Bill Gross of PIMCO Says Housing New Normal Is Lower From Here…….

Posted By on September 1, 2009

Housing Won’t Lead U.S. Out of Recession, Gross Says

By Susanne Walker

Sept. 1 (Bloomberg) — Housing won’t lead the U.S. out of its recession, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., wrote in his September investment outlook.

There has been a significant break in the traditional economic growth pattern “because of delevering, deglobalization and reregulation,” Gross wrote in the outlook posted on Newport Beach, California-based Pimco’s Web site.

“Subsidized and tax-deductible mortgage interest rates as well as a ‘see no evil, speak no evil’ regulatory response to government agencies FNMA and FHLMC promoted a long-term housing boom and now a significant housing bust,” wrote Gross, Pimco’s co-chief investment officer. “Housing cannot lead us out of this big-R recession no matter what the recent Case-Shiller home price numbers suggest.” FNMA is mortgage company Fannie Mae, and FHLMC is the Federal Home Loan Mortgage Corp.

The S&P/Case-Shiller home-price index fell 15.4 percent in June from a year earlier, a report showed Aug. 25, less than the 16.4 percent decline forecast in a Bloomberg News survey, leading to speculation that housing declines bottomed.

Home ownership is declining, and the “new normal” in ownership is 65 percent of American households, down from 69 percent, Gross wrote.

‘Irreversibly Changed’

“The financialization of assets via the shadow banking system led to an American era of consumerism because debt was available, interest rates were low, and the livin’ became easy,” Gross wrote. “Now things have perhaps irreversibly changed,” with savings headed up and growth rates in consumer spending moving down.

Officials at Pimco have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth.

“If you are a child of the bull market, it’s time to grow up and become a chastened adult; it’s time to recognize that things have changed and that they will continue to change” for the next 10 to 20 years, Gross wrote.

Global policy rates will stay low for extended periods, and Asia and Asian-connected economies such as Australia and Brazil will dominate global growth, he wrote. The dollar is “vulnerable on a long-term basis,” he added.  More……

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