Predictions of Price Increases Versus Predictions of Values

“Just because the market looks better to you on the money doesn’t mean it has recovered from the corruption of title. You still need a lawyer and you absolutely need to do a title and securitization search or at least a consult with someone who can review the past history of the property. The risk here is that you can start off as a “buyer” and end up as a “loser” when title fails and the title policy doesn’t cover it.” —Neil F Garfield, livinglies.me

Morgan Stanley predicts 9 % growth in prices this year alone and another strong year next year. The projection is preposterous. But the idea is out there and it will have its effect as the housing market scrapes the bottom of the barrel. The more confidence people have that the worst of the housing crisis is over the more they will tend to take another look at buying and that will have its own effect.

Schiller takes this psychological game to a new level in the New York times, suggesting that a crowd mentality was the reason for the boom, the reason for the bust and the reason we will come back out of it. But at least he understands the difference between values which are the fundamentals of housing transactions and prices which are the product of psychological factors. The fact remains that median income, while rising slightly lately, showing the incredible strength of the American economy despite all odds against it, is still largely flat when you take a couple of steps back to look at the whole picture.

Median income is the obvious indicator upon which economists agree to set values for housing and other things consumers buy. The reason is the same as any three year old can understand. If people don’t have the money or the credit, they won’t get it because they can’t.

Is another boom and bust bubble coming our way? Probably. That is because despite the various “restrictions” and regulations, the securitization claims against mortgages are on the rise which means that nobody has the risk that a normal bank would have doing a straight out one on one loan of the bank to a consumer. The loopholes abound where the participants can make pornographic fees on a relatively simple mortgage even if it is conventional with someone who has a high credit rating.

As the credit rating declines and as the rules loosen up a bit, the big money is in higher interest rate loans where the loan interest is higher than the amount sought by investors who are still buying mortgage backed bonds and exotic variations of those instruments and still buying the concept of REMIC trust, despite the fact there is no trust, nobody to trust, and nobody in charge, giving plausible deniability to everyone in the chain of “securitization.”

Tags: housing prices, housing values
Posted in bubble, Corruption, Eviction, securities fraud |