The insanity continues. The San Luis Obispo Tribune reports:
“Interest-only loans financed nearly 70 percent of the home purchases in San Francisco, Marin and San Mateo counties during the first two months of this year …”
The article concludes with quotes from two economists with opposing views of the growing use of IO loans. First, from Dr. Ken Rosen (California Professor of Real Estate and Urban Economics, Hass Business School, UC Berkeley):
“This is frightening, frankly. I’m worried that more and more people are using (homes) as an investment vehicle and not as a consumption market, and that’s true of the peak of housing markets.”
And from California Association of Realtors economist Leslie Appleton-Young:
“Given the performance of the housing market over the long-term, instruments that help people get into the housing market are a good thing.”
Apparently the Federal Reserve, FDIC, Office of the Comptroller and other agencies have decided that it is possible to have too much of “a good thing”. Last Monday, in a highly unusual move, these agencies issued new “Credit Risk Management” guidelines for the lending industry. These guidelines are far reaching, but two of the key areas addressed were limitations on the quantity of high LTV (Loan to Value) loans and higher qualifying standards for HELOCs (home equity lines of credit). These same agencies plan to issue new guidelines for mortgage lenders early next year.
For a glimpse into the Fed’s thinking, see Dr. Tim Duy’s “Fed Watch: The Fed and the Housing Bubble” in his new post today on Economist’s View. Although Dr. Duy mentioned Chairman Greenspan’s remarks regarding housing on Friday, I’d like to include one here. With his usual caveats, like “if there are declines in prices”, Mr. Greenspan made this comforting remark:
“… only those who have purchased very recently, purchased just before prices actually literally go down, are going to have problems.”
Fed Chairman Alan Greenspan, May 20, 2005
Finally, I would recommend Barry Ritholtz’ (The Big Picture) “Real Estate Wrap up” – a series of posts and links on Real Estate (some very amusing like his coverage of this month’s Fortune Cover).
UPDATE: The WSJ has a front page article today on housing. See The Big Picture for Excerpts.
Best Regards, CR Calculated Risk