Everyone wants to know about housing and the economy. Is the sub-prime lending issue something that will extend to other mortgage classes? How much might home prices fall? Will the impacts lead to reduced consumer spending and an even greater economic effect?
Doug Kass, the popular hedge fund manager noted for his skill in short selling, has been one of the leading voices on this topic. His view is that this is a major economic problem and one that will affect the home prices and portfolios of individual investors.
http://usmarket.seekingalpha.com/article/30779Quantifying the Impact of Tightening Credit
I would conservatively estimate that about 55% of the subprime borrowers, 25% of the Alt-A borrowers and 15% of the prime mortgage lending borrowers will no longer be able to secure financing for new homes because of tightened conditions. (This will produce about a 25% drop in housing demand). Speculators and investors - who were responsible for nearly 20% of all home purchases in 2004-06 - will also find it more difficult to secure borrowings and it is likely that this buying category will revert back close to their historical demand role of about five percent of all homes. (This will result in another 10%-15% drop in housing demand). Finally, end of economic cycle conditions (lower consumer confidence, slowing economic growth and moderating job growth) should contribute to another 10% drop in housing demand - as it has done historically. In total (adding the above three influences), new home demand should fall off by almost 50% (vs. the rolling 12- month average showing a 17% drop off in 2007) - even before the effect of a market inundated by record foreclosures is considered.
http://www.thestreet.com/i/dps/te/theedge1.html
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