Merill Lynch Predicts the Aftermath of The Bubble Burst
A report released from Merrill's Kurt van Kuller makes some interesting predictions about the aftermath of the housing bubble in the U.S. The report is about 40 pages long with many exhibits but we'll try to boil it down to its most salient points.
"Whether the national housing markets are due for a crash is another question. Unlike stock prices, house prices tend to resist rapid downdrafts." What are we really in for? Slow deflation, says van Kuller, along with some regional busts.
One piece of it compares the 10 states that saw the highest appreciation from 2000-2005.
The District of Columbia ranks first. Prices have more than doubled there over the five-year period. California, Hawaii, Florida, Nevada, Maryland, Rhode Island, Arizona, New Jersey, Virginia and New York follow. This is probably where readers should expect to see deflation first.
The 10 states with the least price appreciation are Tennessee, Iowa, Kansas, Kentucky, Mississippi, Texas, Missouri, Nebraska, Ohio and Indiana. The market here seems fart from precarious -- prices have gone up more than 20 percent in all of them. Most people do not expect a "Bust" to occur here.
One table listing the top metropolitan statistical areas with the highest price appreciation in the five years ended Dec. 31, 2005.
Only one of the top 30 isn't in California or Florida. Madera, California, incidentally, leads the way, with a 143.72 percent increase during the period. The only place outside of California or Florida to crack the top 30 is Washington- Arlington-Alexandria.
The author's main point here is that the big picture about the housing `bubble'' is that there is no big picture. There are hundreds of little ones, and they're all different. Not everyone is going to be affected in the same way or to the same extent.
As for predictions, the report states:
"If house prices decline, some municipalities may adjust property taxes downward. If they raise tax rates to offset valuation declines, we might see a lot more taxpayer revolts. Likewise, we may see municipalities look to diversify their revenue with higher cigarette taxes, sales of public assets like toll roads, and liberalization of gambling laws."
