Doug Kass
Once again, as in the late 1980s, llax lending standards have become the mainstay of our markets and now are a contributor to the real estate and subprime mess. Also, liquidity is the most often quoted term to explain the market's buoyancy, takeover activity and rising stock prices.
Given the extraordinary creation of wealth -- in part because of the ongoing strength of the equity markets and, until recently, the large price appreciation in home prices and breathtaking mortgage equity withdrawals -- one should not be surprised by a delayed or slow-motion response, particularly by consumers. Nevertheless, there is an obvious chain of real estate-related jobs -- mortgage brokers, landscapers, title searchers, real estate lawyers, mortgage bankers, realtors, contractors, etc. -- that will suddenly be lost at breakneck speed over the near term. The worst is yet to come -- the housing's multiplier effect is starting to kick in. The consumer has never been more levered, homeownership as a percentage of household net worth has never been higher, the issue of home affordability has yet to be resolved, the inventory of unsold homes is at record levels, homeowner vacancy rates are at an all-time high (2.8% vs. 1.2% in the early 1990s), foreclosures and delinquencies are skyrocketing, and mortgage interest resets are just beginning to further pressure household incomes. The damage associated with the housing problems will be long-lasting -- and, as in the early 1990s, lower interest rates will not readily jump-start growth and rescue the economy.
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