Housing Bubble Horror: Market Has Makings for a Gory Story

Investment crazes come and go, invariably bloodying the eager buyers who are 100% convinced they've latched on to a sure-fire winner. The Dutch tulip bulb mania in the 1630s, Britain's South Seas bubble in the early 1700s, the Florida land boom in the 1920s, the stock market frenzy that led to the 1929 crash and the Internet craze of the late 1990s are just several that come to mind.

The latest is the housing boom, which some Wall Street professionals insist has already evolved into a housing bust, as evidenced by shrinking sales, falling home prices, burgeoning inventories and tumbling stock prices for housing-related companies.

Addressing himself to the latest delirium — the biggest real estate bubble in history — the chief investment strategist of Raymond James Financial, Jeffrey Saut, is warning clients that the ongoing collapse of residential real estate has far-reaching implications for both the economy and the stock market.

As evident, though, by last week's rosy showing in which some stock indices rose 3% to 6% and turned more positive on the year, the market is essentially saying it doesn't give a hoot.

But Mr. Saut certainly does, noting that real estate has been chiefly responsible for much of the nation's economic and job growth. Taking note of significant year-over-year price breaks in his home base of Florida, which has been slammed with doubledigit declines in 12 of its 20 metropolitan areas, in one instance (Punta Gorda), as high as 97%, he thinks what's happening there is a pretty good prism of what's occurring on the "coasts," as well as in some previous hot real estate markets like Las Vegas, Phoenix and Washington, D.C.

Regrettably, our housing worry-wart says, he expects the "homesick" environment to get worse, amplified by the $2.7 trillion worth of adjustable rate mortgages that will reset at a higher interest rate in 2006 and 2007. These higher rates, he notes, come on top of the fact that 10% of all home owners with mortgages have no equity in their houses, while 15% of the 2005 home buyers owe at least 10% more than their home is worth.

http://www.nysun.com/article/38605