Hands Up For A Housing Crash!

- Bill Gross at Pimco, for instance. He forecasts "an ongoing bond bull market of still undefined proportions"

to follow the subprime collapse in the US.

- Manager of the world's biggest bond fund, Gross thinks lower house prices will force the Fed to cut Dollar interest rates. His model puts US interest rates back at 4%, down from the current 5.25%, if the Fed's going to keep home prices stable.

- And if the Fed doesn't cut? Average home prices may fall by one fifth, says Gross.

- "Investigate the Fed’s own study," he advises, "written in September of 2005 [and] covering housing cycles in aggregate and individually for 18 countries over the past

35 years. This study’s important conclusion...is that if home prices in the US have peaked, and are expected to stay below that peak on a real price basis for the next three years, then the Fed will cut rates and cut them significantly over the next few years in order to revigorate an anemic US economy."

- Here in the UK, cheaper housing would save the Bank of England from having to raise Sterling interest rates, too. Which explains why the Old Ladies keep wishing away their own property bubble, too. Mervyn King told a Treasury Committee on Tuesday "there are now some signs that the housing market is beginning to slow."

- Ha! You should be so lucky, Dr. 'Blin' King! Perhaps the chief pooh-bah is reading different data from everyone else. Because average national asking prices have risen 12% from this time last year, according to Rightmove. That estate agency website covers half of all properties for sale. In March alone, it shows, average asking prices rose £3,381 ($6,626).

- You call that beginning to slow?

- And while Mervyn King shuts his eyes, sticks his fingers in his ears and cries "I can't see you! I can't hear you!", would-be buyers are starting to demand home- ownership as part of their human rights. No, really.

- "Everyone has the right to own property alone as well as in association with others," says Article 17 of the UN human rights declaration. It's quoted by a regular blogger at PricedOut.org, the website where first-time home buyers yet to enjoy their first time gather to bewail their lack of mortgage debt.

- "No one shall be arbitrarily deprived of his property,"

the UN goes on. "Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing [and] housing..."

- The UN doesn't mention mortgage indemnity insurance or stripped pine flooring from Ikea. But never mind. That lower house prices will soon prove obligatory, we have no doubt. The first-time buyers will get what they want, just in time to dive into negative equity.

- "Legislation must be bought into place to control the market," says Carron Miller, a young mother and teacher.

She's now threatening a BBC chatroom that she'll emigrate if she can't buy a house soon. "People need to be put before profit."

- Over in Tokyo, meantime, it's the Bank of Japan praying for slower real-estate inflation. Incredibly, after 17 years of depression, land prices in Tokyo finally turned higher in 2006 according to official data last week.

Trouble is, rather than just picking up, land prices in some parts of Tokyo leapt 46% higher. How the gods must be howling with laughter!

- "We aren't yet in a situation in which land-price gains warrant concern of excessiveness," said Toshihiko Fukui, governor of the BoJ to the Japanese parliament Tuesday.

"But we'd like to keep a close watch on them."

- Commercial land prices in Japan's three biggest cities rose 8.9% in 2006. With interest rates still next to zero, why not? The fastest property gains came in the Omotesando Hills of central Tokyo, a retail and residential development that opened in Feb. last year.

Amid the developers' scramble, the city's tallest building is now due to open on Friday. A 42-storey skyscraper will open in front of Tokyo Station next month.

- Still, there's a long way to go before Tokyo, Osaka and Yokohama catch up with Glasgow, Baltimore, Derry, San Diego, Pula, Beijing, Buenos Aires, Reykjavik, Jo'berg, Auckland and the rest of the planet. Japanese land values for commercial and residential property now trade for half the price of their 1989 peak.

- But what a peak! And what a mess Japan's had to endure trying to unwind it ever since. Gearing up to speculate on the wasting asset called real estate cost Japan more than a decade of recession, depression, banking defaults and deflation.

- "The buy to let market," says the young British teacher who can't get a mortgage, "is responsible for a lot of misery." We don't doubt she's right. But it's not created half as much misery yet as it will when house prices really do start slowing down.

- Beware what you wish for, Dr. King...

Regards
Adrian Ash
for The Daily Reckoning

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