Well, I think it’s safe to say the next leg down is finally here.
Up to now, I think it was reasonable to conclude that the significant fall-off in the demand for single family homes seen during 2006 and 2007 was largely caused by buyer sentiment.
Anyone looking to buy, especially in the bubbliest markets, had to be well aware of the implications of the downturn, leaving many likely sitting on the sidelines as willing spectators.
Now though… I think we have fully crossed the threshold over to a fundamental structural change.
The evidence strongly suggests that the highly greased debt machine that was so effective at flooding the housing markets with loot laden frenetic buyers is now essentially working just as efficiently in reverse.
Buyers are literally being subtracted, permanently sidelined, by Wall Street’s newfound aversion to risk.
I had the opportunity recently to talk with a local mortgage broker who, quite candidly, reported that the Jumbo loans were effectively gone, “no doc” loans were completely gone, buyers were being denied with some instances of loan cancelations preventing closings, his backlog numbered in the single digits and his employees were all let go.
He is currently in the process of being certified for brokering FHA loans and even considering other non-home loan business alternatives.
Banks, he says, are stepping up to offer alternatives and new programs for brokers but in each case it’s a return to the far more conservative portfolio lending model of the past.
The most recent results of the National Association of Realtors (NAR) Pending Home Sales Index also seems to corroborate the structural pullback showing pending sales volume for July falling below the results seen in the dead of winter.
This suggests that the actual sales results for the remainder of the year will be heading further down, well below the results seen in 2006.
Any notion of a bottom being set now is totally without merit and until there is some significant fundamental change to the current circumstances, such as considerable declines to home prices, the housing recession will continue.