On February 21 of this year, I was quoted on Bloomberg News. What has changed in the residential housing market since then?
Wall Street(basically the huge high risk mortgage backed securities hedge funds)decided to get out of the home mortgage market. Sub prime lenders were forced out of business because their funding from Wall Street closed down. Thus, people with no down payment and poor credit could no longer obtain loans. Since the homes in the lower ranges were not easily selling, owners could not use their equity to buy another property, consumer confidence dropped, and the market slowed.
Next, the “Perfect Storm” week of August 20. Banks and savings & loans stopped making 100% loans and raised interest rates for loans originated by mortgage brokers. Some loan commitments were withdrawn, or terms changed, just prior to closing, pricing marginal borrowers out of the market.
Since August 25. Buyers have been reluctant to make commitments on a purchase, expecting that prices and interest rates will be more advantageous in the future. Meanwhile, rents have increased. Also, mortgage companies have been laying off employees because of reduced numbers of sales (will it take longer to get loans?). True to expectations, since less money is being loaned out, rates and terms have softened.
Today, the media reports that prices on housing will drop and buyers will postpone purchases until prices drop further. Experts in stocks, bonds, securities and foreign markets continue to be quoted in the media on what the housing market will do without identifying their credentials (MFR Securities are consultants to large banking institutions; Peter Schiff of Euro Pacific Capital is a specialist in foreign markets and securities and international investing) Continued housing doom and gloom should cause interest rates to drop, stock market to rise and the dollar to fall against the Euro and other major currencies.
These “experts” should also remind us that, in residential housing, historically, when mortgage rates drop, prices go up. And, when mortgage rates go up, prices drop? So, which will it be?
