Mortgage rates are about the same (6.5 percent); the defining 10-year Treasury market is about the same (at 4.65 percent defying several opportunities for higher); the stock market is about the same (globalized optimism); and the credit crunch is about the same.

Markets are stalled in the agonizing wait to know the compound damage done by the credit crunch and housing recession.

The key to immediate Fed action is the job market, and it is holding. Hiring is slower, but new claims for unemployment insurance are steady — still no layoff pattern. Friday’s report of a 1.1 percent overall gain in September retail sales was triple the forecast, but quirk-laden. Chain-stores had their worst September in five years, and consumers are clearly backing away from optional spending.

The Fed’s September meeting minutes and one fine speech (don’t miss anything by Vice Chair Donald Kohn) make clear that the Fed knows it’s flying blind. “Because of the sharp change in credit market conditions, the incoming data … were of limited value.” Kohn: “You should view these forecasts [the Fed’s own] even more skeptically than usual.” And his blunt caution: the Fed “… will not be able to avert all of the weakness in the economy that may be in train.”

Housing is driving everybody crazy: The financial-market types have thought they had it figured out, over and over and over for a year, and been wrong every time. We do not know when or where bottom in sales volume or price may lie, nor in foreclosure, nor the extent of credit loss. This uncertainty prevents any Fed preempt.

It’s the soul of hubris, but here’s another housing forecast.

A lot of good historical and current data suggest that bottom in housing sales and prices is not far away — maybe a year. Recovery is a different matter. In the bubble zones, as in inventories worked off and appreciation restored…? Try a minimum of five years, in many … 10. Minimum. That lesson lies in the MSA-by-MSA history at

The foreclosure top? Probably five years — not minimum, but likely. The best data is in my backyard. After two lovely booms, 1974-83 and 1991-2001, Colorado’s two foreclosure countercycles took a little more than five years from boom-end/price-peak to foreclosure top. The good news: Foreclosures even in the annual range of 4 percent of households seem to do little damage to the local economy. So it has been here.

Fiscal 2007 IRS results expose the central flaw in the housing-doom analyses: There is more home-purchasing power in the economy than they understand. Every disaster piece points to the departure of home prices from median incomes, 2001-2006, and blames mortgage excess for the bloat. Although bubble-zone prices got out of control and mortgage credit became silly, the focus on median income is misleading. Those years marked a new source and vast increase of purchasing power: household financial wealth. The proof is income-tax receipts, soaring again, up 12 percent in 2007. A lot of people are making a hell of a lot more money than shows in median stats, and that’s a tiny fraction of the wealth underlying reported income.

In the long run, housing is likely to be a modest drag on economic growth, although an exceedingly painful sideshow for the families caught in the worst of it.

In the short run … every scrap of real-time data says that the credit crunch has tipped housing into a heap. Formal September data won’t be out for another couple of weeks, and October’s data not until Thanksgiving, but they are going to be awful. Some of the awful will be deferral, but I fear most is from mortgage credit starvation.

Then the return of one of the most forecast, never-happened events in modern times: Will housing finally tip over the rest of the economy? I think so, but it may take another couple of months to know. By late fall the Fed will begin rate-cut catch-up to prevent a reinforcing downward spiral, credit-housing-economy-credit. Kohn, again: “… Leading to a deteriorating situation that could prove difficult to reverse.”

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at

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