Great article on what to expect from the housing bubble.

[Wcross]

I urge you to read it if you have any interest in what is going to happen.


http://www.financialsense.com/fsu/editorials/martenson/2007/1217.html

Q: “Has the housing market bottomed, soon to bottom, or in the process of bottoming?”
A: No, nope, and no.
There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.
~ Ludwig Von Mises
Executive summary:
• A series of government bailouts attack the symptoms, utterly fail to address the root cause
• The bailouts were for the big banks, not you
• House prices need to decline in price by 30% to 50%, and they will.
• Trillions of dollars of losses lurk…in ultra-safe pension bond funds, small Norwegian towns, as well as in some unlikely places.
• The current crisis is one of solvency not liquidity.

[lvx35]

1. Effing Excellent. Thanks, Wcross.

This is just one train speeding toward an intersection with about 4 others. This is interesting:

From 2000 to 2007 regulatory oversight of lending practices was so lax that there was effectively none. This means that lots of fraud was committed (a fantastic summary of types of real estate fraud can be found here), and an even larger pile of bad loans are held by people who will never be able to pay them back. That money is gone, gone, gone and somebody is going to have to eat those losses. Simple as that.

This details one aspect of the corruption that has occured since W got in, and its financial costs. We should note that it is a small aspect, compared with the kind of fraud happening in defense and so forth. What financial gain is really going to come out of Iraq for instance?

[TomInTib]

2. Remember, Bobby Jack Perry was *'s #1 individual contributor.

The homebuilders made out like (literal) bandits.

[HCE SuiGeneris]

3. Bookmarked.

Thanks for the link!

[Gormy Cuss]

4. There is some good info, but there's at least one giant stinker.

His claim that his calculation that prices will drop by 30% or more is not in line with the linked article at economy.com. The quote says that values will drop by that much only in certain markets and the national average drop will only be in the range of 13-15%. In other words, some markets will get slammed, others not so much. From economy.com:

House prices are forecast to fall 13 percent from their peak through early 2009. After accounting for incentives home sellers are offering buyers, effective declines peak-to-trough will total well over 15 percent, the report said.

Punta Gorda, Florida, and Stockton, California, are the hardest hit markets in the U.S., with price declines from peak-to-trough forecast at 35.3 percent and 31.6 percent, respectively.

[Wcross]

5. I have to wonder about that.

Lenders are tightening credit standards for every market. Less people will be qualified to buy a home regardless of the market they are shopping. Even markets that didn't bubble over will suffer. If the 13 to 15% decline does occur, people will not be able to sell their homes for enough to cover the mortgage.

I guess the only question is whether economy.com or this site is correct. Either way we are all screwn, some more than others.

[Gormy Cuss]

6. What's worrisome to me is that he used the stat loosey-goosey.

That makes me wonder about his other observations, although there are some that are commonly held. It is true that a steep housing price decline is coming in terms of the national average and that it will ripple through the economy. The only point of contention is by how much. Those who own in places like Punta Gorda and Stockton are going to see a major shock in the local market. Areas where there was less of a price run-up in recent years may not see a dollar loss, just a slow or stagnant appreciation. Nationally though even a 10% decline in values strikes me as a serious blow to the economy.

[KoKo]

7. This is an excellent read that makes "plain sense" out of what the MSM is making so complicated...

While CNBC Prattles on every day about helping homeowners stay in their homes with various bailouts this article gives the view of the situtaion we all need to know.

Thanks for the post.

[HCE SuiGeneris]

8. Kick

[TahitiNut]

9. It's another "inconvenient truth" ... one which wholly-owned "economists" try to silence

... in order to forestall the inevitable headlong rush to protect one's own ass -ets. (Wealthy interests don't like the bunkers to be crowded before they cover their own ass-ets.) Prolonged economic "optimism" creates its own credit overhang - the herd of Pollyannas running into cold, hard reality. While it's certainly true that pessimism can create its own recession, "irrational exuberance" builds a debt that will eventually be paid.