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Bottom’s Up: This Real-Estate Rout May Be Short-Lived

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July 14, 2008

By Jonathan R. Laing – Barron’s

This real-estate rout has been more painful than prior ones, but it may be shorter-lived. Indeed, there are early signs of recovery.

A few years ago, an acquaintance sent Wellesley College economist Karl “Chip” Case a T-shirt depicting a cartoon of a smiley-face house surrounded by soap bubbles, called “Mr. Housing Bubble.” But it was the words captured in a comic-book cloud on the shirt that gave this otherwise goofy image its bite: “If I pop, you’re screwed!”

The dark humor hardly was lost on Case, co-creator along with Yale economist Robert Shiller of the now-canonical S&P/Case-Shiller Home Price Indices. In pairing recent sale prices of U.S. homes with the prices those same homes fetched previously, the index is substantiating what every sentient American knows: The U.S. housing market is in a deep funk, probably the worst in 50 years, according to Harvard’s respected Joint Center for Housing Studies.

Home prices are down nearly 18% from the market’s peak, according to Case-Shiller, and inventories of unsold homes are at near-record levels. Foreclosures are mushrooming on “subprime” properties, or homes whose purchase was financed with subprime debt. Blowback from the crisis has left mortgage-finance giants Fannie Mae (ticker: FNM) and Freddie Mac (FRE) financially strapped, while many other lenders lack the stomach — or money — to offer new mortgages. Noted market experts such as Pimco bond-fund manager Bill Gross and economist Mark Zandi of Moody’s Economy.com predict the meltdown in housing will continue for many months, with home prices declining by 10% or more from today’s depressed levels.

ARTICLE SHORTENED DUE TO LENGTH….

LINK TO ARTICLE HERE:

http://online.barrons.com/article/SB121581623724947273.html?mod=googlenews_barrons
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