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December 30, 2008

Comments

I disagree, e. the pace of the decline continues thru most of '09. there are still too many people out there who do not know yet that they should be renters (and probably never should have been fooled into thinking they could be owners - sad, but true). pxs will bottom when enuff people realize that @ 29cents or some other stupid level, the positive cash flow from rental income generates tremendous investment returns.

Eric

I hear you and RPB Wez. I am just looking at whether or not values will keep declining at an increasing rate like they are now. I still see them dropping sharply but I am potentially seeing a sign, like price discovery at foreclosure auctions that the decline will start declining at a decreasing rate in '09. Maybe...hopefully.

Wez

Not sure a flurry of foreclosure auctions where property being bought at 29 cents on the dollar is a sign prices may stabilize soon? To me it shows the last couple cars on the roller coaster have cleared the crest and we are all screaming downward with our arms in the air....

Eric

Now THAT is a post! Thanks RP.

RPB

E Money,

While many of the proxies for new home production are getting smoked, I think we do not see a price bottom for some time. As Richie points out, we need a sharp inventory correction coming from both supply and demand. Home builders need to cut back on production or go out of business. And prices need to drop to levels where demand will support them. Good ole' fashioned free market capitalism predicts we will eventually arrive at a price discovery that accomplishes both.

But it appears that a relatively simple price correction will continue to be prolonged by a number of factors. Many of the surplus homes were built and sold under the auspice of easy credit and inflated asset values. They exist because the financing/regulatory environment made them economically feasible to be built, bought and sold. With credit restricted to even higher quality borrowers, many in debt and heavily depreciated wealth/savings for net savers, where will the buying come from? Who will take the other side and loan people the money/invest in the mortgage derivatives? How will demand for fringe, illiquid and underlying depreciating mortgage products return in a finance environment characterized by government debt crowd out, asset devaulation, defunct security ratings and no reinsurance?

How much lower will prices have to go to encourage renters to own again and speculators to buy again? While I understand people need a place to live, how many of these properties were second homes or speculative bets? How will long will it take price to accurately reflect the new finance and regulatory environment?

(suprised too that we haven't seen more arson/insurance fraud)

If we cannot encourage demand quickly, can we be creative and correct the supply? These are long lasting consumption assets with slight depreciation. Does the government step in, buy and bulldoze? Do they buy and give houses away? Do we get really cute and increase immigrantion to support demand? Or will the coming monetary and commodities caused inflation erase most debt and make prices more attractive? Could this also cause inflation perceptive consumers to trade depreciating cash for long term consumption assets? It seems like its time to start thinking outside of the box here because demand is at an impasse and the number of homes will not reduce itself.

With the NAHB, MBA and NAR economic spin factories forecasting more pain, it does not look good. Perhaps the new angle these jokers are spinning is a picture "so bad" that these groups need a bail out too. That would do much damage to correcting the supply/demand imbalance. I think steam will shoot out of my ears if that happens.

For some reason the Steve Winwood "Low Spark of High-Heeled Boys" has been resonating in my head. Some choice lyrics:

"The percentage youre paying is too high priced,
While youre living beyond all your means,
And the man in the suit has just bought a new car,
From the profit hes made on your dreams,
But today you just read that the man was shot dead,
By a gun that didnt make any noise,
But it wasnt the bullet that laid him to rest was,
The low spark of high-heeled boys."

Eric

Agree 100% AC.

A C Shareholder

1. Price discovery while painful is a beautiful thing.

2. Assets are always better in stronger hands.

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