Good Commentary from Blog Reader

By on August 29, 2007

I copied and pasted this from the http://thehousingbubbleblog.com/. This person really hits the nail on the head.

Comment by sfbubblebuyer
2007-08-28 10:43:57

“Housing economist David Lereah says the real problem is that people can’t get the home loans they need. Lereah: ‘Too many homes and not enough buyers is basically what’s happening right now. There may be buyers out there, but they can’t obtain a mortgage.’”
“That doesn’t worry UCLA economist Edward Leamer. He says banks will adjust quickly and the loan market will loosen up. Leamer says what concerns him is that home sellers are holding out for the high prices of a few months ago.”

I cannot believe this kind of rampant douchebaggery is still out there! The problem is buyers can’t get loans for the purchase price. Don’t worry, the banks will soon ‘adjust’ and give them loans!

Um, the banks WERE handing out those loans just a few months ago. The problem is that the prices have gotten so high compared to household income, it guarentees a large percentage of defaults. In order to even come CLOSE to pretending to qualify people for mortgages, every last vestige of veracity got tossed out of the mortgage process.

The banks and investors are now seeing the foreclosures that loaning people with X income greater than 3X money, especially with 0% down, inevitably brings. Those houses are lost. The loans are bad. You cannot give people those types of loans and expect to collect.

Bankers and investors will slap their heads and say “Duh! Of course! We should UNDERWRITE the loans we make/buy!”

That means either housing prices MUST collapse or wages MUST increase. There is no way to avoid one of those outcomes. Even if Freddie and Fannie buy every damn mortgage out there, and the taxpayers pay off every penny of every defaulted mortgage, if you try and sell that same average house to the same average buyer for the same damn price as it got defaulted on before, IT WILL GET DEFAULTED ON AGAIN!
NOTHING WILL STOP THE DEFAULTS. NOTHING!

Wage inflation is the only way to come close to stopping it, and doing that will be far to slow to save the houses. You’d have to have a government mandated 50% raise to all employees in the USA across the board, funded by REAL printing presses and not credit-based printing presses to make housing suddenly affordable.
Not. Going. To. Happen.

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