Two useful things to read about residential real estate.
First, check out this detailed Aleph Blog post by David Merkel:
The post offers many links to other stories addressing specific aspects of the mortgage crisis, so you can pick which parts of the story most interest (or scare) you and go from there.
Second, this post from Knowledge@Wharton
offers a thoughtful and thorough overview of how we got to where we are today, when the credit crunch from the mortgage industry threatens the broader economy. This one comes complete with historical perspective and comparisons between the US mortgage market and housing markets abroad. With all the daily hyperventilation and speculation about what’s coming next in the mortgage / real-estate / credit meltdown, this sort of perspective is quite tonic.
Category: Economics, Finance & Real Estate
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Hey, thanks for featuring me. The only thing I would add since the FOMC move is that marginally refinanceable real estate assets get some relief for now.
The continuing difficulty in the US residential real estate market is that the oversupply needs to be cleared, and there is not enough demand from people with prime credit to clear the market, until prices fall maybe 10-20% on average. That’s the overhang, and it should work out over the next three years, but with a lot of sturm und drang (translated — economic weakness and inflation).
That sounds about right to me, David. It strikes me that one part of the workout comes from the real estate inventories, as you say, and then another part of it comes from the financial sector, whose players have to figure out (better than they’ve done so far, anyway) what their exposure to bad loans (and exotic mortgage-backed instruments etc.) actually is. From what I can tell, these are the sort of positions that get unwound in a few months — there’s plenty of purging left to do, and it takes a while.