U.S. Housing Market

A Daily Reckoning White Paper Report
What Housing Bubble?

By Mike Shedlock – “Mish”

Neil Barsky, managing partner of Alson Capital Partners, LLC, wrote an absurd opinion piece about housing in the Commentary section of the July 28 online issue of The Wall Street Journal in which he claims there is no housing bubble.

Now, plenty of people, some just plain stupid, some with axes to grind, write the same thing. Typically, these opinions are not worth replying to, quite frankly, because they are so widespread and preposterous that one would spend all his time rebutting such nonsense. But Barsky is a special case, for reasons we will address later.

In the meantime, let’s review some of the nonsense spewing forth from Mr. Barsky. Here goes:

“In a free country, it is fair game for the media and economists to scare homeowners with words of gloom and doom, however knee-jerk, consensual, and misguided they may be…

“The reality is this: There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: Low interest rates, local job growth, the emotional attachment one has for one’s home, one’s view of one’s future earning power, and parental contributions, all have done their part to contribute to rising home prices. Over the past quarter century, there has been an explosion of second home purchases, a continued influx of immigrants, and a significant reduction in existing housing inventory through tear-downs. Not all of these trends are accurately reflected in the unending stream of data published daily. Home prices on average have risen at a 6% annual pace since 1999, and 13% over the past year.”

Hmmm. It seems to me that Barsky is suggesting there is no bubble because prices are rising and there is an explosion of second home purchases. This is more or less the equivalent of saying there was no bubble in stocks in 2000 because prices were rising and people were buying more of them.

Barsky writes: “What we do have is a serious housing shortage and housing affordability crisis. Despite robust construction, unsold inventory stands at four months, well below its 25-year average. Private builders complain they can’t get land permitted to meet demand. Low-income housing advocates complain housing prices are out of reach for many Americans, and that government subsidies have been slashed.”

A shortage of housing? Exactly what planet is Barsky on? Here is what I see: millions of vacant homes: “National vacancy rates in the second quarter 2005 were 9.8% for rental housing and 1.8% for homeowner housing, the Department of Commerce’s Census Bureau announced today. The homeownership rate [was 68.6%] for the current quarter”…

“There were an estimated 123.7 million housing units in the United States in the second quarter 2005. Approximately 107.9 million housing units were occupied: 74.0 million by owners and 33.9 million by renters.”

Given 107.9 million occupied units out of a total of 123.7 million housing units, my math suggests there are 15.8 million unoccupied units. The Census Bureau does not break those units down into houses, condos, and apartments, but it does seem preposterous to be proclaiming a shortage. Also note that close to 70% of people own their own home even though there are tens of thousands of unoccupied condominiums, with 10 years worth of supply coming on in Florida in the next two years alone. Finally, note that 70% ownership just might be the saturation rate given that many of the 30% are city dwellers that do not want to own and/or are just plain incapable of owning a house for economic or disability reasons. With all that in mind, it is well into fantasyland to suggest a shortage of houses.

Indeed, 36% of all houses sold in 2004 were for either as second homes or for “investment.” Change the word “investment” to “greater fool speculation” and you have a clear picture of what is happening. People are chasing houses because they are going up. How many houses do people need, anyway? I suppose if everyone needs two or three houses, there might be a shortage of them.

Barsky writes: “What we have never seen in this country is a collapse of home prices without also seeing local economic weakness or significant capacity growth. Absent those factors, housing markets just don’t collapse under their own weight.”

Obviously, Barsky is no student of history. He ignores house prices falling for 18 consecutive years in Japan, and he ignores what happened in the Great Depression. He ignores what happened in the oil bust in Texas, and he ignores what is happening currently in Australia and the United Kingdom. In short, Barsky takes a Pollyannaish view that a recovery that has produced zero private sector jobs in spite of record low interest rates can go on booming forever.

Barsky writes: “Herewith are some of the myths put forth by the housing bubble Chicken Littles:

“* Myth No. 1. There is too much capacity: According to Census data, over the past 10 years, housing permits have averaged about 1.63 million units per year — including multifamily units. Household formation has averaged 1.49 million families per year. So far, so good. But here is where the data get murky. Roughly 6% of the new home sales were for second homes (I have seen estimates that the number is actually twice as high), according to UBS. And while there are no precise numbers on this, approximately 360,000 units every year were torn down either because they were nonfunctional, or because they were tear-downs. When the latter two numbers are taken into account, the real number of new homes is closer to 1.2 million, or 19% fewer than the average number of new households formed each year.”

Obviously, Barsky has failed to take a look at data showing 15.8 million unoccupied units. Barsky also seems to assume that every family needs to buy a home. Some people, especially in large cities simply do not want to buy a home. Others, due to education and/or income or disabilities, will never be able to buy a home even if they do want one. In fact, it is this absurd ownership society that is pressuring people to buy homes (in conjunction with speculators driving up prices) that is playing a significant part of the bubble.

Barsky writes:

“* Myth No. 2. Risky mortgage products are fueling house appreciation: Sages from Warren Buffett to Alan Greenspan have warned of the increased risk from the use of new mortgage products, particularly adjustable-rate mortgages and interest-only mortgages. The theory here is that buyers are extending themselves to make payments, and when their mortgages reset, they will be in trouble. Put aside the fact that only a year ago Mr. Greenspan was advocating the use of ARMs (‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,’ he told the Credit Union National Association last year), these concerns are wildly overstated. As virtually every mortgagee in the country knows, most ARMs are fixed rate for the first 2-7 years. Virtually all have 2% interest-rate caps. The average American owns his home for seven years. Why pay several hundred basis points to lock in rates he is highly unlikely to take advantage of? Moreover, very little equity has been paid off by a homeowner in the first seven years of a 30-year loan, so consumers have been effectively overspending on interest rates for generations. As Mr. Greenspan said in his 2004 speech, ‘The traditional fixed-rate mortgage may be an expensive method of financing a home.'”

Anyone using plain common sense would realize that at 0% down-100% financing, speculation will rise. Numerous Fed officials have warned about that (and not taken it back). As for ARMs, common sense would dictate that if ARMs are used solely to buy a house that one otherwise could not afford, there is a huge interest rate risk. Indeed, those two-year arms taken out two years ago near the bottom in rates are going to be a shock to lots of people who are not prepared for it. In bubbles, common sense goes out the window.Barsky writes:

“* Myth No. 3. Speculators are driving home prices: The media today is chock-full of stories of day-trading dot-com refugees who have found their calling buying homes and condos ‘on spec,’ with the hope of flipping the property for a higher price. Earlier this month, one Wall Street analyst published an article with the catchy headline: ‘Investors Gone Wild: An Analysis of Real Estate Speculation.’ Scary stuff. Here, again, some common-sense thinking is in order. In Manhattan, where I live, friends buy apartments kicking and screaming, convinced they top-ticked the housing market. Is Manhattan special? Are speculators flipping Palm Beach mansions? Bay Area three-bedroom homes? Newton, Mass., Tudor homes? I don’t think so. Yet these markets are experiencing the same price appreciation as Las Vegas, Phoenix, and Florida, where real estate investors are supposedly driving prices higher.”
The reason we are seeing these stories is because they are happening. Entire buildings of condos are being sold in Florida that are now 80% investor owned. People are buying homes sight unseen. Apparently, Barsky thinks that just because insanity is brewing in Manhattan as well, there is no bubble.

Finally, Barsky writes: “But bubbles happen when prices become unhinged from intrinsic value. Homes are not stocks; their ‘intrinsic value’ can only be in the eye of the beholder. A house has utility. Rational people might be willing to pay more for a water view, or for living close to work, or for a larger loo. Such voluntary economic decisions are neither irrational nor exuberant.”
This is one of the silliest things he has said yet. Apparently, Barsky believes it is impossible to have a housing bubble, because there is no intrinsic value to a house. I am sorry, Mr. Barsky, but the fact of the matter is houses cannot rise too far above wages or rent or people’s ability to pay for them. That is what determines whether or not there is a bubble in housing.

Let’s take a look at what some more sensible people are saying.

The Orange County Register suggests, in “Region’s House of Cards Ready to Topple as Prices Reach Unsustainable Levels”:

“Looking at the four big counties in Southern California, over the past decade, the percentage of households that can afford to buy the median-priced home (using conventional mortgage qualification standards) dropped by as much as 74% in Orange County (to 11%) and as “little” as 56% in San Bernardino County (to 24%).”Hmmm. Only 11% of the people in Orange County and 24% in San Bernardino can afford a house. That’s not a bubble?

The OC Register continues: “But the most compelling evidence of a bursting bubble to come is the divergence of home prices and rents. In the United States, over the past decade, the ratio of home prices to rents has increased by almost 40%.

The increase is much higher in hot housing markets like Orange County (99%), where the ratio of median home price to average monthly rent now stands at 433:1.

To recalibrate to more reasonable historical levels will require rents to rise sharply, which is constrained by household income growth, or home prices will have to fall, the only other possibility.”
That’s not a bubble?

I could site numerous statistics and numerous articles from numerous markets by people with far better credentials than Mr. Barsky, but as I said, it is normally not worth the time responding to such clowns. OK, Mish, just why are YOU bothering?

Good question. You see I left off a couple snips from that article Barsky wrote. Let’s take a look at them:

Mr. Barsky writes: “I am now a money manager. I currently own stocks in several homebuilders; so I am putting my money where my mouth is.” The article concludes with “Mr. Barsky is managing partner of Alson Capital Partners, LLC”

What peaked my interest in Mr. Barsky is the following chart. It is a large chart of Toll Brothers Inc. Ownership. Take a look at the second line from the bottom to see what Alson Capital Partners, LLC is doing with TOL.

US Housing Market - Ownership

That’s a real eye-opener, isn’t it?
I sense reader questions pouring in.

Yes, indeed here is a telepathically received question just now: “Mish, I see that is activity as of March 31, 2005. Are there any additional data since then?”
Enquiring Mish readers deserve answers, so let’s take a look. How about this?:

Let me see if I have this straight:
1) Mr. Barsky writes an article for the WSJ proclaiming there is no housing bubble.

2) Mr. Barsky calls housing bears “Chicken Littles.”

3) Mr. Barsky says, “I am putting my money where my mouth is.”

4) Mr. Barsky is managing partner of Alson Capital Partners, LLC.

5) According to the first chart, Alson Capital Partners, LLC sold 896,680 shares of TOL in the first quarter of 2005. That was a decrease (at the time) of 28% of their original holding of 3,166,680 shares to 2,270,000 shares of TOL.

6) According to the second chart, TOL reduced its shares in the second quarter by 448,340, to a total holding of 1,135,000 shares.

I am sure enquiring Mish readers are wondering what happened to the other shares, since 1,135,000 plus 448,340 equals 1,583,340, not 2,270,000. Unfortunately, Mish has no answer to that question. At any rate, that is not relevant. What is relevant is that an original holding of 3,166,680 shares has now been reduced to 1,135,000 shares. This means that Alson Capital Partners, LLC has sold 64.2% of their holding of TOL (2,031,680 shares out of 3,166,680) in the first two quarters of this year.

Since there is a discrepancy in the numbers, it not clear precisely what percentage of TOL that Alson Capital Partners, LLC has been dumping. It does seem to be huge. What is clear is the fact that two sources show Alson Capital Partners, LLC dumping TOL while a managing partner of the corporation went out of his way to defend a housing bubble in a major publication. It is also clear that Mr. Barsky failed to disclose those facts while claiming to be putting his money where his mouth is.

Given the above, I have one question for Mr. Barsky: Is defending the housing bubble as you did consistent with Alson Capital Partners, LLC dumping huge percentages of its TOL holding?

Will the Housing Bubble Fizzle or Pop?

Standard & Poor’s reports “Regional Housing Bubbles Vulnerable,” and then asks a follow-up question: Will they fizzle or pop? Let’s have a look.

“With housing prices continuing to outpace both income and inflation from coast -to coast, it is hard not to see a housing bubble, according to a comprehensive report published today in Standard & Poor’s CreditWeek. The report looks at the implications of the bubble for builders, bankers, and owners in the United States and abroad, as well as in the structured finance and REITs markets, from both the credit and equity perspectives.

“‘If the past is a guide,’ says S&P Chief Economist David Wyss, ‘home prices in the United .States are less likely to crash nationwide than to stop accelerating and then stabilize until incomes catch up with unsustainably high mortgage debt. This happened after home price spikes in the late 1970s, and again in the late 1980s. The coming rebalancing period could last half a decade, because it will take a 20% correction nationally to restore the normal ratio of home prices to income.’

“Echoing a similar theme abroad, Standard & Poor’s senior economist in Europe, Jean-Michel Six, forecasts an orderly slowdown in house price inflation in Europe, owing to a combination of demographic, financial, and structural factors, with a soft landing likely in the United Kingdom and near-term overheating in Spain.

“‘While the overall outlook may be reasonably benign,’ Mr. Wyss continued, ‘there’s a regional danger: the possibility of deeper, more disruptive corrections in the most overvalued markets. In urban areas on both coasts, for instance, housing costs have risen 30% or more above the normal home-price-to-income ratio — all the more alarming considering that in these regions this ratio was about twice the U.S. average before prices soared. This could make such places particularly vulnerable to economic shocks or rising interest rates.'”

The economists at S&P seem to be parroting the consensus view:
1) The overall outlook is benign
2) There is no national housing bubble
3) There are indeed regional housing bubbles
4) There will be a housing soft landing in both the United Kingdom and the United States
5) The only real problem is in the most bubbly areas on the coasts.

Wyss did attempt to give himself an out by mentioning a “possibility of deeper, more disruptive corrections in the most overvalued markets,” but his overall “benign” view seems to me to be the equivalent of the “permanently high plateau” theory. It is based on his interpretation of “prior history,” but more importantly on a belief in rising incomes: “If the past is a guide, home prices in the United States are less likely to crash nationwide than to stop accelerating and then stabilize until incomes catch up with unsustainably high mortgage debt.”

Well, judging from the experience in Japan, if past history is any guide, U.S. home prices will sink for the next 18 years. Since there are differences between Japan and the United States, let’s instead focus on the income side of the statement.

Are incomes likely to catch up to “unsustainably high mortgage debt”? I think not.
** We are losing manufacturing jobs
** We are outsourcing technical jobs
** We are gaining service jobs at Wal-Mart, Pizza Hut, and retail outlets
** Pension plans are going under (United Air and Northwest Airlines, to name two), and auto pension plans at Ford and GM are under attack
** 50% of the jobs gained in this recovery were related to housing expansion. What happens to those incomes if housing so much as slows?
**  Will pay raises at Wal-Mart catch up with mortgage debt? When?
** What about rising energy costs and peak oil? When will wages catch up to those costs?
** What about those on ARMs, whose mortgage costs will start rising dramatically in 2006 and 2007 from low teaser rates?
** What about rising property taxes and increased medical expenses, or does S&P suggest that such items are not a concern?

Mish wonders what the economists at S&P are smoking when they think that rising wages will catch up to the absurd home prices in the bubble areas in any sort of likely “soft landing.” We are three years into a recovery, and real wages in general are still declining. Demand for housing, as suggested by rising inventories, is now slackening at the same time. Demand for gasoline even seems to be declining recently. What about real estate sales commissions if home sales even modestly decline? What about other sales commissions if retail spending slackens? Is Wyss aware that there is an 18-to-1 or 20-to-1 wage differential with China that is putting pressure on jobs, wages, and benefits? Under what logical scenario will overall wages finally start rising now, this far into a recovery? The only way I can see wages rising is if the bubble keeps inflating. All that would do is postpone the problem and make it bigger in the long run.

Note too, that S&P also seems to be discounting the effects of Katrina, as well as any upcoming recession. Perhaps the economists at S&P think that the spend-and-spend policies of this Congress and this administration have forever eliminated the business cycle as well. Who knows? Whatever they are smoking sure is powerful stuff.

I do not buy this “permanently high plateau” nonsense or any talk of a miracle “soft landing,” either. Nor do I accept that the business cycle has been defeated and there will be no more recessions. The next consumer-led recession is going to be a doozy, and along with it will come a severe strain on home prices. The upcoming correction is likely to be dramatic in terms of price action or length of time or both. It may come about as a very long, painful slow leak (the Japan scenario) or some sort of faster price crash. I think the latter is the most likely scenario, perhaps in a sloping stair-step fashion. The least likely ending is the widely held fairy tale belief that wages keep rising, jobs will be plentiful, the business cycle is defeated, and “everyone lives happily ever after.

Housing Evidence

“THE EVIDENCE SUGGESTS that people will borrow to buy this housing bubble until lending literally seizes up,” writes Russ Winter on Silicon Investor.
Indeed. Let’s take a look at some of that evidence:

Mortgage Applications Rise on a Seasonally-Adjusted Basis

“The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending Oct. 14. The Market Composite Index — a measure of mortgage loan application volume — was 737.5, an increase of 6.1% on a seasonally adjusted basis from 694.8, one week earlier. This measure includes an adjustment to offset the effects of Columbus Day on application activity. On an unadjusted basis, the Index decreased 4.4% compared with the previous week but was up 3.7% compared with the same week one year earlier.

“The seasonally-adjusted Purchase Index increased by 7.3% to 503.9 from 469.5 the previous week whereas the Refinance Index increased by 4.5% to 2095.7 from 2004.9 one week earlier. Other seasonally-adjusted index activity includes the Conventional Index, which increased 6% to 1103.8 from 1040.9 the previous week, and the Government Index, which increased 7.8% to 126.3 from 117.2 the previous week.

“The refinance share of mortgage activity decreased to 42.8% of total applications from 43.5% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 29.3% of total applications from 29.5% the previous week.”

Especially interesting to me is the strength of refinancing. Long-term interest rates have pretty much been rising for several months, but refinancing still continues strong. There are several possible explanations that I can think of.

1. People are so desperate for cash to support ongoing consumption that they are simply forced to pay higher rates to get it

2. People have once again racked up huge credit card purchases and are going through yet another round of paying off high-interest debt for lower-interest debt

3. People are scared to death of all these rate hikes and are rushing to lock in fixed rates and get out of their ARMs.

It is probably some combination of those factors, but the rate of new ARMs is still holding at 30% or so, higher in bubble areas from numbers that I have seen.

Meanwhile, housing construction increases in September to the highest level in seven months, according to the Commerce Department.

“September surge defies expectations of a slowdown in the housing market.

“Housing construction unexpectedly rose in September to the highest level in seven months, defying expectations of a slowdown in the booming housing market.

“The Commerce Department reported Wednesday that construction of new homes and apartments rose by 3.4% last month to a seasonally adjusted annual rate of 2.11 million units, the fastest pace since last February.

“Analysts had been forecasting that housing construction would decline by 1.7% in September, believing that increases in mortgage rates would finally start to cool the red-hot housing market.”

No one seems to be as optimistic as the Toll Brothers, according to the New York Times article, Chasing Ground.

“At the moment, Toll controls enough land for nearly 80,000 houses. Its competitors, which tend to build lower-priced houses on smaller lots, have even larger accumulations. K. Hovnanian has land for more than 100,000 houses. Pulte Homes holds 350,000 sites. Still others — Lennar, Centex Homes, D. R. Horton, KB Home — control hundreds of thousands as well. And all of them are in ferocious pursuit of more.

“The company expects to grow by 20% for the next two years and then will strive for 15% annually after that. Those estimates suggest that the company’s expected production of around 8,600 houses this year will expand to at least 15,000 houses by 2010. Individual Toll developments now range in size from a few dozen to 3,000 houses.
“‘Why can’t real estate just have a boom like every other industry? Why do we have to have a bubble and then a pop?’ asked Toll.”

At the top of the list in believing the “permanently high plateau” theory is David Seiders, the chief economist for the National Association of Home Builders. According to Seiders, single-family starts numbered about 1.6 million, in 2004. He expects another record this year, even as the industry begins to hit “the plateau we’ve been watching and waiting for.” Next year, Seiders said, he projects 1.58 million single-family-home starts.

Also chiming in on the permanently high plateau theory is Erik Bruvold of the San Diego Regional Economic Development Corp. in the San Diego News article, Housing economists raise yellow flag over San Diego.

“Mr. Bruvold predicted a flattening in prices rather than a dramatic falloff. Already, the inventory of homes on the market is growing and sales prices are lower than asking prices. ‘I think we’ve hit a plateau,’ Bruvold said. ‘I would not refer to it as a turning point.’

“David Berson, chief economist of Fannie Mae and David Seiders, chief economist for the National Association of Home Builders also seem to be giving some credence to the ‘plateau theory.’ ‘Prices are so high that at some point there is the possibility people may simply decide it’s too expensive to move there,’ Berson said. ‘Alternatively, prices may simply slow for a period of slow or no price gains.’
“David Seiders said constraints on supply will tend to keep prices from falling. ‘That makes me think prices are going to stick,’ he said.”

I wonder: Does Toll have any idea of the likelihood of growing at a 15-20% rate for perpetuity with a plateauing market? What if it doesn’t plateau, but sinks? Even IF the market expands, is 15-20% a year doable? Does he really believe this or is this just yapping for shareholders? From where I sit, it’s a pipe dream to think that this expansion can continue with housing affordability at all-time lows, and real wages falling. I think what Toll is suggesting is financially impossible.

All of these housing cheerleaders sound just like Yale professor Irving Fisher, who just before the stock market crash in 1929, declared that stocks had reached “a permanently high plateau.”

Mish’s view of the “permanently high plateau” theory is right here:

Note: I made that chart in spring of 2005. Please mentally shift the arrow one notch to the right. Perhaps we stay up here a bit longer forming a broader top, perhaps not, but mark my words, there will be nothing remotely permanent about this plateau.

When Toll asks: “Why can’t real estate just have a boom like every other industry? Why do we have to have a bubble and then a pop?” I wonder: has Toll ever studied economic cycles? Is his memory so poor that he has already forgotten what happened four years ago in a stock market bust led by telecoms and dot-coms? Exactly what boom is he referring to that, “like every other industry,” can go on forever?

Susan Wachter, a housing economist at the Wharton School of the University of Pennsylvania, remarks: “The fact of the matter is that housing prices are increasing in the U.S., faster than inflation, in ways we haven’t seen before. Ten years running. It’s the first time in keeping these numbers that we’ve ever had a run like that.” Mish asks: Does that sound remotely sustainable?

Doug Noland sure nailed it in his latest Credit Bubble Bulletin

“Analyzing today’s Mortgage Finance Bubble does bring to mind speculative dynamics at play during the late-80s commercial real estate bubble. Despite increasing signs of late-cycle stress and fundamental deterioration (rising vacancy rates, over-supply, and sagging rents), it took quite some time to pacify (and then quickly crush) the speculative spirits that had blossomed during the boom. The boom-time financial infrastructure and the resulting Wall of Liquidity continued to finance additional building, with both the quantity and quality of the projects guaranteeing a devastating downside of the credit cycle. We saw similar dynamics at work throughout the tech and telecom industry during that fateful period, 1999/2000.

“Today, the system is basically preordained to finance and construct at least 2 million new residences a year, notwithstanding fundamental developments (rising inventory of unsold units!). Too many of these homes will be oversized, upscale, and constructed in the hot/susceptible markets (California, greater Washington, D.C., Miami, Las Vegas, etc.). The vulnerable condo, investment property, and vacation home sectors will see more than their share of construction activity. And the reality of the situation is that this housing juggernaut is destined to pressure exiting home prices and exacerbate post-Bubble system impairment. You can throw any notion of a self-adjusting and correcting system out the window.”

It is actually “build or die” for all of the homebuilders. Private companies could simply pull their chips off the table, finish selling what inventory they have, scale down and slowly go toward extremely high cash ratios. If Toll Brothers did that, its stock would crash. Thus, Toll Brothers and all of the other public homebuilders will buy land and build and attempt to expand no matter what the market climate is, no matter what the cost of materials is, and no matter what national housing inventories levels are. As public companies, being bearish is simply not an option, no matter how bleak things might look. This is exactly why homebuilders go bankrupt at the bottom of every cycle. It happens every time. Builders will keep building as long as banks will lend them money. They will not stop because they fear they will lose their crews, their market share, or their stock options. Homebuilders will run under the model of “build or die” until margins are squeezed so hard they sustain heavy losses. At some point “build or die” will morph into “stop building or die.” At that point, concerns about market share and promises of 20% growth will both go out the window. By then it will be too late.

This cycle will not be any different. No, I am not calling for Toll Brothers to go bankrupt, but the possibility is actually there. I do expect some bankruptcies out of this mess, but it is not easy to predict which ones.

Let’s return one final time to what “The Housing Evidence” suggests:

1. Homebuilders haven’t a clue about business cycles, affordability issues, tightening credit, or liquidity. Money has been too easy for too long for anyone to understand what might happen in a liquidity crunch. No one sees even the slightest possibility of a credit crunch.

2. Homebuilders will keep buying more and more land and adding more and more to housing inventory in a foolish attempt to grow 20% every year fighting for “market share” right at the peak of the boom.

3. No one seems to see or believe the devastating consumer-led recession that is staring them in the face. It’s simply “build or die.”

4. People will indeed borrow to buy this housing bubble until lending literally seizes up.

I believe we can now answer Toll’s question: “Why can’t real estate just have a boom like every other industry?” My answer is, “Patience Mr. Toll, you will, and it will end up looking a lot like the telecom bust of 2000, too.”

Mike Shedlock ~ “Mish”

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Related Articles on US Housing Market:

Crippling “Wealth”
by Kurt Richebächer “Do inflating house prices truly enrich homeowners? Do they enrich the nation? Our short answer to both questions is a categorical no. The ugly truth is that both are impoverished. Dr. Richebächer explores…”

Putting Your Assets on the Line
By Marc Faber “Millions of Americans have been viewing their humble abodes as their own, personal ATM. Marc Faber wonders when people will realize that they shouldn’t have everything riding on their household assets…”

All Signs Point to Bubble
By Kurt Richebächer “It is undisputed that the greater part of the escalating mortgage borrowing in the United States was for purposes other than house purchases. In short, it boosted consumption as a share of GDP at the expense…”

Going From Bad to Worse
By The Mogambo Guru “…Franklin Raines, disgraced former head of Fannie Mae, proves that perfidy and failure is worth a retirement package measured in tons of money and benefits. Fannie Mae was originally set up to help poor people buy houses…”

Other Useful Links on US Housing Market:

CNN Report: Housing Market Cooling.

US property bubble, from Wikipedia, the free encyclopedia.

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