Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0

http://realestate.msn.com/buying/Article_usnews.aspx?cp-documentid=6441789>1=35000

     Floridabuilder appears to be leaning towards bullishness again this week-I do not doubt his technical analysis, or knowledge of the industry, but I believe there are larger economic forces in play than a homebuilder's cash position.   I commented on his blog that I thought this was the beginning of storm, though I did not support my opinion very well.   I believe what differentiates this downturn from previous cycles is that it is being driven by declining home values at historically high employment levels and low interest rates.   Foreclosures are increasing at what was once considered "the natural rate of unemployment."   As unemployment rises in a slowing economy I am anticipating a continued increase in the rate of foreclosures, and an additional decline in property valves between 10 & 25%, depending on the area,  across the country. Instead of 6-9 months of a corrective cycle, my gut says 24 months, with the dust settling spring of 2010.

Quote from Edward Leamer from article referenced above:

"Of course, what's different this time around is that the downturn isn't playing out just in Los Angeles but is hitting almost every major metro area. Yet perhaps the greatest contrast with past housing downturns is that this one has come while jobs are plentiful. No housing bust in memory has come without corresponding job losses. This time, "there's a disconnect," Leamer says. "No one I know thought that we'd have two years of a housing correction without an economic recession."

This is not to say that I will not have periods of -300 bleeding shorts with WCI, HOV, & NVR, but I believe they will be short term spikes, with the overall trend a downward spiral with multiple bankruptcies. 

Print the post Back To Top
No. of Recommendations: 0

I think your estimates sound reasonable (10-15%, 24 months). The trouble I'm having with almost all estimates these days, whether it be housing inventory backlog, subprime writedowns, etc is that they're all discussed so one-dimensionally, when we're well into the reverberations from second- and third-order effects that are causing the equivalent of bank runs at hedge funds and Bear Stearns.

Just the housing problems we've had already, which seem only the tip of the iceberg, have nearly ruined the whole financial sector. I mean, my god, the student loan industry has virtually shut down. It's one thing to say the housing market will take 24 months to recover, and like I said, it sounds like a reasonable estimate to me. But what in the broader economy will be left standing by that point? And if the effects are that bad, will housing really be ready to rebound very strongly? What will the price of oil be? How devalued will the dollar be? I think a lot of things are up for grabs at this point in ways no one can get a handle on.

Print the post Back To Top
No. of Recommendations: 0

     Mandrake,  good points all.   I was concerned about the rate of foreclosures at relatively low unemployment and interest rates.  "This being the tip of the iceberg" as you say does bring up the question "what will be left standing".   Maybe I am naive, and do not understand the complexity of the pontential  financial collapse.

     As for oil, in the last few weeks many of the talking heads have been anticipating a sharp correction in the price, but it has not happened.   Some say this is peak oil.   I am not qualified to say either way, but I would not be surprised by $125 or $150 oil due to some political event or a series of smaller events.   Chavez's sabre rattling is good for a 10-15% rise, imagine 2 or 3 instances like that at the same time.

Print the post Back To Top
No. of Recommendations: 0

My own take on oil is that it isn't being driven right now by supply vs demand (this will be a huge factor for a long time, but it's not the primary factor right now) or political instability (something nasty could happen at any time, but that would merely be a new factor that would need to be priced in on top of current prices) or fears of peak oil (I don't think we're there yet, new technology keeps pushing it off, but we'll get there before long). It's being driven squarely by the depreciation of the dollar, the currency in which oil is bought and sold around the world, the same as many other commodities.

If the dollar keeps depreciating, oil prices will keep rising. I need to re-educate myself a bit on what makes currencies rise or fall, but my simple understanding is that a currency rises proportionally to foreign demand for that currency (to purchase and invest in assets denominated in that currency). The weak outlook for the U.S. economy, the inflationary policies being pursued by the Fed, and our huge deficits are driving the dollar down, and until that stops oil will keep going up.

Print the post Back To Top
No. of Recommendations: 0
FYI - Look at the level of derevatives in these banks.
Print the post Back To Top