Market Update
August 12th, 2007 Categories: Dublin Real Estate, Livermore Real Estate, Market Update, Pleasanton Real Estate, Weekly Market Updates
Weekly Update
If anything, worries are multiplying among economic analysts that the number of defaults and, eventually, foreclosures from unraveling existing mortgages will continue to rise. What is perhaps most startling at this point, though, is that worries extend way beyond the somewhat limited world of mortgages to the entire world of credit, debt, borrowing, lending. Further, the overall economy isn’t being viewed with as much optimism as was recently the case.
Patrick Schmid of Moody’s Economy.com puts it this way: “There is no doubt that an international credit tightening is under way. It began with the U.S. housing downturn, which resulted in declining real estate prices. As adjustable-rate mortgages set higher, payments became more difficult for many homeowners—especially those whose credit rating was subprime to begin with. Many subprime lenders, whose business models were based on continually rising house prices, faced losses as defaults and foreclosures increased. Politicians became melodramatic over the housing dilemma, putting pressure on regulators, who in turn called for tighter lending standards. The next step was a spike in financial volatility, and some likely market overreaction,”
“All told,” Schmid concludes, “today’s market shows some elements of a credit crunch—but not enough to warrant pinning the label on with certainty.”
Whether or not we want to call it a “crunch,” however, has little bearing on the fact that the markets are clearly full of concern and, in some cases, incipient panic. Things get very confusing when fears start to roil the market: We see the 10-year T-bill rate fall heavily at the same time that mortgage rates edge north, for example. There is no explaining it. It will take time for the markets to sort out their emotions (or, more specifically, their reading of our economy’s future).
Until then, we would be wisest, one suspects, to take most of the conclusions put forward by economic analysts with a massive grain of salt. We’re in not-make-sense territory, watching with justifiable concern to see if defaults and foreclosures rise to worrisome heights…if lenders show even more reticence about making the kinds of loans they were making all day long just a few months ago (especially the huge loans made for corporate buy-outs and restructurings)…and if the real estate market can weather the storms and do what it does best, which is simply to focus on the buying and selling of personal residences. There is still reason to put a great deal of faith in real estate, as we’ll likely see in months to come.
