This is a depression. Depressions drag down asset prices. Typically, prices become much more reasonable. And then they reach UNREASONABLE levels. House prices have become reasonable. Now they will become unreasonably cheap...
Second, waves of resets and foreclosures are still washing over the housing market. As Barry Ritholz told us in Vancouver, we're only half way through the foreclosure process. There are more than 18 million empty houses in America. A news report yesterday told of a 32-storey apartment building in Florida with only one lonely tenant. And still coming up are more refinancings...more drowning homeowners ...and more people giving up on homeownership altogether. The bubble era created new households at the rate of 1.2 million per year. Practically every one of them wanted to get in on the housing boom. Now, there are only 500,000 new households per year. And few of them still believe that housing is the route to wealth. At the current rate, it will take many years to fill up all America's empty houses.
Third, incomes are falling. Property crashed because people with average incomes could no longer afford to buy the average house. Now, they can afford even less. Ken Rogoff estimates that the consumer needs 6-8 years to pay his debts down to a more reasonable level. Part of that deleveraging process will mean getting rid of heavy mortgage debt - one way or another.
Fourth, there are too many houses that are too big...and in the wrong places. Big houses were a status symbol in the bubble years. Now they're a symbol of extravagance and error. Plus, they're expensive to own. People will want to dump them - even if they can afford them. There was far too much building in the outlying suburbs of the sand states too - Arizona, Nevada, California and Florida. Those houses may have to be abandoned as people are forced to move closer to where the work is.
There are also a couple of more technical reasons why the Case-Shiller numbers may be erring on the bright side: seasonal adjustments and a changing mix of houses sold. But our guess is that real house prices - adjusted for inflation - will continue going down for many more years.
[This decline in housing prices is just one small facet of why a market recovery will be nearly impossible in the coming years.
Link
Another 200 million..GONE.. by Congress on JETS
Link
"Mismanegment"
ReplyDeleteIf this was a ship, the government is the Captain that headed us into antarctica, ran us out of fuel, smashed us into an iceberg, turned off the refrigerators to 'conserve fuel', ruined all the food which was dumped overboard to lighten the weight which turned out to be a bad idea since we needed the weight to crush the iceburgs..etc.
Blorp blorp blorp
Interesting, I like your way of thinking. How long do you think this situation will last? I mean, the recession is officially said to be over. Even though the consequences might be even worst than the crisis itself and the recovery will take some time, everything has to come back to normal someday. I'm wondering when that will happen. Best regards, Jay.
ReplyDeleteThings don't have to get back to normal someday. The problems/situations that caused the econmic problem have not been fixed. They have been glossed over and now the MSM is saying good times are right around the corner. Nothing has changed whatsoever.
ReplyDeleteWe cannot have a recovery as we haven't even really seen the beginning of how bad it is going to get. We are on the cliffs edge and about to be pushed off. It is going to get WAY WORSE for many years before any recovery can come.
A ten year old can see that as soon as interest rates go up, and they must, homes in the US will take a 50% drop. No jobs, no shoppers.
ReplyDeleteThe government doesn't want the housing bubble to burst across the nation. High housing prices are important for the Ponsi aka our economy. High prices represent phony wealth and when people think they have substantial savings, they spend.
The media is trying to convince people it already has burst. Ridiculous. If you are trying to sell a $400k home at 6% interest and cannot, what do you think you can sell the same house for when the rate is 12%. Not rocket science. Easy to understand. No need for an advanced calculator or a degree in economics.
Its funny that the sheeple THINK that things will come back and be the same again. The rise took 20 years but the decline takes a few months? Does that make sense? So we are supposed to continue the rise so stuff is umpteen dollars? In an inflationary era yes, but we are in a DEFLATION... VANCOUVER Real estate will fall just like any other city in the world. ..and hard..When the Olympic party is over everyone goes home. Who cleans up the mess? What a mess it will be. A massive TAX MESS.
ReplyDeleteRemember when Marty in Back to the Future goes back to the alterate timeline where Biff is all powerful and gangs are roaming the streets, police cars are tipped over ....??
ReplyDeleteI always visualize that as being the not so distant future.
And those will be the good neighborhoods!
ReplyDeleteJay, it depends on what you define as 'normal'.
ReplyDeleteFirst, we have to have 'a new normal', because the old normal is not coming back.
So how crazy our new normal is is going to be the key. Perhaps it's normal to have 30% of the population unemployed..or more possibly by the end of next year. I think there will continue to be a weird disconnect between the haves and the have nots for a while where somehow the haves are living in a world where real estate is still expensive and could possibly rise in value and everything will fix itself in a year or two ...and the have nots will be rioting and looting and sheltering behind abandoned strip malls evading the jack booted Stasi police brigades or winding up in 'internment camps' for the dislocated masses ..but eventually the two worlds will collide as the extent of the economic calamity grows beyond all hope of repressing or hiding it.
We had a great economy when we built the $400,000 home.
ReplyDeleteThen one day, it dawned on some folks that NOBODY could affored one. (oooops)
We quit building them. We quit buying them.
We just drove by all those that were half finished and for sale.
Someone asked: "Uh--why were we building $400,000 dollar houses that NOBODY could afford?"
Greed maybe? Unashamed Pride? Stupidity?
All three?
None of the above. Because Alan Greenspan , Part of the NWO Conspiracy Brigade of Satan Worshipping fishticklickers, told the banks to loan to everyone like crazy to support the failing economy in 2001, when his Pal George Bush, Jr aka 'El Diablo' took office. It's all part of the plan. The only thing they could loan for was housing. A housing bubble is born in Brooklyn.
ReplyDeleteIt's all on purpose.
The New World Order Conspiracy.
It's a conspiracy, not a secret.
Yes but everyone borrowing had to sign a line. So Greed, Pride and Stupidity is in there
ReplyDeleteDon't fret people. The government will make it all better. They are preparing a wonderful vaccine cocktail for you this holiday season full of detergents, steriods, and mercury. It will calm you down.
ReplyDeleteSo roll up your sleeves and let your troubles drift away.
By detergents, do you mean 'Squalene' ?
ReplyDeleteSqualene is linked to Gulf War Syndrome.
Both actually. As for GWS, a lot of that was also the deliberate exposure of our troops to depleted uranium. I mean, how sick is that? I remember seeing a vid from the first gulf invasion where the soldiers (I hate the term 'troop' - manipulation of the meaning/wordplay) hit an Iraqi tank and then an hour later were sitting and posing on it for pictures.
ReplyDeleteThose guys probably have GWS, cancer, both, or are dead now. Like sitting a top a steaming nuclear cesspool. The Pentagon could give a rats ass. As Henry Kissinger said - "military men are dumb, stupid animals' so why care? Why anyone would want to go fight for a bank and have a boss that doesn't give a crap about them is beyond me.
Anyone dumb enough to get in line for a vaccine when so much information is out there on how bad it is deserves what they get.
ReplyDeleteThe Omish don't have a Autism problem with any of their kids - gee I wonder why?
If you can't force people to wear condoms or take birth control by law, just thin the herd after the fact.
'Give me your tired, your hungry, your poor'
ReplyDelete'so I can EAT THEM! Muahahahahah'
It's understandable that investments in a long-rising market would be overpriced. The longer an uptrend continues, the more investors become convinced that it will continue forever. Confident that the fundamental value will continue to increase and hoping that the premium itself will rise.
ReplyDelete