Housing Bubble Update
Mish is at it again with an excellent post on Benny and the Feds, Guvner Lackers latest comments regarding the housing bubble.
In our assessment, Lacker is lacking a card or brick and obviously, the lenders are to be believed, i.e. there is a housing bubble, no denying it.
Question: What do you think the percentage drop will be? Is it possible that the 20% most lenders are calling for is too conservative?
Obvious possibilities(Ben Jones Housing Bubble has some excellent coverage): Left coast and Florida get hit hardest ). High end real estate gets hit hardest. Condos get hit harder than SFR's. Over leveraged and late buyers get flipped underwater.
We have long maintained that "neither massive layoffs nor large increases in interest rates will be necessary to put a major dent in the housing bubble" and that "this train won't need much of a push to derail".
Somehow, an average of 20% nationally doesn't sound like its enough. We harken to a previous post where Barry Ritholtz commented that 50% of all private jobs created since 2001 can be attributed to the housing market boom.
Calculated Risk puts it somewhere between 30% and 70% of all new jobs since 2001.
And furthermore, comments from the controller of the currency regarding ARM exposure and mortgage resets that will slowly cook the economy down as well.
How much "no down", "interest only" or payment option ARM exposure is there? A sobering article from the San Francisco Chronicle details how an unemployed person bought a $1 Million home with 10% down and a stated income interest only loan.
The article also indicates that "nearly 70% of Bay Area home buyers last year used interest only mortgages to obtain their homes, up from just 18 percent in 2002.”
Even a mild energy cost induced recession coupled with the housing market pullback could spell disaster. This would spiral into additional layoffs in all sectors, not just the "housing" industry.
We think that a slow and painful 30% pullback with 10% per year over a 3 year span is conservative given the above set of dominoes. Interestingly enough UCLA's Dr. Leamer agress with our "slow and painful" scenario.
In our assessment, Lacker is lacking a card or brick and obviously, the lenders are to be believed, i.e. there is a housing bubble, no denying it.
Question: What do you think the percentage drop will be? Is it possible that the 20% most lenders are calling for is too conservative?
Obvious possibilities(Ben Jones Housing Bubble has some excellent coverage): Left coast and Florida get hit hardest ). High end real estate gets hit hardest. Condos get hit harder than SFR's. Over leveraged and late buyers get flipped underwater.
We have long maintained that "neither massive layoffs nor large increases in interest rates will be necessary to put a major dent in the housing bubble" and that "this train won't need much of a push to derail".
Somehow, an average of 20% nationally doesn't sound like its enough. We harken to a previous post where Barry Ritholtz commented that 50% of all private jobs created since 2001 can be attributed to the housing market boom.
Calculated Risk puts it somewhere between 30% and 70% of all new jobs since 2001.
And furthermore, comments from the controller of the currency regarding ARM exposure and mortgage resets that will slowly cook the economy down as well.
How much "no down", "interest only" or payment option ARM exposure is there? A sobering article from the San Francisco Chronicle details how an unemployed person bought a $1 Million home with 10% down and a stated income interest only loan.
The article also indicates that "nearly 70% of Bay Area home buyers last year used interest only mortgages to obtain their homes, up from just 18 percent in 2002.”
Even a mild energy cost induced recession coupled with the housing market pullback could spell disaster. This would spiral into additional layoffs in all sectors, not just the "housing" industry.
We think that a slow and painful 30% pullback with 10% per year over a 3 year span is conservative given the above set of dominoes. Interestingly enough UCLA's Dr. Leamer agress with our "slow and painful" scenario.
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