America Needs to Wake the Hell Up!

Just a little commentary today folks.

I read this article today and it made me blow a gasket:

"75% in survey think worst is over in housing slump

Three out of four U.S. homeowners think the worst is over in the housing market.

The National Association of Realtors reported earlier this week that median home sales prices across the country were down almost 14 percent in the first quarter from a year ago.

"While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in the report. "Unfortunately, there are few markets we expect to perform this well."

Thousands of potential sellers are waiting on the sidelines, Zillow said.

More than 30 percent of homeowners said they would be likely to put their houses up for sale at the first sign of a market rebound. That's bad news for prices.

"With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices," Humphries said."

My Take:

I don't know how else to say this so please forgive me for being so crude:

AMERICA: GET YOUR HEAD OUT OF YOUR ASS! THE HOUSING MARKET IS TOAST!

Housing prices are not stabilizing. Sitting on the sidelines and waiting for the market to come back is FINANCIAL SUICIDE!

How many investors held tech stocks at the peak of the tech boom thinking they would come back after the NASDAQ dropped from 5000-3000. How did that work out? Ummm...Not very well considering 10 years later the NASDAQ currently sits at 1680.

Sitting on the sidelines will only guarantee that you end up losing more money because housing is in the midst of reverting to the mean as it recover from an unprecedented housing bubble.

Why will housing continue to collapse?

Its simple:

The fraudulent lending products used to inflate the bubble like subprime are no longer available. This means buyers must conform to old shool lending standards which are much tougher. Interest rates will only RISE going forward because the Fed will eventually be forced to raise rates in order to fight the inevitable massive inflation as a result of printing trillions of dollars of bailout money.

How much is that $500,000 house going to be worth when interest rates go from 5% to 10%? Let me answer that for you: Around $250,000 of LESS.

On top of the issues above, the foreclosure moratorium is now over. As a result, there will be thousands and thousands of new foreclosures hitting the market. This will only put further pressure on housing prices.

Soaring unemployment only adds to to the housing nightmare. One only needs to take a look at Detroit in oreder to see how massive job losses effect home prices. The average price for a home is $30,000 in the city of Detroit. Gee, do you think a 12% unemployment rate in the state due to the collapsing auto industry could have something to do with that?

Now is the absolute worst time that you could buy a house. Realtors will tell you: Interest rates are at an all time low! Now is the time to buy! The problem is realtors don't understand the economy. This sales pitch made sense when interest rates were low at a time when our deficits were also close to zero as they were in the late '90's.

The problem today is we are $11 trillion in DEBT. Money is going to get very expensive moving forward because our debtload is at record highs! Mortgage rates are based on what the yields are on the 10-year in the bond market. The 10-year stays low as long as our deficits are reasonable.

The 10-year rises at times when our country is in debt because the country needs to increase yields in order to make our 10-year bonds more attractive. The reason they need to increase the yields on the 10-year is because debt investors are concerned about the risk of default as a result of America carrying too much debt. If America goes bust, they don't get made whole on the bonds that they bought!

As a result, we are pretty much screwed in this department because WE ARE TRILLIONS OF DOLLARS IN THE HOLE! YIELDS WILL INEVITABLY SOAR DUE TO OUR EXPLODING SPENDING AND DEFICITS!

Bottom Line:

Buying a house right now is financial suicde unless you plan on living there for 30 years until the house is paid off. You will NEVER IMO be able to sell your house for a higher price if you buy today unless you are buying at the lower end of the housing market ie: 200k or less.

The home owners that are waiting for housing to stabilize will be in their 70's before they sell because this isn't happening anytime soon. Again, let me bring this back to the tech bubble. Amazon's stock once hit over $400 on the NASDAQ. Today it sits at $73 dollars and its been one of the best performers on the NASDAQ over the past few years.

When bubbles burst they never come back. EVER!

Don't be a fool. If you rent don't buy because the rates are too artificially low. If you are selling drop your price aggresively before the thousands of foreclosures come on to the market. The housing market is only going to get uglier and tougher moving forward. Inventories are only going to rise. Sell and get the hell out!

The only houses that I would consider buying are houses in the $200k and under market. The low end of the market is selling because buyers are able to qualify to buy. Prices seem to be holding up reasonably well here for now. The problem is as unemployment continues to rise, I worry that even this end of the market may fold like a tent down the road.

Stay on the sidelines! Prices will be deflating for years.