Friday, August 25, 2006

Housing Bubble Horror Story

From the New York Sun:

Housing Bubble Horror: Market Has Makings for a Gory Story
Investment crazes come and go, invariably bloodying the eager buyers who are 100% convinced they've latched on to a sure-fire winner.

The Dutch tulip bulb mania in the 1630s, Britain's South Seas bubble in the early 1700s, the Florida land boom in the 1920s, the stock market frenzy that led to the 1929 crash and the Internet craze of the late 1990s are just several that come to mind.

The latest is the housing boom, which some Wall Street professionals insist has already evolved into a housing bust, as evidenced by shrinking sales, falling home prices, burgeoning inventories and tumbling stock prices for housing-related companies.
But Mr. Saut certainly does, noting that real estate has been chiefly responsible for much of the nation's economic and job growth. Taking note of significant year-over-year price breaks in his home base of Florida, which has been slammed with doubledigit declines in 12 of its 20 metropolitan areas, in one instance (Punta Gorda), as high as 97%, he thinks what's happening there is a pretty good prism of what's occurring on the "coasts," as well as in some previous hot real estate markets like Las Vegas, Phoenix and Washington, D.C.

Regrettably, our housing worry-wart says, he expects the "homesick" environment to get worse, amplified by the $2.7 trillion worth of adjustable rate mortgages that will reset at a higher interest rate in 2006 and 2007. These higher rates, he notes, come on top of the fact that 10% of all home owners with mortgages have no equity in their houses, while 15% of the 2005 home buyers owe at least 10% more than their home is worth.
The problem, he says, is that the risks of the housing bust are under-appreciated, pointing to (among other things) such follow-up effects as the likelihood of serious loan losses, surging mortgage defaults and a worsening job market.

Mr. Larson notes that a lot of people on Wall Street seem to think the likely end of higher interest rates in the current credit-tightening cycle is a significant plus for the economy as a whole since it should ensure a soft landing. Our housing bear disagrees. On what basis, he asks, is it rational to expect a soft landing in a period that has produced the biggest real estate bubble in history?


Anonymous Anonymous said...

does anyone remember Dan Dorfman from the eighties? I guess all washed up scandalous wall streeters wind up writing for a newspaper...

8/25/2006 06:03:00 AM  

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