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By Mike "Mish" Shedlock | 4 May 2008
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Donald Luskin at SmartMoney is making a case that Housing Prices Near or at Bottom
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Persuasive To Whom?
Housing prices rose 100% in many big markets from 2002 to 2006. Even more in some places. We have now seen a 30% decline. We need to see a 50% decline and that is just to get back to a point at which houses were already expensive. Inventory is still rising, and people are still walking away from homes. With Condos, the situation is even worse. There is a 16 year supply of condos in Florida. There is enormous condo overbuilding in many areas.
The housing bust in Japan went on for 18 consecutive years. The bust in California is less than 2 years, Florida far more advanced than CA is still less than 3 years old. Housing prices compared to rent are still high, compared to salary are still high. The argument that wages and incomes are rising 'on average' ignores a monstrous skew. Real wages have been falling for the bottom 80% or so of the population, and dramatically for the bottom 50% of the population.
If Bill Gates, Microsoft CEO, walks into a bar in a slum on the South side of Chicago, average income in that bar will shoot up dramatically. Will that event make houses more affordable for anyone in that bar? When it comes to construction jobs, it's important to note that the bust in commercial real estate is just now picking up steam. Inquiring minds will want to consider Vacancies Soar In Commercial Real Estate Bust and the Shopping Center Economic Model Is History.
Wal-Mart, Starbucks, Target, Sears, Pizza Hut, Home Depot, Lowes, etc etc etc are all cutting back growth plans. It was the overbuilding of all these stores that provided job growth over the past 6 years. They were low paying jobs, but at least they were jobs. Where is the job growth going to come from now? I have been asking that question for years and no one has been able to answer it.
April Jobs Bizarro World
The last four months the economy shed jobs. See April Jobs— Another Report From Bizarro World. A recession has just started and people are still in denial over that. There will be even more inventory and even more walking away as the recession picks up steam. I outlined this possibility in Walking Away: The Next Mortgage Crisis. People are severely underestimating this recession. I made the Case For An "L" Shaped Recession.
Social Attitudes Have Changed
The changing of attitudes is also crucial. Inquiring minds may wish to consider Cool to Be Frugal and The Pawnshop Society. There is clearly an attitude change when it comes to spending. Less spending means less hiring. Do we need more Pizza Huts, Wal-Marts, nail salons, Home Depots, anything? [[More Houses!?!: normxxx]] What?
Baby Boomer Demographics
What about the boomer retirements and the Demographics Of Jobless Claims. I made the case that structural demographics are poor and that boomers will be competing for low paying jobs with their kids and grandkids. With that in mind, exactly who are baby boomers going to sell their McMansions to? And, at what price?
When Will Housing Bottom?
Finally, nothing blasts off like housing did, just to return partially to the trendline and start rising again. The trend will overshoot and that is still years away. I am sticking with 2012 at the earliest although there could be a bit of an uptick in 2009. My reasons were outlined in When Will Housing Bottom?, Housing— The Worst Is Yet To Come , and Housing Bottom Nowhere in Sight. From the last link above, here is how I have called the housing bust in real time.
An Alternative Viewpoint
Using the Japanese land bust model as my guide, here is how I have called things in real time.
Click Here, or on the image, to see a larger, undistorted image.
The Spring 2008 arrow was just added. The arrow is one notch closer to its final destination.
Flashback March 26 2005
The initial data point was established in the post It's a Totally New Paradigm on March 26, 2005. Here are some excerpts from that post.
- Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that "South Florida is working off of a totally new economic model than any of us have ever experienced in the past." He predicts that a limited supply of land coupled with demand from baby boomers and foreigners will prolong the boom indefinitely.
- "I just don't think we have what it takes to prick the bubble," said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90's. "I don't think prices are going to fall, and I don't think they're even going to be flat."
- Gregory J. Heym, the chief economist at Brown Harris Stevens, is not sold on the inevitability of a downturn. He bases his confidence in the market on things like continuing low mortgage rates, high Wall Street bonuses and the tax benefits of home ownership. "It is a new paradigm" he said.
We are only on the reality phase of the adjustment, and that phase still has more life in it. The despair phase is coming up.
Housing Near Bottom?
Who made an in depth case who didn't?
Who has the more persuasive arguments?
M O R E. . .
Normxxx
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The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.
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