<But talk of a collapse in net mortgage lending is poor analysis.>
Although I see Noland's point about money supply, I'm a little perplexed by his conclusion. First I'm not sure anybody is talking about a collapse (yet) in mortgage lending, just a normalization or slowing, which in my view is enough to put the economy into trouble. There are some numbers from Contrary Investor that put this credit sector growth into perspective. From the 7/31 piece are datapoints that show the importance of real estate and mortgages:
absolute $ growth since YE 1999:
household mortgage debt: $1.7 trillion
consumer debt: $334.8 billion
corporate debt: $742.2 billion
The 9/23 CI piece "Sittin' on top of the world" should be read in it's entirety, but here's a snippet:
As you can see, over 75% of total US financial sector debt is primarily driven by the securitization of various classes of household liabilities. The GSE's (the government agencies) and federally related mortgage pools are the primary conduit for mortgage credit creation in this country. ABS (asset backed securities) issuers package and resell, among other things, household liabilities such as credit card debt, car loans, etc. In essence, the US financial sector is the most meaningful provocateur in terms of having facilitated the intergenerational change in attitudes toward household leverage that we spoke of earlier. In the recent quarter and over the last year, liability expansion for these big three are as follows: (Remember that in the primary function of financial intermediation, liability growth is closely linked to rate of change in asset growth.)
yr/yr through 2nd qt:
GSE's 11.2%
Mortgage pools 8.1%
ABS issuers 13.4%
financial sector 9.8%
But as you know, and at least up to this point, the general level of interest rates in this country bottomed during the middle portion of the final month of the second quarter. Although in the pipeline borrowing activity will surely spill over and show up in 3Q US financial sector results, we are already seeing evidence that the residential real estate cycle may be drawing to an important cyclical conclusion. Although we have had a recent rally in 10 year Treasury yields, refi activity in this country has dropped off a cliff.
(see chart at article) |
