it is the worst since the Great Depression by a long shot(mannfm

One thing I have noticed is that a lot of housing data only goes backto the mid 1980's or at least the sources they are using only go backthat far. So they call it the worst in 20 years because there is only20 years of data that they look at. Truth is it is the worst since theGreat Depression by a long shot. Had 1/8th of the FHA loans ever beendelinquent, the programs would have been different and this mess wouldhave never developed. I recall reading in the late 1990's about housingand how the delinquency rates were near all time highs and they weren'teven in this neighborhood. The magic elixor of spreading risk andearning fees created a sense of being able to do about anything theywanted in this market and get away with it.

This is going toget worse because the real defaults are linked to what a home will sellfor and not about credit or willingness to pay. Appreciation has alwaysgiven people a way out of default, but depreciation locks them into alosing battle. The problem with holding out is that a backlog of homesto be sold builds up and holds the price down for the long run,trapping even more people. The first 10 years of a 30 year amortizationdoesn't do much to the principal balance of a loan and in a stableprice market, a 10 year old home is a 10 year old home, especially onethat the owner has been holding out on. Needs new paint, new carpet,new appliances, new tile, maybe a new AC and if new homes are beingsold in the same price range, look out.

I just watched aninterview with Robert Shiller posted in the bear case library. Shillermentioned something that I have repeatedly brought up for a long time,that the cost of building homes didn't go up that much. I keep bringingup that the market is being oversupplied with new homes and of course Iget a debate out of some person who really don't know what structureseconomic prices. I worked through a real estate bust and to be honest,it wasn't pretty. The local builders that were well capitalized stayedin business and kept building new homes, despite 40,000 a year goinginto foreclosure for a good 4 or 5 straight years. What we saw in DFWwas mild in comparision to Houston and OKC.

The point is thatthe builders in the stock market are going to be pushed to build homes.YOu might be reading about the land purchases that have been made bysome of the securities firms. I think they got left holding the baghere, as a lot of this stuff will turn to crap and builders, not thefirms will dictate the prices. In the meantime, land loans will defaultand land will be resold for a song compared to what it sold for whileeverything was booming. 10 to 20 years in the time of holding land isalmost forever and that is what you have here, probably 10 to 20 yearsbefore a lot of these areas are perking again. When the stock marketdies down, which it will, contrary to some opinions, the air will goout of the NYC market (there are going to be one hell of a lot ofunemployed bankers and Wall Streeters and those that have money almostalways find a really nice place in Florida to retire)and prices willget really moderate. 2020 will be a really good time to get a flat inNYC.

The real problem is the problem faced when any market haspeaked, the buyers have all bought and they can only join the sellersin the game of meeting any new buyers that might develop in the future.Thus the raging speculators have all bought and joined the sellers andbuilders and now the other buyers become sellers over time. The sellerswith the lowest going in costs or lowest loan balances get preferencein making the next sale because they can. If home prices went up 100%and building costs went up 20%, then it stands to reason that a homethat went to $600,000 can be sold by a builder for either a profit orat least to move a lot he is stuck with for $360,000. This minusdepreciation becomes the new landmark price and all in above it becometrapped due to a lack of equity or a lack of funds to extractthemselves from the house. The only thing that gets one out of a homein that condition is a deal with the mortgage company.

This isgoing to get a lot worse unless some new demand is created for homes.Even so, a new demand will only move the day of reconning forward. Oneof the things that really got me was the total lack of understandingabout this phenomenon repeatedly seen on CNBC by literally hundreds ofanalysts, like there wasn't an example to look at. A recession willblow the top of this market and the 2 will combine to produce aneconomy that few alive in the US have ever seen. The term bear marketwill means something other than a 3 year retracement in prices as wewill see prices not seen in 20 years in a lot of paper security marketsand maybe in the housing market as well. I am sure Wall Street willinvent a new game to delete the stocks that go to zero out of thereturn mix and sell people on the idea that stocks always win in thelong run. I hate to say it, but in a lot of housing markets, peoplewill not live to see the prices paid again on their house and the samegoes for whatever the final high will be for the DJIA, SPX and Nasdaq.