I am well aware of the supply-demand factor
no new land being produced
I think you underestimate the vulnerability of the demand side for real estate
I witnessed a big bust from 1987-1992 in RE
population was growing
no new land produced
job losses and insecurity have a powerful impact on demand
I expect that to exceed the rising mortgage rate effect
so many parallels can be brought to the table between Naz tech stocks in the 1999 timeframe, and real estate now
back then demand was seen as permanent
benefits of technology were seen as pervasive
high valuations were seen as worth the cost for momentum reasons
credit was easy on margin
new issuances were gobbled up greedily
as for supply, new home builders build until they saturate
they have always done so
the erosion in demand has been widespread across the country since last summer, a full year now
it works its way down
surveyors are now easily lined up
games are being played on qualification for loans, appraisals
all the pieces are in place
I dont think a 7% mortgage rate will be viewed as horrible, compared to a 6% now
but jobs are the issue now
I know a couple people who are highly skilled and have given up looking for a job
my best friend in college is facing a 20% worker reduction voluntary severance offer at his large insurance firm
when safe places like insurance firms cut jobs, look out
bear in mind a funny little statistic
job losses are hard to monitor well
the most reliable stat is "first-time unemplmt applications"
the continuing applications get lost in cracks
but not the first-timers
every recession since WW2 has seen a spike in first-timers, with a complete comedown in that spike, once it came down much at all
a big spike and retreat (just like NazComp chart)
but not this time
in 2001, we had a comedown, then a rise to higher levels of first-timer unemployment applications
this is a key signal to the DoubleDip Recession currently dismissed by the so-called Experts nimrods
everyone needs a home
this is another pithy shallow reasoning for continued demand
many can and will sell then rent
many will even choose to double up with others in homes
some will return temporarily during the storm with parents
industry is not the only place where overcapacity exists
it also exists in residential dwellings
e.g. empty nests with aging parents in 4-bedroom homes
the supply side isa real argument
residential requirements, zoning, water restrictions, septic system perk limits, on and on
it cuts into supply
homebuilders will ensure an oversupply
they always do, they know no other way
what cracks we see in the highend will work down to the upper middle class
esp when more white collar jobs are lost
I hear you though, KHMan
mitigation will come
at lower prices
no recession has ever seen a recovery without the automobile and housing markets seeing at least a 10-15% cutback in employment or prices respectively
we have plenty of bullshit "new era" drivel defending RE now
it wont wash, my man
I leave you with a key fundamental point
we are witnessing a debt liquidation well underway now
it moves from one asset group to the next
it moves relentlessly and unforgivingly
you forget that real estate is underpinned by debt
and that debt has been extended without limit to equity lines of credit
this will become the greatest debt liquidation process ever seen in the history of our nation
/ jim |
