Tony Rand

Where Is That Mythical Housing Bottom?

Great commentary and questions. After spending the last 23 years working in the housing and banking industries, I can think of three primary areas that need to see improvement before we begin to see the housing bottom. I'm sure there are more areas that could be applied, but these three stand out the most. First, there is the affordability index.

As an example, near the height of the housing bubble, home prices in Orange County, California were so high that less than 10% of households had a median income that would qualify them to achieve the dream of home ownership. Because of risk ignorance, easy credit was made available to people who did not truly qualify.

Second is consumer confidence. Third, as already mentioned, is unemployment. All three of these areas must first see improvement and then stability before we see the housing bottom.

As ArkansasAngie mentioned above, there are widespread fluctuations throughout the country where some areas are greatly impacted. Many areas, which can in part claim credit for instituting anti-predatory lending laws, have been protected from artificially inflated home prices and excessive consumer spending by using home equity like it had an ATM card attached to it.

Because the housing boom was artificially sustained outside of normal cyclical channels, the hangover from the party will last longer - and it will also be more difficult to hold back on the reigns as we slide further down the correction side of the hill.

Getting the Real Estate Crisis Right

Maybe you should call me Chicken Little. Example: The affordability index in 27 major metropolitan counties shows that borrowers left without the ability to lie about their income/assets nor the ability to accept a high risk negative amortizing mortgage cannot afford to own residential real estate. Realistically, all home price gains from 2003 will most likely be wiped out. So in many areas we will see home value declines as high as 50% to 60%. Most areas will be in the 20% to 30% range. Any area in which normal home price appreciation has been realized from 2000 will maintain a great degree of normalcy with a 1% to 7% reduction in values. This is my fifth market cycle, but for myself (and everyone else who has been in this business a long time), the characteristics of this perfect storm will bring more damage than ever expected...compare this fiasco to the S&L scandals of the 1980's and then add appropriate inflation factors for your region. At the end of the day, the recent inverted Treasury yield curve guarantees our recession. How the legislature, GSE's, HUD and all of the mortgage servicing entities handle recasting adjustable rate mortgages and loss mitigation of repayment impairment will only soften the overall blow to the existing market...not eliminate it altogether.