Why the housing induced recession may be quick

[stansd]

This is admittedly contrarian and is just begging for Piggingtonian abuse.

Is anyone else astonished with the speed of the shakeout that has happened over the last week? We’ve had bankruptcy talk about the biggest lender in the industry, massive reductions in the value of securities, thousands of layoffs, and a rapid change in the mood of the overall economy.

I’ve often been reflective on graphs that show the length of recessions has been shortened dramatically over the last 50 years. Part of this may be attributable to ridiculous Fed liquidity injections, but I don’ think the speed as which the economy reacts to new information can be underestimated.

I won’t go into excruciating detail on this, but with the internet (thank you, Al Gore), and the rapid speed at which financial information is acted upon (I do finance for a Fortune 50 company), I wonder if we’ll see a rapid shakeout and a rapid return to normalcy (this could also be an argument for a more violent, but shorter lived crisis in the housing market).

Recessions are due to financial excess, rigid prices, and wages, poor allocation of capital, etc. I see these things being more rapidly addressed now than ever before.

We may still wind up at the same place, but if the economy can react rapidly, the severity will be similar, but the duration will be shorter-this may hold true even for a housing market that has historicall approximated the turning radius of an ocean liner.

Thoughts?

Stan

[GoUSC]

I will give a quick two sense (pun intended)…While recessions have gotten shorter if you look at the general way our economy has operated over the past 50 years you see that it has moved into a different paradigm if you will (I hate that word). We have become a country of:

1. Personal Consumption
2. Job market based on Finance & Service
3. Personal Debt
4. Government Debt
5. Net importer of basically everything

I feel that we are coming to a head here and everything has piled up and the whole house of cards is teetering on the brink of one mega-collapse. Maybe a little too much doom & gloom but really…how long can debt driven consumption last without self-imploding? The big worry is that the world is now looking at the US with suspicious eyes and might not be so inclined to fund our debt anymore. If/when that happens in force we are in for a world of hurt.

…and I am taking my EU passport and moving somewhere else…

[GoUSC]

I will give a quick two sense (pun intended)…While recessions have gotten shorter if you look at the general way our economy has operated over the past 50 years you see that it has moved into a different paradigm if you will (I hate that word). We have become a country of:

1. Personal Consumption
2. Job market based on Finance & Service
3. Personal Debt
4. Government Debt
5. Net importer of basically everything

I feel that we are coming to a head here and everything has piled up and the whole house of cards is teetering on the brink of one mega-collapse. Maybe a little too much doom & gloom but really…how long can debt driven consumption last without self-imploding? The big worry is that the world is now looking at the US with suspicious eyes and might not be so inclined to fund our debt anymore. If/when that happens in force we are in for a world of hurt.

…and I am taking my EU passport and moving somewhere else…

[GoUSC]

I will give a quick two sense (pun intended)…While recessions have gotten shorter if you look at the general way our economy has operated over the past 50 years you see that it has moved into a different paradigm if you will (I hate that word). We have become a country of:

1. Personal Consumption
2. Job market based on Finance & Service
3. Personal Debt
4. Government Debt
5. Net importer of basically everything

I feel that we are coming to a head here and everything has piled up and the whole house of cards is teetering on the brink of one mega-collapse. Maybe a little too much doom & gloom but really…how long can debt driven consumption last without self-imploding? The big worry is that the world is now looking at the US with suspicious eyes and might not be so inclined to fund our debt anymore. If/when that happens in force we are in for a world of hurt.

…and I am taking my EU passport and moving somewhere else…

[Arraya]

Very interesting topic.

The implications of being in the information age during an economic correction and the new rules associated with it.

I can not see how the “standard” correction time would not be shortened. I would assume back during the last housing recession. Many people went out and purchased homes not knowing there was an issue thus prolonging the correction. Unlike today were anybody with the slightest bit of sense probably would do a little research on the internet before buying.

I’m not a financie guy but it makes sense that it would react quicker…

[Arraya]

Very interesting topic.

The implications of being in the information age during an economic correction and the new rules associated with it.

I can not see how the “standard” correction time would not be shortened. I would assume back during the last housing recession. Many people went out and purchased homes not knowing there was an issue thus prolonging the correction. Unlike today were anybody with the slightest bit of sense probably would do a little research on the internet before buying.

I’m not a financie guy but it makes sense that it would react quicker…

[Arraya]

Very interesting topic.

The implications of being in the information age during an economic correction and the new rules associated with it.

I can not see how the “standard” correction time would not be shortened. I would assume back during the last housing recession. Many people went out and purchased homes not knowing there was an issue thus prolonging the correction. Unlike today were anybody with the slightest bit of sense probably would do a little research on the internet before buying.

I’m not a financie guy but it makes sense that it would react quicker…

[eyePod]

I might have misread the OP, but there is NO recession right now. What is going on in the stock market I think qualifies as a “correction” in a “bull” market.

[eyePod]

I might have misread the OP, but there is NO recession right now. What is going on in the stock market I think qualifies as a “correction” in a “bull” market.

[eyePod]

I might have misread the OP, but there is NO recession right now. What is going on in the stock market I think qualifies as a “correction” in a “bull” market.

[SD Realtor]

Interesting post Stan… “have a take…don’t suck” tg knows where that one is from…

On the one hand, what has happened in the last few weeks has happened quickly but on the other hand many posters here have been calling for this stuff to happen months and even a year ago. So to them, this is long overdue and cannot happen fast enough. I think that housing (on it’s own) just moves to slow to really force anything quick to happen. Now if there is that catalyst that can really prime the pump, it would be either substantial unemployment and/or a credit crunch that would really be tough. Yes the glimpses of what we had last week were eye openers but IMO we need that to happen and stay sustained and tack on another point or two on the rates. Then yes that could push the market into a chunk down situation. I think that would also serve to polarize the sellers much more then they are now. Sellers who are on the fence about selling would bail out of the market altogether and definitely choose to ride it out. Other sellers with large equity stakes who don’t have to move would do the same. Those that have to sell would do so and lower the asking price very quickly. Additionally the REO prices would come down fast, much faster then they have been in quick manner. Anyways with all that said and even if it did happen, I think the recovery would take awhile. True alot of properties may be snapped up quick by the “haves” while the “have nots” become renters, but I don’t think the market will snap up into an appreciation mode for awhile.

Also there is still the white elephant of the existing ARM Resets and such…

Ya never know though.

SD Realtor

[SD Realtor]

Interesting post Stan… “have a take…don’t suck” tg knows where that one is from…

On the one hand, what has happened in the last few weeks has happened quickly but on the other hand many posters here have been calling for this stuff to happen months and even a year ago. So to them, this is long overdue and cannot happen fast enough. I think that housing (on it’s own) just moves to slow to really force anything quick to happen. Now if there is that catalyst that can really prime the pump, it would be either substantial unemployment and/or a credit crunch that would really be tough. Yes the glimpses of what we had last week were eye openers but IMO we need that to happen and stay sustained and tack on another point or two on the rates. Then yes that could push the market into a chunk down situation. I think that would also serve to polarize the sellers much more then they are now. Sellers who are on the fence about selling would bail out of the market altogether and definitely choose to ride it out. Other sellers with large equity stakes who don’t have to move would do the same. Those that have to sell would do so and lower the asking price very quickly. Additionally the REO prices would come down fast, much faster then they have been in quick manner. Anyways with all that said and even if it did happen, I think the recovery would take awhile. True alot of properties may be snapped up quick by the “haves” while the “have nots” become renters, but I don’t think the market will snap up into an appreciation mode for awhile.

Also there is still the white elephant of the existing ARM Resets and such…

Ya never know though.

SD Realtor

[SD Realtor]

Interesting post Stan… “have a take…don’t suck” tg knows where that one is from…

On the one hand, what has happened in the last few weeks has happened quickly but on the other hand many posters here have been calling for this stuff to happen months and even a year ago. So to them, this is long overdue and cannot happen fast enough. I think that housing (on it’s own) just moves to slow to really force anything quick to happen. Now if there is that catalyst that can really prime the pump, it would be either substantial unemployment and/or a credit crunch that would really be tough. Yes the glimpses of what we had last week were eye openers but IMO we need that to happen and stay sustained and tack on another point or two on the rates. Then yes that could push the market into a chunk down situation. I think that would also serve to polarize the sellers much more then they are now. Sellers who are on the fence about selling would bail out of the market altogether and definitely choose to ride it out. Other sellers with large equity stakes who don’t have to move would do the same. Those that have to sell would do so and lower the asking price very quickly. Additionally the REO prices would come down fast, much faster then they have been in quick manner. Anyways with all that said and even if it did happen, I think the recovery would take awhile. True alot of properties may be snapped up quick by the “haves” while the “have nots” become renters, but I don’t think the market will snap up into an appreciation mode for awhile.

Also there is still the white elephant of the existing ARM Resets and such…

Ya never know though.

SD Realtor

[Bugs]

I suppose the national economy could move at a different pace than the local RE markets. But as far as the local RE markets are concerned I don’t think a quick turn around is in the cards.

Pricing is a function of supply vs. demand. Before pricing can stablize we need to clear out our excess inventory, not continue to add to it as we surely will over the next 18 months.

I think the idea that the internet age is going to shorten up our economic cycles is more correctly categorized as a “should be” rather and an “is”. It is based on the premise that if enough buyers are adequately informed they’ll act rationally. Unfortunately, we’ve seen the market participants continuing to act even more irrationally than ever before, information availability notwithstanding.

Ideally, a well informed market acting in a completely rational manner would never disconnect from the underlying fundamentals to begin with. Thus, no peaks or valleys, just a stable and efficient market. I think it’s safe to say we’re a long ways from that at present.

[Bugs]

I suppose the national economy could move at a different pace than the local RE markets. But as far as the local RE markets are concerned I don’t think a quick turn around is in the cards.

Pricing is a function of supply vs. demand. Before pricing can stablize we need to clear out our excess inventory, not continue to add to it as we surely will over the next 18 months.

I think the idea that the internet age is going to shorten up our economic cycles is more correctly categorized as a “should be” rather and an “is”. It is based on the premise that if enough buyers are adequately informed they’ll act rationally. Unfortunately, we’ve seen the market participants continuing to act even more irrationally than ever before, information availability notwithstanding.

Ideally, a well informed market acting in a completely rational manner would never disconnect from the underlying fundamentals to begin with. Thus, no peaks or valleys, just a stable and efficient market. I think it’s safe to say we’re a long ways from that at present.

[Author]

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