1) lack of creative financing, so there was not a noticeable rise in foreclosures even one year after the boom ended
“Few sellers are actually losing money. Except for those who bought at the peak last year and must sell now, most homeowners are still far ahead on paper after the double-digit price increases of previous years. As a result, banks and savings and loan associations in California report no upswing in foreclosures on residences, and most analysts say the state’s financial institutions will weather the slump without any significant damage. ”
2) Housing affordability was 18%, about 6 x higher than today. With such low affordability, we have so far to fall to get back to fundamentals.
Item #1 is the most concerning. The last cycle after one year had no upswing in NODs, but this time, we have a lot. 69% increases in NODs is a very big deal. Although the numbers of NODs remain small, all you need is a few more quarters of 69% increases for those numbers to start looking big, real fast. The Fed kept the rates too low, for too long. They didn’t rein in Fannie Mae or lending guidelines.
On a related note, the sheer fear of a systemic crisis kept the government from slapping any penalties on Fannie Mae. What other reason is there to allow a public traded company to violate SEC regulations that would get any other company delisted from the stock exchange? The government is scared to death of what can go wrong with Fannie, but it is too late to do anything about it. The crisis is already baked into the cake. You can’t remove it, too late.
