Who says house prices don't fall?

[Commercial Dan]

US house market fall 'new blow'

5:00AM Wednesday January 30, 2008


Purchases of new homes in the US unexpectedly fell to a 12-year low in December, ending the worst sales year since records began in 1963.
Sales decreased 4.7 per cent to an annual pace of 604,000, the Commerce Department said yesterday.
The median price dropped 10 per cent from December 2006, the most in 37 years.
The dollar extended its drop as the figures spurred speculation the Federal Reserve will keep reducing interest rates.
"Today's numbers are a new blow," said Chris Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd, who forecast a decline. "The broader economy is very, very close to falling over the edge. The Fed really needs to think aggressively."
- BLOOMBERG

[Davo36]

And still more to come I reckon.

This is all playing out in super slow time. A friend of mine who trades shares on world markets for a living sent me this link saying is was very significant, more so than the 50 points cut again today. http://www.bloomberg.com/apps/news?p...Lw4&refer=home

I'm not sure why it is so significant, but maybe we're yet to find out!

David

[cube]

Kind of related, in a US kind of way.

What median house prices would look like if the bubble never happened

[muppet]

S&P Lowers or May Cut $534 Billion of Subprime Debt (Update1)

By Jody Shenn

Jan. 30 (Bloomberg) -- Standard & Poor's said it cut or may reduce ratings of $534 billion of subprime-mortgage securities and collateralized debt obligations as default rates rise.

The downgrades may extend losses at the world's banks to more than $265 billion, S&P said.

The securities represent $270.1 billion, or 47 percent, of mortgage bonds rated between January 2006 and June 2007, S&P said today in a statement. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The downgrades may increase losses at European, Asian and U.S. regional banks, credit unions and the 12 Federal Home Loan Banks, S&P said. Many of those banks haven't written down their subprime holdings and S&P said it will start reviewing their ratings.

``There could be rating actions for selected banks, especially for those that are thinly capitalized,'' S&P said.

Some of the largest global banks have already taken ``significant'' losses and they aren't likely to have more writedowns, S&P said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=abnXToHScnz0&refer=home

[muppet]

Hi Cube

So:

Historically, median home prices and median incomes have always shared a close relationship. From the mid-1970s to 2001, the historical ratio of median housing value vs. median household income was consistently between 2.6 and 3.0.

If this was applied to NZ what should I prices be then?

It would be interesting to know what the historical ratio of median housing value vs. median household income has been in NZ?

Regards

[cube]

One for Kieran, I imagine.

[whitt]

It would be interesting to know what the historical ratio of median housing value vs. median household income has been in NZ?

Regards

If you check the graphs at the Back of Kieran's property cycle book. you can see affordabilty, wages etc all graphed against house price growth.

[PeterEmpowerEd]

Correction-reversion?

Kind of related, in a US kind of way. What median house prices would look like if the bubble never happened

Great article, cube. Thanks.

There's a school of thought that fundamentals (like the ones this article refers to) always re-assert themselves (the classic 'reversion to the trendline')....
it's just a question of how rapidly this happens and which factor gives up the most ... Olly Newland has stressed that landlords can't just raise rents willy-nilly in response to increased costs because tenants' incomes aren't rising enough and they just can't afford it.

Here's a short clip of Westpac housing market research economist Dominick Stephens speaking at our Market Update evening last month (Dec07)... quite interesting to hear how the economists' analysis of acceptable investment returns were frustrated by borrowers' strategies for keeping their mortgage rates low ... until the day of reckoning.
http://www.empowereducation.com/down...pdate_clip.mp3 (MP3 2MB)

[Gatekeeper]

This is interesting too

From a local - Part 3 yet to come

Now Here’s a Real Bubble!-Yarns from Down Under...Part 1
The Greatest Bubble of All!by John Needham, The Daniel Code Report | January 16, 2008
Print
How it began

http://financialsense.com/fsu/editor...2008/0116.html





Uridashi! The Bubble Buster
Yarns from Down Under, Part 2by John Needham, The Daniel Code Report | January 29, 2008
Print
The story so far

Being hit by a bus is usually an act of fate which with hindsight can be seen as avoidable. Standing in front of a bus on a dark, rainy night and watching it barrel down the highway towards you at high speed is an act of either suicide or stupidity. It doesn’t happen often yet this is precisely what is happening to the great housing bubble Down Under!!

The common factor in all notable financial catastrophes is that they seem to be of the “OOPS-Sorry” variety, which is explainable if not understandable by sober persons after the act. To see and understand the imminent catastrophe before it cracks is a rare opportunity.

Long Term Credit Management had an oops-sorry episode when it turned out that the Nobel Prize winning Scholes-Black pricing formula for vanilla options (nothing to do with ice cream folks), had a problem. The problem was that it didn’t actually work as advertised. Mortgage backed securities are still having their oops-sorry moment. We now know that those AAA ratings didn’t actually mean what they said.

http://financialsense.com/fsu/editor...2008/0129.html


I've said all along to watch the carry trade and the JPY/NZD!

[Commercial Dan]

The volatility in the dollar is amazing, it has been going up and down 0.50 cents every half hour....at some point even against the $US it will severley correct.

Carry trades work well when the $NZ stays steady or goes up steadily, if it drops a good sum at all some of those funds lose millions.

[Austrokiwi]

When America sneezes NZ may need CPR

The following Article is interesting:

http://money.cnn.com/2008/01/30/news/international/okeefe_rogers.fortune/index.htm?postversion=2008020307

Jim Rogers is an investor who's advice people ignore at great risk. The interesting thing is not if he is right but to what degree. The effect on NZ could well be cushioned by Agriculture but those who have risked all on property really do need to take a defensive position!