Saturday, August 2, 2008

Tampa area Housing Inventories reach 42 years!

Hello All!

Just a quick note here before I post. I am on vacation starting tomorrow for a week. If I can hop on at some point and throw up a post I will. No promises though. Its time for some relaxation!

I want to thank everyone who continues to stop by and read the blog. The Housing Time Bomb is closing in on 20,000 visitors since its inception in February. I have learned a lot from all of your feedback and ideas, and I hope we can continue to steer our way through this difficult market.

I think we have done pretty well so far!

Back the the blog!

I thought I would throw up this article today. After reading this, I am glad I don't own a house in Tampa!

As you can see below, some areas of Tampa now have 42 year invetories based on current sales. Here is the link to the article . I will post the full article below:

"In its quest for financial health, the Tampa Bay area home building industry is grappling with a giant scab on the landscape: 31,900 vacant home sites waiting for buyers.
New-home closings in the region fell 42.6 percent this spring vs. the same time last year. But that's nothing compared to the glut of vacant lots, enough home sites to last builders 51/2 years at current sales rates.

Hillsborough County's supply is 49.6 months, or more than four years. Pasco and Pinellas counties have nearly five-year supplies. And Hernando County's lot supply is 136 months, or 11 years.

It gets worse: Citrus County has a 508-month supply. At current sales, it would take 42 years to burn off all its finished home sites.

Citrus' new-home market has fallen off a cliff, with only 95 homes starts in the past year amid a surplus of 4,018 developed home sites.
"It's too far a commute and the retirees are more nervous as a group, so they're not coming to buy in Citrus," said Tony Polito, who compiled the new-home report for housing consultant Metrostudy.

In a glimmer of good news on the lot front, developers have largely ceased paving former cow pastures, orange groves and forests. The industry delivered 915 lots in the second quarter of this year that ended June 30, far below the 3,813 lots delivered in the same period a year earlier.
"Hillsborough finally stopped adding lots this quarter," said Polito, who explained that a balanced market has an 18- to 24-month supply. "The other counties stopped adding lots months before that."
Builders also continue to suffer from declining year-over-year sales. New-home closings nosedived 42.6 percent, from 3,085 in the second quarter of 2007 to 1,772 in the second quarter of this year.
Local builders began construction on 1,401 houses in the quarter ending June 30. That's 28.7 percent below last year's pace of 1,965 housing starts. In many neighborhoods builders compete for sales against investors desperate to unload hardly lived-in homes bought during the boom.
Typical is Meadow Pointe in Pasco. Two years ago builders closed on 596 homes. Last year closings slumped to 349 and settled at 190 this year."

Final Take:

Notice that the builders have almost completely stopped building. Its about time! You would think that they would have stopped when inventories reached 30 year levels!

Its going to take decades for Tampa to recover from this. I guarantee you some of these developments will sell for .10 on the dollar at some point.

Keep in mind the housing bubble theories in 2006/07 were based on bad lending, ridiculously high housing prices, and rising inventories.

I originally thought at the worst we would see 20-50% drops in housing prices depending on the area. However, the declining economy, the disasterous response by the Fed, and the carnage in the banking system simply must to be added to the equation when trying to estimate how bad its going to get in areas like Tampa.

I am beginning to think that distressed asset sales may be the only way to dump this inventory in areas like the inland empire in Cali or parts of Florida.. This means some of these properties will sell for pennies on the dollar. I say this because I simply can't see anyone ever having the courage to buy homes in an area where everything is vacant.

Bottom Line

I have heard from a couple realtors that traffic has come to a complete stop in certian bubble areas that were hit hardest by the housing bubble.

Reality will soon set in on the sellers in these markets. Builders are going to start dumping these projects as the banks start pressuring them for payment. As a result, I predict you will start seeing distressed asset sales in certian areas within the next year.

This will be the time to start seriously looking. The foreclosure buying suckers are about done chasing the "deals of the century"(yeah right). If you live in an area like Stockton or Tampa get your checkbook ready. The carnage is taking its toll and desperation is about to set in.

Its already started with CDO's after Merrill's sale at .06 on the dollar to a firm in Texas.

Let the carnage begin!

I hope everyone has a great week with their investments.

Friday, August 1, 2008

Unemployment rises to 5.7%/Market Update

Hello all!

Things continue to worsen in the markets as the unemployment rose to 5.7%. This was the highest rate in four years.

"Aug. 1 (Bloomberg) -- The U.S. unemployment rate rose to the highest level in more than four years as employers cut jobs again in July, increasing the threat of a deeper economic slowdown.
Payrolls fell by 51,000, less than forecast, the Labor Department said today in Washington. The jobless rate rose to 5.7 percent, from 5.5 percent the prior month. As recently as April, it was 5 percent. A separate report showed that manufacturing stagnated in July as companies were hit by rising raw-materials costs and slower spending.

``This is further evidence the economy is in a recession, probably a shallow recession,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, referring to rising joblessness. ``It will be a major drag on consumer spending.''

The last time the unemployment climbed so much in three months was at the end of the last U.S. recession in 2001. Payroll cuts combined with decreasing property values, stricter lending rules and near-record energy prices to send consumer confidence levels close to the weakest in 16 years in July."

Final Take/Rant:

Stocks did not react well to the news. Stocks were down as much as triple digits on the DOW. I don't really know what to say here folks. We are in deep trouble. The news continues to get worse each day.

The strapped consumer is now starting to lose their job at a time when they are up to their eyeballs in debt. This combination is frightening because it leaves you with zero options.

When you have zero cash and no job, saving the house will be the last of their concerns. Finding their next meal is going to become priority number one. I can't stress to you how dangerous this situation is becoming.

The government has to wake the hell up and start making tough decisions. Going on TV daily and attempting to calm the masses simply isn't cutting it anymore. Things are not OK! They are deteriorating by the week. A serious economic downturn/collapse is waiting in the wings if things do not change.

The focus of the government and Treasury must switch towards trying to save America versus trying to save Wall St. Interest rates must rise in order to protect the consumer from inflation. Housing must be fall to affordable levels. Financial institutions must take their losses and start failing versus sucking up all of our tax money via government bailouts.

The stimulus didn't work so its time to change our economic policies. Shut down the discount window. If financial institutions fail then they fail. They made bad bets. Thats how capitalism works. I would rather see the Fed temporarily nationalize the banks versus Fannie/Freddie if that is whats needed to be done in order to save the financial system. Take the money that is wasted at the discount window and start trying to create jobs with it. Its our money and we are suffering!

The liquidity and stimulus from the Fed has done nothing but postpone the losses that must be taken by both the homeowner and the financials. The longer we wait the worst this economic downturn will be.

I mean look at GM today.

"Aug. 1 (Bloomberg) -- General Motors Corp. reported a second-quarter loss of $15.5 billion, the third biggest in its 100-year history, because of plunging U.S. sales and the declining value of truck leases. The shares fell as much as 11 percent.

The deficit of $27.33 a share compares with a profit of $891 million, or $1.56, a year earlier. Excluding costs GM considers one-time, the per-share loss was 4 times bigger than analysts projected. Labor strikes contributed to a $9.9 billion drop in North American revenue, and sales worldwide tumbled 18 percent to $38.2 billion."


Look at those numbers. The company lost $15 billion in 1 quarter. $15 billion!!! What does this tell you about the health of the consumer. From what I have heard, car sales have virtually disappeared in the last month. Leases are now pretty much gone. No car has any resale value when the dealer gets it back so they have no desire to do leases anymore. Borrowing the money for them has also gotten expensive so leases make no sense from this standpoint either.

These losses are becoming fricking ridiculous. Banks like Merrill, Wachovia, and Washington Mutual continue to puke up billions in losses quarter after quarter. How many bad quarters is it going to take before we realize that some or all of these institutions are insolvent.

I mean Merrill announces a $10 billion quarterly loss and then comes out days later and announces another $5.7 billion dollar loss. This is insane. This tells me they don't even know what they have on their books because housing is deteriorating at such a fast pace. They obviously would have preferred to announce these losses all at once.

In my eyes and others, Merril did this for one of two reasons. Either they were about to get downgraded by the ratings agencies if they didn't do something, or they were hurting for cash so they decided to get what $$ they could by selling some of their CDO garbage.

Bottom Line

Housing continues to worsen and Wall St.'s balance sheets live in die by housing prices. If housing continues to plummet, so will Wall St.

Because of this, continuing to inject stimulus into failed companies is a waste of time and money. We all know that houses will drop because they are still unaffordable. People are out of work and suffering from serious inflation and high gas prices. Fed policy must make the American consumer its number one priority.

I love America and to see it being destroyed like this truly breaks my heart.

Its time for change and its not too late! If we take the right steps we can turn this around.

Thursday, July 31, 2008

Main St. Storms DC in Protest of the Bailout

I thought this deserved a mentioning today. Congrats to FEDUPUSA.ORG for putting together a successful protest. They were right in Paulsons face as he left the building when he was done with his speech. I will drop some pics on here today throughout as I write the blog.

Congrats to anyone who participated. You are great Americans!

Watching Paulson was sickening today. We got the old "everything is OK" spin. I think I have heard this speech about ten times by now.

Greenspan Doesn't think everything is ok!

This shook the markets late in the day.

"July 31 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said falling U.S. home prices are ``nowhere near the bottom'' and the resulting market turmoil isn't showing signs of abating.

While the odds of a recession are 50-50, achieving stable markets will ``take a while,'' Greenspan said today in a CNBC interview.

`Major Accident'

Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, are a ``major accident waiting to happen,'' Greenspan said. ``The solution'' is the ``nationalization'' of the companies, a restructuring involving an infusion of taxpayer money and eventual sale back to the market as ``five or 10 separate entities,'' he said.

Washington-based Fannie Mae dropped 71 cents, or 5.8 percent, to $11.50 in New York Stock Exchange composite trading. Freddie Mac, based in McLean, Virginia, fell 56 cents, or 6.4 percent, to $8.17.

``It's important that we focus on stabilizing the financial system,'' Greenspan said.
Policy makers also need to reconcile slowing economic growth with rising prices, he said. The U.S. faces ``a very substantial change in the balance between growth and inflation.''

The Fed had to open up lending to securities firms to curb turmoil in financial markets, he said. ``You have to do the backstop because once you get to that point your particular choices are very limited.''

Still, Greenspan said he was ``uncomfortable'' with aspects of the Bear Stearns Cos. rescue. ``That is a fiscal policy operation, essentially something which should be set up in the Treasury Department."

My Take:

It looks to me like Greenspan sounds a little worried. I love how the guy who created this is now trying to throw stones. Ohh the irony!

So Hank says everything is fine while Greenspan looks like a deer in the headlights. Who do you believe? You know my answer.

The jobless claims # went through the roof today hitting a 5 year high:

"Jobs Concern
The S&P 500 trimmed its rebound from an almost three-year low on July 15 to 4.3 percent. The 448,000 increase in jobless claims weighed on stocks as investors await tomorrow's government report forecast to show the nation lost 75,000 jobs in July."

Uh oh!

Be afraid whenever you see the jobless claims get above 400,000. How can people pay their bills when they aren't working?

Feel free to yell at Paulson below if all of this makes you angry! Better yet, show up at the next protest! Here he is avoiding protestors as he walked to his truck.

If things keep going the way they are, there may be several thousand people at his next speech.

Wednesday, July 30, 2008

The Bounce Continues!

Hello from The Housing Time Bomb!

Wow what a day today. The market started out higher based on the ADP payroll which was much better than expected.

"July 30 (Bloomberg) -- Companies in the U.S. unexpectedly added an estimated 9,000 jobs in July, a private report based on payroll data showed today.

The increase followed a revised drop of 77,000 for the prior month that was smaller than previously estimated, ADP Employer Services said.

Over the past six months, payrolls have been negative each month while ADP has only 2 negative readings over the past 7 months."

Keep in mind this number has been way off the past few months. The real jobs number has been coming in significantly lower so take this report with a grain of salt. We will see the REAL jobs number on Friday.

The volatility continues to amaze me this week. Stocks flew up on the jobs number, then broke down as oil went berserk before rallying strong at the end of the day. You really can't fight the tape on the long side. The massive stimulus by the Fed combined with the new shorting rules on financials is almost forcing the market higher.

Of course this is based on ZERO fundamentals. This is nothing but trading folks. The Fed is now plugging the leaks of the debt bubble on an almost daily basis. They are putting up the good fight, but the end result will be the same. Take a look below at the colossal debt bubble that the Fed is desperately trying to keep inflated.

Here is the debt bubble in 2002 as we passed by the debt levels last seen in the 1930's:

Now lets take a look at the debt bubble as of the end of 2006:

Final Take:

As you can see, the debt bubble as of 2006 now almost dwarfs the debt records we hit during the depression in the 1930's. Imagine what this graph looks like now in 2008.

Its even bigger today because thats how ponzi scams work. The bubble needs to keep growing or the debt cannot be serviced and the whole thing bursts.

When do bubbles burst?

When people can no longer make the payments needed in order to keep servicing the debt. This is why the lending got so loose the last couple of years. The bubble must continue to grow or it pops. As the bubble became to large for incomes, they were forced to loosen the lending because people were unable to make the debt payments.

This is why subprime and 100% neg am loans were invented. This kept the payments low for two years and allowed the game to keep going.

Today, the only way the Fed could continue to blow up the bubble is through Fannie and Freddie. They started allowing them to take on more and more debt in order to keep maintain the debt payments.

Bloomberg shed some light on this today after Feddie disclosed its mortgage portfolio:

"July 30 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage-finance company, said its portfolio expanded at a 23 percent annualized rate in June, the fastest pace since 2003.

The holdings rose by $12.7 billion to $749.6 billion, the Washington-based company said in a monthly volume summary today. McLean, Virginia-based Freddie Mac last week said its investments swelled at a 33 percent annual rate to a record $792 billion.

Since regulators lifted growth caps and eased capital requirements in March, Freddie Mac has boosted its portfolio by more than 11 percent and Fannie Mae by almost 4 percent. Most of the growth is from purchases of mortgage securities they created and guarantee. Concern that the expansion is unsustainable amid a need for the companies to preserve capital drove yields over benchmarks on the bonds near a 22-year high set four months ago."

Quick Take:

As you can see above, the Fed keeps huffing and puffing in an attempt to keep the debt bubble filled with air by injecting massive amounts of stimulus into Fannie/Freddie as well as other parts of the economy.

Now that we have bailed out Fannie, the GSE's MUST be more conservative with their lending.

The loose lending game is over because the housing bailout forces the taxpayer to be on the hook for any losses by the GSE's. The last thing these entities want going forward is to continue to bleeed red. Fannie/Freedie hope that we will eat the housing bubble losses without much of an uprising.

However, if they continue to lose money and make bad loans, there will be people with pitchforks outside their offices! It will simply be unacceptable in the future for the GSE's to lose money as Americans are forced to pay for Wall Streets mistakes. The days of easy lending are over, and expect responsible lending going forward.

As the banks continue reign in lending, the public is suffocating from their huge debt payments on houses, credit cards, and student loans. As a result, we are defaulting on debt at record rates.

This combination of defaults and bailouts marks the end of the game because there is no way to keep blowing up the bubble.

One more puff and it POPS!

Bottom Line:

The market is currently trading on speculation versus fundamentals. If you like to take risks and trade long and short be careful. Keep your positions small and be nimble.

The end result in my opinion is clear. This bubble is in the process of bursting and the Fed is running out of resources to stop it. Every bubble ends in the same way: A spectacular collapse that brings us back down to historical averages.

This bubble will be no different.

Tuesday, July 29, 2008

So Whats Next? The "Wal-Marting" of America

Good evening everyone!

I am doing some consulting work so expect my posts to start hitting in the early evening. We saw quite a reversal today didn't we?

Expect on seeing these bear market rallies as the market continues to correct. There is no question that we still have a ways to go on the downside IMO. What cracks me up here is how the pigmen are trying to spin this volatility on bubblevision.

They are trying to say that the market is bouncing off the bottom as it completes its bottoming process. Hogwosh!

I guess they didn't see the Case-Shiller Index today did they:

"July 29 (Bloomberg) -- Home prices in 20 U.S. metropolitan areas fell at a faster pace in May, and consumer confidence stayed near the lowest level since 1992 this month, posing a threat to household spending.

The S&P/Case-Shiller home-price index dropped 15.8 percent from a year earlier, the biggest decline since records began seven years ago. The Conference Board's confidence index rose to 51.9, from 51 in June.

Home prices have fallen every month since January last year, eroding household wealth at a time when consumers are trying to cope with record fuel costs and the credit crunch. While both of today's figures were higher than economists' estimates, the reports still underscored forecasts for spending to slow in the second half as the stimulus from tax rebates wanes.

``It's definitely too early to break out the confetti,'' said Michael Feroli, an economist at JPMorgan Chase & Co in New York and a former researcher at the Federal Reserve. ``Household wealth is declining, and that should restrain consumer spending.''

Quick Take:

We hit another record in terms of price drops in May! This housing bubble will hold more records than Babe Ruth when its all said and done.

Hey Pigmen! Does this look like a bottoming process to you or an acceleration to the downside? Umm I think I choose choice B.

I have said many times on here that the market cannot turn around until prices in the housing market have stabilized. The Case-Shiller showed no signs of a housing bottom. Things are bad and getting much worse!

Welcome to Wal-Mart America!

I am starting to notice the "Wal-Marting" of America that I expected to see as we get hit with massive deflation.

I noticed this today. Palm came out with an upside surpise on their Centro sales:

"July 29 (Bloomberg) -- Palm Inc. rose the most in four years on the Nasdaq after saying its Centro e-mail phone sold 2 million units in less than a year, a sign the company is weathering competition from the BlackBerry and Apple Inc.'s iPhone.

Palm shipped the latest 1 million units in less than four months, accelerating sales after offering the phone through carriers such as Verizon Wireless in the U.S. The device is sold in more than 25 countries, Palm said today in a statement.

The $99 Centro is winning customers even amid competition from the $199 iPhone, which sold 1 million units in the first three days after its July 11 debut. While the Centro boosts sales, the device carries lower profit margins than Palm's pricier Treo model, aimed at business users. Palm has posted losses for four straight quarters.

``The Centro is inexpensive, it's easy to use and clearly it's appealing to younger users,'' said Lawrence Harris, an analyst at CL King & Associates in New York with a ``neutral'' rating for the stock. Still, Palm needs to boost sales of the Treo to improve its profitability, he said."

Final Take:

Who would have ever thought that an average product like the Centro would get so popular. 5 years ago everyone in the family would own an I-Phone as we pulled equity out of our houses and binged on "techie" gadgets.

Nowadays, a crippled consumer is creating opportunities for "washed up" companies like Palm to become successful by entering markets with cheaper versions of popular products.

This is exactly what Wal-Mart does when it enters a market. They look for opportunities in areas like generic drugs and food shopping and create "drop down" markets for the consumer who can't afford the real thing.

The fact that Centro sales are surging shows that this business model can also work in tech. People would love to have an I-Phone or a "Crackberry" phone. However, at $99 a pop, the Centro will do. Don't think Apple didn't see deflation coming when they cut the new I-Phone price in half from $400 to $199.

Apple's new phone would have been a disaster if they kept the price at $400 a piece. You are seeing this "drop down" mentality in consumer habits all over the place.

I recently discussed how going out to the movies is now all of the sudden back in "vogue". This has got to be a tough pill to swallow for the average American family.

You think a family of four is looking forward to going to the movies on a Friday night when they know the movie they are seeing will be on DVD in a few months?

Bottom Line:

Be careful investing in the markets right now. This is a traders market. We are not at the bottom, and no one is long term investing right now. The pigmen are buying on the dips and selling on any bounce.

This volatility could continue for the next couple days as we wait for the economic data at the end of the week.

As for the Wal-Marting of America, expect this to get worse.

By the end of this debacle "The Razor" might make a comeback and sell a million units!

Monday, July 28, 2008

The Next Shoe? 5 Year Arm Loans

Good evening everyone!

What a day today eh? I wanted to talk about another shoe thats about to drop in the housing market. I can't even see the floor of the housing market anymore because its filled with so many shoes!

The 5 year ARMs are next folks. They loom out there in the horizon like a tornado, slowly spinning their way towards us and getting ready to reset.

Interest Rates are up and Home Prices are down

This is a bad combination when your 5 year ARM is about to reset as interest rates are surging. Many of these 5 year arms were done with interest rates of around 4-1/2%. Rates now are around 6.5% or higher if your credit sucks.

This huge increase in payments will simplybe too much for many homebuyers who probably couldn't afford their house in the first place!

Expect several more waves of foreclosures over the next few years. As you can see above, we have another $300 billion of ARM mortgages that are about to reset over the next two years. This comes at a time when the banks are up to their eyeballs in debt and have no ability to raise capital.

IMO, this will be the straw that breaks the camels back for many banks.

Bottom Line:

We all heard what the IMF said today:

"WASHINGTON (MarketWatch) -- Top experts at the International Monetary Fund said Monday that there is no end in sight for the turmoil that had gripped financial markets for the past year."Global financial markets remain fragile and indicators of systemic risks remain elevated," said Jaime Caruna, the IMF's point man of the crisis at a press conference.

The U.S. housing market remains the key source of the turmoil. And there are still no signs of an end to the downturn."At the moment...with delinquencies and foreclosures rising sharply and house prices continuing to fall, a bottom for the housing market is not yet visible," Caruna said."

This mess just seems to keep growing like a cancer. Just when you think its over, we find another shoe. I think we could finally see the VIX start to rise followed by a big drop in stocks. I expect another strong wave of selling.

The government seems to be doing everything they can to make this collapse worse then it has to be. The bailouts seem to never end, and the SEC's decision to intervene into the markets has totally blown up in their face.

The economy looks to be in a death spiral. The Feds need to realize that there is no bailout on this earth that can stop a bubble from bursting!

All they can do now is wait for the carnage to subside and try to pick up the pieces.

I guess its time to sit and watch Rome burn.

Russia Cuts Fannie/Freddie Holdings by over 50%

Just a quick post.

Well it didn't take long for the world to smell a rat as the US government bails out the housing market. Paulson and his crew have another press conference this afternoon. I am sure the spin machine will be back on full throttle.

Here is the news on Russia:

"MOSCOW, July 28 (Reuters) - Russia has cut its exposure to U.S. mortgage lenders Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to less than $50 billion by not refinancing matured short-term debt, a senior central bank official told Reuters on Monday.

Russia held about $100 billion in U.S. agencies Freddie, Fannie and Federal Home Loan Banks at the start of 2008, as part of its now near-$600 billion reserves, although over 80 percent of the holdings were due to mature within the year. "It's now less than $50 billion," central bank first deputy chairman Alexei Ulyukayev said.

"We had short-term paper. They mature: you can refinance and buy some more, or you can not," he told journalists later, when asked about why the central bank had reduced its holdings."

It looks like China is doing the same:

"China has come under "tremendous" pressure from the government, media and academia regarding its agency holdings, Merrill said. On Saturday, the U.S. government approved a housing market rescue bill that offers emergency financing to Fannie and Freddie and which will create an new regulator for the two.

"We believe China won't dump those agencies in the near future, but will be much more cautious in making new purchases," Ting Lu and Steven Lam, Hong Kong-based analysts for Merrill, said in the report.

"In the near term, due to rapid increase in foreign exchange reserves and the lack of low risk and liquid alternative investment opportunities, China may even add more US Treasuries," they said in the report, adding "in the medium to long term, we expect a faster shift of foreign exchange reserves to non-U.S. dollar-based assets with a wider asset class selection."

Final Take:

Well its Day 1 of the great housing bailout and the markets don't seem to be liking it. The bond market has been quiet so far. You can be sure they will have their say when this legislation is approved.

The DOW is down 175. The financials are getting hit hard. Its time to bring out Paulson and the cheerleaders from DC as Rome starts to burn.

Its only been one day post bailout and we already have our two largest debt holders nervous. They are only avoiding Fannie and Freddie debt for now.

Are treasuries next?

Keep an eye on yields in the bond market in the coming weeks.

Sunday, July 27, 2008

The Housing Crisis is Destroying Household Wealth

Just a quick note today.

I came across this article in the Baltimore Sun. These statistics pretty much floored me:

"It seemed like a good idea.

Baby boomers who never got around to saving as much as they hoped promised to keep working past retirement age. The joke in the generation has been: "I'll just work forever." And the intent has shown up repeatedly in research.

But now along comes an economic downturn, and people are losing jobs. It looks as though Plan B, a lifetime of working, might not be an option to rescue undersavers after all.

"It's a perfect storm," said Jack VanDerhei, a Temple University professor and fellow at the Employee Benefit Research Institute.

Too many people approaching retirement age have saved too little, accumulated too much debt, stretched too far on homes that have lost value and never made good on the promise to save more tomorrow, he said.

With home prices plunging and the stock market down sharply, Dean Baker, co-director of the center, said: "The vast majority of near-retirees have accumulated little or no wealth. This means that they will be completely reliant on Social Security and Medicare to support them in their retirement years."

According to Baker's calculations, if house prices decline no more than they have already and stay fixed through 2009, "the median household would have 24.7 percent less wealth than the median household in this age group in 2004." If real house prices fall 10 percent more, the median household would see a 34.6 percent loss in wealth compared with 2004. If homes fall another 20 percent, median household wealth would drop 45.6 percent"

My Take:

That final paragraph floored me. This destruction of wealth will destroy many baby boomers hopes for retirement. I see no reason why housing prices won't drop another 20%. They doubled in the bubble areas in the past 10 years and prices have only corrected about 15% so far.

The lending products are no longer available to support the current housing prices, and interest rates are rising. The fact that the average person will see their household wealth drop in half if housing prices drop another 20% is astonishing!

Housing prices must drop back to the historical levels of 3-4 times income. Its the only way most people will be able to qualify for a mortgage going forward. This means we have a long way to go on the downside in terms of housing prices. Another 20% down should be expected instead of being the worst case scenario.

The baby boomers better start saving. Home equity can no longer be counted on as a retirement. Its time to sell the Hummer and throw the cash in savings!

The rippling effects of this housing crisis continue to amaze me. I don't see how our economy grows with such a massive destruction in wealth. The faster home prices correct the better.

There will be no sustained economic growth until housing gets back in line with incomes.