Judy Weil

More On Mortgage Market Fallout [Housing Tracker]

Hi Bill,
So from the above it seems as if the crisis is going strong, but your comment yesterday gave me the feeling that there was some stabilization in the Nevada market. What's your overall sense there?

Financials: No Sign Of Let Up From Subprime [Housing Tracker]

Yours is the question of the hour really. Homebuilders, financials, bloggers, buyers and sellers and even ratings agencies debate this issue vigorously and constantly. If people are bidding on condos even though they are not at rock bottom prices as you say, then is it the bottom?

Obviously, I don't know the answer to that question. But here are just two things to think about in trying to.

One is that many billions of dollars more worth of ARM mortgages and other exotica between subprime and prime mortgages are still in the process of resetting. I don't have the numbers in front of me, but I recently read that dozens of billions will be resetting in the next month and a half alone. Maybe with Fannie and Freddie's new look, banks will start lending, mortgages will now become more affordable and people can refinance in to a good, solid mortgage at a decent rate. After all, the Fed Funds Rate stands at 2%! People should be able to get a better deal than the 6-7%+ lenders are offering. But so far they can't and lenders won't lend even the sturdiest buyers for low rates right now. Risks are too high.

Even if we're at the bottom, the market is still, well, at the bottom. Those that cannot afford the 10%-20%-even 40%-50% mortgage payment hikes, and cannot refinance or are not eligible to refinance, will not be able to sell. If they do, it will be without equity or even negative equity. Many will likely walk away. That's a lot of product coming on to the market. I won't even touch on the trend of rising prime mortgage delinquencies, the scenarios become even uglier.

The other issue is why this whole thing started. Affordability. A bubble was created by prices just inflating and inflating and inflating until most people simply could not afford to buy anymore-- particularly in SoCal, as I'm sure you know.

If sales are rising, is it because people can finally afford to buy houses now? Have prices reverted to the affordable mean already?

[There's an actual measurement for that, by the way. Housing and Urban Development has an affordability metric, if I'm not mistaken. i.e. how much of their salaries can spend on housing and still live above the poverty line.]

Obviously, I don't know the answer to that question either. But I personally believe that the answer to it will define the real bottom to this whole thing. If most people still can't afford to buy homes for a reasonable part of their salary, then the downturn will only stop when they can.

Having said all that, I hope you're hopefulness turns out to be well-placed!

ATB,
Judy