Mortgage credit to impact housing next year
| The elections are over, and the outcome had no detectable impact on the financial markets. Far more important than the switch in congressional control is President Bush’s transfer of national security policy from Neo-Con hands to Daddy’s bailout team — grounds for optimism for the world ahead. However, we’re not interested in the world, we’re interested in money; not the House but housing, and the bond market much prefers pessimism to optimism. |
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A recession from some other cause (a consumer or employment collapse, a Fed forced to overtighten into inflation) would certainly make housing worse, but not the other way around. With one exception: a mortgage-credit spiral. Housing markets are the slowest-roller of all. The last buyers in the party get burned by a routine and minor retreat in price in the year after the peak, but then prices just go flat, sometimes for decades. The bubble zones appear to be entering that flat phase now. The effect on GDP is thus far minor, mostly caused by the decline in mortgage equity withdrawal, sawing about 1 percent off of GDP — a reduction in stimulus, not a braking force.
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