They’re looking forward to a healthier 2010.
The recent report by the American Bankers Association speaks of a less chaotic housing market scenario in the months to come. It states, “However, even with more potential credit available, it is likely that a normal growth environment cannot resume until the housing markets have stabilized and prices end their decline so that financial assets do not continue to deteriorate, keeping lenders and investors risk adverse, and would-be home buyers end their wait on the sidelines trying to avoid a falling knife. If capital markets are able to continue to improve, this combined with declining home prices has caused home ownership affordability to improve greatly. Once a bottoming is generally perceived, it is likely that there will be some significant pent-up demand to fuel a housing recovery.”
This is a more credible projection that we’ve come across in the past months. The ABA’s economists have come up with a more detailed explanation of their judgments. Here are the following points from the report that we some comments about:
1. The large class of Alt-A mortgages that are scheduled to reset this year
2. The high amount of foreclosures that continue to depress the market
3. The lack of sufficient equity of homeowners currently underwater that will not allow them to refinance into fixed-rate mortgages.
However, some things have changed since the group culled their data. First, mortgage rates have inched above 5 percent. Definitely, the higher the rate goes, the more it will be difficult for currently distressed homeowners to get out of their situation. Second, it doesn’t mean that every time Alt-A mortgages reset, the banks are all that worried. In reality, these institutions benefit from this scenario. (Read our related post here). Finally, bankers have lost the trust of Americans after they mostly take the blame of this crisis. Now, who would believe in their sunny projection? Only when we reach next year will we know if they can redeem their reputation.