Watchout, falling rocks (read: Real estate prices)

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So real estate market in US is slowing down, prices in markets which saw big gains are losing steam and prices are falling (many CA, WA areas). But then in another thread by legbreakgoogly about real estate in UK (Europe) other guppies (Kamran Khan, aliyish) said that they are seeing falling prices in UK and Ireland as well. Can you all share (whoever is following real estate market around your country/region/global)? What reason is being given out by “analysts” for the falling prices?

In US the reason being given out is “prices peaked”, “more houses in market”, “new loans are made difficult” etc. I am trying to find out what is happening around the globe and if the falling-price is ‘global phenomena’.

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Re: Watchout, falling rocks (read: Real estate prices)

From what i understand (which isnt much) you yanks have been buying houses willy nilly...banks offering money to people who cant afford to pay it back...and now the bottoms fallen out.... hence also $2 to the £!!!!

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Re: Watchout, falling rocks (read: Real estate prices)


Its a cycle, which started with a mathematical rarity, commonly known as the millenium bug circa 1999-2000.

Y2K Bug
To prepare (and proof themselves) for the millenium bug (aka Y2K bug), businesses invested a huge amount of money in new computers and technologies in late-90's.

Dot Com Bust
With the huge spending done in late 90's, early 2000's saw a sharp decline in IT spending (typically companies upgrade their major IT infrastructure once in 5-10 years). This period is commonly known as "dot com bust". A lot of IT companies trying to ride the internet wave, folded. Economy was down.

ARM
Housing market is always considered a key in how the economy is doing. During the "dot com bust", to keep US economy afloat, the Federal Reserve decided to keep supporting the housing market. Interest rates were brought down to an amazingly low level. This allowed a lot of people to buy homes at very low interest rates. Of course the best interest rates were those that were adjustable (aka ARM).

Sub-Prime Melt Down
Now 3-4 years later, those ARM loans are coming due for adjustment. A lot of home-owners that shouldn't have bought their homes in the first place are discovering that since interest rates are not that attractive any more, they can not afford their own homes. Hence the foreclosures and defaults. This is called the "sub-prime melt-down".

Ripple Effect
This has the ripple effect to all those who invested in real estate or real estate-related stocks. Consequently an overall shortage of capital that is being invested in real estate. High-priced real estate markets (CA, NY etc) are harder hit since US government (through Freddie Mac and Fannie Mae) decided not to fund jumbo loans (loans higher than $417k) any more.

Crystal Ball
How this will all play out in the coming days/weeks/years is any body's guess. Logical thinking says that when people take money out of real estate, they'd invest it elsewhere and stock market should see a resurgence. Another point of view says that consumer spending will be impacted (first big impact going to come in new auto sales), and hence this will lead to a wider recession. With US elections coming up, chances are that any significant recession won't be allowed till after Nov 2008. Till then it will be a slow and steady downward spiral.

Bakray ke Tillliiiiiiiiiiiiiiiiii- Yumm Yumm
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Re: Watchout, falling rocks (read: Real estate prices)

So Fed is responsible in a way of hiking up of prices by making interest rates available at low rates.... basically Fed "delayed" the wider impact of recession of 2000-2001?

[quote]
Ripple Effect
This has the ripple effect to all those who invested in real estate or real estate-related stocks. Consequently an overall shortage of capital that is being invested in real estate. High-priced real estate markets (CA, NY etc) are harder hit since US government (through Freddie Mac and Fannie Mae) decided not to fund jumbo loans (loans higher than $417k) any more.
[/quote]

By helping "homeowners" who are about to default through gov't supported refinancing, "Fed" is helping "investors" innit.

[quote]
Crystal Ball
How this will all play out in the coming days/weeks/years is any body's guess. Logical thinking says that when people take money out of real estate, they'd invest it elsewhere and stock market should see a resurgence. Another point of view says that consumer spending will be impacted (first big impact going to come in new auto sales), and hence this will lead to a wider recession. With US elections coming up, chances are that any significant recession won't be allowed till after Nov 2008. Till then it will be a slow and steady downward spiral.
[/quote]

The falling prices of real estate in Europe/Asia are due to "similar" reasons we see in US?

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Re: Watchout, falling rocks (read: Real estate prices)


I am not sure if Fed was trying to hike up prices. Their main aim was to make sure housing market does not crash, along with the dot com bust. That would have resulted in an onset of severe economic recession/depression.


The recently announced plans by Bush to provide loans to homeowners that will otherwise default is some thing different. What I was talking about was the announcement by Freddie and Fannie that they will stop "buying" jumbo loans. What this means is that availability of loan products for jumbo loans will reduce, that will lower the number of people who can actually buy homes and consequently bringing down real estate values in some of the high-priced communities. Median price of a home in US is somewhere around $200K range. So most states are ok. Median price of a home in Santa Clara county (Northern California) is $730K. Big difference.


I am not sure. I am guessing there is a lot of inter-dependencies and cross-investment between large investment funds all over the world. Whether prices of real estate in Europe/Asia are a direct result of US economic conditions, or something local in those areas, I don't know. Generally speaking, real estate is expensive when there is limited land. E.g. coastal properties will always be expensive, as opposed to vast lands (e.g. Texas). Simple demand and supply rules prevail.

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Re: Watchout, falling rocks (read: Real estate prices)

captain saab regarding uk market. its not about to crash anytime soon, the market is still going ap but very slowly. theres a severe housing shortage so prices are not expected to drop considerably even though interest rates will go up and remain high for the foreseable future