Housing Bubble Bursting?

[Mr Rex]

TC, how do you know? (Not trying to be smarta**, contrary to some of my usual posts. Do you get more info in PA than we do here?) I was bad mouthing ARMS to a MB friend locally (since we aren't a hot market) he got real quiet until he responded that the only folks left had no cash or credit and the only way he could "help them" was ARM. If he had mentioned the American Dream, I would have broken his nose, and he is a friend of mine.

 

[The Warrior Monk]

ARMs are great if you are only in an area for a few years, but like I said, I rarely see them in my market.

TC

Agreed.

ARMs are good for short-term ownership, especially if there is not prepayment penalty.

They are not good for purchasing a primary residence with the intent of long-term occupancy when rates were at historic lows.

 

[Mr Rex]

So appraisers in the northeast get the full loan package detailing the terms with each appraisal request? Is this state law?

 

[TC]

Generally on every request they indicate what type of loan, FHA, Conv., ARM, VA, B-C, you name it.

TC

 

[Mr Rex]

Same in NC. and the MB is a party to the sales contract? Can you say intended user? MB may or may not be part of the contract, but just for S&G, include them. The contract indicates 6.5% fixed or better. Can you hear the ARM now? its rushing forward, trying to muffle the whistling sound.

 

[Brad Ellis]

Randolph,

Neat post. From the article quiting the harvard guy:

"In contrast, Nicolas Retsinas of Harvard's Center for Joint Housing Studies says the increase in default activity coming during a time of economic growth is a sign that many adjustable-rate mortgages, or ARMs, carry too much risk for borrowers."

Now let's see...during economic growth the risk of inflation increases as unemployment goes down, and that usually translates into higher interest rates. With adjustable rate mortgages, the interest rate will follow the other rates eventually (we just came out of the inverted yield curve).

Now THERE is some quantum physics for us!

Brad

 

[Randolph Kinney]

U.S. housing starts fall for 3rd straight month

U.S. housing starts fall for 3rd straight month
Starts in April at lowest level since Nov. 2004

By Greg Robb, MarketWatch
Last Update: 11:43 AM ET May 16, 2006



WASHINGTON (MarketWatch) -- In a further sign of softening in the housing sector, construction of new U.S. houses retreated for the third straight month in April, the government reported Tuesday.

Starts fell 7.4% in April to a seasonally adjusted 1.85 million annualized units. It was the largest drop in more than a year. Starts are now at their lowest level of starts since November 2004.

Federal Reserve officials have said they expect a gradual softening in the housing sector as higher mortgage rates begin to bite. But they acknowledge there is a risk of a sharper decline in activity. Officials have said they will watch the sector closely for signs of distress.

Economists said a sharp correction in housing could not be ruled out given the weakness of the past three months.

On Monday, the National Association of Home Builders and Wells Fargo said their monthly housing market confidence index fell to the lowest level in eleven years.

:new_popcornsmiley:

 

[moh malekpour]

(we just came out of the inverted yield curve).

Not so fast Brad. If inflation is increasing, how the fed is going to fight it off? You guessed it. More short rate increase. That is the only tool fed has. More than what you expect. Do you remember Volcker and his rate increase? What is the result? Yield curve and recession. Then, what will happen to unemployment and growth in economy?

 

[moh malekpour]

Housing slowdown to be widely felt

http://money.cnn.com/2006/05/16/news/economy/housing_impact/index.htm
Slowdown in residential building and home sales will be felt throughout the economy; weaker jobs and consumer spending expected
By Chris Isidore, CNNMoney.com senior writer
May 16, 2006: 3:25 PM EDT


NEW YORK (CNNMoney.com) - You don't need to be in the market to buy or sell a home to be affected by the cooling housing market.
Economists, investors and the Federal Reserve are watching home building and home sales carefully because the sector has reached so far throughout the economy in recent years, lifting all manner of consumer spending and economic activity.

 

[Steve Owen]

Yeah, I caught that too, still pretty high. My guess is that ARMs are popular in the hot markets. Haven't seen one around my market it years.

Back last year and the year before, when I was still doing some mortgage work for a couple of local brokers, one of them told me that he was selling ARMS here in two market segments. (I expressed shock that anyone would want one in this market... typical appreciation close to CPI and interest rates at all time lows). He told me that a lot of doctors and young professionals were taking them to get into bigger houses than they could afford. The other market segment... the low end.

So, they sold these around here to people betting their income would go up faster than payment increases. And... also to people already stretching to just survive.

I've seen some increase in foreclosure at the low end of the market, but not a lot yet. As long as unemployment remains low I don't expect to see much of a bubble burst here.