Thursday, April 20, 2006

Has anyone noticed the cliff up ahead?

Those people who are now wondering how they got into such a pickle (read: screwed) must feel like they're on a train headed toward a cliff ... and wondering how to get off. If you bought 3 condos to flip & now you're neighbors are trying to sell for less than you paid (and they're still not selling) then you're the sucker left chairless when the music stopped.

So the dollar is dropping, Gold and oil are soaring, and housing has stalled. What's a FED committee to do? Raise rates, killing housing and slowing the economy, but propping up the dollar? Or sacrifice the dollar and discontinue the raises?

Recently, the FED hinted at ending rate hikes. This, after they had suggested there would be at least one or two more for now. Hmmmm... they must be reading the blogs.

Meanwhile foreclosures in Los Angeles County increased by 63 percent this quarter (YOY). But it's even worse in Colorado.

But really, it's just begun. Most ARM's haven't even reset yet. When they do, hold on. A 2% increase from 4.5 to 6.5 on a median priced home will increase your mortgage $1000/mo. And you can't sell if you're underwater in negative equity. Mortgage payments may even double for those who had short-term "teaser" rates. Yikes!

Meanwhile back in the RE market, buyers are finally finding themselves no longer in a very disadvantageous position. No having to decide on the spot, no bidding wars. No pressure from knowing that this property will be sold the same weekend it goes on the market (and there will be 20 offers). Seller have ridden roughshod over buyers for many years. But the boom is over. Dead. And now it's funny to hear the greedy sellers complain. All of a sudden there's not enough sensitivity! Like the Prom Queen/cheerleader who finally has to get a job like everyone else. What goes around comes around. Deal with it.

So what about this soft landing? Arguing for a soft landing is the halt in FED rate hikes. Competition between Lenders (due to a lot less applicants) has pressured Lenders into not tightening they're lending standards (or pushing they're dangerous/exotic loans) even in the face of rising foreclosures. But I don't believe it can overcome the inertia of speculation that has fueled the boom. "speculation was rampant thru '05. An that has pretty much ended.

A Florida developer has stated: "The market has totally collapsed."

Wells Fargo, one of the nation's largest mortgage lenders, felt the impact of the slowdown in the housing market in the quarter. The bank said home mortgage revenue declined 43 percent, from $1.5 billion in the first quarter of 2005 to $853 million in the first quarter of this year.

Smells like housing related layoffs are forthcoming.


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