Continued Ramblings about Subprime
During my daily reading today several things stick out to me as very important. Let's review these so that they are in your thinking too.
The Chief Economist at Moody's Economy.com, Mark Zandi, makes this forecast:
- Home prices nationwide will fall 10% from their recent peak.
- It will likely be 2010 before we are back in a "normal" housing market.
- About 20% of the subprime loans made in 2006 will fail with the peak of the defaults not coming until 2011.
- Consumer spending is slowing and will slow further.
Think about these forecasts for a moment. When you look around your neighborhood and local real estate market, what is the mood? What is happening to home prices? Do you feel like you have more or less disposable income today compared to a few years ago?
On another note, we are entering a new technical reality in the way that mortgage bonds (mortgage-backed securities) are trading. This new technical landscape goes hand-in-hand with the volatility and uncertainty we are seeing in today's credit markets.
Easy money, greed, and stupidty have brought about some longer-term problems and risk that our economy faces, the extent of which are not yet known.
One good side effect might be a swift drop in the Fed's Overnight Rate as they feel the need to step on the gas and inject liquidity back into this market. How hard they press on the gas pedal is the big question?
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