I agree with most of what you have written in this last post.
It will be painful, but it’s entirely proportional to the irresponsible excesses we have engaged in as a country. I think it will only be counterproductive to try to prevent this economic correction from occurring — we’ll just make it slower and more painful and screw up more peoples’ life plans.

principal reductions are the same as bailouts —
people in denial about the fundamental changes that are underway think they can prevent them from occurring. It’s futile. And it wastes resources we will need to use to recover once we are through this mess.

Johnathan, if someone is short that 6-12 month cushion that you recommend, do you think they should walk and build their cushion now? Also if they now find that they don’t want *that* house at *that* price should they not walk as well? Dr. Housing Bubble posts that the average downturn is 5-6 years based on his research. That would put us until mid 2012 before anything happens *upside*.

Good questions.

A lot of people can hold until 2012 and beyond, and they will eventually see the market come back.

For those that can’t, I don’t see why they don’t start walking… I can’t think of anyone who can stop them. Although I don’t think that walking is the most honorable course of action, it’s still slightly more honorable than begging for taxpayer funded bailouts.

So, we actually have 3 groups here…

1) of the underwater borrowers, some are brave enough to walk. They will likely be rewarded by cutting their losses, and they will be able to buy again sooner. They’ll be smarter the next time (which I hope also includes saving more money)

2) the underwater borrowers who can’t afford their mortgages who pathetically wish for a bailout will end up paying on their mortgage a little longer, and then still ultimately be foreclosed on, after suffering much distress.

3) the the underwater borrowers who CAN afford their mortgages but are not brave enough to walk, some will beg for others to give them free money. But in general they will end up holding their properties until the market turns around.

(Of course I can’t legally recommend that anyone takes any course of financial action.)

“Where is the sector of the economy right now that poses relief soon? Which sector of the economy is shining a light as the next ‘boom’ to underpin a healthy and real recovery”

I don’t see one do you? I think healthcare, due to the boomers, will thrive moving forward, but this is hardly new. The going green initiatives will add jobs, but because nobody can afford the cost it can only go so far. Military is shrinking and so will our Government as a reult of this downturn and fitingly so.

“When outsourcing of major manufacturing capacity reverses and returns to domestic shores, that is when you will see a turnaround. That ‘metric’ will be your canary in the coal mine of better times on the horizon”

I totally agree which is why I call for massive tax subsidies for companies employing workers in this country. Give credits to those building long term jobs that will allow our economy to prosper again. The only problem will be finding people who can afford to buy the stuff we produce.

“Until then, it’s going to be a dark & cold corner as far as the eye can see”

Everywhere and not just here mind you.

“We’re only in the first few innings of a major turn-around in mindset from consumerism to savings, let alone to where the masses will be able (or willing) to take on a mortgage debt-load”

I agree and see a very hard landing for much of the elderly and much of the young in this country. Off course we will all suffer but much of the elderly were reliant on their home values for retirement, and mush of the young did not anticipate needing 40K-50K to plunk down in order to buy a home. Most simply just don’t have it and may not have it for decades to come. See what havoc that reeks on housings recovery plans.

“We could easily see – and experience, housing prices decline to late 1970’s averages. Crazy, yeah? Keep an eye on commercial real estate (office buildings and malls for starters) numbers as your guidepost to foretell the immediate future – after the coronation tomorrow and ~90 day honeymoon that follows”

That sounds a tad eager to me, but check out deadmalls.com in terms of your other point on CRE. This will be the demise of 100’s upon 100’s of much smaller regional lenders. The FDIC will surely be busy in 2009.

On top of all of this we are going to see even more handouts and more bailouts in just a matter of days. This will ensure housing doesn’t recover for a decade or more. Nobody has money and after paying for all of these bailouts neither will the tax payers of future generations. We are just making sure that we are broke and will stay broke for a long, long time to come.

I would tend to agree with the 5 – 6 year downturn time frame – in a normal market correction.

Question: Based on the charts, graphs, comparisons, readings (?), empirical data, etc., is what’s happening out there right now a ‘normal’ market correction? Is this your ‘average’ garden variety downturn?

Here’s the down-low:

Where is the sector of the economy right now that poses relief soon? Which sector of the economy is shining a light as the next ‘boom’ to underpin a healthy and real recovery? Web 2.0? ‘Financials’? (sarcasm off)

When outsourcing of major manufacturing capacity reverses and returns to domestic shores, that is when you will see a turnaround. That ‘metric’ will be your canary in the coal mine of better times on the horizon.

Until then, it’s going to be a dark & cold corner as far as the eye can see.

We’re only in the first few innings of a major turn-around in mindset from consumerism to savings, let alone to where the masses will be able (or willing) to take on a mortgage debt-load.

We could easily see – and experience, housing prices decline to late 1970’s averages. Crazy, yeah? Keep an eye on commercial real estate (office buildings and malls for starters) numbers as your guidepost to foretell the immediate future – after the coronation tomorrow and ~90 day honeymoon that follows…

-C.C. (aka Mr. negativity)

“A prudent borrower should be able to cover their basic expenses for 6 months with savings. If they are in a job with more specialized skills, where it may be more difficult to find new employment, 12 months of savings is recommended.”

“Those that can pay their mortgage, which appears to be everyone posting here,should continue to do so. Why shouldn’t they? They wanted *that* house at *that* price, irrespective of anything else that occurred.”

Johnathan, if someone is short that 6-12 month cushion that you recommend, do you think they should walk and build their cushion now? Also if they now find that they don’t want *that* house at *that* price should they not walk as well? Dr. Housing Bubble posts that the average downturn is 5-6 years based on his research. That would put us until mid 2012 before anything happens *upside*.

Layoffs are a normal part of the ebb and flow of business. A prudent borrower should be able to cover their basic expenses for 6 months with savings. If they are in a job with more specialized skills, where it may be more difficult to find new employment, 12 months of savings is recommended.

I do not want to throw anyone into the streets. Those that can pay their mortgage, which appears to be everyone posting here, should continue to do so. Why shouldn’t they? They wanted *that* house at *that* price, irrespective of anything else that occurred.

As for interest rates, I will gladly buy when interest rates (and credit standards) are high, since in these times of “joe howmuchamonth”, interest rates are inversely proportional to housing prices. And, I won’t be competing my hard-earned dollars against folks with no skin in the game, and no financial sense to know a good investment from a bad one.

By the way is that income really so secure in this economy?

Many of these responsible folks were making great money but lost their job or had large reductions in pay, like myself so a modification is warranted. You can call us stupid all you like (sticks and stones!) but We’re not lazy.

Please, no one saw 50 to 70% off in values coming.
This is unprecedented as was the surge in prices from those toxic 100% No Doc Loans. The lenders do have a responsibility as do the buyers. I say reduce it; but the lender shares partial equity up to the original purchase price. A kinder version of the Hope Now program.

Like other soothsayers from the 70’s saying any year now we’ll be in a bear stock market. I see it coming, Well, it happened in 2000 and again in 2007. Now you got your real estate buyer’s market.

Dive in! or will you procrastinate again?

Or you want it to be picture perfect?

I do agree prices were out of whack. What I didn’t see was loan programs virtually drying up. This is killing any type of base.

Why buy now when rates are low and rates can now only go up which means what for housing prices? Yes, tough times for another 5 years people.

Some good reading is patrick.net and Harry Dent

good luck

“I must say if our choices are only cram downs and allowing “investors” to purchase homes for pennies on the dollar; I might chose cram downs”

That is your only choice at this moment in time.

“We need to do something to eliminate bulk, deeply discounted sales and avoid bailing out fraudsters”

I agree, and principal write downs do just that.

“Allowing defaulting homeowners to remain as renters in certain circumstances is the way to go. Defaulting homeowners must cooperate in the sale of their homes to others”

I agree, and especially for those that do not qualify for a write-down

“We must let the banks fail”

I agree that roughly 2,000 banks need to go under in the next calendar year… minimum.

“What we have seen in losses is only a drop in the bucket compared to what will be in store”

There will be much more pain to come I agree…

“The only thing we really have left in our country is our Constitution and legal system. We must keep these in tact if our Nation is to survive”

I totally agree with you on that!!!

My ‘grip’ is there, just fine. Aside from the physical, it’s in the secure knowledge that I have nary a payment; No credit cards, no mortgage, no car payments, no liabilities, no Debt – No Shit Sherlock.

I don’t mean any ill will by my sarcastic/cynical comments – they are simply observations with a sneer tossed in. Because if one cannot at least sneer at the shenanigans and chicanery that has passed for our economy over the past few years, then one is truly lost.

Michael Blomquist:

Yeah buddy, we’re down here in the belly of it all! You know, I saw (and heard it incessantly) during the dot-com era. The ‘day trading’, my ‘portfolio this and my portfolio that’ – every single G-damned day. So when I saw this happening all over again in the real estate market – except this time on Growth Hormone, it was enough to make one almost insane from it all.

Lord have mercy, it’s over with now. At least until the next bubble, or whatever the Fed may find to inflate. Hey! How ’bout that bond market…

Gawd…

C.C.

You are gleeful at sacrificing the “outer circle” to spite a few well to doers? This is glorious to you?

The one driving an S-Class will be driving a used Honda and renting a 2500 sq ft home. The guy driving the Honda will be cast away.

C.C., you need to get a grip.