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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (25390)	3/11/2005 1:31:06 AM
From: shades	Read Replies (1) \| Respond to of 116555

In evaluating systemic risk to our nation looking at greenspans latest comments: federalreserve.gov Thus, short of a period of appreciable overall economic weakness, households, with the exception of some highly leveraged subprime borrowers, do not appear to be faced with significant financial strain. With interest rates low, debt service costs for households have been essentially stable for the past few years. Accounting for other fixed charges such as rent, utilities, and auto-leasing costs does not materially alter this assessment of stability. Even should interest rates rise materially further, the effect on household expenses will be stretched out because four-fifths of debt is at fixed rates and varying maturities, and it will take time for debt to mature and reflect the higher rates. Despite the almost 2-percentage-point rise in mortgage rates on new originations from mid-1999 to mid-2000, the average interest rate on outstanding mortgage debt rose only slightly, as did debt service. In a related concern, a number of analysts have conjectured that the extended period of low interest rates is spawning a bubble in housing prices in the United States that will, at some point, implode. Their concern is that, if this were to occur, highly leveraged homeowners would be forced to sharply curtail their spending. To be sure, indexes of house prices based on repeat sales of existing homes have significantly outstripped increases in rents, suggesting at least the possibility of price misalignment in some housing markets. But a destabilizing contraction in nationwide house prices does not seem the most probable outcome. To be sure, the recent marked increase in the investor share of home purchases suggests rising speculation in homes. (Owner occupants are rarely home speculators because to sell, they must move.)10 However, nominal house prices in the aggregate have rarely fallen and certainly not by very much. And even should more-than-average price weakness occur, the increase in home equity as a consequence of the recent sharp rise in prices should buffer the vast majority of homeowners. My mom has a house she may want to sell, if these 40% that don't have mortgages are gonna severely help or hurt her housing price shouldn't we look at them too? I understand a lot of people will get burned, but then a lot won't if the rates take off.