Yesterday, we were again reminded of John Templeton’s 2003 prediction about the then-looming economic crisis after reading this blog post. In 2003, when being interviewed by Robert J. Flaherty for Equities magazine, Templeton observed that the stock market is broken and remarked on debt accumulation and the inevitable housing decline:
Sir John also had a few words about debt — a four-letter word that folks seem not to care about: “Emphasize in your magazine how big the debt is. . . . The total debt of America is now $31 trillion. That is three times the GNP of the U.S. That is unprecedented in a major nation. No nation has ever had such a big debt as America has, and it’s bigger than it was at the peak of the stock market boom. Think of the dangers involved. Almost everyone has a home mortgage, and some are 89% of the value of the home (and yes, some are more). If home prices start down, there will be bankruptcies, and in bankruptcy, houses are sold at lower prices, pushing home prices down further.” On that note, he has a word of advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”
In his “Contrarian Chronicles” column, Bill Fleckenstein remarked on the interview in a July 14, 2003, article.
What do you think about this prediction from Templeton? Is it time to take his advice and jump into the housing market?
Templeton was right but today’s fact is there will be more buyers than sellers in the housing market as the interest rates are down together with the values and therefore the cost of house on per month basis would be only one fourth and many more would come in to have the benefit of staying in a better or bigger house. TYhe incomes naturally have not come down in the same proportion so one man’s misfortune is now the other’s good foirtune. We are seeing a similar thing happening in India and the fall in interest rates and values is nowhere near it has been in USA.