JayB Posted May 31, 2008 Share Posted May 31, 2008 "The housing market Dropping a brick May 29th 2008 From The Economist print edition House prices are falling even faster than during the Great Depression “A DESTABILISING contraction in nationwide house prices does not seem the most probable outcome...nominal house prices in the aggregate have rarely fallen and certainly not by very much.” Alan Greenspan's soothing, if rather verbose, words on America's housing market in 2005 rank high on history's list of infamous predictions. But to be fair, most American economists shared his view that it was highly unlikely that average nationwide home prices would drop. That was the sort of thing that happened only during a deep depression, like the 1930s. Unfortunately, new figures this week reveal that house prices have already fallen by more over the past 12 months than in any year during the Great Depression. The S&P/Case-Shiller national index fell by 14.1% in the year to the first quarter. Admittedly, other property indices show smaller drops, but most economists now favour this measure. The index goes back only 20 years, but Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back more than a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, at the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s, America's general price level was falling, so in real terms home prices declined much less than they did nominally. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year. In nominal terms, the average home is now worth 16% less than at the peak in 2006, and the large overhang of unsold houses suggests that prices have further to fall. If so, this housing bust could well see a bigger cumulative fall in prices than the 26% real drop over the five years to 1933. Most people would call that a pretty destabilising contraction." Quote Link to comment Share on other sites More sharing options...
mtn_mouse Posted May 31, 2008 Share Posted May 31, 2008 The drop in housing prices had had negative impacts on the economy for sure, but probably more short term. The housing bubble was too much too fast, and did more to widen the gap between rich and poor, and to create more homelessness. This downturn will turn out to be beneficial in the long term. Quote Link to comment Share on other sites More sharing options...
JayB Posted May 31, 2008 Author Share Posted May 31, 2008 But the news isn't all bad - if you own residential or commercial property in hurricane prone areas - your risk will be underwritten by everyone else. "Taxpayers May Face Hurricane Tab By Elizabeth Williamson Word Count: 1,338 | Companies Featured in This Article: Allstate WASHINGTON -- As hurricane season begins, Democrats in Congress want to nationalize a chunk of the insurance business that covers major storm-damage claims. The proposal -- backed by giant insurers Allstate Corp. and State Farm Mutual Automobile Insurance Co., as well as Florida lawmakers -- focuses on "reinsurance," the policies bought by insurers themselves to protect against catastrophic losses. The proposal envisions a taxpayer-financed reinsurance program covering all 50 states, which would essentially backstop the giant insurers in case of disaster. The program could save homeowners roughly $500 apiece in annual premiums in Florida, according to an advocacy group...." Maybe this is the urgent action regarding climate change that the Democratic leadership was talking about... Quote Link to comment Share on other sites More sharing options...
STP Posted May 31, 2008 Share Posted May 31, 2008 Seems that one of the questions that should be debated is 'what is the proper role of gov't in the corporate realm'? For instance, could regulation and oversight have prevented the subprime mess and other problems associated with credit? On the other hand, how much should gov't intervene to mitigate the result? Maybe, more corectly, when should gov't intervene and how much? Not sure these are questions that have a set answer but it seems in either case that the taxpayer is ultimately on the hook. Regarding climate change, I certainly don't debate the causes/effect etc. but rather the gov't response i.e., essentially it will translate into gov't intrusion, an issue which should be at the root of our national debate as citizens. I personally don't believe an effective climate change response will happen at a grass roots level no matter the amount of hope we project, short of going through a prolonged economic depression. Sure, you can have your Earth Day or whatever, but it'll boil down to large scale intervention. Quote Link to comment Share on other sites More sharing options...
ashw_justin Posted May 31, 2008 Share Posted May 31, 2008 Exiting times. Is it time to jump off the roof yet? How much does the relative illiquidity (and physical necessity) of housing make it resistant to a market meltdown? Are too many owners willing to give up the roof over their heads in order to plead bankruptcy and cop out on their debt? Are there enough foreclosures to poison the market? Will we be able to buy houses for 90's prices? Can you short sell in real estate? How is the government going to respond to outcry when it becomes more obvious that their greedy property tax reassessments should never have been indexed to volatile market values? When they find a way to refuse to repeal these property tax hikes despite a return to the prices of several years ago? When are the beneficent Corporations going to figure out how to take care of and manage their precious people-crops properly? Quote Link to comment Share on other sites More sharing options...
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