Tuesday, September 29, 2009

The Latest Kick in the Ass for Housing!

Four out of five builders of single family homes surveyed by the National Association of Home Builders said lenders are lowering the allowable loan-to-value ratios on their construction loans, 76 percent reported that banks are not making new loans, 75 percent said banks are reducing the amount they are willing to lend, and 62 percent said lenders are requiring personal guarantees or collateral not related to construction projects.

In other words, banks are not willing to finance construction of new, single family homes. And why should they?

With record numbers of bank owned foreclosures on the books, some of which are being held off the market, others are being dumped on the market at 25% of their former values and with the coming avalanche of defaults by Option Arm and Jumbo Loan borrowers, more than 50% of mortgaged homes will be under water, in my forecast.

Combine that scenario with the fact that at some point, and I estimate it will be mid 2010, homeowners who have been holding out for a rise in home values will "capitulate" and dump their homes into the middle of the 2nd wave of foreclosures which will begin early next year, for whatever price they can get.

This will signal the true bottom of the market, probably at 60-70% below the bubble peak in 2005-6.

But don't look for a quick rebound. You probably will not see 2005 prices reached again until 2020, barring a huge inflation, which is also a good possibility because of all the Fed "Easing."