Technicals may indicate a possible bounce, but fundamentals are as ghastly as I have ever seen.

I called my parents this weekend and told them that they need to be in cash for a few months. Dad said he will have his money-dude on the phone as the first order of biz on Monday. Mom is moving that direction.

KD-While I appreciate your writings immensely, in the Saturday and Sunday ticker you pointed to the real estate downturn having at least a year to go or lasting until 2009 at least. This seems wildly optimistic to me. Japan's downturn has been playing out since about 1990 I think. I see no reason to think that this real estate downturn will go much quicker, given that this is the largest speculative bubble the world has seen yet-referring to the residential real estate frenzy and the lending spree that accompanied it.

Thanks.

Matt R.

I am curious, but if the central banks keep injecting liquidity into the markets won't this lead to severe inflationary pressures ? whatever happened to letting the markets correct naturally without intervention.... it seems as if every time we meddle with the markets it just gets worse and worse... one bubble creating another which in turn creates another until you have global bubbles... where does it end ? and how many sectors are there to inflate ? or does it all end in a final crash ? While watching CNN I had to laugh because one of the commentators came on and said don't panic; the banks are pumping money into the system... if you want a home you can have it because there is free money everywhere.... gee.... and all this time I thought you had to work for money

Well yes and no.... The problem with these "injections" is that they keep the needle in and then pull the plunger back!

As for the housing market, I am quite the pessimist but not catastrophically so..... plus, with a timeline over a year out you're not making any moves in that sector for now, and you can always push it out according to conditions.

The biggest issue with Japan's housing market is people became scared of debt. Even at 0% (free money) no one wanted to go further into debt.

Could we see the same thing here? Anything is possible. Right now I don't see it. What I do see is that we're not going to bottom in the next year. That's 100%. There's a 80% chance we won't bottom in two years. From there out the accuracy gets too fuzzy.

I would not buy speculating that the housing market will come back in a few years. If history's any guide, and it usually is, we're going to bottom in about '10 or '11 and be flat for many years past that. I don't see another peak until the late teens, early twenties.

Now, this is just a wild guess based on what has happened. I could be 100% wrong. And I'm not willing to put any money on my guess, so you know how much faith I have in it...

For housing to pick up, we need to work off that inventory. We have the highest vacancies ever, over 2 million vacant homes for sale. Plus all the other homes not vacant. Demand is really low now. What will make demand pick up enough to work through all that inventory, to restore the demand/supply (or months supply) equilibrium so prices can once again rise with inflation?

Our current level of supply was made for speculators, not for demographics. So it could take several years to work through it. We also have a problem with an upcoming recession that can drive demand lower for another year. Then there's the lending issue, another reason for lower demand.

Prices can only rise if months supply is in a healthy market range, so we need supply to come down and/or demand to pick up.

In CA, it will take 5-7 years, I think. That's how long our housing cycles last. In Oklahoma, maybe it takes only one or two years. Each area is unique, just keep an eye on months supply, you need to be under 4 or 5 for prices to pick up.

You can't increase prices into declining affordability for very long.

If I can't afford it, demand becomes irrelavent. I can want a house but if its impossible for me to make the payments then what I want is immaterial.

I want a Lamborghini too, but if I can't write the check it becomes "phantom" demand - my wants can't be turned into actual market action.

That stick of demand has turned into a string.

Supply/demand will remain out of balance until the wage/price ratio is restored, so people can once again buy a house at 2.5-3x income. I forgot to add that. There are plenty of people on the sidelines who want to buy, but can't afford it. The demand in high cost areas is in the "I wish...." stages. Only after prices come down can that demand be activated, i.e. translated into sales.

Demand is being held down due to low unaffordability. Plus of course there are too many homes, so even if every person who wanted to buy a house could suddenly afford it, it would still take some time to work through all that inventory.

We've got tens of thousands of condos still under construction in various downtowns. Builders still adding to the pipeline....

Next month,or whatever month, inventory number of homes will probably go down, and the market will say the bottom is near.
But, it will be like the unemployment numbers, not showing the true numbers of those homes that were pulled off the market.
The seller (just like the unemployed), just gives up.

Inventory drops in the fall, but this year it may pick up, as banks have more homes to sell.

Although inventory drops in fall and winter, so do sales.

Months supply is the metric to watch.