June 09, 2007

FLASH: PIMCO's bond guru Bill Gross predicts US housing market to be "decimated"

“These increases in rates over the past few days have placed the 30-year mortgage market at close to 7% in conventional terms,” said Gross, chief investment officer for Pacific Investment Management Co. and manager of the world's largest bond fund.

“This will decimate the housing market if it wasn’t already decimated before, and certainly put the Fed on hold, and maybe allow the Fed to reduce rates…six to nine months from now.”

51 comments:

FlyingMonkeyWarrior said...

Well, the picture at the top of this thread should be a crystal Ball because we have said this since the birth of your Blog, Keith.

housing_bear_withme said...

It would be nice if it is true "Housing market will be decimated if not laready". I would love it. But I think his real motive is to scare FED into lowering rates sooner so his bond portfolio (world largest) will do better.

christiangustafson said...

Decimation is only 1 in 10. I think it's going to be far worse than that.

And the joke will be on Gross if the Fed can't lower rates because the $USD is in the tank.

james dean said...

http://tinyurl.com/7fpdn

The root of our ecomomic ills...the Federal Reserve.

43 minute video.

Anonymous said...

Housing Stocks Tumble on Higher Rates, Threat of Continued Price Declines

The pool of would-be home buyers has already been drying up as banks tighten lending criteria amid a meltdown of the supreme mortgage sector, which lends to people with spotty credit histories. Other buyers have been staying away as home prices fall because they do not want to invest in an asset that may depreciate.

http://biz.yahoo.com/ap/070607/housing_sector_snap.html?.v=1

===

USA TODAY: Housing slowdown smacks Realtors hard
By Noelle Knox, USA TODAY

http://www.usatoday.com/money/economy/housing/2007-06-08-realtor-usat_N.htm

SPECTRE of Deflation said...

It's a real be-atch when you have had a 24 year bull market acting as a tailwind for you. Poor Bill was calling for a new bull run very recently, and he no doubt has taken a beating by playing the bull side. It's a new day Bill, and Greenspam is no longer going to bail your ass out every time. The Greenspam put is done, toast!

Oh ya, tell ole' Bill that the FED doesn't control the long end of the curve. His excuses are no different than we have been hearing all of 2007. The FED isn't lowering rates because they can't afford to.

K.W. - Southern Ca. said...

Prices were *way* over-inflated.

The housing market has no choice but to be demolished in the coming months ahead.

SPECTRE of Deflation said...

Decimate the mortgage market? When did Bill become such a humanitiarian? More likely he was ass kicked with his recent bond bull market call.

After 24 years, Bill may have to face the same thing average joe investors face, the risk and uncertainty. Poor guy. END SARCASM!

Anonymous said...

I do not believe Gross. NAR says that housing will be fine.

Mort said...
This comment has been removed by the author.
Anonymous said...

My wife and I were looking at homes for sale this morning. I realized how fucked up things are when she got excited that there is a home that (quoting her) is "only $479K and doesn't need too much work". And I'm thinking, when the hell did 1/2 a million dollars for a home that still needs $25K of renovations become cheap and a reason to get excited?

Our gross income is $130K and even so we could barely afford this supposed cheap house and still maintain a lifestyle that didn't involve being a slave to the mortgage. So my question is who is living in the "expensive", $600K, $700K, $800K homes that are a dime a dozen around me. Who are these couples making $200K+ in order to afford them? I'm sure they exist but come on, that's what 5-10% of the population? I feel like eveyone is in on this secret and I am left outside standing in the rain.

Sorry for the rant, just frustrated, that's all. Ughh this crash better start accelerating, I can't take it anymore.

Mark in San Diego said...

7% mortgages = PANIC!!!

Subprime didn't seem to cause the middle and upper middle class much concern around here - "oh it's just the poor neighborhoods in Chula Vista" was the response. . .but in the past two days, people ARE talking about 7% mortgages. . .why? Because that impacts everyone. . .. considering the average price of a home in SD is still 500K - and a nice home 800K. . .that will put a stake in the heart of the beast. . .can we say roll back prices to 2001???

Anonymous said...

he doesn't really know what is going to happen.......this is just a opinion, like so many....the world will keep going huh? we'll see about that....let us remember, the world is swimming in a sea of fiat money too.......if the dollar falls, they all fall......because all of them are controlled by the bis and the imf and the fed.......just like we are......too many of these guru's speak of things as if nothing is changing......but what we are about to witness has never been seen before......too many of them do not understand this.....

Anonymous said...

i think it is absurd to think that the fed will ever lower rates. how can they? any lowering of rates will finish off whatever is left of the dollar's currency float ..

robert campbell said...

Frankly, like other posters have alluded to, I don't trust Bill Gross or anyone on Wall Street.

Practically all these guys are all talking their own book when they make public announcements.

Anonymous said...

Very strong words. I would like to see more analysis and metrics as to what he means by decimation.

Anonymous said...

Words cannot convey how fucked we are

Anonymous said...

Ever notice Greg Swann's blog never mentions market conditions, or any substantive story like this one?

Anonymous said...

These are important days

Anonymous said...

strong words

realtors are dumb said...

We need 15% mortgage rates to destroy the housing market. I remember all the bargains in RE in the early 1980's and mid-1990's when rates were high. That's when you buy. The rates will always have to drop due to recession. The Fed would rather have inflation than depression. Be patient and pick up the bargains at high rates and refi when they lower rates in a few years.

Just like you guys say, things are not different. Rates go up and rates go down. The market goes up and it goes down. It's not the end of the world, so get out of your bunker and enjoy the world.

sweet potato said...

Anon said:
‘And I'm thinking, when the hell did 1/2 a million dollars for a home that still needs $25K of renovations become cheap and a reason to get excited?’

Right on!

By the time this housing crash is fully underway prices will be @ 50% off 2005
Were they should be.

BTW, prices in europe will be 70-80% off 2005
'Were they should be.'

Anonymous said...

There will be no housing crash. All you losers who never bought a home, get use to this being your new home(link below).

http://news.bbc.co.uk/1/hi/magazine/6733385.stm

The division among the poor and the rich has been ordain and accomplished by the Bush Team. It sucks but its the truth, there is no longer a middle class.

I'm one of those losers that don't own a home and have come to accept my fate. accept your fate and peace will come to you.

Anonymous said...

There will be no housing crash. All you losers who never bought a home, get use to this being your new home(link below).

http://news.bbc.co.uk/1/hi/magazine/6733385.stm

The division among the poor and the rich has been ordain and accomplished by the Bush Team. It sucks but its the truth, there is no longer a middle class.

I'm one of those losers that don't own a home and have come to accept my fate. accept your fate and peace will come to you.

a.creampuff said...

"I feel like eveyone is in on this secret and I am left outside standing in the rain."

My feelings exactly, even though "the secret" might be:

1) They sold at a huge profit and rolled that into trimming the $700k down to something similar to what mere mortals can carry.
2) They used "creative financing" and in short order will go into foreclosure.
3) Mommy and Daddy paid for it.

Love-That-Bush said...

Anonymous said...
i think it is absurd to think that the fed will ever lower rates. how can they? any lowering of rates will finish off whatever is left of the dollar's currency float ..

June 09, 2007 8:08 PM
____________________________________
I agree completely. They will not lower interest rates any time soon. The folks with adjustable arms are going to be squeezed good.

K.W. - Southern Ca. said...

Definitely.

We need a scale that goes
far beyond 10.

~~~
christiangustafson said...
Decimation is only 1 in 10. I think it's going to be far worse than that.

And the joke will be on Gross if the Fed can't lower rates because the $USD is in the tank.

K.W. - Southern Ca. said...

Raising or lowering the interest rate will have drastic consequences either way.

For all those who still believe there is no housing bubble (the market in general), get ready to witness the avlanche.

Anonymous said...
i think it is absurd to think that the fed will ever lower rates. how can they? any lowering of rates will finish off whatever is left of the dollar's currency float ..

area 51 said...

Anonymous 6:10
I have asked the same question: Who the hell can afford all these thousands of $500,600,700+k houses? Wife and I make $100k but we can't afford that. It's like we weren't invited to the party. Best guess is it was really a cocaine fueled party and probably just as well we didn't go. They all ended up with STDs and are junkies.....

Anonymous said...

European Union looking for 1 person to be it's leader, and to bring Peace to the Middle East?

Isreal to broker Peace through giving up some of it's land?

These are important times!

Shakster said...

You know that sinking feeling of fear that can hit when something bad is coming? DUDE.

Anonymous said...

anonymous in Bay Area
Dick Kovacevich, CEO of Wells Fargo, was quoted in 2005 as saying something similar - he expected that if mortgage rates were to hit 7%, "things would get ugly"

Adam Smith said...

Anon said:

"Who are these couples making $200K+ in order to afford them? I'm sure they exist but come on, that's what 5-10% of the population?"


Who are they? Those people who were willing to resort to all kinds of exotic mortgages just to get into a home, ANY home, even if it means they're only really just renting the home from the mortgage company for a decade, and not really intending to ever own the home.

For example, I was talking to someone who bought a home in So. Cal using a 10 yr. I/O (interest only) loan. WTF? 10 yr I/O? That's simply the industry's way to allow housing prices to run up to the stratosphere (increasing affordability: easy to do when you're not paying down the principal!), while pulling that home off the market for a number of years to artifically reduce supply. It's truly a sucker's loan, a perma-home-debtors loan, about as bad as these predatory loans from places like cashcall.com that disclose 100% APR (yes, you read that right!).

Bottom line is many of these REIC "pros" really don't want you to own a home (just to buy and sell homes), and this is one way for sheeple to sacrifice their dream of home ownership, while fooling themselves into thinking they're actually BUYING a home!

These loans are pure bubble bloaters, designed to fuel the market, They're definitely NOT intended to help SECURE home ownership.

As far as rising interest rates, it could also play out as helping drive the market, as some buyers might rationalize that the price decline is as low as it'll go, and waiting will only allow interest rates to climb higher.

My own impression is this is a "bull trap", an attempt to encourage people to buy NOW vs LATER. Time will tell, but I really doubt this approach will have any teeth in it. As pointed out, raising rates will squeeze the Alt-A and sub-prime lenders more, and also drive our dollar lower (as well as sending foreign investors away).

Lost Cause said...

My God, why believe Bill Gross. He has been wrong once.

raynla said...

Anonymous said...
These are important days.

-----------------------------------

How about...These are the last days!

RayNLA

SPECTRE of Deflation said...

Anonymous said...
My wife and I were looking at homes for sale this morning. I realized how fucked up things are when she got excited that there is a home that (quoting her) is "only $479K and doesn't need too much work". And I'm thinking, when the hell did 1/2 a million dollars for a home that still needs $25K of renovations become cheap and a reason to get excited?

Our gross income is $130K and even so we could barely afford this supposed cheap house and still maintain a lifestyle that didn't involve being a slave to the mortgage. So my question is who is living in the "expensive", $600K, $700K, $800K homes that are a dime a dozen around me. Who are these couples making $200K+ in order to afford them? I'm sure they exist but come on, that's what 5-10% of the population? I feel like eveyone is in on this secret and I am left outside standing in the rain.

Sorry for the rant, just frustrated, that's all. Ughh this crash better start accelerating, I can't take it anymore.

Nice post and great questions. On the speeding things up front, your wish is the bond markets command. Rising rates will only speed up the debacle, and you and the wife can look forward to a home with a P/E potential that makes real sense.

SPECTRE of Deflation said...

realtors are dumb said...
We need 15% mortgage rates to destroy the housing market. I remember all the bargains in RE in the early 1980's and mid-1990's when rates were high. That's when you buy. The rates will always have to drop due to recession. The Fed would rather have inflation than depression. Be patient and pick up the bargains at high rates and refi when they lower rates in a few years.

Just like you guys say, things are not different. Rates go up and rates go down. The market goes up and it goes down. It's not the end of the world, so get out of your bunker and enjoy the world.

It won't take 15% rates this time around. Things are much worse today than in the 1980's. I can click off numerous statistics on why this is so, but we discuss those issues everyday on this great site.

SPECTRE of Deflation said...

sweet potato said...
Anon said:
‘And I'm thinking, when the hell did 1/2 a million dollars for a home that still needs $25K of renovations become cheap and a reason to get excited?’

Right on!

By the time this housing crash is fully underway prices will be @ 50% off 2005
Were they should be.

BTW, prices in europe will be 70-80% off 2005
'Were they should be.'

Visited the FL panhandle last month, and let me tell you that it is a bloodbath. On the high end, 50% off is here and now, and God knows how far they fall.

SPECTRE of Deflation said...

Lost Cause said...
My God, why believe Bill Gross. He has been wrong once.

A 24 year bull bond market helped Bill just a bit don't ya think? He's later than Hell on this call, and we all saw this coming.

Mark H said...

There are lots of inexpensive homes for sale here in Ohio. Problem is, no one wants a 55 year old 1100 sq ft Cape Cod. Everyone wants a new 3000 sq ft home in a new subdivision.
I know one couple who just bought a 3 bedroom home for $9,500.
There are lots of homes for between $19,900 and $70,000, but everyone wants the new $300,000 home.

Anonymous said...

Come on now, 50% off in Florida? Where? Post actual addresses of sales (not asking) prices that are 50% lower than previous sale prices.

its all good said...

I'm working on my graduate degree and due to finish by 2009. Wifey is due to graduate from dental school in 2010. We should be in a prime position to buy near the bottom of this housing bust.

Anonymous said...

seattle is special

Finnishguy said...

What is all this fuss about the 10 year treasury? Sure the yield is going up fast, but come on, it was higher than this less than a year ago. No need to get overly excited about it yet.

What is interesting are the foreclosure numbers and the ability of the financial sector stocks to defy the gravity provided by said foreclosures. How long can it go on, god knows.. The amount of short selling of these stocks is very interesting as well.

Daniel said...

The fed can go ahead and lower rates but it won't save the housing market. Mortgage rates didn't rise when the fed increased rates, and they aren't going to fall if the fed lowers rates.

The carnage will be epic. The market and the media do not yet grasp the size of the problem. It reminds me of summer 2000, when people still talked about the NASDAQ bouncing back to new record highs in 2001. And there were still enough idiots believing this sort of garbage that some tech companies were hitting new highs (e.g. Sun).

Anonymous said...

Bill Gross knows his shit.

Anonymous said...

The crappy neighborhoods wll get crushed as rates rise and mortgages become harder to get. The "tony" high end neighborhoods will get dinged or will bleed without the crushing. Neighborhoods like the Hamptons most buyers pay cash. It is a pretty sad day when you can't afford a three million dollar beach house on 20 million income. Even if you lose your job renting can cover tax and maint. It is the civil service workers who thought ther children had the right to each have their own bedrooms and bought 600K houses 4+ bedroom houses on 70K income on a floating rate mortgage who will get crushed and they deserve it!

Anonymous said...

In regards to the 130k guy. You are making as much as a 24 year old couple with mediocore jobs, which is why you don't understand it. Big four accounting, banks and Investment banks all start MBAs at 100K at the age of 24 if you went straight though, people like that marry each other and by the time they are 27 are making 350k. Even lowley accounting peeople with a 4 year degree start at 60k and can hit 100K in 7 years, all they need is a working wife they met at work and they are 28 YO wtih a 200K income. Most of the people I know clear 130K by Memorial day, that is why you are having trouble. You need to earn more MONEY!!!!!!!!!!

Get an MBA or CPA etc. Go work for a hot sector and in a hot field and work your but off and you can buy any house your want!!!!!


Our gross income is $130K and even so we could barely afford this supposed cheap house and still maintain a lifestyle that didn't involve being a slave to the mortgage. So my question is who is living in the "expensive", $600K, $700K, $800K homes that are a dime a dozen around me. Who are these couples making $200K+ in order to afford them? I'm sure they exist but come on, that's what 5-10% of the population? I feel like eveyone is in on this secret and I am left outside standing in the rain.

Anonymous said...

Anonymous said...
In regards to the 130k guy. You are making as much as a 24 year old couple with mediocore jobs, which is why you don't understand it. Big four accounting, banks and Investment banks all start MBAs at 100K at the age of 24 if you went straight though, people like that marry each other and by the time they are 27 are making 350k. Even lowley accounting peeople with a 4 year degree start at 60k and can hit 100K in 7 years, all they need is a working wife they met at work and they are 28 YO wtih a 200K income. Most of the people I know clear 130K by Memorial day, that is why you are having trouble. You need to earn more MONEY!!!!!!!!!!



Dude, you wreak of shit!

Anonymous said...

Anonymous said...
Anonymous said...
In regards to the 130k guy. You are making as much as a 24 year old couple with mediocore jobs, which is why you don't understand it. Big four accounting, banks and Investment banks all start MBAs at 100K at the age of 24 if you went straight though, people like that marry each other and by the time they are 27 are making 350k. Even lowley accounting peeople with a 4 year degree start at 60k and can hit 100K in 7 years, all they need is a working wife they met at work and they are 28 YO wtih a 200K income. Most of the people I know clear 130K by Memorial day, that is why you are having trouble. You need to earn more MONEY!!!!!!!!!!



Dude, you wreak of shit!

June 11, 2007 5:09 PM
-------------
I concur. All the REIC trolls that post here talk trash about how HP posters are all liars when they say the make big bucks & sit on tons of cash, comes now an REIC troll saying 130k houshold income is an insufficiency that implicates the couple's work ethic is the problem because s/he knows of all these people who make 130k by memorial day.

Well the aveage household income in the US is in the hi 40k range. Only the top 5-10% income bracket cracks into six figures. So this couple is doing just fine. The problem is the corrupt REIC which has juiced up prices to fatten their bottom line. Everyone needs to just hold tight and wait for the artificial demand the REIC injected into the market to pass. Then prices will return to normal trend lines and people can start buying homes again as places to live instead of as short term flipping investments!!

Anonymous said...

The current president of this country is a MBA so that doesn't say much. If you think just having something on paper means you'll make more well then I have a bridge in NYC to sell you.

The fact of the matter is in many parts of the country the local property taxes cannot be raised...so instead of raising the taxes they raise the assessment of a house. Gradually overtime this creates artifical inflation.

I personally know people who fear it when their housing is supposedly worth more....why? because they know they can't sell it for that and if anyone sells for below assessment it's assumed that something wrong with it and thus it still WON'T sell.

Imagine if they did this with cars and excise taxes? "Um yeah that '72 Gremlin is a classic now so that's why the value went up 30% and we have to tax you more" same mantra but different assett.

A good is only worth something if it can be sold. If you cannot sell it then the price goes down. As baby boomers get older they'll live in SMALLER houses since the kids moved out and you don't need/want to do all the maintence