Thursday, June 08, 2006

Attempting a Soft Landing at High Speeds

As you have probably noticed, Blogger has been having some serious problems the last couple of days. I haven't been able to post and you haven't been able to leave comments or even view the blog at times. Sorry about that. It just goes to show that not all things Google are golden.

But wow! The last few days have been rather interesting. Unlike his predecessor, Ben Bernanke is proving himself to be one who speaks his mind when asked what he thinks. He's clearly worried about inflation and Wall Street has reacted with nothing but sell-offs this week; the DOW is down nearly 500 points and is now well below the 11,000 mark. I've heard it said that the housing equities markets are leading indicators for the housing market itself; if so, there is no so-called "soft landing" in sight as real estate building stocks have lost up to half of their value over the last two or three months. David Lereah, chief economist for the National Association of Realtors, is clearly worried (despite all of his cheerleading and spin) and knows full well how vulnerable the various bubble housing markets are to interest rate hikes and has essentially begged the Fed to stop raising rates. Yeah, sure, like the Fed is really going to stand for the complete transformation of our economy to one based on real estate. Sorry folks, but the strength of the dollar takes precedence and you real estate agents had better start looking for other work; go find the next get-rich-quick scheme and if worse comes to worse I hear WalMart and fast food joints are hiring and they don't require much in the way of qualifications either.

And don't forget that the Fed has previously warned us not to expect a bail-out.

This article sums things up pretty well:
Ouch. It's getting harder and harder for real estate agents to put a happy face on the market. Sales are slowing, prices are falling, and the backlog of unsold homes is rising fast. And now it's suddenly looking like the Federal Reserve will raise interest rates again.

Bernanke's gladiator-like aggressiveness on inflation is producing scowls at the National Association of Realtors, which worries that higher mortgage rates will make the housing market even softer. The group put out a public statement on the issue this week, in which David Lereah, the Realtors' chief economist, said: "This is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable."

...it's clear that the Realtors' association isn't happy with the way things are unfolding. It predicts that existing-home sales will drop 6.8% this year, to 6.6 million, while new-home sales will tumble 13.4%, to 1.11 million.

"So Mr. Bernanke is 'monitoring,' all right," Rosenberg [Merrill Lynch's chief North American economist] wrote in a report on June 7. "He's monitoring the collapse of the housing market, and by the sounds of it he wants to reinforce the bear market already under way."

[Real estate stocks] have lost anywhere from one-third to more than a half of their stock market values. In a note to clients, A.G. Edwards & Sons wrote, "If it is not already painfully apparent, the soft-landing thesis for the homebuilding industry is dead."

...DeKaser points out that the market still hasn't fully adjusted to the rate hikes that have already occurred. In fact, he says, according to an analysis that he plans to release next week, some of the most overvalued markets are continuing to see some big increases in prices. That's setting them up for an even bigger fall to come, he says.

What goes up must come down. One housing bear, Ian Shepherdson, chief U.S. economist for High-Frequency Economics in Valhalla, N.Y., wrote June 6: "Ultimately, we expect the level of home sales to head down to, or even below, the long-term trend. When bubbles burst, they usually burst properly. Gentle deflations are rare."

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