It’s all window dressing. As far as prices go over the long term I don’t think it matters what happens with the conventional rate. The only difference it can make is with respect to the timing, and I don’t think that difference will be significant.
The peak was built by excess demand, courtesy of the short term investors and flippers. Many of the FBs who were just buying a home for themselves were competing with these speculators.
The investors have left the building, and they took the excess demand with them. Absent this excess demand the pricing will eventually stabilize based on wage and population trends. That means we won’t be going back into growth mode until the investors decide there’s some short term profits to be made.
Housing pricing here in most neighborhoods peaked between mid-2005 and mid-2006. The beginnings of the downturn in the mid-2005 neighborhoods were already underway by mid-2006. The subprime problems didn’t really start coming to light until several months after that. The way I see it, the subprime problems, while inevitable, didn’t cause the problem, they just made it worse. Likewise, their demise didn’t start our downturn, it only makes it worse.
For the most part, a FB who couldn’t afford the conventional rate when it was 5.5% back in 2004/2005 isn’t going to be able to afford the 6.5% rate in 2007, regardless of which investors are buying it on the secondary market. Not everyone’s career is on an upward trajectory. Besides that, refinancing a 100% debt requires some equity, and equity is in decline in most areas in SD County. As far as I can tell, virtually all of the marginal loans in 2004/2005 are still going to be marginal or unfeasible in 2007. Unless these borrowers have accrued some downpayment money in the last couple years there isn’t going to be enough equity to refinance.
I think that having reasonable liquidity coupled with reasonable underwriting is a good thing for everyone. The excesses of the market will still sort themselves out over time.
I’m a lot more annoyed at the fed for printing money to throw at these lenders.
