GLOBAL REAL ESTATE MARKETS FORUM
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REALTY REALITY FSO ARCHIVES
May 3, 2005

Ben Jones, Commentary

Another Day in the Housing Bubble

Monday, May 2^nd started at 6:30 AM, when a rather loud backhoe started work on a new spec house across the street, while nine other dudes in builder garb and baseball caps looked on, all of them talking on their flip phones. Even the guy atop the backhoe was talking on his cell phone as he operated the backhoe! [How did these construction guys get by before cell phones and 4-wheel drive pick ‘em up trucks? Five trucks, ten guys, all talking on their camera flip-phones?]

I thought the housing markets would react to Warren Buffett’s warning about home prices, but it wasn’t to be. The market snoozed. See: Link

Buffett to Munger: “What do you think the end will be?”

Munger: “Bad.”

Fitch Ratings reports that home equity lending is going to get even bigger by an Act of Congress, no less. “HELOCs were not able to be securitized using a REMIC structure as each additional draw was considered a new loan prior to the passing of the American Jobs Creation Act of 2004, which went into effect January 1st of this year.” Talk about throwing gasoline on a fire! [Perhaps this is nitro glycerin, instead?] See: Link

Then news comes out that AIG’s derivative problem is even bigger. “AIG appears to be guilty of errors similar to those committed by mortgage-finance giant Freddie Mac a few years ago.” Did you know the insurance giant stands behind many of the guarantees to mortgage backed securities? Not if you read the Wall Street Journal, but I have written about it for weeks. See: Link

Peter Eavis over at The Street sounds a warning. “The housing market has gone from nerve-wracking to downright horrifying. It's got to the point where there is simply no defense left for skyrocketing house prices. “When the history books get written, the corporate crooks of the '90s will have a certain lasting notoriety, and deservedly so. But the villain of our era will most certainly be the man who created and then sustained the biggest bubble the U.S. economy has ever had to deal with Fed Chairman Alan Greenspan.” See Link

The monthly summary from Fannie Mae is also not mentioned in the media, but I posted a little refresher. The quick version? – Fannie is unraveling, or at least that is what the data tells me. See: Link

I found a press release about home builder Hovnanian that included a blurb about how many lots they control. “Total lots, including those owned, were 100,927 at Jan. 31, 2005. This represents a 6.7-year supply based on latest 12 months home deliveries.” That should dispel any notion of a land shortage. See: Link

Then the GSE’s warn Congress [Ship of Fools] to lay off, or there will be hell to pay. “William Batz, COO of the Federal Home Loan Bank of Pittsburgh, said any action Congress takes that could weaken the 'implicit guarantee' that Washington would bail the government-sponsored enterprises out in a crisis could ultimately raise housing costs.” Hasn’t the cost of housing been going through the roof for years? And wasn’t that in large part due to the easy money provided by the GSE’s? [mutual fund money market intermediation is a great source of money] Just asking. See: Link

So now twelve hours later, the construction crew is gone, but a blogger’s work is never done. It is amazing how many people realize the home price boom is a disaster, not a bonanza. Read through the comments at my blog, and you will be stunned. Folks from all walks of life tell gut-wrenching stories of hardship in the new “ownership society”. The issues before us will set the stage for the world’s economy for years to come. As hard as it’s been to take a stand, it gets easier to see the truth everyday. However, we suspect folks on Main Street America, don’t want to know what is really going on, and since they don’t want to know, the Fairy Tale will continue, at least in their own minds.

Ben Jones
Arizona

Editor’s Note: This is Mr. Jones first contribution to Realty Reality. He has some great links in his real estate blog at his website, and generally updates it daily at this Link. Yours Truly, Ole Bear, Editor, made a few snippet additions to the original submitted text, to add a little more zest and zing to the essay, while keeping with the original intent and wording of the author.