When you're inflicted enough to read several hundred economic articles every week, it's nice occasionally to hear some honest discussion from an insider that doesn't sound like nauseating optimism. Roger Orf, CEO of Citigroup's Property Investments, delivered in that regard yesterday, as he addressed the Reuters Global Real Estate Summit. Orf manages $13 billion in real estate property for Citi.
From Reuters:
"Toxic real estate mortgages are holding the global economy to ransom and the banking sector will not return to health without a purge of its distressed property assets."
"The burgeoning economic rally could fizzle out by the end of the year unless governments take more affirmative action to protect it, by forcing bailed-out banks to sell off distressed property."
"Any time that you have got clouds on the horizon, it means there is not clear sailing ahead. And these are thunderclouds, maybe even a cyclone."
"I personally feel the best way to do that is through creative destruction as opposed to a malaise where you let the air out of the tire over a number of few years."
"Regrettably, governments are not forcing banks to sell assets and that's one of the fundamental things needed to restore equilibrium to property markets."
Orf said he did not expect fully functioning property lending markets to return before 2011, by when he hoped banks will have completed repair of their capital bases through a wave of real estate sales.
"I don't think there are any greenshoots. These greenshoots are weeds."
"We are all going to wake up in 6 or 12 months time and discover we're back where we started. I'm wary that we could relapse into a significant downturn by end of the year."
Steve here. He's being too optimistic in his hope for a property-market turnaround in 2011. Examine the charts below, and read how the problem is now moving to Jumbo Prime. We have still yet to see the worst of the foreclosures. Alt-A, Option-ARM and Jumbo Prime will make the sub-prime meltdown look like a child's diversion.
Click to enlarge chart.
Below is a chart for Option-ARM resets (no click).
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