House Prices Fall Worldwide

Intro
Hello. I'm Bernard Hickey with the daily briefing from interest.co.nz...
Today, we'll look a bit more closely at what the Reserve Bank is saying about house prices and the willingness of banks to lend in the midst of this credit crunch,

And we'll look at the latest development in the turmoil on global credit markets. This time it's all about Fannie Mae and Freddie Mac. They don't sound like serious names, but this is a serious problem. It's worth the wait.

Story 1,
But firstly, we look a bit more closely at what the Reserve Bank said yesterday about house prices. A few comments were made that were buried under the headlines about steady interest rates and slowing economic growth.
The Reserve Bank reckons house prices will fall by an average 5% in 2008 and probably be stable in 2009.
But Reserve Bank governor Alan Bollard has warned that there is a risk that house prices call fall much more sharply.
He says there has been a tightening of credit conditions among banks, who are being more cautious about how they lend to businesses and consumers.
The Reserve Bank also reckons that house prices are 20-30 per cent over valued in real terms.
That could either mean a sharp correction of prices in the next year or two or a long slow catch up where actual prices don't move but inflation of 2-3% a year for a decade or so whittles away that over valuation.
There's even some discussion on propertytalk.com that we might not see any more capital gains for property investors for 50 years.
Story 2
Now for a story about Fannie Mae and Freddie Mac.
These are the mortgage providers in the United States who cater for lower income people. They were set up by FDR in the late 30s. The idea is that they provide the finance to a bank or mortgage provider for lower valued properties and then they break those mortgages up into securitized parcels and then sell them on to investors.
Because they were set up under a government mandate the assumption is that they're backed by the government.
They are now absolutely huge and responsible for so-called agency loans totaling 4.5 trillion. That's 37 times bigger than the value of New Zealand's economic output each year or about a third of the size of America's GDP.
Up until now they've been seen as safe and they're AAA rated.
But now there's some real nerves around this sector. A mortgage bond fund run by the Carlyle Group defaulted on some margin calls last night.
The US Treasury also helpfully reminded people that Fannie Mae and Freddie Mac don't actually have a federal guarantee. This unnerve US stock markets.
The nerves are growing because of the sheer ugliness now being uncovered in US housing markets. Almost 1 in every 100 home loans in America is now being foreclosed on. Almost 5% of every homeowner in America is behind on their payments. House prices have fallen 9% in the last year.
No wonder there is a global credit crunch that is driving up interest rates as far afield as New Zealand.




I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Catch you on Monday.

Category:

News & Politics

Tags:

• new
• zealand
• interest
• rates

[ofInterestNZ]

We don't block comments, I think it was related to the YouTube scheduled maintenance.

[flagship21]

canada is going up like crazy

[JYTILLIER]

Are those curves based only on the current houses up for sale or all the houses in the country?

If only the old dirty houses remains, isn't this curve going to decrease?

If the builder only built affordable houses during 3-4 years and no large expensive houses, isn't this curve going to decrease?

[nlikos2007]

Why house money going up? Fuck! Before long time it was $95,000 and now it's $300,000! Man, That's suck!

[nokilt1]

nobody bothers to mention that greedy stupid people over extend themselves and buy right at the very maximum amount they can get approved for

we spent only 75% of what we were pre approved for, and put more than 25% down

we could have paid it all, but left money invested in multiple ways and cash available for repairs and a rainy day without hitting our savings

its called being frugal

dont spend it everytime you get it

have a long term plan

long term planning people

not banks fault..yours

[OneStopView]

A very informative video listing, enjoyed watching it. Very well made mate....... regards, Chris.

[ourearthhome]

The housing bubble is a land speculation bubble. The real estate for investment and profit game is a land speculation game because it is only the value of land/locations that appreciates. Land value is 100% created by the community as a whole so when private individuals cash in on increased land values they pocket a value they do not create. This is the free lunch in economics of which there isn't supposed to be any.  Pimp your Mother Earth and pay the price. Google "Henry George".

[zammel777]

Why did you block comments Yesterday? It was a great interview.

Thanks