A housing bust will be accompanied with prices that won't sustai

Housing chart data interesting	mannfm11	NEW 8/24/2007 1:23:09 PM
StrangeI didn't get a comment on this. It is pretty deep because sales in aslump appear to be higher than boom sales in the real old days. Ireally haven't looked at some of this stuff, but I'm kind of stunned,having been around the housing market to some degree since the 1970's.The statement is housing has gone bust. Housing has a long way to gobefore it goes bust if you know something about economics. Isaw the Shiller chart and the housing sales chart that qqq put up.There are 2 things in these charts. For one, the Shiller price chartshowed that the normal inflation adjusted peak in housing prices wasaround 110. This one hit around 200 and is still up there. This mightbe something different if the economy hadn't set the 90 to 110 area asthe norm for 100 years. Home construction isn't rocket science, likesomething new had to be invented along the way to necessitate higehrprices. The other side of the equation was the sales side.Well, our depressed levels of sales are higher than the peak sales ofthe 1970's boom and the 1980's boom. Higher prices, higher sales. Whereis the trend shift in wealthy population to make up for thisphenomenon? IN fact, the baby boomers had a real influence onconstruction in the 1970-1985 period. We have at best an echo going onnow, a generation much smaller driving prices and production to double? If the prices are maintained at any thing over 60% of thecurrent index, I think we continue to see high new home sales. Highbeing something beyond the old middle ground of 600,000 units per year.If prices in the 110 region were sufficient in boom times to produce800,000 units of production, they will continue to produce 800,000units of production. Otherwise, we might find that the rate ofinflation has been understated and the real CPI is twice what it isreported. Then we might find that housing is a bargain, but interestrates need to be 4% higher. The point I am making is the newsupply is going to under sale the old supply until prices come intorange of each other. This doesn't bode well for FNMA, FHLMC, MGIC, theNational Association of Realtors, the State of California and 1,000,001hedge funds around the world. Not to mention Washington Mutual, Bank ofAmerica, Chase Manhattan/JPM and other banks large into the homefinance market. What is going on here is the market is eithergoing to be allowed to correct or we are going to see a glut of homesto the point that some nice neighborhoods are going to be nice placesto live and other new nice neighborhoods are going to become crimeridden slums. There are areas of $300,000 homes in SW Dallas countywhere they are giving up the keys, burning them down, etc. What willcome next is the middle class high roller who sees a chance to buy a4000 square foot home at a bargain and cannot maintain it. 2000 squarefoot pocketbooks can't maintain 4000 square foot homes. My own fatherfound out how difficult that was when I was a kid, a mistake thatturned into a blessing when we moved from a 1400 foot starter home toan old 5000 foot show place in a small town called Plano. I rememberthe first utility bill came in and Dad's reaction. It was about whathis mortgage was on the old place. Inflation bailed him out, but hemade a lot more money relative to house payment than most do today. Itwasn't the payment, but the maintenance. We are going to haveto sell down to a price that produces a valley of about 400,000 housingstarts before this one is done. As long as prices stay up, I think newhousing is going to continue to be built. These are Wall Street tradedcompanies and they can't just shut down. They will find a way toundersell the market and make money, even if it destroys the market. Thebulls can't take solace in this data. This data means the problem ismaking itself worse and what they consider to be the problem, decliningprices is the solution. It is the only solution, as the market isbuilding another 800,000 bad loans a year and undermining all theexisting stock in the country. I hate to say it, but the truthis they need to get all the dead wood out of home ownership, not bailthem out as some folks say. I don't know what would happen to theeconomy if a moratorium on home construction was called for 6 months,but that is about the only short term remedy. But, I don't believe inthe long run that these prices can be supported at anywhere nearcurrent prices. It appears that MGIC and all the MI companies will gounder in this mess and that all equity over 60% in a significant amountof US housing is going to have to disappear. The point of allof this is history has shown that prices in the 110 area have been ableto support all the home building the market could absorb. To maintain aprice much higher, means that home building will also occur at a muchhigher pace, literally destroying the market for preowned homes. Anyhome bought on the way up in this model is going to be trapped underwater on anything other than a high downpayment mortgage. Either theprice collapses, taking home building with it or we continue to see agreater and greater glut of homes in an overbuilt market.
RE: Housing chart data interesting	BernardBroke	NEW 8/24/2007 1:35:04 PM
Whathappens if we see a legislative bailout, a la what Bill Gross ispleading for? Does that just drag things out, delaying the neededcleansing process?
RE: No legislative bailout	mannfm11	NEW 8/24/2007 3:25:27 PM
Whatare they going to do? Take houses out and shoot them? They can do thisto cows. Just buy them from the rancher and shoot them, thus solvingthe supply problem. This is a supply problem or did you read what Iwrote? Being it is a supply problem, it is a price problem. Being thatit is a price problem, the price is going to have to go down to changethe dynamics. I don't think many people understand basic economics, butthis is as basic as it gets. We have a housing bust? We have salessupposedly above all time record previous to 1995 levels. How does thisequate to a housing bust? It can't be a housing bust. It isn't ahousing bust. A housing bust will be accompanied with pricesthat won't sustain production of homes at current levels. The sale ofhomes will decline to 50% of what they are now. Now, how can the saleof homes decline? Hard to tell, but I suspect irrational exhuberance inthe form of people not being able to sell their homes is going to haveto do this. Legislative bailouts just perpetuate the problem. IF thishappens, either sell your home right now or be damn selective where youmove to, unless you are already in a very elite and I mean old moneyarea. They are going to literally destroy neighborhoods if they supportthese prices. Why? Because the current level of prices isgoing to result in something like the current number of houses beingbuilt. In fact, I think home prices can decline 30%, based on Shillerscharts and we will still have a building glut. There will be shifts incosts and people will keep looking at what they can get in foreclosure.But, the problem is the new home builders can undersell the market fora long way down. The weak hands need to be forced out in this game andWall Street needs to take their losses. Legislative bailouts won't solve anything, just make the supply problem worse.
RE: Gross is stuck with a lot of mortgage backs?	mannfm11	NEW 8/24/2007 3:27:55 PM
Maybe that is why he is complaining.
RE: Thanks; much appreicated. nm	meg-abear	NEW 8/24/2007 1:35:53 PM