Housing Market, Mortgage Woes Spark Economists’ Fears
For months as the U.S. housing market unraveled, the Bush administration, the Federal Reserve, and prominent economists maintained the decline did not risk hitting the economy at large.
But now, with the continuing unraveling of the bad credit mortgage market, economists are growing increasingly concerned that the broad economy may indeed take a hit.
An abrupt exodus of more than two dozen so-called subprime lenders from the market has heightened fears other home loan lenders may soon start choking off credit to businesses and consumers.
Economists, and the Bush administration, agree falling house prices and rising defaults by borrowers with poor credit in the mortgage market may mean slower U.S. economic growth this year.
“We know that the housing market will have an impact on GDP over the next six months,” Edward Lazear, chair of the White House Council of Economic Advisers, said this week.
When asked how subprime / bad credit home loan market woes would weigh on the economy, Lazear said the banking sector has remained strong, but the delinquencies are high and lenders, even outside the subprime market, have begun to tighten up credit.
“It’s clearly going to increase the cost of capital and on the margin its going to be less conducive of capital spending,” said Richard DeKaser, chief economist at National City Corp. in Cleveland.
According to Mortgage Bankers Association data, the proportion of mortgages in the initial stages of foreclosure during the fourth quarter of last year hit its highest in the 37-year history of the association’s survey.
In addition, commercial banks have tightened lending standards to ensure that the people receiving home loans have good credit and won’t default.
According to the Federal Reserve’s recent Senior Loan Officers Survey released last month, which covered lending business at the end of last year, U.S. banks reported tightening standards on all residential home loans, the highest net fraction seen since the early 1990s.
“The extent of the tightening of credit conditions for borrowers has yet to be fully clarified, and bears continual monitoring,” Citigroup economist Steven Wieting wrote in a report this week.
About 45 percent of bank loan officers in the Fed survey said they expect a deterioration in the quality of the loans they make, ranging from loans for business investment to commercial real estate loans.
Continue reading this article by Reuters …
March 24th, 2007 at 5:02 pm
What know makes reference to is that in 2000 on average homes were selling for an average of $192,000 and in 2006 they were selling at close to $700,000. This is based on where I live in Hawaii which tends to be a laggard state in relation to mainland trends. What took place was a massive speculative buying wave which resulted in a large bubble which burst. This is no suprise, one might look at the Hust brothers silver silver collapse in early 1980 where silver ran up from $5.00 an ounce to a peak of $54.00 an ounce.Years later is was back under $5.00 an ounce. Speculation always ends badly. Housing will seek a price level which will not be known for years to come.
March 24th, 2007 at 5:09 pm
CORRECTION:
What know makes reference to is that in 2000 on average homes were selling for an average of $192,000 and in 2006 they were selling at close to $700,000. This is based on where I live in Hawaii which tends to be a laggard state in relation to mainland trends. What took place was a massive speculative buying wave which resulted in a large bubble which burst. This is no surprise, one might look at the Hunt brothers silver collapse in early 1980 where silver ran up from $5.00 an ounce to a peak of $54.00 an ounce. In the years that followed silver was back under $5.00 an ounce. Speculation always ends badly. Housing will seek a price level which will not be known for many years to come.