The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: patron_anejo_por_favor who started this subject	2/26/2003 1:11:27 PM
From: ild	Read Replies (1) of 306849

Date: Fri Feb 21 2003 12:27 trotsky (Bizarro@housing bubble) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved imo the underlying mortgage credit bubble is not far away from the inevitable collapse. defaults have already accelerated to their highest percentage of outstanding credit ever, and that's in spite of FNM et al. constantly changing the rules in order to avoid having to report the TRUE levels of delinquency. the huge growth spurt in GSE assets over the past 5 years has imo been entirely built on the sand of sub-prime borrowers. this thing is going to blow up like an M33 grenade eventually. the real estate cycle works similar to other financial cycles, insofar that certain subsectors of it tend to blow up first. in this case, commercial property, the implosion of which can only be likened to that of the 30's depression at this point. Equity Office Properties e.g. reports 40% vacancies now. the bubble purveyors continue to insist that there's a 'shortage' of residential dwellings. you'll remember the "DRAM shortage" of 1999 - once a bubble is justified by cries of shortage, the end is usually near. the developers are all bulding furiously, misled by the disastrous Fed interest rate policies, which have created the impression that demand will forever continue to expand at current levels ( the essence of malinvestment is that entrepreneurs are misled by the central bank's policies ) . the housing market meanwhile is clearly saturated...70% of US households now pretend to own a home of their own. thus the credit bubble can only live on via continued inflation, which is stoked by the Fed's rate policies and the abandonment of any credit standards that might have existed a few years back. note also the proliferation of mortgage REITs who all borrow short in the repo market to buy GSE bonds ( this amounts to printing your own money at the moment ) - essentially a class of parasites who think they have discovered the perpetuum mobile, a.k.a. the 'free lunch'. it's a precarious interaction between a reckless monetary policy and equally reckless speculation. it will end in tears - buckets full of tears.

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