Has The Next Big Leg Down Arrived?
Here it is Sunday night, before the awaited opening of the U.S. stock markets tomorrow morning. After last week and the first ever U.S. credit downgrade over the weekend, many are nervous. And rightfully so. The question is, could this be the start of another big leg down in real estate? I believe so. Real estate, although tangible, is based on mortgages, which are nothing more than loans on paper. Presently, all paper assets are deleveraging, as we grind down towards deflation. This means a person's net worth and credit ability will deminish. Just as important, interest rates could rise due to the U.S. downgrade.
Westside real estate has already deflated 25% from it's peak, yet still remains about 20% - 25% overvalued. Since August of 2007, the decline in real estate has averaged 6% a year. With banks perfecting the art of "extend and pretend" lately it appeared as if home prices may have plateaued. However, with a possible sudden drop in equities and other paper investments, we could be in for another big leg down. If the real estate market comes to standstill, an additional chunk of equity will be wiped out. With increasing strategic defaults, resulting from a loss of net worth, additional job losses and declining real estate values, the market would be brought to its knees. When a rapidly declining stock market occurs, fleeing dollars ultimately go somewhere. This time it won't be real estate, as too many have been burned recently and values remain high compared to incomes.
With "Risk Aversion" the name of the game, people will seek safe havens into U.S. Treasuries, Gold and Silver.
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7 comments:
On Saturday I went to Wilshire Coin on Lincoln to purchase some silver maples. There was a line to get in the store!! I think more people are realizing that gold and silver are the only true investments that are going up. To heck with treasury bills.
I have to agree -- the macro-economic environment will push real estate values down significantly further. There is just no silver lining to be found. Jobs are disappearing; college graduates are entering the job market with crushing student load/debt; the state of California is about to suck billions of dollars out of the economy; the federal government is about to such 2 trillion dollars out; banks won't lend; people can't sell their home to buy another one. There is reason for a lot of concern. The picture does not look good.
"On Saturday I went to Wilshire Coin on Lincoln to purchase some silver maples. There was a line to get in the store!!"
Sounds like real estate circa 2006. What did you pay for silver coins, $50 an ounce?
I paid $42 an ounce for the silver maples.
Gold and silver are hardly in a mania. Prices have been going up since 2000 due to increasing worldwide debt. The Federal Reserve and central banks have been printing money out of thin air to buy the debt. Why do you think interest rates are so low?
I'll continue to buy precious metals until the day when the federal operating debt is in balance (never).
This whole thing with the stock market, riots, and wars is keeping me up at nigh!!!! GRRRR! Do you think we are headed for some doom and gloom? I pray we aren't
Amber-
I think that the market is just correcting itself. It is a much need correction that would have happened a couple of years ago if Uncle Sam and all his wisdom hadn't of stepped in and prolonged this big crapt shoot!
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