Real Estate Bottom?
I saw this article that shows why MBS (mortgage-backed securities) probably still have further to go and why I think 2009 will continue to be rough. To make a long story short: a shack in Arizona got valued at $132k; a woman took out a bunch of loans against it; the loans got passed around and eventually packaged in a triple-A rated MBS; people realized it’s a shack; the MBS lost lots of money. As long as all these bad loans are floating around out there, the banks will continue to be forced to swim upstream against a current that’s stronger than any bailouts can handle. If the banks continue failing, the stock market will have a tough time getting solid footing. So until the housing market settles and we wash through most of these ridiculous valuations, don’t expect all the other markets to recover.
Please, Be More Reckless Next Time
I saw a great post over at The Big Picture that sums up my thoughts on the bailout pretty well.
Here is the grim reality about home prices: They remain elevated by just about every historical metric. Look at the median income to median home price, or look at the cost of renting versus the cost of ownership. Look at the inventory for sale, relative to 5 year trailing price increases. The bottom line is that in much of the country, prices are still too high.
Any fixes you see being pushed through that prop up the housing market just prolong the problem and encourage reckless behavior in the future. If people realize that houses bought for too much get their loans rewritten with minimal recourse, the next housing bubble will be far worse than this one ever was. Hopefully more and more people see this and realize that the best solution is to let the housing market stabilize on its own.