This is NYT hype. My 76 year old widowed mother just re financed her house 4 days ago with a $1200 a month income. Her rate was 7 3/8% in Texas. I can write articles all day long about how a bank won't finance a jumbo loan for 6% if the property is $300 a ft and the guy has nada to put down on it. Yes, those days are most likely over for awhile. The world won't come to an end if the bank requires 5% down, that you have good credit, you have a job, and the price of the house reflects the current market conditions.
The economy is booming right now, 80% of companies reporting are beating their estimates, the market JUST hit an ALL TIME HIGH, and it's August. The market is looking for a reason to go down right now.
If unemployment goes to 6%, inflation goes above 3%-4%, or we get another attack, or the worst of all, the Dems take the white house, then I'll worry.
Its not NYT hype... capital contractions, especially this big are not minor blips. Are there doom and gloomers sure?
But the contraction is NOT just the mortgage paper, its a global overall contraction... what does this mean? Does it mean no one can get a mortgage? of course not, but it means fewer people will.. but that’s not the real problem.
The problem is capital contracts, that means needing it gets more expensive..... and for your mom, willing to pay nearly 8% when at one time it was 6% isn’t the end of the world. However if you are an overleveraged business (which many are anymore) and you find your financing rate jumps 2% on Billions of borrowed money, your profitability overnight turns into losses. Just because you cashflow positive today, does not mean you will tommorrow, particularly if you are tied to short term fluctuating debt. Also, even if your existing debt is fixed, when you need more capital in the future, your rate is higher, further harming cashflow.
This isn’t just mortgages, and its not just NYT hype (though I don’t believe its the end of the world, it is a big big problem). To put it in perspective, the S&L Bailout lost about $125 BILLION and anyone who lived through it can tell you that wasn’t just in S&L’s, but caused issues throughout the economy. Current estimates on this one are $200 BILLION... and honestly I believe without question these estimates are FAR TOO LOW.
You can continue to believe this is just a blip if you wish.