When was the last time you read an article like this? You might remember commentary on this same book a few weeks back by housing cheerleader Warren Boroson (who needed to resort to insult to make his point). Just more examples of the brisk changes in psychology. This piece is by Paul Farrell of Marketwatch.
Back during the ’70s recession I was a real estate expert with Morgan Stanley. We helped banks and REITs work out billions of loser portfolios, reorganize, file bankruptcy, even advised the U.S. Dept of Housing & Urban Development on the collapsed Federal New Towns program. I’ve worked for developers and mortgage bankers, got degrees in architecture and city planning, taught commercial real estate at Cornell University.
But oddly, like the rest of America, most of the time I don’t think about the housing bubble that’s about to pop. We ignore the coming storm.
My files are full of warnings from America’s top economists predicting a housing market collapse and a widespread global disaster: Gary Shilling, Bill Gross, Jeremy Grantham, Robert Shiller, Robert Rubin and others take exception to the deceptive happy-talk of self-serving spinmeisters in Washington, Wall Street, realty brokers and homebuilders.
Lately, powerful voices are challenging the happy-talk. In his latest “Investment Outlook: The Gang That Couldn’t Shoot Straight” Pimco’s Bill Gross takes direct aim at President Bush’s Economic Report prepared by ex-CEA boss and now Fed Chairman Ben Bernanke. He bluntly accuses them of outright lying: “It’s not so much that the report was a compilation of untruths or even half-truths. It’s just that it failed to tell the truth,” hiding the fact that we have “borrowed from the future to pay for today’s party.”
The party’s about over. Economist Gary Shilling recently wrote in Forbes: “The current housing weakness will develop into a full-scale rout … It’s clearly a bubble and is nationwide … The house price collapse will induce a painful recession that will send U.S. stocks into a tailspin … China will suffer a hard landing … and weakness in the U.S. and China will spread worldwide.”
Unfortunately, bubble warnings are routinely dismissed. Our brains can’t handle all the bad news. Besides we’ve been brainwashed into short-term thinkers, incapable of long-term planning. Witness the collective denial and paralysis toward mounting deficits from out-of-control federal budgets, foreign trade, war debt, state, municipal and consumer debt, under-funded pensions, Social Security and Medicare shortfalls.
For example, assume you live in one of America’s top 40 metro areas. You bought last year for $500,000 with $450,000 in mortgages. If the market drops just 10%, your equity’s gone.
And if it drops the predicted 47.2%, your home’s worth $250,000, you really are in trouble. If you lose a job, or suddenly get hit with extraordinary expenses, or just can’t make tax and mortgage payments, or otherwise forced to sell, you could be wiped out under the tough new bankruptcy laws.
So please read Talbott’s book closely: Is your home is at risk? Then quickly decide whether you can hang on in a housing collapse, a stock market bear and another long recession. And if not, consider taking his advice to sell now.