Since when did holding a Bullish outlook mean that you lost all sense to recognize even the most obvious trend?
This whole housing decline has, unfortunately, been a very divisive issue with the typical dichotomy of a line in the sand and a camp (or camps) on either side.
Be they “Bulls” vs. “Bears”, “Housing Heads” vs. “Bubble Heads”, or “Mortgage Debtors” vs. “Angry Renters”, the housing decline has sparked endless heated debates with numerous justifications on either side for either optimism or pessimism.
Yet, at this point, there has got to be hardly a single argument against the notion that the nation’s housing markets are in tough shape.
One only needs to look at the continued declines to home sales and prices, the historic levels of inventory of available homes, as well as the latest events in the mortgage-credit markets to see that things are broadly bad.
Furthermore, taking a minute to pause and reflect on the somewhat circuitous route that the Bull-Bear debate has taken both corroborates the more accurate outlook as well as helps to dispel any hopes of a purported imminent bottoming and recovery of the housing market.
Back in 2005, any person (even reputable and notable economists) that even hinted at the idea that the housing boom was an irrational mania was sure to be labeled as a “Chicken Little”.
In 2006, we all had a much needed dose of reality but Bulls continued to downplay the severity of the turn in the housing cycle, preferring instead to handicap the arrival of the “soon-to-be” bottom.
This inability to accept the obvious resulted in at least two very widely reported yet wholly inaccurate instances of consensus amongst those of the Bullish persuasion, that the markets had, in fact, bottomed (once in September of 2006 and then again in February of 2007).
Now, almost two years after the first cracks started showing up in the housing mania and with what has been termed by the Federal Reserve as a “crisis” in the mortgage and financial markets, Bulls continue to remain exuberantly hopeful that the turnaround is on the way.
While refusing to acknowledge even the possibility of “spillover” effects on to the generally economy, even in light of the recent, clearly correlated, declines in retail sales as well as some highly publicized downward revisions to earnings guidance from notable national retailers, Bulls simply continue the trend that has served them so poorly.
Looking back at past housing busts it’s easy to see that, although the current bust is more widespread and many times more significant than past declines, it’s following a fairly typical course.
If things roughly follow along as they have in past busts, then we are in the very early stages of a “correction” that will, at the very least, be many years in the making and carry with it many of the same trials.
We have yet to see the complete effects caused by some of the most significant elements of fallout from this decline including the full brunt of the mortgage resets, higher interest rates and lower availability of mortgage debt, particularly Jumbo loans, and the effects of prolonged oversupply and accelerating price declines.
There is not a doubt in my mind that many years from now, the bust of this cycle will appear so obvious that it will be dumbfounding to recall that there was even a single spectator who actually believed that a “V”-shaped turnaround was always right around the next corner or that the health of the general economy was not in peril.
