mike neff said:
I thought the bubble was going to CAUSE the recession??
Mike, from the reading I have done plus my own experiences in the real estate market, one of the biggest cause of the slowing of the national economy is the fact that house price appreciation is slowing, stopped, or is declining. House price appreciation has fueled the national economic growth (GDP) because of refinancing and extracting equity at relatively low interest rates that enables consumer spending. It has been well publicized that consumers are spending more than their incomes over the past couple of years and the savings rate has turned negative. You cannot continue spending by debt creation unless you have free money like increases in home equity. Or unless you are the government that owns the printing press for printing money.
Rising interest rates are putting more pressure on housing affordability coupled with an already high average price of a home. Demand for homes is falling creating excess inventory of unsold homes.
20% of home sales have been investors or speculators. That demand is going or has gone away.
There has been a very high percentage of homes sold with sub-prime financing and at 100% LTV. Homes are being sold with huge seller concessions and it is typical that seller will pay all of buyer's closing cost. Builders are offering 10's of thousands of dollars in free upgrades, cars, etc.
The delinquent payment and default rate on home mortgages is rising. There are more short sales and foreclosures hitting the market at prices less than the original purchase price.
Increasingly, appraisers, Realtors, mortgage brokers and sellers are being sued by buyers for misrepresentation and fraud concerning their home purchase.
Inflation is picking up speed. The FED has just raised interest rates, again. The futures market is showing 85% probability of another rate increase for the August FOMAC meeting.
The U.S. treasury yield curve has been rising across the spectrum of maturity and the shape is flat to inverted. That is signaling slow or negative economic growth expectation for the future.
http://quote.bloomberg.com/apps/chart?type=c13&cfg=yldCurve_US.xml&x=3m|6m|2y|3y|5y|10y|30y&y1=5.01|5.28|5.18|5.14|5.10|5.13|5.17&y2=4.99|5.30|5.21|5.17|5.14|5.18|5.22&y3=.02|-.02|-.03|-.03|-.04|-.05|-.05
So Mike, what is your understanding of why economic growth is slowing and may turn negative (that means a recession)?