Chris, every asset bubble in history has reverted to its mean. Can you find any exceptions? For your statement that we will have a 30% drop, would mean it is different this time. NASDAQ is still below the 2000 peak.
And the Fed won’t care about a million or 2 mil homeowners losing their homes, because they look at national numbers. They let the stock market lose $7 trillion. Millions of people lost their retirement savings. This time, millions of people will lose their retirement equity.
The only reason to save housing would be because housing drives the economy. But with rising oil and commodities prices, inflation will stay high and they cannot lower rates. Remember that 7% is our usual interest rate, so we should not expect the once-in-a-lifetime 1%-5% rates to come back. The low rates were an anomaly. I don’t think our economy could handle another big bubble like this, because our trade deficit would really get big, and would foreginers keep buying our dollars if that happened?
I predict a 50% drop, to get back at a wage/median price ratio of 7. I don’t see wages going up by more than 3% annually, so it’s housing that will take the loss. With lending standards tightening after this mess, who can afford 10% of $400K? How many Americans have $40K laying around? Prices will have to drop a lot so people can afford to buy houses with 30 year fixed rate mortgages. Without exotic lending, you cannot have prices more than 3.5x wages; you qualify for a mortgage 3.5x your annual salary under the old lending guidelines.
We will return to the 7 multiple, and it won’t be achieved by wages getting higher. So Chris I ask you, what makes it different this time?
