Title: Housing bottom?
Tags: housing bottom inflation
Blog Entry: Something I have been convinced about for quite some time is that we are really not close to a bottom in housing. I remember back in March of 2006 when subprime first reared it's ugly head in the mainstream media. I remember Bernanke coming out and saying that the subprime crisis was unlikely to spill over into the broader market and economy. He also said the cost for the whole fiasco would be somewhere in the neighborhood of $50-60 billion dollars. As we all know that estimate was spectactularly wrong. As wrong as Rumsfeld was in 2002 when he estimated the total cost of the Iraq war would be somewhere around $60 billion dollars also. I was watching some clown on CNBC the other day who poo-poohed what he called the "fear mongers". His reasoning was that if these guys were negative for long enough that eventually they would right. He seemed to blame the whole crisis on this "mentality". How idiotic. I guess you can say the same thing about all the cheerleading going on right now. If enough people in the media and government come out and say things are OK and have bottomed for long enough, eventually they will be right also. I guess that can pump the market for a while and make things seem like they really are better. What they failed to talk about in this interview was how some of the people they referenced actually gave reasons WHY what was going on was unsustainable. Robert Shiller actually gave facts as to why home price increases were unsustainable. How they were going up at a pace that was well above the long term moving averages and that they would have to mean revert. But no one wanted to hear that at the time. Peter Schiff was railing on about the trade deficits and debt explosion and how that would negatively effect the dollar and the greater economy. He was marginalized as a nut job. Roubini was looked at as a fringe thinker etc. etc. etc. I could go on and on. The bottom line is no one wanted to listen to reason during the boom times. Now as we pay the price we find ourselves slipping back to that line of thinking. How is it that our memories can be that short? How is it that it is so easy for J6P to go back and listen and trust in the same people who got this thing so wrong for so long? Why is it so difficult to believe that maybe, just maybe, we as a country are going to have to take our foot off the accelorator for a few years until this thing plays itself out? Why is it so hard to accept that maybe we will actually need to live within our means or even below our means for a while? I guess the answer to that is that message makes it hard for the big guys to make money and it certainly makes it harder the politicians to get re-elected. Selling a message of something for nothing seems to be a whole lot easier then selling a message of sacrifice. The unfortunate truth is, if you believe in mean reversion, that housing prices have at least another 15% to go to the downside. That is if they just go back to the trendline. If they actually overshoot to the downside which is likely in my opinion, you could be looking at another 25-30% from here. But what do I know, I'm just another lunatic.
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