Mish is bearish on the U.S. housing market and collects a lot of interesting stuff into one post.
He interviews Mike Morgan to learn why mortgage numbers can rise while sales drop:
A year ago most speculators did not have to close on homes. They could simply flip their contracts prior to closing. No need to apply for a mortgage. That was shut down starting about a year ago. So we actually have a double counting of mortgage applications being reported now. The flippers that never had to get a mortgage before now have to get a mortgage and close, even if they are flipping the property the same day and the new buyer has to get a mortgage. So not only are mortgage applications not realistically up, but they are substantially down. The Fed and MBA is double counting mortgage apps for those flippers that only need the mortgages to close.
And comments on the effect of the new 50-year mortgages:
A housing slump will put many people underwater. Anyone in that situation would not be able to sell unless they could bring cash to the table at closing. Those are the very same people now stretching to get into houses on these new 40 and 50 year loans. Will they be trapped or will they have cash to bring to the table?
Mish ends with:
The latest numbers prove that people are still trying to live off home equity in spite of rising rates and falling home prices. "The percentage of cash-out refinancings in the first quarter was the highest since the third quarter of 1990, about the time the real estate boom of the late 1980s ended".
The hangover from this party is going to be a doozie.
It's worth reading the whole post.
1 comment:
Very interesting sentiment, and not uncommon. The one point I'd like to make, is that the price of a home doesn't ACTUALLY exist until a transaction is made. For that reason, I expect the rate of sales to change much more than the actual price of homes, unless there is a mojor (>5%) change in the unemployment statistics (which would force people to sell their homes).
An additional point to be made: on the east coast, the increase in home ownership has decreased the speculation to a large degree. So that could be effecting the "flippers" that are mentioned in the article. I didn't read the article very closely, but I am not sure the author properly acocunts for the ratio of "flippers" to the whole market.
Post a Comment