"Hello everybody. Welcome to Weekly Business Roundup. I'm Katia Pond. On the show this week we'll be talking about the rapidly declining housing market with my special guest - billionaire investor, political insider, and all around raconteur Tony Myers, author of the wildly popular Dead Cat On A Mountain blog. Has the housing bubble burst, and how much further can prices fall? Find out what my guest thinks, and get his views on what's to come in the year ahead. But first, let's find out what happened this week on Wall Street. As you can see, first the market was way up, then it was way down, then it went way up again, then the bottom fell out, and finally we took a little breather on Friday. For the week the Dow was unchanged, while the Nasdaq ended up in the bathroom feeling a little nauseous. Why all the volatility? Many believe the housing market's to blame, so please welcome my guest Tony Myers and find out what he thinks lies behind the market's malaise. Tony Myers, welcome."
"Thanks Katia. Good to be here."
"So what about this housing market? Foreclosures are up, credit is tight, and now Secretary Paulson is talking about freezing interest rates. Are we headed for a recession?"
"I'm afraid it's much worse than that, Katia. Back at the blog I've been looking over the historical data and running the numbers and I believe that not only are we looking at a recession, but it's becoming clearer and clearer to me that sometime next year we're all going to die."
"Die?"
"Yes, that's right."
"Well, that's a pretty strong statement. I mean, well, yeah, sure, we're all going to die someday..."
"No, next year."
"Next year? What are you basing that on?"
"A lot of things. For example, have you ever heard of Lester Ziffren?"
"No, I can't say I have."
"Well, Lester Ziffren died last week."
"I'm sorry to hear that but..."
"Lester Ziffren was the reporter who broke the story about the start of hostilities in the Spanish Civil War. What do you think of that?"
"I'm not sure I follow your point (but then I've read your blog so that's hardly surprising)."
"Outside of University History Departments, how many Americans do you think have ever heard of the Spanish Civil War?"
"Well I have. That was in Pan's Labyrinth, wasn't it?"
"Ok, outside of Pan's Labyrinth what do you know about the Spanish Civil War?"
"Um, let's see. There was Teddy Roosevelt and the charge up San Juan Hill, right?"
"No, that wasn't the Spanish Civil War, that was the Spanish-American War...At least I think that was the Spanish-American War. Wasn't it?"
"Aha, so even you don't know for sure."
"My point is this. Most Americans don't have a clue about the Spanish Civil War, but if you ask them the name of Paris Hilton's dog..."
"You mean Tinkerbell?"
"That's what I'm saying. Any society that knows more about some clueless TV celebrity than they do about the rise of fascism in the 20th century deserves to die."
"Oh, yeah, good point (?). I'd like to return to the housing market for a moment if I could. You're from the Bay Area, aren't you?"
"Yes that's right."
"Are you seeing the same trends in Northern California as we are seeing in the rest of the country?"
"That's an interesting point, Katia. No, we're not seeing the same trends. We've definitely seen a slowdown in sales, particularly in the entry-level sub-$700,000 market, but the multimillion dollar end of the market is still managing to hold together, although sales are hardly brisk. So far that as kept the median price fairly stable, but as the lower end becomes more distressed we could see that start to change."
"So multimillion dollar homes are still selling."
"Yes, so far. Understand, of course, that in the Silicon Valley no one is very impressed by a million dollar price tag, not when employment is strong and wages remain good. You know, if you tell someone in the Silicon Valley that you made $150,000 last year, rather than be impressed they're more likely to say something like 'Oh, don't worry. I'm sure things will start to pick up'. "
"I see. So being from the Silicon Valley you're actually living in some kind of bubble and really have no clue about what's going on in the rest of the country, do you?"
"Look Katia, the bottom line is this. As long as credit remains tight and mortgage lenders aren't wiling to lend, it's a no-brainer that housing is going to suffer. And until that changes, the housing market will continue to limp along. What housing needs is more first-time buyers to grease the wheels and keep the engine turning , and as long as there is nobody out there willing to lend to them then there's nothing to drive up prices. That means sellers are either going to have to sit on their properties for a while, or use some creative means like seller carry-back loans to sell their houses. It's as simple as that and everybody knows it. There's no magic bullet for housing. You need money to buy a house, and outside of the Silicon Valley and a few other upper class enclaves, most people don't have that kind of cash laying around."
"So does that mean falling prices?"
"Falling prices make for nervous lenders more unwilling than ever to make new loans. That leads to even lower prices and so on and so on and so on. That's not a good scenario and I think we'll see some kind of intervention before things get out of control"
"Like what? Could we be looking at a government bailout?"
"Well the current Congress has decided in it's wisdom to put even more restrictions on new loans as a way to punish lenders. It doesn't make much sense to me, but then, these are democrats. They've even put a provision in the new law that outlaws 'predatory lending', whatever that's supposed to mean. I'm afraid what it's going to wind up meaning is that everyone who falls behind on their mortgage will now be able to hire a lawyer and sue their lender for 'predatory lending'. Tell me that won't have a chilling effect on the housing market."
"So you don't expect the government to come to the rescue of these distressed homeowners?"
"This isn't a job for the government. By intervention I mean market intervention. What's probably going to happen is that some of these lenders are going to fail, and others will be bought up or merged, and sooner or later the balance sheets will improve and things will start getting back to normal. After all, lenders need to make loans in order to make money. In the interim, though, residential real estate is in for some rough times."
"How long do you think it will take?"
"More than a year, I suppose, and by that time we'll all be dead."
"And on that cheerful note we'll have to draw this interview to a close. I want to thank my guest Tony Myers, and please be sure to join us next week when my guest will be Paris Hilton who has just returned from Africa and will be sharing her insights on oil and the energy markets. Until then, I'm Katia Pond. Have a great week everybody."
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