There is no bottom for housing. . . at least not near term.
But there is somewhat of a silver lining.
You see, when it comes to an "improving" housing market, you can just about ignore the mainstream press and Wall Street hot shots who would have you believing in a bottom or the illusion of strength.
Jim Cramer, who has constantly called for housing bottoms since the market topped out in 2005 and continues to declare that "Housing Has Officially Bottomed," should be ignored. Heck, his August 2008 prediction of a Q3 2009 bottom is still laughable.
Alan Greenspan is wrong, too… having alerted us that the decline in the U.S. housing market "may be bottoming" and that it’s "very easy to see" financial markets continuing to improve.
But what they fail to see is the very thing Brian Hicks, publisher of Wealth Daily, mentioned this week: "The U.S. economy can’t bottom until banks and financials bottom. . . and banks and financials can’t bottom until housing prices bottom." And with home prices expected to fall another 14%, according to Deutsche, recovery is a ways off.
Worse, according to Steve Christ this week, 22% of all Americans are underwater on their mortgages. And, "according to Fitch, home prices will fall an additional 12.5% nationally and 36% in California, with home prices not exhibiting stability until the second half of 2010. . ."But 2010 may be a bit too optimistic, in my opinion. Resets don’t level off until September 2012, at best.
Tell me, where’s the economic recovery going to come from, as ARMs reset over the next 24 months, and higher unemployment results in surging prime mortgage defaults? The only things we’ll see more of are foreclosures and declining home values. And that doesn’t sound like bottoming to me.Just as we’ve been warning, the next phase of the real estate disaster is upon us. It’s only shifted from subprime, to Alt-A, to prime. And with many economists predicting unemployment will rise into the double digits from 8.9%, foreclosures will only accelerate, which will add to bank losses, which will add pressure to the financial system and broader economy.
"Things have gotten so bad in the housing market that the S&P has lowered its ratings on 102 classes from 33 U.S. prime jumbo residential mortgage-backed securities issued from 1998 to 2004. That’s notable because these securities were previously thought to be safe, due to when they originated," said Steve.
But as I said, there is a silver lining. It’ll take some patience, though, as it’s about three to four years off.
But as soon as resets begin to level off, then we can call that housing bottom. Any predictions from the Street before that are just guesses. Patience, though, will be rewarded.
Ian L. Cooper
P.S. In case you missed any of our other top stories of the week, we’ve added them here:
The U.S. Housing Market: Lower Prices Accelerate the Downward Spiral
Unfortunately for the green shoots crowd, the trend in residential real estate continues its downward spiral.
"Indeflation" and "Compartflation": Have We Reached an Inflection Point in Economics History?
A fierce debate now rages among economists, investors, pundits, and the puppetmasters of fiscal policy: What’s next, inflation or deflation?
Why Hasn’t This Market Already Exploded:Government’s last-ditch efforts to prop up this domino are all doomed to fail.
First there was housing… then the banks. And after that it was the automakers that came crashing down. Next up is a Commercial Real Estate Crash.
The Outlook for Precious Metals Mining Stocks: Waiting for the Next Big Wave in Precious Metals Mining Stocks
The market is building a foundation for the next major wave in both the precious metals and junior mining stocks.
Detroit Fuel Economy: The Value of Detroit Fuel Economy
According to a new University of Michigan report, a successful turnaround for Detroit automakers could hinge on a rapid cultural transformation. What does that mean, exactly?
Credit Card Companies Say "Let’s Make a Deal!": Tough Times For Lenders
As my old pal Ian Cooper has been writing about for some time, credit card companies now have one foot on the edge of the abyss and the other on a banana peel.
Prechter: U.S. to Lose AAA Rating: Analyst Sees Another Leg Down
On Monday, Technical analyst Robert Prechter said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.
Foreclosures Were Bad Last Year?: It’s Going to Get Worse
It’s not just subprime and Alt-A that we have to worry about any more. It’s prime, too.