The Housing Bubble Has Burst

March 14, 2007
Gary Kaltbaum

Gary Kaltbaum is an investment advisor with
over 18 years experience, and a Fox News Channel Business Contributor. Gary
is the author of href=”https://tradingmarkets.comtmu/store.site/swingtrading/Books/6026/”
>The Investors Edge. Mr. Kaltbaum is also the host of the nationally
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editor and publisher of “Gary Kaltbaum’s Trendwatch”…a weekly and monthly
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US House panel’s Barney Frank says he plans legislation to
restrict subprime mortgages.Â That’s great. What great timing! The market
itself has already put the business into a coma…and now let a politician pull
the plug. Barney Frank…aka Herbert Hoover may just cause a severe dislocation
if he moves forward with this.

Senator Dodd says Senate weighing aid to 2.2 million subprime borrowers. That’s
great. 2.2 million subprime borrowers take loans they should never have
taken…and now let’s turn them into victims.

I just love when our politicians get involved after problems already have
occurred. Where was Greenspan, Bernanke and the rest of the regulators while all
this lax lending was going on?

“U.S. Mortgage delinquencies, foreclosures rise in Q4 2006 vs prior quarter and
year ago”, according to MBA…hey thanks.

“Late payments rise for all loan types but driven mainly by subprime and FHA
loans”…hey thanks.

MBA says “delinquency rates rose in 49 states in Q4; foreclosure inventory rates
grew in 44 states”…hey thanks.

MBA says to “push back forecast for housing market to regain footing to end of
2007 vs middle of year”…hey thanks.

MBA says “subprime borrowers more vulnerable to higher interest rates, slower
home price gains or price drops”…hey thanks.

MBA says “U.S. mortgage delinquency rate 4.95% in Q4, up from 4.67% in Q3 and
from 4.70%P in Q4 2005″…hey thanks.

Isn’t great to know there are now problems after things have already cracked
wide open?

And if I hear one more bottom call for the HOUSING market, my head will explode.

These charts are for Bernanke, Paulson and Greenspan…who have called for a
bottom and or stabilization in the HOUSING market.

Charts courtesy of Stockcharts.com

This is what I wrote in my last report:

“Markets have had a bounce the past week. This is normal after the carnage we
saw off the top. Of course, the bounce buried the shorts as both Tuesday and
Thursday gapped higher nicely. So far, there is one glaring problem. Volume has
been heavy on the drops and light on the bounce. Let me be clear. If this market
does not experience a follow through day (Monday is day 5) in the 4th through
10th day off the low, then expect another bout of selling to retest recent
lows…at a minimum. If the market follows through, it will be respected. I
believe we will know in the next week or so…if not any day. Markets are not
just going to sit around.”

The market has voted. A high volume drop and a low volume bounce has led to
another high volume drop. This is a classic MARKET TOP that will lead to lower
prices. Do not be confused. You will get zero help from Wall Street as they will
remain in “don’t worry…everything is ok” mode. Everything is not ok. This is
classic bear action of unknown price and duration. Please keep in mind that the
top was only 2 weeks ago. It has amazed me how we have already heard many cries
of a market bottom after only 2 weeks. In my studies of tops, bear phases last
months…not weeks. I expect lower prices…at a minimum, major indices will go
down to their longer term moving averages…which is just a few percent away. A
break below…and who knows…we then get into bear market no man’s land. Just
remember, bear phases do happen. Most will tell you to sit. I don’t believe in
sitting as we all know what type of damage bear markets do to your wallets. Take
a gander at the definition of a major top.