Housing News: Special "All-Bloomberg" Edition

While cruising the Internets for news of the housing bubble's doom this morning, I came across several interesting articles from Bloomberg that shed a harsh light on the current state of the market.

First is the news that the subprime loan derivatives market is getting spooked by bad housing data. I don't pretend to understand how derivatives work, but once you boil away the legalese and market speak, the gist is that traders who've been banking heavily on subprime lenders to bring in gains are fleeing in droves. Money quote:

``Delinquency trends and home prices'' show a weakening real estate market, said Scott Eichel, head of credit trading for New York-based Bear Stearns & Co., the biggest underwriter of bonds backed by mortgages. ``A lot of investors that have concerns about the housing market'' are using the ABX index to speculate on a continued drop, he said.

Next we have some speculation about this week's Federal Reserve meeting. Will Bernanke and co. continue to hold the line by keeping interest rates at 5.25% and risk inflation, or will they raise rates and squeeze borrowers even more? As the Bloomberg folks see it, the possibility exists for a potential rate hike, due to the horror of solid wage increases:

In effect, policy makers were told last month that time is running out for inflation to fall. The forecasters expect ``only a small gap'' between what the economy can produce running at full speed and the actual growth rate over the next several quarters. That means any unexpected acceleration in growth might well heat up inflation.

However, the consensus seems to be that the Fed will hold steady for this round, ironically crediting the failing housing bubble as the reason:

Other analysts predict a slowdown in housing will cool the economy and prevent rate increases, helping prop up debt. The Fed cited a weaker housing market as a reason to leave rates unchanged the past two months, halting its two-year campaign of boosting borrowing costs.

Short-term pain for long-term benefit, eh? Keep in mind, this is Bloomberg, which is hardly the voice of the common man (or homeowner). Still, it is interesting to watch even the most bullish analysts' collective shrinkage in action...

Posted at October 23, 2006 12:56 PM

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While cruising the Internets for news of the housing bubble's doom this morning, I came across several interesting articles from Bloomberg that shed a harsh light on the current state of the market. First is the news that the subprime loan derivatives market is getting spooked by bad housing data. I don't pretend to understand how derivatives work, but once you boil away the legalese and market speak, the gist is that traders who've been banking heavily on subprime lenders to bring in gains are fleeing in droves. Money quote: ``Delinquency trends and home prices'' show a weakening real estate market, said Scott Eichel, head of credit trading for New York-based Bear Stearns & Co., the biggest underwriter of bonds backed by mortgages. ``A lot of investors that have concerns about the housing market'' are using the ABX index to speculate on a continued drop, he said. Next we have some speculation about this week's Federal Reserve meeting. Will Bernanke and co. continue to hold the line by keeping interest rates at 5.25% and risk inflation, or will they raise rates and squeeze borrowers even more? As the Bloomberg folks see it, the possibility exists for a potential rate hike, due to the horror of solid wage increases: In effect, policy makers were told last month that time is running out for inflation to fall. The forecasters expect ``only a small gap'' between what the economy can produce running at full speed and the actual growth rate over the next several quarters. That means any unexpected acceleration in growth might well heat up inflation. However, the consensus seems to be that the Fed will hold steady for this round, ironically crediting the failing housing bubble as the reason: Other analysts predict a slowdown in housing will cool the economy and prevent rate increases, helping prop up debt. The Fed cited a weaker housing market as a reason to leave rates unchanged the past two months, halting its two-year campaign of boosting borrowing costs. Short-term pain for long-term benefit, eh? Keep in mind, this is Bloomberg, which is hardly the voice of the common man (or homeowner). Still, it is interesting to watch even the most bullish analysts' collective shrinkage in action...