Considering that this guy runs $93 Billion in bonds, I'd listen to what he has to say... And what he's been saying is basically "look out below!"
This cycle in particular has been dominated by the accelerating trend in housing prices – making consumers feel wealthier and able to borrow/spend more money than ordinarily is the case.
And so it has been a particular focus of PIMCO (and the Fed as well) to concentrate on the fate of housing in order to forecast the future of the economy, inflation, and therefore the bond market.
It’s not looking that good folks – housing that is.
PIMCO’s on-the-ground analysts, who for nearly a year now have roamed the country with random real estate agents in search of local housing trend information, report that prices in many areas are actually declining which has significant implications for the economy, inflation, and interest rate trends.
A just-released report by the National Association of Realtors confirms that nationwide the year-over-year housing price gains have virtually disappeared and seem to be heading into the red.
August 02, 2006
PIMCO's Bill Gross lays it out for us: "It's not looking that good folks - housing that is"
Subscribe to:
Post Comments (Atom)
22 comments:
Our reality is matching the reality on the street. We hate being right all the time. Applause for Keith.
applause for bill gross, christopher thornberg, bill fleckenstein, robert shiller, the bubble blogs and the shoe shine guy indicator
i've been harping on about declining home prices in Socal for 2 years now. now finally the wife believes me!!!!
Nice job.. but these charts are still met with the "but it's different here, we're special" skepticism. In cities like Vegas that have unique economies to begin with, this fact just reinforces people's denial.
There is going to be a great quake in California, 1907, 1908, 1909.........1967, 1968.......2001, 2002, .....2005, 2006, guess eventually you'll be right on any call if you wait long enough as EVERTHING goes in cycles, even gold.
The Burbs in Big Bubble Cities.
Hell yes , we are due for a big quake in California. Did you know that the big Alaska quake caused a tsunami that killed people in Northern Cal. That last Northridge quake put the nail in the coffin on Californias 1991 bubble!
this whole episode, watching it unfold, has been fascinating, and it has really made me think hard about the limitations of the mainstream media, and it has also demonstrated in dramtic fashion the power and value of the blogasphere. How many of us have made the best financial decision of our lives, selling at the peak or waiting for the crash, because of the insights we got here and at HB2 and the other blogs? It's been an extremely profitable meeting of minds, and I for one am glad to have been a part of it.
Great article. He's basically saying..
- Home prices may decline for as long as 5 years before beginning to appreciate again.
- This is the beginning of a Bond Bull market (he's calling the bottom).
- We're at or near the end of rate hikes. Interest rates fall quickly after the peak of a housing cycle, on average 400bps
Not exactly "look out below," but certainly cautionary for those looking at buying a house and holding for less than 5 years.
Then again if rates fall rapidly, maybe all those ARM holders won't get wiped out. Should be interesting!
Thanks for posting this one.
If housing goes down, should mortgage rates go up in order to reflect the greater credit risk to the lender? Even if the FED brings rates down again?
"- This is the beginning of a Bond Bull market (he's calling the bottom)."
++++Yeah, but he's also calling this the Last Bond Bull Market, which is a CHILLING prospect:
"[T]his bond bull market will be the last; that history, as almost all active bond managers have known it since 1981, will come to an end a few years hence....The important idea is that such a forecast speaks to eventual reflation, inflation, and declining bond prices sometime out there in 2009 and far beyond as the U.S. seeks to address its enormous future liabilities concentrated in social security, healthcare, and foreign holdings of U.S. bonds."
+++++So is he predicting the U.S. will be going BANKRUPT???
Guys, I’m all set if I get laid off during the next downturn.
Thanks to the downpayment which I didn’t use on an overpriced property, and the fact that my landlord has absolutely no pricing power over me (my rents have been flat for years and will continue to be so during the next renewal period), and that RE mortgages in my area average 2x that of rent, I have three years of rent money (in revolving CDs) saved for the downturn. I don’t even need to touch the brokerage and multicurrency accounts.
And thanks to my perfect on time payment history, I get VIP treatment as far as the management company fixing stuff quickly which breaks in my apartment (sinks, tiles, fixtures, AC ducts) for both retention and since they don’t want me to complain to the housing board, which could get me around 6 months of free rent.
I’m sure I can find a job within two (nevermind three) years and even if the full time job market goes soft, I can consult part-time to put some extra cash in the bank and food on the table.
Ok, so where’s all this benefit from being a homeowner? All I see is a bunch of people on the verge of being foreclosed on within a few months of getting laid off whereas I can actually look forward to some time off, though I’d prefer to bring home a paycheck. And if I decide not to pay rent, I still get six months of free housing (though an irate/fuming landlord) whereas how many times does “the check’s in the mail” excuse work on mortgage lenders before they throw you out on the streets? I say two months and the gag’s up.
People are not going to be "thrown out on the streets" because there will be too many of them. Banks and lenders will do what they did in the Great Depression and in Japan's recent troubles, they will let the loans sit on the books and pretend they are still worth something as long as the borrowers can make partial payments.
Think about it, if they tried to foreclose and resell millions of properties how would that help the situation? The prices would crash even more and the chaos would cause many more borowers to default on other types of debt.
Bill Gross is an optimist.
No seriously. He says that the Bond market has bottomed. Pimco's shills have been saying that for a while now. Atleast since Katrina hit. (They wanted the Fed to stop tightening then). In my considered, but relatively less erudite opinion, the bond market will resumed its downward motion soon - perhaps as early as next Tuesday.
If the Fed tightens then the relative returns on short term debt will cause money to move towards it and out of the long term debt. If the fed doesn't tighten then inflation fears will cause the bond vigilantes to come out of the woodwork and push down long term debt. So, in either case Gross, and his billions of long term debt (I didn't say he wasn't self-serving) are screwed. (I didn't say I was erudite).
Bluzer
bluzer - I agree - bonds will not rally from here. why? because demand will decline significantly as foreign countries and investors dump 'em, as the fed prints money to pay for the entitlements we can't afford and massive debt and deficit, in addition to an imploding dollar
PIMCO has to see this, so why predict a bond rally? doesn't add up. Do they only make money in a bond bull market, so they try to talk the market into one?
So basically the chart is telling us, except for one tiny brief moment in 1991, housing prices have never gone down...
anon said: "+++++So is he predicting the U.S. will be going BANKRUPT???"
WILL BE GOING? huh?
WE ARE bankrupt! ! ! ! !
over 50 TRILLION id debt, how does that ever get paid off?
maybe if the us, canad and mexico are joined into a common union like the EURO and the dollar, peso and loonie are melded into the AMERO they can escape the meltdown while everyone picks their noses while watching american idol.
google NAFTA Superhighway or SPP or ...
us will lose its soveriengty.
Nixon for the most part declared the US bankrupt in the early 70's when he refused to give france gold in return for our paper dollar. end of the gold standard, end of full faith and backing of the us govt.
get gold
get silver and get ammo
HERE WE GO ROUND, ROUND, ROUND!
California Foreclosure Activity Hits Three-Year High
It's starting, but still has a long way to go. Data Quick Real Estate News reports:
Second quarter California foreclosure activity rose at the fastest pace in at least 14 years, the result of waning home price appreciation.
Lenders sent 20,752 default notices to homeowners statewide during the April-through-June period. That was up 10.5 percent from 18,778 the previous quarter and up 67.2 percent from 12,408 in the second quarter of last year, DataQuick Information Systems reported. Last quarter's year-over-year increase was the highest for any quarter since DataQuick began tracking defaults in 1992.
Despite the second quarter surge, defaults remained below historically normal levels. On average, lenders filed 32,762 notices of default each quarter over the past 14 years. Last quarter's 20,752 total was the highest since 25,511 were filed in first quarter 2003...
Foreclosure activity hit a low during the third quarter of 2004, when lenders filed 12,145 default notices... today's statewide foreclosure activity amounts to about one-third of the peak level in the first quarter of 1996, when 59,897 defaults were filed.
::People are not going to be "thrown out on the streets" because there will be too many of them.
Some will be allowed to make partial payments but many more will be on the streets because these mortgage payments are huge and pretty much dwarf the savings of the ordinary person, especially during periods of joblessness. Landlords, on the average, are more sanguine towards partial payments for monthly rent than banks and other lending institutes.
Also, haven't a third of these *risky* mortgages already been shipped off to Freddie and Fannie? All the banks have to do is foreclose to churn a profit.
Revolution. America will issue a new currency and all the trillions bought by other countries will vanish in thin air just like what Argentina did to investors. What punishment? None, just like Argentina. People said, "Oh Argentina will pay a high price because they are a small country and no one will reinvest if they default" Guess what, Argentina is doing just fine and the default help stimulate internal consumption of Argentinian goods because people couldn't afford imports. America is too big a market for other countries not to continue to play the fiat money game.
Oh and today interest rates fell to 6.63% for 30 years loans. I don't care if you have an ARM or fixed rate or go out today to buy that is still a very low rate compared to my first mortgage with an 11.5% back in 1982 and that had just fallen from 14.5% and I was thrilled!
I'm sorry but most Americans can afford their homes. Even with a $330,000 mortgae most Americans would only have to set aside $5 an hour each (wife/husband working) or $10 an hour to pay that mortgage and taxes of say around $2400 a month. Of course a little more than that if you take out the weekends but hey if you had to work a second job on Sat/Sun to do it you could easily earn that $80 a day after taxes.
This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my savings bond calculator site.
Have a great week!
This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my saving bonds site.
Have a great week!
Post a Comment