Friday, August 10, 2007

It's like a shit storm on your wedding day

CNN Money has an article trying to spin the credit uncertainity and the meltdown of both the subprime and Alt-A mortgage markets as a positive event for the real estate market:

for the average American looking for a home loan, the crisis in the subprime mortgage market may actually be good news.

"Not only is it nothing to worry about, it's an absolute positive," said Loni Graiver, president of the Maine-based Cumberland County Mortgage. "Not only have [home] valuations come down, but [interest rates] are still historically low."....

The one catch is this: You've got to be a buyer with good credit, a low debt to income ratio, a healthy down payment, verifiable income, and looking to finance less than $417,000 (the cutoff for so-called jumbo loans)....

Isn't it ironic, don't you think that any potential event is good news for the housing market.

So the marginal buyers who normally would not have qualified for traditional loans are out of the market. This is 30% to 60% of the recent potential buying pool, depending on how you want to count. This will drive down prices, but it is also a long and sticky process, so for buyers with decent to good credit and no good reason to move soon, sitting still is a better option as prices still have significant space to fall. But back to the basic math point of this critique; 30% to 60% covers the 'Average American' looking to get a mortgage, so the average American homebuyer from the past couple of years is knocked out. The credit market seizure is not good for anyone looking for credit right now as even great risks are carrying significant systemic risk premia either through higher interest rates or stricter standards.

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