Not much action in the markets yesterday. The Dow lost 5. Gold gained 4.
So far the markets have not seemed to notice, but there are not oneâ¦but two bulls in this china shop.
First, the US government is going broke.
Second, weâre at the beginning of a Great Correction.
As to the second item, hereâs this update from Bloomberg:
Sales of new homes in the US unexpectedly fell in February to a record low as blizzards, unemployment and foreclosures depressed the market.
The new-home market is vying with foreclosure-induced declines in prices for existing homes in an economy where unemployment is forecast to average 9.6% this year, close to a 26-year high. Treasury Secretary Timothy F. Geithner yesterday said it would take a âlong timeâ to repair the housing market as the administration takes steps to overhaul real-estate financing and regulation.
âItâs going to be a long, slow slog and the lagging sector will be new home sales because they have to compete with existing sales and foreclosures,â Bill Hampel, chief economist at the Credit Union National Association in Washington, said before the report. âNew home sales probably have until the fourth quarter until they start recovering.â
What happens in the 4th quarter that makes the housing market recover? A sudden influx of immigrants? A sudden increase in employment?
We donât think there will be a recoveryâ¦not in the 4th quarterâ¦not this yearâ¦not next yearâ¦not for 10 years.
Instead, housing prices are probably going to sink. Why? Because theyâre a consumer item, not an investment. For 100 years, a house was a place to live inâ¦and housing prices more or less kept pace with inflation. Then, beginning in the mid-â90s people came to see a house as âthe best investment you can make.â They began buying houses as a way to make moneyâ¦and as a way to save for retirement. It made sense. What would you rather have, a mutual fund growing at 10% per yearâ¦or a house that goes up by 10% per year? The house! Because you can live in itâ¦and show it off. So you leverage upâ¦you buy twice the house you can afford. You live better. And you make more money.
Those days are over. But, not everyone realizes it. Some wait for the housing market to ârecover.â Some may imagine that they will once again see profits from their houses. Others just hold onâ¦waiting for an up-tick so they can get out.
There are still millions of people living in houses they canât really affordâ¦and millions of others who are âunderwaterâ and running out of air. Thatâs why the number of houses facing foreclosure rose in the last quarter of last year. And itâs why the inventory of unsold houses continues to rise.
Gradually, people are coming to see houses in a new light. Soon, theyâll see them as money-pitsâ¦as expensive folliesâ¦and as a pain in the neck. Instead of being proud to have a McMansionâ¦theyâll be embarrassedâ¦like having a car with tail fins in 1985â¦or wearing a mullet in 2010.
Not only that, it will also be seen as a big waste of money. As the Great Correction continues, unemployment will remain at high levelsâ¦savings will increaseâ¦and people will want to cut expenses. Among other things, theyâll want smaller, cheaper houses. Theyâll want to dump their suburban castles and walk away from their country palaces.
Houses will be losers.
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