Growing concerns about the housing market

| October 11, 2006

UPDATE (10/15/06): Henderson has posted some of his data and observations above.

“Evil” Bruce Henderson, my co-blogger, has developed a data mining tool that constantly surveys the web, building up data about housing prices and mortgages being issued. The results are troubling, to say the least; I’ll leave it to him to post the information should he choose to.

In the meantime, Robert Samuelson — one of my all-time favorite commentators, due to his intellectual honesty and general track record for being right on the money (so to speak) — now has the following to say:

We are at the endgame for housing. Until recently, our national motto has been “in real estate we trust.” Just last week, the Census Bureau reported that median home prices after inflation rose 32 percent from 2000 to 2005. In some places, the gains were huge: 127 percent in San Diego, 110 percent in Los Angeles and 79 percent in New York. But real estate — which has acted as a national piggy bank, with homeowners borrowing and spending against rising house prices — no longer looks so trustworthy. On this, more than falling oil prices or a record Dow, hangs the economy’s immediate fate….

Adjustable rate mortgages (ARMs) represent a quarter of the nearly $10 trillion in single-family mortgages, says economist Michael Fratantoni of the Mortgage Bankers Association. ARMs typically change rates annually and are 2 to 2.5 percentage points above, say, a one-year Treasury note. But “hybrid” ARMs made in 2003 and 2004 provided low fixed rates for three to five years; many of these rates are now rising. Consider a borrower with a 4 percent ARM of $200,000 lent in 2003. The monthly payment had been $955, says Fratantoni. Now, the ARM would reset at 7.5 percent; the payment increases to $1,362. Switch to a 30-year fixed-rate loan, and the rate would be 6.25 percent with a $1,164 monthly payment.

To service their loans, some consumers will curb their shopping. Susan Sterne of Economic Analysis Associates says that debt payments will absorb a record 15.6 percent of personal disposable income in 2007. Sterne expects growth in consumer spending and the overall economy to weaken, though she’s not predicting a recession. But some forecasters think one is possible.

Read the whole thing; hat tip to Real Clear Politics. ..bruce..

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Category: Economics, Main, Recession Watch, US Politics

About the Author ()

Webster is Principal and Founder at Bruce F. Webster & Associates, as well as an Adjunct Professor of Computer Science at Brigham Young University. He works with organizations to help them with troubled or failed information technology (IT) projects. He has also worked in several dozen legal cases as a consultant and as a testifying expert, both in the United States and Japan. He can be reached at bwebster@bfwa.com, or you can follow him on Twitter as @bfwebster.

Comments (2)

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  1. BWJones says:

    Well, I should hope that Bruce will post some of the data, or better yet, some derived statistics of his data mining exploits. I’ll be looking forward to them.

  2. bhenderson says:

    I did not want to hijack “Good” Bruce Webster’s blog with my crackpot statistics, but now that he has outed me I will likely post some goodies. The short summary:

    We are in unprecidented financial conditions, although some aspects of it resemble the tremendouse stock margin pyramid just prior to 1929. The likely deflationary pressure will be unlike anything that has ever occured in recorded history, what that translates to I cannot venture to guess. Anyone who tells you they know how this is going to play out is probably wrong.