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The housing market and the World Trade Center collapse

 
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri Mar 31, 2006 11:58 pm GMT    Post subject: The housing market and the World Trade Center collapse Reply with quote

I apologize for the emotionally charged analogy; I am only referring to the foreces involved structural collapse. When the planes hit the buildings, their fuel caused fires which overheated the structural steel members and the weight of the floors above could not be transferred through the melted columns so they collapsed.

I feel that the overheated housing market has lost it's grounded fundamental structural properties and it is now carrying the weight of a huge increase in inventory and will suffer a progressive collapse.

How many interest rate hikes are we at now? I think somewhere in the high teens right?

Didn't house prices shoot up a bit each time that the rates went down. Wasn't it like within weeks, I mean weren't houses selling in a matter of weeks anyway, and people were sometimes even offering over asking price? Price increases stayed in step with interest rate drops.

NOW, houses are on the market for months and sellers seem to be ignoring the fact that rates are rising at all. Further, after some time, they begin to get the message and they drop their price. The problem is that their price drop might reflect the effect of one interest rate hike; they need to catch up like 14 more steps.

The reason why the crash is going to be hard is that sellers were flexible and open when prices went up and now they are rigid and inflexible; and as they remain stiff, the internal forces build up.

If you go back to this site's homepage and read some of the older article links you can read articles that say the Boston market was upwards of 30 percent overpriced. Now step back and think about it, some of these articles are months old, and when they were written they were using data that was even older. Back then, we didn't have the inventory levels that we have now. Back then, we didn't have the high interest rates that we have now. IT'S WORSE NOW!!!!!!!!!!

When I look at a house that has been on the market for several months, it tells me that the house was overpriced to begin with. So I subtract a percentage for that. Then, I model the monthly cost of the mortgage at the interest rate at the time it went on the market. I then substitute the old rate with the current rate and I discount the house to reflect the interest premium. This results in a substantial discount. Sellers and realtors sound shocked when you try to explain this simple process. This doesn't even mention the macro economics of the skyrocketing debt of our government, the shrinking job situation in Massachusetts, people moving away from the state, people retiring, big companies relocating out of state, THE BIG DIG ENDING. The longer the seller waits to discount, the worse it gets. One realtor told me that sellers are just discounting $10k per month until their property sells. Depending on how long they wait to do this, they just chase the spiral downward.

Realtors are trying to extend the momentum with propganda but it isn't taking. They are hoping that people are trading on old news. One time I went to CNN.com and I saw two articles: one saying that February was a record year (positive), and the other saying it was the sharpest decline in years. This whole market seems surreal.

The reason why it will all collapse together is because a new house on the market selects a price position within the current array of prices and because they are all intertwined, the slower they all respond to downward pressures like interest rate hikes etc. the greater the internal forces will grow and the self weight of inventory will bear down on the overheated members below.

On a macro level, the September 11th tragedy did have an effect on the housing market. We have spent hundreds of billions of dollars since then. This article articulates the point well. It was written three years ago so the cost of the war is significantly less than what it is now (so put emphasis on each point).

http://citypaper.net/articles/2003-02-27/cover.shtml

Here is an article showing what is at stake if we don't keep up with maintaining our fatiguing physical infrastructure here in the US. As we pay for schools and bridges in Iraq, the future costs to maintain our own country grows. So our taxes will most likely be greater in the future if we don't keep up with maintenance now. Further, the jobs associated in building our own infrastructure go away. We haven't even begun to asses the cost of rebuilding after Hurricane Katrina. The last part of the article speaks about how France had to sell the US the Louisiana Purchase in order to pay for Napolean's war costs. I hope this President's Napoleon complex doesn't bakrupt us.

http://www.ourfuture.org/onmessage/other_contributors/10_06_03_fr.cfm

Another top heavy tower under stress: Government sponsored enterprises i.e. Fannie mae, Freddie mac

http://www.mises.org/freemarket_detail.asp?control=391


Spontaneous combustion: heat from decay??? Are we overheating because we're declining/decomposing? Hay combusts when it is cut and not left to dry long enough before it is baled and stacked. The breakdown of the grass generates heat and the mixture of dry and wet/heated hay causes combustion.

http://www.nrsl.umd.edu/extension/publications/haycombustionp1c.pdf

Decay and energy, that is how oil get's produced.

http://illite.unibe.ch/rwi/Rock-Water_Interaction_for_beginners.pdf


Bubbles, froth from decay in economic terms:

http://www.angelfire.com/or/truthfinder/beyond.html

If I haven't lost you, my point is that decay can cause heat. Heat can cause fire which can burn your house down. While we spend money that we haven't earned while we go into debt while pickled in a bold Napoleon fear-not mindset, our resources get sucked out of us. The wealth effect caused by borrowing which increases the supply of money increases the Napoleon mindset, we decide to expand our empire, spend more money on wars to expand, and our treasure goes to other nations via bonds bought by foreign investors. Bold unrealistic assertions of ones potential causes one to have grand outlooks of what their future will become. People see an economic expansion after this war, similar to the one after WWII (which is inherent in the mindset of babyboomers). What they might get is the depression after WWI. People who get pickled in the "I'm going to be rich and big" mindset are the ones that might stretch themselves in a mortgage and overpay for a home. If everyone expects expansion it may be a self fufilling prophecy for a certain period of time. Periods of conservation usually follow perceived expansion. Lots of people that think they are becoming rich are really on route to being bankrupt. That "snap, crackle, pop," thing is right (on the home page).

So when they flew the planes into the World Trade Center did they ignite the fire that will burn us down economically? Didn't we all become nationalistic, didn't the John Wayne come out in us, did we become Napoleons who wanted to kick ass and spend all our treasure bombing empty mountainsides and deserts and rebuilding nations that hates us? Didn't we love the "Shock and Awe" when we bombed the crap out of Iraq. Well it looks like need to pay to rebuild all the destruction that the bunkerbusters caused. Do we let our nations infrastructure crumble and leave our students behind? Is our mortgage debt indirectly held by foreign investors? With our new military base in the Middle East, can we can quell all terrorism or are we manufacturing more, costing even more? Will everyone will invest in our country because we will be the all powerful, will we be rich, will we let immigrants from other nations come and be a lower caste and do the jobs we are unwilling to do. Or, will illegal immigrants hurt employment levels, tax our systems, and lower wages for everyone? Will we be an empire, have an aristocracy? All the other empires that tried eventually failed. I think the mentality that goes along with it is what brings them down. The percieved wealth combined with the bravado blinds them of their own decay.

On a more tangible level, I met a waitress yesterday that told me that her father of 52 had a heart attack. He was working like crazy so that he would make money fast. The pressure and fatigue got to him. He was pretty bold and didn't have health insurance. We need to pace ourselves and not fly too close to the sun.

I believe that capitalism and democracy will prevail, but it needs to be complimented with grounded rational thought.
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