Mark Zandi on the Housing Bottom

With all due respect to Mark Zandi, his prognosis is completely disingenuous. First, the high number of nationwide foreclosures means NAR stats are subject to bank manipulation. A simple comparison of MLS listings and Realtytrac data (excluding pre-foreclosures/auction properties) shows that all foreclosures are not being listed – not by a long shot. This means prices are being artificially supported and that NAR supply figures are completely skewed. (See this CNBC interview with Realtytrac CEO for more about this problem.)

Secondly, Zandi relies on the assumption that the GSE’s will have an audience beyond the Federal Reserve after this summer – what a joke. This January alone, the Fed blew through 15% (+/-) of a $500 billion fund allocated to sop up excess Agency MBS. Why? Because their natural audience of buyers (China/Japan) are busy fighting their own economic battles and rethinking their exposure. I think it would be amazing to see the GSE’s survive this year without becoming government utility. Even then, the weight on our treasuries would prove disastrous.

The fact is, until all foreclosures get put on the market and prices naturally fall further (well beyond 10% from today levels), we’ll sputter along like Japan did in the 1990’s or worse. The benefit of a complete and total crash in prices is that if the FHA survives it, they’ll be positioned to finance more purchase on smaller loan amounts. Until then, each purchase at today’s still-bloated prices eats away at the finite funds of tomorrow. Prices need to roll back to 1999 levels at least to meet the supply of credit.

Market Observer of CA 7:56PM February 06, 2009