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Market taking a half day breather before next leg up.

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November 17, 2009 – Comments (3)

3 Reasons why the Bulls are in Charge:

Right now the bulls are in full control of the market. The trend to least resistance right now is up.

#1 Traders and Fundmanagers will be getting hefty million dollar bonuses this Dec. 2009  based on market performance many will show huge upside performance. Those bonuses will need a place to be invested.

#2 The FED. not only extended the $8k credit to first time home buyers but also added $6.5k credit to all other buyers as well. Housing problem is gonna get much better in 2010.

#3 Year over Year comparisons in Q4 will be dramatically better in Q4 which should cause the market to surge towards DJIA 12,000 by Jan. 2010.

 

3 Comments – Post Your Own

#1) On November 17, 2009 at 12:00 PM, brickcityman (< 20) wrote:

Out of curiosity, what indicators are you watching to determine when the trend changes?

 

For item # 1 I suppose theres not much you can tell unless of course you somehow determine that the "smartest guys in the room" are not putting their money where their mouth is.

 

For item #2 how much an impact are you expecting this to have on existing home sales and/or new starts?  In otherwords what would be your measure for saying its not having a strong enough impact 

 

For time #3 The pschology of 52wk comparisons cannot be disregarded I agree.  So does it come down to forward looking guidance?

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#2) On November 17, 2009 at 12:13 PM, davejh23 (< 20) wrote:

#2 Housing problems are going to get MUCH worse in 2010.  Sales will weaken through the Winter with or without the extended credit...as the credit expires in the Spring, housing will not show much strength...although sales will pick up some from the Winter.  Mortgage rates will be significantly higher than they are now...if not in 2010, certainly in the following years...affordability will fall by at least 20-30% with mortgage rates increasing to 7-8%+.  At the same time, FHA is talking about ditching the 3.5% down program...5% down would be the new minimum.  For those using the $8,000 tax credit for their downpayment, max price falls from $228K to $160K.  After the tax credit expires, those getting FHA loans with their own down-payments still see a 30% reduction in purchasing power.  This is a good portion of the overall market, and it will cause home prices to continue to fall.  With rising interest rates and the FHA changes, affordability could easily fall by 50%+ for an entire class of buyers within the next couple of years.  Many subprime foreclosures haven't been unloaded yet, and another huge wage of foreclosures is expected to hit in 2010/2011...and this doesn't even consider the effect of unemployment on new foreclosures. 

How do you see housing being "much better" in the near future?  Considering everything that housing has stacked against it right now, I would be more likely to bet that housing doesn't reach previous highs for 10+ years.  Even 5 years from now, I could see housing below current "distressed" levels.

Of course, this is speaking generally.  Some areas didn't experience the boom, and won't suffer as much...they will still be affected by reduced afforability due to higher interest rates and tighter lending standards though. 

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#3) On November 17, 2009 at 1:36 PM, jason2713 (< 20) wrote:

FHA stream line loans (strict refinancing) are not requiring what a full documented loan needs, and will not let you roll in the closing costs into the loan.  This could be cost prohibitive to a lot of people needing to refinance.

The 5% down for FHA is now implemented, as well as a credit score minimum being raised 2 times in 2 months (went from 620 to 640 to 660).  

The only reason I know this is my fiance is a mortgage processor, she has been dealing with more and more headaches to get these "streamlined" loans, which used to just require a deed, ID, signature, and credit score. now you need everything you basically need for a full doc'd loan.

Lending standards even on the FHA, VA loans are getting much tighter.

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