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Sometimes the “Smart Money” Isn’t So Smart
By JLP | December 10, 2007
Here’s an interesting tidbit from one of the cover stories ($) in today’s Wall Street Journal:
Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong.
In a matter of months, though, much of the promise of the new financial architecture — together with its underlying assumptions — has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the pain has spread far and wide. An examination of the resulting crisis shows that it is comparable to some of the biggest financial disasters of the past half-century.
Oops! I guess their assumptions were wrong!
So, when can we expect things to turn around?
Well, according to this report from Fox Business News, the National Association of Realtors is expecting a slight rise in the number of home sales next year:
The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for U.S. existing home sales to fall 12.5% this year to 5.67 million — the lowest level since 2002. Last month, the association predicted 5.66 million existing homes would be sold this year.
The Realtors’ group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month’s prediction of 5.69 million.
It’s important to note that 9 out of 10 realtors believe in Santa Claus!
Seriously, I don’t see how they can believe that things are going to turn around next year. In fact, if you read the article, you’ll see that lots of economists disagree with the realtors and expect prices to fall through next year and possibly longer. Who’s right?
Topics: Credit, Housing Market, Mortgages |