Hard Landing is Out of the Question

MoneyWeek
Excerpts from article written by: Mike Shedlock for Whiskey and Gunpowder

"I have it on great authority that there will not be a hard landing in real estate. Who told me that? It was none other than Mike Morgan at MorganFlorida. Please listen in to what Morgan has to say."

Mike Morgan:
“Will there be a hard landing? No! Will there be a crash landing? Absolutely!

“Despite September’s short covering of homebuilders and value buyers trying to cash in on low P/Es and stocks selling at or below book value, a hard landing is now out of the question. We’re in for a market crash. Read between the lines, or read actual comments for content.

"A US housing crash? Falling prices and slowing demand
“Here’s what Robert Toll, CEO of Toll Brothers, said at the Credit Suisse conference. He said the market got ahead of itself in recent years, citing ‘greed on the part of buyers and sellers,’ and that current speculative inventory is probably at its largest.’"

'“And how about Don Tomnitz, CEO of D.R. Horton: ‘We have never seen housing prices and demand slow as quickly as they have during this down cycle.’"

'"Take it a step further and look at the statistics. Never before have we seen inventories at these levels. Recently, the NAR finally admitted home prices are coming down. Never before have we seen home prices fall. And RealtyTrac just announced that foreclosures are up 53% from a year ago."

'“For those ‘value investors’ buying the homebuilders because the P/Es are so low, I ask, What happens when there are no earnings? And for those ‘value investors’ buying for the book value, I ask, What happens when the builders take massive write-downs to land, and burn up cash with carrying costs of unsold inventory?"

“But that’s not even the heart of the current problems."

"A US housing crash? Why everyone will suffer
“Who will the housing crash affect? Everyone. Real estate agents will be first. As a group, they’ve made a ton of money during the housing boom, and they’ve spent millions on new cars, vacations, restaurants, clothes, and everything else that comes with excessive discretionary income. That’s over now. Agents are not buying the luxury items that helped feed the economic boom, and they are cutting back on business spending like advertising and marketing. That hits the vendors and newspaper revenues."

'“Take it a step further. With sales off 50% and more, all of the industries that have benefited from the boom will suffer loss of revenue and jobs at accelerated rates and massive proportions. Homebuilders and condo developers have been announcing cancellations of projects and cutbacks in spec building. The flippers fed the housing boom, and they’re washed up right now. In fact, they are making the crash much worse than it should have been."

'“Many flippers bought multiple properties. When in the history of the world have we ever seen the housing industry conduct business like a stock exchange? We had bidding wars. We had lotteries on new developments, just like we had allocations for new tech offerings during the late ’90s."

"And just like the tech boom, the buyers were not making decisions based on fundamentals. The same thing is happening in the housing market, with thousands of buyers walking away from deposits, refusing to close on homes. That adds to the woes of the builders."

'“Add to the woes the fact that interest rates are up and most flippers bought using creative financing and low-rate ARMs."

'“But this is all old news for us. The other shoe is dropping now. Loss of hundreds of thousands of jobs created from housing will act like a virus and spread throughout our economy. As real estate agents, attorneys, and mortgage brokers rein in their spending, it will affect restaurants, car dealers, advertising companies, jewelers, remodeling contractors, furniture manufacturers, bank profits, electronic retailers, clothing -- and the list goes on and on and on."

'“As the primary players are affected and they cut back on spending, so will the secondary players in this market. These companies will be forced to lay off employees, and the cycle will grow like a virus. Is that it? Not a chance."

"A hard landing is out of the question at this point. The economists should be talking about how devastating the crash will be.”'