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October 6, 2005

Bond Bigwig Bellowing "Beware Bubble"

Commenting on the likelihood of a housing market slowdown followed by a tightening of lending requirements and a drying up of speculation, bond market Bill Gross does not mince words:

Let me state categorically that the above sequence is barely questionable, almost inevitable, 99% unavoidable, and in modern parlance - “slam-dunk.” In so saying, I hope I am not being unkind to those of you who think otherwise - I’m trying to do you a favor! What I can’t do is tell you how soon all of this unfolds which I admit is a critical variable.

Tell us what you really think!
Investment Outlook October 2005 [PIMCO]




Posted by Brownstoner at 9:38 AM | Comments (5)
Categories: Market

Comments

But isn't timing everything?

Posted by: Kel at October 6, 2005 10:10 AM

Reading the article I didn't find much to 'beware'. What he did opine is that
'Housing prices will cool/stop going up very much/even go down in some cities' after several
criteria were met including higher mortgage rates and tighter criteria. Nothing new.
He's not predicting a 'crash' which is what some folks around seems to believe is inevitable. Slowing down of increases, level prices or 'in some cities' a decrease (never said plunge) is no reason for
a doomsday scenario.
I would think a major recession/high interest rates or something equally as shocking to the economy would be necessary for major drop in value.

Posted by: Anonymous at October 6, 2005 1:54 PM

Doesn't it depend on the velocity of the mortgage rate increase if there will be a crash or not? If the rates increase too fast and too heavily, there is a strong crash hypothesis in the real estate market, as experience in old Western Europe after 1989...

Posted by: zuyox at October 7, 2005 5:25 AM

Interest rates can be a factor, but in this one we have other problems: An unprecedented number of risky mortages, an unprecedented number of folks in deep debt (with new credit-card and bankruptcy policies tightening the noose in a few days), An unprecedented lack of affordability of homes -- which is the major reason why the market is flattening now. There simply aren't enough buyers left, and those that are left are increasingly worried and holding off.

On person's hard landing is another's soft, depending on your circumstances, but we are in strange and scary waters here, so any predictions that this will be relatively painless should be viewed with caution.

Posted by: Alo at October 7, 2005 8:53 AM

We are always in strange, risky waters. That's what most people don't get. Even when you're feelin warm and fuzzy about life, there is always the potential for a life-altering event to smack you in the head.

I take comfort in the fact that at least people are thinking caution right now. It's when everybody thinks we're safe that we are most vulnerable.

Stable markets are an illusion.


Posted by: Miguel at October 7, 2005 9:48 AM

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