Housing Market: How Will This End?

Harvard released a study yesterday that claimed the housing boom will end with a whimper. Now, on its face, I agree with that, for reasons I've stated before--different markets will have different responses and adjustments to changes in economic stability. D.C.'s housing slump isn't going to be thsame as, say, Scottsdale's. However, the fact is that this study was commissioned by some very powerful interests in the real estate sector, designed to get us to feel good about using our homes as ATMs, and Ben Jones points this out nicely. Check the comments for a list of who funded that study. Hovnanian? KB Home? Home Depot? Unbiased market analysts to a man, I dare say. :)

Even more egregious are Ben Bernake's comments about how well Americans manage their finances. Uh, yo, dude, uh....negative savings rate ring a bell or two?:

More importantly, the cocktail of low interest rates and rising home values has dramatically stimulated retail consumer spending. However, with interest rates now rising, households are left with an almost unprecedented negative savings rate, and dangerously high debt levels and debt service costs. The economy hinges on housing.

Implication: Based on the speculative excess we have observed, we believe this housing boom will almost certainly be followed by a long and painful housing bust. We expect that a continued rise in interest rate spreads and decline in housing sales and prices will push the U.S. in recession by late 2006, and this recession will deepen in 2007, as the housing “wealth effect” turns into a “poverty effect.” As defaults accelerate, lenders’ underwriting will tighten significantly, leading to a precipitous drop in new home sales.

It's no wonder Bernanke is getting a drubbing in the press. To be fair, the guy is the ultimate metaphor for the modern real estate buyer. He got conned into what he thought would be an amazing deal with years of appreciating value, only to find it's a crappy fixer-upper that's falling apart and the ARM is about to reset.

Will Bernanke be able to "flip the property" that is the trembling U.S. economy? Based on what I'm seeing so far, the market isn't buying, on every and any level.

Posted at June 13, 2006 09:55 PM

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Harvard released a study yesterday that claimed the housing boom will end with a whimper. Now, on its face, I agree with that, for reasons I've stated before--different markets will have different responses and adjustments to changes in economic stability. D.C.'s housing slump isn't going to be thsame as, say, Scottsdale's. However, the fact is that this study was commissioned by some very powerful interests in the real estate sector, designed to get us to feel good about using our homes as ATMs, and Ben Jones points this out nicely. Check the comments for a list of who funded that study. Hovnanian? KB Home? Home Depot? Unbiased market analysts to a man, I dare say. :) Even more egregious are Ben Bernake's comments about how well Americans manage their finances. Uh, yo, dude, uh....negative savings rate ring a bell or two?: More importantly, the cocktail of low interest rates and rising home values has dramatically stimulated retail consumer spending. However, with interest rates now rising, households are left with an almost unprecedented negative savings rate, and dangerously high debt levels and debt service costs. The economy hinges on housing. Implication: Based on the speculative excess we have observed, we believe this housing boom will almost certainly be followed by a long and painful housing bust. We expect that a continued rise in interest rate spreads and decline in housing sales and prices will push the U.S. in recession by late 2006, and this recession will deepen in 2007, as the housing “wealth effect” turns into a “poverty effect.” As defaults accelerate, lenders’ underwriting will tighten significantly, leading to a precipitous drop in new home sales. It's no wonder Bernanke is getting a drubbing in the press. To be fair, the guy is the ultimate metaphor for the modern real estate buyer. He got conned into what he thought would be an amazing deal with years of appreciating value, only to find it's a crappy fixer-upper that's falling apart and the ARM is about to reset. Will Bernanke be able to "flip the property" that is the trembling U.S. economy? Based on what I'm seeing so far, the market isn't buying, on every and any level.