Perspectives on housing market
Different perspectives on the state of the housing market, an excellent article by a real estate agent, 3 economists weigh in on when housing will recover and HSBC, a large mortgage lender taking a massive write off to account for bad debts on subprime loans.
Clay Kime submits a very lengthy article to Seeking Alpha that is very well thought out, not just a typical real estate agent who might say "everythings fine, there is no housing bubble, it's a great time to buy". Please read the entire article.
My personal take on the housing market is that obviously we are no longer in the boom of the last few years but unlike the stock market "bubble" which wiped out trillions of dollars of equity with some stocks dropping from $100 to near $0, there is currently excess coming out of the balloon, not a bursting of the bubble. Prices will not appreciate at or near the rates of those years and because of excess inventory, are likely to increase at a low single digit rate or decrease at a low single digit rate for the remainder of 2007. That is not a bubble bursting.
Inventory has increased because too much new construction is still available. The large national builders planned for continuing lofty sales and continued to build at the same pace when sales began to slow resulting in excess inventory. To move this inventory, incentives had to be offered and prices were lower than homes sold previously.
Other sellers have been forced to put their homes on the market because they find that they can no longer afford to make their payments. Short term interest rates reflected in higher adjustable rate mortgage rates have reduced affordability because of a higher monthly payment. This causes two results, some homeowners mortgage rates have reset higher and some may not be able to afford the new payment and therefore, must put their home on the market. Secondly, some potential buyers may not be able to purchase because they can no longer afford the payment based on a higher mortgage rate.
With this scenario of increased supply and less demand, appreciation if any will be scarce and in some cases, prices will decline somewhat. When supply exceeds demand, prices can not continue to go up and in many cases, while they are not "crashing", they are coming down a little bit.
On a postive note, long term interest rates have not increased that significantly and 30 year mortgage rates are still at very attractive historical levels, only increasing slightly from the lowest rates in the past few years. Real estate is regional and damage will be a little more severe in areas that experienced the largest price increases and more rampant speculation and less severe in areas with good job and population growth.
Two other interesting articles, first, 3 economists predict housing is still falling and will not recover until midyear.
(Can I add a little joke here, 3 economists, one says yes, one says no and the third says maybe, so one must be right.)
Please read the entire article from Steve Kersh at Marketwatch.
Finally, the impact on the slowing housing market and increasing write offs of bad debt on loans made by subprime lenders, in this case HSBC, to less creditworthy home buyers. Please read the entire article from Simon Kennedy at Marketwatch.