Predictions For The New Year
As always, with the new year comes new predictions. However, these predicitions are nothing new to readers of this and the other housing bubble blogs. We've been saying much of the same for years now, but now that the bubble has gone mainstream, it's everywhere. Here is a new piece from BusinessWeek online this morning:
Fasten Your Seat Belts in '06 -Housing prices look like tech stocks at the height of the dot-com boom, so expect a nasty slump. Meanwhile, bet on tech to soar
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The housing bubble is now officially bigger than the tech bubble ever was. At the peak of the frenzy in 2000, consumer and business spending on tech software and hardware absorbed 6% of economic output. Today, residential construction takes 6.1% of output -- that's the biggest share of the economy devoted to housing since 1955. And remember, that was smack-dab in the middle of the postwar baby boom.
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Home-building stocks have quadrupled in price since 2001. That's almost as great as the runup in tech stocks from 1997 to the peak in 2000. Haven't we learned anything?
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I put this all together and draw several conclusions. The housing bubble could well trace the same path as the tech bubble: A big rise that convinces even the skeptics to invest -- this time in real estate -- followed by a sharp decline that exceeds even the worst of fears.
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And don't listen to people who tell you that because everyone needs a place to live, housing is more bust-resistant than technology. In 2000 and 2001, the conventional wisdom said that technology spending was recession-proof because companies couldn't afford to cut back.
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This time, the result of oversupply will be equally grim: Home prices will fall sharply in many areas, not just go flat. I even expect the national price for homes to decline by a bit. Construction and mortgage lending will slow sharply, and the whole psychology of the real estate market will change. Homebuilding stocks will give back most if not all of their astonishing gains. This will not be pretty.
Caveat Emptor!
Grim
Fasten Your Seat Belts in '06 -Housing prices look like tech stocks at the height of the dot-com boom, so expect a nasty slump. Meanwhile, bet on tech to soar
...
The housing bubble is now officially bigger than the tech bubble ever was. At the peak of the frenzy in 2000, consumer and business spending on tech software and hardware absorbed 6% of economic output. Today, residential construction takes 6.1% of output -- that's the biggest share of the economy devoted to housing since 1955. And remember, that was smack-dab in the middle of the postwar baby boom.
...
Home-building stocks have quadrupled in price since 2001. That's almost as great as the runup in tech stocks from 1997 to the peak in 2000. Haven't we learned anything?
...
I put this all together and draw several conclusions. The housing bubble could well trace the same path as the tech bubble: A big rise that convinces even the skeptics to invest -- this time in real estate -- followed by a sharp decline that exceeds even the worst of fears.
...
And don't listen to people who tell you that because everyone needs a place to live, housing is more bust-resistant than technology. In 2000 and 2001, the conventional wisdom said that technology spending was recession-proof because companies couldn't afford to cut back.
...
This time, the result of oversupply will be equally grim: Home prices will fall sharply in many areas, not just go flat. I even expect the national price for homes to decline by a bit. Construction and mortgage lending will slow sharply, and the whole psychology of the real estate market will change. Homebuilding stocks will give back most if not all of their astonishing gains. This will not be pretty.
Caveat Emptor!
Grim
12 Comments:
Latter part 2005 proves is the top.
Now the quick slide from here before it stabiolizes from the can't wait now crowd. 15-20% down first wave then consolidation for short time then the next 20% plunge..the brutal part by 2007. So about 2 years to bottom. And it stays there for a few years.
If you are a saver and live within your means no problema. For those stretched living big when they can't afford it. Dead Meat!
Bring it on.
Thanks to the reader that sent in this link.
A look very far into the future, all the way to 2016"
New Year's 2016: How'd We Get Here?
What has ultimately happened is that the economy has at last regained its footing from the financial meltdown of 2007-2010. It's taken a long time, in no small part because government's tendency to try to help people avoid pain actually elongated and exacerbated the natural cleansing process of the destruction of underperforming capital.
Think back to 2007. Do you remember the neighborhood upon neighborhood of unsold newly built homes on the far reaches of many of America's growth cities? Remember the jokes that one of the purposes the Pacific Ocean serves is as a boundary so that Atlanta and Washington would have to stop growing west?
Maybe it was funny then, but getting out and seeing the sprawling, ghost town, post-Apocalyptic waste that is the exurbs, and considering the collapse of the housing companies, several banks that held large amounts of ARM mortgages, and the ripples throughout the economy, made it more terrifying than comic. This is brought home by the fact that bankruptcy rates skyrocketed among both individuals and businesses at the end of the last decade.
Of course, many who saw it coming saw it coming way too soon. How dumb did people who insisted that the housing market would collapse in 2002 look back then? At the time, it should have been no small wonder that executives at housing manufacturers like NVR (NYSE: NVR) and Toll Brothers (NYSE: TOL) were aggressively selling stock in 2005, 2006, and 2007. They looked dumb because nothing bad happened ... until it did. Suddenly, all the arguments that "they aren't making more land" and "housing doesn't go down" came to be seen for the Bubblespeak truths that they were. And as it has many a time in the past, housing came down. It was as though the Big Bad Wolf had figured out how to blow down brick, stucco, and vinyl siding.
It ought to be obvious that an economy powered by turning capital into fuel for consumption (cash out refinancing to support spending habits, which happened in the hundreds of billions of dollars in 2003-2007) cannot stay afloat. Nobody at any level of government or banking had interest in slowing down consumption or the housing market, so no one said a word. Most economists believed at the time that the chance of a recession was very slight. However, debt followers like management of then-small-cap EPIQ Systems (Nasdaq: EPIQ) pointed out over and over the extremely distended shape of consumer financial conditions. Eventually, and spectacularly, as we all know, they were proven right.
Caveat Emptor!
Grim
Here come the Ghetto McMansions. With many upside down now and in the forseeable future many will not be able to upkeep their McMansions or sell them.Of course a large number will go bust.
Indentured servants all over again.
One lesson many are about to learn is that houses are expensive to own. Taxes utilities upkeep Mtg's EXPENSIVE!
Do NOT sign up for Monthly slavery.
If you can't afford buying a house with 20% down and 30 yr fixed don't do it.
High paying jobs are disappearing in this state. The trend is only going to continue as our main employers telecom pharma and banking going to retrench and merge. Layoffs will continue so will outsourcing of IT and other functions.
Another spin by the real estate industry. Fence sitters. Everyone is the F&^%$ in already. Why do you think exiosting home and new home sales hitting record year anfter year. You've got regular foks buying 2-3rd homes cuz it's the best investment and it always goes up and speculators / flippers seeing only green.
The the plunge has started already. It doesn't happen in a week or month but it has started imo.
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