Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
<Steve>

"Bubble" Now Deflated

Recommended Posts

I have received a couple news letters reporting that we have hit bottom.... :glare:

 

HACKETTSTOWN, NJ -- /PRNewswire/ The housing "bubble" -- whose bursting triggered the current mortgage credit crisis -- has now fully deflated, according to a new study published today by SMR Research Corp.

 

This sets the stage for a mild housing recovery, which SMR said would begin prior to yearend 2008.

 

The recovery is likely to be gradual, with house prices merely firming up or increasing slightly, rather than returning to the strong growth they showed from 2002 to mid-2006, the firm said.

 

SMR specializes in mortgage and home equity loan industry research. An SMR study was among the first to declare (in 2002) that a housing price bubble existed, defined as prices rising faster than consumer incomes. In a 2004 study, SMR forecast that a "perfect storm" in credit quality would cause an explosion in foreclosures within two years.

 

"Our prior forecasts were accurate but widely disbelieved when issued," noted SMR President Stuart A. Feldstein. "We similarly expect a skeptical reaction now to a recovery forecast, which is not the common view. But the numbers are what they are."

 

The new recovery forecast was published within SMR's annual Spring study on mortgage industry trends and leading players: Giants of the Mortgage Industry, 2008. More than 230 pages this year, Giants has been in continuous publication since 1986.

 

A special section in the study used home price and consumer income data from several sources to show how the bubble grew from 2002 to 2006. The same data now show the bubble has evaporated at current mortgage interest rates after 18 months of rising incomes and falling home values.

 

"Homes are now affordable again," Feldstein said. "Consumer psychology is the biggest remaining hurdle to recovery."

 

Prospective home buyers, still hearing predictions that prices will fall further, keep waiting to buy, SMR noted. This becomes a self-fulfilling prophecy, as scant demand pushes home prices lower.

 

"The stage is set for recovery, but the play won't go on if no one buys a ticket," Feldstein said. "Consumers must believe prices have bottomed out, or nearly so, before they will buy in larger numbers."

 

SMR noted that home price depreciations always do come to an end eventually, as occurred over the last 20 years in California, New England, New York, and Hawaii. Falling mortgage interest rates could trigger the end of this one.

 

The recovery in housing will be tempered by three negatives, SMR said.

 

First, borrowers with low credit scores may be unable to participate. Second, existing home owners who owe more money than their homes are worth may find it difficult to move until prices firm up.

 

Third, there is another type of housing "bubble" that may still exist, SMR said. It is the difference between home purchase downpayments and household savings.

 

SMR cited IRS data showing a big increase over 10 recent years in the percentage of tax filers reporting zero taxable interest income, implying no available cash savings. It is more difficult and expensive today to get 100% home purchase financing, so most buyers must have some downpayment funds.

 

Still, even though these problems will make the housing recovery modest, they will not prevent it from coming, SMR said.

 

In its analysis of the house price/income bubble, SMR used gross household income data from the Census Bureau as well as per capita disposable incomes from the Commerce Department's Bureau of Economic Analysis.

 

The firm used house price data reported separately by the Census Bureau on newly constructed homes and from the National Association of Realtors on existing homes.

 

In addition, SMR compared income trends to required average monthly mortgage payments under prevailing annual interest rates from 1990 through February, 2008. Results showed that gaps created from 2002 through 2006 are now closed.

 

SMR's annual Giants study also includes the firm's complete coverage of full-year 2007 mortgage originations and servicing data by lender and for the industry, plus new measures of loan delinquency, foreclosure, and other industry and company statistics.

 

Founded in 1984, SMR Research Corp. is the nation's largest provider of industry research studies on mortgage and home equity loan subjects. More details about the new study's content can be found under the "mortgage" subject button at www.SMRresearch.com.

Share this post


Link to post
Share on other sites

Good old American ADD hard at work! It makes perfect sense that the worst housing collapse in history should last less than 2 years, we've got things to do and places to be, times a wasting! :glare:

Share this post


Link to post
Share on other sites

Realtors shouldn't interpret a little foot traffic as "the market is back" or has hit bottom, or is in any way healthy. This applies to all of the areas which experienced the strongest price increases over the past few years. These markets won't hit bottom until there is a substantial drop in inventory and foreclosures return to normal rates. Seeing as how we are still facing a bumper crop of foreclosures, the bottom is still a long way down.

 

Also, get ready for the unintended/unexpected second wave of walkaways: the 2003-and-onward buyers who manage to hang on through the neighborhood foreclosures and short sales only to see their new neighbors buy at the "new" bottom. If that meant only a $20K difference they'd suck it up and make the payments. But out here, it's a $100K - $300K difference. In parts of San Diego, it will be a $600K difference. Mailing the keys back to the lender will be an easy decision.

 

Dan

Share this post


Link to post
Share on other sites

I think it is safe to say the SMR Research has an agenda. So I wouldn't put too much faith in their optimistic report about the mortgage and housing industries. All signs I look at are down, and considerably so. Here in south FL, the poster child for all that is wrong with real estate these days, I read somewhere recently that there is a 44 month inventory of houses. Meaning that at current sales levels, if no other properties enter the marketplace it will take 44 months to sell off all existing properties.

So I don't think that is the sun on the horizon, but a big, fat, bellowing mushroom cloud. . .

Share this post


Link to post
Share on other sites

I agree that the SMR assessment is WAY too optimistic (at least by Cali standards) I don't expect an upturn in prices until 2011 at the earliest.

 

Phil

Share this post


Link to post
Share on other sites

I heard today that the resetion I heard about last month is nearing its end. Its true, all factors are leaning that way

Share this post


Link to post
Share on other sites
I heard today that the resetion I heard about last month is nearing its end. Its true, all factors are leaning that way
If you think all factors are leaning that way, you must be standing on your head. '08 will be so bad for this economy that we will refer to '07 as "the good old days". :wacko:

Share this post


Link to post
Share on other sites
If you think all factors are leaning that way, you must be standing on your head. '08 will be so bad for this economy that we will refer to '07 as "the good old days".
How bad do you think? :wacko:

Share this post


Link to post
Share on other sites
How bad do you think? :wacko:
Your guess is as good as mine, Steve. But I'm basing my pessimism on the numbers that are being released. We have inflation and a shrinking job market. The housing industry, which was the jet engine for our economy for five years or so, no longer is. Even the Fed Chairman uttered the "R" word the other day when giving his assessment of the economy.

As regards the housing market specifically, in my region at least, all signs point lower: inventory is higher, sales are lower, building permits are way down, and foreclosures are soaring. All of that points to continued troubled times ahead. About the only positive in all of this is that mortgage rates are still low. Of course, qualifying for that mortgage these days is damn near impossible. . .but rates are low.

That's the bad news. The good news is that as investors there hasn't been this great an opportunity to find deals in 30 years or so. Anyone who is talking to homeowners has to know this. I have never seen such open minded, receptive sellers as I am finding these days. So if we buy right, or lease purchase right, there are deals to be had and money to be made.

Share this post


Link to post
Share on other sites

Speaking of MTG's did you hear Wells Fargo now has a 90% stated NOO for 720 and higher. Weren't they the first to pull the stated income programs.

Share this post


Link to post
Share on other sites
Speaking of MTG's did you hear Wells Fargo now has a 90% stated NOO for 720 and higher. Weren't they the first to pull the stated income programs.
I hadn't heard that, and I must say I'm surprised if it's true, in light of what the mortgage industry is facing right now.

Share this post


Link to post
Share on other sites

Arizona definitely sucks right now. Forclosures are way, way up, and climbing each month. sales of new and used are slowed. Prices are way down and I really hope they don't go down much further! BUT, I see less building permits as a good thing... less inventory.

 

I bought in June 05 OUCH. I'd be lucky to get my money back out WITH SELLING ON LO. Thank my lucky stars I bouht "in town" and not the very hard hit outlying areas. Sucks to be me. Wish I knew then about RE what I know now! Wish I bought NOW instead of then.

Share this post


Link to post
Share on other sites

I bought in 06.........but I never pay full price apploud.gif

Share this post


Link to post
Share on other sites

×
×
  • Create New...