This is disturbing

[Lumberg]

http://www.reuters.com/article/newsOne/idUSL1470530620070314?src=031407_1316_DOUBLEFEATUR E_mortgage_troubles&pageNumber=1


http://www.thejournalnews.com/apps/pbcs.dll/article?AID=/20070318/BUSINESS01/703180350/1066


Lumberg

[TonyM]

Rogers had been saying that for a few years hadn't he? The other guy didn't say when he first called the current decline housing, so I don't know what to make of his comments other than he sounds like a lot of other people out there. The more people that jump on the recession bandwagon and the more the media focuses on it, the more I see that as a trailing indicator, as in the worse may have already happened at the point when everyone is bearish.

[BuyOnDips]

I respect Rogers. I agree with him about the housing market. Housing prices went way too high, way too fast. I still think the worst is yet to come. I'm not sure how other markets will fare, but I'd avoid any stocks that have to do with the housing sector.

[coolio]

There are a lot of people that have been saying this for the past 2-3 years. Just google the phrases “housing crash” “housing meltdown” “housing bubble” and the like. You’ll see all kind of crash blogs that have been around for a while. I am of the opinion that these blogs are being run by disgruntled rentors that blinked when they had a chance to jump on the homeownership bandwagon. Now, prices are so out of reach that they can’t get on the train, thus, they are predicting (hoping?) that housing prices will come down 20-50%.

In areas that did not enjoy high appreciation, there will be little if any downturn (Midwest, Dallas, Albuquerque). In condomania areas like Miami, Las Vegas and San Diego, you’ll see some good declines. This is only natural in that there were so many flippers in these areas trying to buy and sell property, before it came on the market. In short, we don’t have a “national” housing market rather a good number of distinct ones.

If you subscribe to the idea that we do have a “national” housing market, I can point to you the example of England. That country enjoyed a huge run-up in prices that was unbelievable just like here. Then, things kinda stabilized, with no price increases (and little if any declines) for a few years. Now, valuations are climbing once again.

[Lumberg]

There are a lot of people that have been saying this for the past 2-3 years. Just google the phrases “housing crash” “housing meltdown” “housing bubble” and the like. You’ll see all kind of crash blogs that have been around for a while. I am of the opinion that these blogs are being run by disgruntled rentors that blinked when they had a chance to jump on the homeownership bandwagon. Now, prices are so out of reach that they can’t get on the train, thus, they are predicting (hoping?) that housing prices will come down 20-50%.

In areas that did not enjoy high appreciation, there will be little if any downturn (Midwest, Dallas, Albuquerque). In condomania areas like Miami, Las Vegas and San Diego, you’ll see some good declines. This is only natural in that there were so many flippers in these areas trying to buy and sell property, before it came on the market. In short, we don’t have a “national” housing market rather a good number of distinct ones.

If you subscribe to the idea that we do have a “national” housing market, I can point to you the example of England. That country enjoyed a huge run-up in prices that was unbelievable just like here. Then, things kinda stabilized, with no price increases (and little if any declines) for a few years. Now, valuations are climbing once again.

I haven't been saying it for years, but I am starting to see the validity of their point of view.

[englishman26]

There's an element of truth in the psychology and history of what you're saying, and the doom and gloom merchants are likely to be exajerating but the economic facts do not support your position. I live in the bay area where prices have gone up 200-300% in the last 5-7 years. The average single family home (eg. small 3br,3bth within a 50 mile radius of SF) is now ~$750,000. Salaries have barely risen at all in that time. This rise was financed with creative mortgages and credit card debt. This leveraging, allied with the lack of ability to refinance due to changes in lending rules and lack of rising prices, will cause increased foreclosures and lowering of prices.

Historically the current credit conditions have not really ever existed so it's debateable that history can tell us anything. Historically though (since the great depression) there's roughly a 13-14 year cycle in any US housing market - however you define it. That's based on a calculation that brings together actual price changes, wage inflation, and interest rates. The peak for the current cycle (give or take a few months depending on where in the country you are) was summer 2005. Prices have fallen in most places already by ~10%. There is at least 5 years until the bottom of the cycle and 5-7 years of this mortgage lending crisis left to run. If prices continue to fall at the current rate (for which there's every evidence it will - or get worse for short periods) then we will indeed see a 40-50% drop between 2005 and 2012.

[Lumberg]

There's an element of truth in the psychology and history of what you're saying, and the doom and gloom merchants are likely to be exajerating but the economic facts do not support your position. I live in the bay area where prices have gone up 200-300% in the last 5-7 years. The average single family home (eg. small 3br,3bth within a 50 mile radius of SF) is now ~$750,000. Salaries have barely risen at all in that time. This rise was financed with creative mortgages and credit card debt. This leveraging, allied with the lack of ability to refinance due to changes in lending rules and lack of rising prices, will cause increased foreclosures and lowering of prices.

Historically the current credit conditions have not really ever existed so it's debateable that history can tell us anything. Historically though (since the great depression) there's roughly a 13-14 year cycle in any US housing market - however you define it. That's based on a calculation that brings together actual price changes, wage inflation, and interest rates. The peak for the current cycle (give or take a few months depending on where in the country you are) was summer 2005. Prices have fallen in most places already by ~10%. There is at least 5 years until the bottom of the cycle and 5-7 years of this mortgage lending crisis left to run. If prices continue to fall at the current rate (for which there's every evidence it will - or get worse for short periods) then we will indeed see a 40-50% drop between 2005 and 2012.

That Parks fellow, the economist, is basing his called for a 25% to 30% correction in stock prices on earnings, I think.

He does call for a massive housing price correction, too, but I don't think he's necessarily tying the two together.

It will be interesting to see how all of this plays out. I would not want Ben Bernanke's job right now.

[coolio]

Some points:

1. if you look back in history, there have been a number of pundits that have predicted a crash of one sort or another. I'm talking about a stock market crash or even a crisis that threatens to destroy the fabric of american society. vietnam, the superiority of the russians, y2k etc. There's no way to assign a success rating to these pundits. Of these maybe a couple have been right. I put the successful pundits in the category of "a broken clock is right twice a day".

2. In my lifetime, I've seen a couple of these "crises" been dealt with. One was the S&L bailout. The second was the Mexico financial crisis. In those cases, bright guys went into some room and came up with solutions to respond to these problems. I'm not saying that the solutions proposed were the best of all possible solutions, but they put the country on the road to recovery. And, the solutions avoided the dire predictions of some of the pundits.

3. If this housing crisis rises to the point where people are being made homeless in the streets, you can bet that a solution will be crafted to respond. We've done it before, why not do it again. They're saying were going to spend a trillion or so dollars when Iraq is said and done. I think you'll see the politicians craft a solution to help the 70% of the voting public that own a home.

This Rogers is not going to dissuade me from my regular stock buys. I would avoid home builder stocks for a while, but that's it.

[Goldman Slacks]

The janitor where I worked in 2000 called the .com bubble crash and the CEO took a bath..

[Randomizer]

It really does come down to being a 'localized' phenomenon.. In my area, rural midwest just outside of KC, the housing costs are rising, the homebuilders can't produce fast enough, and we seem to have more people moving in.. My friends in Detroit tell me that right now you can't GIVE a house away up there.. I have friends in Cali that are going through the end of the cycle that we are just starting right here where housing costs have been climbing out of proportion for years and are probably going to be dropping soon.. There is no 'US housing market'. There is a SoCal housing market, a KC area housing market, a Detroit foreclosure market, a Texas housing market, etc, etc, etc.. Where you are determines what the housing market is doing, if you live in one little bubble and ignore the world outside you can call a housing market collapse, but don't count on it effecting anyone more than 100 miles from your doorstep, chances are it won't...

[Lumberg]

I understand what everyone has said, but people seem to be focusing on housing, rather than what Parks is focused on, which is corporate earnings.

I was watching CNBC tonight, and Larry Kudlow put up a chart that showed corporate earnings growth slowing from 9% in 2005 and 2006, to 2% now. There is a risk that it will drop further.

That Parks gentleman, in the 2nd article, is very bright. I read that article very carefully, and it gives me some pause.

Bill Lumberg

[optimus25]

I think the rate hikes made in 2006 will show up on earnings this year. If earnings do indeed slow, S&P PE's will rise. Most bulls think PE multiples will actually drop.

The next round of earnings will give us a glimpse.