Thursday, January 24, 2008


Merrill Lynch: Real Estate agents should look for another job

At least for the next couple of years. Tracey at Tracey's Market Update links to a CNN article in which ML predicts that housing prices and rents are likely to converge over the next two years.

But for those who think that the worst is over, Merrill Lynch said that housing prices still remain comparatively high. The brokerage believes that home prices are still far above historical norms when compared to other measures such as rent or GDP. "By our calculations, it will take about a 20 to 30 percent decline in home prices to correct this imbalance," said the report. [Emphasis added.]

What does that mean? Well look at that quote again. As Tracey says this is a depression level price drop. If true we could be looking at massive unemployment, huge drops in the stock market, dogs and cats living together. There is no way that this could be anything but disastrous for the economy. Of course, different cities will be hit harder by this. Housing tracker puts Chicago's mortgage/rent ratio at 1.27 meaning you save 27% by renting. San Jose ratio is 2.3 and New Orleans is 0.6.

What I am going to be watching like a hawk, when I get back from vacation, is consumer spending. That is what has held up this economy and if consumers stop spending the worst case becomes much more likely.

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