Saturday, Aug 12, 2006

HPC in the news again

Guardian: First-time buyers tempted by offers of huge loans

An article about high-risk lenders being prepared to offer 5x income to FTBs, however, it's good to see that there's a note of caution tacked on the end.

Posted by uncle chris @ 09:23 AM (502 views)
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4 Comments

1. japanese uncle said...

The bottomline is here.
----------------------------------------

Mortgage lenders warning: Brace yourself
Countrywide Financials CEO dismisses the notion of a soft landing for the home loan market.
The Wall Street Journal

http://www.kansascity.com/mld/kansascity/business/15228700.htm

Ive never seen a soft landing in 53 years.

Angelo R. Mozilo, CEO of Countrywide Financial Corp., in a conference call last month

Saturday, August 12, 2006 11:02AM Report Comment
 

2. Retiredbanker said...

j.u.

Yes, I also read this comment on the Bay Area Housing site: patrick.net/housing/crash.html

The "f-cked borrower" blog is particularly well worth reading. One comment goes something along the lines
of " who would have believed the decline in property prices would have started without any particular
trigger....".

I would however think that the increase in US interest rates must have something to do with it!.

The large number of Americans who have over extended themselves with ARM's (adjustable rate mortgages)
is apparently a time-bomb waiting to explode.

Saturday, August 12, 2006 12:42PM Report Comment
 

3. bidin'matime said...

My money is still on the 'virtual spontaneous collapse' theory (I just named it that - it will become written up in the economics textbooks of the future as Bidin'matime's Theory of Virtual Spontaneous Collapse..). Spontaneous because it will appear to be so, but virtual because very few things can be said to be spontaneous, so it let's me off that hook - it must have some trigger, but this will be something that people dont think will trigger it, so it will only be evident to those of us who study these things (ie you and I).

Only one thing is required at this stage to really trigger HPC - that is for the belief to become widespread that it might happen. For the mass hysteria to go into reverse for people to start talking about the misery of negative equity etc. And the chances of that not happening before the ratio of earnings to prices is restored to stable levels is negligible. Whatever triggers this reversal could be very minor indeed. The small interest rate rise could yet do it. A second one close on it's heels could do it.

But, unless such a trigger occurs in the meantime, my money is on stagnation. Sooner or later people will stop buying. Once all the FTB's who can afford to buy have done so, once all the STB's (second time..) have stretched themselves to the limit to move up, once the BTL brigade see that the sums just don't add up any more. Once lenders start to see the effects of people borrowing too much and start being more careful about over-lending. People can't go on pumping money into the market indefinitely and once people stop buying, prices will fall. Simple as that. The collapse will be (virtually) spontaneous


Saturday, August 12, 2006 06:55PM Report Comment
 

4. Paolo88888 said...

Have things really changed this much? In 1949, my parents bought their first house for 1875 borrowing most of it, with my Father earning 8/week. Thats a multiple of over 4 which sounds a lot. But the criterion then was that the mortgage payments per month must be less than your weekly wage. With interest at 5% they were - 1875 * 0.05 / 12 = 7.81. I mention this because there seems to be a belief that high multiples are a new phenomenon.

Sunday, August 13, 2006 12:11AM Report Comment
 

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