“An increase in rates or a reduction in credit would cause this whole house of cards to fall – and many people are afraid of that and won’t openly talk about it. The Gov’t is out of ammunition – people are tapped out – ownership rates are now at the highest – – HAM? Well – look at the latest from the Chinese market. We’ll get some for sure but this will not be like Spring 2011. This will likely lead to a fairly good decrease in the price at the high-end of the market. However – overall – the market will likely fall only 10% (my prediction) as these things never happen instantly. But a 10% reduction will take a lot of the people at the bottom into negative equity – – which as you know slows the market more as they cannot sell to move up. Not pretty.”
– “A well-connected local player”, quoted by Garth Turner, greaterfool.ca 1 Nov 2011
Have access to all the dots; line up all the dots; then, fail to connect the dots because, well, the conclusions you’d reach are too painful.
This ‘well-connected local player’ lays out (some of) the reasons for the market being so vulnerable, is bright enough to be able to calculate some of the consequences, but is unable to state the logical conclusions.
What are the consequences after a 10% drop that takes “a lot of the people at the bottom into negative equity”? Exactly, further market weakness.
“The market will likely fall only 10%”? – After the 200%+ run-up of the last 10 years, a 10% pullback isn’t even a pullback, it’d be expected normal market fluctuation; ‘noise’.
This market is ripe for a very big, multi-year crash, taking prices down at the very least by 30%, and more likely by 50%-66%.
The ‘well-connected player’ finds the consequences of such a move too ghastly to contemplate, so they simply don’t entertain the possibility.