Now the official media and Greenspan himself are declaring that the housing had bottomed. Good article on this on BP. Indeed, there are many positive surprises coming lately. Sales are improving, inventories are declining.

I give all the credits to Bernanke. He managed to print the huge amount of new money lately while keeping inflation at bay. Most impressive was summertime, when he managed to hold off from printing too much money (even though real estate was in freefall) and convinced the market that he is serious about inflation, which crushed the 10-year bond benchmark index from 5.25% to 4.60%.

When inflation worries faded back in September, the printing machine was turned at full speed on, and now we feel that it’s slowly getting better.

So did the real estate bottom? Of course not. All past real estate declines took from 3 to 6 years, and we barely finished the first year.

But now, when inflation worries are behind us, the Fed are in power to make this decline slow and low. It’s like a Chinese water torture, it will be many years of real estate prices either falling or at least trailing inflation.

By the end of the next year the toxic option mortgages will be mostly gone. Three mortgage originators are already broke in the last few weeks. It will take few more bankruptcies before the Wall Street will completely refuse to pay more than $0.95 for any $1 of any kind of subprime loan. Suddenly, taking a loan or refinance will become hard as usual. Do you remember the times where the lender will not lend you anything until you put 20% down? I don’t know about 20%, but 10% down without any piggybacks will become a requirement a year from now. Mark my word.

The record now percentage of homeowners will slowly decline to historic averages. The number of renters and landlords will increase dramatically.

But what’s most important, the real estate will lose its investment appeal. People will treat real estate as a place to live, not like a saving account. As now one try to purchase the biggest house he can afford, people in future will try to find the smallest and cheapest house that still fits their family in. Suddenly, we will have a lot of extra real estate, which nobody needs.

The home construction will decline below 1 million homes/year. Probably 0.9 million is a good bottom call. Obviously, the construction and related employment will decline by 40% or so. A lot of well paid construction workers will become burger flippers, which prompts me to call a decline in overall consumption levels. Think Japan. Japan is struggling for the last 15 years that people just do not consume enough. We’ll have this, too.

How to prepare for all this? I don’t know exactly. Finding the most stable long-term job will help. Getting new skills will help. Save money in treasury bonds is a very good idea. It will help a lot to understand that money != happiness. Prepare to be happy for cheap. Buy the book of all tourist attractions in your state, the trail map of nearest forests. Subscribe to Netflix and put a 100 movies in the queue. Buy everything on Ebay, sell everything you don’t need on Ebay, too. Look for your health, lose weight, stop smoking. Say no to french fries and crispy chickens with trans fats. Your next car should be very small and efficient.
Be happy with what you already have, because you won’t have anything besides you already have anyway šŸ™‚

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