BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Lawrence Yun, chief economist for the NAR, said he believes existing home sales will gradually rise over the next year as 'pent up demand' is unleashed. In the meantime, while Mr. Yun awaits the unleashing of 'pent up demand,' we'll continue to follow the 'pent up supply' of housing that is being relentlessly unleashed. Inquiring minds noticing the huge pent up demand depicted by the above chart are no doubt asking 'Pent up demand at what price?' That's a good question too. I think some clues are in the following chart. Prior to things going completely insane in 2002, the last peak in house price to rental ratios was in 1980-1982 when mortgage rates were near 15%, Fed rates near 18% and inflation running rampant. Never before in history has it been so cheap to rent relative to own. Robert Shiller, a Yale University economist who has made a career out of studying bubbles, says the last bear market in stocks may have also made houses more appealing. A 2003 survey of home buyers he conducted with a colleague found 10 times as many said the stock market's collapse encouraged them to buy a home as said it discouraged them. Their thinking, Mr. Shiller says, went like this: 'I'm fed up with the stock market, I had so many promises of high returns and my broker and the accountants were deceiving us. But homes have always gone up in value, and it gives me great satisfaction to own a home and I can see it everyday.' But after years of living off the debt-financed increases in the value of their homes, U. S. consumers are in uncharted territory. 'A lot of people, including me, have been saying that the country has been spending more than it's been producing, and that will have to come to an end,' says Mr. Volcker. 'The question is: Does it come to an end with a bang or whimper?' Subprime resets peak in 2008 but Alt-A and Pay Option ARM problems which are just as big if not bigger do not peak until 2011. The problem with foreclosures has really just started. Looking at the above chart perhaps we get a bounce in 2009 before the final collapse heading into 2012. Perhaps by then home prices will be back at more realistic levels. Here is the irony of the situation: For all the talk about affordable housing, most of the affordable housing hypocrites do not really want prices to fall. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.