Contrarian

[lostkitty]

“Thanks for sharing that and participating in this forum. I invite you to consider my point of view…”

Because it is based on simple mathematical calculations, over time zillow will become increasingly accurate. May take a lot of time though!… Eventually there will be enough accurate comps to make better “zestimates”.
For now though, zillow is an easy starting point to look up past sales, and price trends.

[powayseller]

I am sorry I asked anyone how much their home went down last week. That was a horrible thing to say. I’m really sorry.

[PD]

I think zillow is an excellent tool for the average person. The estimate is usually off but it enables people to see comps in the neighborhood and do their own estimate. If you know the neighborhood and understand which houses have premiums, you can come pretty close to figuring out what the house is worth. I say hurray! for sites like zillow which empower the average person and take the information monopoly away from realtors.

[bubba99]

Another worry is the fed funds rate vs the prime rate. Although the prime rate was in the 4 plus percent range, the fed funds rate was 1 percent. Money left in savings accounts did almost nothing. The 1 percent return forced money into the stock market and (you guessed it) housing. Money now has a safe haven at 5% just sitting in a World Savings account. The savings rates will continue to rise as the fed raises interest rates driving more investors out of the volatility of stocks and housing. Leading to a downward “explosion” in the housing market.

I have trouble not seeing a depression like decline in the general economy as housing declines. If borrowing against the house is not available as values decline, where does the money come from to fuel consumer spending?

It is so obvious, one wonders how it will be avoided?

[powayseller]

bubba99- you are so right! Even flat home values will cause a recession, since 70% of GDP is consumer spending, which comes from MEW.

I hope everyone else here gets this point. 70% of GDP is dependent on this one fact: rising home values and borrowers’ ability to borrow it freely to spend.

Flat prices or high interest rates will break the cycle.

What could help: rising wages. This would be possible if we erected trade barriers with low-wage Asian exporters. That strategy would also cause massive inflation, as the low-cost goods they provide has caused deflation in goods.

The key for everyone in this country is to realize that even flat home prices will cause a recession, about 9 months – 18 months after the prices stop rising. It takes consumers 9 months to spend the equity loan, and 9 months for reduced spending to show up in less capital spending and lower stock prices.

By the end of 2007, the full-blown recession will be here.

Can another asset bubble save it? Globally, central banks are tightening and withdrawing liquidity. Even Japan, whichh had 0% interest for decades (I think) is raising interest rates. Even China is raising interest rates and bank reserve requirements to reduce inflation.

The gig is up. Prepare yourselves for a period of saving, possible job loss. Be frugal for the next few years. Then you can handle this recession with less pain.

[carlislematthew]

What is included in the 70%? Food? If so, will people stop buying food when they can no longer refinance and take more money out of their house? Will they stop buying printer paper? Cat litter?

I’m not sure how *much* of the 70% has been funded by MEW (I’m sure it’s a substantial portion), but it’s certainly not all of it and I don’t believe that the entire 70% of GDP is dependant on MEW.

I do however agree with you regarding a recession and your advice regarding being frugal and saving – that’s my plan too. I also feel a recession coming, and have just landed myself a job at a company with money in the bank, a fairly stable outlook, and conservative growth plans. I’m hoping I can weather the storm (however severe or mild it is) and come out the other side with savings intact. If possible, I’m hoping to have the courage to buy a house in the middle of it all!

[North County Jim]

CM,

There have been estimates made of the MEW contribution to GDP growth. Here’s a link to a chart from Calculated Risk showing GDP growth with and without MEW.

He used an assumption that 2/3 of MEW flows through to personal consumption.

[masayako]

From the housing bubble burst in Japan the past decade, which is very similar to ours, I think the huge pricing drop is imminent.

[powayseller]

I wrote an employment piece a week or so ago. Did anyone read it? I put the employment figures back to pre-MEW times, so the year 2001.

Spending will drop in the categories mentioned in that story I wrote: retail, construction, restaurant. People will cut back at least 75% (a guess) on remodeling, shopping at Home Depot/Ethan Allen, buying new cars, jewelry, boats, ATVs, iPods, clothes, take fewer trips/meals out, and so on.
You listed consumer staples, but those things will not go away. Those are cheap things that everyone needs.

And read the CR thread from above.

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