Burst Bubble Talk In The Blogs

The following is from one of the other Blogs that I follow.

While I don't subscribe to the conclusions for our local market, the discussion of the housing market does wobble between extremes. This is from 'Voodoo Debt and the Coming Recession' from the Contrarian Chronicles. What do you think??
~~Ray

A bubble's date with a wrecking ball

Proceeding to the front of the housing ATM food chain, I'd like to spend a moment on how folks' appetite for risk has been enabled by all of this mortgage exotica. There are several worthwhile quotes that I'll now share from The Campbell Real Estate Timing Letter, which has a good track record regarding that market. Some of these comments won't be news to readers, but it's nice to find other people who agree with me (as long as it isn't Time magazine), especially if they come at it from a slightly different vantage point.

Author Robert Campbell writes: "I always figured the deflation of the housing bubble would resemble a slow train wreck, but there is new evidence that makes me think the correction may occur more rapidly. This is because there is compelling evidence that a recession is dead ahead. … Now that housing prices are going sideways to down -- and incomes and jobs are still sagging -- this 'debt-fueled' artificial-life-support system for continued consumer spending (and an expanding U.S. economy) is running out of gas.

"In the long run, housing prices cannot continue compounding faster than incomes. We are now facing this economic reality. People cannot continue buying homes with creative, voodoo mortgage-loan financing -- that, in the end -- they can't afford. I don't know who has been more irresponsible, real estate agents, mortgage lenders, borrowers, or banking regulators -- but I do know that the lending standards for mortgage borrowing have dropped to a zero setting for the past five years. If people weren't in prison or earned more than the minimum wage, money essentially was free to all -- whether they could ever hope to pay it back or not."

No happy ending for housing Continuing on, he says: "The United States has experienced the greatest real estate boom in history, but the boom is now turning into a bust, and the aftermath is not going to be pretty. Present American folklore has it that a real estate decline does not have to affect the economy. That's like saying that it will rain, but you're not going to get wet.

"The coming recession is not only going to dispel that hope, but it's going to speed up the fall. … The sad fact is that we're living in a debt-fueled economy, as opposed to an income-fueled economy. Housing prices cannot continue to compound faster than incomes forever. This incredible rise in prices has been driven by artificial demand (ultra-low interest rates and ultra-loose credit), as opposed to real demand (rising incomes and rents)."

He concludes: "Loose mortgage loans that prolonged the boom will worsen the bust. Homebuyers are now going to pay the price for their 'buy now, worry later' spending spree. … With market manias, self-feeding greed on the way up turns into self-feeding fear on the way down. That time is near."