Posted on 09/29/2007 5:23:53 PM PDT by shrinkermd
The Chief Investment Officer of Santa Monica, Calif.-based TCW Group has been sounding warnings for more than a year that mortgage lenders had taken leave of their senses by spooning out mortgages without owner-equity cushions and with little or no verification of the borrowers' ability to pay back the debt.
By now, with mortgage defaults climbing and home sales falling, the plot line of this drama is becoming clear. But Gundlach says there are still several acts to come -- and that the curtain may not come down until the close of this decade. He sees U.S. home prices dropping an average of 12% to 15% annually from the highs achieved last year and not reaching their eventual trough until late 2008, at the earliest. And they may not start recovering until 2010 or 2011, inflicting, in the meantime, real damage on the economy.
About the only bright spot: the mortgage market may offer some excellent investment opportunities in the year ahead, he says.
GUNDLACH WAS AMONG the first to rail against the profusion of new types of home loans -- interest-only mortgages, adjustable-rate mortgages with artificially low teaser interest rates in the early years of repayment, and so-called option ARMs, which allowed borrowers to make monthly payments that didn't even cover interest costs -- all of them designed, in Gundlach's phrase, to "shoehorn" borrowers into homes often far beyond their financial means.
(Excerpt) Read more at online.barrons.com ...
All boomings have their endings.
bookmark
His timing’s about right. The peak in the rate resets won’t be until next spring, then the excess inventory caused by them will have to work through the market.
Same thing happened in 1990, two years after we’d bought our home. The values of homes in our price range dropped from $275K to about $225K. Percentage drop this time is actually a little less.
So housing prices fall 30%-40% putting them back where they were before the housing boom? Am I supposed to panic now? BTW, I am looking at my proposed property tax bill in front of me. Last years market value was $173,440.....this years is $240,000. Last years assessed value was $118,920 and this years is $121,890.
Somehow my (proposed) taxes are dropping a whopping $16.00 this year. Guess I am one of the lucky ones...
In case anyone hasn’t noticed, we’re only a few months away from 2008. If housing starts to recover in 2008, that’s really just around the corner.
Oh geez isn’t 2008 next year?
Yes, but the author anticipates late 2008 is the earliest the housing recovery can begin and it may not be evident until 2010 or 2011.
Drop baby drop! Flush the turds out of the market and set me up for my home purchase sometime in 2008!
How does this inflict “real damage on the economy”?
ping
Historically it takes 18 months for Fed interest rate cuts to work their way through the economy.
You do the math.
I would say this sentence says the headline is BS. Anyway with the excess inventory and builders still building to try and avoid bankruptcy. The last date is probably the most accurate.
Of course this guy is probably right, but when was the last time we heard “The ... market was .... and that surprised the experts.” Yesterday maybe? Everyday it’s the same thing: “Today the market did .... and no one saw it coming”
SALE ENDS IN ONE YEAR! DON’T WAIT TOO LONG TO MAKE YOUR PURCHASE!
That was my thought, too. But the article says late 2008. Still, a year goes by pretty quickly.
An excellent question.
I quite fail to understand why gas prices at $3 a gallon are cataclysmic, but housing prices at 5-10 times the median income are a good thing.
Only the first batch of "investors" into the housing bubble can win (provided they know when to get out) - sooner or later Mr. Ponzi's ghost shows up to crash the party.
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