I’m not a bond expert, but like to watch the bond market for clues…
IMHO, the bond market is pricing in one hell of a recession/depression and a sustained zero-interest-rate policy, perhaps over many years. I do not think it has anything to do with the new $800B bailout.
While foreclosures do put more inventory on the market, they do not affect the borrowing ability of new buyers. We are heading into the next phase of the economic decline…the worst job market seen in decades (just wait, we’re getting there). It’s not foreclosures that cause housing declines…it’s housing declines which cause foreclosures. During an bull market, people could sell their homes whenever they needed/wanted to, and they could at least break even. When the market is declining, those who bought on the up-swing cannot sell for what they owe (especially with low/no down payments), thus the foreclosures.
The greatest influence on housing prices is willingness and ability to borrow large sums of money. It is less about natural “supply and demand” because the demand is most affected by the credit markets. Lots of people might **want** to buy a house, but that doesn’t really affect demand if they cannot qualify/afford to buy a house. No jobs, no stated-income neg-am loans, and the market is toast. Holding off the foreclosures will just stretch out the recession/depression. It will not prop up housing prices over the long term.
