Economist warns of US housing downturn. I can guarantee it

Today’s Financial Times has this piece:

There will be fresh economic shocks on the scale of the current credit squeeze if US house prices continue to fall, one of the country’s leading housing experts warned on Wednesday.

“The decline in house prices stands to create future dislocations, like the credit crisis we have just seen,” Robert Shiller, a Yale economist, told a Senate panel on Wednesday.

There were fresh signs of weakness ahead for the housing sector as figures showed applications for building permits fell to a 12-year-low.

Almost all of our recent wealth, not to mention the very reason why common sense and risk aversion went out the window over the last decade, has been appreciating house values. With house prices (and, by extension, home equity into which we could tap) ever-increasing, even the worst candidates could secure, and maintain, a mortgage.

The trouble is that the cliff isn’t under those clouds, and the second Wile. E. Coyote looks down, so does he go.

Here’s something picked up last week from the blog the Big Picture:

Big Picture Home inventories

My first-year Eco 1 students could follow this, so surely the media can. For all that we’ve have previous down-turns, vacancy rates and inventories were not what they are. House prices are not going to stay high, because there is far greater supply, while (if/as we enter a recession) far less demand. Rental property vacancies can expect to be squeezed no end, in the next year or so. Banks should probably just plan on becoming landlords, with all those houses they took back but aren’t trying to sell.

Meanwhile, oil is comfortable above USD82 a barrel, it seems:

Crude oil on Wednesday jumped to a fresh all-time of $82.51 after a larger-than-expected US crude oil inventories decline last week.

Worries about a potential tropical storm heading to the oil-rich Gulf of Mexico, some investors covering previous bearish bets and the US Federal Reserve interest rate cut also helped to push up prices.

In New York, Nymex October West Texas Intermediate rose to an intraday record high of $82.51 a barrel. It later was trading 95 cents higher at $82.46 a barrel.

In London, ICE November Brent rose to $78.49 a barrel and later traded 41 cents higher at $78.0 a barrel.

This is, of course, while the affordability of oil declines with the US dollar (Fred Thompson’s great idea of drilling in the Everglades notwithstanding).

So you, living out there in your exurbs: don’t even think of returning to New York City, you bastards. My rent is high enough already. This is apropos vacancy rates. Our cities can look forward to seeing more and more of the people for whom those cities weren’t good enough changing their minds, returning and looking for space. For the people still there, this will not come as good news.

Meanwhile, we still see more of the same:

”Overall, the figures support the idea that inflation is much less of a concern than it was six months ago,” said Paul Ashworth, an economist at Capital Economics.

”The Fed is lucky that inflation is beginning to behave itself again, because the housing market is in desperate need of some monetary stimulus,” he added.

I don’t care about how much of a concern inflation was six months ago – how about six months from now? It isn’t “beginning to behave itself again”, just because it’s currently doing what we like. One might as well relax in Baghdad because militias are turning on Al Qaeda instead of blowing us to hell. Nothing’s behaving itself anymore, and most likely won’t for a while. Now is the time to load up and prepare.

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