Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

How Blind can they be? Poor state of the US Economy and Housing Slump being ignored

Economics / Credit Crunch Mar 29, 2007 - 11:06 PM GMT

By: Peter_Schiff

Economics

As our phony economy begins to unravel before our eyes, it is amazing how few people can actually see it. The collective wisdom of stock market pundits, economists, and Federal Reserve officials gives the impression that everything is just fine.

Although some acknowledge that housing is slowing down a bit, that there are isolated problems with subprime mortgages, and that inflation is not moderating as quickly as they hoped it would (let's ignore surging oil prices), few can see any grave threats to continued economic expansion, or the bull market in stocks, bonds or real estate. 


Earlier this week a CNBC anchor asked a guest if the "economic baton" might now pass from housing to the consumer, much the same way it previously passed from the stock market to housing. I'm not exactly sure where the anchor believes that consumers will now be getting the money to lead us out of the economic morass. 

With adjustable rate mortgages now re-setting higher, home equity disappearing, credit card debt mounting, personal savings at record lows, and the cost of basic necessities continuing to rise, the consumer is all tapped out. In fact, consumer spending is not just going to slow down; it is going to fall off the edge of a cliff.

With more traditional mortgage lending standards beginning to return, traditional home prices can not be too far off. And for those who may not have noticed, median home prices are still way above traditional levels as determined by yardsticks such as affordability and rent vs. own analysis.

In many markets, normal levels may only be half of their current "appraised" values. However, due to the glut of homes that will ultimately hit the market, and the absence of qualified or willing buyers, home prices, at least in the short term, may fall well below normal levels.

Even when reporting on the subprime mess and the move to raise lending standards, most in the media still get it wrong. They seem to think the emerging “credit crunch” is a problem for home buyers as it makes qualifying for a mortgage that much more difficult. But, by preventing buyers from overpaying for homes, the credit crunch is actually a blessing in disguise.

Tighter lending standards will help precipitate a crash in real estate prices. What could be better for potential home buyers than cheap houses? Sure they might have to wait a few more years until they can actually save enough money for a down payment, but since the purchase prices will be so much lower, those down payments will be easier to accumulate. More importantly, since they will be borrowing so much less money, the total cost of buying will be reduced even more substantially.

The one caveat of course is that many such individuals might find themselves unemployed for a while, as the housing collapse ushers in a prolonged and severe recession. I guess you can't have everything!

The real problems will be for existing homeowners, especially those who overpaid, who are unable to sell for their loan amounts, and who lack sufficient home equity or incomes to refinance their adjustable rate mortgages. Also feeling the pinch will be mortgage lenders, who will be unable to recoup their investments when borrowers default.

Of course, the ultimate bag holders will be American taxpayers.  As the crisis widens, politicians will inevitably seek to bail out everyone in danger of losing money on real estate purchased in the boom years.  This will result in huge run-ups of the Federal deficit, which will be financed by inflationary monetary and fiscal policies. As a result, the biggest losses could be reserved for savers, retirees, investors, or anyone left holding dollar-denominated financial assets when the music finally stops playing.

For a more in depth analysis of the U.S. economy and why it is in so much trouble, read my new book "Crash Proof: How to Profit from the Coming Economic Collapse" by clicking here.

By Peter Schiff
Euro Pacific Capital
http://www.europac.net/

In addition, make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , d ownload my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules