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Housing Market Slips Toward Cliff   (December 28, 2005)

There's dirt under the fingernails of the housing market, but its slide down the slippery slope is increasing in speed. Even though the apologists and pundits are desperately digging their fingers into the steepening slope, trying to halt the growing sense of panic, their efforts are not stopping the housing market's slide toward the cliff of "asset deflation" and the subsequent dive in housing-based consumer spending. Consider these clips and links:

From the 12/25/05 column of Paul van Eeden:
Earlier this month we learned that the inventory of homes for sale had reached the highest level in 19 years, and housing affordability was at a 14-year low. This week there is yet another article in the Wall Street Journal about housing affordability.

According to a study prepared by Moody’s Economy.com for the Wall Street Journal, housing affordability fell almost 9% in the third quarter from a year ago. In some markets, affordability declined by more than 20%. On a percentage basis you have to go back 25 years to find a decline in affordability as significant as this.
To confirm the inventory story, here's the statistical source:
Recent data from the research firm ISI shows that the dollar value of unsold homes in the U.S. has now surpassed $500 billion, up an unprecedented 33 percent from a year ago.
And lastly, this quote from Alan Ableson of Barron's:
Stephanie divines premonitions of a credit crash, triggered by a collapse in mortgage-backed securities. On the latter score, she points out that mortgage originators are securitizing low-quality loans as fast they can; subprime lenders are shedding jobs; and insiders in both the homebuliding and mortgage sectors "are quietly streaming through the exits." If such early tremors do, indeed, presage a serious quake, anyone leveraged to the hilt stacks up as a prime casualty. And leveraged to the hilt describes many a hedge fund perfectly.
Still a believer in the housing market's invincibility? First, read all these stories, and then let's talk:

investors retreat from housing (Wall Street Journal)

Sacramento CA area housing weakness (Sacramento Bee)

home sales down in Bellingham, Washington

Chicago home sales down

housing affordability lowest since 1991 (Wall Street Journal)

new housing sales plummet (Yahoo News)

The cliff is closer than many think, and the fall much farther than the standard-issue talking heads expect.

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