I am beginning to feel that the US residential market is within 6 months of a turn around. If this does occur then it will act as a material counter weight to the global credit crisis and the world should start to see a much brighter second half in 2009.
My belief at this point is only based on circumstantial evidence, however as i see it:
1) Refinancing is on the upswing as interest rates decline. Even though the US federal reserve has been reducing interest rates since late 2007, its only been the in the last few months that residential lending rates have materially declined. Rates have declined 1.5% since October to 5.01% for the 30yr fixed. This is the lowest rate since survey records by Freddie Mac began in 1971.
2) Housing affordability is at its highest since 1972.
3) Stock of available housing has peaked and is now declining (albiet of very high levels).
4) Private equity is moving into the purchase of distressed loans from from the FDIC. The private equityfirm buys the distressed loans at a big discount on face value (around 30-50% of face value) but then renegotiates downwards the payment terms with the borrower to enable the borrower to keep their house. (This can be achieved profitably for the private equity player because they didnt pay face value for the loan). This will reduce the pool of future forced sales.
My belief at this point is only based on circumstantial evidence, however as i see it:
1) Refinancing is on the upswing as interest rates decline. Even though the US federal reserve has been reducing interest rates since late 2007, its only been the in the last few months that residential lending rates have materially declined. Rates have declined 1.5% since October to 5.01% for the 30yr fixed. This is the lowest rate since survey records by Freddie Mac began in 1971.
2) Housing affordability is at its highest since 1972.
3) Stock of available housing has peaked and is now declining (albiet of very high levels).
4) Private equity is moving into the purchase of distressed loans from from the FDIC. The private equityfirm buys the distressed loans at a big discount on face value (around 30-50% of face value) but then renegotiates downwards the payment terms with the borrower to enable the borrower to keep their house. (This can be achieved profitably for the private equity player because they didnt pay face value for the loan). This will reduce the pool of future forced sales.
