When the mainstreamest of the mainstream media, the Wall Street Journal, basically throws in the towel, it's time to run, RUN, for the exits. Now would be about that time.
I especially liked the prediction of a 50% fall from the peak. First time I've seen that (outside of HousingPanic of course). I've predicted a 33% fall in Phoenix to get us back to 2004 prices (before the 55% speculator-fueled run-up in 2005). But 40% is doable, even 50%, as corrections never stop at the mean. DC, Miami, San Diego, Tucson, Sacramento and Vegas are also going to get slaughtered.
Thanks NNJ for the story - here are the excerpts
Surviving a Real-Estate Slowdown
The real-estate market shows signs of slowing. Is there deeper weakness ahead? Fewer questions are more important to mutual-fund investors. Many own funds with real-estate-related shares -- not to mention homes and vacation properties. And many economists believe a slowdown of the housing market could hurt the overall economy.
To get a lay of the land, we tracked down Kenneth Heebner, who since 1994 has managed the $1.2 billion CGM Realty Fund.
WSJ: How is the housing market?
Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks.
WSJ: What has you so concerned?
Mr. Heebner: I'm worried that more people will default on their mortgages. Risky mortgages such as interest-only and pay-option adjustable-rate mortgages require no principal amortization and in some cases payment of only a fraction of the interest due, have been widely used in the last two years. Some people got 100% financing for their homes. It made the tech bubble look like a picnic.
July 05, 2006
WSJ: A 'Loud Pop' Is Coming
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6 comments:
Sad but i have said before I have friends in this position (IE: neg ARM mortgages) and have tried without being to pushy to tell them they are in trouble. Yet i do not seem to get thru that un-reality they have vreated for themselves. This is the response i get:
Rates go up and then they go down, the economy goes up then it slows..
but then i say:..no you dont understand what kind of mortgage product you have:
Then i get laughed at and i am called paranoid.
As they enjoy the fruits of credit bragging over the $10,000 homedepot credit limit, the new $7000 yard and pool on a credit card..
I love my friends but they are living in a artificial world, and take advice for shit.
We shall see the reaction when that Neg arm resets in sept 07..
i hate to say it but told you so.
That man (Ken) is just confirming what any person with common sense already knows. No news here.
I wonder how many over-leveraged yuppies reading the WSJ today had their eyes pop out of their heads?
I think everyone will continue to be in denial until the pop actually occurs - ie the median prices really do finally retract 50% despite the article. This article is the equivalent to a "dot com bust coming" article published circa 1999. I can just imagine the collective "yeah right".
Heebner sounds like a sharp pencil, but even he doesn't fully "get" the bubble. It *is* in Minneapolis, Texas, etc. The liquidity went *everywhere* that speculators could spread it around.
Ken Heebner is one of the smartest money managers out there (check out his track record). I remember he was on Wall Street Week a few years ago and said NVR would go to $900 a share (it was around $300 at the time - I sold it at $35 about 10 years ago...ugh!!!). Anyway, it reached a high of about $947 a few months ago at the most insane peak of this bubble.
I do think Heebner is wrong to believe that commercial REITs and hotels will escape the fallout from all of this (he owns these in his fund). The pain is going to be much more far reaching than he realizes.
Ken Heebner is pretty smart dude, but then again so is George Soros and Warren Buffett - and they all agree that there is a bubble.
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