Bad news has proliferated throughout the economy regarding real estate and reached a boil during the most recent week when the stock markets blamed the credit crisis in home lending as the main reason for a 10% selloff in less than one month.
Just last week the following stories hit the news wires regarding real estate:
New Home Construction Slowest in Decade: Both Housing Permits and Housing Starts were running at levels not seen in over 10 years
Countrywide warns of credit-market risks: The country's biggest mortgage lender tells Wall Street that it is having problems selling their loans and it might cause liquidity problems. One analyst reads this as warning as an indication that Countrywide could go bankrupt.
Existing Home Sales fall in 41 states: This report came from the National Association of Realtors, the most optimistic group in America. This makes the current downturn the worst slump in 16 years.
Risky Mortgages Turning into Toxic Mess: ARMs and other mortgages are causing many problems in the economy and threaten to cause a recession in the near future.
Prices Drop for 4th Straight Quarter: Housing price drops used to be a rare occurance, now it has happens every quarter for the last year.
Mortgage Meltdown Contagion: Foreclosures skyrocketing, prices down and recovery pushed further into the future.
These are horrible headlines regarding real estate and real estate markets and they dominate the headlines on the internet, news wires and television. I am watching the CEO of Thornburg Mortgage explain why he had to discontinue giving loans and why his firm can't find any money to loan. He has said that investor confidence in gone and banks aren't willing to lend any money that is secured by real estate.
That is why I am going on record to say that the 1st Quarter of 2008 will mark the bottom of the real estate market in America. Over the next six months metro areas that have struggled over the last 2 years will reach a bottom and begin to finally bounce back.
The carnage from the mortgage meltdown will have worked itself out and the industry will be better because of it. Builders will have spent two years paring down operations and will no longer have excess unsold inventory weighing down on the market and the lack of permits and starts will finally cause a balance between supply and demand.
This is the ultimate contrarian investment strategy. On Wednesday of last week there was not one single scrap of good news about real estate. And as a contrarian this is what you look for when searching for a market to invest in. But on Friday the Federal Reserve relaxed their stance on interest rates and decreased the discount rate. After 17 straight increases and a year at the current rate, it is almost certain they will also decrease the Fed Funds Rate at the September meeting.
This is the catalyst that will lead to the stabilization of the market and a recovery of prices in the next six months.
Great balls of fire. Thanks for posting this.
Posted by: homes | August 22, 2007 at 02:42 AM