“Housing optimists have systematically misjudged the
market. Some became convinced that the huge runup was justified by
fundamentals such as population growth, rising incomes, and land
scarcity. And because sharp national housing price declines are so rare
in U.S. history, analysts assumed that prices would, at worst, flatten
out for a few years.
What they forgot was that markets can overshoot on the downside just as easily as on the upside, with both financial and psychological forces feeding the decline . . .”
So notes an interesting cover story in BusinessWeek (June 26) titled The Housing Abyss.
I must admit to being perplexed as to what meaning it has, if any.
Recall then Time Magazine Housing Cover that pretty much top ticked the Housing market. Might this be doing the same — to the bottom?
In its favor: Everyone knows housing sitnks, it is widely followed, and a tradable asset class.
Against: BW is a business, not general interest publication — and there has already been several other Housing crash magazine covers.
Regardless, they have moved to an outlook similar to my own — that we are nowhere near a ninth inning, and that this is likely to get much worse before it gets any better.
Where they go somewhat astray is looking for more Congressional action.
Here’s a quick excerpt:
The worst may be yet to come as forces battering the market gain strength, and Congress’ remedy may not be enough
The housing crisis is entering a new and frightening stage. On June 24, Standard & Poor’s announced that the S&P/Case-Shiller 20-City Home Price Index had fallen more than 15% in April from a year earlier. Adjusted for inflation, the decline is the biggest since 1940-42, according to data collected by Yale University economist Robert Shiller.
The risk for the financial system and the economy is that the price drop, already horrifying, will start feeding on itself. When home values fall low enough, hard-pressed homeowners become less able or less willing to keep paying their mortgages. That forces lenders to repossess homes and then dump them back on the market at fire-sale prices, which depresses prices further and leads to even more foreclosures…
Efforts by the private sector and government to stop the slide before it gets out of control haven’t done the job. Poorly designed mortgage securities rife with conflicts of interest, as well as legal disputes over priority between creditors, are forcing many homes into foreclosure needlessly, accelerating the market decline.”
To their credit, before they go too wildly astray, they acknowledge the rest of the moving parts:
“That’s not everyone’s assessment, of course. Some economists and politicians say that policymakers need to focus on keeping inflation under control in the face of soaring food and fuel prices. They say that the effects of the housing bust will be modest and that low prices will attract new buyers. “We’re seeing people go into the market that weren’t there before,” says Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York. The Federal Reserve, which has already cut the federal funds rate to 2% without managing to save the housing market, hinted on June 25 that no further rate cuts are in store, warning that inflation risks have risen while the risk of slower growth has “diminished somewhat.”
The entire piece and accompanying podcasts are worth your time . . .
UPDATE: July 2, 2008 7:53am
Bespoke reminds us that BW had a similar cover back in January — and that Housing has gotten appreciably worse since then.
Time Magazine Housing Cover (June 06, 2005)
The Housing Abyss
Peter Coy and Mara Der Hovanesian
BusinessWeek, June 26, 2008, 5:00PM EST