I have 2 predictions. The first is based on Rich’s charts showing median home price/per capita income cycles up and down between 7 and 9. We are at 14. Assuming wages keep growing at 3%, we need a 35% correction by 2011.
The second is a multiple of rents. What is the historic SFH rent/wage ratio? We need to return to that.
But with the exotic lending, we can easily overshoot, and get a 50% correction.
One factor against this housing market, is the national housing market decline. In the last 2 busts, did the national housing market go down? We have price drops nationwide, national builder stocks are down 48% from peak, overbuilding is nationwide, etc. This lending bubble, credit problems, stagnant wages, and people living off debt, and negative savings rate, is a national issue. We are going to feed off each other on the way down. No telling how bad it can be. Perhaps a depression?
My main question: what will the Fed do to turn this recession around? By Q1 07 it will be obvious we are in a recession, and the Fed will try to liquidate. More cash injection? Can consumers take on more debt? More cash will really fuel inflation.
Last time when we went to 1%, oil prices were low, inflation was low. If the Fed does that now,we will have hyperinflation and the dollar will really sink, right?
