Is The Housing Market Still Heading For A Bust?

Serious analysts across the political spectrum are coming to the same conclusion: the housing market is set to crash, and with it, the economy.

2 minute read

February 10, 2007, 9:00 AM PST

By Michael Dudley


"[T]he housing bubble is not a conspiracy theory and there's overwhelming proof that the aftershocks will be excruciating. Don't forget, the 'happy talk' in the real estate section of the newspaper is designed to soothe jittery nerves and help sales, not give the reader an accurate picture of a market which is sinking quickly."

"In fact, the hoopla over the 'rise in new homes sales' ignores the 'real' story which appears in many of the same articles; that is, 'In 2006 existing home sales declined by 8.4%, the biggest drop in 17 years, and new homes sales fell by a whopping 17.3%, the largest in 16 years'. This is the real scoop although it is predictably hidden in the fine print. It signals the beginning of a long, downward spiral which will increase unemployment, shrink GDP, and send millions of homeowners into foreclosure and out onto the streets."

"The signs of a major economic downturn are everywhere for those who chose to look beyond the cheery predictions in the real estate section of the news."

"Next year, an estimated $1 trillion of ARMs (Adjustable Rate Mortgages) are due to 'reset' which will cause stiff increases in monthly mortgage payments. We're bound to see a steady rise in defaults as well as a boost in new claims for personal bankruptcy."

This downward cycle is just beginning. In 2006, a mere $300 billion in ARMs reset pushing overleveraged homeowners to the brink of insolvency. Imagine what will happen in 2007 when $1 trillion of these explosive loans comes due. And, of course, as more people are unable to hang on and their homes go into foreclosure; inventory will continue to skyrocket."

Monday, February 5, 2007 in The Market Oracle

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