If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring...The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row.Think about that for a second.
For the second consecutive month, there was not one house in America that sold above the price of $750k. Not. A single. One. And guess what? It gets worse.
Only 1,000 units priced above 500,000 moved last month. That’s it! Over 80% of the homes that the builders managed to sell were priced for under $300,000. Just another sign of how this remains a full-fledged buyers’ market — at least for the ones that can either afford to put down a downpayment or are creditworthy enough to secure a mortgage loan (keeping in mind that 25% of the household sector does have a sub-600 FICO score).What happens to our economy if we take another $6 trillion out of circulation to pay off the housing bubble? Another 6 trillion hit on top of the disaster we're already in?
Remember that this is a July data point and we know that the NAHB housing market index, which has an historic 83% correlation with new home sales, dipped for the third month in a row in August, to 13 from 14 in July. So it’s not even safe to say that we have hit rock bottom. Moreover, when you look at the trendline in total home sales, it is plain to see what has happened from the impact of the now-expired housing tax credits — the subsidy did little more than distort the pattern of housing demand and actually pulled forward well in excess of a million units of consumption, at the expense of future growth. What does this mean? That demand will remain anemic and likely hit even new lower lows in coming months and quarters as we enter into the “payback time” phase.
This is going to sound like a broken record but it took a decade of parabolic credit growth to get the U.S. economy into this deleveraging mess and there is clearly no painless “quick fix” towards bringing household debt into historical realignment with the level of assets and income to support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to be extinguished, either by paying it down or by walking away from it (or having it socialized).
Do you see what I mean, now? We're down to Helicopter Ben's Magic Printing Press. It's coming. The only question is how. Inflation, deflation, hyper-inflation. We're working through the deflation now and we're almost done with that phase.
It's that last one that will kill us.
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1 comment:
This is the result of corporations feasting off the debt of the middle class (god, would you listen to me sound as shrill as Dean Baker or something). But seriously, taking all of the productivity gains made by workers desperately trying to keep their jobs and tossing them into the profits pit or CEO compensation eventually means that the little guy runs out of cash.
I would hope this would cause corporations to seriously rethink how they allocate resources, and value minute (and fleeting) stock valuations less and long term growth more. Doubt it will happen til after we watch Brazil, China and Germany leave us hanging in their highly employment dust.
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