 major metros
Video: How busted is housing?
Slideshow: Most expensive rental markets
Get used to it: The seller's market is closing up shop. The days of fat, fast home value increases are gone. Pack away those flipping fantasies.

"The boom is definitely over, there's no debate about that," said Mark Zandi, chief economist of West Chester, Pa.-based research firm Moody's Economy.com. "Now the question is more how hard is it going to land, if it lands at all."

The answer? Depends who you ask -- and what location you're talking about. How to feel about it? Depends which side of the market you're on -- and what location you're talking about.

Few, if any, economists are enthusiastic about current market conditions, thanks to a host of bleak figures recently released by home builders, federal agencies and the National Association of Realtors (NAR).

On Aug. 22, luxury home builder announced that its net income fell 19% in the quarter ending July 31 from a year prior. Earlier in the month, the company said new orders had fallen 47%. According to NAR, the number of existing home sales plunged 4.1% in July to a seasonally adjusted annual rate of 6.3 million, the lowest since January 2004. Nationwide, the median sales price for an existing single-family home inched up a painfully small 0.9% compared to double-digits in 2005.

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Down the road
But that's just today's pain. What about six months from now? A year? Five years? Opinions about the future range from hopeful outlooks to doomsday predictions.

"One possibility is that you get a quick return to normal, which is what the economists for the realtor groups tend to hope for," said Edward Leamer, director of the UCLA Anderson Forecast. "But there's nothing in the historical record that suggests that we're going to get a return to normal anytime soon."

"It is a question of whether it is deep and quick or not so deep and much longer," Leamer added. His prediction: "Not so deep and rather long."

The way Zandi sees it, the market is going to weaken considerably more. "It has been correcting for about a year, and it's got another year to go," he said.

Not surprisingly, Lawrence Yun, a senior economist for NAR, is more optimistic. He claims that the market has returned to more earthly figures after a period of unsustainable growth. "Any decline will be very short-lived," he said. "By the spring of 2007, the market will begin to see increased sales and strengthening in home prices."

Others are less willing to prognosticate an end date for the slowdown, due to a host of unknowns, including future interest rates and job markets.

Whatever the future holds, the present doesn't look good. The number of unsold homes on the market rose another 3.2% in July to 3.9 million, a 13-year high, according to NAR. If the current selling rate held steady, it would take 7.3 months for all of those houses to move.

Disconnect between buyers, sellers
One reason for the holdup is a disconnect between buyers and sellers, said Anderson's Leamer.

Many property owners are reluctant to cut their prices. Unlike builders, who are so desperate to sell their properties that some are throwing in extras like upgraded countertops and one-week vacations, many sellers are willing to wait. Their logic is simple, Leamer explained: "A lot of owners figure, 'My idiot neighbor sold his home for $1 million, and I'm not taking a penny less.' "

On the other side of the equation are the buyers, equally strong-willed. Unwilling to fork over those sums in a wavering market, they are watching from the sidelines, waiting for prices to drop.

"Buyers are holding back currently to see how long and far this cooling will go," said NAR's Yun.

What's more, two key sources of housing demand are locked out of the market, explained Moody's Zandi. One is first-time home buyers, who can't afford to buy given the mix of rising interest rates and still-high home prices. The other is speculators, who can no longer benefit from dramatic appreciation by flipping real estate.

Location, location, location
Of course, real estate is a highly fragmented market -- what happens in Palm Beach, Fla., may be completely different from what is taking place in Cleveland or Phoenix. Not everyone benefited equally from the boom, and not everyone will suffer the same in a bust.

Areas that were once epicenters of the boom, like Phoenix, San Diego and Las Vegas, will be among the hardest hit, Leamer said. "Regions where a lot of the economic growth came directly from the real estate sector and where that was a huge plus, that's going to turn into a huge negative," he explained. "Wherever the party was the loudest, that's where the hangover is going to be the greatest."

To get a sense of how home prices will perform in various parts of the U.S., we turned to Moody's Economy.com for historic and predicted median home prices in 15 major metropolitan areas. We looked back 10 years and forward another 10. The results show several cities, including Boston, New York and Washington, D.C., experiencing ups and downs (more precisely, downs and ups) in coming years -- a boon for buyers, perhaps, but not for current owners. Other places, such as Houston and Minneapolis-St. Paul, may just keep chugging along.

The company bases its forecasts on an econometric model that looks at the relationship between prices and various factors that have historically driven supply and demand in these markets. The intricate formula was proved to work when compared with actual house-price performance through the early 1990s, a period when home prices rose and then fell sharply.

Table: A bumpy ride to 10-year gains
To get a feel for the volatility between these price points and a full description of the communities included in each metro area, view the Forbes.com slideshow here or click on each city's name in the table below.

Metro area Median price, 2Q 2006 Est. median price, 2Q 2016 % increase
Washington D.C. $435,899
$450,747
3%

New York $558,853
$611,045
9%

Boston $416,911
$481,184
15%

Philadelphia $230,495
$269,818
17%

Minneapolis-St. Paul $244,186
$286,397
17%

Chicago $290,953
$360,018
24%

Los Angeles $538,477
$667,048
24%

Miami $399,348
$498,564
25%

Atlanta $172,722
$227,488
32%

St. Louis $147,359
$195,607
33%

Phoenix $284,727
$378,914
33%

San Diego $624,987
$856,067
37%

Houston $147,496
$214,370
45%

Dallas $162,461
$245,725
51%

Seattle $384,543
$612,383
59%