A 25% correction would have been in the works but the fed cutting 225 basis points and being expected to cut the fed fund rate to 0.5% to match that of Japan, on top a govt bailout of bond insurers and a superfund to buy defaulted mortgages...will recreate this bubble. I expect 100% loans and subprime loans to be back this year, with lenders selling HELOCs up to 100% LTV. Fannie and Freddie expanding the limit for conforming mortgages will fuel the bubble even greater.
Once inflation really kicks in as expected (as signaled by $900 gold) the bubble will finally pop and we'll finally the capituation and the correction that is sorely needed.
The banks depend on consumers being in hefty debt with no savings for profits. We had a chance for middle class to build up their savings with high yielding savings accounts while they wait for home prices to drop.
Now with savings accts yielding 3% (a rate below inflation) we once again have to be forced to plow money into the overpriced stock market or real estate.
I am predicting inflation of 5% and gold to reach $1000 by year end. At the same time we will see a surging stock market and real estate market coming back to life.
Then once Bernanke realizes his mistake and has to start raising rates, this asset bubble will officially be popped.
In the meantime I am long SPF and will start building long positions in housing stocks to take advantage of the reemergence of the housing bubble.
Good article. Unfortunately alot of truth stated in article. None of us want to hear it, buts its called supply and demand. With existing homes prices going down, it makes the existing home more affordable than a new build.
Credit guidelines have been tightened, making it difficult even for the average American to qualify. What fed cut has helped, is existing home owners, to keep their home by refinancing, if the equity value is still there. With the value going down, it may eat up the equity in the home.
I dont agree with Mr Schiller and the business week's analysis. It is very weak. The mortgage rate in 1981 was 18% (30 year fixed) plus 2 points. Payment for a 100,000 house will compute roughly $1777/month ($1500.00 for interest + 277 principal). At today's rate of 5.76% payment is $757/month (480 for int + 277 principal). The effective price has already dropped 58%. There is no reason to believe housing will drop any more as long as interest is low. Mr. Schiller - shame on you - U r scaring common people. And business week - stay with responsible news not creating sensation.
All the loans that defaulted this year put that many out of circulation as far as getting another loan or refinancing (their credit is shot) now the next crisis is credit cards, car loans etc. and this will ruin more credit so it'll knock out another group of potential home owners. The problems isn't lack of money to the consumer it's lack of the consumer for the money!