Housing.com News, Analysis & Opinion: Housing Bubble: And The (Boom) Beat Goes On...

What is different now? One factor is the way houses are financed. It used to be that banks and savings and loan associations made mortgage loans, and they would be cut off when the Fed pushed up interest rates above the levels the banks could pay on savings. But those rules are long gone, and the Fed cannot turn the housing market on or off.

Indeed, as the current boom shows, the Fed has some trouble even slowing a boom. Long-term interest rates have not risen with the short-term rates the Fed does control, and the financial system has responded with creative mortgages that let homebuyers hold down monthly payments even as the purchase price rises.

I think the phrase "hold down monthly payments" should be rewritten to read "Borrow against their future equity by making teeny, tiny payments, only to be gobsmacked when their monthly payments double and they don't have the capital put aside to soften the blow," but other than that, it's an OK read.

"The administration will continue to monitor" developments in the housing market, Bernanke said. "However, our best defenses against potential problems in housing markets are vigilant lenders and banking regulators, together with perspective and good sense on the part of borrowers."

Sigh. Looks like someone's been drinking from Greenspan's Kool-Aid thermos. The disconnect here is startling. Borrowers--notice he says "borrowers," NOT "buyers"--are being encouraged to abandon good sense and go for insane negative-option ARMs that actually leave the home buyer poorer than when they started out.

That's what I fear this huge boom in the Midwest is all about. Lenders will target naive buyers in the red states to go for jumbo mortgages and take out loans with not nearly enough income, credit, or documentation to their name, which will lead to huge boosts in home sales, but also to foreclosures, bankruptcies, and God knows how much job loss. Call me a conspiracy theorist, but there's no room left in the coastal markets, so we're turning inward in order to preserve our crumbling economic base.

Trackback Pings

The New York Times takes a gander at the inexhaustible housing boom. The money quote: What is different now? One factor is the way houses are financed. It used to be that banks and savings and loan associations made mortgage loans, and they would be cut off when the Fed pushed up interest rates above the levels the banks could pay on savings. But those rules are long gone, and the Fed cannot turn the housing market on or off. Indeed, as the current boom shows, the Fed has some trouble even slowing a boom. Long-term interest rates have not risen with the short-term rates the Fed does control, and the financial system has responded with creative mortgages that let homebuyers hold down monthly payments even as the purchase price rises. I think the phrase "hold down monthly payments" should be rewritten to read "Borrow against their future equity by making teeny, tiny payments, only to be gobsmacked when their monthly payments double and they don't have the capital put aside to soften the blow," but other than that, it's an OK read. Since Ben Bernanke is the new hotness at the Fed, let's see what he's got to say about fears of an overextended market: "The administration will continue to monitor" developments in the housing market, Bernanke said. "However, our best defenses against potential problems in housing markets are vigilant lenders and banking regulators, together with perspective and good sense on the part of borrowers." Sigh. Looks like someone's been drinking from Greenspan's Kool-Aid thermos. The disconnect here is startling. Borrowers--notice he says "borrowers," NOT "buyers"--are being encouraged to abandon good sense and go for insane negative-option ARMs that actually leave the home buyer poorer than when they started out. That's what I fear this huge boom in the Midwest is all about. Lenders will target naive buyers in the red states to go for jumbo mortgages and take out loans with not nearly enough income, credit, or documentation to their name, which will lead to huge boosts in home sales, but also to foreclosures, bankruptcies, and God knows how much job loss. Call me a conspiracy theorist, but there's no room left in the coastal markets, so we're turning inward in order to preserve our crumbling economic base. The irony should escape no one, nor should the metaphor. Bubble Meter lays the smackdown on the rosy forecasts of "market corrections," while Jeffrey Lacker shows us why he is, in fact, lacking. And the beat goes on. Boom, bap...