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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Kailash who wrote (49811)	1/15/2006 3:45:01 PM
From: Kailash	Respond to of 110194

From ild's 49805 Barron's story -- they take up this question of the quality of the real value backing mortgage loans. The argument is that the telecom/media/tech stocks bubble was based on "non-real" assets, while real estate is "a bankable asset". This is surely a wrong categorical distinction; property values are also largely a function of people's beliefs. In fact houses don't produce anything and unlike a "non-real" company like Google, which produces increasing amounts of services, have no inherent reason to rise in value at all -- if anything they should depreciate over time. Still, this underlines my suggestion that the conviction that there is a bottom-line real value to real estate may be what is attracting FCBs to agency paper. Hickey: The average median gain last year in existing home prices was more than the gains in 2003 and 2004 combined. It was all fed on debt. The consumer will find that the asset prices are variable, but the debt isn't. Samberg: Isn't there a difference between this and the TMT bubble? That was partially built on non-real companies delivering non-real products to non-real uses. A house is a core asset, and the Federal Reserve in its studies believes it is a bankable asset. Fred is probably right that the wind has gone from your back to your face, but people will not change spending patterns dramatically if they think their houses are bankable assets. Neff: When you anguish about this, don't forget that the average equity stake in residential housing is 50%. It's not as if it is on 2% margin. Hickey: But a lot of it is. Neff: Oh, poppycock. Affordability is at a 14-year low, and all you can say is "poppycock"?