01/27/11 Baltimore, Maryland – We shift our attention to the United Kingdom today. To make a long story short, if a bottle is tossed into the Atlantic off the coast of Maryland, it may eventually wash ashore on the coast of Cornwall. But there is no point putting in a note asking for help.
First, let’s look again at the latest news from the US:
Stocks rose a bit yesterday. Gold was flat. The Great Correction continues:
WASHINGTON (AP) – Buyers purchased the fewest number of new homes last year on records going back 47 years.
Sales for all of 2010 totaled 321,000, a drop of 14.4 percent from the 375,000 homes sold in 2009, the Commerce Department said Wednesday. It was the fifth consecutive year that sales have declined after hitting record highs for the five previous years when the housing market was booming.
The year ended on a stronger note. Buyers purchased new homes at a seasonally adjusted annual rate of 329,000 units in December, a 17.5 percent increase from the November pace.
Still, economists say it could be years before sales rise to a healthy rate of 600,000 units a year.
Neither housing nor employment show any sign of recovery. Nearly 4 years after the collapse of Countrywide – the nation’s biggest subprime lender – housing is still going down.
How far will it go? Gary Shilling says it will take another 20% drop in housing prices to bring them in line with their historical trend. Housing usually rises with the economy. Not more. Not less. To get back on track with the economy now, house prices have to go down.
What about over-shoot?
Yes, that’s a risk too. Bubble markets don’t tend to go back to “normal” levels right away. Instead, they tend to go below normal.
At first, homeowners think it is just a temporary break in an upward trend. They hold on…hoping to catch another move to the upside. Then, they gradually resign themselves to a long slump, but still believe that “you can’t go wrong on real estate, not over the long term.”
Then, housing prices continue to sink. More homeowners give up. Some sell. Some default. More foreclosures depress prices even further.
The peak in foreclosures is not expected until March of 2012. When it comes – five years after the crisis began – most homeowners will be ready to throw in the towel. “Housing may go up in the long run,” they’ll say to each other, “but this downturn could last longer than I do.”
Prices are likely to drop below their historical trend. Homeowners will tell their children: “Don’t bother to buy a house. Rent. Housing is a losing proposition. It never goes up.”
Then, with housing prices perhaps 25% to 40% lower than they are today, the market will have found its bottom.
When? Housing markets move slowly. It could happen by 2015…maybe 2020…
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Thank you Bill. I appreciate this sort of article much more than the Atlas Shrugged perspective pieces that have become the norm. Many in the sun belt are living rent free for the past year or two, waiting for foreclosure. From what I hear some in AZ are packing their bags and heading back east to be closer to family. Probably similar trends underway elsewhere in the sun, er sandbelt.
hey! maybe that is why the economy is doing so well—more and more people are freerollin’—like banksters!
i think steve is right and that is why fast food joints are so full thanks to bill bonner for this article