I agree with many of your points but here's a fact. The Fed is coming off of 17 consecutive rate hikes. It's fixed income investors who are pushing the yield curve into inversion not policy makers. No doubt much of the housing boon was fueled by speculative euphoria. That's not to say that those flippers are wrong or will be severely punished. I still see the run up in RE as like the 90's stock market rally. Some areas will see sharp declines while others will hardly budge. After all how much downside can there be in a 200k home in Des Moines? An FYI on building costs. I've spoken to two different people in Ft. Lauderdale who are building homes on tear down lots. $200-250 per square seems to be the new benchmark. Thus there's no doubt that many homes are STILL priced below replacement cost.
I imagine that the overextended owners will need to be washed out of the market before anything much can happen. This is a complicated issue because it brings into play the dollar, the bond holders ( china , japan etc) and therefore interest rates since they are about the only tool remaining in the Fed's bag. I do not think that RE is a stand alone issue, it is very much a part of a larger picture. If rates are increased then the washout will be far greater. If rates and prices remain static then many people will die the death of a 1000 cuts. If rates decrease, many people may be lulled into thinking that the worst is over or they may take stock of their situation. '07 is shaping up to be a most interesting year.
http://www.prleap.com/pr/61102/ America stands on the verge of experiencing its worse foreclosure crisis in history http://www.timesrecordnews.com/trn/local_news/article/0,1891,TRN_5784_5268606,00.html http://www.heraldsun.com/business/21-806411.cfm http://www.sbj.net/article.asp?aID=87035065.2942469.989248.845451.4090627.504&aID2=76087 http://www.dsnews.com/view_story.cfm?id=735
http://www.thejournalnews.com/apps/pbcs.dll/article?AID=/20070109/NEWS02/701090340/1023/NEWS07 Can we call this a "mortgage related murder" ? http://www.nydailynews.com/front/story/486718p-409756c.html I guess we should be careful when taking advantage of situations to get good deals.
But the truth is that it is now cheaper to convert those ARMs to cheaper fixed rate mortgages! That saves people money and reduces risk. Besides, the FED is not in control anymore. All they can do is print money and are currently extorted by a weak dollar, poor trade imbalance and risk of housing bust if they raise rates. So I fully expect the FED to further drop rates about .5% to keep our economic expansion progressing and rebalance the trade deficit. As a separate observation I predict that people who hedged into gold are going to get slaughtered. BTW: People have to live somewhere. So either they down size to the level they can really afford or they relocate to lower costs (non welfare/socialistic) non-handout states or they go live in Tijuana to take over a vacated Mexico. In the latter case they can always and sneak back across the boarder for free subsidies and handouts like the Mexicans do in California and sleep in the abandoned houses that are in foreclosure to live high off the hog. TS
http://detnews.com/apps/pbcs.dll/article?AID=/20070106/OPINION03/701060367/1038/LIFESTYLE01 http://www.dsnews.com/view_story.cfm?id=727 http://business.mainetoday.com/news/070107subprime.html http://www.mortgage101.com/partner-scripts/inman.asp?ID=60955 http://www.montereyherald.com/mld/montereyherald/business/16408889.htm This is funny: "last years' home buyers bought with reckless abandon, confident that home prices could go nowhere but up. Now that conditions are generally better for home buyers, many are waiting on the sidelines for a clear sign that the market has bottomed out." ============= "Subprime loans, already risky to begin with, have become even riskier because unscrupulous brokers have incentives to close a loan -- earning their commission -- and none in making sure the mortgage can be repaid. Lenders also have more products to push that result in artificially low initial interest rates and don't factor in whether a borrower can keep up once the payments jump. "
How do you figure this? They couldn't afford a fixed rate in the first place, needed a teaser rate to enter the market, and converting to a fixed on a property with a bad LTV (>80% and sometimes in excess of 100%) ratio is cheaper? No appreciation and rising rates doomed IO/ARM borrowers.
Well, back a few years ago ARMs were cheaper than they are now; in fact dirt cheap. We now have a yield curve inversion and the game has changed. 30 Year fixed rate can now be had for less than the cost of an ARM product. Call up your local mortgage broker to inquire if you don't believe me.... TS