By Anand Chokkavelu
"We now see potential for another 25% to 30% downside over the next two years."
-- David A. Rosenberg, Merrill Lynch (NYSE: MER) in BusinessWeek, Jan. 31, 2008
"A down market is getting baked into expectations. People say: 'I'm not buying until prices are lower.'" [-- Chris Flanagan, JPMorgan Chase (NYSE: JPM)]. He predicts prices will fall about 25% until it reaches a bottom in 2010.
-- BusinessWeek, Jan. 31, 2008
"Goldman Sachs [NYSE: GS] forecasts [that] global credit losses stemming from the current market turmoil will reach $1.2 trillion." (Reuters, March 26, 2008)
These are some severe predictions, and since the first two were printed in late January, it was revealed that the Standard & Poor's/Case-Shiller home price index of 20 cities fell by almost 11% year over year that month.
Bubble, bubble, toil and trouble
If those analysts are correct, that the housing market's got much farther to fall, then the total effect on the credit markets will be obscene. Of course, with the exception of Goldman, these are the same large investment banks that have already taken billions in write-downs, because of their exposure to the consequences they're now warning us about.
This leads to an obvious and perhaps paralyzing question: If these "experts" weren't accurate with their predictions a few years ago, why should they be any more accurate today?
There is no good answer
Unfortunately, I have no more insight into timing the housing market than the investment banks do. Instead, I'll offer four tips to remember as you grapple with the battered housing market and the downward pressure it's put on stocks:
See you in three to five years
The key to that last point is not only to identify great companies, but also to have the patience to wait for the right price.