Looks like the "Stress Test" that's been much talked about has had some of it's basic criteria released. You can find the criteria and table here. One of the most interesting aspect of the "stress test" that is being administered to these banks is that the two scenarios both have rather large house price declines built in, which tells me that whoever designed these tests is realistic about how much further home prices are going to fall, especially since their index of choice if the Case-Schiller Composite 10, which is based on the 10 largest housing markets in the US. This would include LA among others, which has fallen somewhere around 35 to 40% already. They are using a further 14% decline as their baseline for 2009 with the extreme scenario having a 22% decline.
I doubt the National Association of Realtors will appreciate this information, they keep telling everyone that now is a GREAT time to buy (if you say it enough you might start to believe it I guess).
The optimistic viewpoint of this data is that if interest rates rise (they can't go much lower for home loans) then house prices will have to go down, because everyone is shopping a monthly payment. The best time to buy is when interest rates are as high as they can go, because real prices are low, then later when interest rates inevitably go down, you can refinance.
I think there are a decent number of financially savvy individuals who are on the sidelines right now because interest rates have nowhere to go but up, which means that house prices will have nowhere to go but down. There is an inverse relationship between the two that isn't covered much in mainstream media. However, if you already have a house, this is perhaps the best opportunity you will ever have to refinance.
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1 comment:
Good point. That sounds like good financial insight. I would also like to point out that as much as the government would like to entice first-time home buyers with a nice $8,000 tax break (I think that's the figure), the reality is that this demographic sees their job security as shaky. Thus, any amount of money saved before with the belief that it could become a down payment on a house is now more of a security blanket against a potential layoff. The people that you want to buy houses are stuck with both a slumping house market and the pragmatic choice of holding on to some cash reserves for the rainy day blowing their way. Unless you scoop up a house at auction for a steal, buying a house is probably not what you want to do.
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