Bill Fleckenstein--The Housing Bubble Has Popped

[Gloria]

In case you missed this......

The housing bubble has popped
Reports of falling sales and investors stuck with properties they can't sell are just the beginning. Property owners should worry; so should their lenders.

by Bill Fleckenstein
MSN
Monday, April 24, 2006
http://moneycentral.msn.com/content/P149596.asp


A recent story in the Wall Street Journal, "Hot Homes Get Cold" (subscription required) offered lots of its useful vignettes that serve as a microcosm of manic markets -- starting with the bravado-cum-denial displayed by a medical-equipment salesman in Stuart, Fla.

Concerned about his real-estate investment apparently going sour, he can't afford to reduce the price to what homes now sell for in his neighborhood -- which is about $100,000 less than he's asking. Says the salesman: "If I got in a jam, I would have to drop the price, but I am not at that point." His game plan: Rent the house, so as not to "lose my shirt."

That's the mentality often seen in manic markets -- the belief that you can't possibly lose, and, when the price goes against you, you don't have to deal with it, because it will come back. This fellow (and millions more like him) is going to find out that his belief is a mistaken one, in the same way that folks did when the stock bubble burst.

Dwelling takes a little shelling
The story went on to note that many formerly hot markets in California, Arizona, Washington, D.C., and Florida are now "languishing without buyers or even prospects. Many once-booming markets are seeing double-digit declines in sales." The magnitude of the drop in Florida home prices (once the frothiest market in the country) is striking. Single-family home sales declined 20% in February, year-over-year. Similarly, California sales dropped 15%. Some of the hottest towns in those states were off twice as much.

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[Bush_Eats_Beef]

1. "Rent the house, so as not to lose my shirt"...

...and I posted a story on DU a couple of days ago about rents going up because property owners know that many people have been priced out of the housing market. So the "bubble bursting" speculation...to whatever degree it's true...isn't necessarily good news, because the "house flippers" and speculators see it as an opportunity to bleed renters to death.

There's always a scam.

[laheina]

4. Some will try, but they won't necessarily be successful.

The market will keep the rental price down in many places, so he's stupid if he thinks that he's going to recoup his payment amount that way. Sheer desperation, i.e. people trying to lose as little money as possible on their silly investments, is going to drive the rental prices down. It will take a while for that segment of the real estate market to stabilize.

[laheina]

2. I think that he's right.

There will be a correction.

I don't think that the bubble has anything to do with Greenspan, however.

[SoCalDem]

3. Exactly.. the housing market and credit card purchases

were what was keeping all the plates spinning..Greenspan started talking down the real estate market as he started raising interest rates..and of course after the bankruptcy laws changed..

AND I cannot prove it but I think the rosy numbers for the economy are including the oil company gouging us for BILLIONS.. Take those big bucks out, and I bet the economy is listing worse than the Titantic.

[laheina]

5. Yup. And that's an interesting analogy,

because I think that this is only the tip of the ice berg.