Housing Cooling: Gold from Straws?
A: In a recent CNN Money article questioning whether housing is headed for a 'big chill', Mortgage Chief Scott Simon at California bond house Pimco says, "...One of the reasons we think this market will start to run out of gas at some point is that you've essentially created as much gold from straw as you can from this financial alchemy." Story.
Well now! Like the natural gas traders and oil traders of the past 3 years haven't made tons of gold on these booming markets; although natural gas has corrected big time. Is housing really headed for a similar correction as natural gas, or the NASDAQ swandive? Only time will tell.
Lets shift to California for a momment. California's Orange County doesn't have an omnipotent real estate God, but they do have Gary Watts. Mr. Watts is an economist and broker (35 Years) in Mission Viejo and doubles as a spokesman for the O.C.'s Association of Realtors. He is widely recognized for accurately predicting both the housing crash in 1989 and then the housing rebound in 1996. When asked whether the current slowdown is just seasonal or something more, he replies:
Gary Watts insists it is not. His assurance stems from the O.C.'s strong economic underpinnings. Its 3.2 percent unemployment rate is the lowest in the state. And last year the area ranked fifth in job growth nationally. But Watts's favorite indicator is housing inventory. Orange County has only about a two-month supply (compared with the national average of five months).
Back to Pimco's Simon now for an analogy on our current housing situation:
"Housing is like a giant supertanker," says Pimco's Simon. "It took a while after they lowered rates to really speed up, and it will take a long time to slow down."
I happen to agree with Simon on this one. There has been a lot of wealth created over the past 4 years and I think its about tapped out. Looking forward, we really haven't seen the full effect of Greenspans 14 consecutive rate hikes yet. As I previously posted, it takes a good 2-4 weeks for a rate hike to funnel down into mortgage rates, and another 6-8 months to see the rate hike's full effect on the overall economy. Now that we are very near the end of the rate hike campaign (with 1 more rate hike looking more likely), only time will tell how long it will take to slow this tanker down!
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