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To: Andrew G. who wrote (82067)	3/18/2001 5:18:48 PM
From: chic_hearne	1 Recommendation Read Replies (6) \| Respond to of 436258

Andrew, real estate will be one of the last to go in my opinion, and may be the toughest thing to time. As rates go down, you can afford more "house". But if supply is finite, this leads to inflation in prices. So a house with a $2K a month mortgage went for $225K a year and a half ago, but the same payment may get you a $300K or more house in a short time. For real estate to deflate, the first thing that will have to happen is the supply/demand situation will have to implode. On the supply side, TL & EV should start to take out those living above their means soon. Also, if and when unemployment becomes a factor some will find themselves being forclosed on. As real estate has been inflating the last decade, many believed now was the time to buy because prices were going up. It will be the same on the downside, but likely in much more dramatic fashion. When you combine deflating real estate with an economy in disarray, I would expect those able to buy will see the advantage of waiting 6-12 months to get a better price. It's also hard to imagine that there will be a hell of a lot of people with credit worthy of a mortgage. This should produce the absense of buyers. The best indicators to follow would probably be inventory turnover in days and supply of houses for sale. The percentage of loan applications approved would also be useful, if such a thing exists. We all know there is some serious denial in banking land. For years they have tried to talk people into believing they can afford a certain payment a month while putting virtually zero down (this payment is what the bank deems is the maximum you can pay, and they won't loan you a dime more). When the defaults come, the banksters are going to find themselves forclosing on properties which cannot be sold at a value high enough to pay off the balance of the loan. Even if they do get their money, it will be a major headache for them to deal with. As underperforming loans increase, I would be very surprised if the banksters continue to be so free-wheeling with loans. This may be the end of zero or only a few percent down. This may also be the end of them loaning to people in questionable situations. At a minimum, I would at least expect the banksters to cut back on what they think a person can afford to protect their own interests against future defaults. This may mean someone that could get a $2K a month mortgage a year ago can only get $1.5K a month as/after the bubble starts to blow up. It's a bubble like any other and will have to pay its due. An interesting thing about human psychology is that people will go to extreme lengths to protect their house. This may mean racking up thousands and thousands in credit card debt for food, gas, etc so enough cash is left to make the mortgage payment with the thought in mind that things will improve and work themselves out. For this reason, I expect the real estate bubble to go for as long as it's possibly able to. I can imagine many ways this could play out. As loans start to blow up it's hard to imagine the banksters all sitting around with their thumbs up their butts. You'd think at least a bank here or a bank there would see the grim situation ahead and go on the offensive Machiavellian style. They know which loans are at risk. If I was in charge of loans, I would start calling out loans in what I believe to be at risk geographies (for serious deflation) on properties with little down. I would also be very skeptical of new applicants and only approve low risk loans. These are just a few of the things that could turn the supply/demand upside down in a hurry. chic