Housing Rescue=Housing Death
Earlier I pointed out that the massive spending from the housing rescue package was going to likely cause selling of dollars and interests rates to rise. Rising interest rates is going to inevitably have downward pricing pressure on housing.
But tonight, CABuilder pointed out another very important aspect of the bill....namely DAP(downpayment assistance programs) will be eliminated. The reason, because FNM states thay they have a 3X higher rate of defaulting.
Without passing judgment, eliminating DAP will take out a huge number of entry level buyers. Those buyers are needed to push existing sellers to larger homes. The amount of total sales lost will be very very large.
Without DAP, not only is the entry sale dead...so is the subsequent move up sale. In addition to DAP, the rescue bill is going to make it harder for almost everyone to qualify for a loan.
What's funny is that access to credit is drying up everywhere......Wachovia just shut down its PRIME wholesale lending business. Good luck gettng a HELOC right now. Or borrowing money to build or buy commercial real estate.
Basically, unless the project is already underway, little new construction is beginning. Just take a look at the archetectual billings for confirmation.
If you think about it, banks have relatively few places to make loans these days compared to just a few years ago. No Land Developments deals. Private equity is practially dead. LBO's are few and far between. No securitizing toxic debt.
Without making loans, there are few places these days for banks to make money. As a result, banks profits are tanking and are pulling back on lending even further.
For those that can remember, we didn't enter the Great Depression because the stock market crashed......we entered it because people and businesses couldn't access money.
Credit is the oxygen that drives the economy. As credit is taken away, the economy begins to suffocate....especially the real estate economy. As credit outlets continue to shut down.....so will the economy.
We are seeing shutting down everywhere....airlines, autos, Starbucks, commercial real estate, land development, banks, mortgage companies....expect to see a bunch more in the very near future as credit continues to contract.
Expect this rally to be fairly short lived.....those that really know what is going on really know how bad it is out there.