5 things you must read Monday
Get a jump on the week
There are some key pieces you may have missed. Here are the most important five.
1) Who moved my housing recovery?
First up, Nick Timiraos at the Wall Street Journal is direct and economical in getting down to the heart of why the housing market has slowed down and won’t likely be picking up pace for some time.
Do yourself a favor and read it. The takeaway is this:
Wednesday’s new home sales report suggests housing is slow for reasons other than low inventories, weather, and declining affordability. After all, with mortgage rates hovering around 4.5%, homes are still more affordable than most periods between 1990 and 2008.
Housing’s rocky recovery could signal weakness more broadly in the economy, reflecting the lingering damage from the bust that has left millions of households unable to participate in any housing recovery. Many still have properties worth less than the amount borrowers owe on their mortgages, while others have high levels of debt, low levels of savings and patchy incomes.
2) Bubble, bubble?
International Center on Housing Risk co-directors Edward Pinto and Stephen Oliner, meanwhile, are worried that even though the smoke from the recent financial crisis is just clearing, risk is starting to build once again in both the U.S. mortgage and housing markets.
The two scholars note that in recent months, fully half of all the home loans covered by the risk index had a down payment of 5% or less. With so little money down, those borrowers would be underwater with only a modest decline in housing prices. In addition, for nearly half of the recent loans, borrowers' monthly payments on their mortgage and other debt exceeded 38% of their pretax income, the traditional threshold for acceptable payment burdens. Such borrowers, the two write, could find it difficult to make their monthly payments if they came under even moderate economic stress, such as a temporary layoff or a reduction in work hours.
3) California bubble?
Pretty certain, says one of our favorite contrarians, Dr. HousingBubble. He has another drill down on what’s happening in the California market looking at sales, rising inventories and other challenges on the West Coast.
4) The rate threat: We’re going to need a bigger boat
Not to toot our horn too much, but the next big threat to the housing industry is mortgage rates, and we explain why in this HW Magazine piece from our April issue.
5) Long live Johnson-Crapo!
Mark Zandi, chief economist at Moody’s Analytics, and author of “Paying the Price,” and “Financial Shock” says in the Washington Post that Washington can’t let GSE reform fizzle out, even though that’s largely what is happening, at least until after the mid-term elections. Along with Jim Parrott, Zandi makes the case for Johnson-Crapo, along with suggested tweaks to the bill.
6) Johnson-Crapo? I don’t think so
Meanwhile, Anthony Sanders, distinguished professor of Real Estate Finance at George Mason University, argues that Johnson-Crapo isn’t what’s needed. He takes a different view on what should happen with GSE reform.
Since there’s a markup session scheduled for Johnson-Crapo in the Senate this Tuesday, it’s probably wise to read up on as many perspectives as possible.