OK, I’ll Be Chicken-Little

· long story short

Is A Housing Bubble About To Burst? Business Week
“If 30-year fixed-rate mortgages rise just one percentage point, to 7.2% from their current 6.2% … house prices would have to fall 11% to keep new buyers’ monthly mortgage payments from rising. If fixed rates went to 8%, prices would need to fall 20% to keep payments level….
“The ratio of house prices to median family income is a record 3.4,…19% above the 1975-2000 average,…As rates rise, a return to the long-term-average ratio would require housing prices to fall 19% — or incomes to shoot up an implausible 24%.
“… a decline in housing wealth dampens consumer spending at least twice as much as a same-sized loss in the stock market
“…economist at HSBC Securities Inc. (HBC ), estimates that housing prices nationally will slide 5% to 10% over the next five years. That could cause economic growth to slow to 2% by the second half of 2005 from 4% now, he predicts in a report called The U.S. Housing Bubble….
“The overheating is greatest in markets such as Los Angeles, San Francisco, San Diego, Washington, New York, and Boston. The takeoff in coastal real estate started around 2000 — suggesting that the speculative fever of the late 1990s did not die but instead jumped from stocks to real estate.
“…the lower rates available from adjustable-rate mortgages…leaves them fully exposed to rising rates. In fact, the rise in one-year adjustable rates since late March has already raised annual borrowing costs for new buyers by 25%.”