Although some may call it a self-fulfilling prophecy, others call it the nature of a cyclical business. As we've noted here on more than one occasion, prophets of doom have been heralding the collapse of housing prices for some time now. More voices were added to the chorus last week when Phoenix Management released the results of its quarterly lending survey, which contained these cheerful nuggets:
Two-thirds of lenders nationwide believe a real estate bubble currently exists in the United States - and half of them believe it has already begun to burst or will burst in the next six months, according to the results of this quarter's Phoenix Management "Lending Climate in America" Survey.
A significant 93 percent of lenders surveyed expect an anticipated housing correction to result in real estate prices declining 10 to 20 percent across the country.
"In the minds of lenders, the housing bubble has moved from 'Loch Ness monster' myth status to an economic reality that could have a significant, negative impact on the lives of many Americans," said Michael E. Jacoby, Managing Director and Shareholder of Phoenix Management Services. "A year ago, 46 percent of lenders believed we were in a housing bubble. Today, that number has climbed to 66 percent - and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20 percent."
When asked when they believed the housing bubble would burst, thirty percent of lenders said it has already begun to happen. Twenty percent predicted it would occur in the next one to six months, and 27 percent thought it would happen seven to 12 months from now. Nine percent said it would occur in 2007.
Among the 92 lenders who participated in this quarter's survey, only nine percent said they did not believe a housing bubble existed.
When asked which area of the country was likely to be most affected by a housing correction, 30 percent of respondents named the Northeast, followed closely by 27 percent who predicted the West Coast. Fourteen percent named the Southeast, and five percent, each, named: the Mid-Atlantic, the Mid-West, or said all regions will be affected equally.
Half of all lenders believe a housing correction will result in real estate prices dropping up to ten percent. Forty-three percent of lenders said the decline would be as high as 20 percent.
The majority of the lenders also expect the economy as a whole to perform at only a "low C" level for the second half of 2006. I don't think that puttering along with a "Gentleman's C" is considered "making the grade" any longer.
As other experts have noted, investors are expected to be hurt most by the bursting of the housing bubble. The rest of us lucky homeowners will likely suffer only "collateral damage." However, as in a shooting war, collateral damage can indeed be painful, especially when it's your collateral.
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