Happy July 4th!
Well its time for a housing post. Its been awhile so I thought I would update where we are in the current the housing market.
How do I say this? Ummmm housing sucks right now and its getting worse.
Reuters is reporting that the housing market is detiorating rapidly, and the analysts are expecting a housing depression if we fall into a recession.
"NEW YORK (Reuters) - An even gloomier scenario may be in store for an already ailing U.S. housing market if the overall economy slips into a recession, according to UBS Securities analysts.
Falling home prices, soaring foreclosures at a time of tighter lending and rising unemployment are all weighing heavily on an already troubled housing sector, the analysts said during a conference call late on Wednesday.
"The housing market has been in a recession for the past year and once the overall economy slips into a recession, which it probably will, the housing market will probably be in a depression," said Tom Zimmerman, head of ABS, mortgage research at UBS Securities.
Lack of funding is the biggest problem facing the housing market right now, according to the analysts, with subprime and Alt-A securitized markets shutting down and banks being forced to cut their mortgage lending dramatically due to capital constraints. So-called Alt-A loans are made to borrowers with less than prime credit ratings but who are above subprime.
"The housing market, in terms of housing finance, is really in a disaster situation right now and I see no change in that very quickly," said Zimmerman. "That's why our view of the housing market is very bleak and probably will remain that way for some time until there's some government intervention."
"Home prices, which had been falling at a reasonable pace over recent years, have accelerated since late last year.
"We were declining at an annualized rate of about 5 to 6 percent but prices starting dropping very rapidly and we're now at a 20 percent annualized rate. That's the mode we're in right now," he said.
The firm expects losses generated by exposure to securitized HELOCs to reach 18 percent for 2006 vintages and 32 percent for 2007 securities.
According to UBS, 62 percent of HELOC securities are owned by commercial banks, 16 percent by savings institutions, 9 percent by credit unions and 8 percent by finance firms. ABS issuers own a smaller 5 percent."
Final Take:
No analysis needed here. Its obviuos business is Booming. NOT!
The most alarming part of this article is how the losses are accelerating. Housing is now dropping at an annualized rate of 20% versus the 5-6% seen when this bubble started bursting. Analysts are expecting a housing DEPRESSION if the economy goes into recession.
6 consecutive months of job losses pretty mucch confirms that we are in a recession now or will be in the very near future.
Housing will fall into a depression because everything that could go wrong is occuring. Higher mortgage rates, tougher lending standards, banks that have no capital to lend, rising inflation, and most impotantly ridiculously high housing prices.
People cannot access the money to buy housing at the current prices. This is why housing prices are now dropping at a 20% annualized rate!!!
Notice that HELOC losses are expected to be at 32% for anything done in 2007. This will devastate bank earnings as people continue to default on their loans
Bottom Line:
Its obvious we are watching a classic bubble thats in the middle of bursting. The Housing Time Bomb has officially exploded. The big question now is how bad will it get?
I will say it again. Now is not the time to buy a house!!!
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