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Financials and Housing: The Outlook Remains Ugly

http://seekingalpha.com/article/91616-financials-and-housing-the-outlook-remains-ugly

There are many factors impacting this ghastly mess, but surely one of the biggest is the unprecedented decline in U.S. home prices.  Simply put, we do not believe that the financial sector will stabilize until U.S. home prices do.  So, the key questions are: how much further will home prices fall and when will they reach a bottom?  Our best guess is that home prices, which through May were down 18.4% from their peak in July 2006 (based on S&P Case Shiller data), are only about halfway finished declining – meaning that home prices will eventually fall 30-40% from their peak – and that a bottom will not be reached until 2010 at the earliest.  Needless to say, our view is significantly more pessimistic (we prefer to think realistic) than that of most analysts, CEOs of financial companies and other “experts”.

Check out the 18-page slide presentation:

http://www.valueinvestingcongress.com/downloads/ny08/t2_partners/index.php

Just enter a bogus information for email address, etc, if you don't want to be on their list.

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http://www.valueinvestingcongress.com/downloads/ny08/t2_partners/t2_partners_presentation_on_the_mortgage_crisis_6_6_08.pdf
http://www.valueinvestingcongress.com/downloads/ny08/t2_partners/Analysis_of_US_home_prices.pdf

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August 21 2008 - US
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"Slide 1) This chart shows that prior to this decade, the average American household was able to borrow approximately 3x its pre-tax income to buy a house.  As the decade progressed, lenders became increasingly irresponsible and, at the peak from early 2006 to early 2007, they were willing to lend 9x a household’s income!  This madness was exacerbated when lenders frequently didn’t bother to verify a borrower’s income or assets – these low/no-doc loans are only somewhat jokingly referred to as NINJA loans: no income, no job, no assets. "

 

70% drop from peak prices in the most "special" areas is looking more and more likely.

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August 21 2008
 
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