Ex Dame Pansi wrote on Mar 25
th, 2011 at 5:58pm:
In a testimony to the US Congress, Dr. Bernanke said:
"House prices are unlikely to continue rising at current rates… a moderate cooling in the housing market, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year."
In other words, in October 2005, Dr. Bernanke thought the US housing market would [cough] plateeeeeeeeau. Sound familiar?
One year later, The Washington Post headlined, "Housing Slump Slows Economy". It wrote:
"The cooling housing market sent a chill through the economy in the third quarter, helping to slow growth to its weakest pace in more than three years."
Interestingly, the Post also wrote:
"Heading into the final campaign stretch, President Bush [Ed note: remember him?] and other Republicans have emphasized the good economic news, such as the low 4.6 percent unemployment rate…"
[Needle scratches off record]
What's that? The unemployment rate in the US was just 4.6% in October 2006. More on that in a minute…
Then by the end of May 2007, MarketWatch reported that "U.S. home prices fall for first time since 1991".
It noted:
"U.S. home prices dropped 1.4% in the first quarter compared with a year earlier, the first year-over-year decline in national home prices since 1991, according to the S&P/Case-Shiller index…
"A year ago, home prices were rising at an 11.5% pace. Prices have been falling for the past three quarters."
During that period, what was the US unemployment rate? That's right, it was around 4.5%. That's lower than the current Australian unemployment rate. It also tells you the US unemployment rate is just as rigged as the Australian unemployment rate.
At that time there was no major shock to the economy. In fact, the first of the big financial firms to collapse - Bear Stearns - didn't collapse until March 2008. A full year after house prices had started to fall.
And even if you take the first signs of trouble at Bear Stearns - the USD$3.2 billion "self" bailout of two of its hedge funds - that was only in June 2007… months after house prices started to sink. And still long before the market received a genuine shock to the system.
As I wrote in yesterday's Money Morning, in response to Jessica Irvine's terrible Sydney Morning Herald article:
"All that's required for house prices to fall is for people to think that house prices will fall. Just in the same way that share prices can fall when they reach a peak. Sellers look to get out first before everyone else gets the same idea."
This is what's playing out in Australia right now.
Housing discounted by half!
Each day we're getting letters into the Money Morning mailbag with examples of falling property prices. Money Morning reader Rick sent us a flyer showing a Port Adelaide development having slashed up to 59% off the original listing price of some properties.
Or this one with a 51% discount to the original price:
And if that wasn't a sign of desperation, check out what the vendor is prepared to do in order to shift a dog of a commercial property:
"A single waterfront commercial property - offered at a price representing extraordinary value discount by 59%. All State Government ‘Stamp Duty Conveyance' to be paid by the vendor saving thousands of dollars."
Wow! Desperate? You bet it is.
Today, Money Morning reader Katie sent us an article from The Advertiser in Adelaide, "Glut gives homebuyers an edge":
"The number of homes for sale is at levels comparable to peak spring season, forcing greater competition, industry experts say."
You know what more competition means don't you? That's right, it causes prices to fall.
moneymorning.com.au
more good news for the average wage earner who would like to enter the housing market
How you doing Pansi, haven't heard much from you recently?
Now, let me put some of this into context -
1) The Economy is 70% driven by Consumers.
2) The largest Consumer segment in the USA, as most other countries are the Baby Boomers
3) Consumers stop spending and start saving for retirement, at least 5 years prior to retiring.
4) The "official" Baby Boomer generation started retiring on January 1st, 2011
5) The Baby Boomer segment of the US Population is by far the largest, at around 80 Million.
6) The generation following the Boomers, which is Generation X, has a segment Population of around 45 Million.
7) Generation X have no where near the asset values & wealth of the Baby Bommers.
Now, can anyone tell me, where is the housing demand going to come from, particularly as the Boomers start dying enmass over the next 20-30 years?
Btw, similar Demographics apply in Australia!