Reply to Federal Reserve: signs abound that housing market is entering bubble territory

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]From 2018: “ The housing market has generally recovered. Prices across the U.S., which fell 33 percent during the recession, have rebounded and are now up more than 50 percent since hitting the bottom, according to CoreLogic, a global property analytics site. Still, some markets in Arizona, Florida, Illinois and Nevada have yet to reach their pre-recession levels.”  It depends on the local market and how overvalued the individual asset was at the peak. People who are paying 40% overvalue now could take more than a decade to recover, even without an overall housing crash.

https://www.washingtonpost.com/news/business/wp/2018/10/04/feature/10-years-later-how-the-housing-market-has-changed-since-the-crash/[/quote]

[i]"About one-third of all mortgages in 2006 were low or no-documentation loans or subprime loans, says Nothaft."[/i]

Wow - I didn't realize it was such a high %. No wonder we had issues. 
[/quote]

[i]"“The share of mortgage applicants with FICO scores below 640 used to be around 25 percent and now it’s just three or four percent,” says Khater."[/i]
[/quote]

Right the mortgages we have now are less like to default due to better lending practices. We also don’t have a Wild West market in secondary derivatives the way we did in 2002-2007. INSTEAD, we have a Fed supported market and the Fed is about to divest. It’s not the same problem, but it’s still a serious problem. Why do people seem to think there only one way to create a housing market crisis? Issuing bad loans is ONE way to create an unstable market, but exuberant overextended buying spurred on by artificially low interest rates while the Fed buys up all the risk is another way to create a housing crisis. The Fed has been absorbing the risk of default, but now it’s going to start selling that risk back to lenders. That may go fine, or it may create an asset crisis. It wouldn’t be a crisis caused by subprime lending, but it could still be a crisis. [/quote]

Agree. Keep trying, maybe you’ll break through to all of those in denial here. [/quote]

NP I disagree that the Fed has been absorbing the risk. The Fed has been absorbing the *cost* of home buying, but not the risk. As interest rates rise, home buying will become more prohibitive to new buyers, but there will be no change to existing owners.[/quote]

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