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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (38194)8/9/2005 12:33:26 PM
From: mishedlo  Read Replies (5) of 110194
 
I am sure we will not remain unscathed. Everyone will be hit by this. It is a question of degree is it not. For example some Florida condos may drop 60%. Would you agree with that figure? Perhaps home prices in California drop 50? I am tossing out numbers here looking for guidance. Can florida condos drop 80% and CA homes 60%? Perhaps so. If that happens we will be 100% into full blown deflationary depression unless it is spaced out over the next 12 years like Japan. What about condos in Chicago? a 40% drop? Homes in Chicago a 30% drop? Home in the suburbs a 20% drop? Exactly how bad does it get?

The worse bad you think it gets the higher the odds of a deflationary depression or the longer we dwiddle down. The bankruptcy "reform" act may come into play keeping people owning their soul to the company store on deflated assets, perhaps assets they no longer even live in! That is one argument for a long stretched out Japanese style deflation as opposed to an immediate plunge into a black hole.

Now assuming a more moderate drop in the non-bubble or less bubble areas, what would a 20% drop do to me? My monthly payment (granted a minimum payment) is about $800 (but we throw an extra grand at it every month). I could not rent a 3400 sq ft house not counting a finished basement, on a full acre lot in a fantastic school district, with 20+ 200 yr old oak tress on it. Of course we could cash out and sit in cash. I do not know what I would do with that. Where would I invest it and how long would I be miserable living somewhere else while waiting for "the crash".

Everyone has their own answer but I am trying to suggest
1) figuring out a likely range of % drops
2) availability to rent a comperable house in the area
3) ability to move
4) knowing what one would do with the cash if one cashed out (obviously I would put it into something like 5 yr treasuries or a treasury ladder).
5) happiness/unhappiness in giving up the current house
6) How much PERSONAL devastion would a moderate decline of say 20% cause.

In my way of thinking there are far more houses for rent in California than here and there is a far bigger liklihood of an out an out crash there as well. Point 6 might be critical as well. It will wipe a lot of people completly out. For anyone in that situation, it might be the deciding factor since many areas I expect to fall far more than that.

Now two questions
1) What is wrong with what I am suggesting?
2) How big a decline do you think we see and in what areas? Perhaps Mish is an optimist.

Mish
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