February 25, 2008
JustQuotes: Damn Those "Broader Effects"
"Sales of existing homes in the U.S. fell in January to the lowest level since records began nine years ago and prices slid for the sixth time in seven months, posing a threat to consumer spending, the largest part of the economy.
Resales declined 0.4 percent, less than forecast, to an annual rate of 4.89 million from a revised 4.91 million in December that was higher than previously reported, the National Association of Realtors said today in Washington.
The figures indicate declines in home prices so far aren't sufficient to entice more buyers. Former Federal Reserve Chairman Alan Greenspan said today that the deepening rout in housing is having a 'broader effect' on spending, and that a recession this year may be deeper than previous downturns."
∙ Existing Home Sales Decline to Nine-Year Low [Bloomberg]
First Published: February 25, 2008 5:55 AM
Comments from "Plugged In" Readers
Is anybody else tired of the media quoting Greenspan on the current economy? Here's the guy who espoused the benefits of derivatives to spread risk/ease shocks and encouraged people to get into variable rate mortgages ( despite his protests, I distinctly recall him saying this in testimony to congress because I was slack-jawed when I heard it.)
When John McCain claimed he didn't really know much about the economy but that he "did buy Alan Greenspan's book" I nearly fell off my chair.
Posted by: mktwatcher at February 25, 2008 10:55 AM
If Greenspan had any dignity he would decline comment. But he doesn't. Whatever happened to, "There are no second acts in American lives" ?
Posted by: fluj at February 25, 2008 12:06 PM
The liquidity issues in the credit market (auction rate securities for municipalities and so on, for example and mortgage lending standards, increased 30-year fixed conforming loan rate) makes me believe higher interest rates may be here sooner than later ....and that'll force pricing down further.
Posted by: jamie at February 25, 2008 12:16 PM
The problem isn't Greenspan, it's the loan sharks who conned people into mortgages they couldn't afford.
I was watching TLC the other night, some show called "My First House." I'll be damned, we watched the BUYER's agent con her. She said, I can only afford to pay $176k for the house (yes, this was NOT SF). The agent showed her a more expensive house, then sold her a 2-1 buyback by saying "it's the same monthly payment." Just like that Single Mom, US veteran with 3 kids becomes a subprime statistic.
I benefitted greatly from lower interest rates--I refinanced student loans from the late 80s, saving a bundle.
I read Greenspan's book, all the way through and it's a clear a primer on economics as even the people on socket site could understand. He's a brilliant man and a patriot and we were blessed to have someone like him at the Fed to tell people that "no, fiscal responsibility is ultimately the path to greater wealth."
Posted by: Melinda at February 25, 2008 12:33 PM
Yeah, and now he should have enough respect for the position he held to such great acclaim to refrain from public comment. You don't see American presidents comment on policy, do you? (OK, other than Carter -- but who listens to him?) No, you don't. The guy is plainly out of line. He knows his comments can roil markets. He knows it. But he still does it. It's mischevious, and it's not ethical.
Posted by: fluj at February 25, 2008 12:38 PM
I saw that same episode on TLC. That poor woman's rate goes from 3.77% in year one to 6.77% in year 3. It definitely did not seem like she understood that her payments were going to be jumping up. Way to go Coldwell Banker Boise.
Posted by: McBravio at February 25, 2008 1:38 PM
Of course the SLIGHTLY lower prices we've seen aren't attracting buyers.
1) most everybody who wanted a home bought one (or two or more) from 2001-2006
2) home prices have been unaffordable to many people for a LONGGGG time. The only thing keeping them "affordable" were the availability of foolish suicide loans (option ARMs, IO ARMs, and so on). As these have evaporated, so have buyer's ability to purchase. The prices may be cheaper now, but the buyers can't get a loan!
3) in 2003-2006, many people thought "buy now or be priced out forever" (foolish concept, but people believed it). Thus, they bought then. Those who didn't certainly aren't going to buy now. Especially since now it's "buy now, or buy for cheaper later"
4) a lot of home purchases are move ups or trades. Current homeowners can't sell their house, thus they can't move up/move on. nobody wants 2 mortgages in this environment.
this is all why housing is "sticky" on the way down, and also why downturns take YEARS, usually 6-12 years to play out.
it is also why the deranged hopeful fantasy that "housing will rebound" in 2008 or even 2009 is unlikely at best.
it will be a long ardous journey through this housing down-cycle...
FWIW: to show how crazy it was: I just watched Property Virgins, a Canadian show taped probably in winter 2006... they gave a young couple a mortgage for $250k. They were maybe 23years old?, had NEVER held jobs, were both unemployed and living with their parents.
if they were buying in 2006, who is left?
Posted by: ex SF-er at February 25, 2008 3:33 PM
amazing,wasn't it? We Tivoed it back a few times to make sure we heard the guy right. I mean really....Coldwell Banker. Smug boyfriend turns to me and says..."This is why we don't hire a broker and why we use Redfin and ZipRealty."
Gotta say, I agree. Competition is good for these fools. I felt bad for the vet mom. I really did. She just didn't realize what was happening. :(
Posted by: Melinda at February 25, 2008 3:48 PM
So to boil the national numbers down to California, check out comparable data from the CAR here:
Cali sales down nearly 30%, median price down 22%. YOY price data by county can be found here:
The San Francisco data we've already seen from DataQuick. But look at some of the other Bay Area counties/cities....not pretty.
Posted by: Dude at February 25, 2008 4:22 PM
I saw a Property Virgins recently(not sure if it's the same one you saw) and these two young couples, unemployed, been lolly gagging for 2 years traveling all over the world were approved for a $200k loan!!! This is the couple that wanted to live on a farm and raise birds or some crap.
Yup, now that "Bizarro World" financing is gone, price will have to dip 50% before your average Joe can afford to buy. People that have been on the sideline either still can't afford to buy without Bizarro World financing or aren't in a hurry. The one people in a hurry are the one trying to dump their house
Posted by: DownGoesRE at February 26, 2008 11:12 PM