I look at the financing terms as an enabler of the problem, not necessarily the root cause of the problem itself. Were it not so, the bubble would have demonstrated itself EVERYWHERE the financing is available, which is everywhere.
As I see it, the root cause was the widespread perception of RE as a can’t-lose/high-return investment. That perception has been toppled from it’s tower and it’s going to take a miracle from on high to recreate it.
If there are no short term gains to be had and the pricing isn’t skyrocketing fast enough to create that irrational fear of losing out, buyers have no incentive to kill themselves to get in. We have a ton of inventory right now – proof positive that we were never really in danger of running out – with still more inventory in various stages of development.
So no, I don’t think most buyers are going to be so motivated to be a homeowner that they’ll sign on to pay 50% of their income for their housing (on an ARM) into perpetuity, knowing that there is no short term advantage to do so. I don’t think the banks are going to reverse course on tightening their lending requirements, interest rate notwithstanding, when they’re already taking some losses.
Lowering interest rates might mitigate the number of crisis transactions, but it ain’t going to change people’s minds about how sure a thing investing in RE is right now.
