Housing Credit crunch OR Housing valuations?

Question

The media seems to pick up this "credit crunch" phrase as a way of summing up the downturn in many housing markets. In my view "valuation problem" would more acurately describes the situation.

I'm not pretending to be a genius, but I think this is simple. In the long-term (think decades) homes prices must average a ratio to medium household income; when this get's out of whack, it just has to come back to norm. Easy credit may be the cause, but "lack of credit" is not the problem. Investors make reasonable calculations when making loans, if they don't,,, well, they learn quick not to be a sucker. Anyway would you agree "housing valuation" should trump news headlines in regard to the housing market, not "credit crunch"?
Thoughtful replies apreciated.

Answer 1

great article in yesterday's online Fortune edition. [see link below]

article related prices to rents and historical averages of rent to price relationship. doesn't go so far as consumer income, and I've seen research which suggests that long term housing prices [and rents] are function of consumer income and government caused scarcity [think SFO and NYC].

some obvious adjustments come to mind -- jump in hurricane related risk (cost) in eastern coastal areas due to multi-year cycle in hurricanes, etc. [wildfires in SoCal?? maybe] [global warming?? NO].

If a seismic shift occurred in taxes in some area, that would likely affect prices as well. [suppose some state abolished income taxes and told local areas to tax real estate instead but had to get voter approval -- might be net tax increase on some types of housing.]

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still, to address your point directly -- looks to me [ex-banker] that both valuations and credit quality got out of control there.

in part, it is a positive feedback loop [which engineers know would be inherently unstable] -- poor quality lending leads to more purchasing demand which causes higher prices which raises valuations which leads to increased lending of yet poorer quality (because now both ability to pay and asset valuation are questionable).

one partial solution would be to impose valuation controls based on long term curve fitting and limit both taxes and mortgages to the long run value equation. then if/when prices exceed the long run values, mortgages would be limited to the fitted values and buyers would have to make up the extra price in cash -- which would damp demand pretty quickly.

I suspect that both the subprime and alt-a loans are pretty much history. Don't think there will be any/many buyers for such mortgages, or securities based on them, and thus there'll be far fewer such loans made. [If a mortgage broker can't sell it, he'd have to carry it himself for the life of the loan -- which isn't the business he wants to be in, so he doesn't do it at less than a truly premium rate WITH proven ability to pay.]

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and yes -- there is lots more pain to come in the financial industries. and home building. and mortgage insurance. and structured finance. and housing prices.

be warned and take care

Answer 2

i do no longer understand for my section, yet I somewhat have a chum who's an assets agent. He had to provide up his interest at Remax merchandising homes and now works on letting homes and helping rentors. apparently employer is booming for the reason that he's in simple terms taken care of himself to a sparkling BMW