Comments on: Around the Web

By: David Merkel

David Merkel — Sat, 31 Mar 2007 19:21:47 +0000

Allan, no disagreement. There’s a lot of blame to go around here, The FOMC (1%, you’re kidding), the regulators (willfully blind), the lenders ( keep the volume rolling, focus on the initial mortgage payment), the investment banks (need product for the new ABX indices), the rating agencies (lowered standards, nice fees), the CDO equity buyers (what a nice yield), the realtors (let’s get you into the biggest house that you can afford), appraisers (I have to give them the value they want, or I don’t get paid) and finally, the borrowers/buyers.

The last group doesn’t get enough criticism, in my book. What were they thinking? You can get a nice house for no money down and a low payment? There are no free lunches. Many people were fooled by realtors and mortgage lenders, but more knew in the backs of their minds that something “too good to be true” was happening, and that they didn’t explore the terms closely enough to figure out what was wrong with the deal. “Buyer beware; borrower beware.” Hey Cody, do you want to trademark that phrase as well?

By: AllanF

AllanF — Fri, 30 Mar 2007 22:50:00 +0000

Regarding the “states are hazarding a little money”, what bothers me is the housing market went into a crazy arms race with people grossly over-leveraging themselves. Unlike, say the Internet stock market bubble, people have far less ability to not engage with a housing bubble. Short of renting, all they can do is buy smaller and hope for rational prices to return so they can buy what they really wanted. Well, for that strategy to work, at some point, prices have to drop and some folks have to loose their house. This talk of the govt getting involved means the prudent folks that didn’t engage in the housing arms race and have been waiting for normalcy are going to be punished the most.

Now, I’m not trying to rant here. I am asking, short of letters to legislators to tell/ask them hand’s off (and which often ain’t worth much IMO), what is left for a prudent person to do?

Everybody’s gotta live somewhere and unless one was lucky enough to buy-in to one’s final residence 4-6 years ago, one is left with a rather short end of the proverbial stick. And it appears the govt is inclined to make doubly sure of it.

By: David Merkel

David Merkel — Fri, 30 Mar 2007 05:00:21 +0000

Jeff, the most difficult part of the analysis comes down to this: given the total amount of housing stock that would prefer a new owner, plus additions from the homebuilders, what price level is necessary to absorb all of it, given that buying power is reduced because of tightened lending standards?

This leaves aside second order effects of people who might be able to sell/refinance their homes in a higher price environment, but can’t do so if prices are lower. The lower that housing prices fall, the more difficult housing finance becomes.

As for the states and other measures that the federal government might take, they can do a little, but to do a lot, they would have to raise taxes significantly. At present, some states are hazarding a little money to show that they ae “doing something,” but they aren’t trying to provoke a political fight.

By: Jeff

Jeff — Thu, 29 Mar 2007 04:28:53 +0000

Great links, David. They are all interesting and helpful.

As usual, most people will not actually read the First American Corelogic report, which has eighty pages of text and another hundred pages of tables. There are a number of good ideas about how this might all play out. I have been reviewing it, and I’m sure you are, too. There is a lot there beyond the well-publicized fact of the resets. One point that deserves examination is that the seriousness changes with the level of housing prices. Another is the various efforts that will be made to provide work arounds. How effective will these be?