Tuesday, August 25, 2009

Real Estate Markets Still Heading for Greater Disaster

Here's a copy of a message I sent today to CNBC's Real Estate Reporter Diana Olick:

Dear Diana,

I enjoy reading your articles and I like your realistic approach to evaluating the housing market’s current state but, since I’m not a TV pundit, newspaper editorialist or on-line economic news show celebrity, I can tell you the straight story and not have to worry about being proven wrong (an unlikely scenario at this point) in my assessment.

The housing market will continue its catastrophic decline over the next several years for many reasons:

Foreclosures, both residential and commercial will continue to increase dramatically over the next 18 months as bad adjustable rate mortgages continue to reset, huge bond debt matures, real estate values, residential and commercial continue to plummet, owners walk away including the prime borrowers and the economy as a whole continues it downward spiral driven by lower industrial output, increasing unemployment rates, little or no credit availability and a worsening consumer spending pullback. (I’m not even including the real likelihood of seeing mad speculators (the usual suspects) driving up the prices for oil and gas in the near future to levels that guarantee another deep worldwide recession will follow)

Higher unemployment rates, the real rates, not the ones published by our government, will continue to increase resulting in higher default rates on loans of all kinds across the board. As more residences are foreclosed on and commercial debt defaults, hundreds of banks will be unable to shoulder the enormous write downs this will cause requiring perhaps more government intervention. Property prices will continue to plunge as the government’s first time home buyer program expires with the resulting effect that sales numbers will also resume their downward spiral as banks tighten standards even more and potential borrowers hoard their cash. Who wants to own when it will be much more cost effective to rent??? Prime borrowers are just now starting to walk away from their underwater home mortgages. The worst is yet to come.

Existing homes will rent well for a while as rental prices also go lower until those home values go upside down and over leveraged apartment properties also head for foreclosure. This is not your typical once in a decade recession, it’s the new great depression cushioned by an enormous infusion of government funded temporary stimulus cash (which was absolutely necessary initially to avoid a total and lightning quick planet wide economic meltdown) which once exhausted will reveal the true depth of this catastrophic economic event that will take decades to fully recover from (after we live through a period of post new great depression hyper inflation).

During the period of hyperinflation, the housing market will remain stagnant at its lowest level in centuries as adjusted for our current times. It doesn’t look good and all I had to do to come to this conclusion was use my common sense and an educated guess (the former of which the pundits all lack).


Cave Creek, AZ

What do you think?

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