Thursday, May 26, 2005

Fed Pres. Calls Florida Bubble Market

Although the primary focus of my blog is the real estate market in California, I chose to discuss South Florida for today's entry. I think there are obvious corollaries between South Florida and California markets. Both market have seen little employment growth in the past 4 years, both have had minor wage growth, both are seeing large amounts of homes purchased for speculation, and both are driven by low money down-adjustable rate loans.

Today some insignificant person at the Federal Reserve, Jack Guynn, President of the Atlanta Federal Reserve bank explicitly called Florida a bubble market. I refer to him as insignificant because the market has ignored all warnings from the Federal Reserve about the impact of rising rates on home values. As well, lenders continue their aggressive underwriting despite the toothless letter from the Federal Reserve last week telling them to tighten credit standards.

But back to the main topic, Florida. President Guynn said at a home builders group meeting, "There are some local markets, especially in coastal Florida, where I've heard stories for more than a year about behavior that's got to be characterized as nothing other than speculation." I wonder if the homebuilders threw their chairs at him, after he dared to imply that the market is being driven by speculation? This seems like a part of the Fed's strategy to talk the housing market down just as Greenspan did by calling the stock market "irrationally exuberant". I wonder if there are Fed President flying all over the country meeting with homebuilders warning them about the dangers of housing? I'm sure that many homebuilders will slow down their cash flow juggernauts if the Fed asks them to do so nicely. This was very effective at taking the punch bowl away from the tech bubble back in 1998.

Guynn concluded his remarks by saying, "some buyers, some builders, some lenders are going to get burned, could very likely get burned." Greenspan is a recent speech stated that it was only the home owners who buy right before the market turns down that really need to worry. Sounds like there is some growing rancour inside the Fed's Crystal Palace in regards to how big and damaging the real estate bubble may be.

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