There was an article in Barron’s this weekend that resonates with my view of what’s going on in housing and how it will play out in the coming years including its effects on the overall economy.
The article, “Getting Ready for the Roof to Fall” (subscription required), is an account of the views of star bond fund manager Jeffrey Gundlach, Chief Investment Officer at TCW Group in Santa Monica, CA.
Why we are still in the early innings of the housing bust:
…. next year and early 2008 will see a crescendo in the troubled 2006 and early 2007 subprime mortgage vintages reaching their two year rate reset points, when the low teaser rates expire. Facing jumps in monthly payments of 30% or more, many homeowners are likely to just throw in the towel and default on their mortgages.
And why housing won’t be “contained” but will infect the entire economy:
Firstly, housing accounts for a big chunk of US employment when one takes into account all the construction, finance and retail jobs that depend on a strong housing market. Consumer confidence and spending suffer mightily when cash out refinancings dry up and the value of most families’ primary asset falls in value.
As always, if anybody wants to read the entire article, send me an e-mail and I’ll e-mail you a link by which you can access it.