PREDICTIONS FOR 2008 - LOOKING BACK. SOMETIMES YOU WISH YOU HAD BEEN WRONG.

Lenn, I was surprised by your prediction of higher mortgage rates, because buyers are waiting for the 4.5% mortgage rates and although we all know it might not reach that level, I just assumed that mortgage rates will go lower because of government intervention.  If they go higher, we can forget housing recovery for 2009.  We have buyers willing to buy at a certain price in my market and sellers willing to sell, but lenders unwilling to appraise homes so that buyers can obtain 80% mortgages.  This is negatively impacting prices because only cash buyers and those who can obtain 50% mortgages were able to buy in the last part of 2008.  What are the lenders doing with all that bailout money???

Hi Lenn:

As much as I hope that some of the predictions are off, I'm must say that I agree with you 100%

First of all this is a great post.  A retrospect to last years Blog confirms you have common sense to see through the events and form an opinion based on experience, trends, and economic fundamentals.  The coming year will be no picnic whatsoever.  When I read many of the comments and Blogs on ActiveRain it is like listening to a child predict there will be a "White Christmas" despite the fact they live in Florida.  I agree totally with your assessment.  Things have to get worse, before they can improve. It is part of the process of recovery.  This recession is not the result of a hiccup - this is a full cardiac arrest. 

Lenn- As always a good read....I love looking back at predictions and seeing how they played out, but I don't like our Real Estate ones :(  You said you hope there are still enough Brokers and Agents left to serve the people....we can only hope.

Lenn, I am a realist but I still was hoping for better real estate predictions.  It will be fun to look back at the end of next year.  Thank you for the great post.

Would love to see your 2009 predictions....I'm really wondering how much the lower rates will really get people to come out of the woodwork when/if they have questionable credit and can't get approved.  For some, it is a great time....but anyone effected by the economic downturn and has what was acceptable credit a few years ago may find that there credit is not good enough now...

Since about 1978 we have been running an economy on the back of the consumer.  During the last 30 years, while real income has declined, as adjusted for inflation.  The difference between real income adjusted for inflation and spending has been filled by credit.  Credit was moved from a subjective decision by the local banker to a quantifiable objective standard measured by a credit score.  Net worth, living within one's means, being fiscally responsible, and saving for a rainy day, were all replaced, first by the car companies, and later by the residential marketplace, by affording a monthly payment.  Price no longer mattered, as long as the monthly payment was tolerable.  First the auto companies took away car ownership with leases and refinancing negative equity into the next car purchase.  Home ownership was, in essence, taken away by the negative amortized loan, option arm, and interest only loan.  Equity was irrelevant, as was actual home ownership.  The only difference between leasing a home and paying a mortgage was the tax benefit.  Wall Street developed an appetite, call it an addiction to ever higher rates of return.  First found in the Volker years of high government security interest rates and returns, later found in junk bonds, derivatives, dot coms, and more recently (over the last 8 years) home mortgages, the result was predictable.

As a bankruptcy attorney, I have spent the last 24 years writing, lecturing, and whenever possible talking about the dire consequences of an economy based upon debt and leverage, as well as upon diminishing brick and mortar manufacturing replaced by services.  And, what happens when the manufacturing base has been closed, sold and shipped overseas and the services are outsourced?  You have an economy with no substance, no basis in anything other than spending!  But, what happens when the consumer realizes that the family's real income adjusted for inflation can no longer afford car payments, house payments, credit card payments, student loan payments, insurance payments, medical care copayments, and the list goes on???? You have the economy of today and the next 3 years, until prices adjusted for deflation are once again affordable for real income adjusted for inflation and deflation.

Just some thoughts and ideas!!

Lenn - Whoops, I see now that all your predictions were for 2008.  Sorry about that.

Lenn, I have an optimistic nature but must agree with your predictions.

I've recently been seeing a great number of foreclosures because some homeowners simply do not want to pay a mortgage on an inflated property.  It they stop paying their mortgage, they can save the mortgage money until they are physically removed from the property.  This will result in saving the amount of money used for downpayment or closing costs.

Inventory levels will increase - it's a matter of supply and demand.  The greater the supply, the lesser the demand which results in price reductions. And yes, there will be a free fall.

Hold on for the ride - it is just beginning.

I wish you a propserous New Year!

The credit industry has done a masterful job of convincing Congress and the public that the majority of bankruptcy filings and the number of foreclosure or payment defaults arise from people wanting to walk away from falling home values.  Translated, the credit industry would want Congress and the public to believe that the majority of good intentioned hard working Americans are as greedy as the credit industry.  Once the smoke and mirrors of the credit industry's capitalized profit and socialized losses are revealed, it is easy to understand why the credit industry would take such a position.  The old saying "It takes one to know one" rings true!

And now, we find the federal government and many states, including California, warning that they will increase the gasoline tax to pay for the deficits arising from the recessing economy.  Increasing taxes on those least likely able to afford more taxes!  This would happen while the credit industry is basking in one of the largest corporate welfare programs ever enacted by Congress.  Not only have they already received a $350 billion handout, but they also received a rather hidden and unpublicized tax break.  Yes, a tax break!  Before the Bailout, if a bank paid $10 billion for another bank the extent of the tax benefit for bad debt would be $10 billion.  But, with the Bailout came a tax benefit based upon the face amount of the bad debt.  So, for example, when Chase bought WAMU for $10 billion (or whatever it was), it gets to right off not $10 billion (the amount paid), but $100 billion (or whatever amount of loan values are written off as bad debt).  In other words, not only did Congress give them the $10 billion to buy WAMU, but another $100 billion tax benefit against corporate profits; amounting to billions more!  In other words, raise the gas tax while the credit industry pays no taxes for years to come!  Congress should be taken to task to reverse this wholesale corporate welfare!

Now, who is greedy?!

Email your Congressman, Governor, and elected officials, and take them to task.  No new taxes before the credit industry is required to account for every dime taken through the Bailout, and until all corporate welfare is reversed.  Email your Congressman and demand that the Bankruptcy Code is amended to allow Bankruptcy Judges, and not lenders, to authorize the modification of loans and loan terms, based upon property values.  This is how homeownership will be preserved, and to reverse the coming 5 year tsunami of adjustable ARMS.

It's a circle jerk... take from one hand ... and give to another!