tag:blogger.com,1999:blog-11719208.post112889735800428975..comments2023-11-05T04:36:14.223-08:00Comments on The Mess That Greenspan Made: Equity Cushion PossibilitiesTimhttp://www.blogger.com/profile/16530974968126497397noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-11719208.post-1129169570043408402005-10-12T19:12:00.000-07:002005-10-12T19:12:00.000-07:00If housing prices drop down to double, all that $$...If housing prices drop down to double, all that $$ that has vanished in value will make its way to other asset classes. Inflation will move and move quickly.<BR/><BR/>We've been lucky to have the release valve of the deficit to send all those new $$$ to Asia... but as this continues to vent, more and more of those dollars will come back chasing our goods and supply for things in truly in need.<BR/><BR/>That said, a residence may decline as noted. But a speculative vacation property or condo unit trading on condoflip.com will see the bottom drop out, while oil, gas, food and other essential recallibrate to the used and abused funny money dollar.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1128992733909275632005-10-10T18:05:00.000-07:002005-10-10T18:05:00.000-07:00Tim, I believe this is the real horror of the hous...Tim, I believe this is the real horror of the housing bubble. Regular families who are income and savings short have yanked money out of future appreciatian, in order to pay for todays expenses. I think that the problem is that with low interest rates, people felt they could amortize this debt without difficulty. This tremendous leverage is what is really going to be a disaster. Entering any kind of recession with excessive leverage is about the worst place you could be. If such a loss of equity did occur as you described, the economy would be in the toilet, and job will be lost. I believe this is the "debt liquidation" that your buddy AG was talking about. It may turn out to be quite uglynjdochttps://www.blogger.com/profile/01094428473307499800noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1128992589787936062005-10-10T18:03:00.000-07:002005-10-10T18:03:00.000-07:00"...coming to understand that they were duped into..."...coming to understand that they were duped into thinking that they had become blessed by enduring wealth." <BR/><BR/>You have your finger on the pulse of America with your "wealth effect" statement. The smart people bought <STRONG><A HREF="http://sittingprettyfinancially.blogspot.com/2005/09/bubble-heads.html" REL="nofollow">assets</A></STRONG> with their equity cushion. The ones that purchased liabilities will have their day of reckoning.Nina Smithhttps://www.blogger.com/profile/07073245192107488505noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1128972939231681022005-10-10T12:35:00.000-07:002005-10-10T12:35:00.000-07:00For it to bottom at $480K in the next downturn wou...<I>For it to bottom at $480K in the next downturn would still leave it at almost double what it probably was at the previous low in the mid-1990s - I mean that's still a half million dollars!</I><BR/><BR/>But isn't that about what one would expect from 10 years worth of inflation? Isn't it the inflation effect that gives obvious truth to realtors' argument that RE never goes down (in the long run anyway).<BR/><BR/>Personally, the best thing we can hope for (IMO) is for prices to return to baseline and by "baseline" I mean what is implied by inflation.Marinitehttps://www.blogger.com/profile/01778945220593425787noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1128970471838508422005-10-10T11:54:00.000-07:002005-10-10T11:54:00.000-07:00David,The forty percent number is from Chris Thorn...David,<BR/><BR/>The forty percent number is from Chris Thornberg at UCLA - I didn't make it up - "overvalued by as much as 40 to 45 percent" is what he has said.<BR/><BR/>A year or so ago, I would have agreed with you about 40 percent being too extreme (maybe Chris Thornberg would have agreed too), but not today. <BR/><BR/>Since home prices have about tripled in the last ten years in this part of the country, consider that this house would have sold for maybe $260K in 1995-1996, then according to the article it was at $500K in 2001 and $800K now (I don't really believe the $500K and $800K numbers for 2001 and 2005 - prices have about doubled since 2001 no matter what area in Southern California you look at - see this <A HREF="http://photos1.blogger.com/img/115/6336/1024/SoCalRePrice2005-09.jpg" REL="nofollow">link</A> for the DataQuick historical prices. Plus, those numbers are too round - 500 and 800 - it's like the owner just guessed or the reporter tried to reconstruct it from memory).<BR/><BR/>For it to bottom at $480K in the next downturn would still leave it at almost double what it probably was at the previous low in the mid-1990s - I mean that's still a half million dollars!Timhttps://www.blogger.com/profile/16530974968126497397noreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1128970014612826602005-10-10T11:46:00.000-07:002005-10-10T11:46:00.000-07:00The LA Times seems to be on a housing bubble kick....The LA Times seems to be on a housing bubble kick. Todays "Business Section" (don't laugh, that little 6 page insert that is smaller than the Michaels ad is what passes for a business section in the LA Times) headlines an article entitled "Risky 'Exotic' Loans Fostering a Refi Cycle." The article says people are just swapping one IO ARM for anothere, postponing the day of reckoning, and leading to "interest only angst." <BR/><BR/>Then there's the front page, which has an article talking about how people are taking equity out through their lines of credit and investing it in . . . baja.<BR/><BR/>For me, the LA Times has always been a contrary indicator. When they talk about a market trend, you can usually count on it going the other way soon. I'm not sure what to make of it . . . could be that the party's about over.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-11719208.post-1128958829120926412005-10-10T08:40:00.000-07:002005-10-10T08:40:00.000-07:0040% loss in nominal dollars over 5 years seems to ...40% loss in nominal dollars over 5 years seems to extreme even for a bubblehead like myself.Davidhttps://www.blogger.com/profile/11169148764438565562noreply@blogger.com