Programmer's Investing Notes: Housing Market: Recovery or last gasp?

Housing Market: Recovery or last gasp?

December 21, 2005

I'm a bit worried about the housing market. You probably know that I'm not buying a house at these prices, especially in the NJ area. But I'm worried that the buyers are over stretching themselves, and when the interest rates rise (a little more), many of them will not be able to pay for their mortgage. As a result, the pool of buyers will shorten. As a result, the whole economy might suffer. That's what I'm worried the most. But like I said, this frenzy cannot continue, and will not continue, forever. Every bubble inflates to the point when it bursts. Hopefully, it will only be by a slow deflation...

There is an interesting article on Economist.com (one of my favorite magazines; recently subscribed to it), about the housing market in US, and in other parts of the world. I have some interesting excerpts from the The Economist article, Miraculous recovery or last gasp?.

Not only is the Fed not done tightening, but the flood of cheap capital flowing into America from abroad could reverse itself at any time. This is bound to hurt consumers, especially since soaring house prices have forced many of them into adjustable-rate loans to keep their payments low. Indeed, a lot of desperate home buyers have turned to interest-only loans, or even negative amortization loans (where the payments don稚 even cover the accrued interest). As interest rates rise, many of these marginal buyers will be forced out of their homes, and the supply of new buyers will fall, which may result in a sharp decline in house prices. The Federal Deposit Insurance Corporation, which regulates America痴 banks, indicated on Tuesday that it was considering stiffer guidance for banks that grant these sorts of loans.

If the housing market does turn sour, it would be bad news for the American economy, as it has been for the economy in Britain, where the recent slowdown has been partially attributed to a weak housing market. In both countries, consumers have become dangerously dependent on strong house prices to keep them feeling wealthy enough to spend. Housing markets may be the canaries that signal the fate of the broader economy. And, as any miner will tell you, canaries don稚 live all that long.

Reference
Miraculous recovery or last gasp? -- The Economist

Comments

Post a comment

Go to:
« previous entry: Housing Slowdown
» next entry: My 2006 Q1 Stocks

Programmer's Investing Notebook :: Investing notes from a software developer :: | About Me |

Housing Market: Recovery or last gasp?

Comments

Topics

Entries by Date

Info

Stay Tuned