Monday, October 09, 2006

Alan G or Ali G?

"There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year relative to 2005. I don't know, but I think the worst of this may well be over"
Someone must have shown Alan G. the housing video, because it looks like he's asking to be included. I know I'm not an 'expert' on these things, like A to the G, but the fact that the mortgage activity was up does not necessarily mean that all is well. He's basing this, in part, on some recent reports by the MBA saying mortgage activity is up. From the MBA web site:
The refinance share of mortgage activity increased to 44.5 percent of total applications from 43.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 29.8 percent of total applications from 28.8 percent the previous week.
Now, if you add those together, you see that ARM and refi activity accounted for 74.3% of the total applications. Does that sound like a healthy market to you?


That looks like a lot of people in trouble. I expected the refi activity... after all, a bunch of people are getting reset now on their ARMs, and their payments are blowing up. They want to take advantage of the low rates in order to try to stay afloat. But the ARMs? A bit surprising. ARMs are a big part of the reason that people are in trouble to begin with. But, as they say, desperate times call for desperate measures.

Anyway, if I'm reading the article correctly, the fact that almost 75% of activity was in refi and ARM products does not sound like the end of the bubble. It sounds like an indicator that the ish is about to hit the fan.

When? Who knows. Bubbles ALWAYS last longer than people predict. But, don't believe the hype... just because mortgage activity is up does not mean all is well. The type of activity is a key indicator of the underlying conditions, and if we are seeing refi's and ARM's products blowing up, then you can be sure more and more people are feeling the squeeze, getting desperate, and trying to stay above water.

Alan G or Ali G? Either way, the joke is on us. At least we know that MC Greenspan does a mean Irving Fisher impersonation.