Change. Is it Possible?

It's almost sickening to hear Wreckonomists and financial analysts talk about the current financial breakdown. Predictions of a bottom not far away abound. Even as the news gets worse, their are those applying a heavy dose of sugar.

Moody's Economy.com is now using a 20% decline in housing value as the benchmark for it' economic forecasts for the current business year. All the while they are really using a figure of 20% to 40%. According to Moody's:

"Our weaker scenario...is a 25 percent decline in prices," says Celia Chen, Moody's director of housing economics. "That would be in the case of a housing and credit crash and still a moderate recession." There are new worst-case whispers as well. "You want the darkest? Forty percent," she says. "There's your apocalypse."

Hmmm... then aren't you saying that your best case is really 25% and you believe that a 40% drop is not impossible? That's what I read into this. Of course, last year prices declined by about 9% by year end, after climbing in the first part of the year. So another 25% would bring the total to just shy of 35% and if your worst case of 40% hits that it would be darn close to 50% total. Yep. Sounds about right. Oh... and the fact that even the worst "estimates" over the last year have so far been dusted... well... I'm going with the bigger numbers here.

Mind boggling, isn't it? It's been said that a picture is worth a thousand words... so I submit to you the following:


So let's see... Housing starts down by over 50%.... median existing price down by 12.6% ... number of months of unsold homes for sale (based on current home sale volume) up by 180%.

Sound like a 20% decline in value to you? Not a chance in you-know-where.

Next picture...

This sums up the upcoming problem pretty well. No household savings.... incredibly it dips briefly into negative territory right around 2004-2005. Any guess why? You bet... people were using their homes as a savings account. Imagine slowly watching your $10,000 savings account waste away to $8000? Of course, with a savings account doing that you'd pull the money out probably around $9500. When all of your savings is in your home, as the value plunges because of lack of demand for housing, you are forced to ride the wave down unless you can move, and not many people can do that on a dime. So you watch your savings disappear into thin air without much control. Now lets say you were one of the many who used 100% financing or are paying on an interest-only mortgage and, god forbid, and option arm with negative amortization... why any mortgage professional would ever recommend a loan like this is a mystery to me... well... you're in big trouble.

Your savings account isn't leveraged, but your house is. This is clearly one of the biggest "bubbles" ... and one of the most preventable that there has ever been.

SO.... let's all listen to Lawrence Yun, the chief Wreckonomist for the National Association of Realtors and his expert "forecasts". Here's one from 2005.

"The chance of a housing price decline in the DC area is close to zero, in my view. I anticipate that prices in DC will outpace the national average price growth. DC prices will rise at close to a 7 to 10 % rate of appreciation. That's not the 20 to 25% rate we've seen in the past, but it's still very respectful. "

Here's one from last week.

“There is no chance of a large price decline in Rockford (Illinois),” Lawrence Yun told a crowd of more than 400 at Cliffbreakers, 700 W. Riverside Blvd. “There is not a price bubble in Rockford.”

“The only thing I fear,” Yun told the crowd, “and I’m paraphrasing Franklin Delano Roosevelt here, is fear itself.”

This is what the NAR's Wreckonomics guru has to say? This is the best he can come up with? Please. Pinch me. I'm not hearing this.

The facts are plain and simple. The sooner we face them, the sooner we'll all be serious on an individual level about doing what's right. It seems that right now, in this upcoming election season, we hear partisan bickering about the war, taxes, special interst groups... you know, the usual. The Wreckonomy is only now just starting to bleed in... like the subprime crisis. One thing is consistant, however, throughout the McCain, Obama and Clinton camps... they are all for change.... let's hope one of them... the one that wins the Presidency, actually means it.