On Tuesday, Deutsche Bank threw a bucket of ice cold water on the "green shoots" believers that the US economy was recovering or near a bottom.
Deutsche’s argument, in my opinion, is irrefutable:
Without a bottom in housing, there can be no recovery.
It goes like this. . . The US economy can’t bottom until banks and financials bottom (start lending to fuel consumption). . . and banks and financials can’t bottom until housing prices bottom.
According to Deutsche, U.S. home prices may fall another 14 percent, led by the New York and Orange County, California, metropolitan areas, before reaching a bottom as an increase in unemployment offsets lower prices.
"Affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices reach their trough," Deutsche Bank analysts led by Karen Weaver, wrote in a report yesterday. "The bottom is getting closer, but we are not there yet."
Home prices are forecast to fall 41.7% from their peak, Weaver said. That’s higher than a forecast she released in March and reflects "the actual declines to date and the expected future impact on home prices from rising foreclosure inventory and unemployment."
I think Weaver has it a little wrong.
Here at Wealth Daily, our analysts believe home prices will overshoot on the downside just like it did on the upside.
Think about it.
In order for home prices to go up or to just bottom, there has to be a supply of home buyers that outpaces the available supply of homes.
We’re talking about buyers who are employed.
Forty percent of jobs created between 2001 and 2006 were housing related. Whether it was construction, lumberjacks, truck drivers transporting building materials, engineers, real estate agents, mortgage brokers, the construction of Lowe’s and Home Depots. . . US unemployment was nil during the housing boom.
That was then. . . this is now.
Most economists now believe that unemployment will hit at least 10%. . . with some suggesting 12% and higher.
Couple that with the fact the US consumer is up to his eyeballs in debt, and what you get is a perfect storm for a destructive downturn that has only begun.
Seriously, let me ask you this: If 70% of the US economy is consumption. . . and the US consumer has no room to consume anymore, where does the economic rebound occur?
Government spending?
But Obama. . . for all his business brilliance. . . cannot buy every single home on the market.
So. . . we wouldn’t be surprised to see home prices decline anywhere from 50 to 66 percent from their peak.
In fact, we could be looking at a decades-long bear market in housing as the baby boomer generation try to sell their McMansions to downsize into condos, retirement communities or out of the States altogether.
Profitably yours,
Brian Hicks
Publisher, Wealth Daily
P.S. I’m sure you’re aware of the storm brewing in commercial real estate. Here’s what James Koury, a senior VP in the Boston real estate firm Jones Lang LaSalle, has to say about it…
"We’re at the front edge of this… This is a few drops we’re just feeling on our forehead of what’s going to be a hurricane."
Make no mistake—We’re staring at what could be a catastrophic drop in commercial real estate with damages of more than $1 trillion.
Still, the bust in commercial real estate is also an incredible profit opportunity for Wealth Daily readers. That’s because my colleague, Steve Christ (who came to us after 10-plus years in the mortgage industry), has just put together a new report that can help you position yourself to receive large payouts while the commercial real estate market nosedives. You can read Steve’s new report right here. But don’t waste any time. Steve thinks it’s going to pay off in a huge way over the next several months.
