Monday, March 12, 2007

Next: The real estate market freeze / fleckenstein

i´m pretty sure that fleckenstein is correct and nobody need to hire "frozone".

denke fleck liegt richtig. die hilfe von "frozone" wird nicht extra benötigt.


As a result of the collapse of the subprime mortgage market, lenders will -- gasp! -- once again require down payments, filling the market with unsold homes and driving down prices.

The unraveling of the housing market, the magic bullet that "fixed" our unraveled equity bubble, is the news. Slowly, the popular press is waking up to what I've been discussing for many months now.

Dropping like subprime flies
Essentially, the subprime mortgage industry -- which lends to consumers with credit issues -- is gone. Alt A lenders, those one rung up the ladder creditwise, will be next. Together, they comprise approximately 40% of the market. If you were to go down the list of what were once the top 25 subprime lenders, you'd see that only a handful are still standing at this point. ....
.


What we don't yet know is the degree of credit-related insanity, which we'll only discover when the tide goes out -- ....
. We also don't yet know the ramifications for the dark-matter universe in collateralized debt obligations (CDOs), credit default swaps (CDSs) and other derivatives-related exotica. But I think it's safe to say that the surprises will be negative -- and large.

This credit collapse is an unequivocally important event. Because, as I've been writing, the ability of anybody with a pulse to get a loan for any amount is what drove the real estate market, and the real estate market is what drove the economy. Sometime in the next three to six months, the real-estate market will basically just freeze up. Of course, inventories are going to explode and prices will eventually drop rather dramatically as a vicious cycle feeds on itself.



The down payment makes a comeback
Since the pendulum swung as far as it could in the direction of reckless lending, which the whole bubble was about, it will now swing back toward the quaint notion of folks being lent only the amount of money they can reasonably be expected to pay back. And, the lenders will want their loans to have a margin of safety, in the form of down payments. ....


In the meantime, patience is required of those of us in that camp. Yes, there have been "fire drills" in the stock market on a handful of days, when folks headed for the exits.
But folks have also headed right back into stocks as soon as they appeared to stabilize. Which just shows you that in the aggregate, folks do not understand that the economy was driven by real estate. Nor do they seem to understand that real estate is what will sink the economy. .....

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2 Comments:

Blogger bub said...

"subprime flies"

I Like It!

8:53 AM  
Blogger jmf said...

fleck rocks :-)

4:29 AM  

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