These guys, in my book, are always spot-on. And a new term for HP'ers: "Reverse Wickedly". Man, that's spooky. But look at Phoenix - it's already happening. I've hilighted the must-read parts:
The U.S. outlook is all about the property market, which has been the wind beneath consumers’ wings this decade. The property market is rolling over, but at this stage we’re only seeing a slowing in the market because property is a momentum-driven market with support from mortgage lenders making exotic loans and selling them to strangers in foreign lands.
Therefore, as PIMCO’s mortgage guru Scott Simon and his team have so presciently forecast over the last year, property market euphoria will not go quickly and quietly into the good night, but rather on the installment plan, with much screaming of denial.
Collectively, we believe the end of denial is rapidly approaching. But none of us can say with confidence whether the end will come in the next three weeks, three months, or three quarters. But the end of the housing boom will come soon, we think, and when it does, sales volume in the property market will reverse wickedly. Housing prices don’t crash, but volume of transactions does, as sellers refuse to face reality on pricing and buyers wait them out.
March 16, 2006
Wonk Alert - PIMCO's McCulley: "Sales volume in the property market will reverse wickedly"
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Let the "stare down" between sellers and buyers begin. I, for one, am waiting as long as it takes. The next one that blinks looses.
I think we know who that'll be.
The sellers
Do renters feel this great pressure to buy - at today's prices, at today's depreciating trends?
Nope.
Do sellers feel great pressure to sell, before prices go lower, before inventory goes even higher?
Yup.
Blink.
with no flippers or speculators to sell to. and no renters coming into the system.
So, no buyers.
Ouch.
I've picked out my next house. It was $200k in 2001. It is for sale right now for $569k. It is a 20 year old ranch backing up to a golf course with a heated pool.
I'm going to wait as long as it takes, but I will buy when it gets to $250k. Hopefully then I will be able to pay cash.
Hi Moman,
Wow, you're waiting for a 50%+ drop in prices.
Running with this theme, I'm interested in how other people feel about this. What market are you looking in, and what percentage drop would you need to get from current prices before you'd go ahead and buy?
if we see a 50% drop in prices, you can kiss the economy (and maybe your job ) goodbye!. Kepp your $250,000 your going to need it. Wait the is actually $125,000 cause you are only getting 50 cents on the dollar.
But none of us can say with confidence whether the end [of denial] will come in the next three weeks, three months, or three quarters.
Heck, I will, and with confidence: the "end" of the "spring selling season". Gonna be a whole lot of reality intruding by Memorial Day on the poorly-attended open-houses. (Poorly attended because there will be three or four on every block.)
That will be about the time a bunch of toxic mortgages start to double to their actual rates too. Gonna be a decent number of people who won't even be able to make that first higher payment. More inventory.
This is a big story. Nope, not big story … HUGE STORY!
The folks over at Pimco are generally somewhat passive in their economic forecast. That isn’t to say that they don’t give forecast, they just don’t do it with this type of conviction. They use a lot of economic jargon and rarely speak with these types of absolutes. I never thought I would hear McCulley say, “sales volume in the property market will reverse wickedly”. WOW! Wickedly is an extremely strong word ... Furthermore he wouldn’t have said it if it was not going to happen.<--(read that sentence again, and fully understand it)
This company has mad fortunes by speaking softly and carrying a big stick.
I would not want to be on the opposing trade of this group.
if we see a 50% drop in prices, you can kiss the economy (and maybe your job ) goodbye!. Kepp your $250,000 your going to need it. Wait the is actually $125,000 cause you are only getting 50 cents on the dollar.
Not necessarily. I'd rather my income rise than the price take a plunge!
I would love to buy the house for $250k but I think $300k is closer to the true value of the property. I say this because the home is 20+ years old, is not on the waterfront, but is in the 'A' flood plain 1/3 of a mile from Tampa Bay so any kind of minor tropical storm is going to flood it out.
It's not possible to pay more than $300k for this house (for me) because the insurance alone would probably be close to $4000 a year.
Suffice to say it's at least 30% overvalued (CNN money says 34%).
moman - you can see 10%..dont expect any more...if property value drops more than that, bernanke will be dropping cash from helicopters (ie lowering fed funds)...job mkt is strong, corporate balance sheets are strong, weakness in consumer spending will be made up by capex at corporations...
We just moved to Colorado. Area has had a 50% increase in the last two years. We put 150K in a CD and we are renting for the first time in 23 years....Sellers there are buyers out there but we are not stupid.
Couple of weeks later we can see that Moman is going to get his 50% sooner than he may think. In many areas prices have already dropped 10% from the end of January level, that is 10% in every two months.
That'll be 47% (from the original price) in a year. And I'll bet on it.
I've seen it happen here (small country in Europe with similar bubble in 1989) in 1990-1992. That boom lasted only five years, you have had yours more than ten, which means more air in the bubble, so 50% is probably an underestimate or minimum.
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