Anatomy of the housing bubble
Readers familiar with Gray's Anatomy (the book, not the TV show), will recall it is full of detailed, numbered and labeled diagrams of every part of the physical human body, the result of a long scientific tradition begun by body snatchers and grave robbers.
We have recently come across a website, http://the housingbubbleblog.com, which approaches reports of the crash of the housing bubble with the same obsessive, scientific focus on detail. Ben Jones of Flagstaff AZ, author of the site, may be the present-day Vesalius of the crash of the speculative housing boom. Although it is possible Jones is a member of the foreclosure vulture flock, even if he is out speculating on the disaster it is well to recall how useful vultures are in the natural world.
Jones gathers a great abundance of news clips from home and abroad on the housing-bubble collapse. He is performing an extremely valuable service, making the depth and breadth of the crash visible beyond the confines of any particular community in America or elsewhere -- from local housing markets to high finance to foreign markets to the economic consequences beyond the housing bubble crash. These days, The Housing Bubble Blog is an indespensible site. We are very grateful to Jones for his fine work.
Badlands Journal editorial board
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A few random selections from the blog's latest posts:
From the report: “2. What happened in 2004? The relationship between Californian house prices and disposable income as a multiple of long rates broke down in 2004; we believe that aggressive sales of ‘affordability products’ (e.g., subprime, option ARMs, home equity loans), which spiked in 2004 (see Exhibit 2), drove Californian home prices well-above levels supported by economic conditions.”
“Now that the secondary market for these affordability products has all but evaporated, we expect home prices in California to return to normalized levels (i.e. levels implied by current and forecast disposable income in California as well as U.S. ten-year treasury yields); this implies a 35-40% fall.”
“As of last August the median house price in California was $589K, but economic conditions support prices between $350-380K (see Exhibit 1); material price declines are likely, in our view.”
“‘In general, the mortgage company wants to see a consumer default on three separate payments before considering a loan modification,’ says Elizabeth Schomburg, senior VP of the Family Credit Counseling Service in Chicago.”
“Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, says its member agencies in areas from Southern California to Texas have seen the same trend. ‘One counselor in Amarillo, Texas, just told me ‘It seems to me they almost encourage people to fall behind in order to find help,’ Ms. Cunningham says.”
“Canfor Corp. president and CEO Jim Shepard said Friday he won’t hesitate to take more sawmill shutdowns in the face of a continuing poor market and high Canadian dollar.”
“‘If this market ratchets down, we will ratchet down our production, full stop,’ Shepherd told analysts and reporters on a conference call to discuss the company’s $42.1-million third-quarter loss.”
“Prince George Trucking Association president Stan Wheeldon said there was already a reduction in work in the summer which meant more people chasing less work.”
Retail changes? “Wal-Mart is selling 26-inch high-definition TVs for $450 this weekend. Circuit City plans to give away consumer electronics prizes every day for the next 30 days, starting Sunday.”
“Retailers, eyeing the housing slump and the credit crunch that has decimated consumer confidence, are slashing prices early in the hope of snagging a bigger share of the annual Christmas spending spree. That spree is expected to be more subdued than usual, said Ellen Davis, spokeswoman for the National Retail Federation.”
“A man waiting to transfer money at the scene told Sai Gon Giai Phong he earlier bought a $300,000 apartment which now costs $2 million. ‘There’s no business more profitable than this,’ another sitting nearby intervened.”
“Vietnamese Deputy Prime Minister Nguyen Sinh Hung promised government will impose progressive taxes on housing speculation to help deflate an impending bubble in the real estate market.”
“Ho Chi Minh City recently saw disturbing degrees of speculation-based property sales ominous of a bubbling market when thousands surrounded a housing site last week to purchase flats even before foundations had been laid.”
“Prospective buyers hired proxies to wait in long winding lines for registration applications, with at least one person paid some US$1,000 simply stand in line.”