From Inman News:
Mortgage credit to impact housing next year
Housing markets are the slowest-roller of all. The last buyers in the party get burned by a routine and minor retreat in price in the year after the peak, but then prices just go flat, sometimes for decades. The bubble zones appear to be entering that flat phase now. The effect on GDP is thus far minor, mostly caused by the decline in mortgage equity withdrawal, sawing about 1 percent off of GDP — a reduction in stimulus, not a braking force.
The one, narrow path to spiral risk will begin with the exposure of people who bought but shouldn’t have. The press is wildly magnifying the risk from ordinary ARMs, option ARMs with negative amortization, and interest-only loans. The real risk is in a short and stark list: those who put little or nothing down and/or with aggressive subprime financing, and were short of post-closing resources — savings, job stability and discipline. The killer is the combination; Colorado for the moment leads the nation in foreclosures, and that’s the profile.
The next step on the path will be the reduction in future buyers. During the late boom, the national percentage of home ownership grew from 66 percent to 69 percent, some of it pushed by well-intended “affordability” loan programs, blind to the need for post-closing resources. I expect that gain to roll back, painfully for many of those buyers, and for today’s sellers.
The moment the spiral could turn ugly: when the mortgage-risk players on Wall Street discover that the home-price boom has camouflaged the true extent of risk. If your house rises 20 percent in value, you have to really work hard to lose it. During the boom, the mortgage default rate fell to the lowest levels ever measured, and based on that credit-quality illusion, mortgage underwriting standards in the last five years have been the easiest ever seen. If you want a mortgage, you get one. Sign here.
When the illusion falls away, underwriting will tighten. When underwriting tightens, fewer buyers will be able to buy. Owners in difficulty today can accomplish defensive refinances on terms that by next summer may not be available, and that will drive the default rate up more. Just when the housing market most needs credit, credit will be withdrawn, and a deteriorating sales-to-inventory ratio will put more pressure on prices.
This process will take time, I suspect well into 2007 before we begin to know how exposed the mortgage-risk players really are. Mortgage underwriting in current form is unsustainable, but may not deteriorate into a spiral.
If trouble develops, you won’t learn first in the housing stories. The first news will come from the Street in garbled stories about trouble in the “credit derivative” market, and then perhaps from neighborhood word that someone’s buyer actually got turned down for a loan.
“home ownership grew from 66 percent to 69 percent”
Add 12.6% to that, official povety rate. In conjunction with this, what % never buy, lifestyle choice??? Who is left to buy???
BC Bob, maybe the 69% rate is inflated, due to liar loans.
Probably less that that, don’t you think?
Lotsa folks out there “living” in several primary residences.
i thought 06 mew already surpassed 05 with a quater to go?
“The effect on GDP is thus far minor, mostly caused by the decline in mortgage equity withdrawal, sawing about 1 percent off of GDP — a reduction in stimulus, not a braking force.”
homeownership rate in the UK is higher.
we’ve got more poor people though.
12.6% is the official poverty rate, but try living on double the official poverty income. you are still poor as hell.
Bankrate.com pays $3 million to settle suit that alleges some of the site’s advertisers offered rates they did not deliver.
http://www.nytimes.com/2006/11/12/realestate/12mort.html?ex=1320987600&en=2df7671916d45257&ei=5088&partner=rssnyt&emc=rss
November 12, 2006
Mortgages
Mortgage Sites Under Scrutiny
By BOB TEDESCHI
THE mortgage industry is rife with stories about lenders who claim to offer terms that they fail to uphold. Now a pair of recent lawsuits have accused two popular mortgage Web sites, Bankrate and LendingTree, of not doing enough to back up their advertising claims.
The companies say they go to great lengths to ensure that their claims, and those of advertisers, are true. Still, the cases demonstrate the sometimes confusing nature of shopping for mortgages online.
The lawsuit against Bankrate, which was settled last month, alleged that some of the site’s advertisers offered rates they did not deliver. Bankrate paid $3 million to plaintiffs as part of the settlement. The company admitted no wrongdoing.
“…perhaps from neighborhood word that someone’s buyer actually got turned down for a loan.”
That is the point at which I re-enter the market as a buyer. Still a shark, even then, but paying much closer attention to individual details and beginning to throw out the lowballs.
To paraphrase Mr. Rogers, “It’s a great day to be a vulture capitalist.”
Skeptic,
Amen to that!!
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