Good (partial) explanation of the economics of the mortgage meltdown
On her award winning daily radio program Fresh Air, NPR's Terry Gross recently interviewed NY Times financial reporter Gretchen Morgenson. It's most definitely worth a listen if you, like me, are trying to figure out a way to wrap your brain around how this whole thing happened and why it's having the ripple effects it's having. Unfortunately, Morgenson concludes that it's not over yet, and we still have quite a way to go before the hemorrhaging stops.
One interesting observation she shares is why the Fed's recent interest rate cuts don't seem to be finding their way into the mortgage rates that you and I go looking for when we want to refinance our mortgages. (For purposes of simplicity, we'll skip the discussion of the relationship between short term discount rates and long term mortgage rates.)
Basically, says Morgenson, it boils down to nothing more mysterious than the need for mortgage lenders to make back on the new "good" loans what they're losing on the bad loans they already made. She predicts that, eventually, the cuts will trickle down (remember that term?) to street level, though she doesn't suggest when that might be.
Meanwhile, here in Bay Area, while we are "blessed" with residential markets that seem to defy gravity better than most, we are still not completely exempt. Back in January, Carolyn Said, of the San Francisco Chronicle, penned a very tight summary of the current condition of the nine-county Bay Area, pulling her data from the real estate economics research firm Dataquick and Zip Realty.
Here are the bullets:
- Median home price: Down about 5% from a year ago, and about 11% from its July 2007 high.
- Sales volume down about 40% from its previous year's high.
- Inventory levels? Well, that question is hardly even worth asking given the answer. They're just up all over the place, from 23% to 99%, depending on location.
