In case you haven't heard, the housing market in this country is having its problems. No need to rehash it here. However, there is one point that seems to get lost in all the discussion about foreclosures and people being forced to live in cardboard boxes. Prices and sales are down, in most places and inventories are higher, again in most places. There has been an exhaustive and continual analysis of the mortgage market and how it has changed in the last nine months; the range of mortgage products and the availability of money has declined precipitously. What hasn't been talked about is that the speculation bid has left the market.
In many of the high-flying real estate markets this decade, speculators were major players in many of them. They're gone. Prices are going down and money isn't available. The only speculation now is coming from vulture and distressed investors, not the speculators we had seen over the past few years, and the distressed buyers aren't coming in in any significant way at this point. It really surprises me that so-called experts are confounded about sales dropping as much as they have. In some markets, speculation accounted for 25+% of sales. With that number hovering around 0% of sales, coupled with everything else going on, and sales will be lower.
All real estate is local. Here in North Jersey, while prices aren't ratcheting higher, they aren't falling off a cliff either and sales are getting done. In Manhattan, prices are ratcheting higher, propelled by a foreign bid willing to pay what seems like stupid prices (at least now, they are). The point is, like every other asset, prices are driven by supply and demand (if you question this, try to buy Guitar Hero III or a Wii). The real estate asset price bubbles need to be worked out (This is a common theme in this blog). The sooner the better for everyone.
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You, once again, hit the proverbial nail on the head o'Bondguy.
The real estate market (in some locales) is a classic asset bubble. I view it as being similar to the tech bubble of the late 1990s.
Now, as then, the public (and Wall Street) wants "something" done about this. There is a general desire to return to the unsustainable real estate market of a few years earlier. There is a letter in today's Wall Street Journal criticizing Bush for not being as good as Clinton becuase his 401K has not risen as it did during the tech bubble and wants a return to those days.
Here is a message to everyone. The value of many tech stocks in the 90s and the value of many properties and related asset-backed securities is vapor! There is no substance to these asset values. They never should have been at elevated levels and were pushed there by poor monetary policy and the irrational greed of investors.
The worst thing the Fed, Congress or the administration could do is attempt to fix the problem by re-engineering the hosuing bubble.
There is no excuse that the Wall Street brain trust did not see this coming. A few of us in my profession were discussing this back in 2005. However, Wall Street fell in love with quant models which were to brilliant to fail.
No strategy is ever too fool-proof and no company is too big to fail.
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