This guy has experience in the mortgage industry, so that makes him an expert about housing demand.

Here’s the link:

http://www.pimco.com/EN/Insights/Pages/Are-There-Any-Rungs-Left-on-the-Housing-Ladder.aspx

My takeaways:

1. He ignores the fact that tough underwriting today has much to do with the lenders’ paranoia about buying back mortgages from Fannie/Freddie.  As we transition to private lending, the underwriting will make more sense.  You can already get a seven-year interest-only mortgage in the mid-4% range up to $2,000,000 with 20% down payment (and up to $1,000,000 with 15% down).

2.  He makes his whole down-payment case based on people saving the money from scratch.  What about the buyers who are using money from previous home sales, bonuses, inheritances, gifts, businesses, and sales of other assests?

3.  He notes that the average student borrows $23,118 to get their bachelor’s degree, to only then make $27,000 per year (the median salary for college graduates in 2010).  At that pace, college will stop being seen as the holy grail before long.  Thankfully there are plenty of folks who already have degrees and well-paying jobs who want to buy.

4.  Looming retirement will take older folks out of the buying pool, and/or cause downsizing.  I agree that downsizing is a major trend currently, and likely to dominate the landscape for the next 10 years.

5.  New regulatory hurdles could further impair the mortgage market, and in particular, the securitization of loans.  The banks who are willing to keep their loans will be in a great position.  Higher rates may result.

If demand dwindles, and sellers don’t want to lower their prices, then sales will drop further, and everyone will stay put.  Some will live for free for years, others will struggle to keep up, and most will forget about this crazy housing talk and go to the races!

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Jim the Realtor
Jim is a long-time local realtor who comments daily here on his blog, bubbleinfo.com which began in September, 2005. Stick around!

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