The "Wile E. Coyote" Housing Market

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GavriloPrincip_IHB

GavriloPrincip_IHB

New member
I saw a presentation yesterday by the Chief Economist of a major bank. Two interesting points.





1. He called the current housing market the "Wile E. Coyote Housing Market," as in, when Wile E. Coyote runs off a cliff while chasing the Roadrunner, for a few moments his feet keep moving and he is suspended in mid-air before dropping straight down hundreds of feet. Great image.





2. He said the typical housing crash/recovery cycle is "V-shaped," but that this one will be "L-shaped." In a V-shaped cycle, prices and demand fall because of affordability problems caused by high interest rates. The Fed can stimulate demand again by lowering interest rates, and prices will begin to climb again fairly quickly. Thus, the demand curve is V-shaped. Here, he expects it to be L-shaped because high interest rates did not cause the drop in demand. Therefore lowering interest rates will not materially affect demand, so when the market reaches the flat part of the L, it will stay there "for several years."





Your thoughts?
 
I agree 100% with what this guy says....and his analogy of jumping off a cliff is great.





The run up in housing between 2002 and 2006 was detached from any metrix......interest rates, incomes, etc. It was purely a speculative bubble, and when a bubble bursts, it does not all of a sudden take on air. It is great to see business leaders giving talks about the housing situation. This will eventually filter down to the sellers, and they will begin to lower prices in a meaningful way.
 
I also heard he though the market would bottom in 2008.





I think we will see a "U" shaped or "rounded" bottom, and the bottom will be 2010-2012.
 
I've never seen a 'V' shaped housing curve. It goes down, stays flat for years, then comes up slowly. There are a few years of falling prices, then small ups and downs for a number of years, then a rebound. Unless he's trying to say that housing will never ever recover, which goes beyond bearish into ridiculous.
 
I suspect he is countering the bullish delusion that prices will come roaring back once the credit crunch is past. Many people are still trying to pick a bottom afraid they might miss it.
 
IR....isn't one of your graphs laying out median prices almost L Shaped?





Personally I would have to kind of agree with this guy. Housing prices have already dropped much faster than any of us ever expected and the secondary market credit freeze, albeit only into the 2nd month, is good evidence that the products that fueled our bubble are not going to be available for quite sometime. Foreign investors, Family Trust, Pension Funds...etc do not want to touch ABS especially when they are collaterlized with 2nd liens.
 
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