Wall Street Journal writer has it all wrong.
* * * * WARNING - HARD CORE REAL ESTATE TALK AHEAD * * * *
"The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now." CYRIL MOULLE-BERTEAUX, May 6, 2008
CYRIL MOULLE-BERTEAUX has some interesting statistics from which to draw his conclusion.
He correctly states that the peak of the housing boom was about July 2005. However, he believes that the downward trend is just no longer getting worse. Mr. Moulle-Berteaux came to the conclusion that the worse is over because:
- New Home sales are down 63%.
- Housing starts are down 50%.
- Residential construction is close to a 15 year low at 3.8% of GDP and getting worse.
Mr. MOULLE-BERTEAUX believes that the housing crises is over because we have reached a level of affordability. Mr. Moule-Berteaux, kindly tell me house the market has reached a level of affordability when, as he says, home prices have come down by 10-15% when, in fact, they increased in many areas by 100%.
Further, Mr. Moulle-Berteaux believes that, since mortgage rates have come down about 70 basis points from their highs, it makes financing easier for the present day buyer. Mr. Moulle-Berteaux, where have you been since last fall when Fannie Mae published the surcharges and higher down payments for home buyers. A 70 basis points reduction in mortgage interest rates will not put cash in a home buyer’s pocket.
Mr. Moulle-Berteaux believes that since the trend is slowing, the crises is over. Sorry, Mr. Moulle-Berteaux, I’m not sure that the trend is over.
Total properties listed in Montgomery County, Maryland.
- January 2008 - 5338
- February 2008 - 5722
- March 2008 - 6189
If this is a trend, no one has told the many home owners who need to see their properties.
Mr. Moulle-Berteaux further states: "The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do."
Mr. Moulle-Berteaux. "Because they always do" is hardly impirical evidence based on research. Sounds to me that Mr. Moulle-Berteaux is propounding theory for evidence.
Further, if you believe that "inventories of unsold homes have usually already started falling in absolute terms and begin to peaks out . . . . . " The facts do not support your theory. Inventory is still growing. Move up buyers are still unable to sell or unwilling to sell at today’s market prices. Further, financing guidelines are keeping many credit worthy buyers out of the market.
Mr. Moulle-Berteaux disputes that housing prices need to drop further on a theory that with today’s interest rates for a 30 year mortgage of 5.7%, makes home purchases easy. How, Mr. Moulle-Berteaux, can a home buyer buy a in Fairfax County with an average price of $868,235 for a detached single family home and obtain a 5.7% 30 year mortgage? Or, a better question would be, how much money would be required for a down payment?? Further, where is this fortunate home buyer going to find a buyer for his home with prices about 30% out of the range of the average home buyer’s income.
Mr. Moulle-Berteaux states: "This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity." I’m delighted that Mr. Moulle-Berteaux recnognizes the value of the housing market to the economic health of the U.S.
Mr. Moulle-Berteaux recognizes the "declining market" impact when market participants value property. "Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face."
Mr. Moulle-Berteaux further address the value of securitized mortgages that have caused write downs in the amount of about $300,000,000,000 in the past year. Mr. Moulle-Berteaux believes that the worst is over. I suspect that he is afflicted with wishful thinking.
Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
