When will housing hit bottom?

Market Watch ^ | 24 October 2007 | Rex Nutting

[Jacquerie]

WASHINGTON (MarketWatch) -- The housing market is just getting worse. Home resales tumbled 8% in September to the lowest levels in this decade, prompting the obvious question: When will it all end?

The honest answer is no one knows. Optimists have been saying for more than a year that the worst is behind us, while the pessimists have been saying recovery is still a year, or years, away.

[meyer]

True, but refinancing doesn’t recharge the economy.

Well, it does recharge the important little corner of the economy that I call my own. :-)

[Travis McGee]

Thank you for your very thoughful reply. Allow me.

Japan had an arguably larger asset bubble and the banks were stuck with bad loans that they refused to write off. Here the banks are writing off debt left and right.

I don't believe that Japan's proplem was any wors then ours today. Paper three-card-monte tricks can't paper over economic cancer.

We have perfected the ultimate form of capitalism, credit booms and busts with creative distribution and destruction of credit.

Sounds like "it's different this time" to me. Dangerous words indeed.

The world is starting to catch on so the dollar is dropping.

Amen X ten.

But the dollar will become oversold, then rise, then the carry trade will kick in and output a flood of new credit.

That would have been true in previous decades, but this time, we are going to lose our premier status as the world's reserve currency. In the end, the dollar will not mean much more to the world than any other currency. Argentina, here we come. (Potentially, and I hope not.)

[Travis McGee]

Can’t argue with that compadre!

[giotto]

the smart-BUYERS buy low and sell high....the others are the "suckers" that buy high and panic and sell low....

And then there are the semi-suckers who buy low and sell lower, as the market continues to plunge. Never catch a falling knife, as they say. If you've ever looked at a price graph of a typical SF Bay Area house over the last ten years, you understand that the term "bubble" is not an exaggeration:

As you can see, somewhere around January of 2004, prices started to rise drastically. I tried to find out what happened around that time, and it appears that that was when restrictions on sub-prime mortgages were loosened.

What goes up must come down, and in this case, that's about 50%, or $300,000. I'll wait.

[VOA]

thanks for pulling up that graph...that does tell some of the tale
for The Bay Area

[palmer]

The bank writeoffs are very real and relatively healthy Write-downs by big banks spark a rally (Oct 1):
"The industry cleaned up from the collapse of the technology bubble earlier this decade, from commercial real estate in the early 1990s and from third world debt in the late 1980s. This quarter has the potential for a similar cleansing — only this time from private equity loans and mortgages."

It remains to be seen if one quarter of cleanup is enough and what the consequences will be, but if they just paper it over it won't go away. The banks must face up to the losses and take them ASAP.

You are right, it is never different, the business cycle will always be there to correct excesses. The only change is how they are corrected, whether by credit contraction, monetary contraction, or economic contraction (all are of course related). I think we can safely say that Bernanke will not contract the money supply. We also know that the home building and related economy will continue to contract. The only question is how much new credit will be pumped through the fire hoses (the leading horse to water parable may noy apply).

this time, we are going to lose our premier status as the world's reserve currency. In the end, the dollar will not mean much more to the world than any other currency

True, but that may not affect the carry trade. We can still offer a couple percent interest above the other currency and enough dollar bounce to make it worthwhile once the dollar bounces. Our bigger problem is we won't be able to export our inflation any more (Russia 10%, China 6.5%, etc), instead it is being exported back to us.

[Jacquerie]

Your posts are off topic.

[purpleraine]

Real estate ownership has been a great way to build wealth over time. And rental proberties provide a great rate of return with the leverage provided by the renter making all or most of the payment. It is the non-liquidity of the equity which causes trouble.

If you remove the equity from your home you can make more than the cost of the loan and the money can be more liquid. Leaving equity locked into a house doesn't do the owner any good. Equity left in a home is not very liquid, especially when you're in a bind and it has no rate of return.

[Jacquerie]

There is not now and never was any such thing as insurance against a hurricane.

[Mark was here]

Your posts are off topic.

My post was replying to your post, and I'm off topic?

Insurance costs being equal to mortgage payment as was stated to be the case in Florida, seems to be a huge factor in declining home sales, and wasn't this thread about declining home sales?

Better not answer, you may be off topic, and that would be bad, (except for those who had something to say).

[kjam22]

The goal when borrowing money is to pay the note off. If you're borrowing money, so that you can re-invest it in something else (generally a car or something else that depereciates)....(and that's essentially what most in trouble now have been doing) it's voo-doo economics. It's not a sound investment strategy. It's just dumb.

Your primary residence is not an investment. Unless you're willing to sell or trade it at the drop of a hat as the market dictates. That's the bottom line. So for all those people who got stuck with notes they can't pay for, I have not pitty for. They invested in the market and weren't smart enough to sell when the market went south.

[kjam22]

Look at it this way.... No investment advisor will tell you to put every penny you have in one sector. People who wrapped up all of their net worth (really more than they could afford) in one place.... their house... one sector are just dumb. It’s stupid investing 101. It’s high risk.

[purpleraine]

That is your goal. My goal is to make enough money to generate an income I can live on the rest of my life without working, if I chose not to.

A car is not an investment. It is a liability.

Of course, a home is an investment if you know what you're doing. If you don't look at it that way, the pity is to you. A rental property is even a much better one, since you can increase the rate of return if the renters are making the payment.

[purpleraine]

You’re making up my position. If you want to make up a statement and then shoot it down, go ahead. But don’t attribute something to me I did not say.

[Mark was here]

There is not now and never was any such thing as insurance against a hurricane.

What about insurance against your house spontaneously combusting?

[kjam22]

Rental property is an investment. Your home isn’t. Period.

[petercooper]

bttt

[kjam22]

If your goal is to make enough money so that you can retire (and by the way that’s mine, and my wife is retired at 52, and I’ll be retired by 55)... but if that’s really your goal... then buy a modest home that you can afford. Pay it off, and invest your money in true investments that you can liquidate as necessary.

[purpleraine]

Period? I guess if you think so, then you can act on that belief, but don’t drag those of us who know what we’re doing into the argument. Exclamation point!

[purpleraine]

Not many investments "truer" than real estate with the leverage it provides.

Well, that's a modest little plan you have there and why so many retirees will be introuble in a few years after they retire.

I notice no rental property and giving all that money to the bank with nothing in return. Then I can sit around with a couple of hundred thousand of non-liquid (when I'm old and retired) assets in my home, no tax deduction, and a 401 K that will run out in 11-13 years and cause me to pay taxes.

No thanks. It's clear you haven't been exposed to other conservative methods of leveraging your assets and reducing your taxes.