I’ve always felt personally that this market won’t come back down completely to earth until the financial market takes their hit and stops things from the lending side. I don’t even think it’s the rising interest rates that will kill it off. It’s when the sucide teaser mortgages get squashed due to lenders not being able to sell them anymore as mortgage backed securities (for lack of buyers). Once those are gone, all affordability is gone.
I remember when they used to report on the “affordability index” all the time. It showed what percentage of the population could “afford” a median priced home in an area. It was based on standard (looooooong history) lending standards of 20% down and fixed interest. It got so ridiculously small that they quit reporting on it all together. That’s because NOBODY was using those loans to get a house anymore. When we HAVE to go back to those loans, then literally, nobody will be able to afford current prices (even if they were willing to pay them).
So, the way I see it, we have just now started to see the national news coverage of the declining market. Starting next year (taking lag into account), we’ll start to see the news coverage of all the carnage with foreclosures. By late 2007 to 2008, I’d think the financial markets will really start to feel the sting of the failed mortgages. This should put any final nail on the wide-spread usage of “no-down”/”interest only”/”option-arm” type loans. I’m quite certain that the lenders themselves will NOT hold these types of loans on their own books.
These are of course personal opinions (not to be taken as statements, or predictions of fact).
