Nov122015
OC new home sales crater due to high prices
New home prices are too high in Orange County. There are not enough buyers with the ability and the desire to buy to absorb the inventory.
Is Orange County, California, in the grips of a new housing bubble?
No, but the prices are too damn high.
This isn’t rocket science, and I don’t need to launch into a long diatribe on affordability. Local homebuilders pushed prices up so high that they don’t have enough buyers with the means and motivation to absorb the new home inventory. If you still haven’t found that you home you were looking for then consider taking a look at this trade home.
Right now, very little of the available new-home inventory is financeable by buyers using GSE of FHA financing. It’s almost entirely a jumbo market requiring sky-high incomes, $200K+ in savings, and stellar credit. Coming out of a deep recession, how many people are in that position?
Apparently, not enough to buy the new homes built in Orange County.
Where have all the new-home buyers gone? After 2 years of rising sales, transactions make an about-face
Jeff Collins, Nov. 8, 2015
According to figures from data firm CoreLogic, new home sales have declined year-over-year in Orange County for 10 straight months, with volume down 21 percent.
By comparison, existing home sales increased 10 percent in that period. …
Among Southern California counties, only Orange and San Diego counties had new-home sales declines. And Orange County was alone with an unbroken downward streak running from November 2014 through September. …
New homes must compete with existing homes in the market. New home prices escalated far more than existing home prices, so buyers began substituting to existing homes rather than pay the prices builders wanted. It’s a simple as that.
So what is plaguing the new home market here?
It’s not a lack of inventory.
It could be that Orange County builders are victims of their own success, experts said.
Some new housing projects sold out more quickly than expected in 2014, leaving builders with fewer homes to sell this year.
Based on the chart above, that idea is complete nonsense.
But that’s not the only reason.
New home prices also may have gotten too high, even for Orange County, the region’s priciest housing market.
You think?
And purchases by Chinese buyers, who made up a significant portion of new home buyers in recent years, are starting to wane following currency and stock market volatility in their country.
Is successful real estate investment like judging a beauty contest? Irvine is no longer beautiful.
“I’m seeing slower sales at the higher price point pretty much everywhere,” said John Burns, an Irvine-based housing consultant. “And the Orange County new home market is heavily skewed to million-dollar homes.” …
Sky-high home prices also may be deterring some buyers.
The median price of a newly built Orange County home – or the price at the midpoint of all sales – hit an all-time high of $909,000 in February, CoreLogic figures show. The median for the year as a whole thus far is $835,000.
Homebuilders got ahead of themselves on pricing, and now they have to figure out how to adjust. It won’t be easy.
Some developers maintain that high prices aren’t scaring buyers at their developments.
The Irvine Co. cited a report showing its sales up 56 percent by midyear.
“New homebuyers consistently tell us that the Villages of Irvine homes are attractive,” spokesman Bill Lobdell said.
Kelly, the Rancho Mission Viejo exec, said his firm’s new Esencia project is “experiencing strong sales at all price points.”
Experts are skeptical, however.
If that were true, why do the official property records show declining sales? (Hint: They’re lying.)
The price gap between resale and new homes this year is $250,000, according to CoreLogic. …
“The gap between the resale market values and the new home market has widened considerably,” Valone said. “A lot of people are going, ‘Nah … I’m not going to buy a new home.’”
Why should they when lower priced existing homes are available.
Said Burns, the housing consultant, “Orange County’s new homes almost exclusively cater to the affluent buyers.”
Olson’s townhomes in Buena Park sell in the $500,000s and under, while the Huntington Beach townhomes sell in the $700,000s and below, he said. There’s not a lot of competition from other builders at those prices.
“We’re not really seeing a slowdown in Orange County,” he said.
Clear proof of the “price is too high” theory.
There are signs new-home sales might be turning around.For one thing, homebuilding has gotten back in high gear, with nearly 1,900 new homes now in the works at the Great Park and Rancho Mission Viejo and at least two new projects launched by the Irvine Co.
Sea Summit at Marblehead, with 309 ocean-bluff houses in San Clemente, is holding its grand opening this weekend.
Yes, that will cause a turnaround. A flood of new home supply in a declining sales environment will cause prices to turn around and head south.
Expect to see a flood of incentives followed by lower new home prices over the next 12 to 18 months.
Are new home prices insulting?
Isn’t it possible for an asking price to be so high, so ridiculous that it insults the intelligence of every buyer in the marketplace? I think so.
Is it possible to shame sellers into setting reasonable asking prices? When an asking price is beyond ridiculous, there should be a sense of shame for the insult to potential buyers everywhere. There is a lack of respect in a WTF price, and maybe the fear of insult will make a seller pause before listing an embarrassing asking price.
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“When an asking price is beyond ridiculous, there should be a sense of shame for the insult to potential buyers everywhere.”
The Talk Irvine crowd is doing its part to shame the developers at Beacon Park. Not only are prices higher to comparable new Irvine homes (which might be justifiable due to larger lot availability), but the mello roos is double comps AND it compounds annually at 2%! Many developments within Beacon Park are offering financing incentives (~$7,500) and design center credits (~$20K). At these price points ($1M+), those design center credits have room to increase before price reductions are considered.
Another trick I’m seeing in Beacon Park, is builders adding structural upgrades to houses beginning construction yet unsold, but offering them near base pricing. e.g. Your initial price could be slightly higher than the same plan sold for in an earlier phase, but you’re receiving a closing cost credit, design center credit, and/or a structural upgrade or two.Typical structural upgrades are adding a covered patio, closed-in patio, and tandem third car garage spot converted to prep kitchen or office.
Builders will push these stealth incentives to artificially keep prices up until the gambit is no longer tenable. Eventually, the appraisers are going to catch on and crack down, and buyers will start to balk at the high asking prices.
BTW, did you get a good incentive package? I also imagine you are happy you locked your rate considering the recent increases.
Bad News: We received zero in credits/incentives, and we watched prices creep-up for six months before the builder could offer what we were asking (end of cul-de-sac with reasonable backyard). Fortunately we were able to lock a 3.5% rate near the low for this period.
Good News: We bought in a development that has been and continues to sell extremely well. Hence, no incentives since its debut. Base pricing has increased $5K-$10K with nearly every phase. In fact, it’s selling so well that it’s difficult to know exactly what base pricing is today. Nearly every lot is sold at each release from the pre-qual list. So you don’t get to see lots hit the price sheet.
Sounds like you made the right choice, and your timing was good for the loan.
Guilty. However I think even existing homes are too expensive. New homes are just ridiculous though…
I’ve visited and returned to a few Beacon Park developments (especially fond of Juniper and Torrey). Each time I share with the sales folk my thoughts – “Love the floorplans and the lot sizes, but can’t justify the price much less the double mello compounding annually at 2%.”
Here’s Why the GOP Can’t Stop Talking About the Gold Standard
http://finance.yahoo.com/news/why-gop-t-stop-talking-220900071.html
uring the Republican presidential primary debate Tuesday night, Texas Sen. Ted Cruz called for returning the United States to the gold standard. The loud sound heard across the nation immediately afterward came as thousands of economists and monetary policy experts simultaneously slapped palms to faces in disbelief.
The gold standard requires U.S. dollars to be backed by a fixed amount of actual gold held by the government and redeemable on request by anyone in possession of paper currency. The U.S. abandoned the gold standard in practice in 1933 and by law in 1976, in favor of what is known as fiat money. The dollar bills in circulation today are worth something not because they can be redeemed for gold but by law which declares them “legal tender.”
Economists are almost universal in the belief that a return to the gold standard would be absolutely disastrous for the United States economy.
“It’s basically seen as nuts, and I think even most conservative economists would say that,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “We learned the hard way that the gold standard does not bring financial stability. We learned that it’s really bad to have a money supply that’s restricted to the amount of gold you can mine.”
“There are two fundamental problems with a gold standard or any kind of commodity standard,” said economist Bert Ely of Ely & Co. in Alexandria, VA. “One, the standard is a price-fixing mechanism that requires taxpayer-backing. Two, the supply of gold or whatever commodity is used as the standard, relative to demand for that commodity, will vary over time, which is why such standards eventually fail, after a bout of inflation or deflation.”
…
The Republican ship of fools needs to right itself before their buffoonery destroys all credibility with voters
Jon Stewart: Donald Trump Is An Internet Troll Running For President
Comedian Jon Stewart returned to standup on Tuesday night, and wasted no time going after one of his favorite targets: Donald Trump.
“It’s like an Internet comment troll ran for president,” the former “Daily Show” host said of the GOP presidential frontrunner at the 9th annual Stand Up for Heroes event in New York.
(Warning: strong language ahead)
“When I was doing the program, we liked to make jokes about him because he’s hilarious and easily mockable,” Stewart said, according to Entertainment Weekly. “We would mock him with things such as, ‘He looks like a bewigged boiled ham,’ or something like that. …
Stewart expressed some disbelief that Trump is a serious contender for the presidency.
“Are we really doing this Donald Trump thing? We’re really doing that as a country?” Stewart said, according to The Hollywood Reporter. “He’s fucked. I like to put my name in giant letters on everything I own as much as the next guy, but the only other people that do that are like 8-year-olds going to camp.”
Bernie Sanders is a character too, easily mocked. The difference is Sanders is proposing real workable solutions to issues. I disagree with many of his proposals, but his policies aren’t a joke, like many (most?) of the Right’s candidates’ proposals.
His solutions are workable until the money runs out. In Europe, they have a name for countries that this happens to.. They are called the PIIGS.
As a side note, it will be interesting to see if the Volkswagen scandal affects Germany’s ability to continue bailing these nations out. Their economy is built on the strength of their auto industry, but this could really set the German reputation for automotive excellence back for awhile, affecting sales of all brands for years to come.
Universal healthcare is cheaper as a whole than the system we have set up in the US.
http://www.pbs.org/newshour/rundown/health-costs-how-the-us-compares-with-other-countries/
Sure take home pay would be less, but you wouldn’t have to pay for healthcare out of pocket.
From an economic perspective it is the cheaper option. What you lose though is choice and control.
It sounds great in theory, but when I look at the absolute disaster happening with the VA, along with the $45 trillion unfunded liability with Medicare, it gives me pause. Then I look at what has happened to a family member forced to sign up for Obamacare that recently had a baby, and wasn’t able to get what she needed in a timely manner. The insurance company was backlogged for weeks and she basically just gave up expecting to get what most people would consider routine care for a pregnancy.
The US government track record with universal medicine has not been a good one. That’s why people will continue to oppose it, even if the current system costs a bit more.
Hmm, not sure about your last paragraph. Medicare is very successful – old folk love it. Don’t think so? Try to take it away, or even just talk about cutting it.
“GET YOUR BIG GUBMINT HANDS OFF OF MY MEDICARE!”
The success of Medicare is what frightens insurance providers the most. The expense ratio of medicare is a tiny fraction of what private insurers make. It’s a very efficient system.
If Democrats really wanted to make Republican heads explode, they should start lowering the age for Medicare eligibility until it finally reaches conception.
“If Democrats really wanted to make Republican heads explode, they should start lowering the age for Medicare eligibility until it finally reaches conception.”
Had to laugh at this one.
The Democrats would want it to start at birth, but the Republicans would fight for conception. That way they could make the argument that an unborn fetus is entitled to healthcare and the Democrats want to take that away by aborting them.
Funny. And, Republicans would not want any taxpayer funds assisting the health nor education of that child once it is actually born. Choose your parents better and pick yourself up by your own bootstraps kids!
Yes, people generally like free things.
“Get your hands off my Medicare” doesn’t evoke a sense of sharing or wanting to expand the program to everybody though.
Agreed. There are consequences to having a very high tax government. We’re watching western Euro countries deal with decades of high tax + big social welfare programs. My point is, Sanders’ proposals are within reason, even though I and many disagree. Look at any Republican’s tax plan. There is no rhyme or reason – just big income tax cuts (benefiting those paying taxes – i.e. the “rich”) and completely unreasonable growth projections.
The first large sentence makes sense. Then you claim Sanders’ proposals are within reason. Which is it?
Sanders is not an extreme liberal by international standards. Most proposals are already implemented and work in European countries.
To be fair there are plenty of examples of the financial plans the GOP wants. They date back to the Renaissance of Europe and usually ends with default.
Which one is more extreme depends on your goals.
If your goal is to get as much free money with the future generations paying the debt, sure the GOP is reasonable.
If you would sacrifice some personal financial gain for a more secure future for most of society than Sanders is the reasonable one.
So Sanders has workable solutions as Portuguese socialists align with communist and left bloc parties because the bill has come due and nobody wants a pay cut. Right.
look at a 100 year dollar chart and read that last paragraph several times.
RealtyTrac: Foreclosure starts post highest jump in more than four years
Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 115,134 U.S. properties in October, up 6% from the previous month.
The rise was caused primarily by a 12% monthly jump in foreclosure starts, with 48,605 properties starting the foreclosure process for the first time in October.
This increase marks the largest month-over-month increase since August 2011, when there was a 24% month-over-month increase.
While this increase isn’t a giant surprise, it did exceed expectations.
“We’ve seen a seasonal increase in foreclosure starts in October for the past five consecutive years, so it’s not too surprising to see the monthly increase this October,” said Daren Blomquist, vice president at RealtyTrac.
“However, the 12% increase this October is more than double the average 5% monthly increase in the past five Octobers, and the even more dramatic monthly increases in some states is certainly a concern. The upward trend in foreclosure starts in those states in some cases could be an indication of fissures in economic fundamentals driving more distress and in other cases is more likely an indication of long-term delinquencies finally entering the foreclosure pipeline,” he added.
GOP debate: The problem with that Dodd Frank guy
The candidates were (generally) ready with talking points about banking regulation, but once they got off of those specific points, they made less sense.
Every candidate wanted less regulation. Carson noted a “stampede of regulation,” Rubio and Bush called out Dodd-Frank for making small banks struggle and go out of business and Fiorina went the farthest, citing the legislation as an example of how socialism starts.
But every candidate also wanted banks to do the right thing, with Kasich saying there was too much greed on Wall Street and everyone jumping on the too-big-to-fail banks as bad players.
What the candidates seemed to be unable to do is connect the dots between regulation and making banks do the right thing. For instance, in the same breath Bush called out Dodd-Frank legislation for suffocating small banks (a position I happen to agree with) but called for creating new policies that would require higher capital requirements. Presumably those policies would take the form of regulations.
That’s the thing about regulation. Too much and you feel like the government is treading all over your right to life, liberty and the pursuit of happiness. Too little and the bad guys end up running the place.
Why Big Banks Weren’t Smiling During the GOP Debate
The primary rational for attacking Dodd-Frank Tuesday night was the claim the law is too friendly to big banks. Former Hewlett-Packard chief Carly Fiorina, for one, said the law was “crony capitalism” that had made the big banks bigger. (That’s not entirely accurate. Since the law was passed, total assets at J.P. Morgan Chase, Morgan Stanley and Wells Fargo have grown. Bank of America, Citigroup and Goldman Sachs Group are smaller.)
Another: The attacks were coupled with calls for capital requirements to rise even higher than they already have. Jeb Bush called on capital requirements for the biggest banks to be punitive enough to force them to significantly shrink.
Despite the undeniable burden created by the new rules, undoing them would likely also be costly for the banks now that they have spent the past several years building out complex compliance systems and organizing businesses and portfolios to meet supervisory requirements.
When Ted Cruz, the Texas Republican senator, agrees with Vermont’s Bernie Sanders that the big banks have “gotten away with financial murder,” it is clear regulatory relief isn’t in sight.
Of course, bankers know they own these politicians, and all the bluster was merely for show, so while they may not like the rhetoric, they still plan to back the Republican nominee because they know the talk is all disingenuous bullshit.
Well said, the GOP will always serve money and only money
Freddie Mac: Mortgage rates move higher amid potential interest rate hike
Average fixed mortgage rates continued to trend higher amid market expectations of a possible rate increase by the Federal Reserve and following a stronger than expected jobs report, according to the latest results from Freddie Mac’s Primary Mortgage Market Survey.
“The positive employment reports pushed Treasury yields to about 2.3% as investors responded by placing a higher likelihood on a December rate hike,” said Sean Becketti, chief economist for Freddie Mac.
“Mortgage rates followed with the 30-year jumping 11 basis points to 3.98%, the highest since July. There is only one more employment report before the December FOMC meeting, which will have major implications on whether we see a rate hike in 2015,” he continued.
I’ve written about this a couple of times, and the financial media is finally picking up the story
High Rents Put Would-Be Homebuyers in a Catch-22
In housing markets where home values are constantly rising, first-time buyers often struggle with coming up with a down payment and end up renting versus buying a home.
Most renters are putting about 30 percent of their monthly income toward their rental payment, which makes saving for a 10 or 20 percent down payment difficult, a new Zillow report showed.
This essentially put those would-be homebuyers in a catch-22—they cannot afford a down payment because they are putting so much money toward rent, and the reason they are putting so much money toward rent is they can’t afford a down payment.
“In general, paying a mortgage is more affordable than renting, and has been for some time. Unfortunately, many current renters aren’t able to realize the savings that come with homeownership because as home values and rents keep rising, it’s getting increasingly difficult to clear the down payment hurdle,” said Dr. Svenja Gudell, Zillow’s Chief Economist.
Will ‘Unaffordable’ Homes Ever Become ‘Affordable’ to Millennials?
While buying a home that fits the definition of “unaffordable” to millennials (age 25 to 34) according to the federal government—that is to say, a home with monthly mortgage payments that exceed 31 percent of the household’s monthly income—is generally a bad idea, research released by Trulia on Wednesday indicates that sentiment may be reversing its field.
In many housing markets that have seen strong wage and income growth, the share of a household’s monthly income put toward a mortgage payment is shrinking, hence the once “unaffordable” house could become affordable within a matter of just months in some cases, according to Trulia. Interestingly, the majority of the markets where unaffordable houses become affordable over the life of a 30-year mortgage (or are already affordable) are in the northeast or on the east coast (Providence, Rhode Island; Newark, New Jersey; New Haven, Connecticut), while the majority of those markets that are defined as unaffordable and likely to stay that way are located on the west coast (primarily in California).
Activists Urge White House Not to Abandon GSE Reform
Several civil rights and housing advocacy groups on Wednesday called for the White House to take action on the lingering issue of GSE reform, which some top officials in the Obama Administration said will not happen during the last year-plus of Obama’s presidency.
Representatives from the Leadership Conference on Civil and Human Rights, the Center for Responsible Lending (CRL), the National Community Reinvestment Coalition (NCRC), and the Labor Council for Latin American Advancement (LCLAA) all called on the Obama Administration to address the state of the housing finance system for minority communities, outlining steps they believe the Administration should take to address perceived economic and racial disparities, according to a report on ValueWalk.
One of those steps is GSE reform—removing Fannie Mae and Freddie Mac from conservatorship of the Federal Housing Finance Agency (FHFA), where it has been for seven years after receiving a combined $187.5 billion bailout, and recapitalize them. Obama Administration officials such as Treasury Secretary Jack Lew have warned in the last month that such a “recap and release” program for Fannie Mae and Freddie Mac would put the GSEs at risk of another bailout; however, the GSEs’ Q3 earnings reports showed a $475 million net loss for Freddie Mac and a decline of more than 50 percent in Fannie Mae’s quarterly net income (from $4.6 billion in Q2 down to $2 billion in Q3), prompting their boss, FHFA Director Mel Watt, to declare that they may need a bailout anyway.
On a press call Wednesday, Leadership Conference President and CEO Wade Henderson criticized the Obama Administration’s failure to let the GSEs regain financial stability and also the Administration handing the task of GSE reform to Congress, where no progress has been made despite general bipartisan agreement that some sort of GSE reform needs to take place.
“Which Congress are they talking about?” Henderson said. “The House just pushed out its last Speaker because he wasn’t eager enough to shut down the federal government, and it hasn’t shown it can handle any other complex policy issue–especially one that ought to be bipartisan. Putting the future of our nation’s housing finance system in the hands of this House, while refusing to do what can be done under existing law, shows a level of naiveté and a seeming indifference to the consequences of the status quo that is truly disturbing.”
Oh oh oh oh! Teacher . . . teacher . . .
I know what they cand do!
They can lower their prices and then more people will want to buy their houses!
Maybe they should hire an economist or something so they can figure this stuff out.
The worst part is that they will hire an economist to study this to death in order to justify to their stakeholders why they had to lower the price to sell more houses.
The economist report is in (economist was a Keynesian):
Supply: banks are foreclosing on underwater housing that has surfaced
Demand: improving now that the Chinese bubble is growing again.
Rates: not good, rates are already up on an expected December rate rise
Prices: Demand – Supply – Rates
Cost of Ownership: Demand – Supply + Rates
Expected change in the coming months:
Supply: ↑ Demand: ↑ Rates: ↑ Prices: ↓ Cost of Ownership: ↑
Suggestion: Keep prices elevated, ramp up marketing of new homes in Shanghai business magazines
I wanted to re-post this comment from yesterday since I’m not sure if IR and Perspective had a chance to see it.
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Statistically, the economy does far better under Democrats than Republicans
Statistically, the economy does better under presidents that lower taxes and it does worse under those that increase taxes.
As evidence, I submit this chart of tax policy for income, corporate, and capital gains:
http://www.ritholtz.com/blog/2011/04/us-tax-rates-1916-2010/
Taxes went down under Democrats Truman, Kennedy/Johnson, Carter, and Clinton.
Taxes increased under Republicans Eisenhower, Nixon/Ford, and Bush Sr.
I attribute this counter intuitive behavior to the fact that Democrats usually inherited a peacetime economy and had the luxury of lowering taxes, whereas Republicans inherited wartime economies and had to increase taxes to pay the bills.
The only Republican to majorly cut taxes was Reagan (he didn’t inherit a war). His tax cuts led to the best economic record of any Republican.
With Bush Jr. the roles reversed…
He lowered taxes and started two major wars, and Obama increased taxes to help pay for those wars. The economy was mostly prosperous under Bush’s first 7 years, but went horribly wrong in his final year.
Obama, the first post-WW2 Democrat with net tax increases, has had the worst economic record of any Democrat.
Meh. I don’t attribute good nor bad economies to Presidents. It’s too complicated for such a simplistic answer.
Reagan also raised taxes multiple times.
Both parties LOVE the military industrial complex. That is probably our biggest problem to solve. Cut spending there by a third, and we could maybe reform the tax code in a major way (“cut taxes”): no deductions, no credits, no exemptions, no desperate treatment of “income,” still progressive with new brackets at the highest income levels.
e.g. All “income” is treated equally, whether you receive it by way of labor, dividends, capital gains, inheritance, carried interest, etc. The tax code shouldn’t reward nor punish you for having kids and/or being married.
“All “income” is treated equally, whether you receive it by way of labor, dividends, capital gains, inheritance, carried interest, etc. The tax code shouldn’t reward nor punish you for having kids and/or being married.”
I agree all income should be taxed the same and there should be no credits or deductions. The only thing progressive about it should be the more you make the higher the percent. This would however remove the congresses ability to play favorites with their cronies and socially engineer the country; so it would never happen.
For as bad as the tax code is now, under the Democrats in the 1970s, it was worse. The tax rates were very high, but the code was full of loopholes so the government could direct people toward whatever behavior it found desirable. The whole code was nothing but loopholes, and everyone was expected to jump through them or pay the price. The part of the Reagan Revolution I always embraced was the reduction of tax rates and the elimination of loopholes so people could take their own money and spend it as they saw fit rather than respond to some tax incentive. Streamlining the tax code made everything more efficient. It wasn’t as much about cutting taxes as many Republicans like to remember it. Many people who availed themselves of tax breaks paid much more under Reagan, but everyone had more freedom to chose.
You will know when you have a decent tax code when a personal of normal intelligence is able to fill it out unassisted on a single piece of paper.
You will also notice a large number of commercial vacancies at places which used to assist people with filing taxes while charging them obscene rates on a tax refund advance.
The correlation between tax cuts and growth is probably stronger than the correlation between growth and which party holds the presidency.
Any study like this is prone to partisan interpretations.
Republicans will undoubtedly claim they inherited an overheated economy from the spendthrift Democrats, and their policies set the stage for the next recovery. If the Republicans weren’t put in charge periodically, the economy would fall into a permanent malaise due to the poor policies implemented under Democrats.
Democrats will claim that Republican policies do nothing but enrich the rich and only when income is redistributed to the masses do we get robust consumer spending and economic growth. If Democrats don’t set policy from time to time, you end up with an over-concentration of wealth in the hands of a few and a middle-class that struggles with low wages.
Perhaps at extremes of the business and credit cycle one or the other of these arguments might be true, but most partisans will claim the policies of their party is the correct policy under all circumstances, and they will craft a distorted view of history to support it.
To your point, I believe there are times when taxes are too high and redistributive policies of a central government inhibit innovation and hurt economic growth.
The Kennedy tax cut was a textbook example. Eisenhower supported austerity to pay off the war debt, and as a result, he plunged us into a recession in 1958 that Nixon always blamed for his losing the election in 1960. That was a point in time when tax cuts and increased spending was the right policy, and Kennedy reaped the benefit of the economic growth it stimulated. However, I would contend it was more about the increased spending than the tax cut that created the growth.
The Bush tax cuts show the peril of this approach. Bush cut taxes and increased spending (on a war rather than domestic investment) when marginal rates were already low. This merely ran up large structural deficits and didn’t boost the economy. It was the worst of both worlds. He completely squandered the Clinton surplus with bad policies based on ideology rather than good economics.
Tax cuts when marginal rates are already low don’t provide much marginal utility, which is why I don’t believe tax cuts are the best policy today. If marginal rates were higher, I would probably feel differently.
Looks like gold is about to start the next leg down. It’s testing the cyclical low of $1,080 and all those nasty comments from awgee, matt138, and el ORACLE were wasted breath, as they are once again proven wrong.
I did try to warn each and every one of them that was going to happen.
Maybe I’ll get a Christmas card this year?
I haven’t seen el O in a while. I hope he comes back.
He threw in the towel… Gave up… Which means we are at peak pricing LoL
I’m still buying. All the overly indebted, politically backward countries will sell to pay the bills as ZIRP continues to prove a failure. I’m happy to be on the opposite side of that transaction. All things take time.
“Rising land costs – as high as $3 million to $4 million an acre for finished lots in some parts of Orange County – also are pushing up new home prices, Balsamo added.
“Land prices are forcing builders to build too large of a home on too small of a lot at too high of a price, and that’s definitely meeting some resistance,” said Mark Boud, president of Real Estate Economics in San Clemente.
Said Burns, the housing consultant, “Orange County’s newhomes almost exclusively cater to afflent buyers””
Absolutelty, its not that people don’t want or can’t afford the new housing, its the land prices that are ridiculous. Were starting to see people who can afford it say “no” and go to cheaper alternatives. But those alternatives while cheaper will have the exact same problems. At some point everyone will begin to refuse to “downgrade” to subsidise land prices.
The Irvine Company proved during the housing bust that they would rather sit on their land and stop all construction and sales rather than lower the price. Five Points may have a different attitude in the Great Park, but I suspect they will follow the Irvine Company’s lead on land prices. During the bust Lennar built out Columbus Grove and lowered their land prices to finish building out the development. If the landowner has the financial strength to wait out any storms, they can hold the line on land prices.
Irvine Renter – When the next housing bust starts and China’s economy sees a major downturn, do you think Chinese will sell their Orange County/Irvine real estate (unoccupied) to cash out? Or do you think Irvine will not collapse due to the Chinese buyers during the next downturn?
That’s the one possibility for a bubble burst I’ve continually warned about. If we have another price crash, it won’t be due to US bank loans going bad. They learned to kick the can and manage their bad loans without flooding the housing market with REO. However, if the Chinese start repatriating their money to any large extent, they could sell off enough properties in Coastal California to have a major impact.
I think OC prices are going to fall regardless due to the next recession. The next recession is supposed to be bigger than 2008 some experts have been warning. When many lose their job, there will not be anyone to keep prices up for all of OC.
What about Chinese buyers selling US real estate (even in Irvine) because they need funds for the econmic downturn in China? (Similar to the Japanese in the 90’s)?
You could be right. Check out these posts:
Will China’s housing bust turn foreign buyers into desperate sellers?
Has the OC Housing market peaked for this cycle?
Both those posts go into detail on the issues you bring up.
Thanks!
This is another HUGE HOUSING BUBBLE that WILL BURST!! The next recession is going to be worse than 2008 and Chinese buyers who do not occupy their OC properties will probably SELL to cash out.
When real estate bubbles bursts all over the world, Chinese will sell US real estate to buy the next commodity boom.
[…] Yes, homebuilding will decline because prices are too high. (See: OC new home sales crater due to high prices) […]