It’s important to differentiate between 2 different things:
1. The underlying “fuel” for the market. The rising prices were primarily the result of “easy credit” & lower interest rates. Of these 2 factors, “easy credit” is a more dominant factor.
Institutional investors are shying away from mortgage-backed securities, because foreclosure rates are going up. So, the easy credit is going away. This trend is not reversing anytime soon (the pendulum is swinging).
This means: going forward, the size of the mortgage loans will be based on incomes.
2. Home buyer confidence: this tends to fluctuate and show
up in real estate activities. I think this plays a minor factor because: it doesn’t matter how confident a buyer feels, he can only buy with what the lender is willing to lend him.
Many people mistakenly interpret the pickup in sale activities as signs that the market has turned around. But the reality is that the fundamentals are just not there to support current prices.
