Housing: 2007 Thread.

[Vic]

Originally posted by: LegendKiller
And I am sick of your "Boom was justified because of better home ownership, everything will be OK in the end".

And I've never once made that argument, so I don't see why I bother discussing this issue with if you're going to lie.
My argument has always been that the boom was the result of inflation, pure and simple. For more than 2 decades, home values were relatively low because rates were high and lending guidelines strict. As rates gradually declined beginning in the early 90s, values came up. As values came up, lenders faced reduced risk in an improving market (further helped by the advent of MBS's -- Fannie, Freddie, etc. pooling mortgage securities on a nationwide scale). As time progressed, the situation fed itself. Eventually, it rose to a fever pitch of "You can't lose with real estate!" which should have been a sobering wake-up call to everyone but alas, and now some markets will correct back to that point, while others will continue to appreciate at their usual pace.
And speaking of the Fed, that's how they will deal with this issue, just like they deal with every other. They'll throw money at it until it inflates away. Think Dave's "Drive for Five" nonsense. Of course, gas will someday be $5/gal. Just like the average worker will someday make six-figures. That's how inflation works. And it is inevitable under our current economic system (which is NOT capitalism BTW).

This isn't subjective and speculative. That's YOUR argument. I'm talking about what did happen and what will happen.

 

[Vic]

Originally posted by: Slew Foot
CA is 10% of the US population and, I dunno, roughly 15-20% of US GDP. What starts in CA, affects the entire US.

So how come the rest of the US wasn't affected when CA had a 20% decline in home values in the early 90s?

 

[dullard]

It looks like the NAR (historically highly optomistic on prices since if they can get people to think prices are high, they get more commission) is finally jumping fully onto the house price decline bandwagon. Link. Just like anyone else who makes money directly or indirectly based on the number of housing sales or the price of those sales, the NAR estimates should be looked at skeptically. It is nice to finally see them reducing their bias.

[*]NAR 2007 price forecast: +1.2%, estimated in March.
[*]NAR 2007 price forecast: -0.7%, estimated in April.
[*]NAR 2007 price forecast: -2.3%, estimated in June.

Finally a solid, but small estimated price decline. That seems to best match reality. Prices won't plummet like they went off a cliff. But they won't raise either, their estimate in March was so laughable.

 

[LegendKiller]

Originally posted by: Vic

Originally posted by: Slew Foot
CA is 10% of the US population and, I dunno, roughly 15-20% of US GDP. What starts in CA, affects the entire US.

So how come the rest of the US wasn't affected when CA had a 20% decline in home values in the early 90s?

I seem to recall a recession that won Clinton the election. Not to mention that the decline was set off by an earthquake, not really by uber-appreciation. There was some over-appreciation, but there was also a depression of prices due to the natural disaster. It was felt by the rest of the country, but not nearly as bad.

Now you have CA going down hard and the rest of the country also going down.

 

[HomeAppraiser]

Exotic mortgages are still out there. In addition to the usual seller paid closing costs and down payment up to 6% of the purchase price, we just saw a deal where the seller paid the lender to ?buy down? borrowers the interest rate by 4% over five years on an adjustable rate mortgage for a rental house purchase loan. The buyer was betting that the rents will cover the payments plus up keep and that the market will appreciate enough in 5 years for a refinance at a lower rate AND that rents will increase to cover expenses.

To accommodate all of this seller goodwill the buyer was willing to pay 15% more than the sale price of an identical home that closed the month before! How can the buyer expect market appreciation to bail him out of his ARM when he starts off so deep in the hole? Our appraised value was the same as the model match and current listings are within a few thousand.

The loan processor was screaming her head off about losing the deal and sent my appraisal ?upstairs? for review. The next day I got a call from the parent lenders loss prevention department. The guy thanked me for stopping the fraud with my honest appraisal. He said that the Realtor, an out of town Carlton Sheets type, was already on their radar as a perpetrator of mortgage fraud, but they weren?t aware of this deal until they got my appraisal.

We also had several fraud flippers try to get their buyers in to 80% loans by adding 20% seller carry second mortgages with interest only payments and a five year balloon. So that 20% isn?t actually lent, it is just a debt against the buyer who will be at the mercy of the seller if they can?t refi for a lower payment in five years. Not that the seller cares since he already made 30% to 50% net on the flip!

Well enough ranting for now. Discuss amongst yourselves.

 

[HomeAppraiser]

Way to go OHIO!

 

[rhatsaruck]

Who's Most at Risk for Foreclosure?:

...detailed report by Christopher Cagan, director of research and analytics for First American CoreLogic. Cagan's study focuses on 8.4 million ARMs that were originated in 2004, 2005 and 2006. About 1.1 million of those borrowers will lose their homes in the next six to seven years because of payment shock brought on by rate resets or loan recasting, Cagan estimates.

Cagan assumes that property values will remain relatively flat from their December 2006 levels. If house prices fall -- and in many markets, they already have fallen since the start of the year -- foreclosures will be higher than his estimates. ... Each 1% rise or drop in house prices will translate into a decrease or increase of roughly 70,000 in foreclosures.

Assuming housing prices remain relatively flat? Which planet is that?

 

[dullard]

Originally posted by: HomeAppraiser
Way to go OHIO!

:thumbsup: Yes, way to go!

As a consumer I was very, very disappointed to see how appraisals were done for me and my friends. All I have seen is appraisers sending back the exact offer amount to the penny. Gee, that was a whole waste of money. Hundreds of dollars spent for no new information.

Yes, appraisals are difficult to determine and have a large subjective margin of error. But, at least the appraisal number should be a reasonable guide for the value of a home. I don't need another yes man. I already have bankers and real estate people acting as yes men saying the deal should go through. I need a second line of defense who is willing to say no.

For my hundreds of dollars, I want to know if the house is over or under valued. I want to know an experts opinion on how much he/she thinks an offer should be. I'd be damn pleased if the appraisal came back LOWER than the offer amount and the deal fell through. That means I was saved from losing thousands of dollars on a bad deal. I'd also be damn pleased if the appraisal came back HIGHER than the offer amount (it means I got a good deal).

1) The appraiser should NEVER know what the asking price nor what the offer price are on a house.

2) The appraiser should not be prodded into coming up with a specific number.

3) The appraiser should give a confidence range. Example: the house is worth $170,000 +- $5,000.

4) The appraiser should work first and foremost for the ultimate client (the buyer) and NOT the bank.

 

[GrGr]

Ratio of Mortgage Debt to Housing Value Hits New Record

By Dean Baker link

June 7, 2007

The quarterly Flow of Funds data from the Federal Reserve Board show that homeowners are still taking on mortgage debt at a healthy pace even as their homes have largely stopped appreciating in value. Homeowners increased their mortgage debt at a 5.4 percent annual rate in the first quarter, adding debt at an annual rate of $510 billion. This is rate of borrowing is down from the 9.3 percent growth rate in 2006, but it is considerably more rapid than the 2.0 percent rate of house appreciation reported for the first quarter.

As a result, the ratio of equity to home value continued to fall. At the end of the first quarter of 2007, the ratio of equity to home value stood at 52.7 percent, another record low. This ratio stood at 54.3 percent at the end of 2005. It had been at 57.9 percent as recently as 2000, and was close to 70 percent until the nineties. This drop in the ratio of equity to value is especially disconcerting given the country's demographics. With much of the baby boom cohort at the edge of retirement, it would be expected that the ratio of equity to value would be near record highs.

There is reason to believe that the ratio of equity to value will continue to decline for the foreseeable future. The inventory of unsold new and existing homes both stand at record highs. The 4,200,000 stock of unsold existing homes is more than a year's supply at the pre-bubble sales rates of the mid-nineties. Furthermore, the surge in foreclosures ensures that a large additional supply will be entering the market well into 2008. This will put substantial downward pressure on prices, which are already falling in many areas. With slowing productivity growth and rising material prices putting upward pressure on inflation, mortgage rates are also moving higher, which is yet another negative for the housing market.

Falling house prices are likely already curtailing many homeowners' ability to borrow, which undoubtedly explains the slower pace of borrowing in the first quarter of 2007. Tighter lending standards in all segments of the mortgage market, but especially the sub-prime market, are also likely having an impact on borrowing. However, this effect will be felt more in later quarters, since this process just began in the first quarter.

Even with a slower rate of borrowing it is virtually certain that the ratio of equity to value will continue to decline, primarily because of weak house prices. With even a modest drop in house prices, the ratio of equity to value is likely fall below 50 percent for the first time ever before the end of 2008 and quite possibly before the end of 2007.

Among the other interesting items in the first quarter Flow of Funds data, state and local government retirement funds continued to accumulate assets at a very modest pace. Net acquisitions of financial assets were just $8.2 billion in the first quarter, which is almost identical to the $33.9 billion rate of acquisition for 2006. By comparison, the federal government plan, which covers many fewer workers, increased its financial assets by $43.6 billion and $201.0 billion in first quarter and 2006, respectively. This suggests that many state and local government pension plans may not be adding sufficient reserves at present. If the economy turns down and government budgets become strained in future years, then they may have lost an important opportunity to shore up these funds.

The continuing drop in the ratio of home equity to value shown in this report implies both serious short-term and long-term problems for the economy. The short-term problem is that the home equity financed consumption boom, which has supported the economy since the recession is likely to be coming to an end. The long-term problem is that tens of millions of baby boomers are approaching retirement with relatively little equity in their homes and almost no assets outside of their homes. Their retirement income will be almost entirely dependent on Social Security.

How long can this game of accumulating debt against the shrinking value of homes go on?

 

[HomeAppraiser]

Originally posted by: dullard

Originally posted by: HomeAppraiser
Way to go OHIO!

:thumbsup:

1) The appraiser should NEVER know what the asking price nor what the offer price are on a house.

2) The appraiser should not be prodded into coming up with a specific number.

3) The appraiser should give a confidence range. Example: the house is worth $170,000 +- $5,000.

4) The appraiser should work first and foremost for the ultimate client (the buyer) and NOT the bank.

1) It used to be that way before the S&L bailout when the feds stepped in and set up new rules. Now appraisers are required to analyze the sales contract for a purchase appraisal. Some lenders DO send refinance orders without an estimated value or loan amount, which is nice.

2) They are going to have to fine some lenders, Realtors, buyers and sellers to get that to happen.

3) Sounds good to me but the banks will never go for it. They want a single number to work with, so if the sales price is within that confidence range most appraisers just agree with that number.

4) Again after the S&L bailout Federal law clarified that the lender was the client to avoid influence on the appraiser from the borrower.

 

[Vic]

Originally posted by: HomeAppraiser

Originally posted by: dullard

Originally posted by: HomeAppraiser
Way to go OHIO!

:thumbsup:

1) The appraiser should NEVER know what the asking price nor what the offer price are on a house.

2) The appraiser should not be prodded into coming up with a specific number.

3) The appraiser should give a confidence range. Example: the house is worth $170,000 +- $5,000.

4) The appraiser should work first and foremost for the ultimate client (the buyer) and NOT the bank.

1) It used to be that way before the S&L bailout when the feds stepped in and set up new rules. Now appraisers are required to analyze the sales contract for a purchase appraisal. Some lenders DO send refinance orders without an estimated value or loan amount, which is nice.

2) They are going to have to fine some lenders, Realtors, buyers and sellers to get that to happen.

3) Sounds good to me but the banks will never go for it. They want a single number to work with, so if the sales price is within that confidence range most appraisers just agree with that number.

4) Again after the S&L bailout Federal law clarified that the lender was the client to avoid influence on the appraiser from the borrower.

1) That's correct. USPAP and FIRREA are both the product of government intervention after the S&L bailout. Prior to that time, RE appraisers were almost completely unregulated. Lenders are REQUIRED to provide the appraiser with a copy of the sales contract along with the appraisal order. OTOH, lenders are forbidden from specifying an estimated value with an appraisal order for a refinance transaction.

2) See #1.

3) Lenders already operate from the premise of a +-5% confidence range. However, they need a specific value from which to work from, as regulations require precise guidelines for underwriting and pricing. If an independent review (desk or field) appraisal is required, the lender will accept the original appraisal provided the reviewer's opinion is within the confidence range.

4) And there was a damned good reason for that, wasn't there? Because it was discovered that buyer influence over the appraiser (as the client) is more likely to lead to inflated values than lender influence. I know that statement doesn't fit into the lenders-are-evil-buyers-are-victims mentality required for the doomsayers, but it's a simple fact. Hell, I've seen borrowers on rate-and-term refinance transactions, in cases where the appraised value had no effect on their loan terms beyond qualification, walk away from the closing table because they felt the appraiser came in at too low a value ("I won't sign anything that says my home is only worth that much). I've had homebuyers call me up to bitterly complain to me when the appraisal came in low because now there weren't going to be able to buy the house, even at an obviously inflated sales price.

 

[dullard]

The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

 

[Slew Foot]

Originally posted by: dullard
The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

Everything as I said it would happen. The majority of the 2005 suprimers are resetting right now, just as mortgage rates are rising. ALT-A begins to reset next year. Inventory at ridiculous levels and the builders continue to build and undercut the resellers. Unless there's some outside involvement, this is the tip of the iceberg.

 

[Vic]

Originally posted by: Slew Foot

Originally posted by: dullard
The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

Everything as I said it would happen. The majority of the 2005 suprimers are resetting right now, just as mortgage rates are rising. ALT-A begins to reset next year. Inventory at ridiculous levels and the builders continue to build and undercut the resellers. Unless there's some outside involvement, this is the tip of the iceberg.

Yep, millions of people suffering just so you can be proven right on the internet. All going according to your plan... You and LK are serious pieces of work.

BTW, I heard LB just posted a record quarter shorting MBS's.

:roll:

 

[Slew Foot]

Originally posted by: Vic

Originally posted by: Slew Foot

Originally posted by: dullard
The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

Everything as I said it would happen. The majority of the 2005 suprimers are resetting right now, just as mortgage rates are rising. ALT-A begins to reset next year. Inventory at ridiculous levels and the builders continue to build and undercut the resellers. Unless there's some outside involvement, this is the tip of the iceberg.

Yep, millions of people suffering just so you can be proven right on the internet. All going according to your plan... You and LK are serious pieces of work.

BTW, I heard LB just posted a record quarter shorting MBS's.

:roll:

I didn't have a hand in any of this. I just put two and two together and saw where things were heading, and guess what, I was right.

 

[LegendKiller]

Originally posted by: Vic

Originally posted by: Slew Foot

Originally posted by: dullard
The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

Everything as I said it would happen. The majority of the 2005 suprimers are resetting right now, just as mortgage rates are rising. ALT-A begins to reset next year. Inventory at ridiculous levels and the builders continue to build and undercut the resellers. Unless there's some outside involvement, this is the tip of the iceberg.

Yep, millions of people suffering just so you can be proven right on the internet. All going according to your plan... You and LK are serious pieces of work.

BTW, I heard LB just posted a record quarter shorting MBS's.

:roll:

Generally you don't short bonds, since it's too tricky to buy back the exact bond you purchased, or equiv (unlike stocks). Instead, you short credit default swaps, or even an index of cds' on several MBS issuances.

There is absolutely nothing wrong with it. It's just yet another price correcting mechanism. You seem to think that prices should stay high and nobody should take the inverse position of a losing position. Rationality and the belief of price imperfection have to be priced in somehow. If shorters lost, would you be bawling then? Why your asymmetrical position? Do you just have tears for stupid "investors" who "invested" in an over-priced asset, or are you just as fair to those who invested in an underpriced one when it was not the deal they thought? Sorry, but investing is a zero-sum game, you are either smart about it or you're not.

Millions of people suffering? Cry me a river. They took a shot, rolled the dice, and are now in trouble because they were too greedy or ignorant to know better. I only feel sorry for those guilty of fraud, the rest can rot in their depreciating assets. Buying into hype is the #1 no-no of investing, they bought and lost. Too bad for them.

I am sure you think I am some Gordon Gekko robber barron, but I'm not. I am a realist and I know that the vast majority of the people "suffering" got in when they thought they could make money. They refused to acknowledge that things were getting ridiculous. I know many of these fools and they are going down the tubes and yes, I do laugh, because I offered them advice and they claimed I was some sort of "doomsayer" as you called me.

Pfft, the joke's on them.

 

[Vic]

Originally posted by: Slew Foot

Originally posted by: Vic

Originally posted by: Slew Foot

Originally posted by: dullard
The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

Everything as I said it would happen. The majority of the 2005 suprimers are resetting right now, just as mortgage rates are rising. ALT-A begins to reset next year. Inventory at ridiculous levels and the builders continue to build and undercut the resellers. Unless there's some outside involvement, this is the tip of the iceberg.

Yep, millions of people suffering just so you can be proven right on the internet. All going according to your plan... You and LK are serious pieces of work.

BTW, I heard LB just posted a record quarter shorting MBS's.

:roll:

I didn't have a hand in any of this. I just put two and two together and saw where things were heading, and guess what, I was right.

You might be able to make that claim if it weren't for the fact that people have been predicting a housing bust for 10 years. So yeah, you did put "two and two together," along with a million others. Hell, I predicted in mid-2003 on this very forum that the housing bust would begin in 2006. And was ridiculed like hell for it at the time (in fact, I have a favorite quote from that time I like to be sarcastic about, from Engineer IIRC, my apologies if I'm wrong, that goes something like "You can't lose with real estate!"). And guess what, I was right too. Fancy that.
You're just a johnny-come-lately looking like an ass, predicting that the Titanic will sink after the bow has already gone under water, and then trying to take all the credit for it. What's your next prediction, braniac? That the sun will rise tomorrow? I'll try to remember to be properly awed for your ego's sake when it does...

 

[Slew Foot]

Originally posted by: Vic

Originally posted by: Slew Foot

Originally posted by: Vic

Originally posted by: Slew Foot

Originally posted by: dullard
The foreclosure rate just keeps on chugging. link. Hopefully, it stops increasing and returns back to low levels ASAP.

Everything as I said it would happen. The majority of the 2005 suprimers are resetting right now, just as mortgage rates are rising. ALT-A begins to reset next year. Inventory at ridiculous levels and the builders continue to build and undercut the resellers. Unless there's some outside involvement, this is the tip of the iceberg.

Yep, millions of people suffering just so you can be proven right on the internet. All going according to your plan... You and LK are serious pieces of work.

BTW, I heard LB just posted a record quarter shorting MBS's.

:roll:

I didn't have a hand in any of this. I just put two and two together and saw where things were heading, and guess what, I was right.

You might be able to make that claim if it weren't for the fact that people have been predicting a housing bust for 10 years. So yeah, you did put "two and two together," along with a million others. Hell, I predicted in mid-2003 on this very forum that the housing bust would begin in 2006. And was ridiculed like hell for it at the time (in fact, I have a favorite quote from that time I like to be sarcastic about, from Engineer IIRC, my apologies if I'm wrong, that goes something like "You can't lose with real estate!"). And guess what, I was right too. Fancy that.
You're just a johnny-come-lately looking like an ass, predicting that the Titanic will sink after the bow has already gone under water, and then trying to take all the credit for it. What's your next prediction, braniac? That the sun will rise tomorrow? I'll try to remember to be properly awed for your ego's sake when it does...

I put my money where my mouth is and Ive told my story a million times as well, I sold my house in SF in 2005 for a big profit and then when I moved to Sacramento, I saw that people who had no business buying a burrito forking over half a million for a standard McMansion. Doing more research into the lending/RE bubble I realized that the house of cards was about to collapse so instead of joining the flock, I rented. And being the savvy investor I am, I put the profits from my home into puts against the RE/home building industry. At first people ridiculed me to no end, but they've slowly come around. I could have dumped that 300K into a new house and I would have lost half of it by now.


I saw the iceberg on the horizon and did something about it, while the RE industry continues to rearrange the deck chairs trying to scramble themselves some profit. I've made close to a million from simply applying some basic economic theory to the bubble and Ill continue to make $ until the thing turns around (which, I dont think will be for a while). If that makes me looks like an ass, than ass I am.

 

[Trianon]

Stocks flat as subprime worries offset takeovers

By Kristina CookeMon Jun 18, 10:26 AM ET

Stocks were little changed on Monday as lingering worries about the subprime mortgage market offset optimism about corporate takeovers.

Shares of Bear Stearns fell 1.5 percent after the Wall Street Journal reported that investment bank Merrill Lynch (NYSE:MER - news) has seized $400 million in assets of a troubled hedge fund at Bear Stearns Cos. Inc. (NYSE:BSC - news).

Shares of Alcoa (NYSE:AA - news) gained 2.1 percent after the Times newspaper in London reported BHP Billiton Ltd/Plc (BHP.AX) (BLT.L), the world's biggest mining group, has revived plans for a $40 billion takeover of the aluminum producer.

Shares of Dow Jones edged up after the Financial Times and the Wall Street Journal reported General Electric Co. (NYSE:GE - news) and Pearson Plc (PSON.L) may challenge News Corp.'s $5 billion bid for Dow Jones & Co.

"Money still seems to be plentiful, and you are still seeing multiple potential acquirers for businesses," said Craig Hester, CEO of Hester Capital Management in Austin, Texas.

"But the Bear Stearns story is indicative that we have not seen the end of the problems in the subprime market and its impact on the economy and financial markets," Hester said. "I think the market will continue to be choppy."

The troubled subprime mortgage market offers risky loans to borrowers with poor credit histories.

The Dow Jones industrial average (^DJI - news) was down 2.35 points, or 0.02 percent, at 13,637.13. The Standard & Poor's 500 Index (^SPX - news) was down 1.88 points, or 0.12 percent, at 1,531.03. The Nasdaq Composite Index (^IXIC - news) was down 4.72 points, or 0.18 percent, at 2,621.99.

Shares of Apple Inc. (Nasdaq:AAPL - news) rose 2.6 percent to $123.62 on Monday after the computer maker said its new iPhone will deliver significantly longer battery life when it starts to ship on June 29.

Symantec Corp.'s (Nasdaq:SYMC - news) stock rose 2.5 percent to $20.20 after Goldman Sachs raised its rating on the stock of the antivirus software maker to "buy" from "neutral."

Shares of Genesco Inc. (NYSE:GCO - news) rose 8.1 percent to $53.62 on Monday after athletic shoe retailer Finish Line Inc. (Nasdaq:FINL - news) said it agreed to buy the shoe and hat retailer for $54.50 per share or about $1.5 billion.

Shares of Cadence Design Corp (Nasdaq:CDNS - news) fell 4.6 percent to $22.24 after the New York Times reported that talks aimed at a possible takeover by two private equity firms of the maker of software for designing computer chips had stalled over price.

Alcoa shares rose to $42.48, while Dow Jones' (NYSEJ - news) stock gained 0.5 percent to $58.70. Merrill Lynch lost 0.4 percent to $89.88, while Bear Stearns fell to $147.86.

REUTERS

 

[GrGr]

Bloodbath incoming


June 20 (Bloomberg) -- The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.

``It's a blood bath,'' said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. ``We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.''

...

The bubble burst in 2005 and now the slide is gaining momentum. Hedge funds are beginning to implode too. This will not be pretty at all.

 

[rhatsaruck]

James Paulsen over at Wells Capital Management has an interesting perspective on the housing situation. His May 2007 Economic and Market Perspective is titled: Housing Bust Without A Consumption Bust???. (PDF alert)

He tries to answer the question: does a housing bust lead inexorably to a consumption bust?

The last 8-10 years have seen a dramatic increase in Mortgage Equity Withdrawals (MEW). Have increases in MEW pumped up Personal Consumption Expeditures (PCE) during that period? If so, given that MEW are falling like a rock, does that mean that PCE is also going to fall like a rock?

He says no. In fact he detects a correlation between rising MEW and increased housing activity. (I know: correlation does not equal causation.) Now that MEW are tapering off the housing boom has to end.

He neatly sidesteps the issues of housing inventory at levels never seen before, what that might mean for the housing industry, the consequences to industries related to housing, and the tidal wave of foreclosures. In his mind because the housing industry is such a small component of GDP (about 5%) the consequences won't be catastrophic.

But, to answer the question posed by the title of his article: Yes. He believes it is possible to have a housing bust without a consumption bust. And that's a key point: if PCE drops dramatically during the housing bust then it could get really ugly. PCE accounts for roughly 70% of GDP.

 

[Trianon]

I am a realist, and ATM I can't see any budding economy branch that can compensate for money to be lost in overheated RE market. No web economy, bio tech or anything even remotely similar with good return prospects.

 

[Trianon]

I guess James Paulsen musings are wishful thinking:

REUTERS

Wall Street stumbles as subprime worries reemerge

By Jennifer Coogan 14 minutes ago

Stocks tumbled on Friday, wrapping up their worst week since a global sell-off in February amid fears that trouble at two Bear Stearns hedge funds may signal worse problems lie ahead for credit markets.

Investors also were rattled by news that Democrats in the U.S. Congress introduced legislation to end a tax advantage for investment fund managers as well as a jump in volatility ahead of the rebalancing of several important benchmark indexes.

The session's losses did not derail the market debut of private equity firm Blackstone Group LP (NYSE:BX - news), which surged over 13 percent following the biggest U.S. initial public offering in five years.

However, the broader financial sector did not fare nearly as well. The S&P financials group (^GSPF - news) sank to a two-month low as efforts by Bear Stearns Cos. (NYSE:BSC - news) to rescue one of two ailing hedge funds with steep losses on subprime mortgage bonds focused attention on troubles in the sector.

Investors worry Bear's problems could presage a credit crunch that would stall the takeover boom that has powered the stock indexes to all-time highs.

"This shows that the subprime market is not some funny little area, this is serious stuff and has the potential of upsetting a lot of apple carts," said Gary Shilling, president of A. Gary Shilling & Co. in Springfield, New Jersey. "There are a lot of players in this game, everybody was involved because it was a very lucrative market."

The Dow Jones industrial average (^DJI - news) was down 183.31 points, or 1.35 percent, at 13,362.53. The Standard & Poor's 500 Index (.SPX) was down 19.50 points, or 1.28 percent, at 1,502.69. The Nasdaq Composite Index (^IXIC - news) was down 28.00 points, or 1.07 percent, at 2,588.96.

For the week, the Dow lost 2.1 percent, the S&P shed 2 percent and the Nasdaq slipped 1.4 percent.

Bear Stearns said on Friday it will provide up to $3.2 billion in financing for a struggling hedge fund that it manages, but sources said a second fund is still working out a restructuring plan with creditors. For more details, see

Bear Stearns shares fell 1.4 percent to $143.75, capping a 4.2 percent decline on the week.

Other investment banks with large mortgage exposure also dropped. Lehman Brothers Holdings (NYSE:LEH - news) stock fell 3.3 percent to $76.62. Merrill Lynch & Co. (NYSE:MER - news) stock was down 3.2 percent to $84.48. The S&P financials lost 1.7 percent.

Blackstone shares surged 13.1 percent to $35.06 in its market debut as the largest private equity firm to go public, raised $4.13 billion in an initial public offering on Thursday.

On the upside, shares of Macy's Inc. (NYSE:M - news) jumped on the NYSE amid speculation the department store chain may be ripe for a takeover. Macy's shares gained 6.6 percent to $41.43.

Trading was influenced by the rebalancing of the Russell 3000, a benchmark many investors use to measure the performance of their portfolios.

A total of 277 stocks are being added to and an equal number are being deleted from the Russell 3000 (^RUA - news) in the rebalancing of the broad market gauge, the Russell Investment Group said.

Trading was heavy on the NYSE, with about 2.62 billion shares changing hands, well above last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.73 billion shares traded, above last year's daily average of 2.02 billion.

Declining stocks outnumbered advancing ones by a ratio of nearly 3 to 1 on the NYSE and by more than 2 to 1 on Nasdaq.

 

[Engineer]

Exsisting home sales hit slowest pace in 4 years.

 

[Vette73]

Yep me and my wife just got a house in N.VA(close to DC) for $369K. Someone paid $525K for the same house 2 years ago.

So we came out well.