Thursday, February 28, 2008

not nearly over

if you think that the housing price problems in the US are approaching their bottom, it may be worthwhile to keep the following in mind:

despite a drastically reduced Fed Reserve Rate over the last month, the 30 year fixed mortgage rate has actually gone up. because of this, house affordability is actually falling faster than house prices in most markets. with speculative fever strongly dampened, house prices will be guided by what is sustainably affordable to the market, rather than what some idiot can cover the teaser payment on.

new appraisal rules are being considered that will reduce a lender's ability to fudge the numbers to make things work. essentially, a loan can only be given for some percentage of the value of a house. the value of the house is determined by an appraiser. in the recent past, appraisers have become less and less independent because of immoral (and illegal) business practices on the part of lenders and brokers. the discussion today is that the appraisers will be made to be actually independent. so, house valuations will be guided by reality rather than being decided by a lender and rubber stamped by an appraiser who will get fired if they don't match the target appraisal.

on the other hand, the Fed Reserve Bank seems to be set on the idea of continued rate cuts, which effectively devalue the USD. having a long term loan that you get to pay back with an increasingly worthless currency isn't such a bad thing. and mortgage rates may get much higher before they get lower. so, prices will almost certainly be lower in a few years, but affordability may be lower as well.

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