A story of why not to buy a house
If you are waiting around for your $400,000 plus Amelia Island house to sell, it may turn into the wait from Hell. If you have taken solace in recent housing figures thinking that once prices recover your home and your investments will take off, Bill Gross suggests you think again. He says the housing market is DEAD.
The manager of the world’s largest bond fund at Pacific Investment Management Co., Gross argues that homeownership is on the wane because Americans are developing a habit of saving and will no longer trust their houses to play piggy-bank, and that’s just for starters. “Housing cannot lead us out of this big R recession no matter what the recent Case-Shiller home price numbers may suggest,” Gross writes in his September outlook.
The closely-watched S&P/Case-Shiller home price 20-city index fell 15.4% in June from a year earlier, less than economists expected. New home sales also jumped 9.6% in July, according to the Commerce Department. (Over 50% was foreclosures and short sales by the way). The news has helped lift shares in builders. The S&P Homebuilders exchange-traded fund (XHB) has gained 30% since July 1.
Gross takes the famous investor Barton Biggs to task for thinking that it always pays to “buy the dips” because economies, profits and asset prices, whether of houses or stocks, eventually rebound. That seems to assume markets must grow steadily like children.
Gross says that the world has changed and the bull era is over. The percentage of Americans who own homes could drop to 65% from a recent peak of 69%. The new world will be characterized by “delivering, deglobalization, and regulation”, that is, shedding debt, a sapping of both American consumer spending and global demand for U.S. Treasuries and a heavy government hand.
“All of those three in combination, to us at PIMCO, means that if you are a child of the bull market, it’s time to grow up and become a chastened adult,” Gross writes ‚”It’s time to recognize that things have changed and that they will continue to change for the next — yes, the next 10 years and maybe even the next 20 years.”
I happen to agree with him.