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Morgan Stanley Remains Bearish on Housing

Posted by Larry Doyle on January 13, 2010 1:20 PM |

The equity markets can and will do whatever they want, but when I look at the economy I remain steadfastly fixed on our housing and labor situation. When these cornerstones of our economic landscape not only stabilize but show marked improvements I will become more constructive on our overall outlook. Are we there yet? No way.

Thanks to a loyal Sense on Cents supporter, I am happy to provide Morgan Stanley’s U.S. Housing Outlook for 2010. What are the key points to this report?

1.  Housing transactions have increased and prices have stabilized due to massive government supports.

2.  The bottoming process continues and the trend for housing remains down given the high percentages of homeowners with negative equity, the high rate of unemployment, the lack of a viable Jumbo mortgage market,  and increasing rates of mortgage delinquencies.

3. Delinquent borrowers, already at nearly 8 million, will continue to increase in 2010. The government is forestalling the problems embedded in this reality but has no current solution.

4. Purchasing power remains constrained and consumer demand remains limited due to flat incomes, higher down payments, and a lack of mortgage credit.

5. The housing market remains dominated by the government. This reality will likely grow in 2010.

6. Home prices will likely decline another 10-15% in 2010.

7. We will need to closely monitor all of the above referenced variables throughout 2010 as the situation remains very fluid.

For a comprehensive review, I am happy to provide the entire report. (Click on the image to access the pdf document).


  • coe

    LD – I have to say I agree with your view that the one-two punch of employment and housing remain at the epicenter of the economic picture. Of course it’s a good thing that the indicators are pointing to a reversal and stabilization of both housing price and employment declines, but that is not an automatic harbinger of either home price appreciation or investment in new hires – both of which may be quite a long ways off. We see new emphasis on troubling “strategic defaults” in the housing sector, and the “shadow” statistics of the discouraged un- and underemployed is quite staggering. The upshot, in my opinion, is at best, a feeling of wariness and caution in the workplace, a sense of helplessness and dread regarding the disintegration of wealth in one’s home value and resulting future well being, and a gnawing sense that things will never quite manage to return to the good old way they used to work. Layer on the bread and butter issues of health care, education, national defense and taxation concerns, and it’s no wonder America is ill at ease. The current Administration is clearly not at the root of some legacy problems, but this concerted effort to reengineer the American way of life in the midst of all these daunting challenges screams that the policy makers just don’t get it. Am I concerned about the impacts on me and my family – darn tootin’ I am! Am I more concerned about my children’s generation and that of their children – there’s no escaping that thought…Do these feelings affect behavior – of course…Do they permeate the collective psyche of America – I believe they really do…What can be done to turn the tide – throw the bums out of political office, eject poor and greedy leadership from our financial institutions, completely retool the regulatory framework, and narrow down the hills we are trying to take – I vote for a concentration of energy and muscle on the economy and, of, on our national defense and the ongoing war on terror. But, I’ve often been wrong before…

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