CHESSNOID

Today we had some more bad housing news.  This didn’t effect the market at all since it is expected.  The feds are about to cut rates and investors are loving that.  Will this help the economy? No, it won’t.  These actions are making the recession worse. The focus needs to be on the housing market.  Making a Fraud bailout  of a trillion dollars on Wall Street will not trickle down to Main Street.  That is why the other 9 rate cuts in the last 12 months have not help stabilize the economy.

NEW YORK (Reuters) -

Prices of U.S. single-family homes plunged a record 16.6 percent in August from a year earlier and plummeted more than 30 percent in Las Vegas and Phoenix, Standard & Poor’s said on Tuesday.

Home prices in 20 major metropolitan areas fell 1.0 percent in August from July, according to the Standard & Poor’s/Case-Shiller Home Price Indices.

The composite index of 10 metropolitan areas declined 1.1 percent in August from July for a 17.7 percent year-over-year drop, also a record, S&P said in a statement.

“The downturn in residential real estate prices continued, with very few bright spots in the data,” David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, said in the statement.

A huge supply of unsold homes, tighter lending standards and record foreclosures have pushed down home prices, deflating a bubble from the early part of this decade.

For the fifth straight month, prices fell in every region on an annual basis, he said.

Both the 10-city and 20-city indices have fallen from a year earlier for 20 consecutive months. In 13 cities, annual returns worsened from last month’s report, he said.

We have had many economists and real estate experts making calls that the bottom of the real estate market is here every month for the last 18 months. We had Bernanke saying this wouldn’t affect our economy just a year ago. Now, we still have him in charge making decisions to avoid a recession. He doesn’t like to use the “R” word and once thought we were in a correction phase. The next month he was running around with his head chopped off with the other 2 stooges Bush and Paulson, saying the sky was falling. I think he was dumbfounded to find out what a recession really is. I know Bernanke is well schooled in the economic theories, but he just doesn’t exhibit common sense which is why he looks like the village idiot.

Peter Schiff made some comments that offered some insight of what he thought the future real estate market holds for us. This is the guy who called the real estate market bubble burst 2 years ago at a conference.  Of course, he sounded like a nut back then considering people were still flipping houses making $50,000 every transaction.  He is very bearish and thinks prices might go back to 1998 prices. Ouch!   CNN.Money:

But not everyone agrees that the stimulus packages, which are designed to loosen up tight credit, will prove helpful. Peter Schiff, president of broker-dealer Euro Pacific Capital, believes the impact will be decidedly negative.

“The goal of all these plans is to give consumers more money to spend. However, excess consumer spending is part of the problem, not part of the solution” he said. “After a decade-long spending orgy, market forces are finally trying to restrict consumer spending and dampen credit. But the stimulus looks to provide a new source of funds after savings, income, and credit have been exhausted. Our imbalanced economy is in desperate need of retrenchment, but stimulus plans will effectively hold the firemen at bay while throwing gasoline on the flames.”

Schiff explained that the housing boom’s exotic mortgages, which let people buy homes with zero money down, have vanished. Now people must save to afford a home. But easy credit means people will buy more consumer goods and save less to put towards housing. As a result, he expects home prices to fall a lot more.

“They’ll surrender all the gains they made in the past 10 years,” he said, “and be even lower than they were 10 years ago.”

He might be right, but he could be wrong too. I think the prices of houses will flatten as soon as the relationship to income to price becomes realistic. I am in California and the average household income is closer to $50,000 and loans should not be more than 3 times that amount. At least that is they way it used to be in the old days. On top of that, people will have to save up 20% down payments. Trust me, most Americans can’t save because we are born spenders.

Other bloggers have mentioned that people are able to rent for cheaper than what they are able to buy real estate for monthly payment wise even with the tax breaks. So until that also changes, there may be no motivation to buy. I also think because so many Americans have been burned by real estate in more ways than one, a future real estate market bubble will probably not happen in our lifetime. By that I mean we won’t see 20% annual returns in consecutive years.