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| 12/24 |
| 2005/8/8 [Finance/Banking] UID:39037 Activity:nil |
8/8 http://www.nytimes.com/2005/08/08/opinion/08krugman.html "This is the way the bubble ends: not with a pop, but with a hiss." \_ I agree there's a certain amount of "irrational exuberance" in the housing market, but this opinion piece is nearly devoid of facts to back up the claim. He barely mentions the slow down in purchases in San Diego and claims the savings rate has dropped to "zero" which is flat out impossible, meaning he's just being sloppy and alarmist. With the thousands of people on the net writing about housing, why choose this fluff piece written 10 minutes before deadline? \_ Are you sure it's flat out impossible that the savings rate has dropped to "zero"? What quantifies as "nearly devoid of facts" to you? Do you know what a "fluff piece" is? Are you an undergrad? http://csua.org/u/cym (L.A. Times) \_ Why is a savings rate of less than zero impossible? It just means you are growing your debts more rapidly than your assets, correct? Can someone provide the definition and explain why it is impossible ... \_ If even 1 person has savings, the rate can't be zero. He doesn't provide a single reference for anything. Nearly devoid of facts isn't quite right. Completely devoid of any references for the 1 or 2 fact-like statements would be more correct but also pedantic and anal. Are you pedantic and anal? Thanks. \_ I've always thought pedantic and anal was slightly more desirable than obtuse and uninformed http://www.csmonitor.com/2005/0803/p01s02-usec.html?s=yahw \_ Thanks for the link. That's better than the NYT opinion piece could offer. How sad that the motd can provide better researched information than the NYT. This demonstrates my original complaint which is the article is fluff written 10 minutes before deadline. Why couldn't Mr. Krugman have provided similar references? \_ Um, because he assumes the reader does their research as well? Accusing Krugman of not doing his homework won't get you very far. \_ Are you an undergrad? \_ Uhhh ... There's a difference between saying the average savings rate is less than zero and everyone's saving rate is less than zero. I would assume that most readers would know that saying the savings rate is less than zero means the average savings rate, just like when you say Palestine, you probably don't mean Palestine, Texas. |
| 12/24 |
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| www.nytimes.com/2005/08/08/opinion/08krugman.html PAUL KRUGMAN Published: August 8, 2005 This is the way the bubble ends: not with a pop, but with a hiss. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust. Forum: Paul Krugman's Columns So the news that the US housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. Of course, some people still deny that there's a housing bubble. One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone. In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles. And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble. In the nation as a whole, housing prices rose about 50 percent between the first quarter of 2000 and the first quarter of 2005. But that average blends results from Flatland metropolitan areas like Houston and Atlanta, where prices rose 26 and 29 percent respectively, with results from Zoned Zone areas like New York, Miami and San Diego, where prices rose 77, 96 and 118 percent. Nobody would pay San Diego prices without believing that prices will continue to rise. Rents rose much more slowly than prices: the Bureau of Labor Statistics index of "owners' equivalent rent" rose only 27 percent from late 1999 to late 2004. Business Week reports that by 2004 the cost of renting a house in San Diego was only 40 percent of the cost of owning a similar house - even taking into account low interest rates on mortgages. So it makes sense to buy in San Diego only if you believe that prices will keep rising rapidly, generating big capital gains. Bubbles end when people stop believing that big capital gains are a sure thing. That's what happened in San Diego at the end of its last housing bubble: after a rapid rise, house prices peaked in 1990. Soon there was a glut of houses on the market, and prices began falling. By 1996, they had declined about 25 percent after adjusting for inflation. And that's what's happening in San Diego right now, after a rise in house prices that dwarfs the boom of the 1980's. The number of single-family houses and condos on the market has doubled over the past year. "Homes that a year or two ago sold virtually overnight - in many cases triggering bidding wars - are on the market for weeks," reports The Los Angeles Times. The same thing is happening in other formerly hot markets. Meanwhile, the US economy has become deeply dependent on the housing bubble. The economic recovery since 2001 has been disappointing in many ways, but it wouldn't have happened at all without soaring spending on residential construction, plus a surge in consumer spending largely based on mortgage refinancing. Did I mention that the personal savings rate has fallen to zero? Now we're starting to hear a hissing sound, as the air begins to leak out of the bubble. And everyone - not just those who own Zoned Zone real estate - should be worried. |
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| www.csmonitor.com/2005/0803/p01s02-usec.html?s=yahw Ron Scherer | Staff writers of The Christi an Science Monitor NEW YORK Americans have stopped saving for a rainy day. Instead, they are living paycheck to paycheck, depending on credit cards to get them through emergencies, and hoping that the rising value of the ir homes will give them a retirement nest egg. Permission to reprint/republish This personal economic chasm is showing up in the national savings rate, which has been declining for years. Tuesday, the Commerce Department rep orted that the personal savings rate fell to zero in June, the lowest si nce a one-month buying binge in the aftermath of the 9/11 attacks. The U nited States is on track to record a savings rate for the year below 1 p ercent, which would be the lowest since the depths of the Great Depressi on, when the rate turned negative. The nation's paucity of savings is raising alarms from the Federal Reserv e to consumer watchdogs who worry that the nation is counting on foreign savings to maintain a spendthrift lifestyle. Some groups are cranking u p advertising campaigns to try to remind Americans that they don't need to participate in every sale. And there are now high-level suggestions that the tax system needs to be changed to encourage savings instead of spending. "In two generations it seems that we've lost the culture and habit of sav ings," says Nancy Register, of the Consumer Federation of America. "Ther e's so much marketing pressure to spend and buy and have instant gratifi cation. And if you can't buy it now, put it on your credit card." Last week, Federal Reserve Chairman Alan Greenspan warned that the low sa vings rate is impairing the nation's long-term economic prospects. An im proved savings rate would provide investment money for businesses, which would create jobs, he said. Though Americans' savings are falling, their net worth is rising in large part because of soaring home prices and some improvement in the stock m arket, economists say. People spend 6 percent of all housing market gains and 2 percent of their stock market gains, says Anthony Chan of JPMorgan Asset Management in C olumbus, Ohio. "When you have massive capital gains, you get people spen ding more, pushing the savings rate down," he says. In fact, other analy sts contend the situation may not be as dire as the official statistics indicate. That's because when the Commerce Department calculates the sav ings rate, it doesn't include things like capital gains and investments in pension plans. Currently, there are about $12 trillion dollars in various structured ret irement accounts that are not included in the savings rate, says Dallas Salisbury, president and chief executive officer of the Employee Benefit Research Institute in Washington. "Let's assume that you bought a home and you held it for some number of y ears and you had a large capital gain. That capital gain would not be ca lculated as savings and the taxes would be counted as an expense," says Mr Salisbury. "So, even though you may look at it as though you have mo re savings than before, the Commerce Department does not." That said, "a large proportion" of Americans are not saving and have neve r saved, Salisbury acknowledges. They're just barely managing to survive as it is, and they don't have enough income to save." A recent Consumer Federation survey found the lack of savings was especia lly troublesome to women. More than 70 percent said they worried about t heir finances in the last year, and two-thirds said that unexpected expe nses - things like the furnace breaking or the car needing to be fixed - were the cause of that worry. More than 40 percen t of all women had less than $500 in the bank. For those 25 to 34 years old, the percentage without a rainy day fund jumped to 55 percent. One of those is Chris Campbell, a New York actress, who says she's got, " nothing, zip, zero" in the bank. Her parents were "depression-era" and i nstilled in their children the importance of saving. But Ms Campbell sa ys a combination of factors have led to her current impecunious state. O ne is the nature of acting, which she says is like a lottery. and it runs all over the place I'll make $65,000 i n one pop, then I'll put half of that in my savings,' " she says. She's taken a second job in real estate to boost her savings. However, for many consumers, there are just too many temptations. For exa mple, last month, the automobile companies offered buyers the option to purchase a new car at an "employee discount rate." Americans flocked to the showrooms, which is one reason that consumer spending jumped a brisk 08 percent in June, outstripping the growth in income. A surge in spending often takes place during "transitional periods" when, as now, interest rates are rising or about to rise, says Mr Chan. Cons umers "lock in purchases with all the promotions.... |