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Pimco's take on housing

Posted by: Chris Palmeri on October 3, 2005

Pimco, the big bond fund manager run by Bill Gross, has a long record of beating the market. Their take on housing prices and the economy? Pimco predicts a “stagflationary soft landing.” The fund company figures the Federal Reserve has just about reached its limit on interest rate hikes and will stop the increases at a 4% federal funds rate. As a result, Pimco expects that housing price appreciation will slow to the mid-single digits. Couple that with higher energy prices and Pimco expects the economy to slow slightly, hence the stagflation. But the bond gurus aren’t taking any chances. Fearing a housing meltdown in some markets, Pimco has representatives riding around with realtors in some cities, monitoring listing times, price reductions and other signs that housing is slowing down even more than in Pimco’s rather benign forecast. Stay tuned.

Reader Comments

Mike Reardon

October 4, 2005 4:54 AM

The past stability in the price of wages, goods and services, have been a deflator, the creative financial instruments to continue housing expansion added asset inflation, in the rising cost of housing. Now the increase in energy prices, will inflate the cost of goods and services.

And exactly as junk bonds in the past lead to inflation. More world money following higher interest rates, are the greatest danger if even more creative debt instruments are added to the ones we have already.

The Fed's funds rate is now in danger of being only the floor under increasing inflation. And still increasing housing inflation.

Anonymous Realtor in AZ

October 6, 2005 4:31 PM

I can tell you from Tucson, AZ (which was the 10th hottest market in the country for the trailing 12 months)that Pimco is being conservative. Things have dramatically slowed down in the past 4-6 weeks. It is scary. Funny thing is that other realtors don't want to admit it, however, my sources in management have concurred the numbers have quickly gone down in a pretty scary fashion. A large % of our market has been investors from California who have stopped calling. This means CA has really slowed but the numbers have not been posted yet.

PS-Don't expect that you will get the whole truth by riding in cars with realtors. I have been a realtor for the past 7 years and have made some great money. At this point I am ready to get out. Why, because the majority of people in this business are out for #1 and wouldn't hesitate to lie, period.

peter m

October 12, 2005 1:23 AM

have been tracking real estate activity from all over Nation. Outside Columbus, Ohio one newly built subdivision reported 10% default rates. San diego RE activity down to almost Zero. Everywhere homes seem to stay on market for months without even a bidder. Slowdown seems to be happening both in hot coastal cities and in the interior. Ecomomic indicators and stats such as home price Vs rent ratios out of whack. Many onimous reports coming from local realtors which is the scary part. You will not get any news or info from MSM ,
Government or Radio/TV news commentators. Only by researching blogs and the internet. Out of 100 + reports i've read about 70 % see a bad bubble burst, 25 % see a mild fall, and 5% see only a leveling off or no bubble . If past history and ecomonics 101 is a guide, a RE asset downward price adjustment is inevitable.

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BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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