Housing Cool-Down Is 'Orderly,' Fed Chief Says (6.6%/30 yr.FRMAC mortg.)

[TexasLawyer]

Housing Cool-Down Is 'Orderly,' Fed Chief Says

By Tomoeh Murakami Tse
Washington Post Staff Writer
Friday, May 19, 2006; Page D01

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/18/AR2006051802196.html

Confirming what home buyers suspected and real estate sales figures have indicated for months, Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. housing market was showing clear signs of cooling off. Bernanke said the slowdown is "moderate" and "orderly" and pointed to the overall strength of the economy.


New homes are for sale near the Seattle suburb of Maple Valley,
Wash. New-home construction fell 7.4 percent in April.


"We're seeing slowing in sales, slowing in starts. There also seem to be signs that prices are not rising as quickly as they have been for the past few years," Bernanke said in response to questions after a speech in Chicago, Bloomberg News reported.

His comments came as Freddie Mac announced that the average rate on a 30-year, fixed mortgage hit 6.6 percent this week, the highest in almost four years. Rising long-term rates have contributed to the housing industry's slowdown. The Commerce Department this week said construction of new homes fell 7.4 percent in April, to an annualized pace of 1.85 million homes. It was the third straight monthly decline.

<snip>

Former Fed chairman Alan Greenspan echoed Bernanke's analysis in a speech last night to the Bond Market Association in New York. "The boom is over. We can say that with some confidence," Greenspan said. But, he added, "there is no evidence that prices are going to collapse."

[OrangeCountyDemocrat]

1. What A Bunch Of Horseshit!

No evidence that prices are going to collapse? Depends upon what the definition of collapse is.

But I suppose if you don't need to sell your house, or get out from under a mortgage, then the decrease won't be a big deal. But to plenty of others it is their life.

[TexasLawyer]

2. I didn't realize how many people had these crazy

zero equity or super-low equity mortgages. There are a lot of people who are going to be hurting when interest rates skyrocket. It gets more and more like Enron every day.

From another article on Bernanke's speech:
http://money.cnn.com/2006/05/18/news/economy/bernanke.reut/?cnn=yes


Meanwhile, Bernanke said, the Fed is concerned about the recent proliferation of non-traditional mortgage products such as adjustable-rate and no-money-down loans. He noted some 30 percent to 40 percent of new mortgages were of the non-traditional type in 2005.

Chicago Fed President Michael Moskow noted in earlier comments that many adjustable rate mortgages will soon need to be re-priced "under less favorable conditions."

[ixion]

10. or even negative amortization loans

where you actually speculate on the price of the house going up and your payments don't even cover the interest.

sounds like a scam to me.

[slackmaster]

13. Yes, what would constitute a collapse?

But I suppose if you don't need to sell your house, or get out from under a mortgage, then the decrease won't be a big deal. But to plenty of others it is their life.

If my home in San Diego lost half its current market value, it would still be worth more than twice what I paid for it just over 11 years ago.

Would that be a collapse, or just an adjustment back to a more reasonable rate of appreciation? I don't intend to sell, so it would be a non-issue to me. To people who are struggling to save up a downpayment to get into their first home it would be a godsend.

[TexasLawyer]

3. From Barron's Online-- Bigwigs are definitely paying attention

A World of Worry
By Randall W. Forsyth
Word Count: 800

YOU'D THINK INTERNATIONAL GEOPOLITICAL and economic problems would top the worry list of a global markets veteran such as Mohamed El-Erian. Iraq, Iran and the rest of the Middle East, trade and currency tensions with China, growing populism in Latin America and unsustainable global economic imbalances -- any of those is enough to give sleepless nights to an investor.

But the head of Harvard's endowment is nervous about something far closer to home -- the U.S. housing market. If there's one bit of information that would be crucial to know, that's it, he tells Barron's.

He's hardly alone in those ...

<snip-- for subscribers only>
http://online.barrons.com/google_login.html?url=http%3A%2F%2Fonline.barrons.com%2Farticle%2FSB114786305120655260.html%3Fmod%3Dgooglenews_barrons

[Dover]

7. Looks like a good article. Any chance you might send that to my

inbox in its entirety? I would be so appreciative.

Would love to read the rest.

Thanks.

[magellan]

4. If the Fed describes it as orderly

...then it'll probably be more like :nuke:

[TexasLawyer]

5. Financial writers are using some fairly scary language....

This boom has bubble written all over it
Published: Thursday, 18 May, 2006, 10:29 AM Doha Time

By Larry Elliott

LONDON:

<snip>

http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=86981&version=1&template_id=46&parent_id=26

<US> Households have been re-mortgaging at higher rates, wages are not rising very fast, and disposable incomes are being squeezed by higher inflation and the sharp rise in energy costs. With the Fed seeking to underpin the dollar, all the ingredients are in place for a savage retrenchment among US households.

This precarious state of affairs has been disguised by the strength of the US corporate sector, which has been running a healthy surplus and expanding strongly. But the optimism in boardrooms would be quickly dented if consumers stopped spending. The risk is that robust expansion in the first half of 2006 will prove to be a mirage: the next 18 months will see bust follow boom. If the US consumes at a slower rate, China will produce at a slower rate. That means commodity prices are likely to come down, oil is more likely to be $50 a barrel in a year’s time than $100 a barrel, the dollar is a sell and bonds are a buy.

[TexasLawyer]

6. Re Greenspan comment:

Prices don't have to "collapse" for there to be some REAL problems--

Housing slowdown to be widely felt

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 18, 2006: 11:05 AM EDT

<snip>
Even those who believe that real estate prices are not in any danger of collapsing agree with Baker that the reach of real estate extends far beyond those actually building, buying or selling homes.

"Housing accounts for between a fourth and a fifth of the GDP (gross domestic product)," said Walter Molony, spokesman for the National Association of Realtors, referring to the broad measure of the nation's economic activity. "So many other industries see sales tied to the purchase of a home. We get calls from Singer sewing machines about our home sales statistics."


<snip>

Beyond the impact that home prices have had on spending, the white-hot real estate market has poured billions into the economy. Jeoff Hall, the chief U.S. economist for Thomson Financial, said that for every 1,000 single-family homes built, there are about 2,500 full-time jobs created, $80 million in payroll and $45 million in local, state and federal taxes paid.

"As we try to clear this inventory of unsold homes, there's going to be a lot of layoffs in construction, and less revenue from the creation of housing," said Hall. Residential contractors added nearly 200,000 jobs last year during the white-hot building boom, or about one job out of every 10 created in the broader economy.

<snip>

http://money.cnn.com/2006/05/18/news/economy/housing_impact/

[rpannier]

8. Well things are not all bad

The value of million dollar homes continues to rise.

[Dogmudgeon]

9. That may be so, but an orderly Depression is still a Depression

--p!

[Orsino]

11. First there was no slowdown. Now it's an "orderly" one.

I guess it's not troubling until cannibalism sets in.

[AzDar]

12. As long as it's "tidy" cannibalism..lol. n/t

[Demeter]

14. But The Housing Season Is Just Starting

Give it a month or two, then see what happens. There'll be blood in the gutters and people living on the street, just like Ronnie's Morning in America all over again.

[TexasLawyer]

15. Hey-- Just remember that as the bad statistics come rolling in--

none of it is "worrisome"!!! :sarcasm:

http://realtytimes.com/rtcpages/20060503_latepay.htm

Rise in Late Pays Not Worrisome
by Lew Sichelman

A group of the nation's real estate reporters went back to school last week in Charlotte, N.C., where a top housing economist explained, among other things, why they shouldn't panic when delinquency and foreclosure rates move higher, as they inevitably will.

"There's no question" that late payments will rise, Doug Duncan, chief economist at the Mortgage Bankers Association, told the journalists. "But it's not going to be a disaster."

It won't be that big a deal when the repossessions rise, either, Duncan said at the National Association of Real Estate Editors annual conference at the Marriott Hotel, adding that the percentage change in the foreclosure rate is a far more important indicator than the absolute number. "The number of foreclosures is absolutely going to go up," he said. "But the percentage could fall." <TL-- Percentage of what?>

<snip>

He also told the real estate writers to look at the underlying demographics to understand why prices may dip in their own markets. "If there's a weakening in employment, it will lead you to (weakening) house prices," he said. "That's the market 'normalizing,' but it's not a price bubble, it's an employment problem."

Published: May 3, 2006

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2262860

[spinbaby]

16. Here's a scary related article

"Boomers bet on property for support"

http://news.yahoo.com/s/usatoday/20060519/bs_usatoday/boomersbetonpropertyforsupport