Tuesday, April 10, 2007
Weaker dampening force
Bubble markets inventory has a great article on San Deigo foreclosures. (fair use of image)
Compare the rise of foreclosures in the 90's recession and current event shown in the graph.
Notice two things:
1. Steep slow in 2006/2007 (18 months rise time versus 48 months).
2. Jagged increase in the 1990's recession.
These to quantities imply two things:
1. Stronger driving force propelling foreclosures
2. Weaker dampening force (ability of people to avoid foreclosures)
We've barely had ARM resets
Jobs are strong
Credit is still easy, just not supper easy.
So Driving forces haven't played much of a role yet.
The savings rate is gone. IIRC 3 years of savings versus 3 months.
"Equity extration," Too late, already done. LTV's are far too high.
"Investment in the home." What down payment? What equity to defend?
I believe the spiking foreclosure rate is due to weak dampening forces. We have not yet seen strong driving forces. Sadly, between now and the fall the driving forces build in intensity.
What can we expect?
1. Massive layoffs: Construction, mortgage brokerages (recall, the Warren act has kept *most* from going without a paycheck... yet), realtors (business is still churning), retail, etc. I expect 1 million jobs lost by September. Boy do I hope I'm too pessimistic. This month (April) is supposed to be the first month of strong layoffs... lets see. I credit this as one for stronger driving forces. But its also a weakening of dampening forces. So if layoffs become large, this is a double zinger.
2. ARM resets. If you haven't seen the graphs from the Credit Suisse report... google for it. Its scary. This just starts to build this summer and continues for years. This is the largest increase in driving forces.
3. Job relocations. Some this summer, I expect more next year. Why pay California salaries once its easy to pick up workers out of the worst of bubble land? I put this as a further weakening of damping forces. Probably a minor impact.
4. Oil (gasoline). I put this as a driving force. People are strapped.
I've been telling friends that they can consider me insane until June about my housing predictons. My thoughts? My sanity won't be questioned in June.
Alas, this is only making me more bearish. Still recession bearish... but I'm conceeding more and more of the nation will hit depression (Michigan, Florida, ???)