Read an interesting point in the New York Times. This Sunday week in review had an interesting article “The Loan Comes Due” along with an excellent graphic explaining the process of securitizing mortgages into CDO’s.
One point in the article was “Financial panics don’t happen during depressions”…. “They happen on the brink of depressions. The claim the world is prosperous is beside the point”.
Is the home buyer/seller psychology so low that there is panic selling happening now? Not really – but we haven’t had the fallout from a meltdown yet. Is it coming… you betcha!
My company sold 2 months ago, if that deal was to close this month or in the future, there would be no deal. An astounding 90% of corporate debt availability has already gone out the window, with the fallout still to be seen. The underlying mortgage instruments supporting the Trillion dollars of bonds out there, which were supposedly AAA rated, are defaulting… Again – the fallout is only now happening.
People can’t get mortgages. The data on home sales (as well as unemployment and home building activity) is a lagging time-series variable (data in a few months or more reflects today’s sales) and is both inaccurate as well as underreported. The panic sellers aren’t selling because they haven’t actually experienced the pain of the market. The only extreme pain is for the person who defaults on their mortgage, everyone else is just in hibernation mode.
When does this end? When all the trends reinforce and the pain comes. I’ve been looking around the Home Depot Expos, talking to my mortgage friends, my real estate friends, and my retail friends. Things are SLOW right now. It only snowballs from here.
As the panic does set in for home sellers, the buyers are NOT THERE to step in. As much pent up demand, money, etc. that might be out there, buyers will not respond to low prices in droves, they will be even more afraid to buy. Why? Because the end won’t be in sight, better deals will happen every week and it takes time to sell a house. You can’t day trade houses! As the offers are made, they will be withdrawn.
I think with the market in such a volatile state the acceleration of a downward trend will continue. 20% or more price changes? Nope. Prices can’t move that quickly because the buyers aren’t waiting to catch them. It will be a long slow road to ever decreasing asset prices. There will be upspikes, but mostly just low and slow. If the panic starts, most of the properties will just sit there as the buyers will react with extreme caution, after all – no one wants to be a chump and reverse places with the sellers….
