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Yikes, But Duh: Housing Bottom Could Be Two Years Off

by: Jeffrey Lin July 21, 2008 | about stocks: C    

Jeffrey Lin

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The bounce by the financials from the depths of hell last week was definitely a sigh of relief. The “less abysmal” earnings from first Wells Fargo (WFC) [that stagecoach really can run!], JP Morgan (JPM), and US Bancorp (USB) told us the sweeping assumption that all banks are goners was premature. Well, premature at least for now.

Regardless of which side of the argument talking heads take on picking the bottom in financials, most (if not all) would agree that housing needs to bottom if the banks want to be out of the woods. When will housing bottom? Citigroup Chairman Win Bischoff offers his opinion in this Reuters report. Remember, however, Citigroup hasn’t exactly been on the right side of the trade on this whole housing crisis, as made evident by its shares dropping from the $50’s to being a teenager.

“LONDON (Reuters) - Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.

The chairman of one of the world’s most powerful banks told the BBC in an interview that he expects it will take two years for the markets to stabilise.

He also said he expected the credit crunch could continue through until 2009.

Bischoff told the BBC that there would be redundancies at the bank, which employs 12,000 people in Britain, and warned that some of them would be compulsory.

No further details were released of the interview which is due to be broadcast later on Saturday on the BBC News Channel (Reporting by Paul Majendie, Editing by Jon Boyle)”

Full Article: House prices could fall for two years

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This article has 13 comments:

  •  
    Jul 21 06:14 PM
    sounds like citigroup is talking straight for a change, two years sounds about right from where we stand now...however, if you listen to paulson of the treasury everything is fine now or will be in a few months...why can't this administration and everyone connected to it (including the fed) speak the truth for once, tired of the constant diet of lies...
    Reply
  •  
    Jul 21 06:51 PM
    Because it's an election year Mark.
    Reply
  •  
    Jul 21 07:53 PM
    They view this as a 'confidence' problem so they are 'restoring our confidence'. Shows you how isolated politicians can become. You've got 2 choices in housing - raise wages or lower house prices. Without easy credit and with a service economy it could take a while. Seems like stagflation will accomplish both over time.
    Reply
  •  
    Jul 22 12:45 AM
    mark, flatman, I don't even try to think that far. People are like, Paulson used to run GS! How'd he suddenly turn dumb. No dumb or smart about it...the job description for the secretary of Treasury is just that, repeat the script. Easiest job Paulson ever had! No matter what question the press asks, they give the same answer! Behind the scenes, sure he's doing stuff. On air, repeat: "Economy's strong, dollar's strong, U.S. is strong. Hoo-ah"
    Reply
  •  
    Jul 22 05:21 AM
    What we need to get housing going again is the return of the Bubble Man. Alan Greenspan was able to flood the economy with good, growing-cheaper dollars with absolutely no negative effects on the economy. Yeah, Alan, make it possible once again for us to have everything our hearts desire just by swiping a piece of plastic. Even great big houses, and more than one too!!
    Reply
  •  
    Jul 22 08:52 AM
    Prediction... As soon as interest rates go up (or threaten to) there will be a rush of buyers running to the market. If it's hard to qualify now it will be even more difficult with higher rates so there will be motivation to buy. The tension between tempting home prices and rising rates will force potential buyers to make a move.
    Reply
  •  
    Jul 22 10:37 AM
    Rising rates will not bail out this market. Right now, the problem of ARMs adjusting higher has been muted by the drastic rate cuts; as these cuts are reversed, the number of forced sellers will only increase. Further, tighter lending guidelines will mean fewer people able to get a mortgage, particularly to buy a home at today's still inflated prices. The only thing that will eventually turn the market around is when deep pocketed speculators come in, and they wait till there is blood in the streets, and when the cost of carrying a house again begins to remotely resemble the amount for which they can be rented, and prices have a good bit to fall before either of these is the case.
    Reply
  •  
    Jul 22 11:09 AM
    Mark:

    or, all the to-be foreclosed homes are foreclosed, and all those in the same neighborhood and get their housing values destroyed by the foreclosed homes...these folks get foreclosed themselves. then maybe we kick out half the country onto the streets/tents/teepees, and find ourselvs a bottom.
    Reply
  •  
    Jul 22 11:47 AM
    [They view this as a 'confidence' problem so they are 'restoring our confidence']

    Everything's a con game with these guys.

    How much longer are we, as citizens, going to put up with this?

    [Right now, the problem of ARMs adjusting higher has been muted by the drastic rate cuts]

    Actually, it's the CAPS that are keeping things in check right now... most of the homeowners I see will have a few adjustments before they reach their max.
    Reply
  •  
    Jul 22 11:52 AM
    The homes in my neighborhood were still selling for $475k to $550k just last year. Meanwhile, my rent has been $1600 for two years and, after perusing Craigslist, is typical.

    What would be a reasonable price for my home. based on my rent? I believe it is around $285K, depending on the cap rate one would want.
    Reply
  •  
    Jul 22 01:42 PM
    Listening to a chairman who oversees an institution that has LOST OVER 40 BILLION DOLLARS........is not someone im gonna listen to.

    He's nothing more than a mindless puppet riding on a donkey of destruction.

    SOMEONE WHO HAS NO "WORKING" KNOWLEDGE OF THE REAL ESTATE IS NOT AN EXPERT. Nor can they predict the future.

    EVERY one of these idiots has to BE CALLED OUT.

    Wall Street anoints themselves as the GURUS of Finance when in reality they have created the WORST FINANCIAL DISASTER IN HISTORY.

    ITS BEYOND INSANE.
    Reply
  •  
    Jul 23 02:54 PM
    "Prediction... As soon as interest rates go up (or threaten to) there will be a rush of buyers running to the market. If it's hard to qualify now it will be even more difficult with higher rates so there will be motivation to buy. The tension between tempting home prices and rising rates will force potential buyers to make a move."

    The way I see it, rising interest rates will only depress prices further as people can only afford so much each month, so prices will have to fall further to compensate for higher interest. Why lock in a low rate if the price is high when you can wait for interest rates to rise and prices to fall further to compensate? Say if rates go up to 12% and prices fall another 40% to compensate, if you buy then at least you bought at a lower price and could refinance if rates eventually go below 12% later on. But if you buy at a high price now at 6% interest rate and the rates rise, you bought at a higher price and can't refinance to a lower rate since rates won't go below 6% for at least 15 years.
    Reply
  •  
    Jul 23 03:44 PM
    I have a blog chronicling the absolutely insane Miami (and South Florida) condo market. I have a post about someone that bought a Condo for more than $2000/sq foot and renting it at a loss of $1,000/day every day for 30 years.

    www.miamicondoforum.co...
    Reply
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