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Thursday, March 1, 2007

Follow the bouncing globe

marketLast Tuesday's global stock sell-off seemed to be settling down after reassuring remarks on Wednesday by fed chairman Ben Bernanke, until this morning. I've followed the news with great interest the past couple of days. What I'm being asked by my clients is, "how will this will affect the real estate market"? Well I haven't got the answer, and from what I've read neither do the "experts". My intuition says that the real estate market will react to fundamental economic changes, more so than dips and spikes. I've learned that the dips can sometimes be okay for real estate too, as they may have the effect of holding down mortgage rates, and drive stock market investors toward less liquid and less volatile brick and mortar, raising demand. The news story is indeed playing out by today as being one about stock market volatility, where waves of panic mutate into buying opportunities. The interesting underlying context, which many journalists noted, is about the great influence of remarks made by retired Fed Chairman Alan Greenspan, and transmitted to a conference in Hong Kong, where he said that he could not rule out a recession in the US later this year.

Those remarks were widely viewed as the catalyst for the global plunge. It is amazing to me as to how much weight this man's opinion still carries. A respectful, if not worrisome, tribute to his intellect and candor. Perhaps it characterizes too, the spill over effect of a more general lack of confidence internationally with the credibility of facts which spin out of the political machinery in Washington, DC. Equally amazing is how lemming-like the behavior of wealthy, smart, well educated investors can actually be. What fundamentally changed Tuesday? Mr. Brenanke's comments have been generally more up beat, he said on Wednesday:

“We are looking for moderate growth in the U.S. economy going forward...there’s a reasonable possibility that we’ll see some strengthening of the economy”
BEN BERNANKE, CHAIRMAN; FEDERAL RESERVE

Jonathan Miller posted his take at Matrix, which is a more economically educated observation on the matter, than my own intuitions, regarding the real estate economy:

"...if the underlying economy doesn’t change significantly and more people become more risk averse, we may see more movement to safety like we did yesterday as people move from stocks to treasuries. Treasury prices would go up, and as a result, yields would go down. As yields go, so do mortgage rates, helping temper growing damage caused by foreclosures and limiting the future effects of tightening underwriting guidelines."
JONATHAN MILLER, MILLER SAMUEL
Of course, the bubble bloggers were immediately out in full force and using the moment to spin more doom and gloom. Especially after being beaten up by recent reports that real estate is re-bounding in New York City and the bottom may be near in the rest of the country. For those of you who like your economic news analyzed by an anonymous, comic book collector, propertygrunt immediately posted The s**t didn't hit the fan. It was the whole f**king septic tank, which exemplifies his skill at using the blogging medium, he or she draws a large readership. Journalists have known for ages that sensationalism helps sell newspapers and magazines. I've just begun tagging news stories to "the news real" list in the right column of this blog and will continue to track it there for our readers.