Five Years – Gulp….. What does that mean for the housing market?

by Tom on November 25, 2009
in Market Musings, banks, house prices

Let’s take a look at what this means for the housing market:

If it takes 5 years before we see sustainable growth, then it’s going to be a very slow rebound to the jobs market.
If it’s going to be a slow rebound to the jobs market, then delinquencies on mortgages will continue to climb and will remain an ongoing problem for Fannie, Freddie and FHA.
If delinquencies continue to climb, then we’re going to see continued tightening of underwriting guidelines.
If we see continued tightening of underwriting guidelines, then we’re going to see continued pressure on house prices.
If we see continued pressure on house prices, we’re going to see a continued lack of inflation and potential deflation.
As we see continued lack of inflation and potential deflation, we’re going to see interest rates remain lower. Not as low as they are now, but still in the lower ranges.

If you had asked me 3 months ago, I was telling people that I thought we had 12 to 18 months until we started seeing significantly higher interest rates. I was also telling people that I expected that most markets would see property values bottom in 2010 and start a gradual rise from there.

If the 5 year time frame is accurate, both of those time frames are going to extend outward significantly. Rates will stay lower for longer and it’s going to be longer until we see a bottom in house prices.

So what’s it going to take to turn it around? I’m working on some ideas, but I’ll be honest with you, the only ways that I can see are frankly quite radical. How to describe it? Three words:

Massive Systemic Deleveraging.

Hey, I didn’t start Straight Talk about Mortgages because I wanted to sugar coat things. I started it because I believe people need to know the truth as I see it. And that truth isn’t pretty right now.

Tom Vanderwell

FOMC Sees Sustained Growth Five Years Away : HousingWire || financial news for the mortgage market

It will be at least five years before the economy experiences a sustainable rate of growth and levels of unemployment and inflation acceptable to the Federal Reserve, the Federal Open Market Committee said in its Nov. 4 meeting.

Meeting participants, including members of the Fed Board of Governors and the presidents of the Federal Reserve banks, believe economic recovery will be gradual, with real gross domestic product (GDP) growing at a moderate pace and the unemployment rate declining slowly over the next few years. During this time, inflation will remain subdued, the committee said.

The committee increased its projections for real GDP growth for this year, after the second half of the year outperformed its original June projections.

The committee also agreed to maintain the current 0 to 0.25% federal funds rate, noting economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The committee affirmed its intent for the Federal Reserve to purchase a total of $1.25trn of agency mortgage-backed securities and about $175bn of agency debt.

Technorati Tags: The Fed, House Prices, Mortgage Rates