I wrote about Fannie Mae and Freddie Mac Titled "Aunt Fannie and Uncle Freddie are Coming To The Rescue...", yesterday getting more involved in trying to help with the sub prime crisis. It was as most of my writing is, a positive news item. Late yesterday after I posted that piece, I received notice and an article written at MarketWatch that included Mark Zandi's comments. Mark Zandi is the chief economist with Moody's .com, a consulting firm in Pennsylvannia. The article was titled" Subprime could create global crisis"
This mornings headlines in Business news around the country contain his projections for the bottoming out of home prices to continue through 2008 with credit problems to remain elevated well into 2009.
Many of my ActiveRain readers compliment me for finding the positive in our markets and usually highlighting the glass half full scenario instead of the opposite viewpoint.
The stock market over the last few days is responding to the Moody's study which Mark based his forecast on.
I will give you the highlights of Mark's forecast. What is interesting to me is that most of this has been heard in the press for quite some time. I think the impact is that Moody's is lending their voice to make the previous forecasts a bit more concrete. back and forth. One month things are improving, the next, the economy is projected with a lot more pain but at least he doesn't see a possible recession.
- Home prices will fall 10% from the peak, more in the regions of CA., AZ,and Washington DC.
- Home sales could bottom later this year. But it will be 2010 before the market returns to "Normal"
- Investors are projected to lose about 113 Billion as the 460 Billion worth of mortgages default.
- 20% of the sub-prime mortgages in 2006 will fail. it was noted that a significant number of these borrowers never made a single payment.
- 2.5 million first mortgages will default this year and next.
- US economy will grow less than 3% annualized through 2009
- Prediction that consumer spending will slow and will continue on that trend.
I did report that in yesterday's post that Wall Street packed up those sub-prime mortgages and marketed them as tradeable securities. What I didn't discuss in that post was that some of these major hedge funds are stumbling. Mark suggested that if another major hedge funds stumbles that there is a one in five chance of a Global liquidity drying up.
A one in five chance. The last time I did math, that was a 20% chance. We have had a 20% chance forecast of rain here in California for months and not a drop of rain has fallen. I suppose you shouldn't dismiss the argument completely but I sure wouldn't want to bet a $100 with a 20% chance of winning, would you?
I would report then that there is 80% chance that such a thing will not happen. Which odds do you like better? 20% or 80%.
One of the nice things that's happening for me as I discover my own voice in this blogging world is that I am beginning to get the hang of collecting data and drawing my own conclusions and not always having to believe what others and their "the glass is half empty and we are likely to spill the rest of it" type of scenario. I have held for a lot a years that the real estate markets go up and down but one thing is certain. There are no less people in the world and the last time I looked , God hadn't made any more land. So we all are trying to fit into tighter spaces.
People have always wanted their own piece of the land and I don't think that will change any time soon. Fluctuations in normal market cycles are to be expected and have to be persevered. If the markets only went up, a small garage would cost a million dollars soon. Better if that happens when we all make a million dollars a month income. For now, lets just park the car in the garage and not be so concerned what it is going to be worth when bread is hits $25 a loaf.
It might never happen, meanwhile I do know our lives are happening every day. We should all live them as best we can and keep out wits about us. We don't have to buy into projections just because they seem to fit the news patterns. Buying in pretty much assures a self fulfilling prophecy, doesn't it? Burying our heads in the sand doesn't help much either. Become aware !
There is yet another scenario that needs to thrown out here for discussion on another upcoming post. Is this whole housing crisis actually be shaped intentionally and not so much by accident? There has been talk for at least a few years about new tax system proposals, flat taxes, in particular where it concerns the deductibility of mortgage interest.
This same economist in an interview in 2005 with CNN felt that people might be over investing in real estate and as one of the interviewee's noted, one way that the excessive investment in real estate might be curbed would be a restructuring of the tax code that would make it less appealing, particularly if the mortgage interest was not tax deductible any more.
This same economist for Moody's seemed to feel at that time that people have done very well buying homes and that they need to get used to the idea that things are going to change. I wonder if that Is that what we are now seeing, a sort of preparing for that type of change? Maybe in 2008 with a new administration and New Congress? Keep your eyes and ears open, there may be more to all this than we thought .
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