Oomph. Lots of stories to post today. I’ll have to take a break after this, and post the rest tomorrow.
Never go on vacation!
PIMCO bond giant founder Bill Gross writes a monthly Investment Outlook column, and lately, at least, he discusses the real estate market, or, more accurately, the bond market, which affects the interest rates on our mortgage loans.
He seems to have a pretty good grasp on things (I would hope so!).
Here’s what he thinks, these days (emphasis, mine):
PIMCO has observed that the weakness in the housing market this year is understated and that prices in many local markets are actually declining.
2nd quarter GDP results are to be announced today and it is expected to show a fairly sharp decline in the annualized rate (although still healthy), from 5.6% in the 1st quarter, to around 2.5% in the 2nd quarter. Consensus says that GDP will continue to fall through the end of the year, one of the clearest signs that the housing market is cooling our jets.
A weaker economy will stop the Fed tightening and may be forced to begin reducing rates in 2007 because the Fed has overshot their target. PIMCO believes that mortgage rates will fall as a result.
This doesn’t mean another real estate boom, however, rather this would more likely be help to shore up the damage to the housing market caused by rising rates which in turn weakened the economy. In housing markets not in bad shape, for example those with low speculative activity, could see a modest recovery.
Or, as many others have said, the bubble won’t burst, but deflate.
Even if you wish for lower housing prices, you should be worrying that the cooling real estate market will bring down our nation’s economy.
If this occurred, it wouldn’t be good, for any of us.
Source: The End of History and the Last Bond Bull Market – By Bill Gross, PIMCO
Story courtesy of: Bond Market May Have Bottomed Out (Mortgage Rates May Have Topped Out) – By Jonathan J Miller, Matrix
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