San Francisco Real Estate - Residential

Housing 'Freefall' Worse Than Dot-Com Crash?

Here is the latest "scare" report from NewsMax.com. As you will see they are trying to compare what is happening in the housing market to what happened in the dot-com crash of 2001. How much more irresponsible can that be? First of all they are comparing apples to oranges. The dot-com craze was fueled from excessive optimism of people trying to capitalize on what was a new market; the Internet. Nobody knew (or refused to believe) that traditional market values applied to cyber-offerings too, that is, a company is a going concern and has to make money to stay in business!

What people ended up doing was speculating on the possibility that the next newest and greatest technology offering would make them rich by the buying and selling of the stock itself instead of the tradition way that money was made in the stock market; the dividends paid out by successful companies. To simplify, the stocks themselves became the product of the company, not the product of doing what they were in business to do.

Real estate is a whole different ball game because it is just that; REAL! Though the term came from Latin for royal, you get my point. When the housing market takes a hit, just hold on. How many times have prices come down over the long term? And if they do fall, you still have the property not a worthless piece of paper saying you own a percentage of XYZ company!

With that said, here is the article.

- Mick Orton
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Housing ‘Freefall’ Worse Than Dot-Com Crash?The number of unsold homes in America is at a 10-year high, and some analysts fear that the current slowdown in the housing market could cause more damage than the dot-com bust of 2001.

Canada’s Globe and Mail cites David Rosenberg, Merrill Lynch’s North American economist: "[Rosenberg] has fretted about a housing bubble for at least two years. He of course has been wrong. Prices kept rising.

"Now he looks more right than wrong and he's steadfast in his convictions. He talks about ‘the recession under way in the housing sector.’ Note the lack of ‘potential’ or ‘possible’ ahead of the R word," the paper says.

"Houses are the biggest store of North American wealth. If even a small fraction disappears, watch out. With cruel glee, Mr. Rosenberg points out that there have been 10 U.S. housing downturns in the past 50 years and seven of them triggered a ‘full-blown recession within 24 months.’ "

The UK’s Guardian reports that according to official figures, the number of new homes sold in July was 22% lower than at the same point a year earlier, and prices were nearly flat - all of which is leading experts to predict that what is now a housing slowdown will devolve into a total crash.

"Things do seem to be getting worse very quickly. Freefall is a strong word, but I think it's the right one to use here," Paul Ashworth, chief U.S. economist at Capital Economics, told the Guardian.

Ashworth claims that since 2001, some 30% of all jobs created in the U.S. have been linked to housing - anything from work on construction to employment at a store like Home Depot. The paper says a housing decline could see businesses cut some 73,000 jobs a month in 2007.
Morgan Stanley’s chief economist Stephen Roach believes that the housing slowdown - which is cutting into construction spending and robbing homeowners of ready cash from their properties - will slice about two percentage points off 2007 GDP growth, taking the United States close to recession.

The Guardian quotes Roach: "For a wealth-dependent U.S. economy, the bursting of another major asset bubble is likely to be a very big deal," he said, warning that, with U.S. fiscal and trade imbalances now larger than five years ago, the fallout for the rest of the world could be more devastating than the aftermath of the dotcom boom.

" ‘A bursting of the property bubble poses equally serious risks for America's key trading partners and for the rest of an increasingly integrated global economy,' he added."

- MoneyNews from NewsMax.com

posted by SFResidence.com @ 7:44 AM