Housing.com News, Analysis & Opinion: Mortgage & Loan: Precipice

On the eve of the next Federal Reserve meeting which will determine the next move for interest rates, the Fed has released its quarterly "Flow of Funds" report, and the news isn't good:

WASHINGTON (MarketWatch) -- The net worth of U.S. households increased 0.1% in the second quarter to $53.3 trillion, the slowest gain in nearly four years, the Federal Reserve said Tuesday in its quarterly flow of funds report....Household net worth dipped to 5.60 times disposable income from 5.67 times in the first quarter. Owners' equity in their real estate fell to a record low 54.1% of market value from 54.4% in the first quarter and nearly 58% in 2000....Consumer credit, such as credit cards, increased at a 6.6% rate in the second quarter, the fastest in four years.

It sounds very much like homeowners who are totally maxed out on equity loans are turning back to plastic in order to continue financing their lifestyles and buying necessities. And this comes on top of the news that new home construction is coming off the Viagra faster than at any time in the last four years.

Mish offers a particularly bleak doomsday scenario for what may come next. At this point, I just don't know. We're in uncharted tterritory here, as this bubble cycle mimics previous bubbles, but is stretched far beyond anyone's capability to reasonably predict.

Will the "bubblepocalypse" crew see their prophecies come true via a crash landing? I hope not, but it's leaning that way. But just as the "bubble fever" faction ("Prices only go up! They aren't making any more land!") was proven totally wrong by the severity and scope of our overextended housing market, the "bubblepocalypse" faction may be wrong as well. Patrick notes that things could go either way.

Ideally, what I want is for prices to drop to reasonable enough levels that people can start buying again. I want to see tighter restrictions on credit and financing, and ABSOLUTELY more education on loan options for people that want to buy. This bubble was built on predatory loans, no-document verification, and shady work by the realtors to keep transactions moving. Oh, and no more interest rate hikes!

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On the eve of the next Federal Reserve meeting which will determine the next move for interest rates, the Fed has released its quarterly "Flow of Funds" report, and the news isn't good: WASHINGTON (MarketWatch) -- The net worth of U.S. households increased 0.1% in the second quarter to $53.3 trillion, the slowest gain in nearly four years, the Federal Reserve said Tuesday in its quarterly flow of funds report....Household net worth dipped to 5.60 times disposable income from 5.67 times in the first quarter. Owners' equity in their real estate fell to a record low 54.1% of market value from 54.4% in the first quarter and nearly 58% in 2000....Consumer credit, such as credit cards, increased at a 6.6% rate in the second quarter, the fastest in four years. It sounds very much like homeowners who are totally maxed out on equity loans are turning back to plastic in order to continue financing their lifestyles and buying necessities. And this comes on top of the news that new home construction is coming off the Viagra faster than at any time in the last four years. Mish offers a particularly bleak doomsday scenario for what may come next. At this point, I just don't know. We're in uncharted tterritory here, as this bubble cycle mimics previous bubbles, but is stretched far beyond anyone's capability to reasonably predict. Will the "bubblepocalypse" crew see their prophecies come true via a crash landing? I hope not, but it's leaning that way. But just as the "bubble fever" faction ("Prices only go up! They aren't making any more land!") was proven totally wrong by the severity and scope of our overextended housing market, the "bubblepocalypse" faction may be wrong as well. Patrick notes that things could go either way. Ideally, what I want is for prices to drop to reasonable enough levels that people can start buying again. I want to see tighter restrictions on credit and financing, and ABSOLUTELY more education on loan options for people that want to buy. This bubble was built on predatory loans, no-document verification, and shady work by the realtors to keep transactions moving. Oh, and no more interest rate hikes! Will I get what I want? Will any of us? We shall see, dear reader....