Housing meltdown on magazine cover …
I always get a bit wary as themes which dominate the markets become stories on MAGAZINE COVERS.
This weeks Business Week’s cover is: HOUSING MELTDOWN.
And it happens as markets already stabilized, the big troublemakers tied up (Countrywide and Northern Rock) and even the homebuilder sector has recovered A LOT from the lows.
On the other hand, this rallye might be based on overoptimism and the lies(!) of so many leading voices in that area. All the banks are involved as nobody really tells us the truth about the real values of their holdings. Estimations of the future write downs rise every quarter and prices keep falling.
The BW story sees a drop in house prices of AT LEAST 20 to 25%, citing people who guess it could be 40% as well. The 25% estimate is based on a long term trend based idea of home price appreciation. Calculations show, that the trend is about 0.2-0.8%/year added on to the inflation. Is this the reason, why nobody seems to care about infaltion? OMG!
But this time, the problem could be far bigger. It is not only about deflating the bubble, it is about derivatives melting down as well and this easily could cause some overshooting … as we are used from equity markets 
Adding up to the problem is the record debt of the U.S. consumer and the structure of the U.S. age pyramid.
In 1989, Harvard University economist N. Gregory Mankiw co-wrote a paper that was startlingly negative on housing. He and David N. Weil predicted that home prices would decline by 47%!!! after inflation over the next 20 years, based on a shrinking pool of potential first-time buyers and an expectation that baby boomers as a group would spend less on housing as they grew older. They were if not wrong … at least TOO EARLY!!! But who knows, what will happen the next years …
What seems to be worrisome … Some of the last sales by companies were done at and below 50% of the price, they had it on their books. OOOPS 
The equity markets showed a nice recovery during the last week, but it is so far ONLY a technical rallye, NO SUBSTANTIAL UPMOVE, which is to be followed.
Still statistics favour NEW LOWS!
Tags: Counrtywide, homebuilder, housing, Mankiw, Northern Rock, outlook
