3 steps to a housing crash

Somebody told me today that it’s time to buy a home soon because the next housing bubble is right around the corner. Oh dears…

My sources from Wall Street are saying that we got at least 5 years to go before any significant recovery of real estate can even be considered. First time buyers, making up for nearly 30% of the buyer’s market, have been priced out and a major correction throughout the U.S. is inevitable. Even public builders like KB Homes are starting to realize what this market needs: AFFORDABLE HOUSING.

Another article from USA Today is full of quotes that can be used to highlight the housing crisis we are facing.

While there’s still a plentiful pipeline of home buyers looking to make a deal, finding one willing to make a split-second decision to buy and pay whatever it takes to get in the door is no longer a lock, real estate agents say.

This one applies to Arcadia:

Part of the problem, Baker says, is that today’s sellers are pricing their homes based on what comparable homes went for six months ago and tacking on an extra 10%. That formula, he says, is too aggressive.

Bubble theory proponents say it will end badly, with sharp price declines and intense financial pain like that investors suffered after the tech stock bubble burst in 2000. But for that to occur, it would take a dramatic rise in interest rates or a major shock to local economies resulting in steep job losses,

Let’s see – It would take 3 things for the market to crash:

  1. Rise in interest rates
  2. Shock to the economy
  3. Leading to… steep job losses

This article on MarketWatch covers all 3 scenarios:

  1. Wall Street is betting 2 to 1 that Feds will increase rates.
  2. Today, oil made its largest one-day jump ever to $139/barrel.
  3. The unemployment rate is reporting its largest increase since 1975.

I am normally a very optimistic person but there is nothing to convince me that this housing and credit crisis is going to blow over anytime soon.

Here’s to a happy weekend to all you readers.


5 thoughts on “3 steps to a housing crash”

  1. And don’t forget about the peak of Alt-A reset is coming up in April 2009. This will put another wave of foreclosure to the already flooded inventories.

  2. The Fed will have to raise interest rates otherwise oil prices (traded in dollars) is going to keep going higher and cause an economic collapse on its own. The aggressive interest rate cuts since August 2007 has dramatically devalued the U.S. dollar. The Feds had no choice but to lower the rates otherwise there would have been massive bank failures and run on the banks.

    House prices will continue to drop even more so as gas prices are eating away at household budgets.

  3. especially for those who spend lots of commuting time on the road.

    Anecdotal evidence – asked a co-worker to join me for lunch at this noodle place about 10 miles away each direction. He declined and commented that he can’t afford to spend well over $10 on gas for a $6 bowl of noodle. I didn’t realize that he bought a F250 truck.

  4. It now cost $60 to fill up my 4 cylinder gas-saving “economy car”. I commute to and from downtown LA and even the short 40-mile round trip is creating a dent in my budget.

    I am just a renter so I can’t imagine how life is for those who purchased a home they could barely afford. Like llking said, the Alt-A resets will start forcing people out of their homes because they literally can’t pay the mortgage anymore. A weak economy, declining RE values and the high cost of oil and commodities are problems that will take years to recover from.

  5. Even if oil prices come down to 100/bbl that still means near 4$ gas.

    EVERYTHING is going up, wait til the utilities get their rate increases. Fed will buckle and raise rates before year end. Home prices still have at least 25-30% to come down. Why?

    Because most people cannot get a standard loan. You know, with verifiable income, job, assets and of course a 20% down! This alone will drive prices down a lot more than where we are now.

    The demand is there but the financing is not and will not be for a very long time, years.

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