I am subscribing to the theory that most markets are driven by mass psychology which in turn impacts the amplitude of economic issues in society. Every time there has been a bubble (or major crash) in the financial world, everyone saw it coming, everyone saw the signs, but most folks never put their money where their mouths were, and rode it most of the way (or all of the way) down.
We are in an unprecedented slide, I truly believe this and am not a conspiracy guy, a gold bug, a end-of-the-world person, etc. We have HUGE problems in our financial markets, an economy which has had trillions of dollars thrown at it, which has not only not stopped the slide, but has happened in a basically deflationary pattern (the net effect of deflation is that prices stay flat or go down which we are seeing).
Housing is a vast supertanker of economic issues, which are not easily corrected nor can be turned on a dime. Companies correcting their P/E ratios by not hiring (and in fact firing employees), and financial markets with huge volatility in the face of bad economic news are harbingers of a stock market collapse, and an even more rapidly descending housing market.
I’ve been talking to people (regular working folks) who are laid off, cut back, and in many cases being offered new jobs by their same employers but at up to 1/2 off their previous salary – and that doesn’t show up in the statistics.
There have been and are continuing credit cutting, as well as assets starting to be repriced at what they are worth (but not really as all the banking and accounting rules have been altered to not give the real picture!), and this trend will continue taking the consumer and then the economy with it.
Could we have some slight price increases in CA??? Absolutely. But I believe that we will see dramatic price deflation across all assets, especially housing. The buyers (in general) are scared and are not getting the signals about their economic safety from their bosses. What kind of recovery can you have when the majority of the population sees lower income and higher expenses ahead?
A broken medical system, a financial system which is more fraud than investment grade, and pundits who always claim that the recovery is around the corner, but can’t see the big picture because it is too scary…
ANYWAY – the only mortgages which are available are ones backed by Fannie and Freddie. Do you think banks are giving 90% loans out which are non-conforming and which aren’t guaranteed, and lets remember that both those institutions are broke and will have to be rescued.
I think that there is too much danger of a snowball effect. After all we spent like crazy for 15 years, and the next 15 (which we started 3 years ago) should be a dozy! And pretty damn bad.
I hope this isn’t true, but I’m generally shorting the markets modestly and long term, I sold ALL my muni bond funds for cash, and in a future of massive deflation, cash will be king, not bonds and not even treasury bonds.
